Business School for CLE: How Would a Corporate Strategist Look at
the CLE Industry?
Presented By:
Peter Berge Minnesota CLE
St Paul, Minnesota
Presented at: ACLEA 52nd Mid-Year Meeting January 30 - February 2, 2016
Savannah, Georgia
Peter Berge MinnesotaCLE
StPaul,Minnesota
Peter H. Berge is the Director of Web Education for Minnesota CLE where he has been a recognized
leader in the field of distance learning for over a decade. At Minnesota CLE, he has been a pioneer in
online education for lawyers, serving as the primary developer for all of Minnesota CLE’s online
programming in legal technology and substantive areas of law. Prior to his work with Minnesota CLE,
Peter has been an attorney in private practice and specialized in the practice areas of personal injury
and appeals, and served as Director of Risk Management at Minnesota Lawyers Mutual Ins. Co. He has
taught on the faculties of William Mitchell College of Law, Temple University School of Law, and
Georgetown Law Center. He is a 1983 graduate of William Mitchell College of Law and a member of the
William Mitchell Alumni Board. He is admitted to practice in Minnesota and the Eighth Circuit. When
not attending to online CLE, Peter amuses himself with music and photography. He plays guitar in the
R&B band The Midnight Mo Experience (www.midnightmo.com) and a new acoustic project, Old Soul
(https://www.facebook.com/oldsoulmn). You can see some of his photography at
www.peterberge.com and www.facesofmn.com.
Business School for CLE: How Would a Corporate Strategist Look at the CLE Industry?
Peter H. Berge
Web Education Director
Minnesota CLE
Barriers to Entry
• Brand loyalty, advertising – ex: Soda Industry• Absolute cost advantages – ex: Sweater Knitting• Scale economies (also scope and experience) – ex: Walmart
• Regulation – ex: Lawyers• Capital – ex: Auto Industry• Product Differentiation – ex: BMW v. Ford
• R&D investments – ex: Medical Device Industry
• Others: Exit barriers, switching costs, channel preemption
Competitive Rivalry
• Fragmented or consolidated industry
• Growth rate• Extent of differentiation• Lumpiness of additions to capacity
• Fixed costs
Bargaining Power of Buyers
• Relative concentration• Few vs many customers facing few vs many sellers
• Purchase volume as % of focal industry output• Large vs small purchase decisions
• Availability of substitute products • Buyer industry substitutes
• Switching costs• Threat of switching suppliers
• Threat of forward/backward integration• Ability of focal industry or buyer industry to become a competitor
Bargaining Power of Suppliers
• Relative concentration• Few vs many sellers facing few vs many buyers
• Purchase volume as % of supplier industry output• Large vs small purchase decisions
• Availability of substitute products • Supplier industry substitutes
• Switching costs• Threat of switching suppliers
• Threat of backward integration• Ability of focal industry to become a competitor
Pressure from Substitute Products
• Direct substitution with same functionality• diesel vs gas engines
• Eliminating need for product• water meters vs flat rate
• Reduce product usage
Let’s Analyze the CLE Industry
• Threat of Entry• Competitive Rivalry
• Power of Buyers• Power of Suppliers• Threat of Substitutes
Integrating Industry and Firm
CompetitiveAnalysis
Capability Assessment
• Analyze industry structure• Create product/market
positioning
• Analyze firm resources• Develop unique firm-specific positions
Create sustainablecompetitive advantage
IndustryOpportunities
STRATEGY
Firm Resources& Capabilities
Business School for CLE: How Would a Corporate Strategist Look at the CLE
Industry?
ACLEA 52nd Mid‐Year Meeting – Savannah, GA
Peter H. Berge
Web Education Director
Minnesota CLE
Business School for CLE: Porter’s Five Forces Page | 2
Introduction
The prevailing business school model for analyzing the structure of an industry is
Porter’s Five Forces:
The model was developed by the ever prolific Michael Porter of Harvard Business School1 as a
more rigorous analysis than the popular SWOT analysis. Porter’s Five Forces has become the
standard framework for analyzing competiveness in an industry within the business community.
1 Porter, M.E., How Competitive Forces Shape Strategy, Harvard Business Review (March–April 1979); Porter,
M.E., Competitive Strategy (Free Press 1980).
Business School for CLE: Porter’s Five Forces Page | 3
Threat of New Entrants
Any market in which high returns are made will attract entrants. Those new entrants
create more competition which will decrease profitability. The question is, how easy is it for
new entrants to enter the market – that is, are there barriers to entry? Barriers to entry can
include:
Brand loyalty, advertising
Absolute cost advantages
Scale economies (also scope and experience)
Regulation
Capital
Product Differentiation
R&D investments
Others: Exit barriers, channel preemption
The soft drink industry is a good example where extensive marketing has created band
loyalty that has made it difficult for competitors to enter the market. An industry that sits close
to natural resources or has a monopoly on skilled labor can produce at a lower costs than
others thus giving it an absolute cost advantage. Walmart can drive prices down and resist
competitors because its scope gives it economies of scale. Lawyers are protected from many
forms of competition by government regulation and licensure requirements. It takes a great
deal of capital to enter the auto industry, thus keeping competitors out and within the industry.
Luxury manufacturers, like BMW, create a sub‐group within the market through product
differentiation. The medical device industry is hard to enter because of the significant R&D
Business School for CLE: Porter’s Five Forces Page | 4
exposures required. The harder it is for competitors to enter the market, the more profitable it
is for the incumbents in the market.
Competitive Rivalry
Competitive rivalry within an industry is driven by the structure of the market including:
Fragmented or consolidated industry
Growth rate
Cost structures of industries: fixed costs
Extent of differentiation
Lumpiness of additions to capacity
A fragmented industry is one in which there are a large number of small to medium sized
businesses, none of which capable of setting price; a consolidated industry is one in which a few
larger companies dominated. There will be more competition in an industry that is fragmented
than consolidated. A fast growing market has room for more competitors as the number of
customers is growing while a mature market has increased competition because increasing
revenue likely means having to steal market share from someone else. Where there are high
fixed costs there is pressure to sell in volume which tends to drive competition. Differentiation
is when products are more specifically created for customers’ needs. With more differentiation,
there is less competitive pressure; with less differentiation there is more competitive pressure.
To the extent that additional capacity for production cannot be added smoothly, competitive
pressures are added in a similar fashion to an industry with high fixed costs.
Business School for CLE: Porter’s Five Forces Page | 5
Bargaining Power of Buyers
Buyers are those who purchase the industry’s products. Depending on where the
industry sits, they may be to end‐user customers or they may be to other businesses. Powerful
buyers are a threat. Buyers can have more or less power depending upon:
• Relative concentration
• Purchase volume as percentage of focal industry output
• Availability of substitute products
• Switching costs
• Threat of forward/backward integration
Relative concentration has to do with whether an industry has few or many customers facing
few or many sellers. For example, if the industry supplying a product or service has many small
companies and the buyers are large and few in number, the buyers can dominate the supplying
companies. Purchasing in large quantities gives the buyer leverage to bargain for a cheaper
price. If a product has few substitutes, it is vital to the industry and thus the supplier has power.
When switching costs are low, buyers can pit the supplying companies against each other to
force prices down. Buyers can sometimes move into the suppliers’ industry and vice versa,
putting pressure on the threatened industry to keep prices low to prevent the forward or
backward integration.
Business School for CLE: Porter’s Five Forces Page | 6
Bargaining Power of Suppliers
Suppliers can include those who provide materials, services, or labor. Their power is
similar in structure to the power of buyers. These suppliers can have more or less power to
raise costs in an industry depending on:
Relative concentration
Purchase volume as percentage of focal industry output
Availability of substitute products
Switching costs
Threat of forward/backward integration
Relative concentration has to do with whether an industry has few or many customers facing
few or many sellers. For example, the computer industry is highly dependent on a very few chip
makers, Intel chief amongst them. Intel holds a great deal of power over the computer industry.
The larger the purchases buyers in an industry make, the more power they have. For example,
Walmart and Costco buy in such bulk that they have considerable power over suppliers. If a
product has few substitutes, it is vital to the industry and thus the supplier has power. Even if
there is an ability to switch suppliers, there are often costs to switching that can inhibit
changing suppliers and thus gives the supplier power. Suppliers can sometimes move into the
buyers’ industry and vice versa putting pressure on the threatened industry to keep prices low
to prevent the forward or backward integration.
Business School for CLE: Porter’s Five Forces Page | 7
The analysis of the power of buyers and suppliers is similar. This makes sense because
this analysis just focuses on one part of a chain of buying and selling. A raw mineral industry
depends on suppliers of labor to extract minerals and prepare them to sell them to a buyer
industry that might make electronic components. The electric components industry supplier
has buyers in the computer industry for whom the component manufacturing industry is a
supplier and ultimately to the ultimate consumer. Whether one is a buyer or seller is just a
matter of where one is focusing on the chain.
Substitute Products
Substitute products are products of a different business or industry can satisfy customer
needs. For example, companies in the coffee industry compete indirectly with those in the tea
and soft drink industries because all three serve customer needs for nonalcoholic drinks. There
are three basic ways that substitution can be an issue for an industry:
• Direct substitution with same functionality – ex: diesel vs gas engines
• Eliminating need for product – ex: water meters vs flat rate
• Reduce product usage
If an industry’s products have few close substitutes, companies in the industry have the power
to raise prices.
Business School for CLE: Porter’s Five Forces Page | 8
Sixth Force: Complementors
A sixth force has been suggested by Andy Grove of Intel: the Power of Complementors.
Complementors create products which combine with an existing product and make it more
valuable. For example, the network of complementary apps makes smartphones more valuable.
A Brief Overview of the CLE Industry
Applying Porter’s Five Forces will give us a guide to how our industry is structured so
that we can better plot our own strategies for dealing with the structure and differentiating
ourselves.
Threat of New Entry
While there is regulation in our industry, particularly in mandatory jurisdictions, it is a
relatively low entry barrier. Some of us have built up a certain brand loyalty, but as a general
matter there is no particular band loyalty amongst our lawyers. Economies of scale are more of
an issue now that the internet has allowed companies with a national reach to compete in state
markets. None of us have absolute cost advantages unless you can prevent your volunteer
speakers from volunteering elsewhere. Customers have almost no switching costs, unless the
customer has purchased a package plan. It is easy to enter the CLE industry and this puts
competitive pressure on the industry.
Competitive Rivalry
Ours is, for the most part, a fragmented industry. It has never been a fast growing
market and, of late, little if any growth. There is some differentiation with higher end products,
Business School for CLE: Porter’s Five Forces Page | 9
but the very fact of mandatory rules tends to undifferentiate products toward a common
denominator of compliance. Our industry has a relatively high amount of fixed costs versus
variable costs, particularly in an organization with a substantial publishing program. On the
whole, our industry’s structure is such so that there is a great opportunity for competitive
rivalry. This is likely to only increase in the future as online competition and archived
programing fosters even more competitive rivalry.
Bargaining Power of Buyers
There are many CLE providers and a limited pool of attorney customers. Buyers do not
have any particular power with the size of their purchases, though a larger law firm can create
such power by aggregation. In the programs area, there are no real substitute products in a
mandatory state since regulation requires accreditation. On the publications side, online
resources and search tools are increasingly powerful potential substitutes. To the extent there
are substitutions, there are no switching costs. There is little threat of backward or forward
integration. On the whole, the balance is tipped to buyers with competitive rivalry likely making
more or a difference.
Bargaining Power of Suppliers
Our big suppliers are our speakers and facilities providers. We are blessed with many
lawyers willing to speak on a volunteer basis but they also have many outlets for their speaking
and limited time. Facilities providers go through cycles with the economy and right now costs
are on the upswing. There is no threat of backwards integration. The balance here is toward the
suppliers.
Business School for CLE: Porter’s Five Forces Page | 10
Pressure from Substitute Products
Lawyers have many choices for CLE and with the increased use of the Internet as a
delivery medium, those choices are expanding. There is some elimination, or at least changing
of product types. Internet delivery and on‐demand viewing are substitutes for the live
programs; online resources and search are substitutes for publications. While these are not
eliminating the need for traditional programs and publications, they are reducing the usage of
those products. There is considerable threat in our industry from substitute products.
Conclusion
Porter’s frame work is a powerful tool to help us think strategically. All forces need to be
considered when performing an industry analysis. One competitive force often affects others.
This gives us a framework there for examining our own competitive strategy within a company
Business School for CLE: Porter’s Five Forces Page | 11
What it tells us specifically about the CLE industry is that ours is a tough and competitive
environment. Entry barriers are low, there is considerable and growing competitive rivalry, our
customers have lots of choices, our suppliers are good to us but have other options, and there
are, to a certain extent, substitutes. For anyone who thinks CLE is easy, they should reconsider.
Knowing what we know now about the copetitive nature of the market, what is your strategy to
give yourself a competitive advantage in this tough market?