Porters micro forces: supplier power.
figures. For instance in Figure 9, the impor- tance of a purchase is linked with its emo- tional content, discretion is partly linked to urgency, and urgency needs to be traded off with importance.
Competitive dynamics
Porter’s five competitive forces is traditionally a very static model, which diminishes its use- fulness, but it can be given a more dynamic perspective and quite easily. Competitive dynamics can be explored at a macro and a micro level.At a macro level, these can be seen impacting dynamically over the industry cycle, for example for the bargaining power of the buyers and entry barriers (Figure 14). As an industry reaches maturity, entry barriers often increase (favourable) but the bargaining power of the buyers also increases (unfavourable). Each one of the five competi- tive forces can be plotted individually in a similar way.
The benefit of the model in Figure 14 is that it encourages managers to think about how industry structure is likely or liable to change in the future. It also helps them to reflect on why the industry has changed in recent times. Besides modelling competitive pressure over time, this can also be overlaid by, for example, growth drivers over time (high versus low). The competitive forces may also vary over time at the level of an individual business transaction (at a micro level). For instance,
where a large management consultancy gets involved with a blue-chip client, during the tendering stage the customer’s bargaining power might be high. However, once the con- sultants start to do work it often becomes increasingly difficult for the client to control variations and the total cost of further stages of work. Another typical example is that of going into a restaurant where bargaining power of the buyer diminishes in stages: (a) when they go into the restaurant, (b) when they sit down, (c) when they order and (d) when they have courses 1, 2 and 3. Of course it is possible to walk out or pay for the meal so far, but this is psychologically difficult, especially where the ‘buyer’ is a group of people.
The relevance of Figure 15 is that it allows managers to use the five forces at an everyday level and to track the impact of these forces, especially of bargaining power over a typical transaction lifecycle. Besides plotting these dynamics at both a macro and a micro level, it is also important to examine their underlying drivers. Not only are these a function of the industry lifecycle effects and of the cumulative learning of key players, but also of a particu- lar mind-set. ‘Mind-set’ is emphasized by at least some writers on strategy, yet primarily in the company-specific rather than industry context. The ‘industry mind-set’ has been defined as: ‘The perceptions, expectations and assumptions about the industry — now and future’.
Porter’s five forces model 223
Copyright © 2006 John Wiley & Sons, Ltd. Strategic Change, August 2006 DOI: 10.1002/jsc
Favourable
Unfavourable
TIME – Industry cycle
Entry barriers
Bargaining of buyers
Figure 14. Macro-level competitive dynamics.
224 Tony Grundy
The significance of this concept is that:
� Managers should beware thinking that the structural properties of Porter’s five forces are a ‘given’. In part, these forces are a reflec- tion of a softer mind-set of the industry. This mind-set is often shared between players within the industry and can be disrupted by players who can and will think differently.
� The strength and homogeneity of an indus- try mind-set will reduce the responsiveness of the industry to disruptive change and to facilitate rapid market share build-up by a new entrant. For example, in the UK Dyson Appliances built a dominant market share of the carpet cleaner market with a bagless model in just two and a half years. Its com- petitors were in a state of shock and denial for a further two years before they imitated the company. Dyson now sells its products in the USA.
� It helps us to link external analysis and Por- terian competitive strategy with the resource-based theory of competitive advan- tage of the firm, by highlighting how mind- set can help a company to transcend the competitive forces and by deploying differ- ent marketing and innovative skills.
� By studying the industry mind-set and by using the more advanced analysis tech- niques of competitive forces, which have been explored here, managers can achieve strategic breakthroughs.