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Darryl Howes encourages us to use Michael Porter’s Five Forces model so we can better understand power in our organisations


n line with TJ’s mission statement of “providing the L&D practitioner with

the knowledge, tools and inspiration they need to produce bottom line results for their organisations”, there is merit in seeing how we can better understand our businesses. It could be said that the

basic principles of commerce are well established: turnover for vanity, profit for sanity, cash for reality and all that. But the exception usually proves the rule, so what about a tried and tested technique that can assist us in our own commercial context? Professor Michael Porter is a

Harvard Business School stalwart, an author of 18 books and a six-time winner of the McKinsey Award for the best Harvard Business Review article of the year. His Porter’s Five Forces model1

allows us to investigate both

the internal and external environment within a business through examination of relative power. Te five areas are:

Competitive rivalry

How many competitors does the business have and what are their relative strengths? We could consider current market share, but it might be equally valid to review future potential – look at fast-growth companies such as Uber.

Supplier power

If supplier power is strong, we will have

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limited opportunity to switch to an alternative, making us vulnerable to service interruption or price increases. Conversely, if it is weak, we may have our pick and be able to play one supplier off against another to improve pricing, or other trade terms such as delivery, payment and so on.

Buyer power

Strong buyer power means we are vulnerable to customers haggling with us to improve their terms to our disadvantage. How ‘sticky’ are our buyers? Could they easily take their custom elsewhere, leaving us high and dry? Tis is an argument for a diversified portfolio of customers to benefit from the swings and roundabouts of different sectors – when one is down, the other is up. On the other hand, a single large and dominant customer could have us trading on a knife edge. No one likes to have all their eggs in one basket.

Threat of substitutes

Tis is an interesting power dynamic. And particularly so in the age of the internet and market disruption. We are asking ourselves the question, can our customers find a dif- ferent way of meeting their needs? And if they could, how easily and cheaply could they do this?

Barriers to entry

In line with the comment above

Reference 1


and congruent picture. Maybe we won’t – which itself raises a different sort of question!

Darryl Howes is MD of Strategic Business Networking. Join the LinkedIn Group at https://www.

How ‘sticky’ are our buyers? Could they easily take their custom elsewhere, leaving us high and dry?

regarding disruption, this analysis is about barriers to entry to our market and how easily a potential competitor can step in. Perhaps it would be very expensive (think Premier League football clubs) or maybe there are other, non-financial barriers, such as regulation. Our position might also be strengthened by how well our intellectual property is registered and protected. Consider the legal action taken by major brands, such as Nike, to prevent Far Eastern copycat products – not always successfully. Porter’s Five Forces is a great

start to building a picture of how a business operates and the competing pressures it may be under. Go ahead, gently ask a few questions of those in the know. If you can, talk with sales, purchasing, marketing, finance etc and show interest in the daily challenges that people face. Maybe we’ll get a consistent

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