(update; as of November 2012, The Monitor Group headed by Michael E. Porter, the subject of this article, declared bankruptcy ending an era of C-Suite omnipotence strategy thinking. This article compares competitive strategy to collaborative strategy)
The B-School staple “Porter’s 5 Forces” has been the mainstay of corporate competitive analysis since it’s creation in 1979 by World regarded Harvard Business School Professor, Michael E. Porter. Porter developed a model of industry analysis in his seminal book, Competitive Strategy: Techniques for Analyzing Industries and Competitors.
In short, a competitive company’s position in a market is threatened by five main forces acting on the corporate asset:
- new competition,
- substitute products or services,
- bargaining power of customers,
- bargaining power of suppliers,
- intensity of competitive rivalries.
Any changes in these 5 forces would be cause for the company to re-evaluate their place in the market … thus leading to healthy consulting practices for strategists the world over.
The Rate of Change
In the 1990’s critics began to argue that Porter’s 5 Forces thesis assumes that the forces are static and non-related. At the time, the world was becoming more dynamic and more interrelated. For example:
- Buyers, competitors, and suppliers can interact, and even collude.
- Value cannot be created in the long run by constantly introducing barriers to entry
- Participants in a market have the ability to plan and respond to competitive behavior.
As a result, they added another Force called “complementors” while introducing rudimentary game theory to explain the role of strategic alliances to the analysis.
Now in the year 2012, we routinely assume that all players can instantaneously access the same real-time dynamic market information from the cloud. We readily accept that all players will collaborate massively with whomever they want from anywhere in the World. As a result, we must assume that all five forces will change constantly and rapidly in real time.
Now imagine how 1990’s game theory would manage conditions where the company AND their competitors must continuously re-evaluate their position in a market under the circumstances of continuous change. In effect, nobody has the ability to compete with each other, they are competing with the game, therefore, they are cooperating to keep the game in play.
Is Collaboration Underrated?
If any player tries to introduce a barrier to entry, THEY risk get knocked out while the game continues without them. In fact, value is created by applications that remove barriers … and brokers are punished. All of these factors cause the game to self energize and improve as players preserve the asset rather than consume it.
The Value Game
It should not be surprising therefore that Porter’s 5 forces now resemble what we call the Value Game that we have described here (and here, and here). In the ultimate manifestation, however, The Value Game will play automatically through multiagent algorithmic game applications where tangible and intangible assets would be accounted equally in a Value Game. Individual would own, manage, and deploy their secret sauce of knowledge assets through their personal API that interfaces with the game that is most relevant to their highest abilities.
Where competition has met it’s match
Remember that little regarded fact of Capitalism: Markets are efficient where there is perfect information. This means that if everyone involved in a transaction has the exact same information as everyone else, the true supply can meet the true demand. Nobody ever said that this must be accomplished through competition especially if collaboration can do it better.Read More