Industry Structure Analysis through

Porters 5 forces analysis and

value chain analysis

Learning Objectives
1. Identify how a situation gets affected .
2. How to analyse your situation with
respect to competitors, technology,
substitutes, buying power of customers.
3. Understand the business value and how
value/money comes to you and how it
disappears. Understanding core and
support with value chain analysis.

Let us first understand

Porters 5 forces analysis and then we will
use this information for value chain
analysis.

Porters Five Forces

of Competitive
Position

New Market Entrants,

eg:
entry ease/barriers
geographical factors
incumbents resistance
new entrant strategy
routes to market

Supplier Power, eg:

Competitive Rivalry, eg:

Buyer Power, eg:

brand reputation
geographical coverage
product/service level quality
relationships with customers
bidding processes/capabilities

number and size of firms

industry size and trends
fixed v variable cost bases
product/service ranges
differentiation, strategy

buyer choice
buyers size/number
change cost/frequency
product/service importance
volumes, JIT scheduling

Product/Technology
development, eg:
alternatives price/quality
market distribution changes
fashion and trends
legislative effects

alan chapman 2005, based on Michael Porter's Five Forces of Competitive Position Model.
Not to be sold or published. More free online training resources are at www.businessballs.com. Alan Chapman accepts no liability.

The Porter Competitive Model

Used to understand and evaluate the
structure of an industrys business
environment and the threats of
competition to a specific company.

Porter Competitive Modelsimplified version

Potential
New Entrants

Bargaining
Power
of Suppliers

Intra-Industry
Rivalry
Strategic Business Unit

Bargaining
Power
of Buyers

Substitute
Products
and Services
Source: Michael E. Porter
Forces Governing Competition in
Industry
Harvard Business Review, Mar.-Apr. 1979

Figure 3-1

Two Strategic Objectives

Create effective links with customers and

suppliers

Create barriers to new entrants and substitute

products

Primary and Supporting Strategies

Differentiation Strategy (Primary)
Low Cost Strategy (Primary)
Innovation (Supporting)
Growth (Supporting)
Alliance (Supporting)

Value Chain

Developed by Michael Porter but different

from competitive model because it focuses
within the company.

Analyzes the cross-functional flow of

products or services within an organization
that add value to customers.

SUPPORT ACTIVITIES

Generic Value Chain

FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT

INBOUND
LOGISTICS

OPERATIONS OUTBOUND
LOGISTICS

MARKETING
AND SALES

SERVICE

PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright
1985 by Michael E. Porter.

Figure 3-6

Value Chain and Information

technology Support
The Value Chain can be used to determine
where IS can strengthen the flow of primary
and support activities within an
organization.
Every segment of an organization needs IT
and IS to be competitive. So this model is
essential to visualizing the flow of activities
within segments through the use of IS and
IT.

Awareness of competitive forces can

help a company stake out a position
in its industry that is less vulnerable
to attack.
Michael E. Porter
Competitive Strategy

Porter Competitive Model

Was not developed for IS use.
Breaks an industry into logical parts,
analyzes them and puts them back together.
Avoids viewing the industry too narrowly.
Provides an understanding of the structure
of an industrys business environment.
Provides an understanding of competitive
threats into an industry.

Competitive Strategies

Strategic Advantage
Cost
Leadership
Differentiation
Innovation
Growth
Alliance
Other
Strategies
Rivalry of
Threat ofThreat of
Bargaining
Bargaining
CompetitorsNew Substitutes
Power ofPower of
Entrants
Customers
Suppliers

Competitive Forces

Value Chain
(Michael Porter in his book "Competitive Advantage: Creating and Sustaining
superior Performance" (1985).

It evaluates which value each particular activity adds to the

organizations products or services.
This idea was built upon the insight that an organization is more than a
random compilation of machinery, equipment, people and money.
Only if these things are arranged into systems and systematic
activates it will become possible to produce something for which
customers are willing to pay a price.
Porter argues that the ability to perform particular activities and to
manage the linkages between these activities is a source of
competitive advantage.

Primary Activities
http://www.marketingteacher.com/Lessons/lesson_value_chain.htm

Primary activities are directly concerned with the

creation or delivery of a product or service.
inbound logistics,
operations,
outbound logistics,
marketing and sales,
and service.
Each of these primary activities is linked to support
activities which help to improve their
effectiveness or efficiency.

Inbound Logistics
Here goods are received from a company's suppliers. They are stored until they are needed on
the production/assembly line. Goods are moved around the organization.

Operations
This is where goods are manufactured or assembled. Individual operations could include room
service in an hotel, packing of books/videos/games by an online retailer, or the final tune for a
new car's engine.

Outbound Logistics
The goods are now finished, and they need to be sent along the supply chain to wholesalers,
retailers or the final consumer.

Marketing and Sales

In true customer orientated fashion, at this stage the organization prepares the offering to meet
the needs of targeted customers. This area focuses strongly upon marketing communications
and the promotions mix.

Service
This includes all areas of service such as installation, after-sales service, complaints handling,
training and so on.

Secondary Activities
There are four main areas of support
activities:
procurement
technology development (including R&D),
human resource management, and
infrastructure (systems for planning,
finance, quality, information management
etc.).

Procurement
This function is responsible for all purchasing of goods, services and
materials. The aim is to secure the lowest possible price for purchases of
the highest possible quality.

Technology Development
Technology is an important source of competitive advantage. Companies
need to innovate to reduce costs and to protect and sustain competitive
advantage. This could include production technology, Internet marketing
activities, lean manufacturing, Customer Relationship Management (CRM),
and many other technological developments.
Human Resource Management (HRM)
Employees are an expensive and vital resource. An organization would
manage recruitment and selection, training and development, and rewards
and remuneration.

Firm Infrastructure
This activity includes and is driven by corporate or strategic planning. It
includes the Management Information System (MIS), and other mechanisms
for planning and control such as the accounting department.

NOW YOU CAN LINK

PRIMARY AND
SECONDARY
ACTIVITIES.

Porters original Model

Typical Value Chain Analysis

Analysis of own value chain which costs
are related to what activities
Analysis of Customer value chain
Identification of cost advantage
Identification of potential value added for
the customerlower cost/high
performance-where does customer see
value