Sunday, May 29, 2016

Frameworks vs. Standards in Competitive Analysis

When conducting competitive analysis or any type of business activities, many people look towards utilizing frameworks and/or standards to help guide their thinking. While many people may have differing opinions on how frameworks and standards should be applied in a business sense, there are a lot of benefits to each when it comes to competitive analysis.

In typical strategy disciplines, frameworks are useful tools to help guide thinking and encourage thought creation in various ways. Standards establish an agreed upon list of controls, requirements, or benchmarks that can be used across industry.  In my experience what tends to complicate matters is around when to adopt frameworks and standards and how to apply them in an effective way. We are not going to go into the overall discussion around how to apply a framework to an organization or how to push for standards within your company or industry, but we want to look into the application of these important tools within the context of competitive analysis. To further color our discussion around frameworks and standards we will attempt to apply these tools in the context of Porter’s five competitive forces.

Standards are the more useful tool in influencing the competitive landscape for a company and frameworks can help put together strategic plans to mitigate any competitive forces that may derail an organization’s progress.

For example, by establishing an industry standard an organization can help drive competitive powers in their direction by neutralizing supply chain providers, which can have a direct effect on supplier and customer forces. On the other hand, due to products being standardized, power can be bogarted by the buyers who can pivot off of various competitors.

An organization can also adopt an internal standard which can help show strength and differentiation in certain industry. For example, PCI standards allow one company to illustrate their support of credit card holder data protections which are not standardized across all industry, but if an organization is not meeting a more agreed upon standard, it can hurt their competitive edge.  

Standards can also drive industry structure and service to improve cost and profit for all which can have a large effect on entrants and substitutes as there is a larger capital investment needed to meet quality standards.

As for the use of frameworks, they are seen as more customized options for addressing organizational needs. In the City of Charlotte case study, it was clear that the balanced scorecard had critical components for measuring success, but knowing when to change that ratio, mix, or recipe can be crucial in better aligning your goals to the organizational needs of the city. This is a nice example of the use of a framework for internal effectiveness.

And finally Porter’s Five Forces is ultimately a framework for conducting competitive analysis for organizations to use in creating a strategic plan. This is another great example of a framework that can easily be customized to a specific company and provide value in many different forms across external industry factors.

Standards and frameworks are both extremely useful tools, and they should be encouraged as options for addressing deficiencies in an industry, but when used poorly, they can lead down a path that may stifle the strategic planning process. Make sure each is kept in the tool belt and used at the right time for maximum effect.

Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Harvard Business Review, January 2008.

Kaplan, Robert S. "City of Charlotte (A)." Harvard Business School Case 199-036, December 1998. (Revised February 1999.)

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