Question

(a) Based on your research, conduct a competitor analysis using Porter’s five (5) forces to determine the organisation’s competitive advantage. You should identify at least ONE (1) example for each of the FIVE (5) forces.

Answer 1

This theory is based on the notion that the competitive intensity and attractiveness of a market are determined by five forces. The five powers of Porter help define where control resides inside a business situation. This is useful both in understanding the strength of the current competitive position of an organization and in understanding the strength of a position an organization might look like to move into. Strategic analysts frequently use Porter's five strengths to understand whether new products or services might be profitable. The theory can also be used to identify areas of strength by understanding where power lies, to improve weaknesses and to avoid mistakes.

Supplier power- An assessment of how easy it is to drive up prices for the suppliers. This is driven by: number of suppliers of each essential input; product or service uniqueness; supplier relative size and strength; and cost of switching from one supplier to another.

Buyer power- An evaluation of the ease with which buyers can push down costs. This is driven by: the number of buyers on the market; the importance to the organization of each individual buyer; and the purchaser's cost of switching from one supplier to another. If a business has only a few powerful buyers, then they can often dictate terms.

Competitive rivalry- The main driver in the market is the number and ability of the competitors. Many competitors will be reducing market attractiveness by offering undifferentiated products and services.

Threat of substitution- Where close substitute products exist in a market, the likelihood of clients switching to alternatives in response to price increases is increased. That reduces both supplier power and market attractiveness.

Threat of new entry- Profitable markets attract new entrants, eroding profitability. Unless incumbents have strong and enduring entry barriers, such as patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.