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COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH. Jiří Franek and Aleš Kresta VŠB- Technical University of Ostrava. Liberec Economic Forum 2013, Sychrov 16. -17. September 2013. Goal and Motivation. Goal and Motivation.
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COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH Jiří Franek and Aleš Kresta VŠB-Technical University of Ostrava Liberec EconomicForum 2013, Sychrov 16. -17. September 2013
Goal and Motivation • Goal and Motivation • Goal:Implementation of multiple attributedecisionmakingmethod to strategicdecisionmakingwithexample of Porter‘s FiveForcesAnalysis • Motivation • Decisionmakingprocesses in firms • Structureand hierarchy of decisionmaking • Applicationof decisionmakingsupport • usingsimpletools
Presentationoutline • Introduction • The problem of strategicdecisionmaking • Multiple attributedecisionmakingmethods • Analytic hierarchy process • Analytic network process • Application of AHP/ANP on FiveForcesAnalysis • Results and discussion • Presentationoutline
Introduction • Levels of uncertainty are changingbuttheystillseem to have and upward trend • Strategicdecisionmaking has to adapt to multiple attributeproblems • Use of decision support tools • Application and implementation of multiple attributedecisionmakingmethods • Introduction
The problem of strategic DM • Company vision and long-term goals • Flexibility and effectiveness • Competitiveedge • The problem of strategicdecisionmaking
FiveForcesANalysis • The five forces are competitive factors which determine industry competition and include: suppliers, rivalry within an industry, substitute products, customers or buyers, and new entrants (Porter, 1980). • Originalfiveforces model: • Fiveforcesanalysis
Multiple attributedecisionmakingmathods • Ability to evaluate each alternative using a large number of criteria • Estimateweightsor • Findingoptimal (best) alternativeusing: • Multi-leveldecompositionmethods (AHP, ANP and Fuzzy AHP anfuzzy ANP) • Compromised criteria (TOPSIS, VIKOR) • Outranking (ELECTRE, PROMETHEE) • Multiple attributedecisionmakingmethods ❶❷
Multiple attributedecisionmakingmethods • Goal: is a specific (or desired) status of attributes or objectives • Attributes (Criteria): are the traits, characteristics, qualities, or performance parameters of the alternatives • Alternatives: are the possible courses of action in a decision problem • Multiple attributedecisionmakingmethods❶❷
Analytic hierarchy process • Consistsof four steps: • hierarchy design (goal definition, identification of alternatives, identification of evaluation factors, assignment of criteria and factor relationships and finishing of the hierarchy), • identification of priorities (application of pair-wise comparison, point evaluation of significance, repeating of the procedure for all hierarchy levels), • combination and, • evaluation (weighted values of alternative solutions). • Analytic hierarchy process (AHP)
Analytic network process • The ANP feedback approachreplaceshierarchieswithnetworks, and emphasizesinterdependentrelationshipsamong the decisioncriteria and permit more systematicanalysis. • Open structurewithnetworks, loops and clusters of criteria • More demanding on time and logic of pairwisecomparisons • Analytic network process (ANP)
GeneralApplication of AHP/ANP • Generalapplicationof AHP/ANP b) a) Goal Goal AHP (a) ANP(b) wij wij Criteria Criteria Wij Wij Wij Alternatives Alternatives
Application of AHP/ANP on FiveForcesAnalysis • Application of AHP/ANP on FiveForcesAnalysis ❶❷ • Competitors: market share (c1), product range(c2), distribution channels (c3); • Customers: relationship with current customers (c4), customer sensitivity on changes and quality of products and services (c5), potential of new customers (c6); • Substitutes: quality of substitutes (c7), availability of substitutes (c8), upcoming substitutes (c9); • Threat of new entrants: estimated costs of entrance to the market (c9), other barriers to the entrance (c10); • Suppliers: costs of raw materials (c11), currency risk (c12), reliability of suppliers (c13).
Application of AHP/ANP on FiveForcesAnalysis • Application of AHP/ANP on FiveForcesAnalysis❶❷ Utility function of AHP Supermatrix of ANP
Results and Discussion • Results and Discussion ❶❷ Comparison of results of AHP/ANP
Results and discussion • Results and Discussion❶❷ • Proposed model of Porter’s five forces analysis combined with AHP and ANP enhances the original model with structured decision making hierarchy and process • The application can be developed further and could include more variables, levels (internal and external, industry and firm) and quantitative data • Another advantage of the ANP is also the supermatrix approach that describes relations among criteria and alternatives (strategies) better than sole AHP tables. • After short tutorial managers should be able to use this model tool and apply it on ordinary decision-making tasks.
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Thankyou for yourattention! Jiří Franek jiri.franek@vsb.cz AlešKresta ales.kresta@vsb.cz