I was preparing for a meeting with a software company and found myself analyzing their industry using Porter’s five forces.  This is a framework for understanding the dynamics within an industry.  Also, the rigor of analyzing an industry makes you stop and first define the industry.  It sounds simple but can often be complex.  If there are multiple audiences or multiple products, you might want to do the analysis on each.  Next, it requires that you consider vendors, customers, and competitors.  In my first semester at business school, I must have done this exercise at least once a week. 

Years later I could not believe that I was still using this framework but I found it useful in preparing for my meetings.   One of the questions in the software business is who owns the customer?  If the software is sold via a value added reseller (VAR), then they may own the relationship.  Knowledge is power and the VARs may have all the power.  The VAR may know when the customer is likely to want an upgrade, add new seats or licenses, or purchase additional software for related business processes. 

If you are starting to work on a new industry or a new project, consider using the Porter five forces framework.  It can help you get to the heart of the strategic challenges within an industry.

James Surowiecki writes in the April 20, 2009 edition of The New Yorker that during hard economic times, companies cut costs including labor, advertising spend, and research & development, as well as forego acquisitions even though prices are lower.  However, companies that remained market leaders during the 1990-1991 recession increased spending according to a McKinsey study.  Research by Bain found that recessions can be opportunities for companies to leapfrog over their competitors.

Thus, CEOs and senior management have a difficult choice.  They can choose to slash costs in order to win a war of attrition – becoming lean to survive the recession assuming that their competitors drop out of the market or business altogether.    Alternatively, they can invest in advertising, research & development and acquisitions in order to grow market share and transform themselves into market leaders.  However, there is no guarantee.  Do you risk sinking the boat in order not to miss the boat?