Pestle and 5 Forces Analysis
Glanbia plc is an international dairy, consumer foods, and nutritional products company. The Company conducts operations primarily in Ireland, the United Kingdom, and the United States.
Hi Tom below are the necessary informations about the project work. This is the part 1 due for monday. The Industry is Glanbia The industry analysis Using rivers of Globalisation, PESTEL and Five Forces Your report should start with “The (your industry) is becoming more competitive due to Main reason 1 Main reason 2 Main reason 3 etc Having outlined the major reasons why your industry is becoming ore competitive then explain each reason using academic argument and industry facts to support. For instance, if one of your main reasons is say “Increasing Power of the Buyers” then you could use issues such as many alternative suppliers, growing concentration, increased “shopping around” etc. If buyers are becoming more powerful then a useful supporting fact might be a reduction in market prices maximum 4 pages My part in this is to examine= the strong Legal influence, Suppliers power {of Glanbia in a dairy industry} and all other conditions that is having an impact on Dairy industry {GlanbiaPls if there anything that is unclear, pls do let me know Thanks a lot Prince 1 Porter’s 5 Forces & Industry Structure What is the basis for competitive advantage? Industry structure and positioning within the industry are the basis for models of competitive strategy promoted by Michael Porter. The “Five Forces” diagram captures the main idea of Porter’s theory of competitive advantage.
The Five Forces define the rules of competition in any industry. Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness.Porter claims, “The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm’s behavior. ” (1985, p. 4) The five forces determine industry profitability, and some industries may be more attractive than others.
The crucial question in determining profitability is how much value firms can create for their buyers, and how much of this value will be captured or competed away. Industry structure determines who will capture the value. But a firm is not a complete prisoner of industry structure – firms can influence the five forces through their own strategies.The five-forces framework highlights what is important, and directs manager’s towards those aspects most important to long-term advantage. Be careful in using this tool: just composing a long list of forces in the competitive environment will not get you very far – it’s up to you to do the analysis and identify the few driving factors that really define the industry. Think of the Five Forces framework as sort of a checklist for getting started, and as a reminder of the many possible sources for what those few driving forces could be.
Porter’s 5 Forces – Elements of Industry Structure (source: Porter, 1985, p. 6) [pic] How is competitive advantage created? At the most fundamental level, firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation. Innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond.There can be significant advantages to early movers responding to innovations, particularly in industries with significant economies of scale or when customers are more concerned about switching suppliers. The most typical causes of innovations that shift competitive advantage are the following: • new technologies • new or shifting buyer needs • the emergence of a new industry segment • shifting input costs or availability • changes in government regulations How is competitive advantage implemented? But besides watching industry trends, what can the firm do?At the level of strategy implementation, competitive advantage grows out of the way firms perform discrete activities – conceiving new ways to conduct activities, employing new procedures, new technologies, or different inputs.
The “fit” of different strategic activities is also vital to lock out imitators. Porters “Value Chain” and “Activity Mapping” concepts help us think about how activities build competitive advantage. The value chain is a systematic way of examining all the activities a firm performs and how they interact. It scrutinizes each of the activities of the firm (e. . development, marketing, sales, operations, etc.
) as a potential source of advantage. The value chain maps a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. Differentiation results, fundamentally, from the way a firm’s product, associated services, and other activities affect its buyer’s activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost.A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. One of the reasons the value chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anywhere along the value chain.
It’s also important to understand how a firm fits into the overall value system, which includes the value chains of its suppliers, channels, and buyers. With the idea of activity mapping, Porter (1996) builds on his ideas of generic strategy and the value chain to describe strategy implementation in more detail.Competitive advantage requires that the firm’s value chain be managed as a system rather than a collection of separate parts. Positioning choices determine not only which activities a company will perform and how it will configure individual activities, but also how they relate to one another. This is crucial, since the essence of implementing strategy is in the activities – choosing to perform activities differently or to perform different activities than rivals. A firm is more than the sum of its activities.
A firm’s value chain is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages create tradeoffs requiring optimization and coordination. Porter describes three choices of strategic position that influence the configuration of a firm’s activities: • variety-based positioning – based on producing a subset of an industry’s products or services; involves choice of product or service varieties rather than customer segments.Makes economic sense when a company can produce particular products or services using distinctive sets of activities.
(i. e. Jiffy Lube for auto lubricants only) • needs-based positioning – similar to traditional targeting of customer segments. Arises when there are groups of customers with differing needs, and when a tailored set of activities can serve those needs best. (i.
e. Ikea to meet all the home furnishing needs of a certain segment of customers) • access-based positioning – segmenting by customers who have the same needs, but the best configuration of activities to reach them is different. i. e.
Carmike Cinemas for theaters in small towns) Porter’s major contribution with “activity mapping” is to help explain how different strategies, or positions, can be implemented in practice. The key to successful implementation of strategy, he says, is in combining activities into a consistent fit with each other. A company’s strategic position, then, is contained within a set of tailored activities designed to deliver it. The activities are tightly linked to each other, as shown by a relevance diagram of sorts.Fit locks out competitors by creating a “chain that is as strong as its strongest link. ” If competitive advantage grows out of the entire system of activities, then competitors must match each activity to get the benefit of the whole system.
Porter defines three types of fit: • simple consistency – first order fit between each activity and the overall strategy • reinforcing – second order fit in which distinct activities reinforce each other • optimization of effort – coordination and information exchange across activities to eliminate redundancy and wasted effort.How is competitive advantage sustained? Porter (1990) outlines three conditions for the sustainability of competitive advantage: • Hierarchy of source (durability and imitability) – lower-order advantages such as low labor cost may be easily imitated, while higher order advantages like proprietary technology, brand reputation, or customer relationships require sustained and cumulative investment and are more difficult to imitate. • Number of distinct sources – many are harder to imitate than few. Constant improvement and upgrading – a firm must be “running scared,” creating new advantages at least as fast as competitors replicate old ones. References: • Porter, Michael, Competitive Advantage, The Free Press, NY, 1985.
• Porter, Michael, The Competitive Advantage of Nations, The Free Press, NY, 1990. • Porter, Michael, “What is strategy? ” Harvard Business Review v74, n6 (Nov-Dec, 1996):61 (18 pages). 2 Core Competence and Capabilities Proponents of this framework emphasize the importance of a dynamic strategy in today’s more dynamic business environment.They argue that a strategy based on a “war of position” in industry structure works only when markets, regions, products, and customer needs are well defined and durable. As markets fragment and proliferate, and product life cycles accelerate, “owning” any particular market segment becomes more difficult and less valuable.
In such an environment, the essence of strategy is not the structure of a company’s products and markets but the dynamics of its behavior. A successful company will move quickly in and out of products, markets, and sometimes even business segments.Underlying it all, though, is a set of core competencies or capabilities that are hard to imitate and distinguish the company from competition. These core competencies, and a continuous strategic investment in them, govern the long term dynamics and potential of the company. What are core competencies and capabilities? • Prahalad and Hamel (1990) speak of core competencies as the collective learning in the organization, especially how to coordinate diverse production skills and integrate multiple streams of technology.
These skills underlie a company’s various product lines, and explain the ease with which successful competitors are able to enter new and seemingly unrelated businesses. Three tests can be applied to identify core competencies: (1) provides potential access to wide variety of markets, (2) makes significant contribution to end user value, and (3) difficult for competitors to imitate. • Examples of core competence: Sony in miniaturization, allowing it to make everything from Walkmans to video cameras to notebook computers.Canon‘s core competence in optics, imaging, and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras, and image scanners.
• Stalk, Evans, and Schulman (1992) speak of capabilities similarly, but defined more broadly to encompass the entire value chain rather than just specific technical and production expertise. • Examples of capabilities: Wal-mart in inventory management, Honda in dealer management and product realization. Implications for strategy? Portfolio of competencies. An essential lesson of this framework is that competencies are the roots of competitive advantage, and therefore businesses should be organized as a portfolio of competencies (or capabilities) rather than a portfolio of businesses. Organization of a company into autonomous strategic business units, based on markets or products, can cripple the ability to exploit and develop competencies – it unnecessarily restricts the returns to scale across the organization.
Core competence is communication, involvement, and a deep commitment to working across organizational boundaries. • Products based on competencies. Product portfolios (at least in technology-based companies) should be based on core competencies, with core products being the physical embodiment of one or more core competencies. Thus, core competence allows both focus (on a few competencies) and diversification (to whichever markets firm’s capabilities can add value).To sustain leadership in their chosen core competence areas, companies should seek to maximize their world manufacturing share in core products.
This partly determines the pace at which competencies can be enhanced and extended (through a learning-by-doing sort of improvement). • Continuous investment in core competencies or capabilities. The costs of losing a core competence can be only partly calculated in advance – since the embedded skills are built through a process of continuous improvement, it is not something that can be simply bought back or “rented in” by outsourcing.Wal-mart, for example, has invested heavily in its logistics infrastructure, even if the individual investments could not be justified by ROR analysis. They were strategic investments that enabled the company’s relentless focus on customer needs.
While Wal-mart was building up its competencies, K-mart was outsourcing whenever it was cheapest. • Caution: core competencies as core rigidities. Bowen et al. talk about the limitations to restricting product development to areas in which core competencies already exist, or core rigidities.Good companies may try to incrementally improve their competencies by bringing in one or two new core competencies with each new major development project they pursue.
References: • Bowen, Clark, Holloway, Wheelright, Perpetual Enterprise Machine, Oxford Press, 1994. • Prahalad, C. K. and Gary Hamel, “The Core Competence of the Corporation,” Harvard Business Review, v68, n3 (May-June, 1990):79 (13 pages). • Stalk, G.
, Evans, P. , and L. Schulman, “Competing on Capabilities: the New Rules of Corporate Strategy,” v70, n2 (March-April, 1992):57 (13 pages). 3 Resource-Based View of the Firm (RBV)
