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10. Useful Concept Charts
Concepts or business frameworks such as Porter's 5 forces can help you structure difficult problems and organise your presentation. In this course, I'll introduce you to a few of my favourites.
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Lesson Goal (00:06)
The goal of this lesson is to learn about several frameworks that may help you understand your business problems better.
Porter’s Five Forces Model (00:32)
Porter’s five forces model helps you to understand the forces that shape each industry. These forces are the threat of new entrants, the power of buyers, the power of suppliers, the threat of substitutes, and the rivalry between industry competitors. Understanding how each of these forces affects a company and its industry helps you understand the balance of power and take the right actions.
Four Strategic Postures (01:06)
The four strategic postures categorize the four roles a company can play in a market. This framework is used when an industry is facing change and a company must decide how they wish to play in the market. The four postures are:
- Shape the future: A company decides to become a leader at changing the industry.
- Adapt the fastest: A company does not instigate industry change, but follows it closely and adapts quickly.
- Reserve the right to play: A company does enough to stay in the industry, but does not change quickly
- Exit: A company leaves the industry
Portfolio of Initiatives (02:09)
The portfolio of initiatives is used when a company needs to decide where to focus its energy in the short to long term. Each possible initiative available to the company is placed on a matrix, which allows the company to evaluate initiatives based on size, risk, and timing. Companies want a balanced portfolio of initiatives with varying degrees of risk and various timelines. Generally, high risk initiatives have longer timelines.
Seven Degrees of Freedom (02:43)
The seven degrees of freedom framework outlines the strategic dimensions in which a company can be managed. It outlines seven methods that can be used to grow a business. The seven degrees are moving into new competitive arenas, expanding into new geographies, improving the industry structure, innovating in the value delivery system, innovating in products, and acquiring new customers. This tool can be useful for a company deciding on its next moves when looking for growth.
Levels of Uncertainty (03:14)
The levels of uncertainty framework helps a business understand exactly what kind of uncertainty they face. It breaks uncertainty into four types:
- A clear future: The business has low uncertainty, and can develop a strategically relevant forecast
- Alternative futures: A small number of distinct identifiable outcomes are possible
- A range of futures: Multiple sources of uncertainty create a wide range of possible outcomes
- True ambiguity: It is nearly impossible to predict future outcomes
Identifying the correct level of uncertainty helps you to structure your analysis effectively.
If you've spent time working as a management consultant or with a company that has hired a management consultancy, you'll know that they're very fond of frameworks and concepts. While frameworks have their limits, and need to be applied carefully in each scenario, they can be hugely helpful when trying to convey how you're thinking about a problem while structuring your issue tree. In this lesson, I'm going to take a break from the Pharma case study and share with you a few frameworks or concepts that I consider to be very beneficial for analysts. The first framework I'm going to show you is Porter's five forces. The Porter's five forces is a simple but powerful tool for understanding where power lies in a business situation. This is useful because it helps you understand both the strength of your current competitive position and the strength of a position you're considering moving into. With a clear understanding of where your power lies, you can take advantage of a situation of strength, improve a situation of weakness and avoid taking the wrong steps.
However, it can also be very helpful when used to understand the balance of power in other situations.
Next up are the four strategic postures, which categorize the four roles that a company can play in a market.
This framework is often used when an industry is facing a seismic change and a company needs to decide on how it wishes to play in this new market. Let's go through each of these options. In the top left-hand corner, we have the most aggressive posture where a company decides to become a leader in creating change within an industry. A good example of this would be Google. Next up is the adapt the fastest posture, which relies on responding quickly to changes in an industry but not instigating these changes. In the bottom left-hand corner is reserve the right to play. This posture means the company is dedicated enough to stay in the market but will not play an aggressive or leadership role. And lastly, we have the exit when a company decides to leave a market. Although this framework appears relatively straightforward, you would be surprised at how many companies do not know their strategic posture in the various markets they play in.
The third concept I'd like to share with you is the portfolio of initiatives. This framework is very helpful when a company is trying to decide where to focus its energy in the short to long-term. The framework places each initiative available to the company on a two-by-two grid with risk on the y-axis, and timing on the x-axis. The size of the circle indicates the size of the opportunity. Ideally, the company would have a balanced portfolio of initiatives with varying degrees of risk spread across various timelines. Typically, the higher the risk, the longer the timeline for an initiative. The next framework I'd like to show you are the seven degrees of freedom.
This framework outlines the strategic dimensions in which a company can be managed. If a company's looking to change its current business, this framework is a MECE tool for exploring the different strategic options available to the company from entering new geographies, to innovating on the product or even trying to change the delivery structure. I've used this numerous times in the past when creating a MECE structure for a company deciding on its next move. The last framework I'd like to share with you are the levels of uncertainty. All businesses deal with uncertainty but the level or type of uncertainty that a business faces is often not agreed within the company or well understood. This framework breaks down uncertainty into four distinct types. The first type, a clear future, has the least amount of uncertainty and management are in a position to develop a strategically relevant forecast. The second, alternative futures, is where a number of distinct identifiable outcomes are possible. An example of this would be a change in regulation. The third level of uncertainty is a range of futures. In this environment, there are multiple sources of uncertainty that can lead to a range of different outcomes. And the last level of uncertainty is true ambiguity where it's almost impossible to predict what will happen. An example of this would have been the early days of the internet.
By identifying the correct level of uncertainty that your business faces, you can help structure your presentation and analysis in a much more effective way.
To use these and other frameworks effectively, it's best to consult the framework before you build your pyramid as an aid for solving difficult problems. Ultimately, the framework may fit directly into your presentation as a MECE structure or they may appear on one slide, say related to evaluating market uncertainty. Either way, adding frameworks to your knowledge base will improve your ability to solve difficult problems and articulate your views coherently in a business presentation.