TWINS* n° 1: Business Strategy

* TWINS (The Way I Note Subjects) is a short personal note about a topic I learnt, worked on or have a thought about.

I have just validated the first module of my executive certificate at HEC Paris in Business Strategy (Stratégie@HEC Paris) with success this month. I have had worked on digital & data strategy in my enterprise where I had opportunity to work on several use cases business plans and propose a road map for digital & data streamline. This exercise made me more motivated to learn and get an overall view of strategy techniques and methods. This week, I visited the exposition Maison&Objet (https://www.maison-objet.com/paris) in Paris where it attracts more than 600 new companies (design sector companies) and more than 3 million visitors per year. I tried to discuss with maximum number of companies providing products and services to architects. Listening to their business stories was exciting; how they started their business, how they evaluated their sector of activity and how they evaluated the competitiveness and profitability. Having a few inputs, I selected one of the activities and products which I was more familiar with and started to analyze how this small company can be competitive and attractive in the market, and how it can increase its competitive advantages, and finally profitability. I was used to deploy SWOT technique, which you probably know, but it is useful for internal potentials and not suitable for such strategy evaluation. Through the executive certificate module, I learned different models and frameworks. I took one of the oldest models called Porter's five forces developed forty years ago which it's still working. Porter's model helps to analyze competitive environment analyzing permanently its rules helping to adjust business strategy to better use resources to guarantee higher earnings for a company and investors. I recommend you start with this model to understand how a business should be analyzed. This model analyzes the ecosystem where industry is placed, the competition environment, customers’ power, suppliers’ power, potential new entrances in the ecosystem and threat of substitute products and services, all referring to the five forces of a business.

This model can be applied to an industry or a segment of the economy to understand the levels of competition within industry and to have company's long-term profitability. However, the model is developed four decades ago and it is for short-term use applicable to an individual company and not a sector.

This model tells us the more competitors your business has i.e larger the number of equivalent products and services and therefore lesser the power of your company. The model shows less time and money it takes for a competitor to enter your company's market, more your company's position can be weakened, so if your company build strong barriers to entry, can charge higher prices! It also shows the fewer suppliers to an industry, the more a company would depend on a supplier. Smaller and powerful client base, more power for clients to negotiate for lower prices, so smaller, many, independent clients is easier to increase

profitability. And at last, but not least, less close substitute of products and services exist in your market, more power you have to increase prices otherwise your company has a weakened power.

As you noticed, the model can help to evaluate the competitive forces influencing business and to evaluate strategy to increase competitive advantages. It helps also to measure competitive intensity, attractiveness, profitability of an industry or market. Using models and frameworks to analyze all industry's weaknesses and strengths is a practice which needs time and experience. Start with this model to evaluate your own business and evaluate profitability.

#hecparis #maisonetobjet2023 #strategy

January 2023, Reza Armand AHMADIAN