.Competition is key to business survival. Harvard professor, Michael E. Porter addresses the dimensions of competition in his article – The Five Competitive Forces That Shape Strategy. The five dimensions of competition as addressed by Porter are (1) Threat of New Entrants, (2) Bargaining Power of Suppliers, (3) Bargaining Power of Buyers, (4) Threat of Substitute Products or Services and (5) Rivalry Among Existing Competitors. In this commentary, I want to highlight ten lessons that every manager must understand about the competition:
1. Customer share is the real competition – Many managers assumptively believe that their P&L statements are the true reflection of their competitiveness. This is not essentially true. Market share, that is, access to customers, is the real measure of competition. Is your customer base growing or shrinking? At your meetings bring up discussions about the plans of the organization to keep current customers and to win more customers.
2. Don’t ignore political and economic news – Indications about potential factors that could affect the competitive standing of a business abound in local, national and global news. You might assume that Brexit headaches do not impact your local business in Texas. Or you may brush off a tweet from an organization’s Twitter handle. Managers who are disinterested in the news not only get surprised by serious profitability impacting events, they could also miss out on subtle opportunities.
3. Big business does not always guarantee strong business – Porter discussed the threat of new entrants into an industry as a catalyst for competition in the business environment. Do not get too cocky about your business’s secure standing if your business has a big brand name. Recently, Lyft – the hail riding company and fierce rival to Uber successfully launched its IPO at $72, while Uber has been unable to achieve the same success despite its bigger brand name. New entrants into an industry are looking for a share of the market and once they are able to take away from your share of customers, you will begin to notice your P&L numbers drop in favor of profit.
Managers who are disinterested in the news not only get surprised by serious profitability impacting events, they could also miss out on subtle opportunities.
Porter, M.E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93. https://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy