1. Jiří Franek and Aleš Kresta VŠB-Technical University of Ostrava
COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH
Jiří Franek and Aleš Kresta
VŠB-Technical University of Ostrava
Liberec Economic Forum 2013, Sychrov September 2013

2. Decision making processes in firms
Goal and Motivation
Goal and Motivation
Goal: Implementation of multiple attribute decision making method to strategic decision making with example of Porter‘s Five Forces Analysis
Motivation
Decision making processes in firms
Structure and hierarchy of decision making
Application of decision making support
using simple tools

3. The problem of strategic decision making
Presentation outline
Presentation outline
Introduction
The problem of strategic decision making
Multiple attribute decision making methods
Analytic hierarchy process
Analytic network process
Application of AHP/ANP on Five Forces Analysis
Results and discussion
Introduction
The problem of strategic decision making
Multiple attribute decision making methods
Analytic hierarchy process
Analytic network process
Application of AHP/ANP on Five Forces Analysis

4. Strategic decision making has to adapt to multiple attribute problems
Introduction
Introduction
Levels of uncertainty are changing but they still seem to have and upward trend
Strategic decision making has to adapt to multiple attribute problems
Use of decision support tools
Application and implementation of multiple attribute decision making methods

5. The problem of strategic DM
The problem of strategic decision making
Company vision and long-term goals
Flexibility and effectiveness
Competitive edge

6. Original five forces model:
Five Forces ANalysis
Five forces analysis
The five forces are competitive factors which determine industry competition and include: suppliers, rivalry within an industry, substitute products, customers or buyers, and new entrants (Porter, 1980).
Original five forces model:

7. Multiple attribute decision making mathods
Multiple attribute decision making methods ❶❷
Ability to evaluate each alternative using a large number of criteria
Estimate weights or
Finding optimal (best) alternative using:
Multi-level decomposition methods (AHP, ANP and Fuzzy AHP an fuzzy ANP)
Compromised criteria (TOPSIS, VIKOR)
Outranking (ELECTRE, PROMETHEE)

8. Multiple attribute decision making methods
Goal: is a specific (or desired) status of attributes or objectives
Attributes (Criteria): are the traits, characteristics, qualities, or performance parameters of the alternatives
Alternatives: are the possible courses of action in a decision problem

9. Analytic hierarchy process
Analytic hierarchy process (AHP)
Consists of four steps:
hierarchy design (goal definition, identification of alternatives, identification of evaluation factors, assignment of criteria and factor relationships and finishing of the hierarchy),
identification of priorities (application of pair-wise comparison, point evaluation of significance, repeating of the procedure for all hierarchy levels),
combination and,
evaluation (weighted values of alternative solutions).

10. Analytic network process
Analytic network process (ANP)
The ANP feedback approach replaces hierarchies with networks, and emphasizes interdependent relationships among the decision criteria and permit more systematic analysis.
Open structure with networks, loops and clusters of criteria
More demanding on time and logic of pairwise comparisons

11. General Application of AHP/ANP
AHP (a) ANP(b) b) a)
Goal
Criteria
Alternatives
Wij
wij
Degree
Descriptor 1
Criteria i and j are equal 3
Low preference of criteria i before j 5
Strong preference of criteria i before j 7
Very strong preference of criteria i before j 9
Absolute preference of criteria i before j
2, 4, 6, 8
Medium values for more precise preference determination.

12. Application of AHP/ANP on Five Forces Analysis
Competitors: market share (c1), product range(c2), distribution channels (c3);
Customers: relationship with current customers (c4), customer sensitivity on changes and quality of products and services (c5), potential of new customers (c6);
Substitutes: quality of substitutes (c7), availability of substitutes (c8), upcoming substitutes (c9);
Threat of new entrants: estimated costs of entrance to the market (c9), other barriers to the entrance (c10);
Suppliers: costs of raw materials (c11), currency risk (c12), reliability of suppliers (c13).
ST1
Low-cost strategy with sustainable quality C1 C2 C3
GEOMEAN
Weight
S*w
S*w/w
Eigenvector 1 2
1,587
0,479
1,521
3,172
3,176
1/2 4
1,260
0,380
1,181
3,104
0,088
1/5
0,464
0,140
0,456
3,253
3,311
3,157
9,529

13. Application of AHP/ANP on Five Forces Analysis
Supermatrix of ANP
Utility function of AHP

14. Results and Discussion
Comparison of results of AHP/ANP

15. Results and discussion
Proposed model of Porter’s five forces analysis combined with AHP and ANP enhances the original model with structured decision making hierarchy and process The application can be developed further and could include more variables, levels (internal and external, industry and firm) and quantitative data Another advantage of the ANP is also the supermatrix approach that describes relations among criteria and alternatives (strategies) better than sole AHP tables. After short tutorial managers should be able to use this model tool and apply it on ordinary decision-making tasks.

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17. Thank you for your attention!
Jiří Franek
 Aleš Kresta