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https://drive.google.com/open?id=1Sel5w-0XJPeC4yuDVlEIPB0IKTW3iyfB

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CIMA Code of Ethics 2020

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simple analysis

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p3 may19 & Feb19 analysis

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PRE-SEEN Nov2019

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What are they?
Measures
A key performance indicator (KPI) is a measure used to reflect organisational success or progress in relation to a specified goal.

The purpose of KPIs is to monitor progress towards accomplishing the strategic objectives that are typically communicated in a strategy map.

KPIs are typically included in a reporting scorecard or dashboard that enables top management, the board or other stakeholders to focus on the metrics deemed most critical to the success of an organisation.

Financial KPIs are generally based on income statement or balance sheet components, and may also report changes in sales growth (by product families, channel, customer segments) or in expense categories. Non-financial KPIs are other measures used to assess the activities that an organisation sees as important to the achievement of its strategic objectives. Typical non-financial KPIs include measures that relate to customer relationships, employees, operations, quality, cycle-time, and the organisation's supply chain or its pipeline. Some prefer to use the term 'extra-financial' rather than non-financial, suggesting that all measures that contribute to organisational success are ultimately financial. In addition to financial and non-financial, other common categorisations of performance indicators are quantitative versus qualitative; leading or lagging; near-term or long-term; input, output or process indicators etc.

The critical element in developing KPIs is determining what is important or 'key' to the organisation. Operational measures are also important - they can be termed as just 'performance indicators', or 'PIs', to distinguish them from KPIs.

Developing KPIs should be part of an overall strategic management process that connects the overall mission, vision and strategy of an organisation, and its short- and long-term goals, to specific strategic business objectives and their supporting projects or initiatives. Understanding the organisation's value drivers and the core activities and competencies that underpin its value proposition is an important first step in this process.
Value creation map template
Source: Marr, B. (2008) Managing and delivering performance, Elsevier Ltd, Oxford

What benefits do Key Performance Indicators provide?

KPIs can improve strategy execution by aligning business activities and individual actions with strategic objectives. Well-designed KPIs can provide a means for management and the board to monitor core activities of the business rather than simply outcome measures of financial success. Integration of financial and non-financial KPIs can contribute to a greater focus on long-term success rather than short-term financial performance.

Questions to consider when implementing Key Performance Indicators?

Do we understand our value drivers and core activities?

What KPIs do we need? What performance questions do we need to answer?

What mix of financial and non-financial measures do we need?

What customer, human capital, operating, supply chain or pipeline measures do we need to monitor?

Are there other key measures that are important drivers of our business, such as R&D, patents developed?

Are there leading indicators that we can develop from available data?

Can we collect meaningful data in a cost-effective manner for each of the desired measures?

Are our existing management information systems adequate to support the collection, analysis and reporting process?

Base KPIs on strategic value drivers

Make sure KPIs are based on valid data and are easy to understand

Cascade the KPIs through the organisation

Make sure KPIs lead to positive action

Create a culture of continuous learning and performance improvement

Include a mix of financial and non-financial KPIs

Do not collect data and measure too many things - too many KPIs lead to confusion rather than clarity. Five to ten 'critical' KPIs, and 20-30 overall, is a good rule of thumb

Avoid focusing solely on quantitative measures - qualitative assessments also provide valuable information

Don't forget about the importance of feedback and learning

In practice:
Key Performance Indicators

Unlocking Performance
(CGMA Magazine, February 2012)
Read full article
This article, based on interviews with finance executives from Maersk Energy and International Flavors & Fragrances (IFF), discusses the importance of developing relevant KPIs and the role of the finance function in delivering more insightful information to manage performance.

Albert Birck, the head of performance management for Danish energy company Maersk Oil, describes the organisation's thought process for developing KPIs as follows: 'Every time we discuss or design something for performance management, we assess the options to see whether they create value, are transparent, actionable (relevant, meaningful, able to influence), timely (which is more important than 'perfect') and forward-looking.'

Taking this approach and making good use of their performance management technology solution has enabled the finance function to take Maersk from managing by 'gut feeling' to having high-quality analytical insights.

Roger Blanken, CPA, vice president of finance - supply chain for IFF, talks about his company's use of 'economic profit' and weighted-average-cost of capital (WACC) in planning strategy. He also explains how IFF looks at high-level indicators such as GDP, consumer prices and exchange rates - factors that impact on their commodity-based business.

Making economic profit the primary measure of profitability has raised the quality of discussions within the company when making investment decisions.

Related and similar practices

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Measures A key performance indicator (KPI) is a measure used to reflect organisational success or progress in relation to a specified goal. The purpose of KPIs is to monitor progress towards accomplishing the strategic objectives that are typically communicated in a strategy map.

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Use these past exams to get a better understanding of the types of tasks you will be asked to respond to during your exam sitting. You also have access to sample answers, an explanation of how the exams are graded in the Marking Guidance documents, and common trends amongst responses in the Examiner's Report.

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Use these past exams to get a better understanding of the types of tasks you will be asked to respond to during your exam sitting. You also have access to sample answers, an explanation of how the exams are graded in the Marking Guidance documents, and common trends amongst responses in the Examiner's Report.

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Strategic planning is the process of developing the strategy or direction and action plan to achieve the goals of an organisation.

Key elements of any strategic planning process are:

1. developing an understanding of vision, mission and values

2. a current-state assessment of the most salient internal and external factors affecting the organisation that will contribute to an informed selection from strategic alternatives.

The vision, mission and values of the organisation are foundational elements of the strategic planning process. Well-defined vision and mission statements provide direction and focus for the organisation. The values of an organisation provide the context for decisions.

Values are the shared set of beliefs that determine the culture of an organisation.

Vision statements are future oriented and describe the desired or ideal state of the organisation or enterprise. They answer the question - where do we want to be?

Mission statements describe the fundamental purpose of the organisation, why it exists and what it is trying to do to achieve its vision. Mission statements answer the question - what do we do?

Common tools for performing an assessment of the internal and external factors impacting on strategic decisions are SWOT, and PEST or PESTEL analysis.

SWOT

SWOT (strength, weaknesses, opportunities, threats) analysis is a method for analysing the internal strengths and weaknesses, and the external opportunities and threats facing the enterprise.

Strengths include a company's capabilities and resources that enable it to provide value and generate competitive advantage.

Weaknesses are issues that limit a company's ability to exploit its strengths.

Opportunities provide an organisation with the chance to improve its competitive position.

Threats may come from competitors, individuals, organisations, regulatory bodies or other factors in the greater business environment.

PEST

PEST (political, economic, social, technology) analysis is a macro framework for expanding a SWOT analysis to include political and regulatory issues, economic factors, social norms and attitudes as well as demographics, and technological developments.

Some organisations expand the PEST analysis to include legal and environmental concerns (PESTEL).

Source: Improving Finance Function Effectiveness Tool. CGMA

What benefits do Strategic Planning Tools provide?

Strategic planning enables an organisation to set priorities, allocate resources and align employees with its mission and vision. Effective mission and vision statements reduce ambiguity and provide clarity and direction. Comprehensive SWOT and PEST analyses help an organisation to understand how to exploit its strengths, neutralise its weaknesses and take advantage of its opportunities.

Questions to consider implementing Strategic Planning Tools

What are we doing today? How are we doing it? Who are we doing it for?

Where do we want to go? What do we want to do going forward? How are we going to do it?

Engage a broad-based group in the strategic planning process - make strategy everyone's job

Take the time to understand your values and develop clear vision and mission statements

Address all four elements of the SWOT analysis - weaknesses and threats as well as strengths and opportunities

Evaluate internal strengths and weaknesses against external opportunities and threats to determine strategic priorities

Use the SWOT analysis to set priorities, objectives, goals, action plans and performance measures

Don't take a solely top-down approach to strategic planning

Avoid overlooking intangibles such as company culture or quality of management when assessing strengths

Don't forget to address internal weaknesses

Don't forget to look outside of the organisation for threats

Never fill the strategic plan with theory and abstraction - strategy must be translated into daily actionable goals and plans

In practice:
Strategic Planning Tools

Effective performance management with the Balanced Scorecard
(CIMA Technical Report, 2005)

A case study focusing on the Customer Solutions and Support business unit of BAE Systems (formerly British Aerospace Engineering) included in the referenced Balanced Scorecard (BSC) Report illustrates the role of vision, mission, values and SWOT/PEST analysis in the strategic planning process.

Step 1 involved a review of the competitive position of the company, technological trends and financial performance by the CEO.

Step 2 was a comprehensive SWOT analysis undertaken by a broader group of managers and employees.

Step 3 took the form of a vision statement based on BAE's five fundamental values. This was created to clarify the direction the company needed to move and create consensus.

Strengths and weaknesses identified in the SWOT analysis were used to focus growth in three main areas in order to regain market dominance. Long-term targets were translated into short-term performance goals for individuals and project goals that linked to strategic objectives. Scorecard performance measures were tracked with a modified 'traffic light' system and shared with employees to reinforce their shared commitment.
Lessons learned

The involvement of a broad-based line management group in the SWOT analysis and creation of the values-based vision statement were essential in overcoming resistance to change.

Linking financial performance to strategic objectives and individual performance allowed employees to see how their own work contributed to the performance of their business unit.

Related and similar practices

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Strategic planning is the process of developing the strategy or direction and action plan to achieve the goals of an organisation. Key elements of any strategic planning process are: developing an understanding of vision, mission and values a current-state assessment of the most salient internal and external factors affecting the organisation that will contribute to an informed selection from strategic alternatives.

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What is it?
Framework/theory
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation.

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter's five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation's current competitive position, and the strength of a position that an organisation may look to move into.

Strategic analysts often use Porter's five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes.
Porter's five forces of competitive position analysis:

The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms.

3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market.

5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.

Arguably, regulation, taxation and trade policies make government a sixth force for many industries.

What benefits does Porter's Five Forces analysis provide?

Five forces analysis helps organisations to understand the factors affecting profitability in a specific industry, and can help to inform decisions relating to: whether to enter a specific industry; whether to increase capacity in a specific industry; and developing competitive strategies.

Use this model where there are at least three competitors in the market

Consider the impact that government has or may have on the industry

Consider the industry lifecycle stage - earlier stages will be more turbulent

Consider the dynamic/changing characteristics of the industry

Avoid using the model for an individual firm; it is designed for use on an industry basis

In practice:
Porter's Five Forces of Competitive Position Analysis

Analysis of the Indian business environment Download full case study

In the June 2010 issue of Financial Management magazine, the Five Forces model was applied to the emerging Indian business environment in comparison with more developed markets. The analysis found that factors such as state protectionism and a lack of infrastructure are greater barriers to entry in India than they are in more developed nations, where market forces are more powerful.

The analysis highlighted many issues affecting competition in emerging economies and compared them to those that are more prevalent in more developed markets.

One factor that could play a crucial role in India is public opinion, which exerts a considerable influence on the government. A good example of this is a campaign by local retailers against Walmart, who feel that the arrival of the US retail giant could put them out of business. Walmart has made huge investments in India, but is having to find ways around stringent regulations that prevent it from doing things as basic as putting its brand name on stores.

Related and similar practices

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Porter's Five Forces of Competitive Position Analysis

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Porter's Five Forces is a simple framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market.

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A management accounting tool is a framework, model, technique or process that enables management accountants to: improve performance; facilitate decision-making; support strategic goals and objectives; and otherwise add value.

You can access via:

https://www.cgma.org/content/dam/cgma/resources/tools/essential-tools/downloadabledocuments/essential-tools-for-management-accountants.pdf

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Follow this link

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Familiarisation Quiz - Runn (Nov 2019 exam)

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You are required to answer all questions. The objective of this assessment is to test your familiarity of the pre-seen material. It is recommended for you to complete your THIRD reading of the pre-seen prior to attempting this quiz.

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CIMA Strategic Case Study Exam with Adrian Sims

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https://forms.gle/pgPZD8qiGoje4odf7

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Critical Success Factors of Passing Case Study Exam

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6 steps to manage risks and drive performance

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Presentation of key topics with competency skills that have been tested in the

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The sheer volume of your CIMA case study pre seen material can be a daunting propsect. After all, there's usually pages and pages of information ranging from:

Background and history of the company

Main people working at the business

Where the company is right now

Financial statements

Management accounting information

Industry outlook

And much more

Even a quick glance through can be overwhelming. Especially if you're not really sure what it all means ahead of your exam

But, you can't just ignore it and put it to one side.

Because a thorough pre seen analysis is a key part of your exam prep. If you want to pass that is! But don't just take my word for it. Here's what recent examiners' reports have said...
OCS Examiner: "Preparation on the pre-seen material is vital. Ensure that you are very familiar with the business, especially the financial information, before the exam as this will help you with applying your knowledge and will save you time. Similarly, an awareness of the industry that the business is in will help you to think of the wider issues that might impact on decisions that you could be asked to comment on." MCS Examiner: "The pre-seen material provided some background to the business and the industry. It was expected that candidates would study the pre-seen material closely enough to be familiar with the business...The focus when reading the pre-seen material should not be to memorise its content, but to imagine what the business actually does" SCS Examiner: "Candidates should read the pre-seen material carefully and come into the examination understanding the industry and the company which will be the focus of the exam. This will help candidates formulate good answers that relate to the questions"
When I was coaching CIMA students for the old T4 case study exam, I used to describe the task of pre seen analysis as a lot like digging for gold.

You see, when panning for gold, you go to a river and dig up a number of rocks and sand with a little pan. You then have to shake the contents around until you end up with these little golden flakes. Or if you're lucky, some gold nuggets!
So how does this apply to CIMA case study pre seen analysis?
Well, the case study material is like the river. All you can see is what's on the surface. And you can't immediately tell which spot is likely to produce something valuable.

So you have to go through a filtering process.

You go through the text, paragraph by paragraph, page by page, using your theoretical models learned in the objective papers. And at the end of the process you'll hope to have discovered the most valuable pieces of information that can help you in your exam. These are your golden nuggets.

And as with panning for gold, you can end up wasting hours of time and effort for no reward. That's if you don't have good technique. Or know what a real golden nugget looks like.

This is particularly important given that you need to spend the majority of your preparation time on attempting mock exams under timed conditions and getting expert feedback. Because without this you will have no idea whether your exam technique will be sufficient to pass the real thing.

Okay, so what do you need to achieve by the end of your pre seen analysis? Well here are the main things you want to uncover:

1. A clear picture of what the organisation does and the industry it operates in

2. How the business is performing and where it is heading

3. A list of the key issues facing the organisation that are likely to come up in your exam

4. How to deal with such issues to get a clear pass

5. The key topics from the E, P and F pillar papers that are relevant to this particular case

6. Your own financial interpreation of the figures provided

Now there are two ways you can go about getting these results:
1) The hard way - analysing the pre seen on your own

2) The easier way - analysing the pre seen using expert help

And I'm going to walk you through both methods right now...

The Hard Way to Analyse Your CIMA Case Study Pre Seen

The reason why I call this the hard way is because:

it takes longer

it's more boring

it can be frustrating if you're not sure what information is important and what isn't

there's more risk of providing exam answers without the necessary context to pass

However, if you want to analyse the CIMA case study pre seen on your own, here are the steps I recommend:
Step 1: Obtain the Relevant CIMA Case Study Pre Seen Material
You can do this by:

Scrolling down to your paper on my blog here: OCS, MCS, SCS

Or logging into and:

Select the 'subject' drop down menu and choose your level and exam.

Scroll down to the 'recommended resources'- section

Download the relevant CIMA case study pre seen and print it out.

Step 2: Give Yourself An Overview
Skim through the material quickly a couple of times to get a feel for what the case is about.
Step 3: Detailed Pre Seen Analysis
Go through the case in detail - line by line, paragraph by paragraph, taking notes.

This should involve:

An E paper (strategic) review - Going through the pre seen, a paragraph at a time, using the main strategic models such as PEST analysis, Porter's 5 forces, SWOT, governance and ethics, stakeholder analysis etc

An F paper review - Using your knowledge from the F paper on your level, analyse the financial statements using key ratios to fully understand the current financial position and performance of the organisation. You'll also want to consider the company's cash situation.

A P paper review - Using your knowledge from the P paper on your level, analyse the risks facing the organisation and how they could be managed.

Top Tip: Ideally at this stage you should already be revising the key models from each of the objective test papers on your level. You can do that here:

Marks for technical skills are available for all papers and examiners have often noted a lack of technical knowledge in exam scripts:

" it is evident that F1 knowledge of financial reporting standards is often poor" (May 2017 OCS exam)

" The fact that the case study does not require calculations should not be misunderstood as a suggestion that it does not test technical accounting techniques. Candidates should be familiar with all aspects of all three subjects covered in the case study " (May 2017 MCS exam)

" It is very clear that candidates are becoming weaker at technical accounting questions " (Feb 2017 SCS exam)

So when you've reached the end of your thorough analysis of the pre-seen, work through each model in turn. And apply it in full to the pre seen where possible. Your goal is to have applied each of the main models on each of the three subject papers to the pre seen.
Step 4: List Your Top Ten Issues (Most Likely to be Examined)

At this stage you want to identify the main information needs, problems faced, and opportunities that are hinted at in the case. As these areas may well come up on your exam day

Examples could be:

The use of variance analysis in the Operational Case Study

The need for raising new funds for the Management Case Study

A possible serious threat to the business that would need to be resolved for the Strategic Case Study

In the exam, you will be given further information on those issues in the unseen material. You would then be required to use your technical, business, people and leadership skills to deal with the specific situation.

So create a top 10 list of the most likely issues that you think will come up in the exam. And for each of them do the following:

Note down which theories are most likely to be relevant to that issue

Note down possible ways for dealing with the issue (sensible options)

Note down which of those options you are most likely to recommend

This initial analysis and thinking will help you be better prepared for the real exam if the issues arise.
Step 5: Regular Review
Now and again read over a clean copy of the full pre seen. A fresh read through could result in identifying something new that you feel is important. You should also keep revising your technical knowledge and consider whether your top 10 issues list needs amending.

Top tip: Keep up to date with what's going on in the business news. It may just be the case that a key issue you have identified earlier will be played out in the real world. And so you'll be able to use how they dealt with it (successfully or otherwise) to demonstrate your business skills in your exam. But only if relevant to the question set.

Okay, so that's the hard way. But what about making your life easier?

The Easier Way to Analyse Your CIMA Case Study Pre Seen

This is the method that I chose when I passed my final CIMA case study exam. And so I know that it works!
Step 1: Obtain the Relevant CIMA Case Study Pre Seen Material
As above.
Step 2: Detailed Pre Seen Analysis
Watch Astranti's CIMA case study pre seen analysis videos for:

Here the hard work of deciphering what information is relevant, and what is not, is done for you. Plus you are guided through which theory is most applicable to the case. A real time saver!

You'll get expert pointers as to the most likely issues to come up in the exam (which is not easy to discover on your own). And you'll learn how to deal with them to score well, should they come up.

You can pause the videos, rewind them, and take notes as you go along. Meaning that the whole process of dealing with the minefield that is the CIMA case study pre seen is much more manageable.

You also get a blank pro forma of key theoretical models to fill in as you go through the videos. This will give you a far better understanding of the case.

Watch the samples below of what you'll get in the videos, for yourself...
Pre-seen Analysis Preview:
Strategic Analysis Preview: Top 10 Issues Preview: Industry Analysis Preview:
As a bonus Astranti also give you a free strategic analysis document to add to the knowledge already built up from the videos.

Top tip: An important area often overlooked by students is that of Ethics. Across all levels there is a 70% chance of an ethical issue coming up. And time and again examiners reports say things like:

"Ethics was one poor area" (Feb 2017 SCS exam)

" This reflects a general and surprising trend of candidates performing badly at questions relating to ethical issues. Numerous candidates started discussing the ethical principles and gave up after two or three. " (May 2017 MCS)

Luckily Astranti also provide exam focused ethics packs to refresh your knowledge and learn how to apply it in your exam.
Step 3: One Page Summary
Summarise all the key information you have been given into a one page summary. Test yourself on this frequently. You want to retain the key information from the pre seen in your head so that you can quickly apply the relevant context to your answers in your exam.

Top tip: All too often the case study examiners'- report of students struggling to apply their knowledge to a variety of situations and failing to address the questions set. Don't be one of them!

And that's it!!!

Conclusion

Okay, so there are the two main methods for analysing your CIMA case study pre seen case material. Whichever method you choose, please, please make sure you make the msot of it. Your study time will most likely be scarce and remember: you need to spend as much preparation time as possible on mock exams.

Ultimately the exam is focused on the unseen material you're given on the day, but you'll be expected to know the business well, as if you were an employee. After all, you don't want to produce a script where the examiner says: "what was lacking was basic common sense in relation to the case study" (May 2017 MCS exam).

And so having this business context to hand - under the time pressure of the exam - is highly valuable if you want to score well.

Thank you for your time, and look out for more case study tutorials on my blog coming your way soon

Cheers.

Matt

P.S. Here's why I recommend using Astranti's video analysis:

1. Expert tips from one of the world's most experienced CIMA case study tutors.

2. Save time and effort when analysing the pre seen.

3. More engagement - through watching videos rather than just reading through pages of information

4. Save money - The same sort of tuition would cost you way more at the big colleges.

5. 24 carat golden nuggets! - You are given the 10 most likely issues to come up in the exam and commentary on how to approach them. Their success rate at these predictions is amazing!

Image: Woodleywonderworks via Flickr

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How to Analyse Your CIMA Case Study Pre Seen (To Pass Your Exam)

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The sheer volume of your CIMA case study pre seen material can be a daunting propsect. After all, there's usually pages and pages of information ranging from: Background and history of the company Main people working at the business Where the company is right now Financial statements Management accounting information Industry outlook And much more [...]

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CIMA Case Study - How to make use of the pre-seen materials.

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Use these past exams to get a better understanding of the types of tasks you will be asked to respond to during your exam sitting. You also have access to sample answers, an explanation of how the exams are graded in the Marking Guidance documents, and common trends amongst responses in the Examiner's Report.

# data[].attributes.attachment_link.description
Use these past exams to get a better understanding of the types of tasks you will be asked to respond to during your exam sitting. You also have access to sample answers, an explanation of how the exams are graded in the Marking Guidance documents, and common trends amongst responses in the Examiner's Report.

# data[].attributes.attachment_link.readable_text
What is it?
Framework/theory
Porter's Five Forces of Competitive Position Analysis were developed in 1979 by Michael E Porter of Harvard Business School as a simple framework for assessing and evaluating the competitive strength and position of a business organisation.

This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market. Porter's five forces help to identify where power lies in a business situation. This is useful both in understanding the strength of an organisation's current competitive position, and the strength of a position that an organisation may look to move into.

Strategic analysts often use Porter's five forces to understand whether new products or services are potentially profitable. By understanding where power lies, the theory can also be used to identify areas of strength, to improve weaknesses and to avoid mistakes.
Porter's five forces of competitive position analysis:

The five forces are:

1. Supplier power. An assessment of how easy it is for suppliers to drive up prices. This is driven by the: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.

2. Buyer power. An assessment of how easy it is for buyers to drive prices down. This is driven by the: number of buyers in the market; importance of each individual buyer to the organisation; and cost to the buyer of switching from one supplier to another. If a business has just a few powerful buyers, they are often able to dictate terms.

3. Competitive rivalry. The main driver is the number and capability of competitors in the market. Many competitors, offering undifferentiated products and services, will reduce market attractiveness.

4. Threat of substitution. Where close substitute products exist in a market, it increases the likelihood of customers switching to alternatives in response to price increases. This reduces both the power of suppliers and the attractiveness of the market.

5. Threat of new entry. Profitable markets attract new entrants, which erodes profitability. Unless incumbents have strong and durable barriers to entry, for example, patents, economies of scale, capital requirements or government policies, then profitability will decline to a competitive rate.

Arguably, regulation, taxation and trade policies make government a sixth force for many industries.

What benefits does Porter's Five Forces analysis provide?

Five forces analysis helps organisations to understand the factors affecting profitability in a specific industry, and can help to inform decisions relating to: whether to enter a specific industry; whether to increase capacity in a specific industry; and developing competitive strategies.

Use this model where there are at least three competitors in the market

Consider the impact that government has or may have on the industry

Consider the industry lifecycle stage - earlier stages will be more turbulent

Consider the dynamic/changing characteristics of the industry

Avoid using the model for an individual firm; it is designed for use on an industry basis

In practice:
Porter's Five Forces of Competitive Position Analysis

Analysis of the Indian business environment Download full case study

In the June 2010 issue of Financial Management magazine, the Five Forces model was applied to the emerging Indian business environment in comparison with more developed markets. The analysis found that factors such as state protectionism and a lack of infrastructure are greater barriers to entry in India than they are in more developed nations, where market forces are more powerful.

The analysis highlighted many issues affecting competition in emerging economies and compared them to those that are more prevalent in more developed markets.

One factor that could play a crucial role in India is public opinion, which exerts a considerable influence on the government. A good example of this is a campaign by local retailers against Walmart, who feel that the arrival of the US retail giant could put them out of business. Walmart has made huge investments in India, but is having to find ways around stringent regulations that prevent it from doing things as basic as putting its brand name on stores.

Related and similar practices

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Porter's Five Forces of Competitive Position Analysis

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Porter's Five Forces is a simple framework for assessing and evaluating the competitive strength and position of a business organisation. This theory is based on the concept that there are five forces that determine the competitive intensity and attractiveness of a market.

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https://drive.google.com/drive/folders/1vrU3nJLpzlBhGb2RBJTuJBsUyrGhRkzA?usp=sharing