Porter’s Five Forces
My brain seems to work this way. I feel if I can present an irrefutable truth along with a pathway to success you will improve your practice. Part of this is my proclivity to look at some of the same issues from different perspectives. Porter’s Five Forces is a useful and easily understood tool to understand the competitiveness of your business and for identifying strategies for potential profitability. Stay with me. This will not be an esoteric theory discussion but a true tool that will help you circumvent your tendency to put things off or not recognize the true problems that you face. This is an easy way to analyze the strengths and weaknesses of your practice and your competition in your location. This tool was created by Harvard Business School professor Michael Porter, to analyze an industry’s attractiveness and likely profitability in 1979. Since that time, it has become one of the most popular and highly regarded business strategy tools. I want to help you use this tool to determine your competitive intensity and your marketability and potential for a successful, profitable business.
1. Competitive Rivalry: This looks at the number and strength of your competitors. How many rivals do you have? Who are they, and how does the quality of their products, services and consumerism compare to you? If your ratio of dentist to population has dipped below 1:2,000 you have entered the twilight zone of “why am I not doing better”? It’s not simply the sheer number of dentists that matters. Are they more competitive than you when it comes to hours, range of services provided, range of ages seen, insurance, staff and facility? Everything matters. There are still places where the competitive rivalry is minimal, and no one else is doing what you can do. In this case, you will likely have tremendous strength and healthy profits.
2. Supplier Power: How easy is it for your suppliers to increase their prices? How many are there? Can they impact your profit? Based on the dozens of lawsuits pending against Schein, Patterson, and BENCO along with the latest charges levied by the Federal Trade Commission, it seems that there are a lot of us who think they are controlling our supply and equipment costs in an artificial way and influencing manufacturers with what some might call less than ethical strategies. In this case, yes, to the fact that our suppliers can elevate our costs and influence our profits.
3. Buyer Power: You need to ask yourself if buyers (the public) can drive your prices down. Check that box, too. Consumers, national dental corporations, insurance companies and, yes, distributors have influenced the public to believe that a crown is a crown. This is called the commoditization of health care. We have seen it in vision, pharmacy, and medicine. We will be the next in a long line of healthcare professions to find out that the success or failure of our business depends on a consumer who gets to decide whether they are willing to pay a particular price or where they buy those services and products.
4. Threat of Substitution: This refers to the likelihood of your patients finding a different way of doing what you do or of getting what you do. Here are the national corporations again. As independent dentists we need to wake up and realize that ours is a profession that is facing a climate change. Success will go to the ones that are quick to adapt and change their culture and operating systems. The facts say that multi-doctor offices are growing by 20% a year and that solo practices are decreasing by 7% a year. It doesn’t take a math wizard to see the future.
5. Threat of New Entry: Your position can be affected by people’s ability to enter your market place. Dentistry has always been a fragile business model that has been eyed by investment money and targeted by the demise of other healthcare areas. Our inability to adapt and change has made us vulnerable and this has made it easy for DSOs, Corporations and entrepreneurs to drive the growth in dentistry.
According to Porter, these Five Forces are the key sources of competitive pressure within any industry. He stressed that it is important not to confuse them with more fleeting factors that might grab your attention. What you face today is not a “fleeting factor” but it is climate change. When you are done with change, you are done. Adapting and reacting will rule the day. This is how you summit.
Michael Abernathy, DDS
PS. Be sure and join www.bestfordentistry.com as we are continuing to add additional Alliance Partners to lower your overhead and put more $$ in your pocket.