redesign strategy by marvin
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Redesign Strategy
Marvin
Finance
Agate Studio
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MICHAEL PORTER 5 FORCES & STRATEGY TO BUILD A STRATEGY
TDS – 10 Mei 2014
Lee Marvin- [email protected]
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FORCES THAT SHAPE STRATEGY
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• Every Industry has its own characteristics
• The characteristics determine profitability of its members (companies)
• By knowing how the industry works, company owner can analyze what strategy should be applied for his/her company
• Luckily, there’s guideline to help us analyze how industry works
• Other than this guideline is not changing industry value/ profitability
Forces That Shape Strategy
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Every industry has its own profitabilitycharacteristics
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MICHAEL PORTER 5 FORCESFramework to help us analyze industry characteristics
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Bargaining Power of Suppliers
• Powerful suppliers capture more of the value by:
– Larger in scale to its customers
– Serving many industries
– Buyers have high switching cost
– Differentiated products
– Few Substitute
– Can participate to customers industry
(vertical expansion)
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Threat of New Entrants
• There will be more new competitor to come to reap industry value while:
– low supply-side economies of scale (low fixed cost)
– Low Demand-side benefits of scale (anyone can sell the product without special network)
– Low costumer switching cost
– Equal access to distribution channels
– No government restriction policy
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Bargaining Power of Customers
• Customers can take large chunk of value to themselves in these conditions:
– Few Buyers
– Standardized products
– Low switching cost to other supplier
– Have capability to integrate to
Supplier industry
– Have high price sensitivity
– Few effect on product quality
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Threat of Substitutes
• The industry value is transferred to another industry when:
– Offer attractive price-performance trade off
(commonly more performance with same price in other product)
– Low switching cost
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Competitive Rivalry within An Industry
• Others might get more value than your company and keep playing in the industry when:
– Others has bigger size & power
– Grow faster than your company when industry growth is slower
– High exits barriers
– Commit beyond profitability
(idealism of founders)
– Lack of communication for
each industry players
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How to Analyze with 5 Forces
•Write down potential sources that can gain value in each forces
•Put symbol (o) when its favorable to your company ,(-) for unfavorable and (--) for extremely unfavorable of your companyTHEN:1. Focus your strategy on how to
gain value fast and big enough in the favorable (weak) forces towards your company
2. Exploit Industry change to your company favor
3. Shaping Industry structure to your company competitive advantage
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STRATEGY TO BUILD A STRATEGYYou know how the industry works, now what?
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Strategy Building Blocks
• There are 2 blocks to build strategy based on company circumstances:
– Predictability• How predictable is the future outcomes? (sales trends, business
cycle, how confident management can predict the future)
– Malleability• To what extent company can influence condition
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Strategy Building Framework
Adaptive Shaping
Classical Visionary
Survival
Malleability
Pre
dic
tab
ility
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Based on BCG Survey, these are industry strategy formulation group.
When Predictability is High
Classical Approach
• Used when environment is predictable and you cannot change it:
– E.g. Airlines, Household products, oil and gas
– Construct multiyear financial forecast
– Determined annual target
Visionary Approach
• Used when environment is predictable and you can changeit:
– E.g. Software, chemical, media
– Plan thoroughly with high bet on end of journey
– Have courage to commit resources
– Take deliberate step to reach goal with few options
When Predictability is Low
Adaptive Approach
• Used when environment is unpredictable and you cannot change it:
– E.g. Apparel, Construction material, Transportation
– Refine goals by lean cost and acquire/divest business segment smoothly
– Engineered to be flexible in strategy (less than 1 year planning)
Shaping Approach
• Used when environment is unpredictable and you can change it:
– E.g. Internet business, professional services
– Short/continual planning cycle
– Strategy is implemented as portfolio of experiments
– Rallying to form ecosystem of customers and suppliers.
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When everything is messed up!
• Survival Approach
– When access to capital or other critical resources is severely restricted or business model is threaten to not sustain:• Reduce cost
• Preserving capital
• Trimming business portfolios
• After environment calms down, go back to apply other approach
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Summary
• To sum up:1. Know how your industry works by implementing Michael
Porter 5 forces
2. Indentify the weakest forces in the industry and gain value from it
3. Build your strategy further by identifying predictability and malleability of industry environment in future time horizon
4. Apply strategy approach to have appropriate planning cycle for the company
5. Re-check the condition regularly by applying Porter 5 Forces
Thank You