Nov
22
Applying the six forces model can improve market understanding
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Assessing the market, during strategy development, is often a key task but one that can be complex due to the myriad of influencing factors and participants. Utilizing modeling techniques that can provide insight into market competitiveness and the relationship of its various players and stakeholders can offer vital insight when decision-making.
The Six forces model supports a thorough analysis of the strategic position inside the market, delivering an understanding of the completion and potential profitability. When utilized as a strategic tool, utilized up front without committing resources and strategy deployment it can offer valuable insight into complex highly competitive markets. The results can often facilitate a move to less competitive markets that might offer greater profitability and success.
The model does have its weaknesses, the original five forces model received criticism for various reasons significantly that factors within the market, such as competitors and buyers do not join together. In adapting the five forces model the result builds on its parent through analyzing the markets complimentary aspects.
Unsurprisingly the model should be utilized as part of a broader strategic planning procedure and as such be regularly assessed (at least once a year) due to changing factors and stakeholder that can influence the market.
The model analyses six key attributes:
• Competition- How much competition is present within the market? Which stakeholders are key players and hold dominant positions?
• New entrants- How easy is it to join the market whilst being competitive?
• Buyer- Can buyers influence pricing? Can buyers operate as a group? Do they hold greatly dominant positions over suppliers within the market?
• Suppliers- consider the status of the seller network? Are there huge numbers of suppliers? Are there a few dominant ones or an even smaller number operating monopolistically?
• Substitutes- duplication/substitution can be a key issue in highly competitive markets – what is the position of the product/commodity and how easily is it to bring about a change.
• Complemetors- Products or services that are complimentary can sometimes influence the market.
Whilst its often used in developing business strategy, the six forces model can be utilized as a planning tool facilitating a detailed assessment of the market. Importantly, it can be used very effectively in developing sourcing strategies as it provides key insight into factors that influence suppliers and their pricing.
The model can be utilized either as a direct alternative too or in conjunction with the more commonly known SWOT analysis tool. The six forces model has some distinct advantages over its compatriot SWOT tool: specifically it is a little more detailed in the area of analysis pin-pointing the key factors driving the market rather than just reviewing external opportunities and threats.
Nov
22
Using SWOT analysis as part of supply chain strategy development
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When developing strategies that take into account various inputs or decision factors having a tool that enables information to be both captured and communicated clearly and simply is vital. This is especially true in the world of supply chain where challenges and activities can be complex to communicate to internal and external stakeholders who may not be well versed in the key issues and challenges.
Using best practice methods such as templates or models can aide greatly. This is especially true for tools that are used throughout the organization irrespective of the department. One of the most often used templates, that excels at both capturing information and communicating it in a simple fashion is the SWOT analysis model. SWOT’s are commonly used throughout business and as such can be easily interpreted outside of the supply chain management team.
SWOT Analysis is often utilized within the strategic planning process. It is a widely-used technique that encourages reviews of both internal and external factors. The results can also be utilized to assess various business activities ranging from organizational performance through to product development and improvement projects. It can be a great tool to utilize at the outset of any strategic sourcing or outsourcing project to get the current state of play out in the open.
SWOT, at its basic is a tool that is used to assess four key areas.
Strengths
In-house activity or characteristics that provide benefit in achieving organizational or strategic goals. For example you may have highly trained and motivated staff.
Weaknesses
In-house activity or deliverable that may have a negative influence on your strategy. For example your ERP system may have severe data integrity issues.
Opportunities
These are outside factors that may be helpful to meeting your goals. For example you may consider outsourcing a non value add activity as an opportunity.
Threats
Threats are external pressures or activities that may have a damaging effect on the goal. For example Governments introducing stricter regulations in your industry may be considered a threat.
SWOTS can be a highly effective communication tool. They can facilitate indentifying actions that support the organizations strategy whilst helping to highlight issues that require closer attention.
As with any tool however, SWOTS are not perfect. People will typically be more adept in identifying weaknesses and threats then opportunities and strengths. Its true that SWOT’s can be subjective and can lack grounding in fact and data. In addition and perhaps of key importance, SWOTS on their own do not instigate activity and they can when used in their worst example, be seen merely as a glorified to-do list. Whatever the result of your SWOT analysis – it is one of the first steps developing your plan – the SWOT is not the plan itself.