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Identify strengths and weaknesses of (Porter's 5 forces analysis, SWOT analysis, Portfolio analysis, Key Industry Success factor analysis, Financial ratio analysis) stating briefly how to minimize weaknesses.
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The expert identifies strategic management strengths and weaknesses.
Porter's 5 Forces are as follows:
1. Bargaining power of the consumer (this can be affected by interest rates, inflation, recession, supply and demand, salary, currency exchange—basically economic factors).
To minimize this threat we have to be able to forecast changes in the economy accurately because the strength of the economy is the key factor of the bargaining power of the consumer.
Customers bargaining power is likely to be high when
a. They buy large volumes, there is a concentration of buyers,
b. The product is undifferentiated and can be replaced by substitutes
c. Switching to an alternative product is relatively simple and is not related to high costs
d. Customers could produce the product themselves
e. Customers have low margins and are price-sensitive
2. Bargaining power of the supplier (degree of differentiation of the inputs, presence of substitute inputs, supplier concentration based on the firms concentration ration and so forth).
The company should analyze several factors that influence the bargaining power of buyers (since now they are the buyer—their purchasing raw materials from suppliers) such as:
a. Size of concentration of the buyers relative to suppliers
b. Buyer's information: information pertaining to suppliers and their costs
c. Ability to integrate vertically: do it yourself and reduce your company's dependence on others
3. The threat of new entrants (existence of barriers to entry, economies of scale, government policies, FTC, capital requirements...)
To ward against the threat of new entrants you have to identify your company's type of strategy.
a. Defender: narrow product and will do anything to prevent new entrants; experts in their area
b. Prospectors: large companies with lots of money that uses that money for new products with hopes that it would pay off
c. Analyzers: companies that will not do anything unless it have been tried and proven and a success (i.e. UPS)
d. Reactors: does not really plan; when something happens in the market the company will react to it; Most reactors oftentimes end up being taken over.
4. Threat of competitive products/substitution (perceived level of product differentiation, buyer switching cost, ...
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