The Power of Substitutes: What Business Are You in?

Airplane

When I was teaching our Advanced Capture Management class this week at a client’s company, one of my students made an astute observation that I wanted to share with you.

During the strategic competitive analysis discussion, I was explaining Michael Porter’s Five Forces and their applicability to Business Development. These forces shape industry rivalry. They consist of the bargaining power of buyers (the government), the bargaining power of suppliers (employees, subcontractors, and material and equipment vendors), the threat of new entrants into the market, and the threat of substitutes.

When I started explaining substitutes, one of the students brought up an interesting example. She said:

Are airlines in the airline industry? Are they competing with other airlines? Do the customers really care how they get from point A to point B – or do they simply want to get a fast, cheap, and convenient mode of transportation from one location to another? Are airlines, therefore, in the transportation business and in direct competition with substitutes such as trains and buses?

Similarly, I always ask – what are our customers looking to get when we submit a bid? When we write a proposal, we keep thinking that our customers are looking for solutions, but perhaps they are just looking for able personnel to get their projects done. Which could be accomplished by staffing companies, to whom we coincidentally keep losing on price. So we have to ask ourselves constantly, to get an accurate competitive read of the industry: what business are we in, really?

Just food for thought.

Olessia Smotrova-Taylor
CF. APMP Fellow

 

One thought on “The Power of Substitutes: What Business Are You in?

  1. John Capewell shared this comment after receiving our e-newsletter about the power of substitutes:

    “If you take that conversation one level up, you can come to the conclusion that no business is in the “airline” business…bur… We are all in the customer satisfaction business, to your student’s point. Even you and I are not in the BD consulting business… It is a mindset shift that not every business gets or can implement due to perceived biz goals conflicts. But I say those who cannot understand the difference are ultimately destined to be eaten by their competitors.

    I ask every client I consult for that very question: What business are you in? So far two have responded with, ‘We are in the customer satisfaction business.’ All [the] rest describe their industries.

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