Porter 5 framelesson2002_2

Porter 5 framelesson2002_2 - Business Studies 2 (2002)...

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Business Studies 2 (2002) Lesson 2 (2002) Business Studies First, a note. The more you participate, the more you learn. These lessons are not just a bunch of notes – these are widely available throughout the web. Anyone can do that – just go to s- cool.co.uk and print off their notes. Uniquely this group is about discussion – no-one else on the web offers such a discussion group. There are messageboards but that’s not quite the same. For this to be of help to you need to participate. It’s up to you… OK let’s talk about strategy. Visit the Michael Porter site. Then this site: http://www.quickmba.com/strategy/porter.shtml Porter's Five Forces A MODEL FOR INDUSTRY ANALYSIS The model of pure competition implies that risk-adjusted rates of return should be constant across firms and industries. However, numerous economic studies have affirmed that different industries can sustain different levels of profitability; part of this difference is explained by industry structure. Michael Porter provided a framework that models an industry as being influenced by five forces. The strategic business manager seeking to develop a competitive advantage over rival firms can use this model to better understand the industry context in which the firm operates. Diagram of Porter's 5 Forces SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs 1
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Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry BARRIERS TO ENTRY Absolute cost advantages Proprietary learning curve Access to inputs Government policy Economies of scale Capital requirements Brand identity Switching costs Access to distribution Expected retaliation Proprietary products THREAT OF SUBSTITUTES -Switching costs -Buyer inclination to substitute -Price-performance trade-off of substitutes BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs. industry Substitutes available Buyers' incentives DEGREE OF RIVALRY -Exit barriers -Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes I. Rivalry In the traditional economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a comparative and competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences. Economists measure rivalry by indicators of
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This note was uploaded on 01/26/2010 for the course ADMS 4900 taught by Professor Jungchinshen during the Spring '10 term at York University.

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Porter 5 framelesson2002_2 - Business Studies 2 (2002)...

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