Porters‘ Five Forces and LEAN-INTERIM

Today at the Boston University we talked with Professor Jeff Furman (who met Michael E. Porter) about Porters‘ Five Forces. The concept is clear and quite approved, but what I like most about it is the aspect of „reshaping the forces in your favor“. What does this have to do with LEAN and INTERIM? I’ll share my thoughts with you.

Hopefully you are fully aware of Porter’s Five Forces otherwise you should be urgently:

  • Rivalry among existing competitors
  • Bargaining Power of Suppliers
  • Bargaining Power of Buyers
  • Threat of New Entrants
  • Threat of Substitute Products or Services

What are the LEAN aspect and the INTERIM aspect about it to join them for a lean-interim approach?

The INTERIM aspect

Every Interim Manager in the Interim Industry is confronted with the five forces as well.

The thread of entry is on a mid to high level as every successful (or even failed) manager could start a career as Interim Manager. For survival he will need a good network, references, experience, sales and marketing skills, the right attitude, willingness to take financial risks and qualifications depending on assignment and industry.

The power of suppliers has no effect to the Interim Business, beside that some Interim Managers use IM providers as a kind of source for their assignment and share the profit with them.

The Threat of Substitutes does not really exist, but in the eyes of our clients they see Full Time Employees, Consultants and sometimes even banks as a solution for their problems. I guess all of us Interim Managers understand that this is for well know reasons not comparable.

Extend of Rivalry seems to be a problem as the entry barriers are too low. Some Interim Managers sell themselves via the price to survive. Hopefully this aspect will be regulating itself via stories of failures and the growing IM education and certification industry. Today, it is truly a threat and has a very negative impact on the general pricing level of this industry.

Power of Buyers is one of the more interesting aspects. Good Interim Managers are driven by job satisfaction to move things and to be succesful. Great Interim Managers take care about sustainability of their results, transparency in their decisions and great reputation combined with a visionary management style. As there is still a shortage of this kind of Interim Managers the buying power of clients is quite low. On the other hand there are a lot of desperate Interim Manager with one good result, even from the same industry, who would be accepted by the client but willing to negotiate about daily rates (mostly feeling under pressure in comparison with FTE calculations). Clients experiencing this kind of IM will always tend to negotiate.

The LEAN aspect

The LEAN aspect in combination with Porter’s Five Forces comes into account as soon as you are willing to use this framework to „Reshape the forces in your favor“!

What does this mean?

Porter mentions a few ways to neutralize or reduce the power of the forces in the Harvard Business Review of January 2008. E.g. to neutralize supplier power he recommends to standardize specifications for parts so your company can switch more easily among vendors. LEAN philosophy (respect for people) makes you stick to suppliers but work in this network to achieve a high level of standardization, interfaces and standardized processes. The outcome should be a WIN-WIN situation. You also could use the LEAN know-how to produce SOPs (Standard Operating Procedures) to weaken the supplier power, but you know…

In regards of customer power Michael recommends to expand services (even during downturns), which completely aligns with the main idea of LEAN to continuously create value to your customers.

To temper price wars initiated by established rivals, invest in products that differ significantly from competitors‘ offering goes along with the standard LEAN process of „Voice of the Customer“ product development.

This are just a few examples (as I have to go now) that Michael Porters‘ Five Forces fits well into the INTERIM Business and supports the LEAN approaches.

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