Industry Analysis - Porter's Five Forces

1. Industry Analysis - Porter's Five Forces Dr Bryan Mills

2. Components of the General Environment macro industry competitors you!

3. Market Research Mission Skills Audit SW OT Gap Analysis PESTEL

4. PESTEL

5. an overview of the strategic situation. raw material for more extensive internal and external analysis. Don’t knock SWOT!It’s the starting point

6. Possible Opportunities: Emerging customer needs ANSOFF Quality Improvements PLC? Vertical differentiation Expanding global markets ANSOFF Vertical Integration M&A Opportunities

7. Possible Threats: New entry by competitors 5 forces Changing demographics/shifting demand market research Emergence of cheaper technologies 5 forces Regulatory requirements Threats

8. The five forces are environmental forces that impact on a company’s ability to compete in a given market. The purpose of five-forces analysis is to diagnose the principal competitive pressures in a market and assess how strong and important each one is. The purpose of Five-Forces Analysis

9. Porter’s Five Forces Threat of New Entrants Bring new capacity, the desire to gain market share, and often substantial resources. Companies diversifying through acquisition into the industry from other markets often leverage their resources to cause a shakeup Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review 1979 (pp. 32-41)

10. Economies of Scale Product Differentiation Barriers to Entry Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Threat of New Entrants

11. Porter’s Five Forces BargainingPower of Suppliers Threat of New Entrants

12. Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Suppliers exert power in the industry by: Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product * Threatening to raise prices or to reduce quality Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration Bargaining Power of Suppliers

13. Porter’s Five Forces BargainingPower of Suppliers Bargaining Power of Buyers Threat of New Entrants

14. Buyers are concentrated or purchases are large relative to seller’s sales Bargaining down prices Purchase accounts for a significant fraction of supplier’s sales Forcing higher quality Products are undifferentiated Playing firms off of Buyers face few switching costs each other Buyers’ industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information Bargaining Power of Buyers Buyer groups are likely to be powerful if:

15. Porter’s Five Forces Model of Competition Threat of Substitute Products Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers

16. Products with similar functionlimit the prices firms can charge Threat of Substitute Products By placing a ceiling on prices it can charge, substitute products or services limit the potential of an industry. Unless it can upgrade the quality of the product or differentiate it somehow (as via marketing), the industry will suffer in earnings and possibly in growth

17. Porter’s Five Forces Model of Competition Rivalry Among Competing Firms in Industry Threat of New Entrants Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products

18. Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Increasing consumer warranties or service Making new product introductions Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors Rivalry Among Existing Competitors

19. Numerous or equally balanced competitors Slow growth industry High fixed costs High storage costs Lack of differentiation or switching costs Capacity added in large increments Diverse competitors High strategic stakes High exit barriers Rivalry Among Existing Competitors Cutthroatcompetition is more likely to occur when:

20. Five-Forces Analysis is a framework for analyzing a particular industry. The Five Forces are Unique to the Industry

21. Industry Environment Competitive Environment Competitor Analysis After industry analysis we need analysis of a firm’s Competitors

22. Assumptions What assumptions do our competitors hold about the future of industry and themselves? Response Current Strategy What will our competitors do in the future? Does our current strategy support changes in the competitive environment? Where do we have a competitive advantage? Future Objectives How will this change our relationship with our competition? How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Competitor Analysis

23. Competitor Analysis Future Objectives What Drives the competitor? How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk?

24. Competitor Analysis Future Objectives What is the competitor doing? How do our goals compare to our competitors’ goals? What can the competitor do? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Does this strategy support changes in the competitive structure?

25. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Does this strategy support changes in the competition structure? Competitor Analysis What does the competitor believe about itself and the industry? Assumptions Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Are we assuming stable competitive conditions?

26. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Assumptions Does this strategy support changes in the competition structure? Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Are we operating under a status quo? Competitor Analysis What are the competitor’s capabilities? Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors?

27. Future Objectives How do our goals compare to our competitors’ goals? Current Strategy Where will emphasis be placed in the future? How are we currently competing? What is the attitude toward risk? Assumptions Does this strategy support changes in the competition structure? Do we assume the future will be volatile? What assumptions do our competitors hold about the industry and themselves? Capabilities What are my competitors’ strengths and weaknesses? Are we operating under a status quo? How do our capabilities compare to our competitors? Competitor Analysis Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?