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EM056 Stratmanfinday 2

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13 views22 pages

EM056 Stratmanfinday 2

Uploaded by

Ngô Nguyên Hạnh
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Strategic Management and Finance

EM4056

BarryJones
Todays session we will:

remind ourselves of what


Any questions from last Look at an overview of the
strategy is and how a
week. strategy process.
business can sustain itself.

began our analysis of class


Introduce the class case learn how to use Porters
case business example
business example. five forces model.
(external).
Strategy
Definition Let’s remind ourselves
•A business strategy is a cohesive entity
of programmes, projects and policies
that concentrate and fuse corporate
resources to enable an organisation to
gain and sustain its competitiveness and
capabilities for self renewal.

•(Park 2011 as part of NITLs MSc in Supply Chain management)


We need to understand our business
For our objectives, identify and secure our
business competitive advantage, focus on exploiting
our core competencies, innovate these
to sustain competencies accordingly and implement
itself (ie. change to reconcile a fluid environment.

have the
correct
strategy)
Strategy Process
Adapted from Park (2011)
EXTERNAL STRATEGIC AUDITS

The external environment is complex, the ability


to observe threats and opportunities is of key
importance for the long term direction of the
company

External audits provide a general understanding


into the likelihood that organisational objectives
will be realised.
Remote and • A company’s remote
environment is
• The operating
environment involves
Operating composed of elements customers, creditors,
beyond the scope of the investors, employees,
Environment company’s control. the marketing
Eg: Gov policy, covid environment, and how
a business uses and
acquires resources.
EXTERNAL ENVIRONMENTAL AUDIT

• OPERATING ENVIRONMENT
PORTERS FIVE FORCES
• REMOTE ENVIRONMENT
INDUSTRY LIFECYCLE ANALYSIS and
PESTEL ANALYSIS
OPERATING
ENVIRONMENT
ANALYSIS
PORTERS FIVE FORCES
ANALYSING COMPETITIVE
INDUSTRY STRUCTURE

AN INDUSTRY IS A GROUP OF FIRMS THAT MARKET


PRODUCTS WHICH ARE CLOSE SUBSTITUTES FOR
EACH OTHER (E.G. THE CAR INDUSTRY, THE TRAVEL
INDUSTRY).

SOME INDUSTRIES ARE MORE PROFITABLE THAN


OTHERS. WHY? THE ANSWER LIES IN
UNDERSTANDING THE DYNAMICS OF COMPETITIVE
STRUCTURE IN AN INDUSTRY.
PORTER'S 5 FORCES

• Porter's Five Forces is a model that identifies and


analyzes five competitive forces that shape every
industry and helps determine an industry's
weaknesses and strengths.

• https://www.youtube.com/watch?v=mYF2_FBCvXw
WHY USE IT

• The Five Forces model is widely used to


analyze the industry structure of a
company as well as its corporate
strategy.

• The number and power of a company's


competitive rivals, potential new market
entrants, suppliers, customers, and
substitute products influence a
company's profitability.
• Five Forces analysis can be used to guide
business strategy to increase
competitive advantage.
THE FIVE FORCES FRAMEWORK
THREAT OF NEW ENTRANTS

• New entrants to an industry can raise the level of


competition, thereby reducing its attractiveness.
• The threat of new entrants largely depends on the barriers
to entry.
• High entry barriers exist in some industries (e.g.
shipbuilding) whereas other industries are very easy to
enter (e.g. estate agency).
THREAT OF NEW ENTRANTS

• Capital costs of entry


• Brand loyalty & customer
switching costs
• Economies of scale
• Access to distribution
channels
• Differentiation
• Retaliation from existing
players
BARGAINING POWER OF BUYERS (BUYERS ARE
THE PEOPLE / ORGANISATIONS WHO CREATE DEMAND IN AN INDUSTRY)

• The bargaining power of buyers is greater when


• - There are few dominant buyers and many sellers in the
industry
- Products are standardised
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the
buyer's industry
- The industry is not a key supplying group for buyers
THREAT OF SUBSTITUTES

• The presence of substitute products can lower


industry attractiveness and profitability because
they limit price levels. The threat of substitute
products depends on:
• - Buyers' willingness to substitute
- The relative price and performance of substitutes
- The costs of switching to substitutes
BARGAINING POWER OF SUPPLIERS (SUPPLIERS ARE THE
BUSINESSES THAT SUPPLY MATERIALS & OTHER PRODUCTS INTO THE
INDUSTRY)

• The cost of items bought from suppliers (e.g.


raw materials, components) can have a
significant impact on a company's profitability.
If suppliers have high bargaining power over a
company, then in theory the company's
industry is less attractive.
BARGAINING POWER OF SUPPLIERS WILL BE
HIGH WHEN:
• There are many buyers & few dominant suppliers
• They offer unique & scarce resources
• Many other industries have a requirement for the
resource
• High switching costs
• The size of the resource suppliers
• Suppliers threaten to integrate forward into the
industry.
COMPETITIVE RIVALRY
A MEASURE OF THE EXTENT OF COMPETITION AMONG EXISTING FIRMS

 The number of competitors: The more competitors in an industry, the more fierce the rivalry, each
fighting for scraps of market share.

 Industry growth: In an expanding industry, competition is usually less dramatic because the market is
growing so fast that competitors have little need to fight for customers

 Similarities in what's offered: When the products or services in a market are similar (think of the lower
page of results in any Amazon product search), competition tends to be intense because customers can
easily switch.

 Exit barriers: When it's difficult or costly for companies to leave the industry due to specialized assets,
contractual obligations, or emotional attachment, they may choose to stay and compete

 Fixed costs: If an industry has high fixed costs, companies have a "strong temptation" to cut prices rather
than slow production when demand slackens.
Importantly

• The Five Forces model can help


businesses boost profits, but they must
continuously monitor any changes in the
five forces and adjust their business
strategy.

• Can you think of any examples????


• completed our group discussion in relation to
the strategy of our chosen businesses.
• reminded ourselves of what strategy is and how
Recap on a business sustains itself.
• looked at an overview of the strategy process.
today we: • introduced the Splisburys case example.
• learned Porters five forces
• began our analysis of Spilsburys (external)

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