Ashutosh Amol Doijode
Industry Analysis – Market Based View:
Porter’s Five Forces Framework
Resource Based View
Demonstration of the tools: IKEA
Analysis using Porter’s Five Forces Framework
Resource and Capabilities Analysis
The 1980’s brought about the process of strategic planning and strategy became a core subject of the business management discipline. More advanced and sophisticated techniques evolved from early methods of strategic planning and this became an integral part of the job of managers. Downsizing of staffs and upsizing of the importance of strategic planning is now a major objective of all organizations. Stiff competition in this global environment requires a competitive advantage and it is crucial for managers to analyze the environment in a refined manner to stay on top of their game. These tools help managers identify and take decisions in a strategic manner and transform relevant data and knowledge into a form which is suitable for action and decision making. They also help to reduce risk during the process of decision making, determine proprieties and provide guidelines for evaluation of various business portfolios. The two tools analysed in this report are Industry Analysis – Market Based View and Resource Based View. 1. Industry Analysis – Market Based View:
External influences greatly impact the decisions and the performance of a firm. There are numerous external factors and the range of these factors can make it difficult for managers to analyze the market conditions. It is imperative to scan the external environment to understand the market needs and create value for customers. The external factors can be economic, technological, social, and governmental, among others. The Market Based View tool helps managers understand its customers and how value is created with this knowledge. It also helps to understand and improve supplier relations and acquisitions of goods and services from suppliers. Moreover it aids in the understanding of the intensity of competition among rival companies and helps in improving the ability to generate profitability from activities which create value for the customer. The firm’s industry environment would be its relationship with its customers, suppliers and competitors. The profits earned by companies are determined by the value of the product or service to customers, the intensity of competition and the relative bargaining power at different levels in the production chain. a. Porter’s Five Forces Framework
There are many features of an industry that determine the intensity of competition and the level of profitability. Michael Porter’s Five Forces framework helps in the classification and analysis of these factors, gives an insight into the potential profitability of the market and aids in forming a strategy accordingly which is highly useful for today’s managers. This framework includes three sources of horizontal competitions for identification, which are competition from substitutes, competition from new entrants and competition from well established rivals. This also includes two vertical competitions which are the bargaining power of the suppliers and buyers. The strength of competitive forces is determined by a number of key structural variables as shown in the figure below.
Fig 1.1: Structural Determinants of competition and profitability within the 5 forces framework (Mazzucuto, 2002) This helps in analyzing potential threats from new entrants and determines whether it is easy to enter the market or if there are any legal, economical or government barriers to the entry of new companies. It also helps to understand if it is difficult to convince customers to switch from existing providers and the level of loyalty customers have towards a company. This also...
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