Porter’s Five Forces: Is what you learned (and forgot) in school still applicable?

Ok, so you remember Porter's Five Forces from your college days, yes? If you went for an MBA, then you learned about it twice.

Which means you probably forgot about it twice :)?        

Porter’s framework is a staple in college education, but it’s rarely thought about in the business world.?

Well, let’s change that a bit, shall we?

Let’s talk about how it applies in today's business environment—AI at work, anyone?—and then let's layer in a few new bits.

How can Porter’s classic model be reimagined and even integrated with your current processes in the office, and how can we spin that so it gives you an edge in today's fast-paced business world?

Ahh, The Classics. Here’s A Quick Refresher

A quick recap Porter's Five Forces:?

1. Rivalry among existing competitors: Coke vs. Pepsi, Lowes vs. The Home Depot, Kidde vs. First Alert, Johnson Controls vs. Honeywell

2. Threat of new entrants: Remember when Tesla shook up the auto industry? And when Android stepped into the smart phone market?

3. Bargaining power of suppliers: Intel's influence over PC manufacturers

4. Bargaining power of buyers: Amazon's advantage when dealing with book publishers

5. Threat of substitute products or services: Netflix dominating traditional cable TV and Blockbuster. Poor Blockbuster.?

Ok. Pretty straightforward, right? I'm remembering midterms and finals and kicking myself for being so nervous on test day for such easy concepts. But, c'est la vie. We’ve all been there.?

Porter’s Five is helpful, sure, but it’s not the full picture.

What has the world seen since Porter’s model was?introduced in 1979?

The 80’s and 90’s NASA era. The Berlin Wall fell. The Cold War ended. 9/11. The rise of the internet. Internet 2.0. Did 3.0 ever happen? Smart Phones. Social media. The gig economy. And most recently, artificial intelligence.

These and so many other seismic events have structurally, foundationally, and fundamentally altered how businesses start, operate, live and die, and compete.

These worldly changes don't make Porter's Five Forces irrelevant. Not in the least. Rather, it begs a more nuanced approach to how we see our business world today.

Expanding Your Toolkit

Let's bridge the gap between our current business landscape and Porter's original Five Forces by layering in a few new buzzwords.

Let’s build a different perspective. Here’s what I mean:

1. Resource-Based View (RBV): This focuses on internal strengths. Think about Tesla's brand power and technological edge. Did you know they just gave everyone free self-driving for a month as a marketing stunt? Marinate on that for a sec.

2. The Delta Model: All about customer stickiness. Amazon Prime is a perfect example—once you're in, it's hard to leave. It’s like every major player these days has a full ecosystem that they want you to join.

3. Blue Ocean Strategy: Creating new market spaces. Cirque du Soleil didn't just compete with other circuses; they created a whole new category of entertainment. Instead of battling it out in a bloody "red ocean" full of existing sharks, you and your org should strive to create "blue oceans" of uncontested market space and be the kings of those waters.?

So, there you have it. Three new buzzwords for you to wield over the next few months.         

Each of these is a profound approach that can complement and enhance not only your understanding of Porter's Five Forces but the direction you and your org are headed in.

The RBV asks you to look inward and identify your orgs unique capabilities.?

The Delta Model shines a light on the importance of your relationship with your customer.?

And the Blue Ocean Strategy pushes you to think beyond the existing market, its boundaries, its players, its locations, its make-up—everything.

Think of the 3 as: who are you? who are you with? and where are you going?

Layer in these questions into your day job. You'll do well to leverage and integrate as you work at building a holistic view of your competitive landscape.

You need a multi-pronged approach to win. And here it is. It’s not just about responding to your orgs existing market pushes and pulls, it’s about being the key player to proactively shape your business’s environment, the space they play in, the products they bring to market, their mindset, and their culture.?

So when the recent MBA grad pops up a slide that talks about Porter's Five, you can ease in a smooth "Have you thought about RBV, the Delta Model, and Blue Ocean Strategy?"

Be the Force that Shapes Your World

I heard a quote once. Maybe I saw it on a shirt or something:?

“Be the person who brought guac to the party”

Here’s the guac you should be brining:?

1. Digitalization: It's not just about having a website or an app anymore. Digital transformation is touching every aspect of human life, including business. If a farmer can use IoT, you can use a SharePoint List instead of an Excel spreadsheet.

2. Globalization: Geographic boundaries are blurring. A small startup in Bangalore can compete with tech giants in Silicon Valley. Ever hear of “death by a thousand papercuts?” Imagine if a thousand tiny orgs competed directly with your org and flooded the market with competitive products. How would you and your org respond?

3. De-(and re-)regulation: The pendulum swings between the anything-goes of new industries (AI oversight, anyone?) and overreaching government oversight (are we banning TikTok or not?). I’m reminded of a buddy of mine from Cura?ao. He was in politics for a bit. Then I saw him again after a few years and he was out of politics. I asked why. He said, “It's the other side’s turn now.” You and your org need to be agile, nimble, flexible, and resilient in order to adapt to change. Because change is constant.

4. AI and Innovation: The pace of change is accelerating faster than ever before. It's driven by artificial intelligence and modern tech. In a previous article I wrote, I said

“AI isn’t going to replace you. A person who knows how to use AI better than you is going to replace you.” And by you, I mean you and your org."

The Real-World Impact

This isn’t just background noise, my friends. These forces are currently and actively and unrelentingly reshaping my industry, your industry, and everyone else’s industry. Competitive advantages are coming and going like pop-up restaurants. New opportunities and threats are both a dime a dozen, and one in a million. And sometimes, many times, regardless of how you categorize them, they interact with and amplify your successes or failures on a world stage.

Digitalization—you’re doing it, right? This is on your AOP? Yes? Please tell me you’re having these conversations—digitalization has lowered barriers everywhere. Your org is currently under threat. Sure, these little new entrants can only wound you with a paper cut… but, can you guess how many there are?

Just the same, digitalization has empowered buyers. People holding both cash and a cell phone have tremendous power. It’s our job to recognize that and meet them where they are.?

Globalization has expanded the ocean of potential competitors and suppliers. And AI and tech innovation are constantly creating new substitutes for existing products, and services, and people (read: you, and me).

Adept business leaders need to not only understand these macro forces—oh boy, Macroecon, all over again? Yes.—so, to not only understand these macroecon forces, but work them into the context of their daily, mid, and long-range planning. And what better way to pay homage to macroecon than to cite Porter's Five Forces in your next monthly all-hands call, eh?

Chances are, though, a huge swath of you all with simply ignore this. You’re confident in the oceans you’re navigating; you’re trusting your heading, your ship, your people, and yourself. You got this! Until you don’t. Then you’re in red waters. Eeek.

Ok, That Was Bleak. So, What Does This Mean for You?

1. Stay Curious: You’re here, reading this. Excellent. More of that. The business world is changing faster than ever. Keep learning, keep exploring. Keep asking questions. The next big idea that transforms you and your org might come from a wildly unexpected place.

2. A Magnifying Glass, Reading Glasses, Binoculars, and a Telescope: you need all three. And if you’re tracking, there were four mentioned. Don't rely on just one framework for anything. Use Porter's Five Forces, layer in RBV, sprinkle it with the Delta Model, and countless others to get a rich, robust, and comprehensive view of your world. Each tool will have its strengths, sure, but combine them and you’ll develop a new, nuanced perspective.

3. Think Globally: Even if you're a local business, global trends can impact you. Have you seen those sub-$10 items for sale on Ali Express with free shipping? That stuff is coming from the other side of the planet for less than ten bucks. They’ve embraced globalization. There’s no reason why we all should shy away from it.

4. Embrace Innovation: Today. Companies that win are those that can pivot quickly in response to new tech or market shifts; they foster a culture of innovation and are willing to take calculated risks.

5. Focus on Customer Relationships: In a world of endless choices, customer loyalty is more valuable than ever. You track loyalty, yes? You’re using tech to better understand and serve your customers, right? There’s that Power BI dashboard, what was the name of it again? Remind me. The one where all the lifetime customer stats are on the main page, and you use it on your monthly all-hands call? ?? Also, don't forget the human touch. Remember, customers are clutching a fist full of cash in one hand and a smartphone in the other. They have both money and a voice.?

For your next meeting

For your next meeting, I suggest you not just pull-out Porter's Five Forces. Instead, think of Porter’s Five as a building block. Leverage it, yes. But layer onto it. Modernize it. Customize it so it fits you and your world. By combining various frameworks and keeping an eye on the bigger, broader ocean in front of you, you are better equipped to sail both away from red waters and towards blue waters.

Remember, be agile, nimble, flexible, resilient, and informed. Leaders who can synthesize insights from multiple frameworks—classic, modern, or otherwise—will be the ones who sail their careers and their organizations to those coveted blue waters and sandy beaches in the decades to come.

Hashtags for the Bots

#PortersFiveForces #BusinessStrategy #InnovationInBusiness #DigitalTransformation #FutureOfWork

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