Sam Keller's TEC Blog

Wednesday, January 22, 2014

Understanding Your Industry and Your Business

In order to create a Vision for your business (where you see your company at some future point in time), it is first important to understand your industry, it’s trends and where your company fits in that industry.

Here are two related tools to help you.

   1.    Michael Porter’s Five Forces That Drive Industry Competition

Michael Porter is a Professor at the Harvard Business School who has concentrated on business strategy and industrial economics since 1975.

He has identified five forces that need to be understood in order to formulate strategy, which I define as the link between Mission (what you do and why you do it) and Vision (what you want to be at some point in the future)

The following diagram names these five forces and how they relate to each other.

a.    Threat of New Entrants – New entrants to an industry bring additional capacity, the desire to gain market share and often new resources to use in gaining market share at the expense of existing competitors.  This can and often does lead to lowering of prices which, unless costs can be reduced, leads to lower profitability.  So a question to ask is “how easy it to enter your industry in terms of economies of scale, product differentiation, investment required, cost to customers to switch to the new entrant, access to distribution, proprietary technology and product know how, government regulation and subsidies?”

b.    Substitute Products and New Technology – Are there potentially other products and/or new technologies that could make the industry’s products obsolete or less valuable?

c.    Bargaining Power of Buyers – Are there only a few large buyers in this industry that have the power to demand lower prices, higher quality, and more services thus playing competitors against each other?

d.    Bargaining Power of Suppliers – Are there a few powerful suppliers that can squeeze profitability by raising prices or providing long, uncertain delivery times?  How important is your business to that of your key suppliers – can they make more money selling to other industries?

e.    Intensity of Rivalry Among Existing Competitors – How difficult is it to gain a competitive advantage?  Is there intense price competition?  Are there numerous or very similar competitors?  Are products viewed as a commodity?  Is it easy for customers to switch suppliers? Is the industry exhibiting slow growth?  Are there high fixed costs or are there a high costs associated with exiting the industry?  Is there over capacity?

Not all of these forces are important to any one industry or company. Rather what is important is to gain an understanding of this framework so that it can be used to rapidly identify crucial structural features that determine the nature of competition in your industry.  Once understood, you can focus your strategic attention to the things that matter most.

Reference: Michael E. Porter, “Competitive Strategy – Techniques for Analyzing Industries and Competitors” The Free Press, New York, 1980

            2.  SWOT Analysis – SWOT is an acronym for “Strengths, Weaknesses, Opportunities and Threats” that can be used in conjunction with Porter’s Five Forces to gain an understanding of your business.
  • Strengths - characteristics of the business that give it an advantage over others.
·        What does the company do well?
·        Is the company strong/a leader in its market?
·        Does the company have a strong sense of purpose and a culture to support that purpose?
  • Weaknesses - characteristics that place the company at a disadvantage relative to others
·         What does the company do poorly?
·         What problems could be avoided?
·         Does the company have serious financial or other issues that could impact performance?
  • Opportunities - elements that the company could exploit to its advantage
·         Are industry trends moving upward?
·         Do new markets exist for the company’s products/services?
·         Are there new technologies that the company can exploit?
  • Threats - elements in the environment that could cause trouble for the business
·         What are competitors doing well that you are not?
·         What obstacles does your company face?
·         Are there troubling changes in the company’s business environment – technologies, laws and regulations?

Your team should spend considerable time and discussion with this analysis.  Once completed, you will be ready to work on your vision - see my blog "What is Your Vision for Your Company?"

Wednesday, January 8, 2014

What is Your Vision for Your Company?

Companies that produce enduring success have a well defined mission (why they exist and what they do) and core values (what they stand for).2  The mission and core values remain fixed while business strategy, tactics and practices endlessly adapt to our evolving business environment and changing world.  Everything the company does from hiring employees to capital investment is viewed through the prism of the mission and core.  If it doesn’t fit, they chose not to do it.

A vision is a vivid image of what you and your organization seeks the business to look like at some point in the future.  It should be clear, specific and simple3 so that everyone in the organization can understand it, speak it, feel it, act on it and know what it is that they do as part of their job that helps the organization reach it.  It should capture your passion, goals, and mission, plus point you to a dramatic destination to reach via your strategic plan.

Simply stated, your vision is what your business should look like “down the road”.  It should describe your products, services, customers, finances, reputation, market segments, geographic markets, growth aspirations and environmental standards and societal trends that the organization must understand and emphasize going forward.1  It should also include the passion that you and your employees have for the business. Like the core, the vision serves as a test for the allocation of resources and the types of opportunities that will be pursed in the future. 

A first step is for the management team to agree upon the time frame for the vision.  There is no rule for this, and it should be determined by the nature of the business.1   
Next is to think about your mission – why your business does what it does and how is does it.  You should also do a SWOT analysis – what are your organization’s Strengths, Weaknesses, Opportunities and Threats.  This analysis will also serve you well when you develop your strategy – the link between mission (where you are now) and vision (where you want to be).

An in-depth, thoughtful vision process can be a major motivator for the team.  A team that is emotionally involved in developing the vision statement develops the cohesiveness and strength to overcome the rough spots and the ups and downs, successes and setbacks that every business faces over time.3  

Once the team has a clear picture of the future, they can then work backwards, identifying the priorities and what needs to be done to actualize the end result.3

Jim Collins, author of “Good to Great”, and Jerry Porras who co-authored with Collins “Built to Last”, suggest that the company’s vision should consist of two parts: a Vision-level BHAG and a Vivid Description.2

Vision-level BHAG

A bold vision often referred to as a BHAG (pronounced BEE-hag), which is shorthand for Big, Hairy, Audacious Goal) is a powerful way to stimulate progress. All companies have goals. But there is a difference between merely having a goal and becoming committed to a huge, daunting challenge. You might compare it to climbing Mt. Everest, not impossible but far from easy.  A true BHAG is clear and compelling, serves as a unifying focal point of effort, and acts as a catalyst for team spirit. It has a clear finish line, so the organization can know when it has achieved the goal. A BHAG engages people - it reaches out and grabs them. It is tangible, energizing and highly focused. People get it right away; it takes little or no explanation.

For example, NASA's 1960s moon mission didn't need a committee of wordsmiths to spend endless hours turning the goal into a verbose, impossible-to-remember mission statement. The goal itself was so easy to grasp - so compelling in its own right – “put a man on the moon by the end of the decade.”  Another example, Wal-Mart’s BHAG in 1990 was to “become a $125 billion company by 2000.”

A vision-level BHAG is one that applies to the entire organization and usually requires several years of effort to achieve. Setting the BHAG relatively far into the future requires thinking beyond the current capabilities of the organization and the current environment. Indeed, inventing such a goal forces an executive team to be visionary, rather than just strategic or tactical. A BHAG should not be a sure bet, but the organization must believe that it can reach the goal anyway.

Vivid Description.

In addition to vision-level BHAGs, an envisioned future needs a vivid description, a vibrant, engaging, and specific description of what it will be like to achieve the BHAG. Think of it as translating the vision from words into pictures, of creating an image that people can carry around in their heads. It is a question of painting a picture with your words. Picture painting is essential for making the long term BHAG tangible in people's minds.

Passion, emotion, and conviction are essential parts of the vivid description.

Collins and Porras found that executives and managers often have a great deal of difficulty coming up with an exciting BHAG. They want to analyze their way into the future. Therefore, some teams make more progress by starting first with the vivid description and backing from there into the BHAG. This approach involves starting with questions such as,

·      We're sitting here in 5 years; what would we love to see?
·      What should this company look like?
·      What should it feel like to employees?
·       What should it have achieved?
·      If someone writes an article for a major business magazine about this company in 5 years, what will it say?

Collins and Porras go on to point out that it makes no sense to analyze whether an envisioned future is the right one. A vision is a creation for the future, not a prediction, so there can be no right answer. The envisioned future involves such essential questions as “Does it get our juices flowing? Do we find it stimulating? Does it spur forward momentum? Does it get people going?”

To create an effective envisioned future requires a certain level of unreasonable confidence and commitment. Keep in mind that a BHAG is not just a goal; it is a Big, Hairy, Audacious Goal.

Here are some examples:

·         Was it reasonable for a small regional bank to set the goal of becoming "the most powerful, the most serviceable, the most far-reaching world financial institution that has ever been," as City Bank did in 1915?
·         Was it ridiculous to claim that "we will democratize the automobile," as Henry Ford said?
·         Was almost laughable for Philip Morris, as the sixth-place player with 9% market share in the 1950s, to take on the goal of defeating Goliath RJ Reynolds Tobacco Company and becoming number one?
·         Did it seem crazy for Sony, as a small, cash-strapped venture, to proclaim the goal of changing the poor-quality image of Japanese products around the world?

Of course, it's not only the audacity of the goal but also the level of commitment to the goal that counts. Boeing didn't just envision a future dominated by its commercial jets; it bet the company on the 707 and, later, on the 747. Nike's people didn't just talk about the idea of crushing Adidas; they went on a crusade to fulfill the dream.

Collins and Porras further state that the fundamental dynamic of visionary companies is to preserve the core and stimulate progress. That dynamic, not vision or mission statements, is the primary engine of enduring companies. Vision simply provides the context for bringing this dynamic to life. Building a visionary company requires 1% vision and 99% alignment. When you have superb alignment, a visitor could drop in from outer space and infer your vision from the operations and activities of the company without ever reading it on paper or meeting a single senior executive.

Summary – Three Easy Steps to Creating Your Vision4 

Step #1 – Pick a time frame
It could be 1 year, 5 years, or 10 years that fits the nature of your business

Step #2 – Use the questions below to help you write a first draft
Do NOT reject any ideas. Instead, come up with a Big Hairy Audacious Goal (a Bee-Hag), and be as clear, concise, and specific as possible.

Here are the questions you need to answer:4
·         What does your organization look like now? What should it look like?
·         How big is your organization now? How big do you envision it to be?
·         What is your organization famous for? What should it be famous for?
·         How do you measure success? (Be specific)
·         Why does anyone care about what you do?
·         What do you refuse to do?
·         How do people who work here feel about their jobs? How should they feel?
·         What is your Mission and why do you exist?
·         What are the 3 most important things you offer your clients?
·         How do you find prospects and keep customers?
·         What kind of people will you need to hire? (skills, attitudes)
·         What do you want employees, clients, community, and peers to say about your business?

Step #3 Get feedback, re-write, and then share

Share your vision with those who will implement it — and then move on to the next step, which is the “how” of strategic planning that will lay the path for helping you reach that vision.


1.   Michael Robert, “Strategy Pure & Simple” 1993

2.   James C. Collins & Jerry I. Porras, “Building Your Company’s Vision” Harvard Business Review, September-October 1996

3.   Dr. Marilyn Manning, “Creating A Vision”,

4.   Lesa, “3 Steps to Creating Your Vision”