Competitive forces and Strategy

Written January 10th, 2008 by
Categories: CEO's Blog
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I just received my copy of this month’s Harvard Business Review. It’s an issue dedicated to Leadership and
Strategy and is quite timely reading as we kickoff our first full year in
business.

Of special interest is Michael Porter’s updated 1979 classic
article on “The Five Competitive Forces that Shape Strategy” by Michael Porter.
It’s a compelling framework that I’ll
use to analyze b2b2dot0’s competition and to articulate our overall corporate
strategy.

In this posting I’ll set the groundwork by reviewing Porter’s
overall framework. In future postings I’ll analyze how each of
the individual five forces apply to b2b2dot0.

To begin with, the real power of the Porter framework is
that it broadens our context to view the competition in our industry beyond our
obvious head to head competitors. As the
following figure illustrates, Porter would have us look in five different
directions in order to map out the competitive forces in our industry…B2B
eCommerce.

5forces_2

  1. Existing Competitors – those are the companies that any of our potential customers would immediately put on the “short list” when evaluating a solution to their B2B eCommerce challenges.
  2. Bargaining power of buyers – this is high if there are only a few buyers, product offerings are relatively undifferentiated, and switching costs are low.
  3. Bargaining power of suppliers – this is high when there aren’t many suppliers, they don’t count on anyone customer or industry for a significant portion of their revenues, and switching costs are high…(think Microsoft or SAP here).
  4. Threat of substitutes – this is high when the alternative product is of higher value and the switching costs are low… (think Skype for long distance phone calls).
  5. Threat of new entrants – this is high when the barriers to entry are low and the expected reactions by the incumbents are low… (think of Apple’s entry
    into the music distribution business).

So those are Porter’s five forces. It’s time to map them to b2b2dot0’s context.