Porter five forces analysis

A graphical representation of Porter's Five Forces

'Porter's five forces analysis is a framework for industry analysis and business strategy development formed by Michael E.

Porter of Harvard Business School in 1979. It draws upon industrial organization (IO) economics to derive five forces that determine

the competitive intensity and therefore attractiveness of a market. Attractiveness in this context refers to the overall industry

profitability. An "unattractive" industry is one in which the combination of these five forces acts to drive down overall profitability. A

very unattractive industry would be one approaching "pure competition", in which available profits for all firms are driven to normal

profit.

Three of Porter's five forces refer to competition from external sources. The remainder are internal threats.

Porter referred to these forces as the micro environment, to contrast it with the more general term macro environment. They consist

of those forces close to a company that affect its ability to serve its customers and make a profit. A change in any of the forces

normally requires a business unit to re-assess the marketplace given the overall change in industry information. The overall industry

attractiveness does not imply that every firm in the industry will return the same profitability. Firms are able to apply their core

competencies, business model or network to achieve a profit above the industry average. A clear example of this is the

airline industry. As an industry, profitability is low and yet individual companies, by applying unique business models, have been

able to make a return in excess of the industry average.

Porter's five forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals,

and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining

power of customers.

This five forces analysis, is just one part of the complete Porter strategic models. The other elements are the value chain and

the generic strategies.[citation needed]

Porter developed his Five Forces analysis in reaction to the then-popular SWOT analysis, which he found unrigorous and ad hoc.

[1] Porter's five forces is based on the Structure-Conduct-Performance paradigm in industrial organizational economics. It has been

applied to a diverse range of problems, from helping businesses become more profitable to helping governments stabilize

industries.[2]

[edit]Five forces

[edit]Threat of new competition

Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease

profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents, the abnormal profit rate will tend

towards zero (perfect competition).

The existence of barriers to entry (patents, rights, etc.) The most attractive segment is one in which entry barriers are high and

exit barriers are low. Few new firms can enter and non-performing firms can exit easily.

Economies of product differences

Brand equity

Switching costs or sunk costs

Capital requirements

Access to distribution

Customer loyalty  to established brands

Absolute cost

Industry profitability; the more profitable the industry the more attractive it will be to new competitors.

[edit]Threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch

to alternatives. Note that this should not be confused with competitors' similar products but entirely different ones instead. For

example, Pepsi is not considered a substitute for Coke but water, tea, coffee, and milk are.

Buyer propensity to substitute

Relative price performance of substitute

Buyer switching costs

Perceived level of product differentiation

Number of substitute products available in the market

Ease of substitution. Information-based products are more prone to substitution, as online product can easily replace material

product.

Substandard product

Quality depreciation

[edit]Bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under

pressure, which also affects the customer's sensitivity to price changes.

Buyer concentration to firm concentration ratio

Degree of dependency upon existing channels of distribution

Bargaining leverage, particularly in industries with high fixed costs

Buyer volume

Buyer switching costs relative to firm switching costs

Buyer information availability

Availability of existing substitute products

Buyer price sensitivity

Differential advantage (uniqueness) of industry products

RFM  Analysis

[edit]Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and

services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes. Suppliers may

refuse to work with the firm, or, e.g., charge excessively high prices for unique resources.

Supplier switching costs relative to firm switching costs

Degree of differentiation of inputs

Impact of inputs on cost or differentiation

Presence of substitute inputs

Strength of distribution channel

Supplier concentration to firm concentration ratio

Employee solidarity (e.g. labor unions)

Supplier competition - ability to forward vertically integrate and cut out the BUYER

Ex.: If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from him.

[edit]Intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Sustainable competitive advantage through innovation

Competition between online and offline companies

Level of advertising expense

Powerful competitive strategy

[edit]Usage

Strategy consultants occasionally use Porter's five forces framework when making a qualitative evaluation of a firm's strategic

position. However, for most consultants, the framework is only a starting point or "checklist." They might use " Value Chain"

afterward. Like all general frameworks, an analysis that uses it to the exclusion of specifics about a particular situation is considered

naїve.

According to Porter, the five forces model should be used at the line-of-business industry level; it is not designed to be used at the

industry group or industry sector level. An industry is defined at a lower, more basic level: a market in which similar or closely

related products and/or services are sold to buyers. (See industry information.) A firm that competes in a single industry should

develop, at a minimum, one five forces analysis for its industry. Porter makes clear that for diversified companies, the first

fundamental issue in corporate strategy is the selection of industries (lines of business) in which the company should compete; and

each line of business should develop its own, industry-specific, five forces analysis. The average Global 1,000 company competes

in approximately 52 industries (lines of business).

[edit]Criticisms

Porter's framework has been challenged by other academics and strategists such as Stewart Neill. Similarly, the likes of Kevin P.

Coyne [1] and Somu Subramaniam have stated that three dubious assumptions underlie the five forces:

That buyers, competitors, and suppliers are unrelated and do not interact and collude.

That the source of value is structural advantage (creating barriers to entry).

That uncertainty is low, allowing participants in a market to plan for and respond to competitive behavior. [3]

An important extension to Porter was found in the work of Adam Brandenburger and Barry Nalebuff in the mid-1990s. Using game

theory, they added the concept of complementors (also called "the 6th force"), helping to explain the reasoning behind strategic

alliances. The idea that complementors are the sixth force has often been credited to Andrew Grove, former CEO of Intel

Corporation. According to most references, the sixth force is government or the public. Martyn Richard Jones, whilst consulting

at Groupe Bull , developed an augmented 5 forces model in Scotland in 1993. It is based on Porter's model and includes

Government (national and regional) as well as Pressure Groups as the notional 6th force. This model was the result of work carried

out as part of Groupe Bull 's Knowledge Asset Management Organisation initiative.

Porter indirectly rebutted the assertions of other forces, by referring to innovation, government, and complementary products and

services as "factors" that affect the five forces.[4]

It is also perhaps not feasible to evaluate the attractiveness of an industry independent of the resources a firm brings to that

industry. It is thus argued[citation needed] that this theory be coupled with theResource-Based View (RBV) in order for the firm to develop

a much more sound strategy.

SWOT analysisFor other uses, see SWOT.

SWOT analysis, with its four elements in a 2x2 matrix.

SWOT analysis (alternately SLOT analysis) is a strategic planning method used to evaluate

the Strengths, Weaknesses/Limitations, Opportunities, andThreats involved in a project or in a business venture. It involves

specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and

unfavorable to achieve that objective. The technique is credited to Albert Humphrey, who led a convention at Stanford University in

the 1960s and 1970s using data from Fortune 500 companies.

Setting the objective should be done after the SWOT analysis has been performed. This would allow achievable goals or objectives

to be set for the organization.

Strengths: characteristics of the business, or project team that give it an advantage over others

Weaknesses (or Limitations): are characteristics that place the team at a disadvantage relative to others

Opportunities: external chances to improve performance (e.g. make greater profits) in the environment

Threats: external elements in the environment that could cause trouble for the business or project

Identification of SWOTs is essential because subsequent steps in the process of planning for achievement of the selected

objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the SWOTs. If the objective is NOT

attainable a different objective must be selected and the process repeated.

[edit]Matching and converting

One way of utilizing SWOT is matching and converting. Matching is used to find competitive advantages by matching the

strengths to opportunities. Converting is to apply conversion strategies to convert weaknesses or threats into strengths or

opportunities. An example of conversion strategy is to find new markets. If the threats or weaknesses cannot be converted a

company should try tominimize or avoid them.[1]

[edit]Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective.

These come from within the company's unique value chain. SWOT analysis groups key pieces of information into two main

categories:

Internal factors – The strengths and weaknesses internal to the organization.

External factors – The opportunities and threats presented by the external environment to the organization.

The internal factors may be viewed as strengths or weaknesses depending upon their impact on the organization's

objectives. What may represent strengths with respect to one objective may be weaknesses for another objective. The

factors may include all of the 4P's; as well as personnel, finance, manufacturing capabilities, and so on. The external

factors may include macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as

changes in the marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it may tend to persuade

companies to compile lists rather than think about what is actually important in achieving objectives. It also presents the

resulting lists uncritically and without clear prioritization so that, for example, weak opportunities may appear to balance

strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of individual SWOTs will be revealed

by the value of the strategies it generates. A SWOT item that produces valuable strategies is important. A SWOT item that

generates no strategies is not important.

[edit]Use of SWOT analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis may be used in any

decision-making situation when a desired end-state (objective) has been defined. Examples include: non-profit

organizations, governmental units, and individuals. SWOT analysis may also be used in pre-crisis planning and

preventive crisis management. SWOT analysis may also be used in creating a recommendation during a viability

study/survey.

[edit]Criticism of SWOT

Some findings from Menon et al. (1999) [2] and Hill and Westbrook (1997) [3] have shown that SWOT may harm

performance.

[edit]SWOT - landscape analysis

The SWOT-landscape systematically deploys the relationships between overall objective and underlying SWOT-factors and provides

an interactive, query-able 3D landscape.

The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the dynamic performance of

comparable objects according to findings by Brendan Kitts, Leif Edvinsson and Tord Beding (2000).[4]

Changes in relative performance are continually identified. Projects (or other units of measurements) that could be

potential risk or opportunity objects are highlighted.

SWOT-landscape also indicates which underlying strength/weakness factors that have had or likely will have highest

influence in the context of value in use (for ex. capital value fluctuations).

[edit]Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its objectives, then that

organization will use a systematic/rigorous process known as corporate planning. SWOT alongside PEST/PESTLE can be

used as a basis for the analysis of business and environmental factors.[5]

Set objectives – defining what the organization is going to do

Environmental scanning

Internal appraisals of the organization's SWOT, this needs to include an assessment of the present situation as

well as a portfolio of products/services and an analysis of the product/service life cycle

Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal.

This may include gap analysis which will look at environmental factors

Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the

organization

Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change

Establish critical success factors – the achievement of objectives and strategy implementation

Preparation of operational, resource, projects plans for strategy implementation

Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.

[6]

[edit]Marketing

Main article: Marketing management

In many competitor analyses, marketers build detailed profiles of each competitor in the market, focusing especially on

their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each

competitor's cost structure, sources of profits, resources and competencies, competitive positioning and product

differentiation, degree of vertical integration, historical responses to industry developments, and other factors.

Marketing management often finds it necessary to invest in research to collect the data required to perform accurate

marketing analysis. Accordingly, management often conducts market research (alternately marketing research) to

obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more

common include:

Qualitative marketing research, such as focus groups

Quantitative marketing research, such as statistical surveys

Experimental techniques such as test markets

Observational techniques such as ethnographic (on-site) observation

Marketing managers may also design and oversee various environmental scanning and competitive intelligence

processes to help identify trends and inform the company's marketing analysis.

Below is an example SWOT analysis of a market position of a small management consultancy with specialism in

HRM.[6]

Strengths Weaknesses Opportunities Threats

Reputation in marketplace Shortage of consultants at operating level rather than partner level

Well established position with a well defined market niche

Large consultancies operating at a minor level

Expertise at partner level in HRM consultancy

Unable to deal with multi-disciplinary assignments because of size or lack of ability

Identified market for consultancy in areas other than HRM

Other small consultancies looking to invade the marketplace

PEST analysisFrom Wikipedia, the free encyclopedia

PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-

environmental factors used in the environmental scanning component ofstrategic management. Some analysts added Legal and

rearranged the mnemonic to SLEPT;[1] inserting Environmental factors expanded it to PESTEL or PESTLE, which is popular in the

United Kingdom.[2] The model has recently been further extended to STEEPLE and STEEPLED, adding Ethics

and demographic factors. It is a part of the external analysis when conducting a strategic analysis or doing market research, and

gives an overview of the different macroenvironmental factors that the company has to take into consideration. It is a useful strategic

tool for understanding market growth or decline, business position, potential and direction for operations. The growing importance of

environmental or ecological factors in the first decade of the 21st century have given rise togreen business and encouraged

widespread use of an updated version of the PEST framework. STEER analysis systematically considers Socio-cultural,

Technological, Economic, Ecological, and Regulatory factors.

[edit]Composition

Political factors are how and to what degree a government intervenes in the economy. Specifically, political factors include

areas such as tax policy, labour law , environmental law, trade restrictions, tariffs, and political stability. Political factors may also

include goods and services which the government wants to provide or be provided (merit goods) and those that the government

does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on

the health, education, and infrastructure of a nation

Economic factors include economic growth, interest rates, exchange rates and the inflation rate. These factors have major

impacts on how businesses operate and make decisions. For example, interest rates affect a firm's cost of capital and therefore

to what extent a business grows and expands. Exchange rates affect the costs of exporting goods and the supply and price of

imported goods in an economy

Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career

attitudes and emphasis on safety. Trends in social factors affect the demand for a company's products and how that company

operates. For example, an aging population may imply a smaller and less-willing workforce (thus increasing the cost of labor).

Furthermore, companies may change various management strategies to adapt to these social trends (such as recruiting older

workers).

Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate

of technological change. They can determine barriers to entry, minimum efficient production level and

influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation.

Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may

especially affect industries such as tourism, farming, and insurance. Furthermore, growing awareness of the potential impacts

of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing

or destroying existing ones.

Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety law. These factors

can affect how a company operates, its costs, and the demand for its products.

[edit]Applicability of the Factors

The model's factors will vary in importance to a given company based on its industry and the goods it produces. For example,

consumer and B2B companies tend to be more affected by the social factors, while a global defense contractor would tend to be

more affected by political factors.[3] Additionally, factors that are more likely to change in the future or more relevant to a given

company will carry greater importance. For example, a company which has borrowed heavily will need to focus more on the

economic factors (especially interest rates).[4]

Furthermore, conglomerate companies who produce a wide range of products (such as Sony, Disney, or BP) may find it more useful

to analyze one department of its company at a time with the PESTEL model, thus focusing on the specific factors relevant to that

one department. A company may also wish to divide factors into geographical relevance, such as local, national, and global (also

known as LONGPESTEL).

[edit]Use of PEST analysis with other models

The PEST factors, combined with external micro-environmental factors and internal drivers, can be classified as opportunities and

threats in a SWOT analysis.

Growth-share matrixThe BCG matrix (aka B-Box, B.C.G. analysis, BCG-matrix, Boston Box, Boston Matrix, Boston Consulting Group analysis, portfolio

diagram) is a chart that had been created by Bruce Henderson for the Boston Consulting Group in 1968 to help corporations with

analyzing their business units or product lines. This helps the company allocate resources and is used as an analytical tool in brand

marketing, product management, strategic management, and portfolio analysis.[1] Analysis of market performance by firms using its

principles has called its usefulness into question, and it has been removed from some major marketing textbooks. [2]

[edit]Chart

BCG Matrix

To use the chart, analysts plot a scatter graph to rank the business units (or products) on the basis of their relativemarket

shares and growth rates.

Cash cows  are units with high market share in a slow-growing industry. These units typically generate cash in excess of the

amount of cash needed to maintain the business. They are regarded as staid and boring, in a "mature" market, and every

corporation would be thrilled to own as many as possible. They are to be "milked" continuously with as little investment as

possible, since such investment would be wasted in an industry with low growth.

Dogs, or more charitably called pets, are units with low market share in a mature, slow-growing industry. These units typically

"break even", generating barely enough cash to maintain the business's market share. Though owning a break-even unit

provides the social benefit of providing jobs and possible synergies that assist other business units, from an accounting point of

view such a unit is worthless, not generating cash for the company. They depress a profitable company's return on assets ratio,

used by many investors to judge how well a company is being managed. Dogs, it is thought, should be sold off.

Question marks (also known as problem child) are growing rapidly and thus consume large amounts of cash, but because

they have low market shares they do not generate much cash. The result is a large net cash consumption. A question mark has

the potential to gain market share and become a star, and eventually a cash cow when the market growth slows. If the question

mark does not succeed in becoming the market leader, then after perhaps years of cash consumption it will degenerate into a

dog when the market growth declines. Question marks must be analyzed carefully in order to determine whether they are worth

the investment required to grow market share.

Stars are units with a high market share in a fast-growing industry. The hope is that stars become the next cash cows.

Sustaining the business unit's market leadership may require extra cash, but this is worthwhile if that's what it takes for the unit

to remain a leader. When growth slows, stars become cash cows if they have been able to maintain their category leadership,

or they move from brief stardom to dogdom.[citation needed]

As a particular industry matures and its growth slows, all business units become either cash cows or dogs. The natural cycle for

most business units is that they start as question marks, then turn into stars. Eventually the market stops growing thus the business

unit becomes a cash cow. At the end of the cycle the cash cow turns into adog.

The overall goal of this ranking was to help corporate analysts decide which of their business units to fund, and how much; and

which units to sell. Managers were supposed to gain perspective from this analysis that allowed them to plan with confidence to use

money generated by the cash cows to fund the stars and, possibly, the question marks. As the BCG stated in 1970:

Only a diversified company with a balanced portfolio can use its strengths to truly capitalize on its growth opportunities. The

balanced portfolio has:

stars whose high share and high growth assure the future;

cash cows that supply funds for that future growth; and

question marks to be converted into stars with the added funds.

[edit]Practical use of the BCG Matrix

For each product or service, the 'area' of the circle represents the value of its sales. The BCG Matrix thus offers a very useful 'map'

of the organization's product (or service) strengths and weaknesses, at least in terms of current profitability, as well as the likely

cashflows.

The need which prompted this idea was, indeed, that of managing cash-flow. It was reasoned that one of the main indicators of

cash generation was relative market share, and one which pointed to cash usage was that of market growth rate.

Derivatives can also be used to create a 'product portfolio' analysis of services. So Information System services can be treated

accordingly.[citation needed]

[edit]Relative market share

This indicates likely cash generation, because the higher the share the more cash will be generated. As a result of 'economies of

scale' (a basic assumption of the BCG Matrix), it is assumed that these earnings will grow faster the higher the share. The exact

measure is the brand's share relative to its largest competitor. Thus, if the brand had a share of 20 percent, and the largest

competitor had the same, the ratio would be 1:1. If the largest competitor had a share of 60 percent; however, the ratio would be

1:3, implying that the organization's brand was in a relatively weak position. If the largest competitor only had a share of 5 percent,

the ratio would be 4:1, implying that the brand owned was in a relatively strong position, which might be reflected in profits and cash

flows. If this technique is used in practice, this scale is logarithmic, not linear.

On the other hand, exactly what is a high relative share is a matter of some debate. The best evidence is that the most stable

position (at least in Fast Moving Consumer Goods FMCG markets) is for the brand leader to have a share double that of the second

brand, and triple that of the third. Brand leaders in this position tend to be very stable—and profitable; the Rule of 123. [3]

The reason for choosing relative market share, rather than just profits, is that it carries more information than just cash flow. It shows

where the brand is positioned against its main competitors, and indicates where it might be likely to go in the future. It can also show

what type of marketing activities might be expected to be effective.[citation needed]

[edit]Market growth rate

Rapidly growing in rapidly growing markets, are what organizations strive for; but, as we have seen, the penalty is that they are

usually net cash users - they require investment. The reason for this is often because the growth is being 'bought' by the high

investment, in the reasonable expectation that a high market share will eventually turn into a sound investment in future profits. The

theory behind the matrix assumes, therefore, that a higher growth rate is indicative of accompanying demands on investment. The

cut-off point is usually chosen as 10 per cent per annum. Determining this cut-off point, the rate above which the growth is deemed

to be significant (and likely to lead to extra demands on cash) is a critical requirement of the technique; and one that, again, makes

the use of the BCG Matrix problematical in some product areas. What is more, the evidence,[3] from FMCG markets at least, is that

the most typical pattern is of very low growth, less than 1 per cent per annum. This is outside the range normally considered in BCG

Matrix work, which may make application of this form of analysis unworkable in many markets.[citation needed]

Where it can be applied, however, the market growth rate says more about the brand position than just its cash flow. It is a good

indicator of that market's strength, of its future potential (of its 'maturity' in terms of the market life-cycle), and also of its

attractiveness to future competitors. It can also be used in growth analysis.

[edit]Critical evaluation

While theoretically useful, and widely used, several academic studies have called into question whether using the BCG matrix

actually helps businesses succeed, and the model has since been removed from some major marketing textbooks.[4][5] One study

(Slater and Zwirlein, 1992) which looked at 129 firms found that those who follow portfolio planning models like the BCG matrix had

lower shareholder returns.

The matrix ranks only market share and industry growth rate, and only implies actual profitability, the purpose of any business. (It is

certainly possible that a particular dog can be profitable without cash infusions required, and therefore should be retained and not

sold.) The matrix also overlooks other elements of industry. With this or any other such analytical tool, ranking business units has a

subjective element involving guesswork about the future, particularly with respect to growth rates. Unless the rankings are

approached with rigor and scepticism, optimistic evaluations can lead to a dot com mentality in which even the most dubious

businesses are classified as "question marks" with good prospects; enthusiastic managers may claim that cash must be thrown at

these businesses immediately in order to turn them into stars, before growth rates slow and it's too late. Poor definition of a

business's market will lead to some dogs being misclassified as cash cows.

As originally practiced by the Boston Consulting Group,[3] the matrix was undoubtedly a useful tool, in those few situations where it

could be applied, for graphically illustrating cashflows. If used with this degree of sophistication its use would still be valid. However,

later practitioners have tended to over-simplify its messages. In particular, the later application of the names (problem children,

stars, cash cows and dogs) has tended to overshadow all else—and is often what most students, and practitioners, remember.

This is unfortunate, since such simplistic use contains at least two major problems:

'Minority applicability'. The cashflow techniques are only applicable to a very limited number of markets (where growth is relatively

high, and a definite pattern of product life-cycles can be observed, such as that of ethical pharmaceuticals). In the majority of

markets, use may give misleading results.

'Milking cash cows'. Perhaps the worst implication of the later developments is that the (brand leader) cash cows should be milked

to fund new brands. This is not what research into the FMCG markets has shown to be the case. The brand leader's position is the

one, above all, to be defended, not least since brands in this position will probably outperform any number of newly launched

brands. Such brand leaders will, of course, generate large cash flows; but they should not be `milked' to such an extent that their

position is jeopardized. In any case, the chance of the new brands achieving similar brand leadership may be slim—certainly far

less than the popular perception of the Boston Matrix would imply.

Perhaps the most important danger[3] is, however, that the apparent implication of its four-quadrant form is that there should be

balance of products or services across all four quadrants; and that is, indeed, the main message that it is intended to convey. Thus,

money must be diverted from `cash cows' to fund the `stars' of the future, since `cash cows' will inevitably decline to become `dogs'.

There is an almost mesmeric inevitability about the whole process. It focuses attention, and funding, on to the `stars'. It presumes,

and almost demands, that `cash cows' will turn into `dogs'.

The reality is that it is only the `cash cows' that are really important—all the other elements are supporting actors. It is a foolish

vendor who diverts funds from a `cash cow' when these are needed to extend the life of that `product'. Although it is necessary to

recognize a `dog' when it appears (at least before it bites you) it would be foolish in the extreme to create one in order to balance up

the picture. The vendor, who has most of his (or her) products in the `cash cow' quadrant, should consider himself (or herself)

fortunate indeed, and an excellent marketer, although he or she might also consider creating a few stars as an insurance policy

against unexpected future developments and, perhaps, to add some extra growth. There is also a common misconception that

'dogs' are a waste of resources. In many markets 'dogs' can be considered loss-leaders that while not themselves profitable will lead

to increased sales in other profitable areas.

[edit]Alternatives

As with most marketing techniques, there are a number of alternative offerings vying with the BCG Matrix although this appears to

be the most widely used (or at least most widely taught—and then probably not used). The next most widely reported technique is

that developed by McKinsey and General Electric, which is a three-cell by three-cell matrix—using the dimensions of `industry

attractiveness' and `business strengths'. This approaches some of the same issues as the BCG Matrix but from a different direction

and in a more complex way (which may be why it is used less, or is at least less widely taught). A more practical approach is that of

the Boston Consulting Group's Advantage Matrix, which the consultancy reportedly used itself though it is little known amongst the

wider population.

[edit]Other uses

The initial intent of the growth-share matrix was to evaluate business units, but the same evaluation can be made for product

lines or any other cash-generating entities. This should only be attempted for real lines that have a sufficient history to allow some

prediction; if the corporation has made only a few products and called them a product line, the sample variance will be too high for

this sort of analysis to be meaningful.

Quality function deploymentFrom Wikipedia, the free encyclopedia

Quality function deployment (QFD) is a “method to transform user demands into design quality, to deploy the functions forming

quality, and to deploy methods for achieving the design quality into subsystems and component parts, and ultimately to specific

elements of the manufacturing process.”,[1] as described by Dr. Yoji Akao, who originally developed QFD in Japan in 1966, when the

author combined his work in quality assurance and quality control points with function deployment used in value engineering.

QFD is designed to help planners focus on characteristics of a new or existing product or service from the viewpoints of market

segments, company, or technology-development needs. The technique yields graphs and matrices.

QFD helps transform customer needs (the voice of the customer [VOC]) into engineering characteristics (and appropriate test

methods) for a product or service, prioritizing each product or service characteristic while simultaneously setting development

targets for product or service.

[edit]Areas of application

QFD House of Quality for Enterprise Product Development Processes

QFD is applied in a wide variety of services, consumer products, military needs (such as the F-35 Joint Strike Fighter [2] ), and

emerging technologyproducts. The technique is also used to identify and document competitive marketing strategies and tactics

(see example QFD House of Quality for Enterprise Product Development, at right). QFD is considered a key practice of Design for

Six Sigma (DFSS - as seen in the referenced roadmap).[3] It is also implicated in the new ISO 9000:2000 standard which focuses on

customer satisfaction.

Results of QFD have been applied in Japan and elsewhere into deploying the high-impact controllable factors in Strategic

planning and Strategic management (also known as Hoshin Kanri , Hoshin Planning,[4] Acquiring market needs by listening to the

Voice of Customer (VOC), sorting the needs, and numerically prioritizing them (using techniques such as the Analytic Hierarchy

Process) are the early tasks in QFD. Traditionally, going to theGemba (the "real place" where value is created for the customer) is

where these customer needs are evidenced and compiled.

While many books and articles on "how to do QFD" are available, there is a relative paucity of example matrices available. QFD

matrices become highly proprietary due to the high density of product or service information found therein.

[edit]Techniques and tools based on QFD

[edit]House of Quality

House of Quality appeared in 1972 in the design of an oil tanker by Mitsubishi Heavy Industries.[5] Akao has reiterated numerous

times that a House of Quality is not QFD, it is just an example of one tool.[6]

A Flash tutorial exists showing the build process of the traditional QFD "House of Quality" (HOQ).[7] (Although this example may

violate QFD principles, the basic sequence of HOQ building are illustrative.) There are also free QFD templates available that walk

users through the process of creating aHouse of Quality.[8]

Other tools extend the analysis beyond quality to cost[9], technology, reliability, function, parts, technology, manufacturing, and

service deployments.

In addition, the same technique can extend the method into the constituent product subsystems, configuration items, assemblies,

and parts. From these detail level components, fabrication and assembly process QFD charts can be developed to

support statistical process control techniques.

[edit]Pugh concept selection

Pugh Concept Selection can be used in coordination with QFD to select a promising product or service configuration from among

listed alternatives.

[edit]Modular Function Deployment

Modular Function Deployment uses QFD to establish customer requirements and to identify important design requirements with a

special emphasis on modularity.

[edit]Relationship to other techniques

The QFD-associated Hoshin Kanri  process somewhat resembles Management by objectives (MBO), but adds a significant element

in the goal setting process, called "catchball". Use of these Hoshin techniques by U.S. companies such as Hewlett Packard have

been successful in focusing and aligning company resources to follow stated strategic goals throughout an organizational hierarchy.

Since the early introduction of QFD, the technique has been developed to shorten the time span and reduce the required group

efforts.

Value chainFrom Wikipedia, the free encyclopedia

  (Redirected from Value chain analysis)

Popular Visualization

The value chain is a concept from business management that was first described and popularized by Michael Porter in his 1985

best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.[1]

[edit]Firm Level

A value chain is a chain of activities for a firm operating in a specific industry. The business unit is the appropriate level for

construction of a value chain, not the divisional level or corporate level. Products pass through all activities of the chain in order, and

at each activity the product gains some value. The chain of activities gives the products more added value than the sum of the

independent activities' values.[vague]

It is important not to mix the concept of the value chain with the costs occurring throughout the activities. A diamond cutter, as a

profession, can be used to illustrate the difference of cost and the value chain. The cutting activity may have a low cost, but the

activity adds much of the value to the end product, since a rough diamond is significantly less valuable than a cut diamond.

Typically, the described value chain and the documentation of processes, assessment and auditing of adherence to the process

routines are at the core of the quality certification of the business, e.g. ISO 9001.[citation needed]

[edit]Activities

The value chain categorizes the generic value-adding activities of an organization. The "primary activities" include: inbound logistics,

operations (production), outbound logistics, marketing and sales (demand), and services (maintenance). The "support activities"

include: administrative infrastructure management, human resource management, technology (R&D), and procurement. The costs

andvalue drivers are identified for each value activity.[vague][citation needed]

[edit]Industry Level

An industry value chain is a physical representation of the various processes that are involved in producing goods (and services),

starting with raw materials and ending with the delivered product (also known as the supply chain). It is based on the notion of

value-added at the link (read: stage of production) level. The sum total of link-level value-added yields total value. The French

Physiocrat'sTableau économique is one of the earliest examples of a value chain. Wasilly Leontief's Input-Output tables, published

in the 1950s, provide estimates of the relative importance of each individual link in industry-level value-chains for the U.S. economy.

[edit]Significance

The value chain framework quickly made its way to the forefront of management thought as a powerful analysis tool for strategic

planning. The simpler concept of value streams, a cross-functional process which was developed over the next decade,[2] had some

success in the early 1990s.[3]

The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks.

The delivery of a mix of products and services to the end customer will mobilize different economic factors, each managing its own

value chain. The industry wide synchronized interactions of those local value chains create an extended value chain, sometimes

global in extent. Porter terms this larger interconnected system of value chains the "value system." A value system includes the

value chains of a firm's supplier (and their suppliers all the way back), the firm itself, the firm distribution channels, and the firm's

buyers (and presumably extended to the buyers of their products, and so on).

Capturing the value generated along the chain is the new approach taken by many management strategists. For example, a

manufacturer might require its parts suppliers to be located nearby its assembly plant to minimize the cost of transportation. By

exploiting the upstream and downstream information flowing along the value chain, the firms may try to bypass the intermediaries

creating newbusiness models, or in other ways create improvements in its value system.

Value chain analysis has also been successfully used in large Petrochemical Plant Maintenance Organizations to show how Work

Selection, Work Planning, Work Scheduling and finally Work Execution can (when considered as elements of chains) help drive

Lean approaches to Maintenance. The Maintenance Value Chain approach is particularly successful when used as a tool for

helping Change Management as it is seen as more user friendly than other business process tools.

Value chain approach could also offer a meaningful alternative to valuate private or public companies when there is a lack of

publically known data from direct competition, where the subject company is compared with, for example, a known downstream

industry to have a good feel of its value by building useful correlations with its downstream companies.

Value chain analysis has also been employed in the development sector as a means of identifying poverty reduction strategies by

upgrading along the value chain.[4] Although commonly associated with export-oriented trade, development practitioners have begun

to highlight the importance of developing national and intra-regional chains in addition to international ones.[5]

[edit]SCOR

The Supply-Chain Council, a global trade consortium in operation with over 700 member companies, governmental, academic, and

consulting groups participating in the last 10 years, manages theSupply-Chain Operations Reference (SCOR), the de

facto universal reference model for Supply Chain including Planning, Procurement, Manufacturing, Order Management, Logistics,

Returns, and Retail; Product and Service Design including Design Planning, Research, Prototyping, Integration, Launch and

Revision, and Sales including CRM, Service Support, Sales, and Contract Management which are congruent to the Porter

framework. The SCOR framework has been adopted by hundreds of companies as well as national entities as a standard for

business excellence, and the US DOD has adopted the newly-launched Design-Chain Operations Reference (DCOR) framework

for product design as a standard to use for managing their development processes. In addition to process elements, these reference

frameworks also maintain a vast database of standard process metrics aligned to the Porter model, as well as a large and

constantly researched database of prescriptive universal best practices for process execution.

[edit]Value Reference Model

VRM Quick Reference Guide V3R0

A Value Reference Model (VRM) developed by the trade consortium Value Chain Group offers an open source semantic dictionary

for value chain management encompassing one unified reference framework representing the process domains of product

development, customer relations and supply networks.

The integrated process framework guides the modeling, design, and measurement of business performance by uniquely

encompassing the plan, govern and execute requirements for the design, product, and customer aspects of business.

The Value Chain Group claims VRM to be next generation Business Process Management that enables value reference modeling

of all business processes and provides product excellence, operations excellence, and customer excellence.

Six business functions of the Value Chain:

Research and Development

Design of Products, Services, or Processes

Production

Marketing & Sales

Distribution

Customer Service

This guide to the right provides the levels 1-3 basic building blocks for value chain configurations. All Level 3 processes in VRM

have input/output dependencies, metrics and practices. The VRM can be extended to levels 4-6 via the Extensible Reference Model

schema.

Market Sizing & Forecasting 

Knowing the size of the addressable market for both existing and new products and services, or even product concepts not yet under development, is a vital and basic first step in any business plan. Despite the best intentions, however, this is a task that we have often seen poorly executed.

At the macro level, it is often very difficult for a company team to be completely objective about a product or concept that they are responsible for and intimately familiar with – arguably too familiar with. While this problem sometimes results in an unfairly pessimistic forecast, it more often manifests itself as an unrealistically optimistic forecast.

At the micro or tactical level, internal teams often lack the time and/or the end-user knowledge that is needed to develop an accurate and actionable sizing and forecast. End-user knowledge is especially an issue with clients who sell primarily through distribution channels, but clients who sell primarily direct often have weak

knowledge of their non-customers.

Key issues that should be considered include:

Identifying current and potential customers by company size and type Identifying competing offerings and how they may impact your own market Placing specific offerings at the appropriate place along their life cycle curve, and identifying the structure

(i.e. how quickly do similar products ramp up? how long do they sustain high growth rates?) and time span of the curve

Identifying specific obstacles to success (usually related to specific customer categories) that will or may limit the market potential

Considering bandwidth or resource issues such as too few distributors or an insufficient number of salespeople

InfoTrends regularly assists clients with market sizing and forecasting. Our company has dedicated and experienced research staff to help you with these activities, either as a standalone project or as a key part of a larger activity such as assessing the prospects for a proposed new product.

In many cases, a standalone market sizing and forecast can be performed very cost-effectively using our deep knowledge of reliable secondary data source, our own extensive database of non-proprietary primary research, sound technical approaches to statistical analysis and modeling, and the depth and breadth of our professional staff’s experience in the key industries and product categories that our clients serve. In other cases, we may recommend primary research in the form of structured surveys and/or in-depth interviews. In either case, the result will usually include multiple scenarios with explanations of the factors that would favor one scenario over another, actionable recommendations on how to improve the projected results, and key potential problems to guard against.

Go to marketFrom Wikipedia, the free encyclopedia

In Marketing Management, the term Go-To-Market strategy refers to the channels a company will use to connect with

its customers/business and the organizational processes it develops (such as high tech product development) to guide customer

interactions from initial contact through fulfillment.

A firm's Go-To-Market strategy is the mechanism by which they propose to deliver their unique value proposition to their target

market. That value proposition is based on the choices the business has made to focus on and invest in markets and solutions that

they believe will respond positively to the increased attention.

Marketing Strategy involves WHO the firm will go after and WHAT it will offer them. Go-To-Market strategy is a component of the

overall marketing strategy and is concerned with HOW the firm will make it happen. Go To Market is a strategy mainly used by

marketers of goods that are not for the mass market. The main focus of this marketing exercise is to target the direct consumer or

the one in authority who makes the buying decision.