One of the articles for the week that really struck me was Michael E. Porter’s “The Five Competitive Forces That Shape Strategy.” The article states that “awareness of the five forces can help a company understand the structure of its industry and stake out a position that is more profitable and less vulnerable to attack.” With that being said, since the article mainly focused on large companies and I personally have an interest in social enterprises and social impact, I asked myself: How could a social enterprise use the five forces in order to get a clearer picture of the competitive nature of its industry, while also retaining its strategy devoted to a social mission rather than profit maximization?
One of the five forces that could greatly influence social enterprises and the industry they operate in is the ‘Threat of New Entrants’ force. More specifically, the barriers to entry that incumbents in the for-profit or non-profit sectors may have when compared to social enterprises can be remarkably pertinent, especially barriers such as capital requirement levels, unequal access to distribution channels, or supply-side economies of scale—three things that a budding social enterprise may not have too much of when trying to enter into a new industry. Nonetheless, social entrepreneurs can still use this force in order to determine the relative power of the incumbents in the industry and analyze where they can leverage existing capabilities and an innovative business and social impact-focused strategy that helps it diversify and enter the market more easily.
Just like any company, the power of suppliers and buyers in an industry can also impact a social enterprise’s strategy. In fact, when it comes to suppliers, one way that social enterprises may want to establish a competitive edge is to target those that have a shared commitment with the enterprises’ social mission . When it comes to the power of buyers, Porter writes that buyers have more power if they feel like an industry’s products are undifferentiated. This could be an opportunity for the social enterprise to stress its differentiation through its social mission and thus gain clout with buyers.
Another way that social enterprises could possibly use the five forces is through the threat of substitutes and evaluating the rivalry conditions in the industry. As a Market Research Analyst for a social innovation accelerator, one thing that is often discussed with the social enterprises we work with who the substitutes are in the industry, how many substitutes exist, what sector they operate in, and most importantly, the innovative ways that the social enterprise can distance itself from those substitutes in order to maximize profits while reaching its mission of creating social impact. When it comes to using rivalry in the industry as a force, the social enterprise can again use this as an opportunity to focus on its value added and evaluate the different dimensions on which it can compete with other companies in the industry.
Porter, Michael E. “ The Five Forces Competitive That Shape Strategy.” Harvard Business Review. January 2008. Accessed April 2017.