## Competitive Forces Porter’s 5 forces from his 1979 paper: [How Competitive Forces Shape Strategy](https://hbr.org/1979/03/how-competitive-forces-shape-strategy) and [On Competition, Updated and Expanded Edition ^ 2696](https://store.hbr.org/product/on-competition-updated-and-expanded-edition/2696). Here’s a nice visual from [Porter's Five Forces EXPLAINED with EXAMPLES | B2U](https://www.business-to-you.com/porters-five-forces/): ![[Pasted image 20250826220431.png]] Summary of Porter’s 5 forces: 1. **Competitive Rivalry:** This force analyzes the intensity of competition among existing firms in the industry. Intense competition can lead to price wars, advertising battles, and other costly tactics that can reduce industry profitability. 2. Who are the major competitors? 3. What is the intensity of price wars, product innovation, or marketing battles? 4. Is the industry growing or stagnant? 5. Are there signs of consolidations, M&As, breakups? 6. Are there high fixed costs leading to competitive pressures? 7. **Threat of New Entrants:** This force assesses the ease with which new competitors can enter the market. If it's easy for new entrants to enter, the competitive intensity will increase. 8. Barriers to entry: economies of scale, capital requirements, brand loyalty, regulatory hurdles. 9. Reaction of incumbents: Are they likely to retaliate aggressively? 10. How technology or trends lower barriers over time. 11. **Bargaining Power of Buyers:** This force examines the power that customers have over the industry. If buyers have strong bargaining power, they can demand lower prices or better quality, which can reduce industry profitability. 12. How concentrated is the buyer base? 13. Can buyers easily switch to competitors or substitutes? 14. How price-sensitive are buyers? 15. Do buyers have strong negotiating leverage? 16. **Bargaining Power of Suppliers:** This force evaluates the power that suppliers have over the industry. If suppliers have strong bargaining power, they can demand higher prices or better terms, which can reduce industry profitability. 17. Number of suppliers relative to demand. 18. Switching costs for firms to move to alternative suppliers. 19. The uniqueness or criticality of supplier offerings. 20. Integration threats: Can suppliers forward-integrate into your industry? 21. **Threat of Substitute Products or Services:** This force assesses the threat of alternative products or services that can satisfy customer needs. If there are strong substitutes available, it can reduce the demand for the industry's products or services. 22. Availability of substitutes and their attractiveness (price, quality, ease of use). 23. Switching costs for buyers to move to substitutes. 24. Trends that might increase substitute adoption (e.g., sustainability, technology). ## Barriers to Entry Porter’s 6 major sources of entry barriers: economies of scale, product differentiation, capital requirements, cost disadvantages, access to distribution channels, government policy. [Gateways to Entry](https://hbr.org/1982/09/gateways-to-entry) Understands major barriers to entry: switching costs, regulatory. [https://en.wikipedia.org/wiki/Barriers_to_entry](https://en.wikipedia.org/wiki/Barriers_to_entry) ## Network effects Same side & cross-side, multi-sided networks - [https://www.sciencedirect.com/science/article/pii/S2666954422000242#bb0130](https://www.sciencedirect.com/science/article/pii/S2666954422000242#bb0130) - [https://en.wikipedia.org/wiki/Two-sided_market](https://en.wikipedia.org/wiki/Two-sided_market) - [Building a Business from Data Is Hard—Here’s How the Winners Do It](https://www.bcg.com/publications/2020/how-winners-build-business-from-data) ## Powers [Helmer’s 7 Powers](https://7powers.com/): Scale economics, network economics, counter-positioning, switching costs, branding, cornered resource, process power ## Understanding the environment [VUCA](https://en.wikipedia.org/wiki/VUCA) and [Cynefin](https://en.wikipedia.org/wiki/Cynefin_framework) are a couple of frameworks used to understand complex environments. VUCA is an acronym based on the leadership theories of [Warren Bennis](https://en.m.wikipedia.org/wiki/Warren_Bennis) and [Burt Nanus](https://en.m.wikipedia.org/wiki/Burton_Nanus), to describe or to reflect on the volatility, uncertainty, complexity and ambiguity of general conditions and situations. VUCA emerged from the Army War College in 1987 as the Cold War was coming to an end and took off in management consultant circles. From: [https://hbr.org/2014/01/what-vuca-really-means-for-you](https://hbr.org/2014/01/what-vuca-really-means-for-you) ![[Pasted image 20250826220451.png]] More on VUCA here: [Strategy In A VUCA World: The Importance Of Coherence And Clarity](https://www.forbes.com/sites/karlmoore/2024/11/23/strategy-in-a-vuca-world-the-importance-of-coherence-and-clarity/) Cynefin draws from the Welsh word for habitat and defines 5 states that should be considered when thinking about org designs. - Clear: sense-categorize-respond. “known knowns” - In clear environments, organizations need to accurately sense the situation and quickly categorize and respond. Speed is really important as competitors are probably also tuned into the environment and operating at high frequency. - Complicated: sense-analyze-respond. “known unknowns” - Complex: probe-sense-respond. “unknown unknowns” - Chaotic: act-sense-respond - In chaotic environments, cause and effect are unclear. The only way forward is to act and avoid wasting time trying to discover patterns. - Confusion: separate-assign-[sense|probe|act] As knowledge increases, there is a "clockwise drift" from *chaotic* through *complex* and *complicated* to *clear*. ![[Pasted image 20250826220459.png]] You can learn more here: [https://connecteddale.com/releases/wesc/cynefin_framework.html](https://connecteddale.com/releases/wesc/cynefin_framework.html) The Centre for the Evaluation of Complexity Across the Nexus (CECAN) has another interesting representation laid out in [The Visual Representation of Complexity - CECAN](https://www.cecan.ac.uk/news/the-visual-representation-of-complexity/) ![[Pasted image 20250826220506.png]] ## Exploratory/conceptual or declarative/conceptual models [Five Models for Making Sense of Complex Systems](https://cwodtke.medium.com/five-models-for-making-sense-of-complex-systems-134be897b6b3) ![[Pasted image 20250826220514.png]]