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Industry Analysis - Porter's Five Forces . Dr Bryan Mills. Components of the General Environment. macro. industry. competitors. you!. Market Research. Mission. Skills Audit. SW OT. Gap Analysis. PESTEL. PESTEL. an overview of the strategic situation.

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slide2

Components of the General Environment

macro

industry

competitors

you!

slide3

Market Research

Mission

Skills Audit

SW OT

Gap Analysis

PESTEL

don t knock swot it s the starting point
an overview of the strategic situation.

raw material for more extensive internal and external analysis.

Don’t knock SWOT!It’s the starting point
opportunities
Possible Opportunities:

Emerging customer needs ANSOFF

Quality Improvements PLC?

Vertical differentiation

Expanding global markets ANSOFF

Vertical Integration M&A

Opportunities
threats
Possible Threats:

New entry by competitors 5 forces

Changing demographics/shifting demand market research

Emergence of cheaper technologies 5 forces

Regulatory requirements

Threats
the purpose of five forces analysis
The five forces are environmental forces that impact on a company’s ability to compete in a given market.

The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is.

The purpose of Five-Forces Analysis
slide9

Porter’s Five Forces

Threat of New Entrants

Bring new capacity,

the desire to gain market share,

and often substantial resources.

Companies diversifying through acquisition into the industry from other markets often leverage their resources to cause a shakeup

Michael E. Porter, “How Competitive Forces Shape Strategy,”

Harvard Business Review 1979 (pp. 32-41)

slide10

Economies of Scale

Product Differentiation

Barriers to Entry

Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Scale

Government Policy

Threat of New Entrants

slide11

Porter’s Five Forces

BargainingPower of Suppliers

Threat of New Entrants

slide12

Supplier industry is dominated by a few firms

Suppliers’ products have few substitutes

Suppliers exert power in the industry by:

Buyer is not an important customer to supplier

Suppliers’ product is an important input to buyers’ product

* Threatening to raise

prices or to reduce quality

Suppliers’ products are differentiated

Suppliers’ products have high switching costs

Supplier poses credible threat of forward integration

Bargaining Power of Suppliers

slide13

Porter’s Five Forces

BargainingPower of Suppliers

Bargaining Power of Buyers

Threat of New Entrants

slide14

Buyers are concentrated or purchases are large relative to seller’s sales

Bargaining down prices

Purchase accounts for a significant fraction of supplier’s sales

Forcing higher quality

Products are undifferentiated

Playing firms off of

Buyers face few switching costs

each other

Buyers’ industry earns low profits

Buyer presents a credible threat of backward integration

Product unimportant to quality

Buyer has full information

Bargaining Power of Buyers

Buyer groups are likely to be powerful if:

slide15

Porter’s Five Forces

Model of Competition

Threat of Substitute Products

Threat of New Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

slide16

Products with similar functionlimit the prices firms can charge

Threat of Substitute Products

By placing a ceiling on prices it can charge, substitute products or services limit the potential of an industry. Unless it can upgrade the quality of the product or differentiate it somehow (as via marketing), the industry will suffer in earnings and possibly in growth

slide17

Porter’s Five Forces

Model of Competition

Rivalry Among Competing Firms in Industry

Threat of New Entrants

Threat of New Entrants

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products

slide18

Intense rivalry often plays out in the following ways:

Jockeying for strategic position

Using price competition

Staging advertising battles

Increasing consumer warranties or service

Making new product introductions

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but may be costly to smaller competitors

Rivalry Among Existing Competitors

slide19

Numerous or equally balanced competitors

Slow growth industry

High fixed costs

High storage costs

Lack of differentiation or switching costs

Capacity added in large increments

Diverse competitors

High strategic stakes

High exit barriers

Rivalry Among Existing Competitors

Cutthroatcompetition is more likely to occur when:

slide21

Industry Environment

Competitive

Environment

Competitor Analysis

After industry analysis we need analysis of a firm’s Competitors

slide22

Assumptions

What assumptions do our competitors hold about the future of industry and themselves?

Response

Current Strategy

What will our competitors do in the future?

Does our current strategy support changes in the competitive environment?

Where do we have a competitive advantage?

Future Objectives

How will this change our relationship with our competition?

How do our goals compare to our competitors’ goals?

Capabilities

How do our capabilities compare to our competitors?

Competitor Analysis

slide23

Competitor Analysis

Future Objectives

What Drives the competitor?

How do our goals compare to our competitors’ goals?

Where will emphasis be placed in the future?

What is the attitude toward risk?

slide24

Competitor Analysis

Future Objectives

What is the competitor doing?

How do our goals compare to our competitors’ goals?

What can the competitor do?

Current Strategy

Where will emphasis be placed in the future?

How are we currently competing?

What is the attitude toward risk?

Does this strategy support changes in the competitive structure?

slide25

Future Objectives

How do our goals compare to our competitors’ goals?

Current Strategy

Where will emphasis be placed in the future?

How are we currently competing?

What is the attitude toward risk?

Does this strategy support changes in the competition structure?

Competitor Analysis

What does the competitor believe about itself and the industry?

Assumptions

Do we assume the future will be volatile?

What assumptions do our competitors hold about the industry and themselves?

Are we assuming stable competitive conditions?

slide26

Future Objectives

How do our goals compare to our competitors’ goals?

Current Strategy

Where will emphasis be placed in the future?

How are we currently competing?

What is the attitude toward risk?

Assumptions

Does this strategy support changes in the competition structure?

Do we assume the future will be volatile?

What assumptions do our competitors hold about the industry and themselves?

Are we operating under a status quo?

Competitor Analysis

What are the competitor’s capabilities?

Capabilities

What are my competitors’ strengths and weaknesses?

How do our capabilities compare to our competitors?

slide27

Future Objectives

How do our goals compare to our competitors’ goals?

Current Strategy

Where will emphasis be placed in the future?

How are we currently competing?

What is the attitude toward risk?

Assumptions

Does this strategy support changes in the competition structure?

Do we assume the future will be volatile?

What assumptions do our competitors hold about the industry and themselves?

Capabilities

What are my competitors’ strengths and weaknesses?

Are we operating under a status quo?

How do our capabilities compare to our competitors?

Competitor Analysis

Response

What will our competitors do in the future?

Where do we have a competitive advantage?

How will this change our relationship with our competition?