1. EXTERNAL (TASK) ENVIRONMENTAL SCANNING 1
PORTER’S FIVE FORCES FRAMEWORK

2. TOPIC COVERS… Stakeholders Porter’s Five Forces Analysis
Five forces analysis and strategy formulation
Internationalisation of five forces analysis
Limitations of the five forces framework

3. SCANNING THE EXTERNAL ENVIRONMENT
ANALYSIS OF SOCIETAL ENVIRONMENT
ECONOMIC, SOCIOCULTURAL, TECHNOLOGICAL, POLITICAL-LEGAL FACTORS
MARKET
ANALYSIS
COMMUNITY
ANALYSIS
COMPETITOR
ANALYSIS
SUPPLIER
ANALYSIS
SELECTION OF
STRATEGIC FACTORS
* OPPORTUNITIES
* THREATS
INTEREST GROUP
ANALYSIS
GOVERNMENTAL
ANALYSIS
C.1992 BY ADDISON WESLEY PUBLISHING COMPANY, INC.

4. THE FIVE FORCES Threat Of New Entrants Threat Of Substitute Products
Bargaining power Of Buyers
Bargaining Power Of Suppliers
Rivalry Among Existing Firms

5. FORCES DRIVING INDUSTRY COMPETITION
POTENTIAL
ENTRANTS
OTHER
STAKEHOLDERS
RELATIVE
POWER OF UNIONS,
GOVERNMENTS,
ETC.
THREAT OF NEW
ENTRANTS
INDUSTRY
COMPETITORS
RIVALRY AMONG
EXISTING FIRMS
BARGAINING POWER
OF SUPPLIERS
BARGAINING
POWER OF BUYERS
SUPPLIERS
BUYERS
THREAT OF
SUBSTITUTE
PRODUCTS
OR SERVICES
ADAPTED FROM COMPETITIVE STRATEGY :
TECHNIQUES FOR ANLYZING INDUSTRIES
AND COMPETITORS BY MICHAEL PORTER
SUBSTITUTES
SOURCE : SUGGESTED BY J.C.CAMILLUS, STRATEGIC PLANNING AND MANAGEMENT CONTROL, 1986 PP

6. Threat Of New Entrants Bring with them new capacity.
Seriousness of threat depends on entry barriers which may be as follows:
economies of scale
product differentiation
capital requirements
switching costs
access to distribution channels
cost advantage independent of size
government policy
threat of strong aggressive response

7. THREAT OF SUBSTITUTE PRODUCTS
Substitutes are products that fulfil the same need as that produced by the industry.
Can be from within or without the industry under consideration depending on industry definition.

8. THREAT OF SUBSTITUTE PRODUCTS (cont.)
Substitution threat is serious where:
they are favourably priced
are of better quality (higher value)
industry products have low switching costs

9. BARGAINING POWER OF BUYERS
Buyers can force prices down, demand high quality products and can play competitors against each other.
Buyer power is strong if:
they buy large quantities of industry output
products bought are undifferentiated
there are many suppliers
products have low switching costs
buyers can integrate backwards
buyers are low profit earners
purchase represent high input costs
purchase not critical to product quality

10. BARGAINING POWER OF SUPPLIERS
Can threaten firms by raising input prices or compromising on quality
suppliers are powerful if:
there is one large dominant supplier (e.g.ZESA)
the product supplied is unique (Intel ]
switching costs are high(accounting systems]
there is a threat of forward integration
industry poses little threat of backward integration
industry purchases small quantities

11. RIVALRY AMONG EXISTING FIRMS
Usually the most powerful of the competitive forces
The battleground can be any of the following:
price (passenger transport)
product quality ((electronic products)
performance features (cell hand sets)
service level (Amtec, IBM)
advertising/ promotion (Coke, OK)
distribution networks (coca-cola]
technological innovations (CABS, 3M)

12. RIVALRY AMONG EXISTING FIRMS (Cont.)
Rivalry is intense if:
There are many competitors of similar size
Industry growth is stagnant
There are high fixed costs
Some players are pursuing share gains
High exit barriers
There are low switching costs
There is over-capacity in the industry

13. THE FIVE FORCES AND STRATEGY FORMULATION
According to porter there are three possible strategies:
Positioning the firm so that its capabilities provide the best defence against the forces
Making strategic manoeuvres that influence the balance of the forces to the firm’s favour.
Anticipating changes in the forces and responding to them before others do.

14. LIMITATIONS OF THE FIVE FORCES MODEL
The five forces are not exhaustive, there is need to look at other macro forces
The level of industry definition is subjective
What should substitutes mean?
It ignores the effect of technology on industry structure

15. INTERNATIONALISATION OF INDUSTRY ANALYSIS
Industry scope wider
Lower entry barriers
Increases number of competitors
Increases industry rivalry/competition
Increases bargaining power of buyers
Lower profitability in some industries