Strategic Positioning - Five Forces and Generic Strategies

Your long term profitability is influenced by the structure and dynamics of your industry and, the manner in which you compete in it. To be successful, you will need to carve out a position in the marketplace which allows you to develop an advantage over your competition in the way that you compete. This is known as your competitive advantage.

Competitive advantage is achieved through cost competitiveness and/or through the ability to differentiate (distinguish) your products or services in the mind of your customer.  The ability to sustain this advantage is known as your Sustainable Uniqueness.

Cost competitiveness is usually achieved through some unique capacity to keep unit costs low. This may be access to special production equipment or processes, access to cheaper inputs such as raw materials, or, more usually, through economies of scale.  Most small businesses are unable to maintain cost competitiveness as their sustainable uniqueness.  It is more likely that you, like most other successful businesses, will be able to achieve your sustainable uniqueness by developing and maintaining products or services which clearly distinguish your business in the minds of customers.

Your task is to position your firm in your industry so that you can create and sustain this. You will do this more effectively if you first gain a good understanding about the dynamics and competitive pressures of your industry and then use this information to position your business for maximum effect.

A model, called “The Five Forces Model”  can help you do this 

It identifies five influences:

1          the level of competition between existing rival firms

2         the threat of new entrants and

3         the threat of substitutes.

4         the bargaining power of suppliers

5         the bargaining power of buyers

To evaluate the dynamics of your industry requires both an understanding of what the industry looks like right now, as well as awareness of any changes likely because of external influences.  What are these “external influences”? They are known as the macro environment and are usually grouped together for convenience under five headings:

1          Social

2         Technological

3         Economic

4         Environmental and

5         Political.

First define your industry.  Now use the Five Forces model to consider what information you will need to evaluate your industry.

Step 1    How to determine the level of Industry rivalry

Step 2  How to assess the Threat of Entry from new entrants?

Step 3  Consider the likely Threat of Substitutes?

Step 4 Evaluate where power lies in the supply chain.
 - What power do Buyers have?
 - Ask the same type of questions to work out what power Suppliers have?

Step 5  Decide what changes in the macro environment will affect your industry and what opportunities and threats this will create for your business.

Developing effective growth strategies  

You have now developed an understanding of your industry and the changes that will have to be dealt with. Many of the answers to the questions that you have asked may not be available to you and you may feel that you are unable to influence the situation. What does this mean for you?

Concentrate on getting those things right that you can influence rather than focussing too much on those over which you will have little or no influence.

Finally, in defining your future Strategy, consider the following: 

1.     Create and develop your sustainable uniqueness.

3.     Being innovative is becoming the most important competitive strategy for small business.

4.     Use your customers as source of input into your planning.

5.     Create strategic ideas that will challenge the status quo in the industry.

6.     Expect change and plan to cope with it.

7.     Be disciplined in achieving your targets.

8.     Win the battle for talent.

9.     Use technology to reshape your business

10.   Be ready to react quickly.

11.    Develop grassroots leadership.

© David Milstein & Associates 2005. David Milstein & Associates is a member of Synergy Partners.