Download 2.02a Business Decision making using Porters 5 forces link

2.02 – Acquiring information to
guide business decision making
Michael Porter’s 5-Forces
Model
What is environmental scanning?
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Environmental scanning is the
acquisition and use of information
about events, trends, and
relationships in an organization's
external environment, the knowledge
of which would assist management in
planning the organization's future
course of action.
http://www.mindtools.com/pages/
article/newTMC_08.htm
Five Forces Analysis assumes that
there are five important forces that
determine competitive power in a
business situation. These are:
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Supplier Power
Buyer Power
Competitive Rivalry
Threat of Substitution
Threat of New Entry
Supplier Power
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How easy it is for suppliers to drive
up prices?
How many suppliers are there?
What are their sizes?
What is the cost of switching from
one to another
The fewer the supplier choices you
have, the more powerful your
suppliers are.
Buyer Power
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How easy it is for buyers to drive
prices down?
How many? How large? Can they
switch away from you?
If you deal with few, powerful
buyers, then they are often able to
dictate terms to you.
Competitive Rivalry
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How many and how capable are your
competitors (direct and indirect)?
Is your product or service a
commodity, or are you the only one
who has/does what you do?
The ease with which your customers
can switch to a competitor puts
pressure on your business.
Threat of substitution
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How easily can your customers find
another way of doing what you do
for them?
If you own a hamburger restaurant,
how likely is it that people will
change their minds and buy chicken?
Threat of New Entry
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How easily can new competitors start
to do what you do?
Is it expensive to get started?
Is the business equipment or
machinery heavy?