The Explainer: Porter’s Five Forces

The competitive forces that shape strategy — in under two minutes. For more, read “Understanding Michael Porter: The Essential Guide to Competition and Strategy.”

 

People make it happen

People watch it happen

People who wonder what happened

 

Strategic planning is an organization’s process of defining its strategy, or direction, and making decisions on allocating its resources to pursue this strategy. It may also extend to control mechanisms for guiding the implementation of the strategy. Strategic planning became prominent in corporations during the 1960s and remains an important aspect of strategic management. It is executed by strategic planners or strategists, who involve many parties and research sources in their analysis of the organization and its relationship to the environment in which it competes

 

Owners mindset

-prepared to trust others

 

Michael Porter wrote in 1980 that formulation of competitive strategy includes consideration of four key elements:

  1. Company strengths and weaknesses;
  2. Personal values of the key implementers (i.e., management and the board);
  3. Industry opportunities and threats; and
  4. Broader societal expectations.

 

You can not do strategic planning on your own, unless you are the only person in the business.

 

TOOLS

A variety of analytical tools and techniques are used in strategic planning.[1] These were developed by companies and management consulting firms to help provide a framework for strategic planning. Such tools include:

  • PEST analysis, which covers the remote external environment elements such as political, economic, social and technological (PESTLE adds legal/regulatory and ecological/environmental);
  • Scenario planning, which was originally used in the military and recently used by large corporations to analyze future scenarios. The flowchart to the right provides a process for classifying a phenomenon as a scenario in the intuitive logics tradition.[6]
  • Porter five forces analysis, which addresses industry attractiveness and rivalry through the bargaining power of buyers and suppliers and the threat of substitute products and new market entrants;
  • SWOT analysis, which addresses internal strengths and weaknesses relative to the external opportunities and threats;
  • Growth-share matrix, which involves portfolio decisions about which businesses to retain or divest; and
  • Balanced Scorecards and strategy maps, which creates a systematic framework for measuring and controlling strategy.
  • Responsive Evaluation, which uses a constructivist evaluation approach to identify the outcomes of objectives, which then supports future strategic planning exercises.

 

Currently there are 4 people in employment for 1 unemployed now

There will be 2 people in employment for 1 unemployed by 2050

What will be work life balance, pension age etc then?

Unless we build a different society now

 

COMMON ISSUES IN STARTUPS

 

  • Cash flow
  • Regular custom
  • Limited resources
  • Time constraints
  • Single skillset
  • Time management
  • Consistent processes

 

COMMON ISSUES – SCALE UPS

 

  • Financial management
  • Restrictive structure
  • Time constraints
  • Single skillset
  • Time management
  • Consistent processes and systems
  • Plan (medium-long)
  • Resource planning
  • Targets
  • Identify help needed

 

COMMON ISSUES – MATURE BUSINESS

 

  • Scalability
  • Branding
  • Competition
  • Structure
  • Control
  • Skills

 

Avg size of business in the UK 8-9 people

Backbone of the economy

 

ISSUES – EXITING

 

  • Hand-overs
  • MBOs
    • A management buyout (MBO) is a transaction where a company’s management team purchases the assets and operations of the business they manage. A management buyout is appealing to professional managers because of the greater potential rewards and control from being owners of the business rather than employees.
  • 3rd party sale
  • Consultancy – succession
  • Future income stream
  • Maximize sale value

 

ISSUES – WHEN IT GOES WRONG

 

  • Look in the mirror
  • People
  • Communication
  • Processes
  • Money
  • Markets
  • Brand
  • Infrastructure
  • Product / service

 

WHAT IS STRATEGIC PLANNING

 

  • Where are we now?
    • Thorough assessment
    • You can do a workaround at times. Then this workaround becomes a formal process. Then it is in the blind spot.
  • Where do we want to get to?
    • 5-10 years time scale
  • How do we get there?
    • Actions and timescales
  • How do we know if we’re on track
    • Monitoring
    • On going process

 

Strategic plan is your conveyor belt, taking you to strategic objectives

Business plans are shorter term plans

 

Importance of staff knowing your strategic plan

 

APPROACH TO STRATEGIC PLANNING

 

  • Planned environment
  • Resource led
  • Competitive advantage
  • Organic (learning/adaptive)
  • Pick the right things to monitor

 

WHY DO I NEED A STRATEGIC PLAN

 

  • Clear direction
  • Route-map to get there
  • Clear investment plans
  • Customers and employees know
    • What the business will provide
    • How the business will provide it
  • Build emotional attachment
  • Involvement

 

WHAT IF I DON’T HAVE ONE

 

  • Static business
  • Always firefighting, everything short notice and short term
  • Drifting away from core customers, more special offers
  • Managers and employees have different aims and expectations
  • Employees and customers feel no affection for the business
  • No development programme, employees keen to move on
  • No risk assessment
  • Cash flow
  • Customer service
  • Not prepared for anything

 

HOW DO WE CREATE OUR STRATEGIC PLAN

 

  • Strategic analysis
    • Internal strengths, weaknesses, structure, scale, ambition, resources
    • External opportunities, threats, competition, markets, environment
  • Strategy choice
    • Produce half a dozen strategies and select the one best fits
    • Aims, identify options, evaluate, select (suitable, feasible, acceptable)
  • Strategy Implementation
    • Changes, resources, culture, funding, timescales
  • Performance & Delivery Management
    • Responsibility, monitoring, reviews

 

If you are stuck in the middle, you won’t go anywhere

 

Value proposition canvas

 

FURTHER READING

 

Value chains

Force field analysis

Ansaf

 

Instructor, Keith

https://www.mistral-associates.co.uk