Taking a Step Back to the Basics — by Dan Lynn
By Dan Lynn
Old is new again. Just because the book or framework or model is old, it doesn't mean it can't be helpful today. In the late 1980s and early 1990s I was introduced to Michael E. Porter and several of his books including Competitive Advantage and Competitive Strategy (to learn more about Michael Porter visit his bio on the Harvard Business School website. In fact, while I was at AT&T during the early 1990s, those books were essentially required reading. I was exposed to Michael Porter's work again during my MBA program. I loved the material but found one model in particular to be incredibly useful, Porter's "Five Forces Model". This is a framework Porter developed to evaluate an industry based on five key forces that impact an industry's structure. These forces include:
industry competitors, buyers, suppliers, the threat of substitutes, the likelihood of new entrants. This framework is extremely helpful when trying to understand an industry's dynamics and attractiveness prior to entering it. So, it's a great tool to use when developing your business plan. It is also a great tool to use once you're "knee deep" into an industry - to help you develop your going forward strategy.
I know you are probably moving so fast that it is hard to find any time for strategy. However, I highly recommend - no matter what industry you are pursuing or how long you've been doing it - that you take a step back and look at that industry within The Five Forces Model. In many respects, it can help you get a birds-eye view of your industry and understand the dynamics that are driving its future.
Questions this Key Learning answers
How can I tell if an industry is attractive before entering it?
The author recommends using Porter’s Five Forces to examine competitors, buyers, suppliers, substitutes, and potential new entrants. Our analysis adds that market growth alone is not enough: the key is understanding where bargaining power sits, where profits accumulate, and how each force could affect the business plan.
Should I use an old business framework for a modern market?
Yes. The author’s central lesson is that an old framework can still be useful today. Five Forces provides a broad view of the dynamics shaping an industry’s future. Our analysis notes that technology may change quickly, but the underlying sources of bargaining power remain relevant and can shift in different directions.
What do I do when daily work leaves no time for strategy?
The author recommends taking a step back, regardless of the industry or how long the business has operated in it. Reviewing the industry through Five Forces can restore a bird’s-eye view. It helps reveal the dynamics driving the future and supports decisions about where to enter, what to avoid, and what leverage to build.