On a high shelf in my study are the books I rarely refer to. Some turned out to be a disappointment after I bought them, but some, however, are old friends. It’s just that I no longer need to refer to them much.
Years ago, when I was asked to develop a seminar on business strategy, three of them were my constant companion as as I thought through and planned the session. And the first model I thought of back then features at the start of Chapter 1 of one of those books, Michael Porter’s ‘On Competition’. This is, by the way, a hefty hardback (lovely to use).
I’ve been re-reading parts of it in preparation for a new seminar: ‘the Three Hour MBA’.
The same model appears in the delightfully neat ‘Strategy Pocketbook’ by Neil Russell-Jones. In it, Jones describes Porter as ‘one of the most influential strategic thinkers and writers’ and his classic book ‘Competitive Strategy’ is required reading on just about every MBA course.
Porter’s Five Forces
Not surprisingly, Michael Porter starts his book (which collects a dozen or so of his best articles) with the model that bears his name: Porter’s Five Forces.
Porter analyses the basis of the power behind each of these five forces, and the barriers to entry of new players or substitute products. The model forms a basis for developing a strategy that positions your company and influences the forces around it.
Porter suggests three generic business strategies to position your company to take advantage of your competitive environment.
Perhaps Porter’s model is showing its age. In the 1980s, the world seemed a simpler place. Now, we understand far better, how inter-connected things are. Suppliers are dealing directly with customers and business are making ever-more complex alliances. How does access to capital (the last couple of years worth of headline news) affect competitive forces, and what about other resources, like people and energy? And what are the affects the forces of social responsibility and regulation?
So here’s the deal
Porter’s Five Forces is an entry level strategy tool. It is a valuable insight into the workings of a competitive market and a great starting place. But do consider the lessons of Richard Rumelt, who argues that a good strategy starts from a robust understanding of the situation, with which this model can help, but needs much more in addition.
Some Management Pocketbooks you might like.
Neil Russell-Jones’ Strategy Pocketbook is stuffed full of handy tips and strategy planning tools, including Porter’s Five Forces and a ‘competitive intensity’ tool that is based on it. It also has lots of other valuable tools and models.
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