Porters Five Forces Analysis and Strategic Group Analysis

porters beers tailfin Forces epitome and St ordaingic separate abstract h wholly porters Five Forces Analysis and the strategic convention Analysis.The aim of this research is to critically evaluate the combination of two furrow strategy techniques Porters Five Forces Analysis and the Strategic Group Analysis.The essay go out often refer to these terms and it go out be thus pertinent to clarify these at this early stage. Current issues in the backing world lead as well as be identified and related to to the theory. Limitations of these techniques let in for be outlined and conclusions drawn.Porters Five Forces Analysis is based on the concept that the key objective for any giving medication should be to gain advantage oer its competitors, it is non the industry that an government is in that counts, scarce where it wants to compete in terms of the nature of the aspiration. This arguing is provided by the nature of the rivalry between existing devoteds, the thr eat of capableness entrants and substitutes and the bargaining originator of both the suppliers and buyers (Lowson, 2002).Strategic come withs beget been defined by Finlay (2000) as groups of lineage that be likely to respond similarly to environmental changes and be similarly advantaged/disadvantaged by such changes. Porter (1980, interpreted from John et al, 1997), suggests that an industry could have only atomic number 53 strategical group if all the firms followed essentially the same strategy. At the other extreme, each firm could be a different strategic group.Evaluation of outline techniquesPorters Five Forces gravel has been identified as a stiff animate being for systematically diagnosing the principal competitive pressures in a commercialize and assessing how strong and important each one(a) is (Thompson and Strickland, 2003).Barriers to entry, identified as one of the five forces, presents five structural determinants that affect a companys ability to ent er new markets economies of scale, wargon differentiation, government as with taxi licences for example, favourable access and capital requirements (Bowman, 1998). The economies of scale, which is a benefit gained from cosmic scale production will keep damages d testify and in the end low prices too. Product differentiation will allow keeping customers obedience and switching costs and an sequester example of this would be the new electric car car introduced by Toyota.It can to a fault be suggested that advertising campaigns may also be considered as an entry barrier. The existing markets will be able to raise product aw arness while new entrants will less likely be able to meet the costs manifold in doing so. Backwards vertical integration may also be identified as a possible entry barrier. The bargaining force-out of both suppliers and buyers and also the threat of substitutes the extent to which there are products/ run which are close substitutes for the product/service s of the industry in question, are also considered as part of the five forces. The retail industry, and in crabby the food sector, is currently faced with the problem of high power of buyers and the inadequacy of suppliers power. According to Rigby (2005), suppliers are receiving insufficient government protection from the market power wielded by supermarkets. The failure of the Code of Practice reflects the market power that consumers have delegated to them en masse. Bowman (1998) also suggests that the Five Forces poser allows firms to rate the strength of each of the five forces so that they can focus their fear on the main competitive aspects.As noted by Fleisher and Bensoussan (2003), Porters fifth force, competitive rivalry, is also an element addressed by the strategic group depth psychology where it considers competitive rivalry and how this force both fix and it is impacted by other four forces. Porter (1980, taken from Bowman, 1998) suggests that the level of rival ry, the actual competition between existing producers, varies according to a return of factors. The market structure for example will be a major determinant in the intensity of rivalry. In a monopolistic market for example, where one firm has the total control of the market, quality, availability, price but mainly product differentiation will be a priority. In relation to this it must be noted that an article by commercial enterprise World (2005) suggests that the law concerning the abuse by companies of dominant market positions will be reviewed and lastly changed in the near future. On the other hand, firms in operation(p) under conditions of oligopoly may find considerable variation in the identity, number and size distribution of competitors internationally, as for example Burger King and McDonald (John et al, 1997). The slow ripening of demand, or a declining demand, the high fixed costs involved that do not vary with the level of outputs, are also factors which will ultima tely impact on the level of rivalry.It has been noted that the Strategic Group psychoanalysis is a technique used to provide counselling with in contouration in regards to the firms position in the market and a tool to identify their broadcast competitors. The Five Forces industry analysis will form the inaugural step in this process. After having identified the forces, the major competitors in the industry based on competitive variables will also be outlined. Competitors will then be divided into strategic groups based on similarities in strategies and competitive positions. As suggested by Thompson and Strickland (2003), one thing to go through for is whether industry driving forces and competitive pressures favour some strategic groups and agony others. Firms will most likely try to shift to a to a greater extent favourable situated group, and how hard such a move proves to be, will depend on whether entry barriers for the target strategic group are high or low. It is also important to mention that although some companies conk out in the same market they are not necessarily acquit competitors as this will be determined by the size or market position for example.Strategic group analysis allows managers to identify direct competitors that are of a similar size and range and focus on remaining competitive in order to survive in the invariably changing market. At the same time, BMI British Midland, according to an article by Done (2005), will be entering the long-haul market from capital of the United Kingdom Heathrow for the first time, becoming the third UK long-haul carrier out of Heathrow, intensifying competition with British Airways and Virgin Atlantic. These three airlines are competing head to head to win more(prenominal) traffic rights to different destinations and those that are in the same market and not flavour at options will more likely be go forth behind.The Five Forces analysis and Strategic Group analysis are genuinely utilitarian business tools however they both present some limitations that will now be considered. Lynch (2003) suggests that although Porters five forces pose is a useful early step in analysing the environment, it has been subject to critics. The model assumes a classic perfect market and it assumes that organisations own interest come first. This however may not be appropriate if applied to charitable institutions or government bodies. The assumption that buyers and suppliers power is a threat to the organisation might also be incorrect as some companies have recently seen the benefits in working closely with suppliers. The analytic framework is essentially static, whereas the competitive environment in practice is forever changing.In relation to this, it may be added that a pesterer and deck up analysis may also be useful tools to use when analysing an organisation. PEST analysis considers the external political, economic, social and technological factors that will have an impact on th e organisation, encouraging thinking more broadly about environmental influences on the firm, while the SWOT analysis considers the internal strengths and weaknesses and external opportunities and threats (Bowman, 1998). As also noted by Recklies (2001) the model is best applicable for analysis of simple market structures. A spatiotemporal description and analysis of all five forces gets rattling difficult in complex industries however a too narrow focus on particular segments of such industries, on the other hand bears the risk of missing important elements. Another limitation of Porters modelis that it assumes that companies try to achieve competitive advantages over other players in the markets as well as over suppliers or customers. With this focus, it dos not really take into consideration strategies like strategic alliances that in todays market are very common. As suggested by Thompson and Strickland (2003), not only can alliances offset competitive disadvantages or create competitive advantage but they can also allow firms to concentrate more on the mutual rivals than towards one another.The strategic group analysis provides a good framework for management to be aware of their direct competitors and one analytical tool that is useful for comparing the market positions of each firm separately or by grouping them into positions is the Strategic Group Mapping. This tool however does not as such, show how in reality an organisation can maintain or even gain competitive advantage over its rivals (Thompson and Strickland, 2003). It would be therefore suggested that Porters Three Generic Strategies, whereby organisations can gain competitive advantage over their rivals either by offering lower prices than competitors for equivalent weight products or providing unique benefits that more than offset a higher price, should also be adopted to complement other organisational analysis. Porter also suggests that firms should absorb a generic strategy and only con centrate on one of these, instead of trying to pursue all of them risking failure (Porter, 19853).An example of a successful company adopting cost leadership is Ryanair that has clearly prioritised the strengthening of its strategic position in the market over short-term profit maximisation. It is apply its cost leadership position to drive prices even lower so as to increase the financial pain on higher cost competitors (Mattimoe, 2004).The combination of these two strategy techniques is fundamental for a business looking ahead in the future and trying to remain competitive in the ever changing external environment. Other analysis techniques such as PEST and SWOT, Three Generic Strategies could also be used to cheers the two discussed business tools.ConclusionIt can be construed that Porters Five Forces analysis and the Strategic Group analysis are very useful business tools that allow management to identify their position in the market. It was noted that Porters Five Forces anal ysis assumes that the key objectives for any organisation is to gain competitive advantage over its rivals, while Strategic Groups were defined as groups of business that are likely to respond similarly to environmental changes. The Five Forces presented some structural determinants such as the economies of scale, which are the result of large scale production, government intervention as with patents and licences, and product differentiation. In a monopolistic market, price, quality, availability and product differentiation are the priority, while in an oligopoly market price tends to be the main determinant. It was also noted that these two techniques for analysis are very useful business tools however they both present some limitations. The Five Forces model could be used for simple market structure however a comprehensive description and analysis for complicated markets may not be ideal. The model also regards buyers and suppliers power as a threat for the organisation, however i t was noted that companies have recently seen the benefits in working closely with suppliers. It was also suggested that an organisational analysis should include a PEST and SWOT analysis to consider with a broad view the external and internal factors that may affect the business future performance. Finally it was also suggested that a firm, as per Porters view, should aim to follow one of the Three Generic outline, and in particular either cost leadership as per Ryanairs example or product differentiation.BibliographyBowman, C. (1998) Strategy in practice, Harlow Prentice Hall bank line World (2005) EU to curb abuses by dominant companies, 11 Mar, p1Done, K. (2005) BMI enters long-haul Heathrow market, Mar 10, p1Finlay, P. (2000) Strategic focus An Introduction to Business and Corporate Strategy, Harlow Prentice HallFleisher, C. and Bensoussan, B. (2003) Strategic and competitive analysis methods and techniques for analysing business competition, Prentice HallJohn, R., Ietto-Gill ies, G., Cox, H. and Grimwade, N. (1997) Global Business Strategy, Thomson Business puppy loveLowson, R. H. (2002) Strategic Operations Management The New Competitive Advantage, London RoutledgeLynch, R. (2003) Corporate Strategy, 3rd ed. Harlow Prentice HallMattimoe, J. (2004) Ryanair Plc, 27 May, Irish Equity ResearchPorter, M.E. (1980) Competitive Strategy Techniques for Analysing Industries and Competitors, New York The Free drivePorter, M.E. (1985) Competitive Advantage, New York The Free PressRecklies, D. (2001) Beyond Porter-A limited review of the Critique of Porter, Recklies Management Project GmbH, Available from www.themanager.orgRigby, E. (2005) Reform of principle for big stores would aid suppliers, Financial Times, 7 Mar, p1Thompson, A.A. and Strickland, A.J. (2003) Strategic Management Concepts and Cases, thirteenth ed. McGraw-HillReferencesEgan, C. (1995) Creating Organisational Advantage, Oxford Butterworth-HeinemannGrant, R.M. 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