Porter's Five Forces model is used to analyze industry structure and competition. It examines five forces: threat of new entrants, threat of substitutes, bargaining power of buyers, bargaining power of suppliers, and rivalry among existing competitors. The document discusses how the model provides a framework for understanding how these different competitive forces determine the attractiveness and profitability of an industry. It also notes some limitations of applying the model given changes in technologies and industries over time.

1. BY:
RONA DJOHANNA FONTANILLA ORTIZ
DM 214 Strategic Planning
MDM – 1st Semester 2013

2. Porter's Five Forces Model:
Analyzing Industry Structure
Central to Michael E. Porter's landmark
works on Competitive Strategy (1980) and
CompetitiveAdvantage (1985) are the
framework of structural analysis and the
definition of an industry. According to Porter,
“industry structure has a strong influence in
determining the competitive rules of the
game as well as the strategies potentially
available to the firm”.

3. By providing considerable freedom for firms to
draw the boundaries, Porter ensures that firms
which apparently view themselves as part of an
industry are, in fact, more realistically parts of
different industries.This paradox is visible in multi-
product industries such as automobile industry
wherein each product group, trucks, buses, cars,
three-wheelers, two-wheelers and tractors could
each be considered as an industry based on the fact
that different customers use these different product
groups.
Porter’s paradox

4. Porter’s paradox
Structural analysis is rooted in the industry whose
definition itself is not rooted in any particular
methodology.There would also be a possibility of
defining the industry in terms of broad factor
commonalities such as four-wheelers and two-
wheelers. Strategy formulation is expected to be based
on structural analysis based on multiple industry and
market segments.

5. At another level, the distinction between a
product and its service has blurred, and the
symbiosis between a product and its applications
has increased enormously.The application of
structural analysis, therefore, seems imperfect
whichever canvas is chosen to define the industry.
There seems to be a case for redrawing the
parameters of structural analysis and industry
definition in the current era, which has been a
resultant of over three decades of profound
technological changes.
Porter’s paradox
Source: http://cbrao2008.blogspot.com/2011/07/structural-analysis-and-industry.html

6. P.E.S.T. Analysis
is a scan of the external
macro-environment in
which an organization
exists. It is a useful tool
for understanding the
political, economic,
socio-cultural and
technological
environment that an
organization operates in.

7. Industry Structure
 A final dimension of industry that
is important to the performance
of new firm is industry structure.
The structure of the industry
refers to the nature of barriers to
entry and competitive dynamics
in the industry.

8.  Four characteristics of industry
structure are particularly important to
the performance of new firms in the
industry
Industry Structure
Capital
intensity
Advertising
intensity
concentration
Average size
firm

9. Capital Intensity
 Capital intensity
measures the
importance of
capital as
opposed to
labor in the
production
process.

10. Advertising Intensity
 Advertising is a mechanism
through which companies
develop the reputations
that help them sell their
products and services.

11. Concentration Intensity
 Concentration
is a measure of
the market
share that is
held by the
largest
companies in
an industry.

12. Average Firm Size
 New firms perform better in industries in which the average
size of firms is small. New firms tend to begin small as a way
to minimize the risk of entrepreneurial miscalculation.That
is, if entrepreneurs begin small, they have a lower downside
loss if they are incorrect. In industries in which most firms
are small, starting a new firm at a small scale does not
create much of a disadvantage relative to the established
firms in the industry.In contrast, in industries where the
average firm size is large, starting small creates a number of
disadvantages, such as the inability to purchase in volume
and higher average manufacturing and distribution costs
due to the absence of economies of scale.

13. P.E.S.T. Analysis
POLITICAL FACTORS
 These include government
regulations such as
employment laws,
environmental regulations
and tax policy. Other
political factors are trade
restrictions and political
stability.
 eg – tax policy,
employment laws
P-Noy signs
law
strengthening
NEA

14. P.E.S.T. ANALYSIS
ECONOMIC FACTORS
 These affect the cost of capital
and purchasing power of an
organization. Economic factors
include economic growth,
interest rates, inflation and
currency exchange rates. eg –
economic growth, interest rates
World Competitiveness Rank
In a neighborhood of so-called "Asian
tigers," the Philippines has quietly emerged
as the region's newest economic darling. At
6.6 percent, the Filipino economy's current
GDP growth rate is the second highest in
Asia, behind only China's.

15. P.E.S.T. ANALYSIS
SOCIAL FACTORS
 These impact on the consumer’s need and the potential market
size for an organization's goods and services. Social factors
include population growth, age demographics and attitudes
towards health. eg – health consciousness, population growth
rate
The country is being heralded as the new Asian success story, but only an elite few
reap the rewards (JILLIAN KEENAN MAY 7 2013, 8:06 AM ET).

16. P.E.S.T. ANALYSIS
TECHNOLOGICAL FACTORS
 These influence barriers
to entry, make or buy
decisions and investment
in innovation, such as
automation, investment
incentives and the rate of
technological change.
 eg – R & D activity,
automation, technology
incentives

17. Industry Structure
(Porter’s 5 Forces)
Porter's five forces of competitive position analysis
was developed in 1979 by Michael E. Porter of Harvard
Business School as a simple framework for assessing and
evaluating the competitive strength and position of a
business organization.
This theory is based on the concept that there are
five forces which determine the competitive intensity
and attractiveness of a market. Porter’s five forces helps
to identify where power lies in a business situation.This
is useful both in understanding the strength of an
organization's current competitive position, and the
strength of a position that an organization may look to.

18. the PORTER DIAGRAM
Porter’s Five Forces of
Competition Framework
SUPPLIERS
POTENTIAL
ENTRANTS SUBSTITUTES
BUYERS
INDUSTRY
RIVALRY
Threat of
new entrants
Threat of
substitutes

19. NEUTRALIZING THE FIVE FORCES
FORCE METHOD FOR
NEUTRALIZING
Entry Erecting barriers (isolating
mechanisms)
Rivalry Compete on non-price
dimensions
Substitutes Improve attractiveness
compared to substitutes
Buyers Reduce buyer uniqueness
Suppliers Reduce supplier uniqueness

20. Preparing for the Future :
The Role of ScenarioAnalysis in Adapting to Industry Change
Stages in undertaking multiple Scenario
Analysis:
 Identify major forces driving industry change
 Predict possible impacts of each force on the industry
environment
 Identify interactions between different external forces
 Among range of outcomes, identify 2-4 most likely/ most
interesting scenarios: eg: configurations of changes and
outcomes
 Consider implications of each scenario for the company
 Identify key signposts pointing toward the emergence of each
scenario
 Prepare contingency plan

21. Efficiency Relevance
Effective
ness
Impact
Sustaina
bility
Replicabili
ty
The Analytical Categories

22. Efficiency Analysis of Electric
Cooperatives in the Philippines.
Philippine Management
Review 2011,Vol. 19, 1‐10. University
of the Philippines, College of Business
Administration, Diliman, Quezon City
1101, Philippines

23. The Analytical Categories
 Efficiency
With this is meant the amount of outputs created
and their equality in relation to the resources
(capital and human efforts) invested.
The efficiency of electricity distribution in remote areas of the Philippines
by 120 electric cooperatives (ECs) is examined using data envelopment analysis
(DEA). Using data from 2001to 2006, the study finds that most ECs can reduce all
their inputs proportionately by up to 18percent and still produce the same level
of output. The study shows that efficiency of ECs rises with size.
This result is robust with respect to how size is defined. Unsurprisingly, the
levels of inefficiency are inversely related to system losses. The study also shows
that structural and operational characteristics significantly affect EC efficiency.
EC are likewise found to be inefficient in the non-technical component of their
distribution costs vis‐à‐vis their line operations and maintenance costs
(Valderrama, et al: 2011)

24. Efficiency
This study has shown that a number of structural as well as
operational factors significantly affect the efficiency of grid-
connected ECs. These are sales ands customer density,
customer structure, size,( as measured by sales volume and
number of customers), systems loss and number of customers
per employee. These are not totally surprising results.
What they imply, however, is that ECs should in the Philippines
resist external pressure (usually from local resist external pressure
(usually from local politician) to expand in areas with low
density so as not to sacrifice their efficiency even more. The
study also identifies two initiatives ECs can undertake to improve
their technical efficiency, reduce systems loss and
personnel. The most efficient ECs had an average 303
customer per employee, while the least efficient ones had only
221 customers per employee.

25. The Analytical Categories
Relevance
The issue here is to what extent the program
or project has addressed or is addressing
problems of high priority, mainly as viewed
by actual and potential stakeholders,
particularly the program’s beneficiaries and
any other people who might have been its
beneficiaries.

26. The Analytical Categories
 Effectiveness
Effectiveness expresses to what extent the
planned outputs, expected changes, intended
effects (immediate and effect objectives) and
intended impact (development objective) are
being or have been produced or achieved.

27. The Analytical Categories
 Impact
Means the overall consequences of the program
or project for the intended beneficiaries and any
other people.
The productivity of the EC as a whole seems to have stagnated
during the post –EPIRA period. A possible reason for this is that
demand in the last three years (2004-2006) have been flat (the
compound annual growth rate is 1.1 % with 37 ECs experiencing
negative growth) compared with the 21.7% sales growth rate the
cooperative experienced during the period 2001-2003. As a
reversal in demand growth trend is not foreseeable given the
present economic conditions, efficiency in the sector have become
more of an imperative than ever (Valderrama, et al: 2011).

28. Impact
 Since the passage of the Electric Power Industry
Reform Act (EPIRA) in 2001, the Philippines
embarked on a comprehensive restructuring of its
power industry. From a vertically integrated,
extensively publicly owned utility business, the industry
was envisioned to be broken down into its main
components with a deregulated and effectively
privatized generation and supply sectors.
Despite the reform efforts through the EPIRA
enactment however, power rates in the Philippines
continue to be among the highest in Asia and remain a
source of concern for industries in the country
struggling to remain competitive with their regional
counterparts (Valderrama, et al: 2011)

29. The Analytical Categories
 Sustainability
This means the maintenance or
argumentation of positive achievements
induced by the evaluated program or project
(or any component of it) after the scheme (or
any component of it) has been terminated.

30. The Analytical Categories
 Replicability
Replicability means the feasibility of
repeating the particular program or project or
parts of it in another context i.e. at a later
time, in other areas, for other groups of
people, by other organizations, etc.

32. TRIVIA:
In putting up a business, the following factors
should be considered.
Stop! Don't Do It!
 Don't start a business in a capital intensive
industry.
 Don't start a business in an advertising intensive
industry.
 Don't start a business in an industry in which the
average sized firms are large.
 Don't start a business in a concentrated market.

33. Questions to Ask Yourself
 Is the industry that I am planning to enter a
good one for starting a new company?
 Are the knowledge conditions in the industry
favorable to a start-up?
 Are demand conditions in the industry
favorable to a start-up?
 Is the industry at the right stage of the life
cycle for a start-up?
 Is the industry structure favorable for a start-
up?

34. Sources:
 Helena Agnes S.Valderrama and Carlos C. Ba
utista (2011) Efficiency Analysis of Electric
Cooperatives in the Philippines. Philippine
Management Review 2011,Vol. 19, 1‐10.
University of the Philippines, College of
Business Administration, Diliman, Quezon
City 1101, Philippines
 Edwin B.R. Gbargaye (2010) Lecture of
Strategic Planning Analytical Categories.
Sual, Pangasinan

35. Thank you
for Listening