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Makerere University
Business School
Strategic Management Course
ENVIROMENTAL ANALYSIS - COMPLETION
INDUSTRY ANALYSIS
 A firm operates in an industry
 Need to compare a company’s operations with
others
 Especially “the best-in-class” rivals
 Current level of competition
 Technologies
 Competitors’ Key Success Factors, among other key
issues.
 Customers
 Suppliers
 Competitors
 Industrial trends
 In line with your industry’s life cycle
 In line your goals and objectives, your strategy
Industry components
Customers:
 Who are they in terms of characteristics
and behaviours?
 How manageable are their needs, wants,
expectations, tastes and preferences?
 Why do they buy/what they value most?
 When/how do they buy?
 Where do they buy?, etc
 Do all these trends/factors/developments
favor/benefit us (opportunities) or really
scare/are against us (threats)?
Suppliers;
 Do we have alternative sources of
suppliers?
 Can we rely on these suppliers to
provide our needed inputs in the
right quantities ,quality, at the right
time and place?
 If the answer is yes , those are
opportunities. While no shows a
threat (s)
 What are their costs?
 What are their terms of delivery and/or
payment?
 How powerful are they?
 What is their rate of entry and exit?
 Which supplier is the best?
 Which supplier (s) will give us competitive
advantages (opportunities) or not/scare us(
threat)?
Competitors;
 How many competitors of our size
and competence are we facing? Few-
opportunity, many-threat
 What market share do they
hold/how strong are they?
Smaller/weaker-opportunity,
Big/strong- threat
 Cost of the available substitutes?
Find out
 What are their competitive behavior?
Friendly/cooperative- Opportunity, Un
friendly-Threat
 What are the entry and exit barriers for
these competitors? Easy for new rivals to
join but difficult for the current ones to
leave the industry-threat, Difficult to enter
but easy to exit-favorable/opportunity
 Before joining an industry, a firm
should consider;
Industry size, structure,
profitability, long term
attractiveness, life cycle
Competitive situation analysis
Level of technology in the
industry
Competitive position of the
firm
Ease of entry in the industry
 Michael E. Porter of the Harvard
Business School
 Suggested five competitive forces
model;
 Rivalry within the industry
 Threat of new entrants
 Threat of substitute products
 Power of buyers
 Power of suppliers
Michael Porter’s model
Rivalry determinants
 Mutual dependence
 Concentration of competitors
 Number of competitors
 Industry growth rate
 Cost structure
 Diversification by competitors
 Differentiation and switching costs
 Exit barriers
 Capacity utilisation
Entry barriers
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Distribution channels access
 Government policies
 Expected retaliation
Substitution determinants
 Price relativity
 Switching costs
 Buyer propensity to substitute
Customer power determinants
 Intrinsic strength
 Buyer volume
 Switching costs
 Buyer information
 Backward integration ability
 Substitute products
 Price sensitivity
 Impact on quality
 Brand identity
Supplier power
 Importance to supplier
 Knowledge of product value to buyer
 Brand
 Quality
 Standardisation and differentiation
 Switching costs
 Threat of forward integration
Model Basics
 Helps managers to identify the
opportunities and threats
confronting their company (ies).
 The stronger the 5 competitive
forces, the more serious the threat
and vise versa.
 Through strategic change you can
alter the strengths of such forces
Porter’s Model – Cont.
 Need to understand the forces in the
industry, their impact/seriousness, how
and when they benefit or be against
you, and their sources.
 Confirm which forces favour your
business success (opportunities) or
scare your business success (threats)
Limitations
 Limited availability of the required
information i.e high level of secrecy in
government bodies and some business
associations
 The available information may not be
up-to-date, or be irrelevant or even
inaccurate
 The model ignores other trends like
changes in demand, technology used in
production, and the market
growth/attractiveness

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6 M Porter's 5 forces competitive model.ppt

  • 1. Makerere University Business School Strategic Management Course ENVIROMENTAL ANALYSIS - COMPLETION
  • 2. INDUSTRY ANALYSIS  A firm operates in an industry  Need to compare a company’s operations with others  Especially “the best-in-class” rivals  Current level of competition  Technologies  Competitors’ Key Success Factors, among other key issues.
  • 3.  Customers  Suppliers  Competitors  Industrial trends  In line with your industry’s life cycle  In line your goals and objectives, your strategy Industry components
  • 4. Customers:  Who are they in terms of characteristics and behaviours?  How manageable are their needs, wants, expectations, tastes and preferences?  Why do they buy/what they value most?  When/how do they buy?  Where do they buy?, etc  Do all these trends/factors/developments favor/benefit us (opportunities) or really scare/are against us (threats)?
  • 5. Suppliers;  Do we have alternative sources of suppliers?  Can we rely on these suppliers to provide our needed inputs in the right quantities ,quality, at the right time and place?  If the answer is yes , those are opportunities. While no shows a threat (s)
  • 6.  What are their costs?  What are their terms of delivery and/or payment?  How powerful are they?  What is their rate of entry and exit?  Which supplier is the best?  Which supplier (s) will give us competitive advantages (opportunities) or not/scare us( threat)?
  • 7. Competitors;  How many competitors of our size and competence are we facing? Few- opportunity, many-threat  What market share do they hold/how strong are they? Smaller/weaker-opportunity, Big/strong- threat  Cost of the available substitutes? Find out
  • 8.  What are their competitive behavior? Friendly/cooperative- Opportunity, Un friendly-Threat  What are the entry and exit barriers for these competitors? Easy for new rivals to join but difficult for the current ones to leave the industry-threat, Difficult to enter but easy to exit-favorable/opportunity
  • 9.  Before joining an industry, a firm should consider; Industry size, structure, profitability, long term attractiveness, life cycle Competitive situation analysis
  • 10. Level of technology in the industry Competitive position of the firm Ease of entry in the industry
  • 11.  Michael E. Porter of the Harvard Business School  Suggested five competitive forces model;  Rivalry within the industry  Threat of new entrants  Threat of substitute products  Power of buyers  Power of suppliers Michael Porter’s model
  • 12.
  • 13. Rivalry determinants  Mutual dependence  Concentration of competitors  Number of competitors  Industry growth rate  Cost structure  Diversification by competitors  Differentiation and switching costs  Exit barriers  Capacity utilisation
  • 14. Entry barriers  Economies of scale  Product differentiation  Capital requirements  Switching costs  Distribution channels access  Government policies  Expected retaliation
  • 15. Substitution determinants  Price relativity  Switching costs  Buyer propensity to substitute
  • 16. Customer power determinants  Intrinsic strength  Buyer volume  Switching costs  Buyer information  Backward integration ability  Substitute products  Price sensitivity  Impact on quality  Brand identity
  • 17. Supplier power  Importance to supplier  Knowledge of product value to buyer  Brand  Quality  Standardisation and differentiation  Switching costs  Threat of forward integration
  • 18. Model Basics  Helps managers to identify the opportunities and threats confronting their company (ies).  The stronger the 5 competitive forces, the more serious the threat and vise versa.  Through strategic change you can alter the strengths of such forces
  • 19. Porter’s Model – Cont.  Need to understand the forces in the industry, their impact/seriousness, how and when they benefit or be against you, and their sources.  Confirm which forces favour your business success (opportunities) or scare your business success (threats)
  • 20. Limitations  Limited availability of the required information i.e high level of secrecy in government bodies and some business associations  The available information may not be up-to-date, or be irrelevant or even inaccurate  The model ignores other trends like changes in demand, technology used in production, and the market growth/attractiveness