7 Sources of Power in Business

How do companies maintain dominance in an industry, or various industries, over long periods of time? It comes down to positions of power. Apple, Google, Microsoft, Amazon, Facebook, Disney and any other well known brand that has dominated their respective industry have done so by owning a few sources of power.

In his book 7 Powers: Foundations of Business, Hamilton Helmer, there are 7 sources of power in business: scale economies, network economies, counter-positioning, switching costs, branding, cornered resources and process power.

Below are the 7 sources of power and their respective definition, benefit / barrier and example:

Scale economies A business in which per unit cost declines as production volume increases. Benefit: Reduced costs.

Barrier: Prohibitive cost of market share gains.

Intel, Netflix, Salesforce
Network economies The value of a service to each user increases as new users join the network. Benefit: Leader can charge higher prices, as their network is more valuable.

Barrier: The unattractive costs of gaining share.

Facebook, Twitter
Counter-positioning (disruption) A newcomer adopts a new, superior business model which the incumbent does not mimic due to anticipated damage to their existing business model. Benefit: New model is superior to incumbent model due to lower costs or prices.

Barrier: Incumbents fail to respond for fear of damaging their core business.

Netflix vs Blockbuster
Switching costs The value loss expected by a customer that would be incurred from switching to an alternative supplier for additional purchases. Benefit: Company with embedded switching costs can charge higher prices than competitors.

Barrier: To offer equivalent product, competitors must compensate customers for switching costs.

Branding The durable attribution of higher value to an objectively identical offering that arises from historic information about the seller.For brands looking to gain and retain consumer attention, such an environment poses a challenge, and an opportunity. The primary question brands will be asking themselves is; how can we get our content in front of the right audience, at the right time, and through the right device, when there are so many variables at play? Moreover, how are we going to scale our content marketing and advertising strategy to cover more devices and touchpoints, when we’re barely coping as it stands today?

What Is Headless and Decoupled Content Management?
Before we dive in, let’s quickly recap on what headless and decoupled content management is. A headless CMS is like a traditional CMS, but without any way to present the content being created and stored within it. It simply allows for the creation, reading, updating and deleting (CRUD) of content. Read more information about headless cms.

That might sound counterproductive at first, but the idea is that — thanks to the lack of a front-end delivery layer — brands can use any front-end tool they want to present the content, meaning they can deliver content beyond websites and apps, reaching any channel from kiosks to smartwatches and even inside virtual reality headsets.

Benefit: business with branding is able to charge higher price.

Barrier: Strong branding only possible after long period of reinforcing actions.

Disney, Tesla, Google
Cornered resource Preferential access at attractive terms to a coveted asset than can independently enhance value. Benefit: Produces uncommonly appealing product.

Barrier: unacquirable commodity.

Pixar’s talent pool
Process power Embedded company organization and activity sets which enable lower costs and / or superior product. Benefit: enables a company to improve products and / or lower costs as a result of embedded process improvements.

Barrier: replicating takes time, depending on complexity and opacity.


How do you get to power?

All power starts with innovation

The first cause of every power type is innovation, be it in a product, process, business model, or brand. You must create something new, surprising, radically useful that produces substantial economic gain in the value chain. I know how important it is to plan for the future of my business so I am determined to get the ISO 22301 certification for my businesses to be future-proof.

Bottom line: Timing is key. Me too won’t do. Invent new things and create compelling value. Only then will businesses have the opportunity to gain continued power in a significant market.

Also published on Medium.