A SWOT analysis evaluates an organization’s strengths, weaknesses,
opportunities, and threats to identify signiticant in&uences that work for or
against business strategies. Strengths and weaknesses originate inside an
organization or internally. Opportunities and threats originate outside an
organization or externally and cannot always be anticipated or controlled.
Learning Outcome 1.5: Describe Porter’s Five Forces Model and
explain each of the 4ve forces.
Porter’s Five Forces Model analyzes the competitive forces within the
environment in which a company operates, to assess the potential for
pro$tability in an industry.
Buyer power is the ability of buyers to affect the price they must pay for
an item.
Supplier power is the suppliers’ ability to in&uence the prices they charge
for supplies (including materials, labor, and services).
Threat of substitute products or services is high when there are many
alternatives to a product or service and low when there are few
alternatives from which to choose
Threat of new entrants is high when it is easy for new competitors to
enter a market and low when there are signi$cant entry barriers to
entering a market
Rivalry among existing competitors is high when competition is $erce in a
market and low when competition is more complacent
Learning Outcome 1.6: Compare Porter’s three generic strategies.
Organizations typically follow one of Porter’s three generic strategies when
entering a new market: (1) broad cost leadership, (2) broad differentiation,
(3) focused strategy. Broad strategies reach a large market segment.
Focused strategies target a niche market. Focused strategies concentrate on
either cost leadership or differentiation.
Learning Outcome 1.7: Demonstrate how a company can add value
by using Porter’s value chain analysis.
To identify competitive advantages, Michael Porter created value chain
analysis, which views a firm as a series of business processes that each add
value to the product or service. The goal of value chain analysis is to identify
processes in which the firm can add value for the customer and create a
competitive advantage for itself, with a cost advantage or product
differentiation. The value chain groups a $rm’s activities into two categories
—primary value activities and support value activities. Primary value
activities acquire raw materials and manufacture, deliver, market, sell, and
provide after-sales services. Support value activities, along the top of the
value chain in the figure, include $rm infrastructure, human resource
management, technology development, and procurement. Not surprisingly,
these support the primary value activities.
