How can Porter’s Five Forces Help with Project Management?
During this blog series, I am exploring ways to help project leaders improve success. Most of the blogs focus on strategies that help during the start to finish phases of a project. But the decision making during the project selection phase is equally important if you want to improve your success. So, in this blog, I will explore how Porter’s Five Forces framework helps from selection through execution.
Michael Porter, the renowned business expert, developed this framework while he was at Harvard University. He published the details in the Harvard Business Review in 1979. Porter’s Five Forces Framework is a way of examining the competitive environment of a business and on the surface, it might not seem valuable to project management. I would argue differently.
How many times do we see businesses launch a project that might succeed but is doomed in the long-term because the company didn’t focus on the competition?
Using the framework, a company looks at these five forces:
- Threats of new entrants
- Bargaining power of buyers
- The threat of substitutes products/services
- Bargaining power of supplier
- Competitive rivalry
It is not my intention to dissect the framework. Instead, I’ll explore how we can apply the general principles to project management. As you consider the impact of these forces on your company, your perspective may depend on what your project is. A startup, looking at its early product line, will have a vastly different perspective than a Fortune 500 company will have in creating a new line. Here are six ideas.
1. Consider how the competition might view your proposed project or service
Focus on the product or service that the project is designed to create and ask yourself how your competition is likely to react and then, plan for that accordingly.
The result may drive you to modify the product or service, or abandon it, or move forward with greater speed to hit the market first.
And consider how your competition may be using complementary products to boost sales. Then, ask yourself if there is an opportunity for you, and factor that into your project plan.
2. Identify what the company will need to do to make the product or service attractive to buyers
In looking at this through the lens of Porter’s Five Forces, you may decide that you need to spend way more than you want to make the product or service attractive. You can explore more creative and less costly options, or you might decide not to do the project. Are your potential buyers impacted by brand loyalty or will substitutes be easy to market?
3. Regularly reevaluate the business case for the project
We live in a world of rapid change. That is not likely to change soon, so we must adapt. I recommend that you have a well-defined project process that includes a regular examination of the business case for the project.
I don’t find many businesses that regularly do that. You can develop your own process for how to do that. Or you might try reading my book, Herding Smart Cats, for a suggested approach.
4. Does the competition prevent you from achieving needed intellectual property?
This question pertains to those projects where you have determined that you need to acquire intellectual property to be successful. You may decide that you don’t want to take on the project when you look at this question. Get clarity on what is included in the project scope, if anything, regarding intellectual property on the product you are planning to create. The size of your company’s legal team will determine if that work needs to be outsourced.
5. Understand the bargaining power of your suppliers or external contractors
Only you know how many suppliers (what raw materials do you need to acquire?) or contractors (such as lawyers, project managers, developers, etc.) you will need. And part of your task is to figure this out and to understand how competitive the procurement negotiations are likely to be. Consider alternatives as you seek to acquire what you need. Build tasks and time into the project plan to account for this.
6. Explore the potential customer market and its challenges
Your company may have no customers, or it may have millions. How does that market translate into the new project? Is it a market where you can increase network effects? Is it a market that is easy to enter or not? The project team may need to include some scope items that are designed to improve your ability to acquire new customers profitability.
Conclusion
The Porter’s Five Forces Framework can be used by a business to develop its strategy in many ways — from product lines to customer acquisition. Most of the considerations that I have outlined above should be considered early in the process. If the project is selected after an examination of the Framework, the project team will need to account for the findings in project scope and time.
For example, let’s say the company decides to expand its product line. The project team will need to factor in launch tasks to ensure a solid launch. Another example: the company decides to expand the number of retail locations and initiates a project to do that. Does the project team have any responsibility for opening the new location? If not, what constitutes success for the project? Take a project to develop a new marketing strategy. In this case, the competitive analysis may well have uncovered clues that will guide the project team.
Since change is a constant, I recommend that project teams periodically re-assess the business case for all your projects. In doing so, the project team, or the individual doing the examination will need to understand if changes in the competitive environment have significantly reduced the anticipated value of the project.
