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Five Forces + 1

Five Forces of Modern Strategy

August 21, 2020

I teach a strategic planning course at the University of Iowa in the MBA program. I am fortunate to be able to work with a wide variety of students ranging in age and experience level. I have noticed from time to time, that the more quantitative students seem to possess a similar undercurrent in their questions to me. This could best be described as — and I am paraphrasing, because I have never heard this said to me directly; it’s more of an impression that I sense — "Professor, why don't you just teach us strategic planning?"

It's a great question.

The foundation of most modern strategy is rooted in a framework developed by Michael Porter called the Five Forces. The general idea is that any competitive rivalry is generated based on the influence of four external factors. They are:

  • Threat of New Entrants
  • Bargaining Power of Suppliers
  • Bargaining Power of Buyers
  • Threat of Substitute Products

Now, the words suppliers and buyers can mean different things in different contexts. It is really a matter of those providing and consuming. The meaning of substitutes is clear, as is the meaning of new entrants. So, these factors contribute to a summation of being able to determine what competitive rivalry looks like and how to develop a corresponding strategy in response.

Transcending the Five Forces Framework

Why isn't that enough to determine what strategy looks like? Generally speaking, it is. It provides a good baseline and a clean picture of what levers to pull to respond to the distinct variables within the framework; responses to those who want to enter the market, those who can provide substitute products and services and considerations around those who produce and consume products and services. But I would argue that the question is limiting — even though there is a clear process to offer as a remedy to those symptoms.

Using just these four interdependent considerations is a good initial step, but true strategy comes from anticipating the things beyond these variables. Modern strategy must transcend the basic five forces framework, and examine external perceptions, internal cultural integrity and structures, tangible and intangible assets and the trust that the organization either has or lacks within the supply chain or participants in the above framework.

The reason I don't only teach a process is because I feel it does a disservice to the planning ecosystem. As with anything, the distinctiveness of something lies within its differentiation — the same way practicing something will generally make you better at it. But there are also those who practice harder, study the game or subject and can possess a specific talent or skill that they can leverage to enhance their ability to be successful in a differentiated way. So, developing a strategy isn't simply about practicing a process. It's about the step beyond that. Great strategy is being able to identify and make the most of the nuances one step beyond the five forces frame.

Once you understand the basic principles of something, it gives you the freedom to innovate or "riff" on them to create something truly great. So, when I feel that sentiment I first mentioned starting to emerge, the course is to steer focus back to developing ways of expanding and building these interrelationships beyond the five forces frame. The answer to the question posed is that "I am teaching you strategic planning. But first we get to explore what strategic planning truly is." Because it may not be exactly what you think. And, as is frequently the case when you challenge conventional thinking, it opens an entirely different realm of possibilities.

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