Modeling industry political dynamics.

Research into corporate and industry political strategy could have its origins in any of three different academic areas - political science, business strategy, or business and society. For example, the political science field has been, for the most part, disinterested in the strategies and tactics of businesses and industries in the political arena, and in cases in which such research exits, it is not informed by a well-grounded knowledge of business and organizational practices. It has been 40 years since Robert Dahl (1959) made the following observation:

For all the talk and all the public curiosity about the relations between business and politics, there is a remarkable dearth of studies on the subject. What is written is more likely to come from the pen of a sociologist, an historian, a lawyer, or an economist than from a political scientist. (p. 3)

As confirmed by a review of the major political science journals since 1960, there is still a dearth of political science research relating to corporate political strategies. Quite simply, political scientists have apparently chosen to spend their precious research efforts on other topics of interest to them and to their field.

Therefore, one might believe that the field of business strategy would be the home of a continuing research effort focused on corporate political strategies. Strategy is, after all, concerned with the long-term survival and success of the business organization in a competitive environment. Unfortunately, strategy researchers, for the most part, have conceived of strategy being confined to the product-market-technology (PMT) arenas, and the strategy field has neglected the impact of governmental and/or political and social groups on the strategy of the firm and the industry. The notable exception has been with the topic of regulation, in which the impacts are clearly evident, easy to measure and model, and theory is more easily developed.

The third noted research area, business and society, remains as a possible source of sustained research in corporate political strategy, and it is indeed in this field, in which the most relevant, interesting, and practitioner-oriented political strategy research is being conducted. This research is firmly grounded in business and organizational practices and arises out of a multidisciplinary perspective. It is here that the importance of organizational skills in political strategy and tactics is recognized as important, especially as the nature of competition becomes more global and intense (see, e.g., Baron, 1995; Getz, 1993, 1997; Hillman, 1995; Mahon, 1989, 1993; Mahon, Fahey, and Bigelow, 1994; Schuler and Rehbein, 1997). It is, as noted earlier, crucial that organizations understand political and social issues and the absolute need for organizations to anticipate, shape, and respond to them. The business and society area addresses these concerns.

The purpose of this article is to extend from the business and society research focus on corporate political strategy and to factor this emphasis into business strategy thinking. The approach taken is to incorporate business and society concepts into a model that parallels Michael Porter's well-known Five Forces Model of business strategy. The applicability of the parallel model for practitioners and academics is then illustrated by using the model to analyze the television violence issue.

MICHAEL PORTER'S LEGACY

Michael Porter (1979, 1980) is a legend in the strategy field, and his work has contributed enormously to the development of industry competitive analysis. Porter's work has deep roots in the industrial organizational economics field. One of his major accomplishments has been the development of structural analysis of industries - more commonly known as Porter's Five Forces Model (shown in Figure 1). This framework is well known, and every undergraduate and graduate student in business school is exposed to it at some point in their education. It has broad applicability and has won the respect of managers around the world for its ease of use and broad applicability to a variety of situations and industries. The model has been successful, in our opinion, because of its simplicity, which manages to capture the powerful forces of industry dynamics in an easy to understand and apply format. In the academic field, Porter's model has led to the development of an enormous number of case studies that lend themselves to the use of the model and to numerous strands of research that continue to develop and support the basic utility of the model itself (Skil Corporation [HBS 9-389-005] and the CFM International, Inc. [HBS 9-793-091] cases available from the Harvard Business School are examples of a much larger set of cases that deal with and use Porter's industry analysis framework).

The model consists of five major components that affect the competitive dynamics of a specific industry. These components are: suppliers, industry rivalry, substitute products, new entrants, and customers. In addition, Porter's model recognizes the importance of barriers to entry and barriers to exit for a given industry. The fundamental approach of the work rests on the notion of power within the relationships. Within the relationships illustrated in Figure 1, where does the power lie at a given point in time? How can and does the power shift over time among and between (a) suppliers and the industry members, (b) industry members and substitute products and/or new entrants, (c) industry members and customers, and (d) industry competitors? The shifts in power mirror the strengths of the players in the industry and the forces that are buffeting it at any given point. That is, doing an industry analysis is a continuous activity because the competitive dynamics change over time as power shifts between and among the five forces and affects relationships. As a consequence, a successful industry with few substitutes, a low likelihood of new entrants, and great power over either customers or suppliers can be transformed in a very short period of time.

To illustrate the use of the model, one could look at the computer timesharing industry in the mid-1960s and see an industry that had tremendous power over its customers but very little power with regard to suppliers. The nature of the industry was such that a competitor would buy one mainframe computer (hence the limited power over the supplier) and provide time-sharing services to small and medium-size businesses. Because there were few alternatives (no personal computers, local area networks, or mid-size computers) to doing these processes by hand and because there was an enormous number of potential customers, the time-sharing business did quite well because it had a power advantage relative to its customer base. It should also be evident that at this time, there were also few substitute products. The possibility of substitution did exist, but it was tempered by geographic concentration and client focus (manufacturing vs. service) or by the type of computing needs (accounting, personnel, statistical, quality control, logistics, etc.). The nature of the business was to provide tailored computing services to individual clients - in which competitors would differentiate themselves and attempt to achieve a sustainable competitive advantage. Barriers to entry into this industry were not particularly high - the major costs lay in the purchase of a mainframe computer and knowledgeable workers to apply and develop software for use by major customers. Barriers to exit were also relatively low because competitors could leave the industry nearly at will and with little cost. As a consequence, being a competitor in the time-sharing business held the promise of reasonable financial success. The pursuit of specialization (by geography or by client) further limited the possibility of ruinous competition and maintained the power of the industry over the buyer/customer.

However, this business was turned upside down with the advent of midsize and personal computers. Suddenly there was an affordable and efficient substitute to time-sharing that dramatically reduced the power that the industry had exercised over customers. The industry went through a period of large-scale consolidation and shrinkage because the buyer had a reasonably priced alternative to relying solely on a time-sharing firm. Notice how the power relationships changed over time - initially the industry had significant power over the potential customer market. Although the time-sharing business lacked clout with its suppliers, there was little fear of forward integration because the time-sharing business was mainly a service industry and the mainframe computer business was mainly a manufacturing and hardware …