6. Organization's Strategic

External  Analysis--Porter’s Five-Force Model

1. Degree of existing rivalry：Determined by number of firms, relative size, degree of differentiation between firms, demand conditions, exit barriers.

2.Threat of potential entrants： Determined by attractiveness of industry, height of entry barriers (e.g., start-up costs, brand loyalty, regulation, etc.)

3. Bargaining power of suppliers： Determined by number of suppliers and their degree of differentiation, the portion of a firm’s inputs obtained from a particular supplier, the portion of a supplier’s sales sold to a particular firm, switching costs, and potential for vertical integration.

4. Bargaining power of buyers：Determined by number of buyers, the firm’s degree of differentiation, the portion of a firm’s inputs sold to a particular buyer, the portion of a buyer’s purchases bought from a particular firm, switching costs, and potential for vertical integration.

5. Threat of substitutes.Determined by number of potential substitutes, their closeness in function and relative price.

（Recently Porter has acknowledged the role of complements.

Must consider:

a)how important complements are in the industry,

b)whether complements are differentially available for the products of various rivals (impacting the attractiveness of their goods), and

c)who captures the value offered by the complements.）

Internal Analysis

1.Identify the firm’s strengths and weaknesses. Helpful to consider each element of value chain.

2. Assess which strengths have potential to be sustainable competitive advantage.

•Resources are difficult (or impossible) to imitate when they are: 

Tacit, Path dependent, Socially complex, Causally ambiguous

•Core Competencies: A set of integrated and harmonized abilities that distinguish the firm in the

marketplace.

•Be a significant source of competitive differentiation

•Cover a range of businesses

•Be hard for competitors to imitate

•Dynamic capabilities: competencies that enable the firm to quickly respond to change.

• •Strategic Intent: A long-term goal that is ambitious, builds upon and stretches firm’s core competencies, and draws from all levels of the organization.

Balanced Score Card