The strategic plan of any business, whether it is a new company or an established organization, requires a control function to assess external forces that might change the direction of tactical guidance in support of strategic plans. Market analysis is key to evaluating the impact of external factors on the ability of a business to be competitive. Market analysis is the groundwork that allows for the creation of a cohesive, flexible strategy. Michael Porter’s (2008) “The Five Competitive Forces That Shape Strategy” provides the framework that Robert Kaplan and David Norton (2008) leveraged in their “Mastering the Management System,” which helps readers understand the pitfalls in executing on an organization’s strategic plans. Kaplan and Norton wrote about how Porter’s assessment of competitive forces through external analysis are necessary for the creation and implementation of an effective strategy. Show Porter (2008) identified five forces that drive a business’ competitive position in its market. These forces are a threat of new entry, buyer power, supplier power, competitive rivalry, and threat of substitution. The threat of new entrants is a risk businesses need to assess during the planning process. New entrants threaten market share, potentially reducing profitability. Buyer and supplier power creates contending tension on prices. Buyer power translates to driving prices down, while supplier power means driving prices up. Porter states “understanding the competitive forces, and their underlying causes, reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time” (p. 80). Anticipating where the market is going through market analysis will help position a company to hit the sweet spot in customer demands. In addition to a business determining their competitive positioning through Porter’s Five Forces Analysis, Kaplan and Norton (2008) recommend using mission, vision, and value statement as a springboard for strategy development. “Senior leadership needs to agree on the firm’s purpose (mission), its aspirations (vision) and its core values” (pg. 4). Once those have been established a business can begin to translate the strategy. This occurs when a company’s mission and vision parlays into a strategy that is framed by performance metrics, such as financial measures. Capital requirements are one consideration Porter mentions in relation to “Threat of New Entrants.” Capital requirements can create an entry barrier and impact a company’s ability to grow. This is why cutting costs is one way to become competitive. Capital requirements tie back to Porter’s assertion that supplier and buyer bargaining power are important external forces that affect how economic and or or competitive a business can be. The supplier and or or buyer dynamic has the ability to increase or decrease market share thereby impacting capital considerations. These financial considerations will help a business plan the required capital to sustain corporate strategy. As a business advances from translating strategy to tactical planning operations, a company will still need to be mindful of Porter’s (2008) Five Forces. A company can then transition to determining how to apply the information that was collected during the market analysis. Operational planning ideally brings a business’ corporate vision to fruition, which is created during the Porter assessment on external forces. Kaplan and Norton’s (2008) way of translating strategy into action links objectives through targeted processes; a daily workflow that looks at sales and budgets as part of the greater marketing plan. Not accounting for these strategies highlights the risks involved in not tying all of these pieces together. Failure can occur when the vision does not align with capital requirements or financial forecasting. Kaplan and Norton assert that “most companies’ underperformance is due to breakdowns between strategy and operations.” (p. 3.). However, successfully leveraging Porter’s model can provide the insight that management needs to prepare for successful strategy execution. Through monitoring external forces as with Porter’s model, operational planning is improved through Kaplan and Norton’s strategy translation. Assessing and updating plans keeps businesses fresh and able to stay ahead of market demands. Reassessing external forces and changing plans accordingly is exactly what the automotive industry did when it considered technological advances. This is just one demonstration of the need for businesses to have a control function; especially as the marketing plan evolves with new information. “The early days of automotive industry was characterized between 3 competing technologies: electric, steam and internal combustion engines” (Warner, 2010, p.18). Assessment led to a change in the preferred product and or engine for the automobile industry. Today external forces are continuing to shape how the automobile industry adjusts their products. Society is more focused now than it has been in the past on alternative fuels. This means that cleaner, renewable options like electric engines are a desirable consideration for specific customer segments in the automotive industry. For the first time in almost a century, electric engines have started to make a comeback as a potential competitor (Warner, 2010, p.18). If the automotive industry did not have a circular flow of planning and evaluating, it would miss the mark in keeping up with customer demands. That translates to leaving money on the table and/or losing market share. Staying ahead of the market is generally a big part of a business’ vision. Effective use of Porter’s Five Forces and Kaplan and Norton’s translation of those forces in an effective management system is the first step in creating a competitive marketing strategy. Kaplan and Norton’s strategy translation to action is not possible without a thorough look at the external forces that threaten a company’s vision. These processes are complementary. The interdependency of both processes, demonstrate that market research conducted through Porter’s Five Forces must occur in order to parlay effective operational planning into successful vision, mission, and values. References Balanced Scorecard Basics, Retrieved 14 February 2017 from http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard Kaplan, Robert S. & Norton, David P. 2008. Mastering the Management System. Harvard Business Review, 86, (1), 62–77. Porter, Michael A. (2008). The Five competitive forces that shape Strategy. Harvard Business Review. Kaplan, Robert S. & Norton, David P. 1999. The balanced scorecard. (Popularisers of the balanced scorecard: Measures that drive performance). (1999, December 1). Thinkers. Warner, Alfred G. (2010). Strategic analysis and choice: A Structured Approach. Retrieved 14 February 2017 from http://www.eblib.com What are Porter's 5 forces Why are these important for strategic planning activities?These forces include the number and power of a company's competitive rivals, potential new market entrants, suppliers, customers, and substitute products that influence a company's profitability. Five Forces analysis can be used to guide business strategy to increase competitive advantage.
Why is the five forces model important?Five forces analysis helps organisations to understand the factors affecting profitability in a specific industry, and can help to inform decisions relating to: whether to enter a specific industry; whether to increase capacity in a specific industry; and developing competitive strategies.
What is Porter's five forces and why is it important?Porter's 5 Forces is an analytical model that helps marketers and business managers look at the 'balance of power' in a market between different organizations on a global level, and to analyze the attractiveness and potential profitability of an industry sector.
What is the main point of the five forces model?A Five Forces analysis can help companies assess industry attractiveness, how trends will affect industry competition, which industries a company should compete in—and how companies can position themselves for success.
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