What do businesses need to create value?

Mitsubishi Heavy Industries--which began as a shipbuilding firm and is now a global manufacturer of transportation equipment, energy equipment and other industrial products--included this chart in its recent annual report to indicate the inputs used to create value.

What is particularly interesting is that Mitsubishi Heavy Industries mentions five inputs, not the traditional four identified by Michael Porter in 1985.  

Social relationship capital is Mitsubishi's "extra" input that addresses stakeholder relations so vital to today's competitive, global business environment, as shown in this comparison.

Porter's inputs:

• Procurement--obtaining raw materials and money and other resources for the firm.
• Human resources management--attracting, training and retaining managers and employees for the firm.
• Technological development--creating or acquiring the technological know-how and equipment/services to transform resources into finished goods or services.
• Infrastructure--the internal organization of departments and functions (such as finance, legal, etc) to support the firm's operations.

Mitsubishi's inputs:

• Financial capital--money (assets, cash, debt and equity) to fund every aspect of the firm's planning and operations.
• Manufactured capital--buildings and investments in equipment and infrastructure needed to enable the firm to conduct business.
• Intellectual capital--patents and licenses, intellectual property of all types and knowledge needed to conduct business and in the future.
• Human capital--employees and managers plus partners, suppliers and distributors that have the core competencies to help the business achieve its goals.
• Social relationship capital--relationships with stakeholders and with the natural environment. (This set of inputs is not directly mentioned in Michael Porter's value chain, but its importance cannot be understated in contemporary business.)

Are You Using Porter's Five Forces Model?

Whether you're writing a marketing plan for a startup business or an existing organisation ready to enter new markets, you'll need to analyse the competitive situation in the industry.

One way to look at industry competition is through the lens of Professor Michael Porter's Five Forces model, which asks five strategic questions:

1. How much bargaining power do buyers have? If there are only a few buyers, the business is likely to feel downward pressure on pricing. How can you make your offering stand out and add value that buyers will pay for? What role can good customer service play in your competitive situation?
2. How much bargaining power do suppliers have? The more power suppliers have, the higher costs are likely to be. Keep this in mind as you plan your resource allocation and your profit-and-loss potential.
3. How many substitutes are available for your offering? If there are many available substitutes for your good or service, competition will be more intense. And when buyers have many substitutes to choose from, that can negatively impact the marketer's ability to increase sales and maintain profitable pricing.
4. What is the likelihood of new entrants coming into the industry? When many new entrants join the market, price competition intensifies and existing competitors may have profit problems. However, if there are few barriers to entry, build your marketing plan on promising opportunities that can be exploited with your unique strengths and capabilities. Also plan to build your brand into a barrier to entry.
5. How much rivalry exists in the industry? Investigate the existing competitive situation to determine whether a market or segment is overly competitive--which can lead to price wars and other profit-sapping challenges.

Despite the constant change in the marketing environment, a careful competitive analysis will help you plan for innovatively pursuing opportunities and deflecting threats. Don't forget to include competitiveness when assessing which market segments to enter and what order.