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Analytical frameworks - Essay Example

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A good number of businesses report a profit which is below or equivalent to that of an industry average. This factor is attributed to the presence of various forces on a market that…
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Analytical Frameworks and of the ment of problemA number of firms in various industries have been unable to realize adequate profitability. A good number of businesses report a profit which is below or equivalent to that of an industry average. This factor is attributed to the presence of various forces on a market that influences the ability of a firm to serve consumers effectively. These forces, subsequently, affect the success of a firm as far as profit making is concerned.
Analyzing the Porters Industry Framework and Business Competitive Edge
In an attempt to solve various problems as regards earning a competitive edge and eventual profits, Porter formulated a business analysis framework. The Porter’s theory is known as the ‘Porter’s Five Forces Method’. According to Boone (2012), porter’s theory states that a business should consider five aspects to maintain a competitive edge on a given industry. The five forces include: threat of substitute products; threat of new entrants; bargaining power of consumers; threat of established rivalries; and, bargaining power of suppliers.
Porter provides that an industry which is characterized by low-entry and high-exit barriers is likely to suffer from decreasing profits in the long-run. In this regards, a firm that is intending to maintain high profits in the long run should choose that industry that is associated with high-entry and low-exit barriers. In relation to substitute products, Nour (2013) provides that availability of similar products enhance the chances of a buyer switching to other goods and services. Porter emphasize that attention should be paid to quality and price as far as an industry that is characterized by substitute products is concerned.
An industry that has a few firms relative to the number of suppliers is likely to experience a low price of raw materials and other inputs. The ratio of buyers to firms in an industry affects the profitability of a given industry. Loyalty and other practices are employed to reduce the influence of consumers’ bargaining power (Alter, 2000). In regards to established firms rivalry, a firm should consider innovation and other effective business strategies to maintain a competitive edge relative other firms.
A case study
Porter’s Five Forces: The Application of the Porter’s Industry Analysis Framework to a Bakery Firm (Hrstic) Trading in Croatia by Reko N., Sustic I. and Butigan, Z. (2010)
In order to test the Porter’s five forces model, a case study of a bakery firm known as Hrstic, trading in Croatia, would be analyzed. An analysis was performed to find out the future of small bakery businesses operating in Croatia. This is due to the fact that there are 374 small sized firms in relation to 8 medium and 2 large bakery companies. In addition, it is reportedly that approximately 2,500 bakery firms operate in Croatia despite being unregistered. Hrstic began trading in 1992.
The threat of new entrants
The research found out that the bakery industry was characterized by a threat of new entrants due to low cost of investment as far as Hrstic business operation was concerned. This denotes that a large number of new firms were likely to start a business on the same market. In addition, it was considered that existing firms had abundant resources to expand their operations. In relation to Grundy’s (2006, p.217) argument, there was likelihood of price declining resulting in declined profits.
Bargaining power
Given that shopping chains are the main buyers for most bakeries, bargaining power of buyers was considered to be high. Due to low costs of switching to a different bakery, Hrstic was likely to suffer from a change of main buyers. However, Hrstic would suffer less since it opened retail shops for supplying its bakery products.
The bargaining power of suppliers
Production in the bakery industry depends on raw materials for bakery products and labour (chef). However, the industry was expected to be characterized by capital intensive as opposed to labour intensive in the near future. Nevertheless, given that Hrstic relies on self financing, there is less concern about the increasing cost of obtaining capital from banks (suppliers).
The threat of substitute products
In relation to Hrstic trading, the bakery industry is characterized by products that can be hardly substituted. For instance, bread, which is consumed on a daily basis, can hardly be replaced. According to Roy (2009), there would be constant demand on bakery products in the bakery industry.
Rivalry of established firms
The management of Hrstic considers that the market is very competitive given that a large number of firms are intending to purchase capital intensive machines to reduce overhead costs and increase profit margins.
List of references
Boone, L., 2012. Contemporary marketing, 2013 update. S.l.: Cengage learning custom.
Grundy, T., 2006. Rethinking and Reinventing Michael Porters Five Forces Model. Strategic Change, (15)5, pp.213-229.
Nour, D., 2013. Return on Impact Leadership Strategies for the Age of Connected Relationships. Hoboken: Wiley.
Roy, D., 2009. Strategic foresight and Porters five forces: towards a synthesis. München: GRIN.
Alter, S., 2000. Strategic Frameworks. [online] Available at [accessed 12 Nov 2013]. Read More
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