Mtm3 white paper driving forces analysis

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Driving Forces AnalysisIntelligence Collaborative - Mastering the Methods Series

Driving Forces Analysis

This White Paper is #3 in a series of intelligence methods being offered to members of the Intelligence Collaborative. It was developed by Dr. Craig S. Fleisher to provide a concise overview of how to apply key intelligence methods to support analysis. Although every effort is made to ensure that the information is accurate and fit for its purpose, the author and Aurora WDC make no implied or explicit warranties as to its applicability or use in your particular work context.

Please direct any questions about this paper to its author at the following:Craig S. Fleisher, Ph.D.

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Other White Papers are available on a regular basis from http://IntelCollab.com. Related Methods in the series are:

Financial Ratio and Statements

Industry Analysis

Issue Analysis


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Abstract

The Driving Forces analysis is a method used by analyst to understand those critical factors that are creating changes in their competitive landscape and to industry stakeholder’s behaviors. More often than not, these forces are convergences located at the intersection of events and other forces that alter the likelihood of whether the environment will be more or less attractive in the future. It is usually viewed as helping decision makers/executives with “early warning” key intelligence topics.

The Method’s Primary Value

Driving forces are those forces outside the company (i.e., external factors) that compel strategy change in an organization’s industry and markets. Driving forces analysis is a key facet of environmental analysis and planning that helps the analyst answer the specific question “What forces are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability?”

When effectively performed, driving-forces analysis pushes executives to consider what's ahead, around the corner, encroaching on the industry/market periphery, and what actions their company should undertake now to get ready for and stay ahead of it.



Overview of the Method

Driving forces are defined as “Those fundamental forces that bring about change or movement in the patterns and trends that we identify as underpinning observable events in the world. Understanding of the inter-relatedness of these forces will provide insight into the systemic structure of the problem that we are exploring” (van der Heijden et al., 2002: 282).

The true value of driving forces analysis is to help managers understand what needs to be changed to prepare their companies for the impacts of the driving forces. Sound analysis of an industry’s driving forces is a necessary but not sufficient prerequisite to effective strategy making. Without having a keen awareness of what external factors will produce the biggest potential changes in the company’s business in the future, managers will not be prepared to craft strategies that fit emerging conditions. Executives who are uncertain, wrong, or lacking understanding about the implications of driving forces have great difficulty crafting responsive plans and strategies for their businesses. As such, driving forces analysis is one of the basic pre-conditions for thinking strategically about future industry directions and how to prepare the business for the changes. It has a high degree of practical strategy-making value!

Competitive, industry and market conditions evolve because dynamic forces generate pressures for change. Analysts must first identify the most critical forces (i.e., the “driving” ones) that are motivating change in the industry; common driving forces include changes and transitions in the following categories:

1. Alterations in societal attitudes, concerns, and lifestyle patterns 2. Changes in business models, costs and efficiencies3. Deviations in who purchases the product and in the manner it is used4. Government policy changes5. Increasing globalization6. Major firms entering or exiting the industry7. Market and product innovation8. Modifications in enduring rates of industry growth9. Regulatory changes and evolving requirements10. Risk and uncertainty reduction11. Technological change and diffusion of know-how12. Trends that diverge due to major events

Each of these categories often sits at the intersection of converging events and trends that provide the platform for the strength (i.e., how enduring it will be) of these forces. Following this, the analyst must determine whether the confluence of these driving forces is creating a more or less attractive environment (i.e., industry, market) in which to complete. Are they motivating more or less demand for the industry's product? Are they empowering or reducing the bargaining power of suppliers and customers? Are they intensifying or lessening the degree of competition? Will their momentum (unchecked) eventually increase or decrease industry profitability?



Where the Method Fits in Planning and Strategy

Effective analysis of an industry’s driving forces is a foundation to worthwhile strategy making. Lacking an understanding of the external factors causing the most important alterations in the company’s business over the next few years, executives will not be able to craft strategies that align well with emerging conditions. Managers that are unsure about the nature, magnitude and implications of each driving force will develop unresponsive strategies to the driving forces and their impacts for the industry. Driving forces analysis has a great deal of practical strategy-making value and is essential to thinking strategically about the industry’s direction and company can best prepare for the changes.

Sequentially, driving forces analysis is typically applied following an industry analysis (aka, Porter’s 5 forces) and prior to a strategic group analysis (which answers “What market positions do industry rivals occupy—who is strongly positioned and who is not?”). It also complements and is typically done as a precursor to competitive moves analysis (answering “what strategic moves are rivals likely to make next?”) and critical success factor analysis (which answers “what are the key factors for achieving success in this industry?”).

Cautions with Applying this Method

Driving forces analysis (DFA) cannot drive strategy formulation alone and seldom specifically answers clients' strategy questions. There are other steps that need to be performed before determining organizational actions (that is, strategies or tactics) even after gaining agreement on DFs. In other words, just recognizing and agreeing upon a critical driving force does not tell decision makers what they need to do, but it does tell them that this driving force will impact their future, and that the decisions or strategies that need to be developed must take these impacts into account.

DFs tend to be outside the control of any single firm to change. What can be done is to change how the firm's strategy or tactics takes them into account. Firms do not manage the DFs, but instead must manage their own responses to them.

The process used to perform DFA nearly always needs to be inclusive and participative. This can be a problem in some firms where key personnel are not available to participate or lack the time to give the necessary consideration to the DF development and prioritization process. Mostly due to organizational structure reasons or internal politics, some firms have experienced great difficulties in generating agreements on the DFs or their prioritization.

DF analysis can suffer from many of the common internal, organizational biases when they are generated using only internal personnel. This is because internal personnel tend to see the world through the same (potentially distorted) organizational lens. As such, it is often useful to employ external resources to reach consensus around the DFs.



Applying the Method

1. Identifying what the driving forces (DF) are. This is best done using a number of team-based (group) work processes. At the end of this step, the analyst should have a manageable list of DFs to consider. Our experience suggests that list should be in the range of five to a dozen forces to facilitate the next step of this analysis process.

2. Assessing whether the drivers of change are, on the whole, acting to make the industry more or less attractive. The analyst's objective in this second step is to understand the external factors that will shape change in the industry and the difference these factors will make to it. Once the DFs have been identified from Step 1, the analyst needs to ask the following questions:

o Are they valid? o How do we know? o How significant are each of them? o What is their strength? o Which ones can be altered? o Which ones cannot be altered? o Which ones can be altered quickly? o Which ones can only be altered slowly? o Which ones, if altered, would produce rapid change? o Which ones would only produce slow change?



o What skills and/or information are needed and are available to change the forces? o Can you get the resources/capabilities needed to change them?

At this point, the analyst needs to employ one of several ranking techniques to prioritize the forces according to the prior assessment. Applying criteria weighting approaches, structured ranking, or impact/uncertainty grids are often highly useful for these purposes.

3. Determining what strategy changes are needed to ready the company and prepare for the impact of the driving forces. Once the analyst has performed these steps, their next task is to decide whether (strategic or tactical) actions taken to change the firm's strategy to address the driving force are feasible or not. If so, their goal is to devise a manageable course of action that does the following:

o Strengthens DFs with positive impacts on the industry and firm.o Weakens DFs with adverse impacts on the industry and firm.o Creates new positive DFs.

At this point, it is usually helpful for the analyst to develop another set of tables, one for each of the DFs that has been identified as a priority. For each of these tables, outline in the first column the range of likely impacts that the DFs are expected to have on the industry. In the second column, begin identifying potential solutions that the firm may bring to bear in constructively addressing (that is, minimizing the negative effects and maximizing the positive effects) the impacts.



Complementary Methods

• Competitive Simulations/War Gaming• Forecasting• Industry Analysis (feat. the five forces, nine forces, “n” forces…)• Scenario Analysis• STEEP (Macro-environmental) Analysis• Strategic Group Analysis• Trend Analysis

Additional Resources

See chapter 5 (pg. 63-80) on Driving Forces Analysis in the (2013) book Analysis without Paralysis: 12 Tools to Make Better Strategic Decisions, 2nd Ed., by Babette E. Bensoussan and Craig S. Fleisher, Upper Saddle River, NJ: FT Press.

Business and Competitive Analysis: Effective Application of New and Classic Methods by Craig S. Fleisher and Babette Bensoussan, 2007, Upper Saddle River, NJ: FT Press.

Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition by Craig S. Fleisher and Babette Bensoussan, 2003, Upper Saddle River, NJ: Pearson/Prentice Hall.



Complementary Methods

• Competitive Simulations/War Gaming• Forecasting• Industry Analysis (feat. the five forces, nine forces, “n” forces…)• Scenario Analysis• STEEP (Macro-environmental) Analysis• Strategic Group Analysis• Trend Analysis

Additional Resources

See chapter 5 (pg. 63-80) on Driving Forces Analysis in the (2013) book Analysis without Paralysis: 12 Tools to Make Better Strategic Decisions, 2nd Ed., by Babette E. Bensoussan and Craig S. Fleisher, Upper Saddle River, NJ: FT Press.

Business and Competitive Analysis: Effective Application of New and Classic Methods by Craig S. Fleisher and Babette Bensoussan, 2007, Upper Saddle River, NJ: FT Press.

Strategic and Competitive Analysis: Methods and Techniques for Analyzing Business Competition by Craig S. Fleisher and Babette Bensoussan, 2003, Upper Saddle River, NJ: Pearson/Prentice Hall.

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Mtm3 white paper driving forces analysis

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