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Home » Blog » Contract Management » Procurement for Porter’s 5 Forces: Part 1: Talk about It

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Michael E Porter’s been well known for his framework that seemingly puts together all that a business should be wary of, in a very simplistic and intuitive model.  Porter’s Five Forces.  Yes, we all know about it and probably know it like the back of our hands.  But maybe we don’t look at it on a day to day basis. And think that it is for the Chief Executive Officer alone, to think and ponder upon!  But that’s not true.

As procurement people, you are uniquely positioned to be able to directly shape your company’s strategy.  Being able to use the model, in your role, begins with laying down some basic definitions regarding the industry your company operates in.  And this is probably the trickiest part.  For example, as an airliner, you may state that your company is into Airline Industry, but really, the term ‘Transportation’ might be a more valid description to work with, in order to get the most out of the five- forces model.  In fact, a broadened perspective is the pre-requisite for using the model.

In the words of Michael E Porter, ‘The basic idea of the five competitive forces starts with a notion that ‘competition’ is often looked at too narrowly by managers.  And five forces say that ‘Yes you are competing with you direct competitors, but you are also in fight for profits with a broader and extended set of competitors – customers, suppliers, new entrants, and substitute products or services – who place a constraint or a cap on the profitability and growth.’

Each industry is characteristic in really which of these five forces are most benign or most dangerous in the economic dynamics that its constituent companies operate in.  And that opens up a whole lot of interesting opportunities for the procurement folks to tap.  Contrary to what might seem obvious, the sourcing and purchasing executives have tremendous influence on all of these forces, and not just the supplier’s bargaining power!

One of the major drawbacks of any of such frameworks is in our inability to put them to use.  And this happens when they are not opened to the rank and file of each and every department.  As a Chief Procurement Officer, may be you could begin such conversations with each one of your team so that these glorious ideas aren’t restricted to the C-Suite table discussions.  Only when we spread it, does an idea gain importance.  More so, it flourishes the best, when different bits of it are nurtured throughout the height and breadth of your team.

To revisit Porters’ original work in detail and study its application for procurement, click the download button below to access the whitepaper- “Revisit Porter’s Five Forces to Unleash Procurement Innovation”

 

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