After the major interruption of the end of year break, followed by the challenge of returning to a busy in-box (and inevitable inertia of the January restart), it was long overdue to get this little series of Investing in innovation blogs back on track.
In the last blog before Christmas we discussed the role on one key market analysis tool – TAM SAM SOM. In this blog I’ll discuss the other tool we use a lot – Porter’s Five Forces. I will also highlight the importance of industry engagement/voice of the customer in supporting any market analysis, and the crucial role played by independent parties in the execution of that.
Porter’s Five Forces
Porter’s five forces is a framework for assessing the attractiveness of an industry (or industries) as part of determining an overall business strategy. It was first defined by Michael Porter in 1979.
The primary axis is that which links suppliers and buyers through the marketplace of current competitors. How the marketplace works determines how profitable the industry is currently and how that profit is divided between suppliers and buyers.
The actions of these parties are constrained by the threat of potential entrants and the threat of potential substitute products or services. As these are threats rather than active participation, this can be thought of as a secondary axis.
We use it to address a number of different market analysis scenarios, such as:
- A client entering the offshore wind industry to:
- Become a project developer
- Provide O&M services, or
- Sell your AI-driven asset performance tool.
- To support a client refining their business strategy, choosing between different markets, such as:
- Selling O&M services to offshore wind, onshore wind, or solar
- Developing offshore wind projects in Europe, Asia or America, or
- Focussing their design efforts on fixed, floating, or hybrid foundations.
- Helping a client understand how best to influence their existing market to their benefit:
- Minimise their threats
- Maximise their opportunities
- Minimise the competition, and/or
- Maximise their leverage.
Business strategies typically require multiple viewpoints and it is a rare project where we use Porter’s Five Forces to answer just a single question.
It is worth highlighting what I feel is possibly one the key strengths of the tool – it happily lends itself to a fast and light approach just as much as one heavy with detail. It is perfectly possible to populate the model with no more than an hour of thinking, particularly if you are familiar with the market in question. While more detail is always helpful, this “gut feel” approach can be used to help identify the core issues quickly and help steer the detailed market analysis to where it is most valuable.
It is also flexible tool and can be used to inform strategies in less obvious ways. We have applied it, for instance, to assess whether market attractiveness alone is likely to drive the desired behaviour, or if policy intervention is needed – such as government seeking to understand whether policy actions are needed to support the growth of floating offshore wind, for example.
Voice of the customer/industry engagement
Voice of the Customer (VOC) – which in the widest sense can also be referred to as “industry engagement” – is a process that helps businesses capture customer requirements by talking to customers about specific products or services.
We use VOC to assess the market’s view of both:
- A specific supplier – “How has Product X performed in reality?”, and
- The general needs/expectations of a specific service (regardless of the supplier) – “What are the core requirements of Service Y for you?”.
These are often combined in order to analyse how well a particular service or product aligns with customer/market needs. Consider the scoring below for a predictive analytics software tool, where the customer was asked to score against six criteria:
- Price of product
- Reputation of supplier
- Level of after-sales support
- Ease of implementation
- The prevalence of “false positive” alarms (that is, the software highlighting problem with a component which turns out to be a false alarm once investigated), and
- The ease of integrating the product with other systems used by the customer.
The results can be shown graphically as a comb chart or, perhaps more informative, as a radar plot – see below.
Either way, the engagement process highlights the misalignment between the product and its target market.
The market analysis process above is classed as a “structured” approach, where we develop a set of questions targeted at a specific purpose. Unstructured approaches are used when the engagement is more open and investigative, such as when we are seeking guidance and direction.
In all cases, it is essential to:
- Develop questions that directly address the core challenge, and
- Build a list of target interviewees that will be able to answer those questions with relevant experience and knowledge.
Some helpful hints and tips when undertaking VoC engagements include:
- Consider who the target customers are to ensure that you have full coverage of the most important parts of the market.
- Within the wind energy industry, we are often talking about low volume, high value products. This means we are more likely to use structured questionnaires rather than rely on other metrics such as numbers of customer complaints by type, or by using a mass market survey.
- Often interviewees have been more willing to share their true needs when they are speaking to an independent, such as BVGA, rather than have the client present during interviews.
- Question fatigue, if there are too many questions the responder may get bored and this will reduce the quality of your answers. Think carefully about the most important areas and limit questions to these.
- When using comb analysis, it often helps to segment your responses. For example, separate respondents who use your product as part of their daily routine from respondents who manage or procure your product.
