One of my MBA students this semester sent me a link to this article in the Wall Street Journal about people from an eclectic set of occupations who are trying to create state licensing requirements for their professions. The occupations include cat groomers and tattoo artists. You may be laughing, but the article reminds us of an important concept regarding competitive strategy.
In nearly every business school on earth, students learn about Michael Porter's "five forces" model of industry analysis. However, many students develop a key misunderstanding about the model. They come to think of industry structure as something that is imposed on companies within a particular market. It's as if industry structure falls from the sky, landing on a particular set of industry rivals. In reality, of course, companies can and should shape their industry structure to their advantage. This article reminds us of that important idea.
In this case, the cat groomers, tattoo artists, and others are trying to build more significant barriers to entry in their markets. If they succeed, they will enhance their ability to earn high profits. We can quarrel over whether these state licensing requirements are beneficial for society, but we should all recognize that these firms are trying to shape industry structure to their advantage, rather than simply accepting their external environment as fixed. Good companies shape their environment. Every strategist must remember that notion.