1- My guess today is Michael Porter…Let’s remind our viewers what the five competitive forces are:
Well Tom, the basic idea of the five forces starts with the notion that competition is often seen too narrowly by managers and the five forces say that yes you’re competing with your competitors but you’re also in a fight for profit with an extended set of actors[…] (The competition goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products)
The five forces are a kind of holistic way of looking at any industry, and understanding the structure underlying drivers of profitability and competition.
2 – I use these to think about my rival makes it difficult forme…:
There is underlying drivers for each one of the forces, and you can actually apply that every industry is different, every industry will have a set of economic fundamentals, but the 5 forces help you home in on: What’s really causing profitability, what’re the trends the most likely significant in changing the game in the industry, where are the constraints?
Airlines is a great industry[…] It’s amongst the least profitable industries known to man, and the 5 forces allow you quickly understand why, let’s just go around the chart, the nature of rivalry is incredibly intense and it’s almost exclusively on price. It’s been very hard to differentiate, to get customers to wait even an extra 2 or 3 minutes for another flight if they can get on the flight with a cheaper price…There hasbeen a very intense price competition and there are some new comers despite the fact that profitability is low, it’s a generic technology and you can start with only one flight between two city pairs, there is no need to have a whole network at the beginning, and people keep coming in.
I Think it is one of those sexy industries, it’s a great example of how sexiness, or coolness or hotness havenothing to do with profitability, it’s the underlying structure what drives profitability. The costumer is very fickle and insensitive; suppliers of aircraft, aircraft engines and even aircraft gates at airports have a lot of clout that can bargain away most of the profits, you know GA, and Rolls-Royce and Airbus and Boeing make more money in airlines, they get most of the profit.
And there isalways a substitute of getting on the train, driving your own car […] It’s an industry where there are spurs of mediocre profits punctuated by a long period of terrible profitability. “Every one of the five forces is strong in this industry (The 0 stars industries)”
4 – You can take another industry where the 5 forces are relatively benign:
Example: Soft Drinks, it’s been a license to makemoney. We can call them 5 stars industries.
[…]We are always trying to understand: What’s the configuration of underlying economic drivers that can really shape the potential of this industry? How do I try to relax the constraints that holding back industry profitability? How can I position myself to kind of insulate from some of the gaols of those forces and those implications of the 5 forces?
5-You conceived this Framework… In these 3 decades what’ve you learned? What’ve you learned about the application of these ideas in the real world of business?
These concepts can be applied in any kind of industry (whether an industry produces a product or service, high tech or low tech, is emerging or mature, regulated or unregulated). Indeed one of the powers of framework is that it helps youavoid getting trapped or tricked by the latest trend or the latest technological sensation and really allows you to focus on the underlying fundamentals. Internet is a good example, we’ve been very confused by internet, because people saw internet as a force, enabling technology that might or might not impact the underlying structure of the industry. One thing I’ve learnt is that the framework...