In the late 70’s, Michael Porter developed his “Five Forces” model (published in the May 1979 edition of the Harvard Business Review, volume 59, number 2). Porter identified five forces that have an effect on an organization relating to competition. By the time business students are done their first semester they can probably recite Porter’s Five Forces (at least I hope so). The model has become an everyday thing, in business school. Yet, I’m surprised at the number of high paid executives that don’t seem to remember the Five Forces. The Five Forces are: Buyer Power, Supplier Power, Threat of New Entrants, Substitutes, and finally, Direct Competition. I will get into the other forces in subsequent posts, but for now I want to talk about how quickly people overlook the Threat of New Entrants.
Blockbuster Video, as the legend goes, had an opportunity to buy Netflix. However, Blockbuster did not. I assume the executives at Blockbuster thought Netflix wouldn’t amount to much. Though, they were quite wrong. I do wonder if Blockbuster ever thought about any competition beyond what currently existed in that market – others who rented videos in a brick and mortar store.
Sears had one of the strongest distribution networks going with the Sears catalogue department. And then they didn’t bother to see the new entrants coming into the market – online retailers. Sears could have been a pioneer in online selling, yet they were a late adopter and it cost them.
How to prevent failure
I’m sure there are many other areas that both Blockbuster and Sears went wrong on – but having an eye on new competition or even competition that they didn’t know could exist (possible argument for Substitutes in Porter’s Five Forces model) would have served both organizations well. That said, having an eye on changing trends in technology would have also served both organizations well, possibly even better. Mcdonald’s has done very well by focussing on their customers and understanding trends versus relying too much on understanding the competition.
These are just two companies but I assure you, there are many more such tales. At the end of it all, what worked yesterday may not work tomorrow. Who your competition was yesterday, may not be the only competition tomorrow. Be on the lookout and don’t be arrogant about how good you have been. Most of all, keep an eye on the environment and see where your customer might be going. For more information on this topic please CONTACT US.