sm 6 (porters 5 forces)
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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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Bargaining Power of Suppliers
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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Bargaining Power of Suppliers
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 hinders the supplying industry in their development (e.g. reluctance to accept new releases of
products)
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Bargaining Power of Suppliers
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 lowbarriers to entry.
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Bargaining Power of Suppliers
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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Bargaining Power of CustomersCustomers bargaining power is likely to be high when :
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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Bargaining Power of CustomersCustomers bargaining power is likely to be high when :
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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Overcoming the Force !
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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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Overcoming the Force !
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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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Overcoming the Force !
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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 )
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