QUESTIONS:

2018:
Describe any three models of Business Analysis and make a case for which of
these models is ideal (best suited) for understanding a business’ external and
internal environments. Use relevant examples and/or scenarios to underpin your
answer.

2017:
Elaborate on TWO models suited for analysing a firm’s external (macro)
environment, and make a case for which of these models is best suited for
business analysis. Use scenarios and/or examples to justify your choice of the
ideal model.

2016:
Discuss in detail Michael’s Porters Five Forces and Value Chain models of analysis,
and make a case for which of these models is ideal (best suited) for business analysis.
Use scenarios/examples to justify your choice of the ideal model.

2015:
Elaborate on any three models of analysis, and make a case for which of these models
is best suited (ideal) for business analysis. Use scenarios and/or examples to justify
your choice of the ideal model.

2014:
Critically discuss how different models of analysis can help firms understand their
internal and external business environments.
PPQ:
Describe any three models of Business Analysis and make a case for which of
these models is ideal (best suited) for understanding a business’ external and
internal environments. Use relevant examples and/or scenarios to underpin your
answer.

ANSWER:
Business analysis models are useful tools and techniques that can help you understand your
organizational environment and think more strategically about your business. There are many
different techniques that are available, but some come to the forefront more frequently than
others do. These include Michael Porter’s 5 Forces Model, Value Chain Analysis, SWOT
(strengths, weaknesses, opportunities, threats) analysis and PESTLE (political, economic, social,
technological, legal and environmental) analysis and scenario planning. Each model helps
businesses not only understand their internal streangths and weaknesses but also outline the
external factors that can affect their performance and affect their profitability.

Michael Porter, in his text Competitive Advantage (1985), combined two levels of analysis at
the industry level, the Five forces model and Value chain analysis.
In the five forces model, Porter evaluated the attractiveness of particular industries, industries
firms are currently operating in and industries they wish to enter. The tool was created by
Harvard Business School professor Michael Porter, to analyze an industry's attractiveness and
likely profitability. Since its publication in 1979, it has become one of the most popular and
highly regarded business strategy tools.
Porter recognized that organizations are likely keep a close watch on their rivals, but he
encouraged them to look beyond just the actions of their competitors and examine what other
factors could impact their business environment. He identified five forces that make up the
competitive environment, and which can generate increased profitability for firms. According to
Porter, these Five Forces are the key sources of competitive pressure within an industry.
The first factor is Competitive Rivalry. This looks at the number and strength of a firms
competitors. This identifies the number of rivals the firms has and the quality of their goods and
services of their rivals compared to their goods and services. Where rivalry is intense, firms can
attract customers with techniques such as aggressive price cuts and high-impact marketing
campaigns because in markets with lots of rivals, a firms suppliers and buyers can go elsewhere
if they feel that they're not getting a good deal from them and are getting a better deal
elsewhere. On the other hand, where competitive rivalry is minimal, or rival firms products are
inferior, then the firm is likely to have tremendous strength and healthy profits.

The second factor is Supplier Power. This is determined by how easy it is for a firms suppliers to
increase their prices. The more suppliers a firm has to choose from, the easier it will be for
them to switch to a cheaper alternative. But the fewer suppliers they have, the more the firm
will be dependent on them and a result, the stronger their position and their ability to charge
higher prices will be, hence this will impact the firms profit.
The third factor is Buyer Power. Here, the firms has to identify how easy it is for buyers to drive
their prices down. This is determined by how many buyers are there and how big are their
orders? Firms also identify how much would it cost them to switch from their products and
services to those of a rival? They also if their buyers are strong enough to dictate terms to
them? When firms have many customers, their power increases, but if they have a few
customers, they have power over the firm.
The fourth factor is Threat of Substitution. This refers to the likelihood of a firms customers
finding a different, cheaper products/services elsewhere and switching to them. A substitution
that is easy and cheap to make can weaken their position and threaten their profitability.
The fifth factor is the Threat of New Entry. A firms position can be affected by the ease of
competitors ability to enter the market they are operating in. If it takes little money and effort
to enter the market and compete effectively, the firm has little protection for their key
technologies and as a result rivals can quickly enter the market and weaken their position. If
they have strong and durable barriers to entry, then they can preserve a favorable position and
take fair advantage of it.

The second model is Porter’s Value chain analysis. Porter's Value Chain is a useful strategic
management tool. It consists of a number of activities, namely primary activities and supporting
activities. Primary activities have an immediate effect on the production, maintenance, sales
and support of the products or services to be supplied. These activities consist of the following
elements, Inbound Logistics, Production, Outbound logistics, Marketing and Sales and Services.
Inbound Logistics consists of all the processes that are involved in the receiving, storing, and
internal distribution of the raw materials of a product or service. Production involves all the
activities that convert inputs of products or services into semi-finished or finished products. The
relationship with the suppliers is essential to the creation of value. Operational systems are the
guiding principle for the creation of value. Examples include production line of the firm.
Outbound logistics include all activities that are related to delivering the products and services
to the customer. These include storage, distribution systems and transport. Marketing and sales
include all the processes related to putting the products and services in the markets including
managing and generating customer relationships. Service includes all the activities that
maintain the value of the products or service to customers as soon as a relationship has
developed after the sale of services and products to the final customer.
The Supporting Activities in the value chain model support the primary functions above. They
consist of Procurement, HRM, Technological development and Infrastructure. Procurement
consists of the activities that the business carries out to get the resources it needs to operate.
For example, finding vendors and negotiating the best prices. HRM is responsible for how well
the business recruits, hires, trains, motivates, rewards, and retains its workers. People are a
significant source of value, so businesses can create a clear advantage over their competitors
with good HR practices. Technological development are activities that relate to managing and
processing information, as well as protecting a company's knowledge base. Minimizing
information technology costs, staying current with technological advances, and maintaining
technical excellence are sources of value creation. Infrastructure are a company's support
systems, and the functions that allow it to maintain daily operations. Accounting, legal,
administrative, and general management are examples of necessary infrastructure that
businesses can use to their advantage. This analysis converts into useful strategic knowledge
when the information is used to adjust the businesses use of resources so as to meet
benchmark cost-reduction targets.
It works by breaking an organization's activities down into strategically relevant pieces, so that
they can see a fuller picture of the cost drivers and sources of differentiation, and then make
changes appropriately.
Porter argued that a company is profitable when the value it creates exceeds the cost of
performing the value-chain functions. He believed firms can either produce at a lower cost than
competitors or to construct the value-chain function in such a way that a premium price can be
charged because the service or product they are providing is in some way differentiated from
competitor products/services.
Porter's Value Chain focuses on systems, and how inputs are changed into the outputs
purchased by consumers. Using this viewpoint, Porter described a chain of activities common to
all businesses, and he divided them into primary and supporting activities.