SM 6 (Porters 5 Forces)

8/14/2019 SM 6 (Porters 5 Forces)

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Amity Business School

shwin Bhatia

STRATEGIC MANAGEMENT


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SWOT ANALYSIS


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Companys Resource Strengths Physical assets Human assets Organizational assets Intangible assets A skill or expertise Alliances or such contracts that provide the firm

with enhanced competitive position in themarket like licenses from the government, andpreferential access to specific raw material.


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Companys Resource Weaknesses Lack of physical, human, organizational, or

intangible assets that are critical for survival.

Lack of appropriate skills or expertise inleveraging the resources in competing with other firms.

Lack of strategic direction for the company tounderstand and fulfill the needs of specificcustomer segments.


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Companys Market Opportunities Emergence of new customer segments in themarket/opening up of new markets for the company.

Changes in the customer habits and preferences, andtheir buying behavior.

Changes in the technological, regulatory, social, or economic environment of the industry that either have animpact on the product-market scope of the firm, or help itcut costs and improve productivity, and enhance quality.


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Companys Environmental Threats Emergence of new customer segments in the

market/opening up of new markets.

Changes in the customer habits and preferences, andtheir buying behavior.

Changes in the technological, regulatory, social, or economic environment of the industry that have an

impact on the product-market scope of the firm.

Entry of new competitors with new business models.


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Organisational Resources + Organisational Behaviour

Strength and Weaknesses

Synergistic Effects

Competencies

Organisational Capability

Strategic Advantage


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Bargaining Power of Suppliers

Supplier bargaining power is likely to be high when: The market is dominated by a few large suppliersrather than a fragmented source of supply, There are no substitutes for the particular input,

The suppliers customers are fragmented, so

their bargaining power is low,

The switching costs from one supplier toanother are high,

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Supplier bargaining power is likely to be high when:

There is the possibility of the supplier integrating forwardsin order to obtain higher prices and margins.

This threat is especially high when:

The buying industry has a higher profitability than thesupplying industry,

Forward integration provides economies of scale for the supplier,

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The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of

products)

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The buying industry has lowbarriers to entry.

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In such situations, the buying industry often facesa high pressure on margins from their suppliers.The relationship to powerful suppliers canpotentially reduce strategic options for theorganization.

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Overcoming the Force !


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Bargaining Power of CustomersCustomers bargaining power is likely to be high when :

Customers buy large volumes, there is a concentration

of buyers in one area (Governmet Defence, etc)

Too many suppliers selling to too few buyers

The supplying industry operates with high fixed costs(Shipping)


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The product is undifferentiated and can be replaced by

substitutes, (pens, stationery)

Switching to an alternative productis relatively simple and is not related

to high costs,

Customers have low margins andare price sensitive,


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Customers could produce the product themselves,

The product is not of strategic importance for thecustomer,

The customer knows about theproduction costs of the product

There is the possibility for thecustomer integrating backwards.


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Threat of new EntrantsBarriers to entry are typically

Economies of scale (minimum size requirements for profitable operations),

High initial investments & fixed costs,

Cost advantages of existing players due to experiencecurve effects of operation with fully depreciated assets,

Brand loyalty of customers


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Threat of new Entrants

Barriers to Entry are typically Protected intellectual property like patents, licenses etc,

Scarcity of important resources, e.g. qualified expert staff

Access to raw materials is controlled by existing players,

Distribution channels are controlled by existing players,

Existing players have close customer relations, e.g. fromlong-term service contracts,


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Threat of new Entrants

Barriers to Entry are typically

High switching costs for customers

Legislation and government action


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Threat of Substitutes

A threat from substitutes exists if there are alternativeproducts with lower prices or better performanceparameters for the same purpose.


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Threat of Substitutes

Similarly to the threat of new entrants, the threat of substitutes is determined by factors like:

Brand loyalty of customers,

Close customer relationships,

Switching costs for customers,

The relative price for performance of substitutes,

Current trends.


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Competitive RivalryCompetition between existing players is high when

There are many players of about the same size,

Players have similar strategies

There is not much differentiationbetween players and their products,hence, there is much price competition


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Competitive RivalryCompetition between existing players is high when

Low market growth rates (growth of a particular company is possible only at the expense of a competitor),

Barriers for exit are high (e.g. expensive and highlyspecialized equipment).


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REVIEW of 5 forces


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Force : Complementors

Complementors are companies that sell products that add value to(complement) the products of companies such that when together, theybetter satisfy customer needs.


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How to use the Porters 5-forces AnalysisStatical Analysis:

Allows determining the attractiveness of an industry.

It provides insights on profitability.

Thus, it supports decisions about entry to or exit from anindustry or a market segment.

It can be used to compare the impact of competitiveforces on the own organization with their impact oncompetitors. (based on their different resources andcompetences)


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How to use the Porters 5-forces AnalysisDynamical Analysis:

In combination with a PEST-Analysis, which revealsdrivers for change in an industry, 5-Forces Analysis canreveal BETTER insights about the potential futureattractiveness of the industry.

Expected political, economical, socio-demographical

and technological changes can influence the fivecompetitive forces and thus have impact on industrystructures.

It is best analysed by assuming scenarios

P li i l/l l Economic


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Industry competitors

Rivalry among firms

Potentialentrants

Buyers

substitutes

suppliers

Threat of new entrants

Bargaining powerOf buyers

Threat ofsubstitutes

BargainingPower ofsuppliers

Political/legalenvironment

Economicenvironment

Technologicalenvironment

Social/demographicenvironment


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How to use the Porters 5-forces AnalysisAnalysis of Options:

With the knowledge about intensity and power of competitive forces, organizations can develop options toinfluence them in a way that improves their owncompetitive position.

The result could be a new strategic direction, e.g. a

new positioning, differentiation for competitive productsof strategic partnerships

(As seen in Overcoming the force )

Documents

SM 6 (Porters 5 Forces)