Presentation for applied operations management

APPLIED OPERATIONS MANAGEMENT 1

P O R T E R ’ S F I V E F O RC E S

M O DE L Miguel Sánchez Araujo

APPLIED OPERATIONS MANAGEMENT 1

APPLIED OPERATIONS MANAGEMENT 2

The five forces are a framework for understanding the competitive forces at work in an industry, and which drive the way economic value is divided among industry actors

WHAT IS PORTER 5 FORCES MODEL?

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THREAT OF SUBSTITUTIVE PRODUCTS OR SERVICES

BARGAINING POWER OF SUPPLIERS

BARGAINING POWER OF BUYERS

THREAT OF NEW ENTRANTS

RIVALRY AMONG EXISTENT

COMPETITORS

PORTER 5 FORCES MODEL

Porter, M.E. (1980) Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press,

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1. BARGAINING POWER OF BUYERS

Your clients will have more or less power depending in your competitive advantages against your competitors, for example:

 If you are or not the only supplier

 If you have or not the lowest price

 If your product/service can be considered as a high or low quality one

 …

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EXAMPLES OF CLIENTS/BUYERS POWER

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BARGAINING POWER OF BUYERS

HIGH NUMBER OF BUYERS

LOW POWER OF BUYERS

VERY ATTRACTIVE SECTOR WITH A LOT

OF POWER = =

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2. BARGAINING POWER OF SUPPLIERS

Your suppliers will have more or less power depending in their competitive advantages against their competitors, for example:

 If they are or not the only supplier

 If they have or not the lowest price

 If their product/service can be considered as a high or low quality one

 …

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EXAMPLES OF SUPPLIERS POWER

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BARGAINING POWER OF SUPPLIERS

LOW NUMBER OF SUPPLIERS

HIGH POWER OF SUPPLIERS

LESS ATTRACTIVE SECTOR WITH LOW

POWER = =

SUPPLIER

COMPANIES

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3. THREAT OF NEW ENTRANTS

If your sector or industry has high or low barriers to enter

Examples of barriers to enter:  Economies of Scale: Large companies achieve huge production levels compared to small businesses  Product Differentiation  Capital investments  Disadvantage in Costs regardless of the Scale  Access to distribution channels  Government Policy

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THREAT OF NEW ENTRANTS

HIGH NUMBER OF BARRIERS TO ENTER

LOW THREAT OF NEW ENTRANTS

VERY ATTRACTIVE SECTOR WITH A LOT

OF POWER = =

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4. THREAT OF SUBSTITUTIVE PRODUCTS

OR SERVICES

 Substitute products or services are at least two products/services that could be used for the same purpose by the same consumers.

 Substitute goods are identical, similar, or comparable to another product, in the eyes of the consumer.

 If there is a high possibility that your product/service is substituted by another one, you’re in a weak position against that threat

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EXAMPLES OF SUBSTITUTIVE PRODUCTS OR SERVICES

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EXAMPLES OF SUBSTITUTIVE PRODUCTS OR SERVICES

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THREAT OF SUBSTITUTIVE PRODUCTS OR SERVICES

HIGH NUMBER OF SUBSTITUTIVE PRODUCTS /

SERVICES

HIGH THREAT OF SUBSTITUTIVE PRODUCTS OR

SERVICES

LESS ATTRACTIVE SECTOR

(WITH LOW POTENTIAL)

= =

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5. RIVALRY AMONG EXISTENT COMPETITORS

 Your competitors may establish their strategy based on:

 Price

 Quality

 Added Value

 Service

 …

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RIVALRY AMONG EXISTENT COMPETITORS

HIGH NUMBER OF COMPETITORS

HIGH RIVALRY IN THE SECTOR

LESS ATTRACTIVE SECTOR

(WITH LOW POTENTIAL)

= =

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ATTRACTIVE -vs- UNATRACTIVE INDUSTRIES

 High barriers to enter, barely no threats from new players

 Weak suppliers bargaining power, a lot of suppliers or a better position to negociate

 Weak buyers bargaining power, barely the only provider of their products/services

 Few substitute products/services, unique qualities or technologies

 Low competition, stable market with few and controlled competitors

 Low barriers to enter, a lot of threats from new players

 Strong suppliers bargaining power, a few of suppliers or a poor position to negociate

 Strong buyers bargaining power, many other providers of their products/services

 Many substitute products/services, common qualities or technologies

 High competition, dynamic market with many and uncontrolled competitors