PORTER - Per Flensburg

PORTERValue chain

1torsdag 6 september 12

cc Per Flensburg

PORTER• In the 80:s the value chain of Porter was introduced.• It was based upon competition and said simply: If you want to

compete every step in the production must add a value, which the customer is willing to pay for.

• New need for information exchange arised• But the information systems remained the same... • This revolutionary idea forced companies to cooperate over

the value chain (sometimes called supply chain).• They had to trust each other and be loyal towards the value

chain!!!


cc Per Flensburg

PORTER• In the 80:s the value chain of Porter was introduced.• It was based upon competition and said simply: If you want to

compete every step in the production must add a value, which the customer is willing to pay for.

• New need for information exchange arised• But the information systems remained the same... • This revolutionary idea forced companies to cooperate over

the value chain (sometimes called supply chain).• They had to trust each other and be loyal towards the value

chain!!! Lets keep this in mind!2


cc Per Flensburg 3

FIVE FORCES


cc Per Flensburg

FIVE FORCES1. Threat of new entrants. How easy or difficult is it for new

entrants to start competing, which barriers do exist.2. Threat of substitutes. How easy can a product or service be

substituted, especially made cheaper.3. Bargaining power of customers. How strong is the position of

buyers. Can they work together in ordering large volumes.4. Bargaining power of suppliers. How strong is the position of

sellers. Do many potential suppliers exist or only few potential suppliers, monopoly?

5. Rivalry among the existing players. Does a strong competition between the existing players exist? Is one player very dominant or are all equal in strength and size.

6. Government.4


cc Per Flensburg

THREAT OF NEW ENTRANTS • Economies of scale.• Capital / investment requirements.• Customer switching costs.• Access to industry distribution channels.• Access to technology.• Brand loyalty. Are customers loyal?• The likelihood of retaliation from existing industry players.• Government regulations. Can new entrants get subsidies?


cc Per Flensburg

THREAT OF SUBSTITUTES • Quality. Is a substitute better?• Buyers' willingness to substitute.• The relative price and performance of substitutes.• The costs of switching to substitutes. Is it easy to change to

another product?


cc Per Flensburg

BARGAINING POWER OF SUPPLIERS

• Concentration of suppliers. Are there many buyers and few dominant suppliers?

• Branding. Is the brand of the supplier strong?• Profitability of suppliers. Are suppliers forced to raise prices?• Suppliers threaten to integrate forward into the industry (for

example: brand manufacturers threatening to set up their own retail outlets).

• Buyers do not threaten to integrate backwards into supply.• Role of quality and service. • The industry is not a key customer group to the suppliers.• Switching costs. Is it easy for suppliers to find new customers?


cc Per Flensburg

BARGAINING POWER OF BUYERS

• Concentration of buyers. Are there a few dominant buyers and many sellers in the industry?

• Differentiation. Are products standardised?• Profitability of buyers. Are buyers forced to be tough?• Role of quality and service. • Threat of backward and forward integration into the industry.• Switching costs. Is it easy for buyers to switch their supplier?


cc Per Flensburg

INTENSITY OF RIVALRY • The structure of competition. Rivalry will be more intense if there are lots of

small or equally sized competitors; rivalry will be less if an industry has a clear market leader.

• The structure of industry costs. Industries with high fixed costs encourage competitors to manufacture at full capacity by cutting prices if needed.

• Degree of product differentiation. Industries where products are commodities (e.g. steel, coal) typically have greater rivalry.

• Switching costs. Rivalry is reduced when buyers have high switching costs.• Strategic objectives. If competitors pursue aggressive growth strategies,

rivalry will be more intense. If competitors are merely "milking" profits in a mature industry, the degree of rivalry is typically low.

• Exit barriers. When barriers to leaving an industry are high, competitors tend to exhibit greater rivalry


cc Per Flensburg

LIMITATIONS• Care should be taken when using this model for the following: do not

underestimate or underemphasise the importance of the (existing) strengths of the organisation (Inside-out strategy).

• The model was designed for analysing individual business strategies. It does not cope with synergies and interdependencies within the portfolio of large corporations.

• From a more theoretical perspective, the model does not address the possibility that an industry could be attractive because certain companies are in it.

• Some people claim that environments which are characterised by rapid, systemic and radical change require more flexible, dynamic or emergent approaches to strategy formulation.

• Sometimes it may be possible to create completely new markets instead of selecting from existing ones.


Porter’s Value Chain


cc Per Flensburg

PRIMARY ACTIVITIES 1• Inbound Logistics

• Includes receiving, storing, inventory control, transportation scheduling.

• Operations• Includes machining, packaging, assembly, equipment

maintenance, testing and all other valuecreating activities that transform the inputs into the final product.

• Outbound Logistics• The activities required to get

the finished product to the customers: warehousing, order fulfilment, transportation, distribution management.


cc Per Flensburg

PRIMARY ACTIVITIES 2• Marketing and Sales

• The activities associated with getting buyers to purchase the product including channel selection, advertising, promotion, selling, pricing, retail management, etc.

• Service• The activities that maintain and enhance the product's

value, including customer support, repair, services, installation, training, spare parts management, upgrading, etc.


cc Per Flensburg

SUPPORT ACTIVITIES 1• Purchasing

• Procurement of raw materials, servicing, spare parts, buildings, machines, etc.

• Technology Development• Includes technology development to support the value chain

activities, such as Research and Development, Process automation, design, redesign.


cc Per Flensburg

SUPPORT ACTIVITIES 2• Human Resources

• The activities associated with recruiting, development (education), retention and compensation of employees and managers.

• Organisation (infrastructure)• Includes general management, planning management, legal,

finance, accounting, public affairs, quality management, etc.


cc Per Flensburg

TWO HARD CONCEPTS• An organisation's efficiency increases when its primary and

support activities produce desired output with lower costs.• Effectiveness is how customers rate the output of the

organisation's value chain.


PORTER - Per Flensburg

Documents

Transcript of PORTER - Per Flensburg