Porter's forces model helps us understand what competitors — in the wider sense discussed earlier — are doing. It also treats competitors mainly as threats. In fact, for many organisations what other similar organisations do can be a source of learning.
Benchmarking in the private, public and non-profit sectors requires seeking out and learning from best practice in similar, and sometimes not so similar, organisations.
Many managers in all sectors learn from what others are doing by attending conferences and joining professional bodies which embrace staff from different and often competing organisations. In this age of the rapid dissemination of information, whatever you do will not be new for long, and your competitors and others will try to emulate and improve on what you do.
You can see competition as one of the spurs that drive you to ensure you give value to your customers.
One approach to analysing competitors is to use the four key elements of competitor analysis put forward by Greenley (1986):
You may wish to construct your own framework for the key components of competitor analysis in your sector or industry, based on the factors that determine success or failure in it.
What is important to analyse in your competitors will depend on various factors, such as:
In this way, competitor analysis enables you to address a central theme of this book: how you can help to generate and provide what your customers value.
You should clearly not lose sight of them while you are looking at your competitors. In particular, you should not just copy what your competitors do in the hope that this will ensure that you continue to serve your customers.
You should use competitor analysis to improve your current product or service and find ways to offer a better performance to your customers. If you can understand the key components for success, it should give you additional clues about what your customers value.
Some important retailers in the food and clothing sectors have been referred to as ‘manufacturers without factories’. They so dominate their suppliers that they can dictate many trading conditions, from payment terms to production methods. If most of a supplier’s output goes to one retailer, the latter’s bargaining power is even greater. If, however, the supplier is one of only a very small number of sources of a particular service or product, that supplier has a stronger bargaining position with their customer.
Porter argued that organisations' competitive positions depended in part on the relative bargaining power of their suppliers and their customers.
Suppliers are powerful if some or all of the following apply:
Customers are powerful if some or all of the following apply:
The threat of substitute products or services The final force discussed by Porter is the threat of something new replacing the need for the services or products provided in a particular industry or sector. The replacement of mechanical dispensing machines with electronic ones is an instance of this, although sometimes whole industries can virtually disappear.
Porter argued that as well as technological developments, there is a greater likelihood of substitute products or services when existing ones are generally perceived to be too costly or lacking in quality; this can apply in public as well as commercial sectors.
We arrived at the model of Porter's forces by extending the scope of market research to include the environment beyond your organisation, and more specifically the near, or competitive, environment populated by organisations whose actions your organisation influences and whose actions influence it.
Our aim here is not to move on to the strategic level of what an organisation should do to position itself in its competitive environment; rather it is to help you to be more aware of what to look out for in the near environment, and offer you a framework for thinking about your organisation's relationship with its competitors, suppliers, collaborators and customers.
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