In the past 15 years, the internet has changed many industries dramatically. This trend is not only set to continue, but is likely to escalate in the coming 15 years as high-speed broadband becomes ubiquitous. As a business owner you need to be constantly evaluating your business environment, industry and future business strategy to ensure that you are positioning yourself correctly for the future.
Here are some simple tools to assist you with the process.
The PESTEL Framework is used by organisations to analyse their macro-environment. Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change. Each letter in the word PESTEL stands for a macroeconomic factor: Political, Economic, Social, Technological, Environmental and Legal. The PESTEL tool is used to analyse your environment against each of these factors to understand large scale changes that are happening that might affect your industry and organisation. We would argue that high-speed broadband is forcing large-scale changes in each of these areas. A detailed explanation of this tool is available at:
When you are ready to workshop the tool some free templates are available at:
Perhaps the best known framework for industry analysis and business strategy development is Porter’s Five Forces Analysis. A detailed explanation can be found on Wikipedia. It looks at the five forces that affect a business.
Porter’s framework provides a market-based analysis of the industry and your organisation’s competitive strengths and weaknesses. The five forces are summarised below:
- Rivalry among existing competitors. The degree and nature of competition among rivals in a growing market with myriad, equal-sized competitors will differ considerably from that of mature markets with fewer, larger competitors. It is important to understand the locus of competition – price, service, advertising, or product innovation – and how this competitive dynamic will change in response to new entrants (e.g. aggressive price discounting or advertising battles).
- The Power of Customers. Consumers interact with the industry players by demanding cost reductions, improvements in service and quality, and playing competitors off against one another. The more power the customer has the more competition there is (which in turn can erode profitability). One of the primary sources of customer power is access to information about competing products. Where information access is symmetrical, consumers can more readily compare products and prices. The internet impacts access to information in an enormous way in many industries.
- The Power of Suppliers. Suppliers, can influence the competitive landscape by increasing their prices, restricting supply or altering the quality of raw materials. If there are fewer suppliers, or intense demand (as in the case of the resources industry), then suppliers are well positioned to dictate trading terms.
- Threat of substitutes. In all markets there is a degree of product substitution. Consumers can substitute one brand of dog food for another, in the same way different model cars, mobile phones and TV sets are substitutable. The easier it is for consumers to substitute one product for a rival product providing the same function, the greater the competition and the harder it is to extract premium profit margins.
- Threat of new entrants. This is perhaps the most dominant force influencing the nature of the competitive landscape. High barriers to market entry discourage new competitors, lowering overall competition within the marker. The most common barriers to entry are high capital requirements (such as investment in manufacturing plant and equipment), scale economies (where the cost of producing a product decreases as volume increases), product differentiation (where existing products have high consumer loyalty), government regulation, and ‘absolute cost’ (where one or more competitors have non-replicable advantages, such as proprietary technology or access to cheaper raw materials).
Once you have fully analysed these competitive forces, you will be in a position to determine the path to obtaining sustainable competitive advantage. (SCA). A Sustainable Competitive Advantage is a unique, value creating strategy that places your venture apart from its competitors and which other firms are unable to duplicate. This is increasingly difficult in many industries in a digital world but organisations with a clear SCA can successfully harness the internet to grow exponentially.
Sustainable Competitive Advantage
Understanding your sustainable competitive advantage is crucial as mentioned above. In the video below Michael Burke, from Melbourne’s Burke Corporate Advisory shows you a tool you can workshop with your team to identify your organisation’s SCA.