Porter’s Diamond Model: Industrial Sector in Jordan

Adnan Nabil Shammout

Industrial Engineering Department,
Faculty of Engineering and technology, University of Jordan
Jordan
E-mail: eng_shammout@hotmail.com

Supervised by: Dr. Ibrahim A. Rawabdeh

Industrial Engineering Department,
Faculty of Engineering and technology, University of Jordan
Jordan
E-mail: rawabdeh@ju.edu.jo

ABSTRACT

This paper presents a model that uses to evaluate a

strategic advantage of product, company, sector and Porter’s Five Forces
region using Gap Analysis Method. A model is suggested
to help country and company to find the gap between its Power of Power of
position and target that each one want to satisfy .Porter’s Suppliers Buyers
forces will be the key of preceding this model. The results
showed “where”, “what” and “how “dimensions .Where Rivalry among
we are? What are our responses to these forces? And how competitors
can we cure these weaknesses?

Threat of new Threat of

KEYWORDS entrants substitutes

Main keywords are Porter‘s Forces, Gap Analysis,

Normalization and PF – GA Model. Figure 1: Porter‘s Forces

Together, the strength of the five forces determines the

1. INTRODUCTION
The economic structure of an industry is not an accident.
Its complexities are the result of long-term social trends
and economic forces. But its effects on you as a business
manager are immediate because it determines the
competitive rules and strategies you are likely to use.
Learning about that structure will provide essential insight
for your business strategy.
Michael Porter has identified five forces that are widely
used to assess the structure of any industry. Porter‘s five
forces are the: Bargaining power of suppliers, bargaining
power of buyers, Threat of new entrants, Threat of
substitutes, and Rivalry among competitors as shown in
Figure 1.
profit potential in an industry by influencing the prices,
costs, and required investments of businesses—the
elements of return on investment. Stronger forces are
associated with a more challenging business environment.
To identify the important structural features of your
industry via the five forces, you conduct an industry
analysis that answers the question, ―What are the key
factors for competitive success?‖
2. BACKGROUND AND LITERATURE
REVIEW
Many papers discussed the competitive advantage and
others discussed porter forces, but there is no clear idea
how to evaluate the competitive advantage using the effect
of porter forces.

Papers used Matrix Model as a tool to evaluate the effect

of porter‘s forces (PF) on nation, sector, company and
product. Matrix Model is implemented on many steps:

1
  Answer questions of each factor.
 Give weight of each factor.
 Rating each factor.
 Calculate the average score, and the result will be
our competitive advantage on the market.
3. THE PF-GA MODEL
Porter‘s Forces – Gap Analysis Model is integration tool
to evaluate the competitive advantage after analysis the
effect of porter‘s forces.

2.1 Why we searching for a new tool to PF-GA Model integrates the idea of porter‘s Forces using
evaluate effect of porter’s forces? the idea of gap analysis, with this model we can find the
gap between actual and target and as we know that
competitive advantage evaluation can be performed on
nation, sector, company and product, also this model can
Matrix Model has many limitations as it evaluates porter‘s
be implemented on many stages as shown in Table 1:
forces regard to questions which vary from force to
another, so we need to normalize number of questions to
1. Product Stage: this stage helps us to find the position
reduce them effect.
of specific product under the umbrella of specific
company.
Result of Matrix Model gives us our competitive
2. Company Stage: this stage helps us to find the
advantage score but we need a tool to find our position in
position of specific company under the umbrella of
the market, the target which we want to satisfy and the
specific sector.
Gap between these two points. Gap Analysis is the best
3. Sector Stage: this stage helps us to find the position of
idea to find this gap.
specific sector under the umbrella of specific nation.
4. Nation Stage: this stage helps us to find the position of
2.2 Definition of Gap Analysis specific nation under the umbrella of the world wide
measurements.
In business and economics, gap analysis is a business 5. Hybrid Stage: combination between two stages.
resource assessment tool enabling a company to compare
its actual performance with its potential performance.
Product Company Sector Nation World
If a company or organization is under-utilizing resources it Wide
currently owns or is forgoing investment in capital or Product
Company Stage 1
technology then it may be producing or performing at a Sector Stage 5 Stage 2
level below its potential. This concept is similar to the Nation Stage 5 Stage 5 Stage 3
base case of being below one's production possibilities World Wide Stage 5 Stage 5 Stage 5 Stage 4
frontier. Table 1: PF-GA Stages

This goal of the gap analysis (GA) is to identify the gap
between the optimized allocation and integration of the
inputs and the current level of allocation. This helps
provide the company with insight into areas that have
room for improvement. The gap analysis process involves
determining, documenting and approving the variance
between business requirements and current capabilities.
Gap analysis naturally flows from benchmarking and other
assessments. Once the general expectation of performance
in the industry is understood it is possible to compare that
expectation with the level of performance at which the
company currently functions. This comparison becomes
the gap analysis. Such analysis can be performed at the
strategic or operational level of an organization.
3.1 Model Implementation
This model has been implemented in many steps to
evaluate actual position and how we far from the target
one, so we have to pass through below points till we
enhance the actual position:
1. Answer all questions in each section on questioner
Table 4; each section presents a specific factor with
multiple rated choices. Rates between zero and four;
zero for minimum response and four for maximum
response.
2. Calculate the weight of each factor; we use a
questioner form to calculate the impact of each factor.
We can calculate weights on company, sector or
nation.

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We have to fill 25 questioners by experts and who are  Partnering
related to this type of studies .we have to calculate the Reducing Power of  Supply chain management & training
score for each section then find the weight related to Suppliers  Increase dependency
 Build knowledge of supplier costs
whole questioner then find the weight over all questioners  Take over a supplier
and this will be the final weight of each factor.
 Partnering
Reducing Power of
 Supply chain management
3. Fill the Table 5 to normalize the effect of questions Customers
 Increase loyalty
number, and then calculate actual position and target  Move purchase decision away from price
position depends on selected stage.  Create a marketing / brand
Reducing the Treat
 Patents, protection of intellectual property
of New Entrants
𝑺𝒆𝒄𝒕𝒊𝒐𝒏 𝑷𝒐𝒊𝒏𝒕𝒔  Tie up with suppliers & distributors
𝑵𝒐𝒓𝒎𝒂𝒍𝒊𝒛𝒊𝒂𝒕𝒊𝒐𝒏 𝒐𝒇 𝒆𝒂𝒄𝒉 𝒇𝒂𝒄𝒕𝒐𝒓 (𝑵𝒊) = 𝑵𝒖𝒎𝒃𝒆𝒓 𝒐𝒇 𝑸𝒖𝒆𝒔𝒕𝒊𝒐𝒏𝒔
(1)  Retaliation tactics
 Legal actions
𝑵𝒊 Reducing the Threat  Increase switching costs
𝑨𝒄𝒕𝒖𝒂𝒍 𝒑𝒐𝒔𝒊𝒕𝒊𝒐𝒏 𝒐𝒇 𝒆𝒂𝒄𝒉 𝒇𝒂𝒄𝒕𝒐𝒓 (𝑨𝒊) = 𝟒
(2) of Substitutes  Customer surveys
 Enter substitute market
 Accentuate differences (real or perceived)
𝑾𝒆𝒊𝒈𝒉𝒕 𝒐𝒇 𝒆𝒂𝒄𝒉 𝑭𝒂𝒄𝒕𝒐𝒓
𝑻𝒂𝒓𝒈𝒆𝒕 𝒑𝒐𝒔𝒊𝒕𝒊𝒐𝒏 𝒐𝒇 𝒆𝒂𝒄𝒉 𝒇𝒂𝒄𝒕𝒐𝒓 (𝑻𝒊) = (3)  Avoid price competition
𝑴𝒂𝒙 𝑾𝒆𝒊𝒈𝒉𝒕  Differentiate your product
Reducing the  Buy out competition
4. Draw gap chart as shown in Figure 2 then measure the Competitive Rivalry  Reduce industry over-capacity
gap between the actual and the target, to fulfill this  Focus on different segments
 Communicate with competitors
goal we use A/T ratio to find how far we are from the
Table 3: Suggested Corrective Actions
target and compare the result to below table.

𝑨𝒊 4. CASE STUDY
𝑨𝒄𝒕𝒖𝒂𝒍 𝒕𝒐 𝑻𝒂𝒓𝒈𝒆𝒕 𝑹𝒂𝒕𝒊𝒐 (𝑨/𝑻) = (4)
𝑻𝒊
As we mentioned before, the goal of this paper is finding
competitive advantage of product, company, sector or
A/T Ratio Position nation by understanding responses and impacts of porter
>0.90 Benchmarking forces.
0.71 – 0.90 Right Direction
0.36 – 0.70 Stuck in Middle Our case study will be on Industrial sector in Jordan. We
0.16 – 0.35 Just Observed Forces chose Food industry as an example in this sector and Al
0.00 – 0.15 Bad Response NASEM for Food Industries (JABRI) as part of food
Table 2: A/T ratio indicator industry in Jordan, and Tutu as a specific product.

Result shows us how far we are from the target, but we

have to find how far each factor from the target to suggest
corrective action needed as in next section.
3.2 What type of corrective action we need?
After implementation of PF-GA Model, may be you will
find that one force has more effect than other or it‘s far
from the target, so force effectiveness should be reduced
or our response should be improved by following:
4.1 Overview
Al NASEM for food industries (Jabri) is one of leadership
in companies in Jordan in food industry. It has a high
Varity in chocolate and ice cream products.
Tutu is one of its important products with high brand to all
segments of customers. There a rare number of
competitors in this type of products. It is a combination
between biscuits, marshmallow and chocolate, the secret
is the combination of gradients with low price which gives
Tutu a wide market in and out Jordan.

3
4.2 Implementation
In this section we want to identify the Gap between our
product (Tutu) and our Company target which means that
we want to implement stage 1 Model by following steps:
1. Answer the questioner on Table 4 by a sample of
experts on the level of whole company which will help
us to get the impact of each of porter‘s forces on the
company.
2. Answer the questioner again on level of our product
and fill Table 5, and by doing calculation mentioned
before you can identify the actual position of product
and the target on the company level, then find the gap
and the corrective action needed.
4.3 Results and Analysis
After doing questioner on our sample of experts; weights
are respectively 25%, 20%, 22%, 18% and 15 % on
company level, so our target will be 100%, 80%, 88%,
72% and 60% respectively.
Now on product level we will find the score of each factor
and fill the table in appendix then normalize the effect of
questions number then find the actual position which will
be 75%,81%,57%,80% and 75% respectively.
After calculation we will find that A/T ratio = 0.9 which
means that we are in the right direction to get the high
response and reduce the impact of these forces ,but from
the gap chart on Figure 2 we will find that we need to
reduce the effect of competitive rivalry and threat of new
entry.
To reduce the effect of these two forces we have to choose
some strategies which mentioned before as focus on new
segment or differentiate product…etc.
Results show us that some actual better than target which
means that it passed the level of company and goes to
higher level.
5. ACKNOWLEDGEMENT
I wish to thank Dr.Ibrahim A. Rawabdeh of Industrial
Engineering Department, University of Jordan, Jordan, for
his support and advice.
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6. CONCLUSION
In this paper we engineered the concept of porter forces;
we used Gap Analysis as an effective tool to find the gap
between our actual position and the target which we want
to fulfill. Gap Analysis gives flexibility to the model
through its stages beginning by questioner and ending by
corrective action. Our model can be implemented in many
levels as company, sector or nation, which helps us to
evaluate competitive advantages and weaknesses in
mentioned levels, this idea fulfilled in our case study
where we found the actual position of jabri‘s product
regard to the company at all as a target then we found
weaknesses and suggest corrective action to override these
weaknesses.
There are many suggestions for future work, we can work
to identify if questions in each section enough or not?
Then we can fill more than 25 questioners over more than
one product, and try to find a methodology to compare
between the score of each product but I think it‘s difficult
because many factor involved in calculations. Last
suggestion is to understand cross-impact of forces; I mean
the effect of each force on another one.
7. REFERENCES
Michael E. Porter, (Revised May 30, 2002), ―Competition and
Antitrust: A Productivity-Based Approach‖, Harvard
Business School.
Michael E. Porter,(1989), ‗‗Strategy in deal-based Industries‘‘,
Cambridge, MA.
Porter, M.E. (1996), ‗‗what is strategy?‘‘, Harvard Business
Review, November/December.
Porter, M.E. (1998), Competitive Strategy: Techniques for
Analyzing Industries and Competitors, Free Press, New York.
Porter, M.E. (2001), ‗‗Strategy and the internet‘‘, Harvard
Business Review, March.
Balm, G.J. (1992), Benchmarking: A Practitioner‘s Guide for
Becoming and Staying Best of the Best, QPMA Press,
Schaumburg, IL
Do and what they cannot Do. Available at
http://www.themanagement.de/Ressources/Managementmodelle
.htm
Dagmar Recklies: Porters Five Forces. Available at
http://www.themanagement.de/Ressources/P5F.htm
 Impact Rate on Company
Porter Forces
0 1 2 3 4
Competitive Rivalry between Existing Players
How Many Competitors to the company? Too Many Many Medium Some Rare
How you evaluate fixed cost of production? V.High High Medium Low V.Low
Are products perishable and need to be sold quickly? V.High High Medium Low V.Low
Are products differentiated? Rare Poor Normal Special Unique
How can evaluate the easiness of customer's switching? V.Easy Easy Medium Difficult V.Difficult
Are there exit barriers facing company? Too Many Many Medium Some Rare
How you can define the rate of industry growth? V.Low Low Medium High V.High
Threat of Substitutes
Does Company offer extra benefits compare to other? Rare Poor Same Special Unique
How can define the easiness of substitute products? V.Easy Easy Medium Difficult V.Difficult
Does customer have brand loyalty? V.Low Low Medium High V.High
How many Substitute products? Too Many Many Medium Some Rare
Threat of New Entrants
Does customer have brand loyalty? V.Low Low Medium High V.High
How you define start-up cost? V.Low Low Medium High V.High
Are products of new entry differentiated? Unique Special Normal Poor Rare
How you can define switching cost? V.Cheap Cheap Medium Expensive V.Expensive
How you can define access to inputs for new entry? V.Easy Easy Medium Difficult V.Difficult
Are there government policies to entry? Rare Some Medium Many Too Many
Is the market saturated? V.Low Low Medium High V.High
Power of Customers
Is there concentration on one buyer? V.High High Medium Low V.Low
How can define the easiness of substitute products? V.Easy Easy Medium Difficult V.Difficult
How you can define switching cost? V.Cheap Cheap Medium Expensive V.Expensive
Are customers price sensitive? V.High High Medium Low V.Low
How you can evaluate the importance of company's products? V.Low Low Medium High V.High
Power of Suppliers
How many suppliers are there? Rare Some Medium Many Too Many
Can they substitute inputs? V.Difficult Difficult Medium Easy V.Easy
How you can define switching cost between suppliers? V.Expensive Expensive Medium Cheap V.Cheap
What type of strategy they use? No Other Forward Backward Hybrid
Table 4: Questioner Form

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 SECTION # OF SECTION STRATEGIC IMPACT SECTION
SECTION POINTS QUEST AVG SECTION % FACTOR TARGET
1 Competitive Rivalry between Existing Players 21 7 3.00 75% 25.0% 100.0%
2 Threat of Substitutes 13 4 3.25 81% 20.0% 80.0%
3 Threat of New Entrants 16 7 2.29 57% 22.0% 88.0%
4 Power of Customers 16 5 3.20 80% 18.0% 72.0%
5 Power of Suppliers 12 4 3.00 75% 15.0% 60.0%
SUM: 100%
Max Factor 25.0%
Total Actual (A) 368.4%
Total Target (T) 400.0%
A/T Ratio 0.9

Table 5: PF –GA Calculations

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 Porter Forces
1 Competitive Rivalry
between Existing
Players
100.0%

80.0%

60.0%

40.0%
5 Power of Suppliers 2 Threat of Substitutes
20.0%

0.0%
TARGET

ACTUAL

3 Threat of New
4 Power of Customers
Entrants

Figure 2: GAP Chart