AT SOME POINT in every successful business career, a discernible change in personality and behaviour must take place. It is not a question of Jekyll and Hyde or Clark Kent to Superman, just that the time inevitably arrives when the approach and outlook appropriate for taking the first few steps on the corporate ladder will no longer do. A sales director cannot think and act like a sales manager, nor a vice-president of finance like a compliance officer. So, anyone aiming to rise through the ranks must also be ready to undertake the steady self-transformation that will allow them to cross the invisible, but certainly not arbitrary, line that exists in every organisation.
On one side are the "workers", the people primarily focused on the tactical implementation of company policy. They may have years of experience and all kinds of fine sounding titles, but essentially their role is to sell products, deliver services, execute operations and push paper in the time-honoured style.
On the other side are the "managers". They, too, have learned the ropes in the approved fashion, but have then gone on to assume far greater responsibilities and, in particular, to oversee key aspects of strategic development.
What makes this transformation possible is an ability to see the big picture. It is not something that happens overnight or occurs by magic after a certain number of years. Rather, it is a distinct skill, developed through application, study and awareness. It comes from an in-depth understanding not just of the company, but of the industry as a whole, the competitive environment, and the dynamics at work in the broader economy.
Executives looking to reach the top must steadily develop this kind of insight. In doing so, they can apply various practical tools to let them analyse their firm's strategic position and see how to take it forward. One of the best such tools is Porter's Five Forces, created in 1979 by Michael Porter of Harvard Business School. It has the advantage of simplicity, while also providing a comprehensive framework for industry analysis. Understanding these forces can help anyone evaluate a company's problems and prospects. And considering ways to contend with them will sharpen your business acumen and accelerate that transition from the micro to the macro environment. The five forces are:
Threat of new entrants A change to the status quo generally obliges a company to rethink its approach, and that often happens when a new player enters an industry. The newcomer's initial objective is to secure market share, which can result in pressure on the incumbents to do everything from lowering prices and boosting efficiency to improving customer service and making better products. If the new arrival is a start-up of limited size or scale, there may be little real threat.
However, if backed by a big name in another industry, with a known brand, customer base, ready cash and marketing expertise, the entire landscape can change. Just consider Apple's move into the music industry, and later into mobile devices, or how Richard Branson's empire shook things up in the airline business, financial services and even the soft drinks sector.
Where the entry barriers are comparatively low, such as for opening a chain of coffee shops, the existing players must keep innovating and investing just to survive. Otherwise, potential competitors will constantly be thinking they could do better. Where entry barriers are high, as for airlines, there may be less likelihood of direct rivals appearing. However, new "entrants", or factors, can still threaten at any time in the form of changed regulations, soaring fuel prices, or slumping passenger demand. It is therefore best to never accept at face value the conventional wisdom about existing players, and to remember that every established model still has weaknesses.
Power of suppliers In some sectors, a few major suppliers hold the whip hand. Whether providing labour, raw materials, goods or services, their dominant position gives a disproportionate ability to influence the market. This allows them to raise prices, squeeze customers and, in some cases, generate seemingly excessive profits. Normal rules pertaining to market forces and open competition seem to be suspended.
Examples include select countries’ ability to restrict or expand the supply of natural resources for political or other reasons. Other examples may involve highly specialized OEM parts in which the number of quality suppliers are few. One way or another, it is always possible to switch suppliers, but the cost may be prohibitive and the alternative inconvenient. Therefore, it is important to remain fully aware of the level of dependence on all your different suppliers. Switching travel agencies will have little impact on your business, but having to find a new third-party outsourcing company to handle your entire back-office operations could easily turn into a nightmare.
Power of buyers In other instances, the balance of power tilts decidedly towards the purchaser. As a result, the customer can dictate terms and demand improvements in price, quality, service, or even in production processes and environmental practices.
Generally, the supplier will have to comply or face up to losing the business.
Obviously, buyers looking to use their leverage in this way must know the market and their own relative strength. For example, if a big retailer of toys has countless potential suppliers, there is scope to drive a hard bargain. Similarly, a large volume buyer of industrial chemicals has significant purchasing power, even if the potential suppliers are comparatively few.
In such cases, the seller's tactic is often to make the best of the situation by stressing an ability to differentiate products or tailor-make services, but that can backfire if the customer then pushes for even more concessions. Indeed, advertising agencies know that scenario only too well, realising that every client is likely to be in regular contact with three or more other agencies all pitching for the account.
Threat of substitutes It is quite easy for companies to be convinced their product or service is essential or has unlimited shelf life, until they get an abrupt wake-up call. Rapid developments in processing power and internet speed has made video conferencing a more than adequate substitute for international get-togethers, with all the expenses they entail. Elsewhere, software-as-a-service is disrupting IT, ride sharing is challenging traditional taxi services, and a larger portion of the workforce is now working from home or hot-desking, which reduces a company’s office footprint.
There are possible substitutes everywhere, though two main factors determine their viability: the price-performance ratio and costs for switching. Basically, if people believe similar quality is available at a better price, they will opt for the substitute, provided the time, money and effort involved in switching are not excessive. That is one reason VoIP has dominated at the expense of traditional telecom services.
Rivalry among existing competitors This can take many forms, including price discounts, innovation and enhanced customer service. The intensity of the competition can vary depending on the size of the rivals, the scale of their ambitions and the personalities of those involved. Sometimes, too, market realties are disregarded and common sense goes out the window. Thus, Apple and Samsung battle it out with their latest smartphone and tablet releases. Coke and Pepsi, both determined to be number one, spend a fortune on out-advertising each other. And while Detroit's vehicle industry competed to make cars with waning appeal, Toyota and Honda found their chance to grab market share. However, rivalry between players is not always a bad thing. It also leads to new products, better service standards, the application of technology and the development of new markets. Importantly, these features add value to an organisation and provide excellent examples of someone's ability to think strategically about their industry.