Strategic analysis and implementation focuses on the way managers develop strategies to achieve company goals. Porter’s Five Forces is a business analysis model that helps to explain why different industries are able to sustain different levels of profitability.
The forces are frequently used to measure competition intensity, attractiveness and profitability of an industry or market. These forces are:
- Competition in the industry;
- Potential of new entrants into the industry;
- Power of suppliers;
- Power of customers;
- Threat of substitute products.
Competition in the Industry
The importance of this force is the number of competitors and their ability to threaten a company. The larger the number of competitors, along with the number of equivalent products and services they offer, the lesser the power of a company. Suppliers and buyers seek out a company’s competition if they are unable to receive a suitable deal. When competitive rivalry is low, a company has greater power to do what it wants to do to achieve higher sales and profits.
Potential of New Entrants into an Industry
A company’s power is also affected by the force of new entrants into its market. The less time and money it costs for a competitor to enter a company’s market and be an effective competitor, the more a company’s position may be significantly weakened. An industry with strong barriers to entry is an attractive feature for companies that would prefer to operate in a space with fewer competitors.
Power of Suppliers
This force addresses how easily suppliers can drive up the price of goods and services. It is affected by the number of suppliers of key aspects of a good or service, how unique these aspects are, and how much it would cost a company to switch from one supplier to another. The fewer the number of suppliers, and the more a company depends upon a supplier, the more power a supplier holds.
Power of Customers
This specifically deals with the ability customers have to drive prices down. It is affected by how many buyers or customers a company has, how significant each customer is, and how much it would cost a customer to switch from one company to another. The smaller and more powerful a client base, the more power it holds.
Threat of Substitutes
Competitor substitutes that can be used in place of a company’s products or services pose a threat. For example, if customers rely on a company to provide a tool or service that can be substituted with another tool or service or by performing the task manually, and if this substitution is fairly easy and of low cost, a company’s power can be weakened.
A top-down implementation, with policies and procedures developed by management, is common, but a critical analysis shows that a bottom-up process improves results.
The following are the steps one can take to improve strategic analysis and implementation;
- Translate the strategy into specific strategic objectives (for each unit and/or department)
- Create specific clarity around your organization’s leading goals. For instance, within your “Customer Objectives” the goal may be to “grow sales”
- Management consensus – management must know howit will grow sales before your people will know how to achieve this goal
- Identify measures that indicate how to track progress
- Identify targets that quantify the measure
- Establish deadlines for achieving incremental target goals
- Communicate the goal, educate and inform your people about this goal
- Work with your people to define and regularly measure and refine the activity required to achieve deadline driven goals and targets
- Identify resources, people and processes that need to be linked, developed or refined to support goal achievement
- Provide consistent, regular reviews, feedback and learning