Harvard Business School professor and author Michael Porter’s famous “Five Forces” framework has long been used by strategists to analyze which products and portfolios to invest in. But if you are a product manager, portfolio VP, or entrepreneur, did you know you could use the very same framework to make your products highly attractive to any kind of executive or investor?
This article will show you how.
The Framework Summary in Two Paragraphs
Porter’s Five Forces model is a calibration of a market’s (1) buyer and (2) supplier power, (3) the intensity of market competition, (4) the threat of new (substitute) products entering the market, and (5) the threat of new market entrants.
Many of our client’s executive teams assess the five forces to determine which of their company’s business lines to invest in. So do venture capitalists – who doesn’t want to invest in markets with the least amount of disruption and relatively low buyer/supplier/competitor power?
But as a B2B portfolio manager or product manager, you may not be using Porter – here’s why.
You May Not Have Used Porter’s Framework Proactively – Until Now
One of the criticisms of the Five Forces is that many businesses haven’t often used it as an evaluation tool. It doesn’t come with advice on how to “score” better. But we’ve seen managers use our Porter translation tools to improve the competitiveness of their products and attract a more favorable overall market assessment from their executive teams.
And this is the secret to getting your executive team’s attention and investment.
Examples of Proactive Strategies In Each of the Five Forces
Let’s say you built a heat map (e.g., using the colors of red/yellow/green to describe the current situation) as you evaluate the Five Forces in the market(s) your product(s) compete in. In the case of each of Porter’s Five Forces, red means “lots of pressure”, yellow means “moderate pressure”, and green means “reasonable pressure”.
If you have a lot of “red” ratings, will you be downgraded in the minds of your executive team — or in an entrepreneurial situation, ignored by the capital markets? Not in our experience. Here’s how we’ve seen B2Bs reduce pressure in each force:
- Taking a buyer power rating from “red” to “yellow” — A chemical manufacturer under enormous pricing pressure from big industry buyers created segmented brands and stripped out almost all costs associated with their low-end offer. This satisfied price-sensitive segments; the manufacturer kept higher-end brands with key services for other segments.
- Moving supplier power from a “red” rating to “green” – Europium was a critical element of the red phosphor dots in cathode ray tubes used in color tv’s and computer monitors. 95% of the world’s supply was in China. Supply shortages and price hikes were a constant threat. Industry innovators created a substitute product — LCD displays — and reduced the power that Europium suppliers held.
- An industry competition threat goes from “red” to “yellow” – a grocery distributor facing new well-funded competitors with significant scale advantages identified the plan-o-grams of individual stores. They loaded supply pallets in the order that store stockers would unload them. Merchants loved the efficiency gains. Their new, larger competitors couldn’t match this level of nimbleness and customization.
- A new entrant threat goes from “red ” to “yellow” – Many B2Bs are struggling with the decision of whether to join newly-formed industry platforms. Studying the action of Costco suppliers is instructive. Costco convinces many suppliers to create an as-good or better version of their product to be private-labeled as Costco’s own Kirkland brand – at 15-20% less than their suppliers’ own name-brand. How? Costco provides a huge volume platform in the form of their membership warehouses. And they bring customers to the manufacturers’ product — radically reducing marketing costs. These are the types of benefits the most successful B2B platforms will bring to suppliers.
- Incubating substitutes to turn a “yellow” threat to “green – Though they are part of the traditional oil & gas industry, Halliburton wants to participate in the movement to cleaner energies. Instead of passively monitoring substitutes, the newly formed Halliburton Labs is incubating some of the most promising alternative energy startups. Rather than be “eaten” by substitute products, Halliburton is using the initiative to see what’s working — and how they can transform themselves by investing in and partnering with tomorrow’s clean energy leaders.
Use Porter’s Five Forces and Our Decoder Tools to Attract Investor Attention
Within this article, you’ll see how you can get free access to our two Porter decoder tools. The first tool will help you quickly assess each of the Five Forces specifically for your markets. You’ll create a heat map by evaluating each force.
Then, the second tool will give you specific strategies for each force depending on whether you rated yourself red, yellow, or green. These strategies are specific advice for you to actually move from red to yellow and even green — and how to stay green if you are there already.
You can take this strategy and translation tools to your management team when delivering your plans or anytime you are seeking investment. We like your chances with more yellows and greens.
Take more control of your future by proactively using the evaluation tools your executives or investors are likely using to make their choices. Your product or portfolio will become a magnet for investment.