of SWOT Analysis is to understand the business’ strengths and
weaknesses within the industry where it operates, because industry determines to a great extent opportunities and threats.
Strengths and weaknesses include patents, work force expertise,
management ability, location, reputation, etc. Opportunities and
threats include suppliers, competitors, regulation, etc. The famous SWOT framework is a two-by-two matrix (see Figure 4).
To further illustrate the influence of military thinking
on business strategy, note that the SWOT framework was
“strengthened” by linking it to distinctive competencies (a concept originally developed by the Navy). The analogies don’t end
there: What would a firm have to do if it lacked those critical
competencies? Some advocated taking risks to acquire them
and considered this approach—willingness to take risks—to be
a competency in itself.
Critics point out that SWOT results can be general and difficult to translate into effective plans of actions. For this reason,
SWOT is better used as one of several tools in strategic analysis.
Porter’s Five Forces
Perhaps the most famous framework is Porter’s Five Forces (see
Competitive Strategy by Michael Porter). Derived from concepts
of industrial organization economics, this model is used to analyze the five competitive forces that shape the industry in which
a firm competes, and, consequently, determine industry profitability. Three forces are related to horizontal competition:
1. The threat of substitute products or services—e.g., ability to substitute products or services, ease of substitution, switching costs;
2. The threat of new entrants—entry barriers (e.g., patents), customer loyalty, regulation, capital requirements; and
3. Rivalry among established competitors—price and product
features transparency, market penetration, advertising.
Two forces are related to vertical competition:
1. Bargaining power of suppliers—availability of substitutes,
supplier competition, switching costs; and
2. Bargaining power of customers—buyers’ elasticity of demand,
switching costs, availability of information (costs, quality, etc.).
Porter’s Five Forces, a staple of business education, are usually depicted as shown in Figure 5.
Although this approach is sound for identifying risks and opportunities, anybody who has used it knows how difficult it is to
extract from it anything other than broad conclusions—e.g., “we
should build strategic resources”— especially in rapidly evolving
industries. For this reason, more general frameworks have been
developed, such as the Value Net.
The Value Net
Adam Brandenburger and Barry Nalebuff noticed that corporations usually compete with other “players” (firms, in this context)
to achieve growth goals and to capture market share (see
Thinking Strategically by Adam Brandenburger and Barry Nalebuff ).
Unlike Porter, Brandenburger and Nalebuff incorporate in their
model the idea that competition is not necessarily a zero-sum
game (a term borrowed from Game Theory) because growth can
be achieved by selling more than rivals (zero-sum game) or by
growing the market (non-zero-sum game), or by doing both. How
players understand and perform their roles (i.e., their level of cooperation and their level of competition) determines the outcome
of the “game,” that is, the outcome of interactions. The authors
point out that in certain circumstances some rules can be changed
to make the game more favorable, and they explain how this can
be achieved. There are four types of player in the Value Net:
The Value Net
The Connection Between Military and Businees Strategies CONTINUED