Critical Reflection on Term 1 Strategy Analysis Tools
Porter’s Five Forces Model
The Porter’s five forces model, created by Michael E.
Porter in 1979 was designed to measure and evaluate the competitive intensity and
positioning of a business.
defines five forces which can have a negative impact on industry. They are as
entry – more barriers to entry an
industry is resulting in an increase in profitability of a business due to limited
number of competitors in the market. Bargaining
power of suppliers – a fewer
number of suppliers in the market have more power in regards to control
a price than buyers. Bargaining
power of buyers – buyers
have the ability to dictate pricing trends or demand higher quality products,
which have got negative impact on profitability of producers hence increase in production
of substitutes – consumers
change preferences due to increase in price of some products by swapping them.
A prime benefit of using Porter’s model is that it assists in
understanding how value is divided between competitors and additionally
includes information about redistribution of profits. The framework takes into
consideration a wide perspective on competition and does not only focus on current
challenging firms. Porter’s Five Forces model draws attention to the external
environment rather than internal focus and provides a context further away an
individual product or variety of products.
A disadvantage of the model is the fact that it only considers
situations in which an industry operates in quiet environments and does not
consider disruption within the market. Additionally it focuses mostly on firms
seeking competitive advantage over competitors and eliminates other driving
factors. Consumers like providers are not linked together, often operate
outside of the industry network. Moreover Porter’s model does not broaden its
outlook on resource, which could have an influence on the redesign of an industry.
The SWOT Analysis
A further well recognised strategy analysis tool is namely
the SWOT Analysis. The abbreviation SWOT is formed from the initial letters of
words: strengths, weaknesses, opportunities and
threats. Its main function is defined by Bohm (p.1) as ‘The SWOT Analysis
pursues an integrated approach including key company and environmental
variables. The strengths and weaknesses of the company are analysed in order
aid successful progression and growth.
Strengths and weaknesses are internal factors
of the company environment. Strength describe all factors which have
significant impact on development of the business to achieve a sustainable
competitive advantage over competitors. Strengths can also include those
factors which have previously aided the progression of the company. Whereas weaknesses are elements, which can be
used by a rival company.
According to the SWOT Analysis, opportunities
and threats are external, out of control factors, which occur “due to the
changes in the macro environment”. Opportunities are elements, which can be
helpful to achieve a business’s objectives. While threats may harm a company in
any possible way.
The main advantages of using SWOT Analysis
Problem domain – SWOT Analysis can be used by a business organisation,
single person or group of people to support different project objectives. For
example appraise a product or brand, an acquisition or partnership. Therefore it is flexible and adaptable. Cost efficiency – carrying out a SWOT Analysis does not require
specially trained personnel. A company can choose one of their staff member to
avoid hiring an external specialist.Application neutrality – The main aim of SWOT Analysis is to
find an objective and identify internal and external elements, which can have
positive or negative impact on the realisation of an objective, irrespective of
whether it is used to “support strategic planning or product development
process”. Multi – level analysis – All four elements of SWOT Analysis –
strength, weaknesses, opportunities and threats can be considered independently
or in combination. For instance an identified threat in a business environment
such as a new government rule concerning a product design could influence a business
owner’s decision in regards to introducing a new manufacturing production line
by being cautious about the project.
Disadvantages of using SWOT
NO weighting factor – SWOT Analysis does not clearly specify,
which of the four elements have significance in contrast with another factor,
which can have a negative effect on the objective of a business.Subjective analysis – Data used to carry out a SWOT analysis can
be biased because it is collected by individuals participating in a group
discussion to produce ideas. In addition data can become outdated rapidly.Ambiguity – SWOT Analysis allows to recognise factors and
establish which of these four factors have positive or negative impact on the
business strategy. Only one considered issue can be a strength or weakness whether
it is opportunity or threat. However in reality one problem might be considered
as a strength or weakness at the same time.
In conclusion Porter’s five forces model as
well as SWOT Analysis model are both business strategy tools widely
used by firms to achieve a competitive advantage and execute strategic analysis.
The Porter’s model is often used to evaluate an automotive industry or can be
use in the banking sector. While SWOT Analysis is often
use in retail industry. Both models have strengths and weaknesses, however a
business should consider which tools would be most effective in achieving their