The five forces framework that shape strategy The primary goals of this assignment are: (a) to perform a thoughtful of Five Forces analysis, (b) to link the analysis to recent historical Industry profitability data, and (c) to explain your analysis and conclusions in a concise 1-page memo. Please complete the analyses by drawing on your understanding of the article, ““The Five Competitive Forces That Shape Strategy,” by Michael E. Porter and our related discussions in class. Feel free to use bullet points on the slides, but be sure to write your memo carefully in professional business English, and to check grammar & word usage!
Content: To complete the assignment, please complete the following steps:
(1) Choose a public company and think carefully about how to define its industry.
a. Defining your firm’s industry requires careful consideration. For example, both the US Air Force and Southwest fly people in airplanes. But we would not consider them as competitors in the same industry. The best heuristic to use to define an industry is to define it based on firms that sell similar products and are exposed to similar buyers and suppliers. (This will ensure that the Five Forces acts in fairly similar ways across firms in the industry.) There is no perfect definition for each industry, but take care in thinking over your definition and be sure not to simply accept “off-the-shelf” solutions like those in Hoovers or Yahoo Finance.
b. Be careful to choose a company that has at least 3 rivals that are public companies whose financials are easily accessible.
(2) Perform a Five Forces analysis for your firm’s industry, using Exhibit A of the PowerPoint slides. Be sure to highlight the factors and logic that explain why a force does (or does not) pose a threat to industry average profitability. I have attached a PowerPoint slide that list some of the key factors for each force. Feel free to use
bullet points, but be sure that a random reader of the slide could understand the intuition behind each of the points that you make.
(3) Next, perform background research on your firm and its industry.
a. Gather data that summarize the recent historical profitability of your firm and 3-5 of its rivals. Compute the profitability of these firms over the last 3-5 years. In order to do this, you will need to decide which measure of profitability is most appropriate for your industry (use either ROA, ROS, ROE, as these are the most easily available).
b. Report these data on the left side of Exhibit B (the second of the two assignment slides).
c. Next, draw a graph that compares the average industry profitability with the average for the economy overall over the past 3-5 years. (For the purposes of the assignment, please assume that the economy-wide average ROA = 4%, ROS = 4%, & ROE = 10%).
(4) Finally, write a one page memo (addressed to anyone you would like to explain the industry to) that:
a. Explains the purpose of the memo in the subject heading and very first sentence of the memo
b. Defines your industry precisely
c. Summarizes your Five Forces analysis, taking care to identify which key forces are the ones that have the strongest influence on profitability in your firm’s industry and the key factors that most strongly influence the strength of these forces.
d. Explain whether you believe that your firm is in an industry whose conditions are, on average, very favorable, somewhat favorable, ambiguous, somewhat unfavorable, or very unfavorable.
e. Finally, link the Five Forces analysis to the data you report in Exhibit B. Do the data match up? If not, please provide an explanation for why they might not.
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