2012 STRATEGIC MANAGEMENT
Discuss Porter’s five forces theory of market competition. How does strategic group analysis provide a refinement to the five forces model?
Key words here are:
-Porter’s five forces
-strategic group analysis
-refinement of it(improve it yaani k extra benefits of strategic group analysis compared to five forces) Strategic decisions have always been a vital part of business as ever since their conception but the word strategy is barely mentioned pre 1960s. However, the concepts of strategy were linear and largely inefficient before the 1980’s and Micheal Porter’s contribution to modern businesses. He presented many theories and “models” on how to improve decision making and gain competitive advantage in the market. One of these models was the “five forces analysis of industry attractiveness” which said the “attractiveness” i.e. profitability of an industry or market is based on five factors which are:
Threat of new entrants
Bargaining power of supplier
- Rival firms(competition) - bargaining power of buyers
Substitute firms(if you make butter, they
make margarine and might steal your customers)
What this means is the industry should be judged or analyzed by viewing these five factors and comparing them to find out how profitably it can be. The centre point of this seems to be the competition from similar firms in the industry and this depends on a certain factors like how differentiated or homogenous the firms are, more homogenized they are the more they are affected by the change in one firm e.g. similar soap making companies exist, selling at almost identical prices and market shares but suddenly one firm launches a half price deal for buying two soaps. The other firms will have to react with a similar deal or there is a serious threat to lose customers. Also changes in demand must be viewed as an increase in demand signifies higher potential for success. The second factor to...
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