Techniques for Analyzing Industries and Competitors" in The model is widely used to analyze the industry structure of a company as well as its corporate strategy. Porter identified five undeniable forces that play a part in shaping every market and industry in the world.
The forces are set in opposition to each other to describe who has the power to extract significant profit by examining influences sales prices and structural costs.
But what if there is a shift taking place, where the macro forces that started in information technology and are disrupting business structures could allow us to turn this paradigm upside down?
Are there instances where these forces can be profit-accretive rather than profit-destructive? If the answer is yes, then finance has to re-evaluate its valuation models to capitalize on these relationships to derive value for its business.
Through their size they can command volume discounts, or through competition they can easily shift to other sources. Walmart can demand low prices for its goods because it buys in huge quantities. Businesses can partner with your customers and integrate the information they provide through direct purchases, browsing history or social media comments.
Customer acquisition is multiples more expensive than retention, so lifetime value models may indicate a company accept lower margins on individual transactions.
Suppliers can exercise power when there are few substitutes, or there is high concentration, or a high cost of switch to other suppliers. Vendors are embedded in the company and often tightly integrated in the supply chain of information and logistics.
In some cases, they simply take over what you need. How do you move them the value chain with them? The low-cost provider may not deliver as much long term value as a willing partner. Higher integration also increases costs to switch suppliers, which may lock you into suppliers.
Profitable industries, or those ripe for disruption, will attract competitors, relative to the ease of getting into the market.
Old walls that once defended industries are falling quickly as it is easier than ever to disrupt technology and scale barriers. Strategic acquisition is as much a part of your strategy as research and development, and therefore can be as much a part of your capital strategy or investment portfolio.
For more mature companies, incumbent status may be a detriment because established processes and high hurdle rates on the existing portfolio limit the ability to be agile and risk-taking on new opportunities.
Is your investment analysis process limiting innovation? Partnership deals with new entrants may combine competencies; be sure the business case includes learning new capabilities. Examples include your mobile phone replacing digital cameras, compact discs, even computers and televisions.
Over time, the lines between new entrants and substitutes has blurred—new entrants may disrupt old industries through substitution.
This is especially true where vaporization, meeting customer needs through software-delivered services that once could only be met with tangible goods. The companies creating substitute products may be new to field, so the response is similar to that of new entrants.
Acquire the disrupting company to for its technology, methods or people. Internally, it may be useful to develop a venture capital approach of funding some risky, potentially disruptive ideas through a stage-gate process to gain learnings and test theories.
Self-disruption may require lower returns on investment; be sure your investment processes is not leading you to favor incumbent products over disrupting substitutes.
Competition between numerous strong or aggressive rivals mean that it is hard to outmaneuver and differentiate.
A traditional example was retail clothing stores, where several large department stores competed ferociously. Development of rival technologies or platforms upon which services can be offered can be a huge risk. Industry consortia can help to set standards to develop an ecosystem where all can thrive.
Is there a sustainable competitive advantage? Working with these forces or working against them creates opportunities as well as stresses.
It can review the competition within the published this. A new report from Ernst & Young Global Limited titled “Transforming banks, redefining banking” was published this week.
The report argues that “five forces for change” are already disrupting banks’ traditional ways of doing business, and that these forces will result in an almost complete transformation of the global banking industry over the next few years.
The concept of Attractiveness in Porter’s five forces model. The key driving force behind Porter’s five forces model is to determine attractiveness of the industry. An industry is said to be attractive if the five forces are arranged in such a manner that they drive profitability. About heartoftexashop.com heartoftexashop.com is a collaborative research and analysis website that combines the sum of the world's knowledge to produce the highest quality research reports for over 6, stocks, ETFs, mutual funds, currencies, and commodities.
Porter’s Five Forces Model of Competition The Innovators: How a Group of Hackers, Geniuses, and Geeks Created the Digital Revolution Dispatches from Pluto: Lost and Found in the Mississippi Delta5/5(1).