Posted by Elizabeth
When you are putting together the business case for your project you will need some background as to why the company is taking this project on. There has to be some justification for why you are doing this project – otherwise, what’s the point? Putting together a business case can be difficult, especially if your Project Management Office (PMO) doesn’t have a standard template that you can use. One of the places to start is with Porter’s 5 Forces.
Never heard of it? Never mind. Here’s the basics about Porter and his framework.
Back in 1979 Michael Porter came up with a framework for business management which together shows how a product or company can be attractive in the marketplace. This can be a good way to start structuring a business case. After all, you need to be able to demonstrate why the project is a good idea and how it will help the company remain competitive. The framework is made up of 4 external forces which combine to influence the fifth element, that of competition. Let’s look at the 5 forces.
1. Threat of new entrants
The threat of new entrants has an impact on how competitive a product or company can be. In a project environment, this could mean bringing your product to market more quickly so as to get in quick before a competitor launches something similar. The justification for the project would be to ensure that you are able to address this competition head on.
The implication for the project would be that you could have to deal with shorter delivery timescales and have a much higher degree of management oversight as they encourage you and the project team to deliver to market much more quickly than you would normally do. This can put a strain on the project team and you’ll have to work hard to keep up the morale.
2. Bargaining power of customers
The bargaining power of customers takes a number of forms. For example, the customers who will be purchasing your end product may be able to choose from a number of other, similar products and this would make price an element to take into account. It is no good for your business case to show that your project will cost millions of dollars, if the sale price of the end product per unit is really low and the project will take ages to pay back. If that is the case, you may well come under pressure to cut the costs of the project somehow.
You will also want to consider how many potential customers there are, what their current behaviours are and how difficult it will be to make them switch to the new process or product that your project is introducing. You may also want to include an element in the project and business case that demonstrates that you can provide adequate information to new customers – this can be built in as part of your communications plan.
3. Bargaining power of suppliers
Like the bargaining power of customers, if your project relies on suppliers to get it done, you will have to take their influence into account too. What price will they charge for your project work? How easy is it for you to switch suppliers if you need to, or for your supplier to turn around and say that they no longer want to work for you?
4. Threat of substitute products or services
Substituting a product or service is not the same as switching to a competitor’s product or service. An example would be that after a healthcare campaign (or a national success in cycling, such as the UK saw during the Olympics and Tour de France), more people switch to cycling than using their car for journeys. They are not switching their Ford for a Nissan, instead they are switching their cars for bicycles. This would have an impact on all car sales (although how long this would last for this particular example is debatable).
This type of threat tends to come from outside sources and can be difficult to control on the project, so you could list it in the business case as something to be monitored via the project risk log.
5. Competitive battleground
This is all about rivalry with other companies. How much influence do your competitors have over your own internal strategy and the projects that you work on? You may want to consider things like the competitiveness between online and bricks-and-mortar channels, the ability to be flexible to meet the market needs and how easy it is for your company to innovate.
In project terms, this means building into the business case enough opportunities for the project and company to remain competitive without providing too much extra work for the project team. You could consider first an online launch, for example, and then prepare a second phase of the project to deliver the same services through a branch network. This could be costed and put in the business case – you don’t have to try to address all of the challenges from the very beginning of the project.
There are lots of other ways that you can put together information for a project business case, but using this framework from Porter could give you a good starting point. What other techniques do you have for producing project business cases and do you think this model by Porter is useful?
Tags: business case, business marketplace, competition, porter