Transcript Finishing-Porter’s..

Finishing Porter’s 5 Forces and
Impact of External Influences
To determine how a firm might cope
with its competitors: apply…
PORTERS 5 FORCES
Michael Porter’s Five Forces Model
High industry profits
Low industry profits
• Weak suppliers
• Weak customers
• High entry barriers
• Few opportunities for
substitutes
• Little rivalry
• Strong suppliers
• Strong customers
• Low entry barriers
• Many opportunities for
substitutes
• Intense rivalry
On iPads have a go at the quiz:
http://www.tutor2u.net/business/quiz/porterfiveforces/quiz.html
Key Points: Porter’s 5 forces
• Remember – Porter wrote about Firms that Achieve & Sustain a Competitive
Advantage – establishing a strength rival’s struggled to copy
• 5 Forces can be used to shape the Firm’s Competitive Strategy
• Criticism:
• The 5 forces are static / point in time snapshots that ignore trends in market size: requires frequent
updates
• 5 forces about reacting to pressures – in reality innovation and creative choices (creating new
markets) are important – although Porter might argue Threat of Substitutes covers this
• A Sixth Force? Yale Professors Brandenbuger/Nalebuff created the idea of a sixth force,
"complementors“
• Complementors sell products and services that are best used in conjunction with a
product or service from a competitor. Intel, which manufactures processors, and
computer manufacturer Apple could be considered complementors in this model.
Impact of External Influences
• PESTLE Analysis
• Political, Economic, Social, Technological, Legal, Environmental Factors
• In pairs Rank these in order of importance to Business
Ranking Exercise
1. Economic – high linkage between Gross Domestic Product changes and
Business Cycle (Key factors: Unemployment, Inflation, Exchange Rate)
2. Legal factors: Employment law, minimum wage, Health and Safety standards,
banning of dangerous goods, regulation of alcohol, tobacco sales etc.
3. Technological factors – yes social media, online shopping important but not as
revolutionary as use of Electricity, Trains, Cars
4. Social – Trends low fat food, films, clothes etc. can dramatically affect Business,
as does divorce rate, average size of family, migration
5. Environmental factors – short term environmental laws can effect the
economic cycle; long term vital: life expectancy improved from 40 to 80
between 1850 and 2016 due to lower pollution.
6. Political factors: rarely a huge influence on business success or failure BUT local
issues can be significant ie Hinkley Point, Fracking, London Airport expansion.
When and Why do we use PESTLE Analysis?
• Environmental Checklist
• Comparable to the “Opportunities / Threats” of SWOT
• Scenario analysis for a firm’s management to ask “What if….”
• Brexit for example will raise challenges for Firms – Working in
Pairs/Threes consider a PESTLE analysis for TESCO
GDP and the
Business Cycle
(If time activity) How do businesses respond
to changes in the competitive environment?
http://www.telegraph.co.uk/finance/2915574/Cadbury-gobbles-up-Green-and-Blacks.html
http://www.bbc.co.uk/news/business-34957525
http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/11987810/Profits-fall-at-Sainsburysamid-stiff-competition.html
What are the different strategies that firms have adopted above in response to changing
environments?
Which one do you think is the best?
Can you evaluate any of the strategies – what is the issue with them?