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. 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.
Me too won’t do.

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.