Question

Chic-fil-A is a US restaurent fast food chain and the industry is fast food market.Porter's 5 force analysis can be applied as below:

Bargaining power of buyers: Low:

-The number of customer ie the customer base is huge.

-Customers have their own taste and choices and they tend to stick to their preferred brands.

-Cost of switching is low

Bargaining power of Suppliers:Low

-Cost cost of switching suppliers

-Large number of suppliers available

-Lot of substitutes available

-Suppliers have short term contracts with the players and the quality check norms are very strict

Threat of substitutes:Medium

- The substitutes available are of similar or better quality

-Availability of substitutes is high

-The product offered is highly differentiated

Threat of new entrants :Low

-The size of competition is huge

- players have their own establised distribution network

-Players have their own base of loyal customers

-Players have their established brands and reputation

-Exit to barrier is high

Competitive rivalry: Medium

-The market growth rate is very high

-There are arge number of players. Many of them have localised operation

-Overall size of the pie is large and hence many players can survive without fighting for market share

The various external factors affecting the industry and chik-fill -A as a whole are:

-Shifts in dinning behaviour:The young busy work force has a preference for dining at fast food restaurants rather than dinning on home made meals.

-The franchisee model for QSRs( Quick serve retail outlets) is becoming increasingly popular and preferred as more individuals find it lucrative and sustainable source of income

-Product innovation and research on customer preferences is increasing and focus is on product differentiation

-Increased focus on customer services

-Switch /preference towards healthy /low calorie diets due to increased awareness about healthy lifestyle

-Stringent compliance requirements for operating business and for opening new stores

- Labour laws protecting the interests of labours and minimum wage policies getting a boost

-Economic recession /slowdown affecting sales as people have low disposable income

- Technology integration to support tech savvy customers and for operations improvement

-Stringent waste management,recycling(related to packing material) and green approach(for outlets)

-Stringent FDA rules,public health policies and quality check

The 2 pronged strategy that worked in favour of Chik-fill-A are:

-Extremely employee friendly policies,Exceptionally good training is imparted to the employees and good employee welfare programs are in place taking care of their career aspirations as well

- High degree of commitment to customer service and delivering consistent customer service.

what do you believe is a limitation to only evaluating those competitive forces for that selected industry/company. In other words, what implications are NOT considered when only utilizing Porter’s 5 Competitive Forces and how might you identify those additional external factors? Offer supporting rationale for your explanation and be sure to reference your statements using proper APA formatting.

Answer 1

Porter’s 5 Forces analysis has been used for analyzing industries. The framework does have certain disadvantages or limitations:

• This analysis makes the assumption of a perfectly balanced market having static structure. While in reality, the markets are quite dynamic.
• This framework lays more importance to competitive relationship between 2 companies and totally ignores the fact that there can be strategic alliances or partnerships between 2 companies.
• Various aspects of the industry are not considered in this framework. Some of them are social responsibility, CSR, culture, legislation, etc.
• No modifications have been done in the framework, which was developed in the year 1970. So there is no evolution associated with the model

To identify the other external factors and have a holistic industrial analysis, Porter’s 5 Competitive Forces analysis must be conducted along with PESTLE Analysis. PESTLE Analysis helps in identifying the macro-environmental and external factors, which may have a substantial effect in the performance of the industry under study. PESTLE Analysis is conducted focusing on the following 6 external forces and understanding their impact on the industry:

• Political
• Economical
• Socio-cultural
• Technological
• Legal
• Environmental

http://strategyatheinz.blogspot.com/2016/03/the-limitations-of-porters-five-forces.html

http://www.free-management-ebooks.com/faqst/porter-07.htm

https://www.investopedia.com/ask/answers/041015/whats-difference-between-porters-5-forces-and-pestle-analysis.asp

https://www.investopedia.com/articles/investing/103116/pitfalls-porters-5-forces.asp