About thirty years ago, a brash, young Harvard professor named Michael Porter burst onto the scene arguing that operational effectiveness alone wouldn't sustain long-term value.
Obsessing over the details of zero-defect production was, Porter argued, an inward-looking focus. Instead, a strategic perspective was needed that identified the forces shaping the competitive environment. Analyzing those forces and deciding between the choices they demanded was where managers should be investing their time and energy.
Below is a link to Porter's article about these forces. It would not be an understatement to say it started the "strategy industry." It's not too soon to be introduced to Porter and his "Five Forces." You'll see plenty of him and his work before your college days are over.
This article isn't a "page-turner" like your favorite murder mystery. Print it out and read a little bit at a time. It's packed with ideas that can't be absorbed all at once.
Also below is the "Five Forces" model in its expanded version. This also takes a little study. Start with each of the Five Forces:
1. Relative Market Competitiveness: What is the degree and extent of the market's competitiveness? Is rivalry intense? Are profits high or low?
2. Threat of Entry: How easy or hard is it for new competitors to enter an industry? What are the barriers? How strong or weak are they?
3. Supplier Groups: Suppliers can influence an industry's competitiveness by raising prices or reducing the quality of goods and materials they supply to producers. What is the relative stability of supplier/user relationships?
4. Buyer Groups: Like suppliers, buyers can be powerful forces if, for example, they represent a major portion of a seller's revenues. What would be the impact of the current "credit crunch" on your largest customer if they depended on extensive bank borrowing?
5. Substitute Products: How easy or difficult is it for customers to switch to an identical product? What might happen to your market share if a generic product began selling at one-tenth the price of your product?
Look at the elements of each force and consider which might dominate the choices a competitor might need to make. Making choices in the context envisioned by Porter's Five Forces is strategic decision-making.
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