Objectives To analyze the 5-forces To evaluate the 5-forces model

1. Analyzing the environment • Objectives • To analyze the 5-forces • To evaluate the 5-forces model • To investigate the application of environmental scanning and scenario planning

2. Demographic Economic Political/ Legal Socio cultural Global Technological Industry environment threat of new entrants Power of Suppliers Power of Buyers Product Substitute Intensity of Rivalry

3. What environmental factors are affecting the organization? • Which of these are the most important at the present time? In the next few years? • Political/ Legal Economic factors • ●Monopolies legislation ● Business cycles • ● Environmental protection laws ● GNP trends • ● Taxation policy ● Interest rates • ● Foreign trade regulations ● Money supply • ● Employment law ● Inflation • ● Government stability ● Unemployment • ● Disposable income • ● Energy resources and cost

4. What environmental factors are affecting the organization? • Which of these are the most important at the present time? In the next few years? • Socio-cultural factors Technological • ●Population demographics ● Government spending on research • ● Income distribution ● Government and industry focus on • ● Social mobility technological effort • ● Lifestyle changes ● New discoveries/ development • ● Attitudes to work and leisure ● Speed of technology • ● Consumerism ● Rates of obsolescence • ● Levels of education

5. Key questions to ask regarding the external environment • What are the industry’s dominant economic traits? • What competitive forces are at work in the industry and how strong are they? • What are the drivers of change in the industry and what impact will they have? • Which companies are in the strongest/ weakest positions?

6. Key questions to ask regarding the external environment … • Who is likely to make what competitive move next? • What key factors will determine competitive success or failure? • How attractive is the industry in terms of its prospects for above-average profitability?

7. Michael Porters’s Five Forces Model Analysis Bargaining Power of Buyers • Threat of Forward Integration • Can Influence Price/ Volume • Few Suppliers • High Switching costs Bargaining Power of Suppliers • Backward Integration • Few Buyers • Excess Supply • Influence Price/ Volume • High Switching Costs Competitive Rivalry Threat of Substitute Products Threat of New Entrants • Price War • Quality Diff • Features • Customer Service • Easy Access • Low Price • Better Quality • Replacement Phenomenon • Govt. Regulation • Capital Intensive • Cost Disadvantages • Technology Barriers

8. Rivalry among competing sellers • Usually the most powerful of the five forces • Check which weapons of competitive rivalry are most actively used by rivals in jockeying for position • Price • Quality • Performance features offered • Customer service • Warranties/ guarantees • Advertising/ promotions • Dealer networks • Product innovation

9. What causes rivalry to be stronger? • Lots of firms, more equal in size and capability • Slow market growth • Industry conditions tempt some firms to go on the offensive to boost volume and market share • Customers have low costs in switching brands • One or more firms initiates moves to bolster their standing at expense of rivals • A successful strategic move carries a big payoff • Costs more to get out of business than to stay in • Firms have diverse strategies, corporate priorities, resources, and countries of origin

10. The Industry is Highly competitive if the following conditions prevail • High Threat of Substitutes • Low Entry Barriers • High Bargaining Power of Buyers • Intense Competitive Rivalry • The Industry is less competitive if the Following Conditions Prevail • Low Threat of Substitutes • High Entry Barriers • Low Bargaining Power of Buyers • Moderate Competitive Rivalry • e. g. • Video Rentals • Telecom • e. g. • Bio Pharma • Bio Fertilizers

11. Implications: Future Strategy • Absurd to stop abruptly after analyzing • The external environment using the 5 force model • Develop strong alliance with buyers/ suppliers • Achieve cost efficiency • Adopt superior technology • Competitive pricing • Deliver value to customer

12. Environmental scanning • Monitoring and interpreting sweep of • Social • Political • Economic • Ecological • Technological events • To spot budding trends that could eventually impact industry

13. Environmental scanning … • Its purpose is to • Raise consciousness of managers about potential developments that could • Have an important impact on industry conditions • Pose new opportunities and threats

14. Competitor Analysis Framework • Response • What will our competitors do in the Future? • Where do we held an advantage over our competitors? • How will this change our relationship with our competitors? • Future Objectives • How do our goals compare with our competitors goals? • Current Strategy • How are we currently competing? • Does this strategy support changes in the competitive structure • Capabilities • What are our strengths & weaknesses? • How do we rate compared to our competitors?

15. Identifying industry key success factors • Answers to three questions pinpoint KSFs • On what basis do customers choose between competing brands of sellers? • What must a seller do to be competitively successful – what resources and competitive capabilities does it need? • What does it take for sellers to achieve a sustainable competitive advantage? • KSFs consist of the 3-5 really major determinants of financial and competitive success in an industry

16. Example: KSFs for the brewery industry • Utilization of brewing capacity – to keep manufacturing costs low • Strong network of wholesale distributors – to gain access to retail outlets • Clever advertising – to induce beer drinkers to buy a particular brand

17. Example: KSFs for the aluminum industry • Locating plants close to end-use customer – to keep costs of shipping empty cans low • Ability to market plant output within economical shipping distances • Locating plants closer to bauxite reserves • Captive power plants