PORTER’S

FIVE
FORCES
1. Threat of New Entrants
- While considering the barriers to entry, asses the threat that potential
competitors will enter or disrupt the market.

- This force assesses how easy or difficult it is for new companies to enter
an industry. Factors like barriers to entry can make it harder for new players
to join, reducing the threat. If barriers are low, the threat of new entrants is
high, potentially intensifying competition.
2. Bargaining Power of Buyers
- Evaluate the bargaining power of current and potential customer.

- This force examines the influence customers have in an industry. If buyers

have many options, are well-informed, and can easily switch suppliers, they
have high bargaining power. High bargaining power can lead to price
pressure and demand for better quality or service.
3. Bargaining Power of Supplier
- Suppliers can influence the price of goods and services in the industry and
ultimately drive down industry profits.

- This force looks at how much control suppliers have over an industry. If
suppliers are few, provide unique resources, or have strong brand
recognition, they can wield significant bargaining power.
4. Threat of Substitute Products or
Services
- A substitute is another product or service that meets the same underlying
need that the industry's product meet a different way.

- This force considers the availability of alternative products or services that

can fulfill the same customer needs. When many substitutes exist, customers
can easily switch, putting pressure on companies to differentiate or reduce
prices to retain their market share.
5. Intensity of Competition In an Industry
- A company must assess the intensity of the competition and how well the
company's value depends against this competition.

- This force gauges the overall level of rivalry among existing competitors
in an industry. High competition can lead to price wars, reduced
profitability, and the need for continuous innovation to gain an edge.
STRENGTHS AND LIMITATIONS:
STRENGTHS:
- Porter's Five Forces analysis
covers the different areas in
which threats can arise. It helps
companies identify threats and
plan how to address them.
LIMITATIONS
:
Threats are not always
obvious. New product ideas,
competitors and bargaining
power are dynamic, not
static.
ROLE OF THE MANAGEMENT
ACCOUNTANT:
- Management accountant can help ensure that the Five Forces analysis
relates to the company's strategy and does not lose sight of that
strategy.
 STEEP ANALYSIS
- is a powerful and widely used tool for understanding strategic
risk that identifies the changes and the effect of the external
macro environment on a firm's competitive position.
Social, Technological, Economic, Ecological, Political/Legal
Variation of the STEEP analysis tool are;

PEST - Which exclude environment.

PESTEL or PESTLE - Which separates legal from political.
STEEPLE - Which takes on a corporate social responsibility perspective by
adding on the ethics dimension.
STEEPLED - Which adds the analysis of demographic factors.
Consider and assess the trends, opportunities and risk within each of the five areas;

1. Social - This includes the consideration of demographic, customs, religious

beliefs, lifestyle and mobility.
2. Technological - Consider trends and advances in digital communication,
biotechnology, chemicals, electronics, medicine and many ither fields that might
affect the companies competitiveness.
3. Economic - Economic factors to consider include trends in rates of employment,
currency exchange, interest and inflation.
Consider and assess the trends, opportunities and risk within each of the five areas;

4. Ecological (Environment) - This factor includes both the physical and biological
environments, such as global climate change, sustainable development of the natural
resources product lifestyle and genetically modified agricultural goods.
5. Political/Legal - The political side if environment includes legal and regulatory
policies and its affected by the public's attitude toward certain industries, market
regulations and even political party or leader in power.
 PROCESS OF PEST ANALYSIS

01 02 03 04 05
Development
Identification of the Analysis on the Categorization of Prioritization of
current future factors in possible effect each factor into the strategic of strategic
the firm's external on the firm's opportunities or importance of action to
social, technological, competitive threats for the each STEEP correct or
economic, ecological position of each firm. opportunities and preempt
and political/legal factor. threats. negative effects
environment. and build on
positive effect.
STRENGTHS AND LIMITATIONS:
STRENGTHS:
- STEEP analysis facilitates and
encourages managements
consideration of the general
environment for which the
organization competes.
LIMITATIONS
-
:
Although STEEP analysis has great
potential to identify additional
opportunities and threats, differing
opinions of the environment within the
company can create challenges. It can be
difficult to identify which environments
the company is in.
 ROLE OF THE MANAGEMENT
ACCOUNTANT:
- Management accountants can educate and remind top management of the
need for both a STEEP analysis and for people with the talent to do
such broad environmental analysis, including data analysis.
 SCENARIO PLANNING
- is a process that stimulates imaginative, creative thinking to better
prepare an organization for the future.
- A Scenario Planning is largely focused on answering three questions:
1. What could happen?
2. What would be the impact? And:
3. What are the implications for our organization?
 Components of Scenario Planning
1. Key Focal Issue - Such as a big issue to be made or a significant uncertainty to
deal with.
2. Driving forces - Are themes and trends that seems likely to impact the key focal
issue.
3. Critical Uncertainties - Are those uncertainties rank most likely to significantly
impact the key focal issue.
4. Scenario Framework - Is 2x2 matrix made up of the two critical uncertainties
with high vs. low spectrums.
 Components of Scenario Planning
1. Key Focal Issue - Such as a big issue to be made or a significant uncertainty to
deal with.
2. Driving forces - Are themes and trends that seems likely to impact the key focal
issue.
3. Critical Uncertainties - Are those uncertainties rank most likely to significantly
impact the key focal issue.
4. Scenario Framework - Is 2x2 matrix made up of the two critical uncertainties
with high vs. low spectrums.
 Components of Scenario Planning
5. Scenarios - Are base on the four quadrant s and represent plausible vision of the
potential future.
6. Narrative - Are written descriptions or stories about each scenario.
7. Implications - Are ways to deal with each of the scenarios.
8. Early Warning Signals - Are leading indicators suggesting which scenario is
more likely.
Two basic models for organizing a Scenario Planning
exercise:
1. Expert 2. Collaborative
- a small group completes the scenario
planning process often led by the strategic
planning team possibly supported by
external consultant and subject matter
expert.
- These experts typically have deep
knowledge of the industry, market trends,
and potential disruptors.
- a small core team leads the exercise but the
organization seeks input and participation
from a broad cross section of people from
inside and outside the organization.
- The Collaborative model involves a broader
cross-section of the organization, including
employees at various levels, stakeholders, and
sometimes even customers.
 Steps needed a Scenario Plan
Step 1: Define Scopes, Issus and Time Horizon
• Begin by clearly defining the scope of your scenario planning exercise. What are the specific
areas or aspects of your organization or industry that you want to explore?

Step 2: Define Key Drivers

• Understand how these drivers interconnect and influence each other.

Step 3: Collect and Analyze Data

* Gather relevant data and information related to your key drivers.
 Steps needed a Scenario Plan
Step 4: Developing Scenarios
• Create multiple scenarios based on different combinations of key drivers and their potential
outcomes.

Step 5: Apply Scenarios

• Identify strategies and actions that can be taken to thrive or adapt in each scenario.

Step 6: Maintain and Update

* Monitor changes in the external environment and adjust your plans accordingly.
STRENGTHS AND LIMITATIONS:
LIMITATIONS
STRENGTHS:
:
Scenario planning is base on just two
- Instead of assuming there is
one best answer to a strategic critical uncertainties that are chosen
question, scenario planning based on rankings.
considers different possibilities
for different futures.
 ROLE OF THE MANAGEMENT
ACCOUNTANT:
- As with other strategic planning tools, management accountant can lead
or facilitate the process.