02.27.2013 | Colleen Moffitt
As a young economist, Michael E. Porter wrote a landmark article for the Harvard Business Review in 1979 that ignited a revolution in the field of strategy. So compelling was his “The Five Competitive Forces that Shape Strategy” that it helped inform and mold an entire generation of academic research and business practice, and stretched across nations, regions, corporations, and lately health care and philanthropy.
Porter initially postulated that the essential job of the strategist is “to understand and cope with competition,” the first force, but that managers often defined competition much too narrowly, limiting it to only direct competition. Competition, he asserted, goes well beyond established industry rivals. In fact, competition can include four significant other competitive forces: the bargaining power of buyers/customers, the bargaining power of suppliers, the threat of potential new entrants, and the threat of substitute products or services. These extended rivalries are what define “an industry’s structure and shapes the nature of competitive interaction within an industry.”
Michael also introduced the intense and benign nature of those competitive forces and how they affected return on investment and profitability. If, for example, the forces are benign, in fields such as software, soft drinks and toiletries, he surmised, many companies are profitable. If forces are intense, as they are in the airline industry, textiles and hotels, among many, almost nobody earns significant ROI. Industry structure drives competition, he insists, “not whether an industry produces a product or service, is emerging or mature, high tech or low tech, regulated or unregulated.”
How might this relate to your next campaign in the highly competitive PR industry? Porter offers that “The strongest competitive force or forces determine the profitability of an industry and become the most important to strategy formulations. The most salient force, however, is not always obvious.”
Wise PR strategists will take that into account as they begin to build a relationship with a client. Just competing against the client’s biggest competitor will not be enough. The strategist must take a more global, 360-degree view of the market and its structure or structures to gain the upper hand. In Porter’s terms, for example, rivals Airbus and Boeing, and the airlines that place huge orders for aircraft, carry big weight, while the threat of new competition or the threat of substitutes, and power of suppliers, is weaker, or more benign.
Conversely, there was a fierce rivalry in his example of the photographic film industry, where Kodak and Fuji ruled supreme, until the birth of digital photography – where a substitute product then became the first strategic priority.
Wily PR strategists must study and determine the strength of each competitive force affecting their client’s industry or service. Is your client new to the game with a disruptive product or service? Or is it the veteran who must compete with the newcomer? What is the bargaining power among your client’s customers or potential customers within the given industry? How well do you understand them? Is a new, improved version or substitute about to derail your client’s product or service?
Pay attention to the five forces that shape business strategy. They can also help define and energize your PR strategy as you work to fulfill your client’s business objectives in a competitive landscape.