6 m porter's 5 forces competitive model
Post on 11-Sep-2014
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Makerere University Business School
Strategic Management Course
ENVIROMENTAL ANALYSIS - COMPLETION
INDUSTRY ANALYSIS• A firm operates in an industry• Need to compare a company’s operations with
others– Especially “the best-in-class” rivals
• Current level of competition– Technologies– Competitors’ Key Success Factors, among other key
issues.
Industry components
• Customers• Suppliers • Competitors• Industrial trends– In line with your industry’s life cycle– In line your goals and objectives, your strategy
Customers:• Who are they in terms of characteristics and
behaviours?• How manageable are their needs, wants,
expectations, tastes and preferences?• Why do they buy/what they value most?• When/how do they buy? Where do they buy?, etcDo all these trends/factors/developments
favor/benefit us (opportunities) or really scare/are against us (threats)?
Suppliers;• Do we have alternative sources of
suppliers?• Can we rely on these suppliers to
provide our needed inputs in the right quantities ,quality, at the right time and place?• If the answer is yes , those are
opportunities. While no shows a threat (s)
• What are their costs?• What are their terms of delivery and/or
payment?• How powerful are they?• What is their rate of entry and exit?• Which supplier is the best?Which supplier (s) will give us competitive
advantages (opportunities) or not/scare us( threat)?
Competitors;• How many competitors of our size
and competence are we facing? Few-opportunity, many-threat•What market share do they
hold/how strong are they? Smaller/weaker-opportunity, Big/strong- threat• Cost of the available substitutes?
Find out
• What are their competitive behavior? Friendly/cooperative- Opportunity, Un friendly-Threat
• What are the entry and exit barriers for these competitors? Easy for new rivals to join but difficult for the current ones to leave the industry-threat, Difficult to enter but easy to exit-favorable/opportunity
• Before joining an industry, a firm should consider;
Industry size, structure, profitability, long term attractiveness, life cycle
Competitive situation analysis
Level of technology in the industry
Competitive position of the firm
Ease of entry in the industry
Michael Porter’s model• Michael E. Porter of the Harvard
Business School• Suggested five competitive forces
model;– Rivalry within the industry– Threat of new entrants– Threat of substitute products– Power of buyers– Power of suppliers
Rivalry determinants
• Mutual dependence• Concentration of competitors• Number of competitors• Industry growth rate• Cost structure• Diversification by competitors• Differentiation and switching costs• Exit barriers• Capacity utilisation
Entry barriers
• Economies of scale• Product differentiation• Capital requirements• Switching costs• Distribution channels access• Government policies• Expected retaliation
Substitution determinants
• Price relativity• Switching costs• Buyer propensity to substitute
Customer power determinants
• Intrinsic strength• Buyer volume• Switching costs• Buyer information• Backward integration ability• Substitute products• Price sensitivity• Impact on quality• Brand identity
Supplier power
• Importance to supplier• Knowledge of product value to buyer– Brand– Quality
• Standardisation and differentiation• Switching costs• Threat of forward integration
Model Basics• Helps managers to identify the
opportunities and threats confronting their company (ies). • The stronger the 5 competitive
forces, the more serious the threat and vise versa.• Through strategic change you can
alter the strengths of such forces
Porter’s Model – Cont.
• Need to understand the forces in the industry, their impact/seriousness, how and when they benefit or be against you, and their sources.
• Confirm which forces favour your business success (opportunities) or scare your business success (threats)
Limitations • Limited availability of the required
information i.e high level of secrecy in government bodies and some business associations
• The available information may not be up-to-date, or be irrelevant or even inaccurate
• The model ignores other trends like changes in demand, technology used in production, and the market growth/attractiveness