Additional Videos Week 3: Five Forces, Six Paths Analysis Flashcards
(29 cards)
What is the five forces model?
Provides a tool for analyzing the attractiveness of an industry from the perspective of the focal firm. Remains most intuitive and iconic model of strategic management despite ignoring non-market factors and promoting a zero-sum view on economic competition. Strong roots in industrial organization economics, underpinning anti-trust law
What is the core idea of the five forces model?
external factors are core drivers of a firm’s strategic advantage and profitability. The closer to monopoly and the more power participating firms hold, the more profitable they will be
Name the five forces in porter’s five forces model?
- Threat of new entrants
- Threat of substitute products or services
- Bargaining power of suppliers
- Bargaining power of buyers
- Rivalry among existing competitors
Explain the North - South Axis of the five forces model?
explains how durably scarce the business model and assets of focal firm are. Less scarce less durable competitive advantage
Explain the West-East axis of the Five forces model?
Structural determinants of these players determine the fate and profitability of the firm.
What are substitute products or services?
products or services from rivals that aims at serving same customer needs with a different technology. Often called disruptive innovation because it could potentially render installed asset base of industry incumbents less valuable.
How has the rise of the platform economy increased the power of substitutes?
- Inversion of the firm (let others produce instead of the firm itself)
- Capitalizing on unused capacity in economy
- Harnessing multi-sided network effects
What are new entrants?
firms producing services aims at same customer needs with similar core technology. Threat of new entrants will be lower with high entry barriers.
What influences the level entry barriers for new entrants?
Entry barriers are lower for differentiated products appealing to tastes of heterogenous consumer audiences which skim off the most lucrative market segments. The more markets open for this differentiation, the bigger the threat of new entrants
What is meant with the rivalry with competitors?
firms already operating in the same industry, using similar technologies and core competences.
Name two ways in which the rivalry with existing customers would increase?
- number of incumbents and lack of differentiation opportunities
- High exit barriers (sunk costs, high historical investments in non-redeployable assets etc.)
What is meant with the bargaining power of buyers in porter’s five forces model?
A buyer’s bargaining power diminishes when many customers, such that a firm can switch between them or when products are unique and critical to buyer’s welfare
Name two ways in which buyers can respond to low bargaining power?
- Organizing themselves through buying cooperatives
- Vertical integration (seeking control over the supply chain)
What is meant with bargaining power of suppliers?
the bargaining power of suppliers diminishes when there are many of them and when products of supplier are commodities and unimportant to firm’s welfare.
How can firms respond to high bargaining power of suppliers?
- Organizing (forming buyer cooperation)
- Vertical integration (seeking control over supply chain)
What is the six paths analysis model?
Model urges managers and entrepreneurs to avoid head-to-head competition, suggesting six paths through which new market spaces can be created. Aims for relocation from red oceans to blue oceans
What are red oceans in the six paths analysis?
Current market spaces dominated by strong incumbent competitors, harnessed by industry recipes: Dominant way of doing business from which it seems impossible to break away
What are blue oceans in the six paths analysis?
Uncontested market space where competition does not yet exist. More freedom of movement for entrepreneurial ventures and migrating firm.
What is the dominant way of moving from red to blue oceans?
Value innovation: Challenging generic strategies idea that firms must either configure value chains for low cost or competitive differentiation
What are the central questions on the cost side to move to blue oceans?
- Which factors can be eliminated that industry simply takes for granted
- Which factors can be reduced to well below industry standards
What are the central questions to move to blue oceans on the buyer value side?
- Which factors can be raised well above the industry’s standards
- What factors can be created that the industry has never offered
What are the six paths of the six paths analysis?
- Industry
- Strategic group
- Buyer group
- Scope of product or service offering
- Functional-emotional orientation
- Time
What are red and blue oceans in the Industry path of six paths analysis?
- Red ocean: focus on rivals
- Blue ocean: look across alternative industries
What are red and blue oceans for strategic groups from the six paths analysis?
- Red: Focus on competitive position in strategic group
- Blue: looks across strategic groups in industry
