Sm 6 (porters 5 Forces)

Amity Business School

STRATEGIC MANAGEMENT

Ashwin Bhatia

Ashwin Bhatia

Amity Business School

Amity Business School

SWOT ANALYSIS

Ashwin Bhatia

Amity Business School

Company’s 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 the market like licenses from the government, and preferential access to specific raw material.

Ashwin Bhatia

Amity Business School

Company’s Resource Weaknesses • Lack of physical, human, organizational, or intangible assets that are critical for survival. • Lack of appropriate skills or expertise in leveraging the resources in competing with other firms. • Lack of strategic direction for the company to understand and fulfill the needs of specific customer segments.

Ashwin Bhatia

Amity Business School

Company’s Market Opportunities • Emergence of new customer segments in the market/opening up of new markets for the company. • Changes in the customer habits and preferences, and their buying behavior. • Changes in the technological, regulatory, social, or economic environment of the industry that either have an impact on the product-market scope of the firm, or help it cut costs and improve productivity, and enhance quality.

Ashwin Bhatia

Amity Business School

Company’s Environmental Threats • Emergence of new customer segments in the market/opening up of new markets. • Changes in the customer habits and preferences, and their 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.

Ashwin Bhatia

Amity Business School

Strategic Advantage

Organisational Capability Competencies

Synergistic Effects

Strength and Weaknesses

Organisational Resources + Organisational Behaviour

Ashwin Bhatia

Ashwin Bhatia

Amity Business School

1

Amity Business School

Bargaining Power of Suppliers Supplier bargaining power is likely to be high when: • The market is dominated by a few large suppliers rather 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 to another are high,

Ashwin Bhatia

1

Amity Business School

Bargaining Power of Suppliers Supplier bargaining power is likely to be high when: There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when: •The buying industry has a higher profitability than the supplying industry, •Forward integration provides economies of scale for the supplier,

Ashwin Bhatia

1

Amity Business School

Bargaining Power of Suppliers Supplier bargaining power is likely to be high when: There is the possibility of the supplier integrating forwards in 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)

Ashwin Bhatia

1

Amity Business School

Bargaining Power of Suppliers Supplier bargaining power is likely to be high when: There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when: •The buying industry has low barriers to entry.

Ashwin Bhatia

1

Amity Business School

Bargaining Power of Suppliers

In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.

Ashwin Bhatia

Ashwin Bhatia

1 Overcoming the Force !

Amity Business School

2

Amity Business School

Bargaining Power of Customers Customers 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)

Ashwin Bhatia

2

Amity Business School

Bargaining Power of Customers Customers bargaining power is likely to be high when : ·The product is undifferentiated and can be replaced by substitutes, (pens, stationery) · Switching to an alternative product is relatively simple and is not related to high costs, · Customers have low margins and are price sensitive,

Ashwin Bhatia

2

Amity Business School

Bargaining Power of Customers Customers bargaining power is likely to be high when : · Customers could produce the product themselves, · The product is not of strategic importance for the customer, · The customer knows about the production costs of the product · There is the possibility for the customer integrating backwards.

Ashwin Bhatia

Ashwin Bhatia

2 Overcoming the Force !

Amity Business School

3

Amity Business School

Threat of new Entrants Barriers 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 experience curve effects of operation with fully depreciated assets, · Brand loyalty of customers

Ashwin Bhatia

3

Amity Business School

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. from long-term service contracts,

Ashwin Bhatia

3 Threat of new Entrants Barriers to Entry are typically · High switching costs for customers

· Legislation and government action

Ashwin Bhatia

Amity Business School

Ashwin Bhatia

3 Overcoming the Force !

Amity Business School

4

Amity Business School

Threat of Substitutes A threat from substitutes exists if there are alternative products with lower prices or better performance parameters for the same purpose.

Ashwin Bhatia

4

Amity Business School

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.

Ashwin Bhatia

Ashwin Bhatia

Amity Business School

Overcoming the Force !

5

Amity Business School

Competitive Rivalry Competition between existing players is high when · There are many players of about the same size, · Players have similar strategies · There is not much differentiation between players and their products, hence, there is much price competition

Ashwin Bhatia

5

Amity Business School

Competitive Rivalry Competition 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 highly specialized equipment).

Ashwin Bhatia

Ashwin Bhatia

5 Overcoming the Force !

Amity Business School

Ashwin Bhatia

REVIEW of 5 forces

Amity Business School

Amity Business School

Force : Complementors

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

Ashwin Bhatia

Amity Business School

How to use the Porter’s 5-forces Analysis Statical Analysis: Allows determining the attractiveness of an industry. It provides insights on profitability. Thus, it supports decisions about entry to or exit from an industry or a market segment. It can be used to compare the impact of competitive forces on the own organization with their impact on competitors. (based on their different resources and competences)

Ashwin Bhatia

Amity Business School

How to use the Porter’s 5-forces Analysis Dynamical Analysis: In combination with a PEST-Analysis, which reveals drivers for change in an industry, 5-Forces Analysis can reveal BETTER insights about the potential future attractiveness of the industry. Expected political, economical, socio-demographical and technological changes can influence the five competitive forces and thus have impact on industry structures. It is best analysed by assuming “scenarios”

Ashwin Bhatia

Economic environment

Political/legal environment

Potential entrants

Amity Business School

Threat of new entrants

Industry competitors suppliers

Buyers Bargaining Power of suppliers

Technological environment Ashwin Bhatia

Rivalry among firms

Bargaining power Of buyers

Threat of substitutes

substitutes Social/demographic environment

Amity Business School

How to use the Porter’s 5-forces Analysis Analysis of Options: With the knowledge about intensity and power of competitive forces, organizations can develop options to influence them in a way that improves their own competitive position. The result could be a new strategic direction, e.g. a new positioning, differentiation for competitive products of strategic partnerships (As seen in “Overcoming the force” )

Ashwin Bhatia