Porter's Five Force Model and Strategic Management Planning

This report outlines the Porter's five-force model, which is a framework used to analyze the competitive forces of a market that can impact a company's operations. The model identifies five key factors: bargaining power of customers, suppliers, existing competition, threat of new entrants, and threat of substitute products or services. The report also discusses various strategic directions available to a company through strategic management planning, including Porter's generic strategies such as focus, cost leadership, and differentiation.

BUSINESS STRATEGY

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
Analysis of competitive forces....................................................................................................3
Application of models for strategic planning..............................................................................6
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................11
INTRODUCTION.........................................................................................................................14

INTRODUCTION
Business Strategy includes a course of action or it is comprised for various decisions that
helps the business owners to achieve the objectives of the business. It is a comprehensive plan
that is useful for getting competitive advantage over competitors(Adi, 2015). The Report will be
based on Toyota. The company belongs to Auto-mobiles industry. Toyota was founded in year
1937 by Kiichiro Toyoda. The key products of the company are luxury vehicles, auto-mobiles,
commercial vehicles etc. The headquarter of the company is located at Aichi, Japan. The Report
will outline the impact of various competitive forces of macro environment by using Porters-
five-forces model and strategic planning for the organisation.
MAIN BODY
Analysis of competitive forces.
Porters-five-force model-
Figure 1 Porters-five-force model
Source : (Porter Five Forces Model, 2018)

It is a framework that an organisation can use to analyse the impact of various
competitive forces on the operations of the company(Buckley, 2016). Toyota will use porters-
five-force model for evaluating the impact of macro environment that affects the ability of the
company to serve its customers. The framework will help the company to analyse the automobile
industry. The various forces of porters-five-force model are as follows-
Threat from new companies-
Toyota may face intense competition from new entrants because, new companies in auto-mobiles
sector will bring innovative products in the market. It will be hard for new organizations to enter
the industry because Toyota has already develop various types of vehicles.
Cons- This will impact the profitability and sales of the company. Toyota should manage all
these challenges from other companies. So that, it will get competitive advantage over other
companies. Toyota should innovate new products or services to get the benefits of economies of
scale.
Pros- Company should set up new plants for increasing the capacity of developing goods this
will help the company to decrease its cost per unit. This will help to discourage new companies
to enter in auto-mobiles industry.
Suppliers bargaining power-
Company buys raw materials from various suppliers for manufacturing the auto-mobiles. If, the
suppliers are in a position that they can charge high prices for the raw material, in that case it will
affect the profits of Toyota. Company buys raw material from approximately 200 suppliers.
Cons- High bargaining power of the suppliers will negatively affects the profitability level of the
company. Toyota should develop efficient supply chain so that, it can easily tackle the
bargaining power of the suppliers.
Pros- Company should make efforts for manufacturing the products with the help of third part or
it can outsourced this facility. So that, this will help Toyota to create a scenario that will help to
reduce the bargaining power of the suppliers of raw material.
Buyers bargaining power-
Customers in any industry wants to buy high quality products by paying low prices. Company
should make efforts for offering innovative products to the customers so that, the bargaining
power of the buyers will not affect the sales and profitability of the company in long period.
Toyota is dominating the list in terms of number of customers.

Cons- Bargaining power of customers in auto-mobile industry is high due to various auto-
mobile companies. Toyota should take various steps so that, bargaining power of the buyers will
not affect the performance of the company in comparison with other companies. It should
innovate and differentiated products so that, it can attract more and more customers.
Pros- Innovation will help to reduce the bargaining power of the customers. Development of
new products will also helps to retain old customers. For manufacturing innovative auto-mobiles,
Toyota should adopt advanced technology of production and distribution of the products of the
company.
Threat from competitors products or services -
There are various companies in auto-mobiles sector that are manufacturing and offering auto-
mobiles to customers.
Cons- There are various substitutes of the products of Toyota available in the market. The power
of other products to impact the sales of present offerings is high if, other companies are offering
more value added services to the existing as well as new customers.
Company should take various steps so that, buyers will not move towards the products of other
companies such as Jaguar, BMW etc(Chang, 2016). Toyota should offer more value added
services along with the vehicles so that, it will become a service oriented company. Company
should invest funds on conducting research and development activities so that, it can know the
demands of potential customers in a better way.
Pros- Research activity will help to develop new products with innovative features and benefits.
Therefore, it will help the company to increase the switching cost for the buyers to switch on
other companies for purchasing the vehicles.
Competition among existing companies-
There are many competitors of Toyota in auto-mobile sector that are offering products or
services to the customers.
Cons- If, the competition among existing companies is high, in that case it will negatively
affects the prices of auto-mobiles of Toyota and and also the profitability of auto-mobile
industry.
Pros – Toyota should focus on developing new features of existing mobiles or it can also
develop new products so that, company can easily sustain differentiation that will help to get
competitive edge over other companies(Higgins, Omer, T.C. and Phillips, 2015).

Porters-five-force model will provide Toyota a complete understanding of the factors that may
impact the current profitability of the company in auto-mobile industry. It will also help the
company to identify the change in the trends that it will help to grab emerging opportunities to
improve the sales and profitability of the company.
Application of models for strategic planning.
Strategic planning-
Strategic planning is an activity of the organisation to develop priorities, actions that will
guide the company regarding the customers to whom company will serve, what it will serve etc.
Strategic management refers to the combination of various activities that company will use to
integrate the resources with the vision and mission of the company(Hu, Y. and Yang, 2016).
Strategic management plan-
Strategic management plan is a written document that helps the company to communicate the
goals of the organisation, what actions the organisation should take for achieving these
objectives in future.
Vision-
The vision of Toyota is to become a leader in auto-mobile industry so that, the company can
promote the future of mobility, to provide innovative ways for movement of peoples. To exceed
the expectations of customers through through better quality products, continuous innovation.
Mission-
The mission of Toyota is to promote safety of lives of the customers, contributing to the
development of the economy.
Objectives-
There are various objectives of Toyota. These are as follows-
 To improve the level of satisfaction of the existing as well as targeted customers by
providing high quality products and services.
 To increase the market share of the company in auto-mobile industry up to 10% in next 1
year.
SWOT analysis-
SWOT analysis is a tool that helps the organisation to analyse various factors of internal
environment that might affects the level of performance of the company. Toyota will apply
SWOT analysis to identify the strengths, weaknesses, opportunities and threats.

Strengths- Strengths of Toyota are as follows-
 The company has introduced different types of innovative vehicles in the market due to
advance technology.
 Toyota is one of the most valuable and recognized brands in auto-mobile industry. It has
its operations in various countries like Australia, Japan, France etc.
Weaknesses- Weaknesses of Toyota are as follows-
 Company is majorly dependent on suppliers for obtaining raw material for producing
vehicles.
 Company has develop the green vehicle technology but, it has not implemented it
correctly in actual market.
Opportunities- Opportunities available to Toyota are as follows-
 Toyota should implement green vehicle technology effective in the market of China. So
that, the revenue will increase.
Threats- Threats to Toyota are as follows-
Figure 2 SWOT analysis
Source : (SWOT analysis, 2017)

 Company is facing intense competition from other companies like Ford, Hyundai etc.
PESTLE analysis- It is a tool for evaluating the impact of external environment on the
operations of the company.
Toyota will use PESTLE analysis for evaluating the impact of macro factors on the decisions of
the company. They are as follows-
Political- Political factors are important because it guides the company regarding the rules,
regulations it has to follow. Toyota have to comply the vehicle emission standards. It should also
focus on renewable energy because due to regulations of government.
Economical- Economic factors affects the growth of organisation, also impact the demand of
customers. The tax rate, rate of inflation in the country, exchange rate for buying oil from foreign
countries affects the operations of Toyota(Pisano, 2015).
Social- Social factors affects the decisions of the buyers in respect of vehicles they buy.
Technological- The company should focus on advanced technology so that, it can face the
intense competition from other companies. It should adopt strategies for reducing emission of
CO 2.
Legal- There are various laws, Toyota should be aware of the laws such as Data Protection Act,
Intellectual property rights etc.
Environmental- Auto-mobile companies should be aware regarding the impact of production
process of manufacturing vehicles on the environment. Toyota company have to follow the
guidelines of Government in respect of environment protection.
Segmentation-
Segmentation refers to segmenting the whole market in various segments of homogeneous
customers. Toyota will adopt different basis for dividing the whole market. The company will
segment the market on the basis of demographic factors, psychological factors etc.
Targeting-
It refers to targeting a particular segment of customers after segmenting the whole market into
different segments. So that, company can satisfy the needs of targeted segment of customers.
Toyota will target the customers on the basis of luxurious lifestyle of customers, Toyota will also
target the geographic needs of customers.
Positioning-

After segmenting and targeting the customers, company will use various promotional techniques
for positioning the image of brand of the company as well as of the products in the mind of
targeted customers.
Strategic -
Porter's generic strategies- The model helps to evaluate various strategies that a company can
adopt for getting competitive advantage over other companies. Toyota will use Michael porter's
model for determining various strategies(Scholes, 2015).
Cost leadership-
Cost leadership strategy can be used by a company for increasing the market share. To achieve
cost leadership, company have to perform its operations at low cost as compared to other
companies. Toyota can achieve cost leadership through improvement in efficiency of various
facilities. It should control the cost of overheads, reduction in cost of research and development
etc.
Differentiation-
Companies can get competitive advantage over competitors through differentiating their
products. For differentiating the products company must have unique resources such as patent
rights, talented human resource etc. Toyota has launched various types of vehicles in different
market segments and in different rage of prices. It has launched innovative products like Land
Cruiser etc. Differentiation strategy will provide various benefits when the cost of acquiring raw
material is less than the price of the product.
Focus- Company can also adopt differentiation strategy that will help to focus on a particular
group of customers for satisfying their needs.
Tactics- Toyota will utilize Balance Scorecard for measuring the performance of strategic
management plan(Mungai, E. and Ogot, 2017). It will help to provide feedback to the company.
This will help to clarify the goals to all the employees.
Monitoring and controlling-
Toyota will implement a tracking system in the company for reviewing the strategic plan. It will
review the performance on regular basis. On the basis of tracking system, Toyota will make
changes in the plan.

CONCLUSION
The above Report has outlined the porters-five-force model. The model helps the
companies to analyse the competitive forces of the market that can impact the operations of the
company. There are various factors like bargaining power of customers, bargaining power of
suppliers, existing competition, threat of new entrants etc. The model helps to gain competitive
advantage over the competitors. The Report has also explained various strategic directions that
are available to a company through strategic management planning that has included porter's
generic strategies such as focus, cost leadership and differentiation.

REFERENCES
Books and Journals-
Adi, B., 2015. An evaluation of the Nigerian telecommunication industry competitiveness:
application of porter’s five forces model. World 5(3). pp.15-36.
Buckley, P.J., Burton, F. and Mirza, H. eds., 2016. The strategy and organization of
international business. Springer.
Chang, J.F., 2016. Business process management systems: strategy and implementation.
Auerbach Publications.
Higgins, D., Omer, T.C. and Phillips, J.D., 2015. The influence of a firm's business strategy
on its tax aggressiveness. Contemporary Accounting Research.32(2). pp.674-702.
Hu, Y. and Yang, S., 2016, June. The competition situation analysis of environmental service
industry in China: Based on Porter's Five Forces Model. In 2016 13th International
Conference on Service Systems and Service Management (ICSSSM) (pp. 1-5). IEEE.
Mungai, E. and Ogot, M., 2017. Generic strategies and firm performance: An investigation of
informal sector micro-enterprises in Kenya. International Journal of Business and
Management. 12(3). p.148.
Pisano, G.P., 2015. You need an innovation strategy. Harvard Business Review, 93(6), pp.44-
54.
Schaltegger, S., Hansen, E.G. and Lüdeke-Freund, F., 2016. Business models for
sustainability: Origins, present research, and future avenues.
Scholes, M.S., 2015. Taxes and business strategy. Prentice Hall.
Online-
Porter Five Forces Model. 2018. [Online] Available Through : <https://medium.com/product-
gyaan/porters-five-forces-analysis-868945aa5846>
SWOT analysis. 2017. [Online] Available Through :
<https://research-methodology.net/theory/strategy/swot-analysis/>

INTRODUCTION
MAIN BODY
CONCLUSION

REFERENCES
Books and Journals-
Online-