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The sixth force

November 09, 2005

If you have an interest in business strategy, you're familiar with Michael Porter's five forces framework. In his landmark 1980 book Competitive Strategy, Porter overturned much of the conventional wisdom about business, showing that the governing assumptions reflected a much too narrow conception of competition. Companies don't just battle their direct rivals for the profits in a market, Porter argued; they also contend with suppliers, buyers, substitute products, and potential new entrants. Together, these five forces of competition shape the structure of industries, determining how much profit is generated and how it's carved up. Porter's framework has come to underpin the way managers think about - and plot - their companies' strategies.

The world has changed, though, since 1980, and I think the time has come to add a sixth force to Porter's framework: the public interest. In The Public Wants Your Profits, an article in the new edition of Forrester Magazine, I argue that in recent years, as the power of unions and government regulators has waned, the public itself has become a force shaping industries and influencing the generation and distribution of profits. (Just look at Wal-Mart's recent travails, or the pressure being placed on oil companies to curtail their windfall gains.) Traditional "corporate social responsibility" programs, which tend to be operated in isolation from companies' central profit-making functions, are not a sufficient response to the growing power and complexity of the public interest. As I argue in the article, managers need to recognize that the public interest now manifests itself as an economic interest - and hence must be a core concern of business strategy.

Posted by nick at November 9, 2005 12:05 AM

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Comments

I agree and I used to own a very sucessfull computer store. In 1999 I saw a marked decline in monitor quality. Monitors had been declining in price rapidly. The brand of monitors I was selling were very good "out of the box" and remained very good for about 6 months. Then the all started "flying back in" for servicing. They were all "nervous" (display would jitter).

I had sold these monitors for about 4 years with great success. It turned out that the manufacturer had switched a .10 Phillips "noise filter" for a .05 "noise filter" that the tolerance range was doubled and as the unit "aged" the initial filtering went into the "nontolerable range" for monitors. Hence said monitor displays started dancing ! The public starts a Price driven response and that always leads to a "price driven" draw down to quality !

Posted by: Dave Atkins at November 9, 2005 09:12 AM

The whole concept of the public has changed as well. Personal customization is demanding products be more flexible to meet the publics wide range of needs. Blogs are allowing individuals to stand on their soap box and tout or complain about products in ways that have never been possible before.

Posted by: Charlie E Bess at November 9, 2005 02:58 PM

At first glance one would say yes, but if you are doing 5 forces, you should be doing PEST also, and have that overlay the 5 forces. So really, it is not the sixth sense, as we already have six, seven, eight and nine. BTW, S stands for Social (society, the public, etc).

Posted by: RB at April 27, 2006 07:57 PM

The sixth force

November 09, 2005

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