Table of Contents
1.0 Introduction ..................................................................................................................... 1 1.1 Imperativeness of Model in strategic Management.................................................................... 1 1.2 How might models help senior managers deal with the challenges facing them? ................ 2 1.3 Different Models used in strategic management: A General Discussion on Models.............. 3 2.0 Description ...................................................................................................................... 6 3.0 Porters‟ Five forces Model: An Evaluation ............................................................................ 8 3.1 Strengths and Uses of Porter‟s five forces model .................................................................... 10 3.2 Some core benefits of Porters model ......................................................................................... 12 3.3 Learning for Executives can learn from Porter‟s Model ........................................................... 14 3.4 Weakness or Drawbacks of Porter‟s Model .............................................................................. 16 3.5 Major Weakness of Porter‟s five forces...................................................................................... 17 3.5.1 Buyers, competitors and suppliers are separated in terms of competition.................... 18 4.0 Conclusion ..........................................................................................................................20 5.0 Bibliography ........................................................................................................................21 6.0 Appendices .........................................................................................................................25
The world is becoming a global village day by day where technological breakthrough, extensive competition, standard of living, changing tastes and preferences, emergence of new market continuously shaping the business activities. Effective and fruitful strategic management decisions can give a company stable playing ground in this competitive market. Lack of strategic decision can make a company out of the market and hampers its goal and objective attainment. So to compete and survive in this competitive market an organization must have to draw several strategies which can be covered by using different strategic analytical models. First, the writer will illuminate why models are so commonly used in strategic management focusing on- how might models help senior managers deal with the challenges facing them, and Can the use of models actually perk up decision-making. Then, he will briefly illustrate and explain Porter‟s five factors Model.
1.1 Imperativeness of Model in strategic Management A corporation needs to have this information in order to identify a need it can fulfill via its corporate mission. Models work as a mirror for the managers where managers get the idea about their business situation, internal and external environment, its market position, probable threats, its success stimuli etc. These models help the managers to match between an organization‟s environment and its strategy, structure, and processes that has positive effects on the organization‟s performance. As the world‟s environment becomes increasingly complex and changing, these models are used by today‟s corporation as one way to know about the environment where it is operating. Hannagan (2005), stated that, models help a manager to be informed about the different situation of its business compared to its competitors and take further effective initiatives to solve the problem if any. Company can use models to know about its strategic business units. Models are mainly used for better planning, analyzing strategies, for plans and organizing recourses for the company. In operating, a business company has to face different challenges like product management, environmental issues, industry rivalry,
management of market share, growth etc. Moreover, models help to make an analytical presentation of these challenges and keep informed about the continuous market position of the organization. It can also evaluate its business performance with the help of these models and implement the strategy related to the problem or opportunities. By using models, managers can foresee future and can take long-term decisions (Griffin, 2008).Consistent with the importance of strategic management is the importance of staying informed on demographic, cultural, and political changes that affect a corporation‟s business around the world. It mainly helps to have information on the corporation‟s structure, culture, and resources. 1.2 How might models help senior managers deal with the challenges facing them? Models help senior managers deal with the challenges facing them by Consistently providing information about the market scenario, competitors‟ actions and reactions, strategic business units etc Guiding the organizational objectives, missions and visions by providing feedback related to the previously established strategy Helping managers in deciding which decision should be taken regarding which issues, Integrating the market information to formulate a long term strategy Suggesting decision makers which knowledge is essential for successful analysis Communicating the analytical result of all the products in respect to the competitors Developing the problem solving strategy to respond quickly to the changing nature of the market and environment
In operating a business, managers have to continuously grab information in taking effective and strategic decision, whereas models help the managers by providing credible and up-to-date information about the market. Models work as a guideline in clearly identifying the strength and weakness of a firm, as well as make out and determine the position of the corporation in the competition (Dyer and Singh,
1998).These models helps managers in taking instant and continuous decision regarding the business portfolio of the corporation. Sometimes models can be incorporated with other models to get improved and constructive information as some models focuses on narrow features.
1.3 Different Models used in strategic management: A General Discussion on Models Here in this part the writer would like to talk about different model used in strategic management for decision-making. It is known that, every model has distinctive characteristics and application. Therefore, the writer would like to describe this part with general discussion of a model. In analyzing and taking strategic decision, managers now a day‟s use a number of analytical tools, which work as a guideline to the decision makers. Different models have been developed in time from where managers can use models for different purposes. Extensively used models that help managers are: Porters‟ five forces model, SWOT analysis, PESTEL analysis, Bowman‟s Strategy Clock, Ansoff matrix Fishbone theory, BCG growth matrix, GE matrix and many other models To know the industry situation and competitors‟ managers may use different models, porters five forces, SWOT models are important for this. Porter‟s five forces model has been created by Michael E. Porter. He explains that there are five forces. These forces determine industry attractiveness and long-run industry profitability within a market. It represents the competitive structure of an industry. These five forces help in understanding and finding out where the power lies in a business environment. It helps the managers to understand the current situation of the industry, competitive situation of the market, customers bargaining power, suppliers‟ selection etc. Managers have to continuously monitor the forces to be able to know about the different situation. This model helps take advantage of a situation of strength, get better a situation of weakness, and avoid taking wrong decisions (Griffin, 2008).this model is extensively
used in strategic planning. Managers use this tool understand the industry context in which the firm operates. The tool is used to identify whether new products, services or businesses have the potential to be profitable. However, it can be very illuminating when used to understand the balance of power in other situations. These forces jointly determine the profitability of industry because they shape the prices, which can be charged, the costs that can be borne, and the investment required to compete in the industry. SWOT analysis help to identify the strength, weakness of an organization and the threat and potential opportunities also. Managers should consider internal strengths and weaknesses of their organization and compare these with the external opportunities and threats‟ to determine what should be the strategy of the organization? And this c an be done by using SWOT analysis. The strengths of the organization can be marketing strengths, financial strengths, operational strengths, HRM strengths etc. And weaknesses are also like strengths. Managers can compare these with the external opportunities and threats identified by PESTEL analysis. Strategy can be developed by using strengths to exploit the opportunities that exist (oxford University press, 2007). Managers‟ sometime use PESTE analysis to know about the broader environment of the business. There are many factors in macro-environment that affects the decisions of the managers of any corporation like political, economical, social, technological, environmental and legal (PESTEL) Government policies, demographic changes, trade barriers, changes in tax system, new rules, regulations etc. All are the examples of macro changes. Managers can analyze and categorize these using the PESTEL model (oxford University press, 2007). The external environment is dynamic and complex. There has been a significant change in the competitive system and nature. To cope up with this changing environment PESTEL analysis should be taken on a regular basis. In case of using PESTEL analysis, managers should question their assumptions and aware about the surroundings.
Another important matrix is BCG matrix or BCG growth matrix. It is one of the most renowned corporate portfolio analysis tools. It provides a graphic representation for an organization to examine different businesses in its portfolio on the basis of their related market share and industry growth rates. It discusses about the life cycle of any product or portfolio that passes through the introduction, growth, maturity and decline. It is a two dimensional analysis on management of SBU‟s (Strategic Business Units). Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage. It helps managers to get information about market share, growth rate and business size or sales, measuring comparative advantage indicated by market dominance. This allows decision makers to compare different business units and analyze their strengths, weaknesses, and develop appropriate strategies. The “problem Analysis Tool” or the “Cause-&-Effect Diagram” are also used to take the strategic decision. It is commonly known as Fishbone Analysis. This diagram is used to explore all the potential causes that happen due to the effects. Basically it is used to identify any causes and its probable effects to the organization. This model helps the managers in identifying and organizing the known or possible causes of quality or the lack of any issues. It can reveal key relationships among various variables, and the possible causes provide additional insight into process behavior. It basically works with 6M‟s (Machines, method, material, maintenance, man & Mother Nature), 8P's (Price, promotion, people, process, place, policy, procedure, and product) and 4S's Surrounding, suppliers, systems, and skills. Another strategic management tool extensively used in business is Ansoff matrix which helps managers in deciding how to grow beyond the niche that got them started. Managers take decision regarding their market size whether new or current, product category whether new or current and also other variables that affect the operation in the market. This model is known as Product/Market Expansion Grid that shows four ways (market penetration, market development, product development and diversification strategy) that businesses can grow, and it can help managers think through the risks associated with each option (Kotler and Armostron, 2010). Managers can take decision
whether they should go to new market with existing product, or existing market with new product. It helps managers start screening options, so that they can narrow these down and choose the ones that best suit for organization.
Another frequently used model in strategic management is Bowman‟s strategy clock which helps manager to take decision about eight competitive positions. This model helps companies find competitive edge and meet customers need in a better way. This is a model of corporate strategy that expand porters three strategic positions (cost leadership, product differentiation, market segmentation) to eight (low price/low added value, low price, hybrid, differentiation, focused differentiation, risky, high margins, monopoly pricing, loss of market share) and explains the cost and perceived value combinations that firms use. Besides, it helps managers identify the likelihood of success for each strategy The above-discussed issues clarify that models are very much helpful in managerial decisions. Managers should not take decisions hastily only depending on the output of the models rather it should compare the other variables with the results of models to better develop a strategy.
In this section, the writer would like to clarify the Porter‟s model thoroughly. Porter‟s Model is one of the most influential analytical models for assessing the nature of competition in an industry is Michael Porter‟s Five Forces Model, which was given by
Michael E. Porter in the year of 1979. It is a simple but powerful tool for understanding where power lies in a business situation. The tool is used to identify whether new products, services or businesses have the potential to be profitable. There are five important forces that determine competitive power in a business situation. The five industry analysis tools are: 1. Threats of new entrants in industry 2. Degree of Intra industry rivalry 3. Threats of substitutes 4. power of suppliers 5. power of buyers
These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. Porter‟s model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry (Minds tools, nd). The brief explanations of element of porter‟s model are given below: Threat of New Entry: Power is affected by the ability of people to enter the market. If it costs little in time or money to enter the market, few economies of scale in place, and have a little protection for key technologies, then new competitors can quickly enter the existing market and weaken the position. Threat of Substitution: The ability of customers can affect this substitution by finding a different way of doing – for example, a company supplies a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens company‟s power (tutor2u.net, 2010).
Power of suppliers: Suppliers are the businesses that supply material & other products into the industry. The cost of items bought from suppliers (e.g. raw materials, components) can have a significant impact on a company‟s profitability. If suppliers have a bargaining power over a company, then the company‟s industry is less attractive. The bargaining power of suppliers will be high when: There are many buyers and few dominant suppliers. There are undifferentiated, highly valued products. Buyers do not threaten to integrate backward into supply. The industry is not a key customer group to the suppliers.
Bargaining power of buyers: The bargaining power of customers is also described as the market of outputs: the ability of customers that comes from gathering together to put collective pressure on producers to lower prices or improve quality. The bargaining power of buyers typically has the strongest effect on pricing when buyers are organized and they collectively account for much of the producer's income (Porter, 2008).
Degree of intra industry rivalry: What is important here is the number and capability of company‟s competitors – if company has many competitors, and they offer equally attractive products and services, then company‟ll most likely have little power in the situation. If suppliers and buyers don‟t get a good deal from company, they‟ll go elsewhere.
3.0 Porters’ Five forces Model: An Evaluation
Models or business frameworks have used to deal with different business issues. Moreover, every model has some strengths as well as weakness. As, it has been selected that Porter‟s five forces models will be analyzed in this section. The writer will try to evaluate the model extensively with relevant previous studies on this model. It has already been known that, Porter‟s five forces model has a lot positive aspects to evaluate an industry in the competitive market as well as it has some shortcomings. Although this model has been published or created more than two eras before, therefore, a question comes whether this model is still useful in business arena or not. it has been considered that, Porter's five competitive forces model is a dominant model within business schools but now a day it has less demand to the practicing manager outside. He also stated that, Porter‟s Model could be used in more practical way, including shaping the competitive forces, designing actions basis on the forces. This model can also help figure out how to capture the competitive territory and within the same industry, helps to realize its dynamics (Grundy, 2006). Narayanan and Fahey (2005) stated that, empirical verification has suggested that some strategic management models functioning in developed economies have some major limitations and don‟t fit the circumstances common in emerging economies. They also stated that, Porter's Five Forces model is perhaps the best-known and most widely used conceptual framework in strategic management arena. On the other hand, Davenport and Prusak (2003) asserted that Porter‟s five forces model had enormous influence on the strategy management field. However, in developed economies the propensity to apply strategy models as a priori assumptions was high. Although Porter' mode have generated many other theoretical frameworks on emerging economies, the model of Porter has provided a way of thinking for the further development of strategic framework in management. Although there have been some proposition to improve Porter‟s five forces model (cf. Dunning, 1993), majority of the theorist or the practitioners are unaware of any effort to apply knowledge based tools to obtain this model‟s fundamental grounding and examine their effectiveness in emerging economies.
Porter's five forces model is reliable with the models of institutional change over the time, in addition, this model may help organization in making organizational plan in long run (Peng, 2003; Peng and Ruban, 2003). In some cases, due to the complex nature of market structure the assumptions of Porter's model may be rationally close to reality. Already, the assignment has made clear about various perspectives regarding the Porter‟s model. This model is widely recognized as well as criticized from different angles. Here, now the writer would like to clarify both positive and negative issues and drawbacks of Porter‟s model from a broader perspective. 3.1 Strengths and Uses of Porter’s five forces model
It is widely recognized that, Porter‟s five forces model has basic strength in obtaining competitive advantages. This model can help an organization to increase the performance management in between the suppliers and the buyers. Most of the new firms in market try to use the porter‟s analysis tool before entering into the market. Mainly, new firm can use this model for the market evaluation, moreover; existing firm in the industry can scrutinize the tools of Porter‟s model for knowing the competition better. Porter‟s model may be used for the risk assessment, According to Rice (2010), Business people use different tools for analyzing and managing risk include risk cubes, risk burn down charts, and automated risk management software etc. strategic management frameworks like Porter‟s model can be used here in rep lace as commercial best practices. Majority of the conceptual framework will be directly applicable and adaptable in terms of risk management. Porter‟s model help immensely in decision-making, in addition, to collect investigate and present data for the decision maker. As the reporter found that, this model has helped to identify three generic strategies to deal with industry rivalry. Basis on the model different approaches can be formed in corporate, business unit and functional or
department level. Porter‟s model may help a firm to identify the different level of competitive advantages through using cost leadership strategy, or differentiation. Porter‟s model may be useful in terms of identifying the attractiveness of a fimr‟s product, service or business through analyzing the model. The market situation of a particular firm or current industry position can be analyzed through using Porter‟s model. Most of the firms try to examine the situation of intra industry rivalry, presences of substitution, chance of profitability, power of suppliers and power of buyers, pressure of future competitors/ new entrants etc. before launching a product or entering into a new business segment. As Porter said that, it is better to use this model in line of business industry level. According to Hopkins (2008), Porter‟s model gives structural determinant connected with all forces that can be used to decide the strengths of the forces. Therefore, this model could be applied in identifying rivalry model. Structural determinants are longlasting economic characteristics, which help describe the industry. In his article, he mentioned that five forces model could be easily applicable in robotic industry for assessing rivalry. He also added that, the most attractive industry for using this model is; where all five forces are weak and least attractive will be; where all forces are strong. Hopkins (2008) also stated that, the model allows an analyst to determine how attractive an industry is (Cf, Porter, 1980). Porter‟s framework describe that, there are three ways to use the results of an industry analysis. However, First, firms can place themselves within the industry in a position where the competitive forces are minimum or weakest. Second, they can anticipate what changes will come in the industry forces as consequential of growing trends. Finally, they can change the power of the forces through taking proper action. Therefore, the writer would like to say that, in a very diversified and differentiated market place, where many competitors, many buyers, suppliers and substitutions available, using Porter‟s five forces can be helpful to abridge the market situation. A firm can take decision by analyzing Porter‟s model, in this way: an example of Robotic industry:
Position Strong for automotive buyers and moderate for non-automotive buyers
Comments Here, it has been
noticed that only one force is either strong or moderate and having two forces moderate and two other forces
Rivals Suppliers New entrants Substitutes
Moderate Weak weak Moderate
are weak. Therefore, this industry is
for using porters five forces model Source: Hopkins (2008) As a result, it can be said that Porter‟s model is still applicable to assess the opportunity in an industry that means to analyze intra industry situation. For a new comer in the market this model may be more helpful. If any analyst can find, his business unit in comparatively weak position than the competitor‟s position, Porter‟s model can help him to figure out a solution in order to remove the drawbacks. Porter also refers that if an organization can distinguish itself from the competitors‟ offering and can add some extra benefits than the competitors, it would create better opportunity for the organization. Griffin (2008) asserted that, some large organizations are overcrossing the competition just by differentiating themselves from their nearest competitors. Another basic strength of Porter‟s model is that, this model is still dominating in developing economies. Some models may become obsolete after a certain time time, but still there are more or less uses of porter forces. According to Weihrich (1999), Porter‟s models made valuable contributions in identifying important factors. The proper implication of this model may help to design proper strategy in different level. Fathom 3.2 Some core benefits of Porters model
Here in this section, the assignment will figure out some core benefit or strength provided by porters five forces framework. It is considered as one of the most popular tools of industrial analysis. Hunt (2007) said that, company may ensure the competitive benefits and can make stronger its positions through ensuring lower costs on production and proper promotion and placement of products. Here c omes the use of Porter‟s model. Organizations need to choose its priorities in terms of selecting the company‟s strategy and Porters model may help to use the strategy effectively. However, now the writer would like to summarize the benefits as follows: Porter‟s model may help a company to figure out its reasons behind cost inefficiency in different strategic segments and suggest taking proper actions. Firm can also minimize their marketing cost in order to achieve competitive benefits. This model can deal with whole industry rather than a little segment. It helps to differentiate in firm‟s product or services by changing a narrow product or service attributes. Five forces model is also applicable in term of redesigning the organizational strategy. According to Hunt (2007), this model suggests to those firms who are not currently market leader, they should better concentrate on the niches of the market. This view of this competitive model is effective for the business. Small companies may thrive with relatively narrow specialization. That means small company should better concentrate on their concentrated area of interest. It will keep them aside from the rivalry of large and dominating firms in the industry. If the threats of substitution are higher, the model recommends firms to modify their products to be different and superior from the substitutions. In terms of evaluating the threats from substitutes, it is imperative to examine how well competitors do the same tasks. According to Ormanidhi and Stringa (2008), there several reasons for using Porter's model to evaluate firms' competitive behavior though he said that first reason is popularity of this framework. Miller and Dess (1993) found that, within the year of 19861990, Porter's five forces framework was referred in almost half of the papers in the journal of Strategic Management. It actually proves the popularity and acceptability of Porters model in strategic management. He also stated that porters model is well
define structured. This model deals with competitive behavior of firms more elaborately than other models. 3.3 Learning for Executives can learn from Porter’s Model According to Magretta (2011), Understanding the Porter‟s FFF would be helpful for the manager in organizational decision-making. Unfortunate but true is that, many managers misunderstand and misuse Porter‟s concept. She also added that, if managers want to understand how companies achieve and maintain competitive success, the answer lies in Porter‟s five forces model. Porters model helps managers to decide what to do and what not to do. This model is so grounded in economic fundamentals. Proper understandings on this model allow managers to link between the value they create and perform. In an industry, good strategy depends on the link of many things. Magretta (2011) also explained that, Porter's FFF, competitive advantage, the value chain–and his five tests of Porter‟s strategy provide the economic foundation of competition and policy. She also argued that, managers who can put all these pieces together would have a general theory that would be applicable in every case. Five forces model also indicate that, manager should keep direct concentration between strategy and financial concentration. Unfortunately, in some cases, people use Porter‟s term in wrong way sometime, for example: sometimes managers use five forces analysis primarily to declare an industry attractive or unattractive. Actually, The FF framework is far more useful and powerful than only this use; it will allow a practitioner to figure out the complexity of competition inside the industry. Moreover, this framework opens the way to a host of possible actions a firm can take to improve its performance inside the industry (cf Allio and Fahey, 2012). There is another misconception may find in managers and that is: they often think that a “high-growth industry” is always attractive but growth has no guarantee to ensure that the industry will be profitable. Finally it would be said that, Porter model didn‟t‟ think that, industry structure as something fixed, unchanging and static (cf. Allio and Fahey, 2012). Finally, it could be said the clear understanding accurate explanation of porters model in industry will surely help executive to use this framework appropriately.
Table: Comparison between other conceptual frameworks and Porter‟s Five Forces Model Other conceptual frameworks Porter’s Five Forces Model the report will compare
SWOT analysis stands for strength, weakness, opportunities, Now,
and threats. It is a part of companies internal (strength and Porter‟s model in comparison to weakness) and external (threat and opportunities) review other conceptual framework model. (Silverstein, 2010) By using porter‟s five forces model a
The BCG matrix presents a framework for distributing firm, can identity its weakness and resources among different business units and allows one to strengths. Therefore, it has the evaluate and compare many business units at a glance. On quality of SWOT analysis. the other hand, Kotler & Armostrong, (2010) stated that, BCG It can resolve which business unit matrix concentrates on Strategic Business Units (SBU) based would be more attractive and which on market growth and market share of a business business will be less, as a result, it can be said that, it has the
PEST analysis deals with different business environments characteristics of BCG matrix. including; Political, Economic, social and technological. In Porter‟s framework helps to identify addition, the extended format is environmental and legal any Economic and social barriers of environment. This framework may helps in knowing the entrance too external situation better By identifying attractiveness of Ans Off matrix describe how to capture current or new market market, it helps managers to make segment more wisely. It could be through new market decision regarding which market segments with existing products and existing market with new segments to take. Consequently, it products or new product in new market. The aim is to expand can be said, porter‟s five forces have market majority of characteristics of other frameworks.
Source: self creation
3.4 Weakness or Drawbacks of Porter’s Model Though Porter‟s model is one of the most popular model and widely used in strategic management field it also has some criticism. With the rapid change of the management practices sometimes, Porter‟s model becomes obsolete. There are many critics are available about porter five forces model. Here in this section the report will clarify the drawbacks or the weaknesses of Porter‟s five forces model. Once Porter argued that (cf. Karagiannopoulos et al. 2005), the openness of internet technology has made it complicated for a single company to capture the benefits of the network effect, hence, to have network effects, it is needed for an organization to have a critical mass of
customers. Finally, the experience curve benefit proved catastrophic in many industries. Modern technology mainly internet provides buyers with easier access to information about products and suppliers and substitutes; therefore, it boosts the bargaining power. Therefore, in some cases traditional application of forces may become less useful. Porter‟s has recognized that, (cf. Karagiannopoulos et al. 2005), internet technologies had reduced the variable costs and costs structures. Sometimes, it makes the use of Porter‟s model less influential. Though Porter said that, internets decrease the barriers to entry in an industry but upon examination that is more vigilant, will see that the major cost centers that determine the level of the barriers to entry are the same as for physical products. According to Lever (2008), this model is missing some key elements of competitive market scenario such as industry group, different industry sector investigation and competitive forces. Considering the economic sector the report will clarify that, this model presumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver
3.5 Major Weakness of Porter’s five forces
According to Hunt (2007), Porter‟s model is less accurate because if every company implements and practice Porter‟s strategy then none would be able to enjoy the full competitive advantage in the market. According to Knights (1992), Porter‟s theory is focusing on the attractiveness to management but actually, it gives some misapprehension of control, legitimacy and security in the face of uncertainty. He also asserted that, this concept focus on some unequal power that would be supported by senior management. It cannot handle accurately new business models and the dynamism of market. Therefore, it could be said that, this model has some major limitations in response to the today‟s market structure. On the other hand, criticism goes that, the model has another crucial drawback and that is; it focuses on external factors influencing the business but now success of business unit depends on both external and internal factors. It is known that, internal weakness can harm total business though having positive external environments and porter‟s model has this limitation too. While porter model describe the competitive advantages it skips innovativeness of a firm, which can be major tools for competitive advantages. However, it is obvious that, to sustain in competitive market firms have to be highly innovative adaptive to the change. (Hunt, 2007) While porter created/ popularized his five forces model, there was not internet facilities available for majority of customers and businesses therefore, it concentrated less on internet power, which continuously maximizing the bargaining power of buyer and suppliers. It has been considered as another criticism of this model. Today‟s global economy and mass internet access makes it meaningless to talk about the philosophy of talking intra-industry. Nevertheless, large industry has to fight with global competitors than the local competitors. Therefore, in some case Porter‟s theory needs modification. According to Lever (2008), Porter‟s model depicts that, stay away from severe competition but it is also true that, firm will learn how to survive form fierce competition. If firm can survive, it would be a strongest opportunity to be the market leader. Porter‟s
talked about the substitutions. It is known that, more substitute products can make the buyers more powerful but at the same time more complementary product can make the consumer more dependent on business. This philosophy was absent in porter‟s discussion. Porter‟s model is based on business competition. In some cases minimizing competition among the competitors could be more profitable for the competitors. For examples: business merger and Cartel assist to capture large market share, more profits and reduce intra-industry rivalry. That means minimizing intra-industry rivalry may take place in through different means, for example; OPEC. Lever (2008) also explained that, other competitive forces might generate further dimension to competitive analysis. Market expansion has been believed as an important factor of internal rivalry among existing players in Porter‟s five forces models. However, market share can be increased on by increasing per customer‟s consumption volume without adding any new customer, Porter‟s model didn‟t clarify about this concept. Finally, it would be said that, in a controlled market porter‟s model could not generate any decision. Consequently, a question comes that, porter‟s model cannot figure out any option where exactly no competition is available. Another big issue is that, five forces model is concerned with individual buyer‟s power rather than the power of collective buyers.
3.5.1 Buyers, competitors and suppliers are separated in terms of competition This model shows buyers‟ power, competitors‟ power and the power of suppliers at a single line. However, the thing is that buyers, suppliers and competitors are totally separated entities. Single suppliers could be simultaneously threats for the several competitors because he could supply to different firms of the industry at the same time. (Rainer et al., 2009). Another big issue rises regarding this model that is; in porter‟s view suppliers is shown as a competitive force, but now a day supplier is considered as
a major partner of business, the success of large business depends on the wellstructured supply chain, in addition, suppliers play vital role to ensure the total profit of the chain. The higher bargaining power of supplier is not good for the industry. Nevertheless, now a day some companies are getting competitive benefits just because of association with suppliers. It can ensure win-win situation between suppliers and manufacturer and that would be good for the industry (Chopra, & Meindl 2008). However, porter‟s model has little concentration on this issue to reduce competitive forces.
Gradually, the report has clarified pros and cons of the porter five forces model, which, is one of the most popular model in strategic management arena. Majority of conceptual frameworks has been explained earlier in this report and finally the writer has chosen Porter‟s five forces model to explain elaborately. The Five Forces Model has some limitations but still a powerful framework that can provide a useful set of insights from its competitive analysis. After 1980 this model has been used and cited millions of times in different study, it proves the popularity of porter‟s model. Here, in this report the writer has clarified the strengths of porter‟s model as well as the drawbacks of the model. Genuinely, the report found that, with the change of business model and the change of competitive forces, Porter‟s model should have some modification but still managers can find some major uses of this model.
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Appendix 01 SWOT analysis
It depicts the internal and external strength, weakness, opportunity and threat of a particular business organization in a competitive environment. Appendix 2 TWOS Matrix: TWOS (Threat, Weakness, Opportunity, and Strength) is the reverse to SWOT analysis. This matrix focuses on how company minimizes their Threats using Strength and maximizing strength through using the market opportunities.
Strengths Opportunities S/O Threats Appendix 3 Porter‟s Five forces Model Threat of New Entry
Time & cost of entry Specialist knowledge Economies of scale Cost advantages Technology protection
Weaknesses S/T W/T
Number of competitors Quality differences Switching costs Customer loyalty Cost of leaving market
THREAT OF NEW ENTRY
Number of suppliers Size of suppliers Uniqueness of service Ability to substitute Cost of changing
Buyer of Power:
Number of customers Size of each order Differences between competitors Price sensitivity Ability of substitute Cost of changing
THREAT OF SUBSTITUTION
Threat of Substitution:
Substitute performance Cost of change
Source: mindtools (nd)
Appendix 04 BCG matrix is also known as growth share matrix, This helps the company allocate resources within different portfolios. It depicts the different Strategic Business Units (SBUs) and their market share and growth
Appendix 5 Pestle Analysis: here, the writer would like to show the core elements of PESTLE analysis.