Analyzing Business Competitive Environment with Porter's Forces

Competitive Environment Analysis

The Competitive Environment significantly affects a business within its industry. We use Porter’s Five Forces model for analysis.

The Five Forces Components

• Substitutes: Products or services that can replace yours. Fewer substitutes are better.
• Complements (Comps): Potential opportunities that enhance your product (e.g., ink for a printer).
• Rivals (Competitors): You want few rivals and high market demand.
• New Entrants: Undesirable; they are kept out via barriers to entry.
• Customers: The more customers you have, the less bargaining power each individual customer possesses. This applies to both B2B and B2C models.
• Suppliers: The more suppliers available, the better the terms and deals you can secure.

Adapting to Environmental Changes and Uncertainty

Methods for Environmental Awareness

• Benchmarking: Comparing your performance against another company considered a standard.
• Forecasting: The process aimed at predicting future environmental conditions.
• Scanning: Searching for and sorting through information about the environment, often focusing on data that is not widely available.

Responding to the Environment

Organizational Structure

Organic organizations adapt much better to change than bureaucratic structures.

Adapting at the Boundaries

• Buffering: Maintaining excess inventory or supplies to manage unpredictable events.
• Smoothing: Implementing strategies, such as dropping prices during off-seasons, to keep demand stable.

Adapting at the Core

• Flexible Processes: Adapting the technical core of the business. For example, enabling mass customization rather than producing only one standard model (like the original Model T car).

Influencing the Environment

Independent Strategies

• Competitive Aggression: Exploiting core competencies or improving efficiency to gain a competitive advantage.
• Competitive Pacification: Taking independent action to improve relations with competitors.
• Public Relations: Cultivating a positive public image by engaging in agreeable activities.
• Voluntary Action: Committing voluntarily to actions, such as donating a percentage of sales to disaster relief efforts.
• Legal Action: Engaging in legal battles to protect the business interests.
• Political Action: Lobbying or making donations to influence politicians and create a more favorable business environment.