The Ten-Forces Model - Industry Structural Analysis

Preface

This post is a revision of an earlier post titled The 9-Forces Model – Industry Structural Analysis. In the earlier post, The 9-Forces Model was presented, but it clearly showed Ten forces. The tenth force, Environmental Ecology, was almost begrudgingly it would seem, added for the sake of political correctness. Well, political correctness wasn’t the goal, but perhaps taking people on a journey of acceptance was.

It is well past the time to accept that the willful, ignorant, and delusional neglect and abuse of the environment should stop. It has always been the case that we affect and are affected by the environment; often the effects are long-lasting, and often they are permanent. There is no Planet B, Earth is the only home we have. Earth is likely to remain our only home for many generations to come. We should take care of our nest, our home.

Introduction

A business does not exist in a vacuum, its existence and activities affect its respective industry environment, and its industry environment influences and constrains what is possible for a business. It is prudent, therefore, to estimate the probability that your Business Model will make a profit before you create a new business or introduce a solution. This estimation can be performed with a technique called industry structural analysis, and a specific tool for this is the hybrid Ten-Forces Model introduced below.

Industry Structural Analysis

The Five Forces Model (Porter, 1985), is a useful tool to analyse an industry and whether it is or can be structurally attractive, meaning, “is there a reasonable balance of power between the five forces of rivals, potential entrants, buyers, suppliers, and substitutes[?]” (Cole, 1994). In other words, what is the likelihood that you will make a profit and that the business will grow? And, what is the likely position of the business in the industry?

Over time the Five Forces Model has been adapted, and below is presented The Ten-Forces Model for industry structural analysis.

The material below, unless stated otherwise, has been adapted from Business and Competitive Analysis, page 92 (Fleisher, 2007), and Competitive Advantage, page 6 (Porter, 1985).

For each component in the diagram above, there is a section below providing more information. In each section that follows, use what has been provided, not as an exhaustive or definitive list, but as prompts for thinking deeply about what is relevant and therefore what should be analysed in your context.

Competition

Competition should be thought of more widely than simply existing rivals. All organisations behind the Ten-Forces in your industry are competitors in the sense that they are all trying to extract maximum profit for themselves. (Porter, Competitive Strategy, 1990).

Michael Porter has another model, commonly called the Four Corners Model (Porter, 1980), and this can be useful for predicting a competitor’s course of action: The Tool is comprised of (adapted from Wikipedia, September 2019):

The Four Corners Model

Motivation (drivers)

The question to be answered here is: What is it that drives each competitor, what are their goals? And based on these drivers, as well as each competitor’s current competitive position, what are their responses likely to be regarding our activities? It is useful to try to determine competitors’ actions by understanding their goals (both strategic and tactical) and their current position with respect to their goals. A wide gap between the two could mean the competitor is highly likely to react to any external threat that comes in its way, whereas a narrower gap is likely to produce a defensive strategy.

Motivation (management assumptions)

The question to be answered here is: What are respective competitors’ assumptions about the industry, the competition, and its own capabilities? The perceptions and assumptions the competitor has about itself and its industry would shape strategy. This corner includes determining each competitor’s perception of its strengths and weaknesses, organisational culture and their beliefs about their competitors’ goals. If the competitor thinks highly of its competition and has a fair sense of industry forces, it is likely to be ready with plans to counter any threats to its position. On the other hand, a competitor who has a misplaced understanding of industry forces is not very likely to respond to a potential attack.

Actions (strategy)

The questions to be answered here are: What is each competitor actually doing and how successful are they in implementing their current strategy? A competitor’s strategy determines how it competes in the market. However, there could be a difference between the company’s intended strategy (as stated in the annual report as well as in interviews) and its realised strategy (as is evident in its acquisitions, new Solution development, etc.). It is therefore important here to determine each competitors’ realised strategy and how they are actually performing. If current their strategy is yielding satisfactory results, it is safe to assume that the competitor is likely to continue to operate in the same way.

Actions (capabilities)

The questions to be answered here are: What are the strengths and weaknesses of each competitor? In which areas is each competitor strong in? This looks at a competitor’s inherent ability to initiate or respond to external forces. Though it might have the motivation and the drive to initiate a strategic action, its effectiveness is dependent on its capabilities. Its strengths will also determine how the competitor is likely to respond to an external threat. An organisation with an extensive distribution network is likely to initiate an attack through its channel, whereas a company with strong financials is likely to counter attack through price drops.