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FORMULATION
BY GROUP 2
1
PORTERS FIVE By: Arah Abigail
Balgos
FORCES MODEL
2
INDUSTRY ANALYSIS
Porters Model of Industry Competition,
commonly known as Porters Five Forces
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PORTERS FIVE FORCES
MODEL
Porter's Five Forces model is made up by
identification of 5 fundamental competitive
forces:
1.Barriers of New Entrants.
2.Threat of substitutes.
3.Bargaining power of buyers.
4.Bargaining power of suppliers.
5.Rivalry among existing firms.
3-4
PORTERS FIVE-FORCES MODEL OF
COMPETITION
3-5
1. THREAT OF NEW
ENTRANTS
Fundamental question: how easy is it
for another company to enter the
industry?
Factors making easy entry to
industry:
Low economies of scale.
Low product differentiation.
Low capital requirements.
No switching costs for buyer.
Easy access to distribution channels.
Little government regulation.
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1. THREAT OF NEW
ENTRANTS
Factors making difficult entry to
industry (Barriers to entry)
Need to gain economies of scale quickly.
Lack of experience.
Strong customer loyalty.
Strong brand preferences.
Large capital requirements.
Lack of access to raw materials.
Government policies and taxation.
3-7
2. SUPPLIER POWER
Fundamental question: how badly
does a supplier need your business?
Factors giving power to supplier:
Supplier industry dominated by few firms.
Buyer is not important to customer.
Suppliers product is important input to
buyers product.
Suppliers products have high switching
costs.
Supplier can integrate forward and
become competitor of buyer.
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3. THREAT OF
SUBSTITUTES
Fundamental question: what other
products or services could perform the
same function as your products or
services?
Factors indicating high threat of
substitutes:
Few switching costs for buyer.
Price of substitute lower or quality higher
than for your products.
Firms offering substitutes have high
profitability.
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4. BUYER POWER
Fundamental questions: How badly does
a buyer need your products or services?
Factors contributing to high buyer
power:
Few buyers compared to the number of
sellers.
Buyers purchases high relative to sellers
sales.
Products are undifferentiated.
Buyer has low switching costs.
Buyer has low profits.
Buyer can integrate backward and supply
the product to itself.
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5. COMPETITIVE
RIVALRY
Fundamental question: how intense is
competition in the industry?
Factors leading to high competitive
rivalry:
Numerous or equally balanced competitors.
High fixed costs.
Slow industry growth.
Lack of differentiation or switching costs.
High strategic stakes.
High exit barriers.
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MATRIX
12
Comprehensive Strategy-
Formulation Framework
Stage 1:
The Input Stage
Stage 2: Stage 3:
The Matching Stage The Decision Stage
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Strategy-Formulation Analytical
Framework
Internal Factor Evaluation
Matrix (IFE)
6-17
INTERNAL FACTOR
EVALUATION (IFE)
List key internal factors as identified in
the internal-audit process. Use a total
from ten to twenty internal factors
including both strengths and weaknesses.
Assign a weight ranging from 0 (not
important) to 1.0 (very important). The
weight indicates the relative importance
of the factor to being successful in the
firms industry. The sum of all the
weights must equal 1.0.
Assign a 1-4 rating to each factor to
indicate whether that factor represents a
major weakness (1), minor weakness (2),
minor strength (3), or major strength (4).
6-18
INTERNAL FACTOR
EVALUATION (IFE)
Multiply each factors weight by its
rating to determine a weighted score
for each variable.
Sum the weighted scores for each
variable to determine the total
weighted score for the organization.
Total weighted scores of below 2.5
indicate an internally weak
organization.
6-19
SAMPLE INTERNAL
EVALUATION MATRIX
6-20
SAMPLE INTERNAL
EVALUATION MATRIX
6-21
EXTERNAL
FACTOR
EVALUATION 22
INDUSTRY ANALYSIS:
THE EXTERNAL FACTOR
EVALUATION (EFE)
MATRIX
Economic Political
Social Governmental
Cultural Technological
Demographic Competitive
Environmental Legal
3-23
EFE MATRIX STEPS
3-24
EFE MATRIX SAMPLE
6-25
Competitive Profile Matrix
(CPM)
Competitive Profile Matrix
(CPM):
Identifies firms major
TOWS Matrix
SPACE Matrix
Stage 2:
The Matching Stage
BCG Matrix
IE Matrix
Grand Strategy
30 Matrix
STAGE 2 :THE
MATCHING STAGE
1. TOWS Matrix: Threats Opportunities
Weakness and Strengths.
helps managers to develop four
types of strategies:
SO (strengths-opportunities) Strategies.
WO (weaknesses-opportunities) Strategies.
ST (strengths-threats) Strategies.
WT (weaknesses-threats) Strategies.
6-31
TOWS MATRIX
SO Strategies WO Strategies
use a firms aim at improving
internal strengths internal weaknesses
to take advantage by taking advantage
of external of external
opportunities. opportunities.
6-32
TOWS MATRIX
ST WT
Strategies Strategies
use a firms defensive tactics
strengths to directed at
avoid or reduce reducing internal
the impact of weakness and
external threats. avoiding external
threats.
6-33
TOWS MATRIX
Weaknesses W Strengths S
TOWS List Weaknesses List Strengths
Opportunities WO Strategies
SO Strategies
O Match and
Match and determine
determine strategy
List Opportunities strategy
6-37
THE SPACE MATRIX
6-38
THE STRATEGIC
POSITION AND ACTION
EVALUATION (SPACE)
MATRIX
Strategic Position and
Action Evaluation (SPACE)
Matrix
four-quadrant framework indicates
whether aggressive, conservative,
defensive, or competitive strategies
are most appropriate for a given
organization
6-39
THE STRATEGIC
POSITION AND ACTION
EVALUATION (SPACE)
MATRIX
Two internal dimensions
(financial position [FP] and
competitive position [CP])
Two external dimensions
(stability position [SP] and
industry position [IP])
Most important determinants of an
organizations overall strategic
position
6-40
FACTORS THAT MAKE UP
THE SPACE MATRIX AXES
6-41
STEPS TO DEVELOP A
SPACE MATRIX
6-42
STEPS TO DEVELOP A
SPACE MATRIX
6-43
STEPS TO DEVELOP A
SPACE MATRIX
6-44
STEPS TO DEVELOP A
SPACE MATRIX
6-45
EXAMPLE STRATEGY
PROFILES
6-46
EXAMPLE STRATEGY
PROFILES
6-47
THE BOSTON CONSULTING
GROUP (BCG) MATRIX
2.BCG Matrix :
Graphically shows differences among
divisions in terms of relative market share
position and industry growth rate.
allows a multidivisional organization to
manage its portfolio of businesses by
examining the relative market share
position and the industry growth rate of
each division relative to all other
divisions in the organization.
6-48
THE BCG MATRIX
6-49
THE BCG MATRIX
Each circle
represents one
of the firms
business units.
The size of the
circle
represents the
relative size of
the business
unit in terms of
revenue.
6-51
THE BCG MATRIX
High Stars II
Question Marks I
Industry Growth
High market
share Low market share
High growth high-growth
Industry industry
Cash Cows III
High market Dogs IV
share Low market share
low-growth low-growth
Low industry industry
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BCG Matrix
1. Stars:
High relative market share and high
growth rate.
Best long-run opportunities for growth &
profitability.
Large investment to maintain or
strengthen leading position.
Integration strategies, intensive
strategies, joint ventures. 56
BCG Matrix recap
2. Question Marks:
Low relative market share compete
in high-growth industry.
Cash needs are high.
Cash generation is low.
Decision to strengthen (intensive
strategies) or divest.
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BCG Matrix
3. Cash Cows:
High relative market share, competes
in low-growth industry.
Generate cash in excess of their needs.
Milked for other purposes.
Maintain strong position as long as
possible.
Product development, concentric
diversification. 58
BCG Matrix
4. Dogs:
Low relative market share
compete in slow or no growth
industry.
Weak internal and external
position.
Liquidation, divestiture,
retrenchment. 59
THE BCG MATRIX
6-60
THE INTERNAL-
EXTERNAL (IE) MATRIX
6-61
THE INTERNAL-
EXTERNAL (IE) MATRIX
6-62
THE IE MATRIX
6-63
Grand Strategy Matrix
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Rapid Market Growth
Quadrant II Quadrant I
1. Market development 1. Market development
2. Market penetration 2. Market penetration
3. Product 3. Product development
development 4. Forward integration
4. Horizontal 5. Backward integration
Weak integration 6. Horizontal Strong
ompetitive
5. Divestiture integration Competitive
Position6. Quadrant III
Liquidation Position
1. Retrenchment
Quadrant IV
2. Concentric 1. Concentric
diversification diversification
3. Horizontal 2. Horizontal
diversification diversification
4. Conglomerate 3. Conglomerate
diversification diversification
Slow Market Growth 65
5. Liquidation 4. Joint ventures
Grand Strategy Matrix
Quadrant I
Excellent strategic position
Concentration on current
markets/products
Take risks aggressively when
necessary
Which type of strategy would
you suggest? 66
Grand Strategy Matrix
Quadrant II
Evaluate present approach
How to improve competitiveness
Rapid market growth requires
intensive strategy
67
Grand Strategy Matrix
Quadrant III
Compete in slow-growth industries
Weak competitive position
Drastic changes quickly
Cost & asset reduction (retrenchment)
68
Grand Strategy Matrix
Quadrant IV
Strong competitive position
Slow-growth industry
Diversification to more promising
growth areas
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Strategy-Formulation Analytical
Framework
Quantitative Strategic
Stage 3: Planning Matrix
The Decision Stage (QSPM)
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A COMPREHENSIVE STRATEGY-
FORMULATION FRAMEWORK
6-71
THE QUANTITATIVE
STRATEGIC PLANNING
MATRIX (QSPM)
6-72
STEPS TO DEVELOP A QSPM
6-74
THANK YOU FOR
LISTENING!
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