D39BU – Business Management in the Built Environment

1. D39BU – Business Management in the Built Environment Lesson Four: The Strategic Management Process Michael Porter & His Strategies sl/BMBE/2017

2. D39BU – Business Management in the Built Environment MICHAEL PORTER: Guru of Strategic Management His theories include: • Diamond Model • 5 - Forces Model • Value Chain Analysis • Generic Business strategies sl/BMBE/2017

3. D39BU – Business Management in the Built Environment Porter’s diamond diagram Strategy, structure & rivalry Govt Factor conditions Demand conditions Related & supporting industries chance sl/BMBE/2017

4. D39BU – Business Management in the Built Environment According to Porter…. • Factor conditions – highly specialised resources developed in different countries where there is a large pool of skilled manpower or labour • Related and supporting industries which help to expedite the process for production of goods and services • Demand conditions where consumers force companies to innovate and shape their market orientation in such a way that caters to their needs and wants • Strategy, structure and rivalry which will be highlighted in the study of 5-forces theory sl/BMBE/2017

5. D39BU – Business Management in the Built Environment STRUCTURAL ANALYSIS OF INDUSTRIES orcompetitive analysis of the industry 5 FORCES AFFECTING ANY ORGANISATION ARE : • THREAT OF NEW ENTRANTS • THREAT OF SUBSTITUTES • SUPPLIERS’ BARGAINING POWER • BUYERS’ BARGAINING POWER • INDUSTRY COMPETITIVE RIVALRY sl/BMBE/2017

6. D39BU – Business Management in the Built Environment MICHAEL PORTER’S 5 FORCES MODEL /THEORY sl/BMBE/2017

7. D39BU – Business Management in the Built Environment Implications of michael porter’s 5 forces’ model : • The economic model of the market structure demonstrates that the degree of competition in an industry is the result of structural factors over which individual companies have little control. A firm in a highly competitive market has no option but to be a price taker while the other side the monopoly has limited competition through restraining strategies adopted. • His model also shows that every firm has to make decisions with regard to competitive forces and its own resources to maintain its market share and sustain growth, otherwise, the firm may be thrown out of the market due to competition and inability to read the trends in the industry   sl/BMBE/2017

8. Business Management in the Built Environment DISCUSSION AND ASSIGNMENT Examination Questions pertaining to Michael Porter’s models… 1. Michael Porter’s contributions have been highly influential within the field of strategy. Provide a detailed explanation of any of his strategic analysis models and explain which dominant school of thought in strategy the models belonged to. 2. The five forces model is frequently used to help develop strategy. In the context of a built environment organisation, fully explore and explain what is meant by the “five forces model” and specifically how built environment organisations can draw upon and use the model.. additionally provide an explanation of which “school of thought” the model belongs. sl/BMBE/2017

9. Business Management in the Built Environment VALUE CHAIN ANALYSIS • Conducting a value chain analysis to link resources to strategic performance Value chain analysis consists of identifying key value activities and resources required for each activity. Pg 12-14 of unit 5 sl/BMBE/2017

10. Checklist of resources and activities Business Management in the Built Environment Support activities Corporate structure Human resources margin Technological development purchasing services Outbound logistics Inbound logistics Mktg & sales mfg margin Primary activities sl/BMBE/2017

11. Value system Business Management in the Built Environment Much of the value creation is dependent on 3 further steps: A identify external linkages B analyse the extent to which sub-optimisation occurs and then rectify the problem C passing a problem to another organisation does not help value creation See figure 11 of pg 14 sl/BMBE/2017

12. Business Management in the Built Environment Porter’s Generic Strategies Competitive Position demand in the market market leadership Strategic Choice the relevant competitors COST DIFFERENTIATION FOCUS sl/BMBE/2017

13. Business Management in the Built Environment Porter’s Generic Strategies: Competitive Forces: • Drive down costs while maintaining average quality Cost Leadership / Cost Focus • Differentiate product or service in ways that are valued by the customer Broad Differentiation / Differentiation Focus sl/BMBE/2017

14. Business Management in the Built Environment Selection of options : Porter’s Generic Strategies Unit 6 Pg 1-3 Competitive Advantage Lower cost Differentiation Competitive scope Broad target Cost Leadership Broad Differentiation Narrow target Cost Focus Differentiation Focus sl/BMBE/2017

15. Business Management in the Built Environment Porter’s Generic Strategies Average Price PROFIT PROFIT PROFIT COST COST COST Average Player Cost Leader Differentiator Player sl/BMBE/2017

16. Business Management in the Built Environment Porter’s Generic Strategies (alternatively) THE ‘SQUEEZE’ Average Price PROFIT PROFIT PROFIT COST COST COST Average Player Cost Leader Cost Cutter sl/BMBE/2017

17. Business Management in the Built Environment Porter’s Generic Strategies (alternatively) SHORT-TERM STRATEGY Average Price PROFIT PROFIT COST COST COST Cost Leader Cost Price Average Player sl/BMBE/2017

18. Business Management in the Built Environment Porter’s Generic Strategies Drive down costs the experience curve Unit cost Organisational Learning Cumulative volume sl/BMBE/2017

19. Business Management in the Built Environment Porter’s Generic Strategies Drive down costs Economies of scale (X) Unit cost Manufacturing Process (Y) Scale of production sl/BMBE/2017

20. Business Management in the Built Environment Selection of options : Porter’s Generic Strategies Pg 2-unit 6 5. Focused Differentiation 3. Hybrid 4.Differentiation Strategic Choice/options 2. Low Price 6.Increased Price / Standard Value What is of value to the user of the product / service? 7. Increased Price / Low Value 1. Low Price / Added Value 8. Low Value / Standard Price sl/BMBE/2017