Five Forces + Generic Strategies Framework

Blog #3

This weeks readings look at things such as market segmentation, strategies that fit emerging markets, and how to do a competitor analysis.  I found all the readings to be illuminating but thought the selection on competitor analysis was especially helpful.

In that reading the authors discuss Michael Porter five forces. This is a framework for examining the threat of new entrants, the bargaining power of suppliers, jockeying for positions among current competitors, the bargaining power of customers, and the threat of substitute products. While this is already a useful framework in and of themselves I find them more useful when augmented by Porters generic strategies. I had prior knowledge of these from having read the quintessential business text “competitive strategy” by Michael porter. 

In this text he discusses both the five forces framework and the generic strategies framework. Together, these two ides, are an invaluable tool in examining one’s value proposition to a customer.  

The generic strategies framework breaks down as such:

Basically, you can compete based on scope and a competitive advantage. If you choose to go narrow on your scope you would be taking a focus strategy. With this approach you would have better information on your particular niche market and therefore be able to serve them exceptionally well. This would dissuade others from entering, since they do not have a existing rapport within the small market you inhabit. If you went broad with your focus you would not tailor your products to a very specific set of customers but rather make them more utilitarian in nature.

The other part of the framework is your source of competitive advantage. It can be either cost of differentiation. With cost you simply purse a strategy of making something fairly similar to your competitor but doing so cheaper. With differentiation you focus on being different. This could be either in higher quality or in the number of features you have.

When you combine these generic strategies with the five forces framework you can examine your strategy as such:

I find these two sets of frameworks combined to be a asset in forming a business plan since they let you quickly think through a series of possible structures for your venture and then examine how you will compete within that strategic structure.

They can also be useful when entering emerging markets since you must ask yourself many of these questions prior to deciding to enter a new market with which they may already be well established competitors who have a better understanding of the business topography currently in existence.