When a company drafts their marketing strategy as part of their overall Strategic Plan, it’s their External Competitive Forces that are typically addressed and not the Internal or Personal Competitive Forces. After all, what marketing director is going to say to their owner, “What sense does it make for us to look for more work when we don’t have enough people to do the work we already have?” Or “Do we really need to add to the high level of tension in the office by bringing in more work?” While many business owners may need to hear this, few marketing directors would survive that much candor.
External Competitive Forces are present at every level of a company’s growth. Of the three forces, they’re the ones complained about most often. They are also felt more keenly when a company has mastered the previous two levels of competition and grown in size. These forces can influence the ultimate profitability of an entire industry, not just a company.
Harvard business professor Michael Porter articulated these forces years ago in his work on competition and strategy. He not only addressed the external forces that can affect an industry, such as the Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of New Entrants, Threat of Substitutes, and Industry Rivals (the companies down the street offering similar products or services), but he also talks about how companies must leverage their internal value chain and create uniqueness to better address these external forces.
Within the disaster restoration industry, Porter’s lofty theory manifests itself in the frustrations voiced about TPAs, insurance carriers, private equity money flowing into the industry and buying up contractors, cash outs, and the unpredictability of the weather.
Rarely do individual companies, especially small businesses, have enough market presence, clout, or the resources to significantly affect their External Competitive Forces. This doesn’t mean they can’t compete and thrive. They can, but to do so they must address their external challenges by adjusting the competitive strategies they adopt within their company.
Identifying how these forces are impacting an individual company as well as the profitability of the industry is a good starting point. As within any competitive industry, it is essential to work relentlessly to drive down costs while increasing the unique value being brought to customers—however those customers define value and what they’re willing to pay for it.
Driving down costs not only increases a company’s profitability and, ultimately, their cash flow, but it enables the company to attract more-talented workers who can help them compete better, thereby continuing the cycle of reducing costs—even as those more-talented workers are paid higher wages.
While reducing costs, it is also imperative for a company to identify niche markets for the products or services it excels at providing. Continuing to refine those services then allows them to be delivered more profitably, which makes it more costly and time consuming for their competitors to do the same.
