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Porters Five Forces :star: (The five forces (Potential new entrants -…
Porters Five Forces :star:
Analysing near environment
The five forces
Other companies
market structure
type of competition
degree of competition
maturity of idustry
product differentiation
size of exit barriers
Suppliers
concentration of suppliers
number of substitutes
differentiated the supplier’s product
interdependence of buyers and suppliers
Substitutes
relative price and performance
Potential new entrants - barriers to entry
Capital requirements
economies of scale
absolute cost advantages :warning:
product differentiation
likelihood of retaliation
legal/regulatory barriers
Customers - bargaining ability of buyers and their price sensitivity
size and concentration of buyers
level of information
ability of buyers to backwardly integrate
price sensitivity is higher the less differentiated the product
services are expensive relative to their incomes
quality is not particularly important
Basis
industry structure has a strong influence in determining the competitive rules of the game as well as the strategies potentially available to the firm
organisation’s ability to manage these forces
overcome weaknesses
take advantage of opportunities
used by
potential industry entrants
incumbent industries
industries are distinguished by two primary dimensions
Scope of products
Geography
Criticism
RBV
Assumptions that 5 forces makes
resource heterogeneity non-existent or short-lived
Organisations within an industry are identical in terms of their strategic resources and the strategies they pursue
not the whole story -
requirement to look inside to ascertain that it has the appropriate portfolio of resources to enable it to take advantage of any opportunity
Dynamic - static model
increased dynanism of environment
speed that industry boundaries shift
difficult to judge between competitors and substitute
increase blur between industries due to impact of technology
Teece suggests that 5 forces fails to appreciate impact of rapid innovation on industry boundaries
Grant suggests inclusion of "Complement" force
Practice based
impossible level of abstraction in deciding upon the relative power - lack of confidence in the potential of Porter’s work to improve organisational decision making
encourage analysts to group various suppliers, buyers together
potentially indiscriminate about what data is used to undertake the analysis,
wrongly assuming that there is such a thing as an objective, external environment.
no practical advice is offered
Sector based
based on overwhelmingly American organisations and from a manufacturing sector
in the 1970s when boundaries were clearer
Public sector
need "government" force
:explode:Examples
Coca-cola
Suppliers
The main ingredients for soft drink include carbonated water, phosphoric acid, sweetener, and caffeine. The suppliers are not concentrated or differentiated.
Coca-Cola is likely a large, or the largest customer of any of these suppliers.
Buyers
The individual buyer no pressure on Coca-Cola
Large retailers, like Wal-Mart, have bargaining power because of the large order quantity, but the bargaining power is lessened because of the end consumer brand loyalty
Substitutes
There are many kinds of energy drink s/soda/juice products in the market. Coca-cola doesn’t really have an entirely unique flavor. In a blind taste test, people can’t tell the difference between Coca-Cola and Pepsi.
Competitors
Currently, the main competitor is Pepsi which also has a wide range of beverage products under its brand. Both Coca-Cola and Pepsi are the predominant carbonated beverages and committed heavily to sponsoring outdoor events and activities.
New entrants
Entry barriers are relatively low for the beverage industry: there is no consumer switching cost and zero capital requirement. There is an increasing amount of new brands appearing in the market with similar prices than Coke products Coca-Cola is seen not only as a beverage but also as a brand. It has held a very significant market share for a long time and loyal customers are not very likely to try a new brand.
Apple
problem for Apple might be the supplier. As Samsung provides the chips used in apple phones. However, Samsung is also a direct competitor. If Samsung decides to disrupt the flow of chips this could be detrimental to Apple phones.
Porters response to criticism
Government
refine their understanding of any or all of the five forces that government affects: heavy regulation is a barrier to entry and acts to dampen industry rivalry, for example
Complements
consider impact on 5 forces, not new force
Static model
failure of analyst not model
understand current structure to anticipate changes
RBV
Combine with RBV
Use of value chain analysis
Strengths
a baseline for sizing up a company’s strengths and weaknesses:
guides managers toward fruitful possibilities for strategic action
positioning the company to better cope with the current competitive forces;
:explode: Paccar trucks
anticipating and exploiting shifts in the forces
:explode: music industry change of digital inhibited by
shaping the balance of forces to create a new industry structure that is more favorable to the company
To neutralize supplier power, for example, a firm can standardize specifications for parts to make it easier to switch among suppliers
raise buyers’ switching costs
defining the industry, different strategies for different industries
Weaknesses
Industry definition is difficult