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

2. Components of the General Environment
macro
industry
competitors
you! 10

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

4. PESTEL
Political
Economic
Social
Technological
Environmental
Legal

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

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

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

8. The purpose of Five-Forces Analysis
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.

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 ) 11

10. Threat of New Entrants Economies of Scale Product Differentiation
Government Policy
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Barriers to Entry 12

11. Bargaining Power of Suppliers
Porter’s Five Forces
Threat of New Entrants
Bargaining Power of Suppliers 14

12. Bargaining Power of Suppliers
Supplier industry is dominated by a few firms
Suppliers’ products have few substitutes
Buyer is not an important customer to supplier
Suppliers’ product is an important input to buyers’ product
Suppliers’ products are differentiated
Suppliers’ products have high switching costs
Supplier poses credible threat of forward integration
Suppliers exert power in the industry by:
* Threatening to raise
prices or to reduce quality 15

13. Bargaining Power of Buyers
Porter’s Five Forces
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers 17

14. Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases are large relative to seller’s sales
Purchase accounts for a significant fraction of supplier’s sales
Products are undifferentiated
Buyers face few switching costs
Buyers’ industry earns low profits
Buyer presents a credible threat of backward integration
Product unimportant to quality
Buyer has full information
Bargaining down prices
Forcing higher quality
Playing firms off of
each other 18

15. Bargaining Power of Suppliers Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products 20

16. 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
Products with similar function limit the prices firms can charge 21

17. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products 23

18. Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Making new product introductions
Increasing consumer warranties or service
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 25

19. Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
Lack of differentiation or switching costs
High storage costs
Capacity added in large increments
High strategic stakes
High exit barriers
Diverse competitors 26

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

21. After industry analysis we need analysis of a firm’s Competitors
Competitor Analysis
After industry analysis we need analysis of a firm’s Competitors
Competitive
Environment
Industry Environment 33

22. Competitor Analysis Response Assumptions
What assumptions do our competitors hold about the future of industry and themselves?
Response
What will our competitors do in the future?
Current Strategy
Does our current strategy support changes in the competitive environment?
Where do we have a competitive advantage?
Future Objectives
How do our goals compare to our competitors’ goals?
How will this change our relationship with our competition?
Capabilities
How do our capabilities compare to our competitors? 38

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? 34

24. Competitor Analysis Future Objectives Current Strategy
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? 35

25. Competitor Analysis Future Objectives Current Strategy Assumptions
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
What does the competitor believe about itself and the industry?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competition structure?
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? 36

26. Competitor Analysis Future Objectives Current Strategy Assumptions
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
What are the competitor’s capabilities?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competition structure?
Do we assume the future will be volatile?
Are we operating under a status quo?
What assumptions do our competitors hold about the industry and themselves?
Assumptions
Capabilities
What are my competitors’ strengths and weaknesses?
How do our capabilities compare to our competitors? 37

27. Competitor Analysis Future Objectives Response Current Strategy
How do our goals compare to our competitors’ goals?
Where will emphasis be placed in the future?
What is the attitude toward risk?
Response
What will our competitors do in the future?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competition structure?
Where do we have a competitive advantage?
Do we assume the future will be volatile?
Are we operating under a status quo?
What assumptions do our competitors hold about the industry and themselves?
Assumptions
How will this change our relationship with our competition?
Capabilities
What are my competitors’ strengths and weaknesses?
How do our capabilities compare to our competitors? 38