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HIGHER NATIONALDIPLOMA IN BUSINESSUnit 32: Business StrategyWeek 3LO3• Evaluate and apply the outcomes of an analysisusing Porter’s Five Forces model to a given marketsector.FOCAL POINTS• Porter’s Five Forces model.• Competitive forces of the market sector (Refer tothe market sector in scenario).• Strategies to improve competitive edge and marketpositionPORTER’S FIVE FORCES MODEL• Michael Porter is an American academic known forhis theories on economics, business strategy, andsocial causes.• He is credited for creating great works- Porter’s FiveForces Analysis, Competitive Strategy, NationalDiamond and Value chain .PORTER’S FIVE FORCES MODEL CONTD..• The Five Forces analysis can help companies assess industryattractiveness, how trends will affect industry competition,which industries a company should compete in—and howcompanies can position themselves for success.• Five Forces Analysis is a strategic tool designed to give aglobal overview.• It helps review the strengths of a market position, based onfive key forces.Porter’sFiveForcesPORTER’S FIVE FORCES MODEL• Threats of new entrants :New entrants, while bringing newproduction capacity and new resources to the industry,hope to win a place in the market that has already beendivided by existing companies. This may cause competitionwith existing companies in raw materials and market share.• Threats of Substitutes : Two companies in different industriesmay generate competing products because of theproducts they produce are alternative products.PORTER’S FIVE FORCES MODEL• The bargaining power of buyers :Buyers mainly influence theprofitability of existing companies in the industry through theirability to lower prices and requirements to provide higherproduct or service quality.• The bargaining power of suppliers: When the input elementsprovided by the supplier constitute a large proportion of thetotal cost of the product to the buyer, the potential bargainingpower of the supplier is greatly increased. In general, supplierswho meet the following conditions will have stronger bargainingpower.PORTER’S FIVE FORCES MODELCompetition among existing competitors in the industry : Inmost industries are closely linked to each other’s interests. Aspart of their overall strategy, their goal is to make their owncompanies more competitive than their competitors. Thereare conflicts and confrontations, often manifested in prices,advertising, product introductions, and after-sales services.HOW TO APPLY THE FIVE FORCES MODEL• Based on Porter’s five forces analysis, the degree ofmatching of organisation resources with the industry isexamined.• Under the conditions of intensified market competition, anyenterprise has certain risks in entering unfamiliar areas.• To seize these opportunities to its own benefits organisationmust

consider their core capabilities and advantages.APPLICATION OF THE FIVE FORCES MODEL CONTD..• In the application of Porter’s five forces model market trends andthe degree of strategic flexibility should be examined .• Market is never stagnant hence strategy must always beformulated to meet market demand .• Strategy formulation is a dynamic process of constant feedbackand constant adjustment. It is necessary to maintain a certaindegree of strategic flexibility.CLASS ACTIVITY• Devise appropriate strategies to improve competitive edgeand market position based on the outcomes of the Porter’sFive Forces model.• Pair activity.• Each pair will discuss 2 strategies.GROWTH STRATEGIES• Market Expansion or Development: A market expansion growth strategy,often called market development, entails selling current products in a newmarket.• Product Expansion Strategy: A small company may also expand its productline or add new features to increase its sales and profits. A productexpansion growth strategy often works well when technology starts tochange.• Growth Through Diversification : Business growth through this strategy willinvolve selling new products to new markets.GROWTH STRATEGIES CONTD..• Acquisition of Other Companies : Another form of growth strategy.Here , a company purchases another company to expand itsoperations.• Above strategy can be used to expand product line and enternew markets. An acquisition growth strategy can be risky, but notas risky as a diversification strategy.• Why ?• Let’s discussSTRATEGIES TO GAIN COMPETITIVE EDGE• Cost Leadership Strategy : Companies may place themselvesahead of the pack by offering attractive pricing.• Differentiation Strategy: Branding is likely the most widely usedmethod to differentiate one company from another. With thismethod, a name like Nike or Rolex automatically assumes astatus distinct and apart from all other shoes or watches.• Innovative Strategy: Companies may move ahead ofcompetition ahead of the competition by doing things in newand different ways.STRATEGIES TO GAIN COMPETITIVE EDGE• Technology Based Competitive Strategy: Computers andapplications may give companies an advantage over thecompetition.• The Information Advantage : Almost all the other strategiesbenefit from excellent information. The definition ofcompetitive advantage is the skills needed to outpace yourrivals. Most of those come through knowledge andinformation.ROLE OF PEOPLE IN THE ORGANISATIONEnforcing strategy• The workforce in the organisation will play a significant role inensuring formulated strategy works.• Even if there is a good strategy, it needs good strategic landingcapability. The role of people in organisations is becoming moreand more important.• The workforce need to be motivated and inspired at variouslevels ( Let’s discuss )