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    WEEK 6 Rizal Iza Tigon

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    Vanesa Agoot
    Here are the five forces used by Porter in his framework: 1. Threat of new entry: The potential for new competitors entering the industry. High barriers to entry (e.g. high capital requirements) reduce this threat. 2. Threat of substitutes: The threat posed by substitute products that can satisfy the same consumer needs as the product or service in question. Close substitute products increase competitive pressure. 3. Bargaining power of suppliers: The extent to which suppliers can put upward pressure on prices by threatening to raise raw material prices or reduce quality of components/services. High supplier power reduces industry profitability. 4. Bargaining power of buyers: The extent to which buyers can put downward

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    WEEK 6 Rizal Iza Tigon

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    Vanesa Agoot
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    Here are the five forces used by Porter in his framework: 1. Threat of new entry: The potential for new competitors entering the industry. High barriers to entry (e.g. high capital requirements) reduce this threat. 2. Threat of substitutes: The threat posed by substitute products that can satisfy the same consumer needs as the product or service in question. Close substitute products increase competitive pressure. 3. Bargaining power of suppliers: The extent to which suppliers can put upward pressure on prices by threatening to raise raw material prices or reduce quality of components/services. High supplier power reduces industry profitability. 4. Bargaining power of buyers: The extent to which buyers can put downward

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    Here are the five forces used by Porter in his framework: 1. Threat of new entry: The potential for new competitors entering the industry. High barriers to entry (e.g. high capital requirements) reduce this threat. 2. Threat of substitutes: The threat posed by substitute products that can satisfy the same consumer needs as the product or service in question. Close substitute products increase competitive pressure. 3. Bargaining power of suppliers: The extent to which suppliers can put upward pressure on prices by threatening to raise raw material prices or reduce quality of components/services. High supplier power reduces industry profitability. 4. Bargaining power of buyers: The extent to which buyers can put downward

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    33 views6 pages

    WEEK 6 Rizal Iza Tigon

    Uploaded by

    Vanesa Agoot
    Here are the five forces used by Porter in his framework: 1. Threat of new entry: The potential for new competitors entering the industry. High barriers to entry (e.g. high capital requirements) reduce this threat. 2. Threat of substitutes: The threat posed by substitute products that can satisfy the same consumer needs as the product or service in question. Close substitute products increase competitive pressure. 3. Bargaining power of suppliers: The extent to which suppliers can put upward pressure on prices by threatening to raise raw material prices or reduce quality of components/services. High supplier power reduces industry profitability. 4. Bargaining power of buyers: The extent to which buyers can put downward

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    WEEK 6

    PORTER'S FIVE FORCES FRAMEWORK

    Porter's Five Forces Framework is a tool for analyzing competition of a business. It draws

    from industrial organization economics to derive five forces that determine the competitive

    intensity and, therefore, the attractiveness of an industry in terms of its profitability.

    BCG MATRIX

    The Boston Consulting group’s product portfolio matrix (BCG matrix) is designed to

    help with long-term strategic planning, to help a business consider growth opportunities by

    reviewing its portfolio of products to decide where to invest, to discontinue or develop products.

    It's also known as the Growth/Share Matrix. The Matrix is divided into 4 quadrants based on an

    analysis of market growth and relative market share, as shown in the diagram below.
     1. Dogs: These are products with low growth or market share.

     2. Question marks or Problem Child: Products in high growth markets with low market

    share.

     3. Stars: Products in high growth markets with high market share.

     4. Cash cows: Products in low growth markets with high market share

    GE-McKinsey nine-box matrix

    Is a strategy tool that offers a systematic approach for the multi business corporation to

    prioritize its investments among its business units.

    GE-McKinsey
    is a framework that evaluates business portfolio, provides further strategic implications

    and helps to prioritize the investment needed for each business unit.

    In 1970s, General Electric was managing a huge and complex portfolio of unrelated

    products and was unsatisfied about the returns from its investments in the products. At the time,

    companies usually relied on projections of future cash flows, future market growth or some other

    future projections to make investment decisions, which was an unreliable method to allocate the

    resources. Therefore, GE consulted the McKinsey & Company and as a result the nine-box

    framework was designed. The nine-box matrix plots the BUs on its 9 cells that indicate whether

    the company should invest in a product, harvest/divest it or do a further research on the product

    and invest in it if there’re still some resources left. The BUs are evaluated on two axes: industry

    attractiveness and a competitive strength of a unit.


    Industry Attractiveness

    Industry attractiveness indicates how hard or easy it will be for a company to compete in

    the market and earn profits. The more profitable the industry is the more attractive it becomes.

    When evaluating the industry attractiveness, analysts should look how an industry will change in

    the long run rather than in the near future, because the investments needed for the product

    usually require long lasting commitment.

    Industry attractiveness consists of many factors that collectively determine the

    competition level in it. There’s no definite list of which factors should be included to determine

    industry attractiveness, but the following are the most common:

    Long run growth rate

     Industry size

     Industry profitability: entry barriers, exit barriers, supplier power, buyer power, threat

    of

     substitutes and available complements (use Porter’s Five Forces analysis to determine

    this) Industry structure (use Structure-Conduct-Performance framework to determine this)

     Product life cycle changes

     Changes in demand

     Trend of prices

     Macro environment factors (use PEST or PESTEL for this) Seasonality

    Availability of labor

     Market segmentation Competitive strength of a business unit or a product

     Along the X axis, the matrix measures how strong, in terms of competition, a particular

    business unit is against its rivals. In other words, managers try to determine whether a business
    unit has a sustainable competitive advantage (or at least temporary competitive advantage) or

    not. If the company has a sustainable competitive advantage, the next question is: “For how long

    it will be sustained?”

    The following factors determine the competitive strength of a business unit:

    Total market share

     Market share growth compared to rivals

     Brand strength (use brand value for this)

     Profitability of the company

     Customer loyalty

     VRIO resources or capabilities (use VRIO framework to determine this)

     Your business unit strength in meeting industry’s critical success factors (use

     Competitive Profile Matrix to determine this)

    Strength of a value chain (use Value Chain Analysis and Benchmarking to determine

    this) Level of product differentiation

     Production flexibility

    Advantages Helps to prioritize the limited resources in order to achieve the best returns.

     Managers become more aware of how their products or business units perform.

     It’s more sophisticated business portfolio framework than the BCG matrix.

     Identifies the strategic steps the company needs to make to improve the performance of

    its business portfolio.

     Disadvantages Requires a consultant or a highly experienced person to determine

    industry’s
     attractiveness and business unit strength as accurately as possible. It is costly to

    conduct.

     It doesn’t take into account the synergies that could exist between two or more

    business units.

    Assessment:

    Illustrate the five forces used by Porter in order to manage strategically.

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