MGMT 449 Final || All Solved.
How to analyze Five forces framework correct answers - We analyze an industry from a
company's perspective:
e.g. "From an Intel's perspective, in the semiconductor chip industry..."
• Intensity of rivalry is HIGH or LOW.
• Threat of new entrants is HIGH or LOW.
• Bargaining power of suppliers is HIGH or LOW.
• Bargaining power of buyers is HIGH or LOW.
• Threat of substitutes is HIGH or LOW.
- "Considering all these aspects, we suggest that this industry is attractive or unattractive."
Steps in industry analysis (five forces model) correct answers • Define the relevant industry:
− What products are in it?
− What is the geographic scope of competition?
• Identify the participants and segment them into groups:
− Who are buyers, suppliers, competitors, substitutes, and potential entrants?
• Assess the underlying drivers of each competitive force to determine which forces are strong
and which are weak and why
• Determine overall industry structure, and test the analysis for consistency:
− Which are the controlling forces for profitability?
,• Analyze recent and likely future changes in each force.
• Identify aspects of industry structure that might be influenced by competitors, by new entrants,
or by your company.
PORTER'S FIVE FORCES FRAMEWORK correct answers • Unit of Analysis = Industry
• How to get a bigger slice of the profit potential by positioning the firm in part of the market
where there is little competition!
• The strongest competitive force determines the profitability of an industry and become the most
important to strategy formulation.
• However, the most salient force is not always obvious.
• To examine drivers, we need to take either the perspective of an incumbent
company already present in the industry or that of a potential entrant.
• For diversified companies, each line of business should develop its own, industry-specific, five
forces analysis.
• e.g.Microsoft(Software,Device),Apple(PC,tablet,iTune...), Amazon (Online shopping, e-book
device, streaming service...)
PORTER'S FIVE FORCES - IMPLICATIONS correct answers An understanding of industry
structure guides managers toward fruitful possibilities for strategic action:
⎻ Positioning the company
, ⎻ Shaping the balance of forces to create a new industry structure that is more favorable to the
company
PORTER'S FIVE FORCES - LIMITATIONS correct answers • The framework views other
parties in firm's environment only as potential threats, not as potential allies.
• Incomplete: Only for analyzing industries/markets. Tells almost nothing about specific firms in
industry/market. Doesn't explain the (often large) differences in profitability within an
industry/market.
• Provides no guidance on relative weights of the various (five) factors, or interactions between
them: How are the 5 forces linked together?
• There should be a 6th force, such as "the role of Government" or even "the role of
complements".
• Industry boundaries are rarely clear and also can shift.
According to the five forces framework, which one is true?
1) All else being equal, a firm in the fast growing industry will have strong bargaining power
over its suppliers.
2) All else being equal, when suppliers have potential incentives to pursue forward-integration
(such as technology similarity), a firm is more likely to have strong bargaining power over its
suppliers.
3) All else being equal, when exit barrier of incumbents is high, the intensity of rivalry is less
likely to be high.
How to analyze Five forces framework correct answers - We analyze an industry from a
company's perspective:
e.g. "From an Intel's perspective, in the semiconductor chip industry..."
• Intensity of rivalry is HIGH or LOW.
• Threat of new entrants is HIGH or LOW.
• Bargaining power of suppliers is HIGH or LOW.
• Bargaining power of buyers is HIGH or LOW.
• Threat of substitutes is HIGH or LOW.
- "Considering all these aspects, we suggest that this industry is attractive or unattractive."
Steps in industry analysis (five forces model) correct answers • Define the relevant industry:
− What products are in it?
− What is the geographic scope of competition?
• Identify the participants and segment them into groups:
− Who are buyers, suppliers, competitors, substitutes, and potential entrants?
• Assess the underlying drivers of each competitive force to determine which forces are strong
and which are weak and why
• Determine overall industry structure, and test the analysis for consistency:
− Which are the controlling forces for profitability?
,• Analyze recent and likely future changes in each force.
• Identify aspects of industry structure that might be influenced by competitors, by new entrants,
or by your company.
PORTER'S FIVE FORCES FRAMEWORK correct answers • Unit of Analysis = Industry
• How to get a bigger slice of the profit potential by positioning the firm in part of the market
where there is little competition!
• The strongest competitive force determines the profitability of an industry and become the most
important to strategy formulation.
• However, the most salient force is not always obvious.
• To examine drivers, we need to take either the perspective of an incumbent
company already present in the industry or that of a potential entrant.
• For diversified companies, each line of business should develop its own, industry-specific, five
forces analysis.
• e.g.Microsoft(Software,Device),Apple(PC,tablet,iTune...), Amazon (Online shopping, e-book
device, streaming service...)
PORTER'S FIVE FORCES - IMPLICATIONS correct answers An understanding of industry
structure guides managers toward fruitful possibilities for strategic action:
⎻ Positioning the company
, ⎻ Shaping the balance of forces to create a new industry structure that is more favorable to the
company
PORTER'S FIVE FORCES - LIMITATIONS correct answers • The framework views other
parties in firm's environment only as potential threats, not as potential allies.
• Incomplete: Only for analyzing industries/markets. Tells almost nothing about specific firms in
industry/market. Doesn't explain the (often large) differences in profitability within an
industry/market.
• Provides no guidance on relative weights of the various (five) factors, or interactions between
them: How are the 5 forces linked together?
• There should be a 6th force, such as "the role of Government" or even "the role of
complements".
• Industry boundaries are rarely clear and also can shift.
According to the five forces framework, which one is true?
1) All else being equal, a firm in the fast growing industry will have strong bargaining power
over its suppliers.
2) All else being equal, when suppliers have potential incentives to pursue forward-integration
(such as technology similarity), a firm is more likely to have strong bargaining power over its
suppliers.
3) All else being equal, when exit barrier of incumbents is high, the intensity of rivalry is less
likely to be high.
