STRATEGIC MANAGEMENT

SUBMITTED BY
NIKITA SAINI
MBA 4TH
1803104025
 PORTER'S FIVE FORCES FRAMEWORK

Porter’s five forces model is an analysis tool that

uses five industry forces to determine the intensity
of competition in an industry and its profitability
level.
These forces determine an industry structure and the
level of competition in that industry. The stronger
competitive forces in the industry are the less profitable
it is. An industry with low barriers to enter, having few
buyers and suppliers but many substitute products and
competitors will be seen as very competitive and thus,
not so attractive due to its low profitability.
Threat of new entrants

 Thisforce determines how easy (or not)

it is to enter a particular industry. I
f an industry is profitable and there a
re few barriers to enter, rivalry soon
intensifies. When more organizations co
mpete for the same market share, profit
s start to fall. It is essential for ex
isting organizations to create high bar
riers to enter to deter new entrants.
Threat of new entrants is high
when:

 Low amount of capital is required to enter a market;

 Existing companies can do little to retaliate;
 Existing firms do not possess patents, trademarks or d
o not have established brand reputation;
 There is no government regulation;
 Customer switching costs are low (it doesn’t cost a l
ot of money for a firm to switch to other industries);
 There is low customer loyalty;
 Products are nearly identical;
 Economies of scale can be easily achieved.
Bargaining power of suppliers.

 Strong bargaining power allows suppliers to sell h

igher priced or low quality raw materials to their
buyers. This directly affects the buying firms’ p
rofits because it has to pay more for materials.
Suppliers have strong bargaini
ng power when:

 There are few suppliers but many buyers;

 Suppliers are large and threaten to forward integr
ate;
 Few substitute raw materials exist;
 Suppliers hold scarce resources;
 Cost of switching raw materials is especially high
Bargaining power of buyers.

 Buyers have the power to demand lower price or hig

her product quality from industry producers when t
heir bargaining power is strong. Lower price means
lower revenues for the producer, while higher qual
ity products usually raise production costs. Both
scenarios result in lower profits for producers.
Buyers exert strong bargaining
power when:

 Buying in large quantities or control many access

points to the final customer;
 Only few buyers exist;
 Switching costs to other supplier are low;
 They threaten to backward integrate;
 There are many substitutes;
 Buyers are price sensitive.
Threat of substitutes.

 This force is especially threatening when buyers c

an easily find substitute products with attractive
prices or better quality and when buyers can switc
h from one product or service to another with litt
le cost. For example, to switch from coffee to tea
doesn’t cost anything, unlike switching from car
to bicycle.
Rivalry among existing competi
tors

 This force is the major determinant on how competi

tive and profitable an industry is. In competitive
industry, firms have to compete aggressively for a
market share, which results in low profits.
Rivalry among competitors is i
ntense when:

 There are many competitors;

 Exit barriers are high;
 Industry of growth is slow or negative;
 Products are not differentiated and can be easily
substituted;
 Competitors are of equal size;
 Low customer loyalty.
BCG MATRIX

• Created by the Boston Consulting Group, t

he BCG matrix – also known as the Boston
or growth share matrix – provides a fram
ework for analysing products according to
growth and market share. The matrix has b
een used since 1968 to help companies gai
n insights on what products best help the
m capitalize on market share growth oppor
tunities.
Stars

 The business units or products that have the best

market share and generate the most cash are consid
ered stars. Monopolies and first-to-market product
s are frequently termed stars. However, because of
their high growth rate, stars consume large amount
s of cash. This generally results in the same amou
nt of money coming in that is going out. Stars can
eventually become cash cows if they sustain their
success until a time when the market growth rate d
eclines. Companies are advised to invest in stars.
Cash Cows:

 Cash cows are the leaders in the marketplace and g

enerate more cash than they consume. These are bus
iness units or products that have a high market sh
are but low growth prospects.
 cash cows provide the cash required to turn questi
on marks into market leaders, cover the administra
tive costs of the company, fund research and devel
opment, service the corporate debt, and pay divide
nds to shareholders. Companies are advised to inve
st in cash cows to maintain the current level of p
roductivity, or to "milk" the gains passively.
Dogs:

 Dogs, or pets as they are sometimes referred to, a

re units or products that have both a low market s
hare and a low growth rate. They frequently break
even, neither earning nor consuming a great deal o
f cash. Dogs are generally considered cash traps b
ecause businesses have money tied up in them, even
though they are bringing back basically nothing in
return. These business units are prime candidates
for divestiture.
Question Marks:

 These parts of a business have high growth prospec

ts but a low market share. They consume a lot of c
ash but bring little in return. In the end, questi
on marks, also known as problem children, lose mon
ey. However, since these business units are growin
g rapidly, they have the potential to turn into st
ars. Companies are advised to invest in question m
arks if the product has the potential for growth,
or to sell if it does not.
VALUE CHAIN

• A value chain is a business model that de

scribes the full range of activities need
ed to create a product or service. For co
mpanies that produce goods, a value chain
comprises the steps that involve bringing
a product from conception to distribution
, and everything in between—such as proc
uring raw materials, manufacturing functi
ons, and marketing activities.
Step 1. Identify the firm’s p
rimary and support activities

 All the activities (from receiving and storing mat

erials to marketing, selling and after sales suppo
rt) that are undertaken to produce goods or servic
es have to be clearly identified and separated fro
m each other. This requires an adequate knowledge
of company’s operations because value chain activ
ities are not organized in the same way as the com
pany itself. The managers who identify value chain
activities have to look into how work is done to d
eliver customer value.
Step 2. Establish the relative importance of eac
h activity in the total cost of the product

 The total costs of producing a product or service

must be broken down and assigned to each activity.
Activity based costing is used to calculate costs
for each process. Activities that are the major so
urces of cost or done inefficiently (when benchmar
ked against competitors) must be addressed first.
Step 3. Identify cost drivers
for each activity.

 Only by understanding what factors drive the costs

, managers can focus on improving them. Costs for
labor-intensive activities will be driven by work
hours, work speed, wage rate, etc. Different activ
ities will have different cost drivers.
Step 4. Identify links between
activities.

 Reduction of costs in one activity may lead to fur

ther cost reductions in subsequent activities. For
example, fewer components in the product design ma
y lead to less faulty parts and lower service cost
s. Therefore identifying the links between activit
ies will lead to better understanding how cost imp
rovements would affect he whole value chain. Somet
imes, cost reductions in one activity lead to high
er costs for other activities.
Step 5. Identify opportunities
for reducing costs.

 When the company knows its inefficient activities

and cost drivers, it can plan on how to improve th
em. Too high wage rates can be dealt with by incre
asing production speed, outsourcing jobs to low wa
ge countries or installing more automated processe
s
Primary Activities

 1. Inbound Logistics
 This is how materials and resources are gained fro
m suppliers before the final product or service ca
n be developed.
 2. Operations
 Operations are how the materials and resources are
produced, resulting in a final product or service.
primary activities (continued)

 3. Outbound Logistics
 Once a product or service is finished, it needs to be
distributed. Outbound logistics describes this delive
ry process.
 4. Marketing and Sales
 This is how your product or service is presented and
sold to your ideal target market.
 5. Services
 This is the support a business provides for the custo
mer which can include support and training for the pr
oduct, warranties, and guarantees
Support Activities

 Support activities help the primary activities in creatin

g an advantage over competitors, and they include:
 1. Firm Infrastructure
 This entails all the management, financial, and legal sys
tems a business has in place to make business decisions a
nd effectively manage resources.
 2. Human Resource Management
 Human resource management encompasses all the processes a
nd systems involved in managing employees and hiring new
staff. This is especially important for companies that pr
ovide in-person service, and excellent employees can be a
competitive advantage.
Support activities (continued)

 3. Technology Development
 Technology development helps a business innovate.
And technology can be used in various steps of the
value chain to gain an advantage over competitors
by increasing efficiency or decreasing production
costs.
 4. Procurement
 This is how the resources and materials for a prod
uct are sourced and suppliers are found. The goal
is to find quality supplies that fit the business'
budget.
 CORE COMPETENCIES

• A unique ability that a company acquires

from its founders or develops and that ca
nnot be easily imitated. Core competencie
s are what give a company one or more com
petitive advantages, in creating and deli
vering value to its customers in its chos
en field. Also called core capabilities o
r distinctive competencies.
McKinsey 7S Framework

• The model can be applied to many situatio

ns and is a valuable tool when organizati
onal design is at question. The most comm
on uses of the framework are:
• To facilitate organizational change.
• To help implement new strategy.
• To identify how each area may change in a
future.
• To facilitate the merger of organizations
 Strategy

 is a plan developed by a firm to achieve sustained competitive a

dvantage and successfully compete in the market. What does a wel
l-aligned strategy mean in 7s McKinsey model? In general, a soun
d strategy is the one that’s clearly articulated, is long-term,
helps to achieve competitive advantage and is reinforced by stro
ng vision, mission and values. But it’s hard to tell if such st
rategy is well-aligned with other elements when analyzed alone.
So the key in 7s model is not to look at your company to find th
e great strategy, structure, systems and etc. but to look if its
aligned with other elements. For example, short-term strategy is
usually a poor choice for a company but if its aligned with othe
r 6 elements, then it may provide strong results.
Structure

 represents the way business divisions and units ar

e organized and includes the information of who is
accountable to whom. In other words, structure is
the organizational chart of the firm. It is also o
ne of the most visible and easy to change elements
of the framework.
Systems

 are the processes and procedures of the company, w

hich reveal business’ daily activities and how de
cisions are made. Systems are the area of the firm
that determines how business is done and it should
be the main focus for managers during organization
al change.
Skills

 are the abilities that firm’s employees perform v

ery well. They also include capabilities and compe
tences. During organizational change, the question
often arises of what skills the company will reall
y need to reinforce its new strategy or new struct
ure.
Staff

 element is concerned with what type and how many e

mployees an organization will need and how they wi
ll be recruited, trained, motivated and rewarded.
Style

 represents the way the company is managed by top-l

evel managers, how they interact, what actions do
they take and their symbolic value. In other words
, it is the management style of company’s leaders
.
Shared Values

 are at the core of McKinsey 7s model. They are the

norms and standards that guide employee behavior a
nd company actions and thus, are the foundation of
every organization.
5'S

• Sort
• Set in Order
• Shine
• Standardize
• Sustain
Seiri – Sort

 The first stage of 5S is to sort. This means going throu

gh items and deciding what is necessary and what is not
to reduce clutter. The reduction of clutter leads to saf
er more secure spaces. Throwing away unnecessary items
may be difficult, but it’s important to maximize space
and efficiency. Sorting also forces you to think about h
ow items are used in people’s daily lives. If you are u
nsure about a certain item, it is useful to create an
“unknown category” and track their use in a week or a
month to determine if they are necessary in that particu
lar space. If the items aren’t used in your specified t
ime period, they are unnecessary. Employers often find i
t surprising how many unneeded items are in workspaces t
hat cause spatial or productivity inefficiencies.
Seiton – Systematize

 Following sorting, systematizing or straightening

is the next step in our lean process. This quite l
iterally means, creating a system for a particular
space. Make sure there is a place for everything a
nd everything stays in its place. Labeling spaces
with items and number of items helps to systematiz
e your storage and also helps in a later stage (st
andardize). During Seiton, it is also vital to thi
nk of the flow of a workspace. What items get used
the most and at what time? Who enters and exits th
is space? Recalling and analyzing purpose is impor
tant when systematizing.
. Seiso – Shine

 As systematizing a workplace creates a space for e

verything, shining is that refining step. While sh
ine does imply cleaning and tidying items, it also
calls for fixing problems. As you are cleaning a s
pace, you may notice the inconsistency in the orde
r of items or the lack of organization. In this st
ep, make those changes or implement countermeasure
s as you go.
Seiketsu – Standardize

 This step is about creating a safe, efficient and successful

practices to efficiently complete a process or task that can
be duplicated to optimize the performance of the process or t
ask. Standardization promotes safety and allows the process
to be easily shared among team members. Completing a process
or task in the same safe and efficient way each time allows y
ou to identify and address systematic breakdowns and to repli
cate continuous success in performing the task or process. Ma
ny employers find it helpful to develop rules in order to hol
d everyone accountable. For example, in a copy room in an off
ice setting, the rule may be “maximum 30 envelopes, minimum
10.” In this case, the written rule holds anyone who takes t
he 10th envelope accountable to replenish the envelopes. This
can work similarly in manufacturing facilities with supplies.
Shitsuke – Sustain

 The last step in the 5S process is truly never-end

ing. Sustaining is an important step and potential
ly the most difficult part of the process. The pro
cess must be consistent with the rules developed t
hroughout the 5S. Along the same lines, sustaining
also means a constant drive for improvement. Just
because a process or rule is in place doesn’t mea
n that there can’t be a conversation about an imp
rovement or evolution among employees. Keeping up
with the times and sustaining a space means that t
he 5S process never stops.
THANK YOU