The industry forces that shape strategic positioning

The world in which organizations operate is changing at an unprecedented rate, but some things stand tried and true. The five competitive forces discussed in Porter’s article are the pillars that need to be analyzed by organizations and strategist to determine the overall industry’s structure. The McKinsey Quarterly reports also discuss some forces with central themes around globalization and accelerating technology advancement that are disruptive and shaping the future of many industries. However, according to Porter, “industry structure drives competition and profitability, not whether an industry… is emerging or…high tech”. And I quite agree.

These “global forces” highlighted in the McKinsey reports are in fact factors or current trends which may disrupt the way businesses operate and achieve profitability. These factors do not change the fundamental drivers of industry competition and profitability. The factors are important no doubt, but are better viewed as short- to mid-term effects. They should serve only as the lens with which the five industry competitive forces are viewed and analyzed for proper industry environment assessment to help reveal an organization’s strengths and weakness, bring threats to light and help identify opportunities to leverage; all of which are required for proper strategic positioning.

All industries are impacted by some, if not all of these trends. Organizations can take solace in this but not for long. It is imperative that these organizations and their strategists get creative in their strategic positioning and in exploiting these industry changes. Intuition that worked in the past will not continue to work in the future. When evaluating industries, strategists should be careful not to lose sight of the fundamental drivers or levers of industry profitability in order to properly position themselves.

As my team begins to work on the group project, I am eager to take these learnings in assessing and evaluating the external strategic environment and industry dynamics of our selected organization. The first step would be in defining the industry boundaries for which Amazon has business stake in. This may prove to be a challenge to define precisely, given the diversity of Amazon’s portfolio and their extensive ecosystem cutting across value chains. But with Porter’s recommendation of using the scope of an organization’s products and services, and geographic span, in combination with analysis of the competitive forces, we will be able to identify Amazon’s industries and associated competitors. Another interesting insight would be to analyze how Amazon has used past trends to grow. From there, we can deduce their strategic positioning for the future. Already, it is evident that Amazon has used technology to optimize the use of resources and to build “horizontal platforms” to reduce the power of suppliers, buyers, rivalry among competition, threat of substitutes, increase the threat to new entrants, and grow into the giant it is today.

Sources:

Porter, M.E. The Five Competitive Forces That Shape Strategy: Harvard Business Review, January 2008.

Dobbs R., Manyika J.& Woetzel J. The Four Global Forces Breaking All the Trends: McKinsey Quarterly Report, April 2015

Greenberg, E., Hirt M. & Smit S. The Global Forces Inspiring a New Narrative of Progress: McKinsey Quarterly Report, April 2017