Frameworks

Question 1

Porter’s 5 Forces

Answer 1

1) Threat of New Entrants (effectively, this is “Barriers to Entry”)
- Legal or regulatory barriers (for example, patents or government contracts)
- Economies of scale
- Cost advantage (for example, unique access to lower raw material costs)
- Access to distribution channels
- Product differentiation (for example, how is this product different?)
2) Competitive Dynamics
- Industry growth rate
- Industry fragmentation
- Level of switching costs
- Motivation to reduce prices (for example, from excess capacity)
3) Supplier Power
- Level of substitute products
- Buyer’s decision influenced by supplier
- Supplier inputs/products have high switching costs
- Supplier has potential to forward integrate
- Supplier accounts for large share of the inputs/products
4) Buyer Power
- High customer/client concentration
- Level of commoditization of product/input
- Level of switching costs for buyer
- Buyer has significant product/market information
5) Threat of Substitutes
- Substitute products/services that can compete on price and/or quality
- Switching costs to shift to substitute products

When to use: to perform a market landscape and competitor dynamics analysis. It can help determine whether a market or company is attractive, whether the client for whom the analysis is being performed is a private equity firm thinking about buying a company, or a major company thinking about entering or exiting a certain market segment.

Question 2

The 3 C’s

Answer 2

1. Company
2. Competitors
3. Customers/clients

When to use: draw upon to perform a market landscape and competitor dynamics analysis (same as Porter’s 5)

Question 3

The 4 P’s

Answer 3

Product
Price
Promotion
Placement

When to use: This framework is often used specifically whenever there is a marketing component involved in a case (for example: how to increase sales resulting from any profitability optimization case, deciding on an approach to enter a market, etc.). When combined with the 3 Cs, this framework can cover many topics and as you practice more Case Study questions, you’ll develop a better sense of when and how to draw from these frameworks.

Question 4

SWOT Analysis

Answer 4

Strengths: Company strengths within an industry

Weaknesses: Company weaknesses within an industry

Opportunities: Company opportunities available within the industry (or potentially by branching into a new industry)

Threats: Company threats within the industry (or potentially from companies whose primary business is in another, related industry, or from disruptive technologies that potentially threaten all companies in an industry)

When to use: more of a mini-framework, specifically for quickly evaluating a single company in an industry. In that regard, it’s far less complete than other frameworks, and can often miss important details. It should be noted that SWOT can be extended from comparing a specific company to the others in the industry, to comparing a specific industry or sub-industry to other, related industries or sub-industries within the economy.

Question 5

Describe: Threat of New Entrants/Barriers to Entry

Answer 5

• Legal or regulatory barriers (for example, patents or government contracts)
• Economies of scale
• Cost advantage (for example, unique access to lower raw material costs)
• Access to distribution channels
• Product differentiation (for example, how is this product different?)

Question 6

Describe: Competitive Dynamics

Answer 6

• Industry growth rate
• Industry fragmentation
• Level of switching costs
• Motivation to reduce prices (for example, from excess capacity)

Question 7

Describe: Supplier Power

Answer 7

• Level of substitute products
• Buyer’s decision influenced by supplier
• Supplier inputs/products have high switching costs
• Supplier has potential to forward integrate
• Supplier accounts for large share of the inputs/products

Question 8

Describe: Buyer Power

Answer 8

• High customer/client concentration
• Level of commoditization of product/input
• Level of switching costs for buyer
• Buyer has significant product/market information

Question 9

Describe: Threat of Substitutes

Answer 9

• Substitute products/services that can compete on price and/or quality
• Switching costs to shift to substitute products