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COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH

COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH. Jiří Franek and Aleš Kresta VŠB- Technical University of Ostrava. Liberec Economic Forum 2013, Sychrov 16. -17. September 2013. Goal and Motivation. Goal and Motivation.

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COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH

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  1. COMPETITIVE STRATEGY DECISION MAKING BASED ON THE FIVE FORCES ANALYSIS WITH AHP/ANP APPROACH Jiří Franek and Aleš Kresta VŠB-Technical University of Ostrava Liberec EconomicForum 2013, Sychrov 16. -17. September 2013

  2. Goal and Motivation • Goal and Motivation • Goal:Implementation of multiple attributedecisionmakingmethod to strategicdecisionmakingwithexample of Porter‘s FiveForcesAnalysis • Motivation • Decisionmakingprocesses in firms • Structureand hierarchy of decisionmaking • Applicationof decisionmakingsupport • usingsimpletools

  3. Presentationoutline • Introduction • The problem of strategicdecisionmaking • Multiple attributedecisionmakingmethods • Analytic hierarchy process • Analytic network process • Application of AHP/ANP on FiveForcesAnalysis • Results and discussion • Presentationoutline

  4. Introduction • Levels of uncertainty are changingbuttheystillseem to have and upward trend • Strategicdecisionmaking has to adapt to multiple attributeproblems • Use of decision support tools • Application and implementation of multiple attributedecisionmakingmethods • Introduction

  5. The problem of strategic DM • Company vision and long-term goals • Flexibility and effectiveness • Competitiveedge • The problem of strategicdecisionmaking

  6. FiveForcesANalysis • The five forces are competitive factors which determine industry competition and include: suppliers, rivalry within an industry, substitute products, customers or buyers, and new entrants (Porter, 1980). • Originalfiveforces model: • Fiveforcesanalysis

  7. Multiple attributedecisionmakingmathods • Ability to evaluate each alternative using a large number of criteria • Estimateweightsor • Findingoptimal (best) alternativeusing: • Multi-leveldecompositionmethods (AHP, ANP and Fuzzy AHP anfuzzy ANP) • Compromised criteria (TOPSIS, VIKOR) • Outranking (ELECTRE, PROMETHEE) • Multiple attributedecisionmakingmethods ❶❷

  8. Multiple attributedecisionmakingmethods • Goal: is a specific (or desired) status of attributes or objectives • Attributes (Criteria): are the traits, characteristics, qualities, or performance parameters of the alternatives • Alternatives: are the possible courses of action in a decision problem • Multiple attributedecisionmakingmethods❶❷

  9. Analytic hierarchy process • Consistsof four steps: • hierarchy design (goal definition, identification of alternatives, identification of evaluation factors, assignment of criteria and factor relationships and finishing of the hierarchy), • identification of priorities (application of pair-wise comparison, point evaluation of significance, repeating of the procedure for all hierarchy levels), • combination and, • evaluation (weighted values of alternative solutions). • Analytic hierarchy process (AHP)

  10. Analytic network process • The ANP feedback approachreplaceshierarchieswithnetworks, and emphasizesinterdependentrelationshipsamong the decisioncriteria and permit more systematicanalysis. • Open structurewithnetworks, loops and clusters of criteria • More demanding on time and logic of pairwisecomparisons • Analytic network process (ANP)

  11. GeneralApplication of AHP/ANP • Generalapplicationof AHP/ANP b) a) Goal Goal AHP (a) ANP(b) wij wij Criteria Criteria Wij Wij Wij Alternatives Alternatives

  12. Application of AHP/ANP on FiveForcesAnalysis • Application of AHP/ANP on FiveForcesAnalysis ❶❷ • Competitors: market share (c1), product range(c2), distribution channels (c3); • Customers: relationship with current customers (c4), customer sensitivity on changes and quality of products and services (c5), potential of new customers (c6); • Substitutes: quality of substitutes (c7), availability of substitutes (c8), upcoming substitutes (c9); • Threat of new entrants: estimated costs of entrance to the market (c9), other barriers to the entrance (c10); • Suppliers: costs of raw materials (c11), currency risk (c12), reliability of suppliers (c13).

  13. Application of AHP/ANP on FiveForcesAnalysis • Application of AHP/ANP on FiveForcesAnalysis❶❷ Utility function of AHP Supermatrix of ANP

  14. Results and Discussion • Results and Discussion ❶❷ Comparison of results of AHP/ANP

  15. Results and discussion • Results and Discussion❶❷ • Proposed model of Porter’s five forces analysis combined with AHP and ANP enhances the original model with structured decision making hierarchy and process • The application can be developed further and could include more variables, levels (internal and external, industry and firm) and quantitative data • Another advantage of the ANP is also the supermatrix approach that describes relations among criteria and alternatives (strategies) better than sole AHP tables. • After short tutorial managers should be able to use this model tool and apply it on ordinary decision-making tasks.

  16. References • References • BARTES, F. New Era Needs Competitive Engineering. In: Liberec Economic Forum 2011, ed. Kocourek, A. pp. 53-60. ISBN: 978-80-7372-755-0. • GHOLAMI, M., H., SEYYED-ESFAHANI, M. An Integrated Framework for Competitive Market Strategy Selection by Using Fuzzy AHP. Tehnickivjesnik / Technical Gazette. 2012, Vol. 19, Issue 4, pp. 769-780. ISSN 1330 3651. • GÖRENER, Ali. Comparing AHP and ANP: An Application of Strategic Decisions Making in a Manufacturing Company. International Journal of Business & Social Science. 2012, Vol. 3, Issue 11, pp. 194-208. ISSN 2219 1933. • JERMAR, M. Knowledge Potential Development of Firms - Inspirations for Human Resources Management. E & M Ekonomie a Management, Vol. 15, Issue 2, pp 85-93, ISSN: 1212-3609. • KOCMANOVÁ, A., DOČEKALOVÁ, M. Environmental, Social, and Economic Performance and Sustainability in SMEs. In: Liberec Economic Forum 2011, ed. Kocourek, A.: pp. 242-251. ISBN: 978-80-7372-755-0. • LIN, H.,W., NAGALINGAM, S.,V., KUIK, S.,S., MURATA, T. Design of a Global Decision Support System for a manufacturing SME: Towards participating in Collaborative Manufacturing. International Journal Of Production Economics, Vol. 136, Issue 1, pp. 1-12, ISSN: 0925-5273. • MERTINS, K., WUSCHER, S., WILL, M. Germany - Towards a Knowledge-Based Economy In: Proceedings Of The 12th European Conference On Knowledge Management Vols 1 And 2, 2011, eds. Lehner, F., Bredl, K., pp 626-636. ISBN: 978-1-908272-09-6. • PORTER, M., E. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Free Press, 1985. • PORTER, M., E. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press, 1980. • POVEDA-BAUTISTA, R., BABTISTA, D., C., GARCIA-MELON, M. ANP Approach for Competitiveness Analysis in Business Sectors. The Case of Venezuela. In: Proceedings of the International Symposium on the Analytic Hierarchy Process 2011. • SAATY, T. L. The Analytic Hierarchy Process: Planning, Priority Setting, Resource Allocation. New York: McGraw Hill, 1980. ISBN 0-07-054371-02. • SAATY, T., L. Decision making with dependence and feedback: the analytic network process. 1. Ed. Pittsburgh: RWS Publications, 1996, 370 s. ISBN 9780962031793. • SAATY, T., L. VARGAS, L. G. Decision Making With The Analytic Network Process Economic, Political, Social And Technological Applications With Benefits, Opportunities, Costs And Risks. Pittsburgh: Springer, 2006. ISBN-10: 0-387-33859-4 • ŠEBESTOVA, J. Entrepreneurial Dynamics in Turbulent Times - Can It Be Effective? In: Liberec Economic Forum 2011, ed. Kocourek, A.: pp. 464-472. ISBN: 978-80-7372-755-0. • TRIANTAPHYLLOU, E. MultiCriteria Decision Making Methods: A Comparative Study. Dordrech: Kluwer Academic Publishers, 2000. ISBN 978-1-4419483-8-0. • VACÍK, E., ZAHRADNÍČKOVÁ, L. Process Performance - A Significant Tool of Competitiveness of Enterprises in Contemporary Era. In: Liberec Economic Forum 2011, ed. Kocourek, A.: pp. 547-556. ISBN: 978-80-7372-755-0. • VELMURUGAN, M., S., NARAYANASAMY, K. The Impact of Decision Support System on SME's and E-Business. In: CreatingGlobalEconomiesThroughInnovation And Knowledge Management: Theory & Practice, Vols 1-3, 2009, ed. Soliman, K., S., pp. 1158-1169. ISBN: 978-0-9821489-1-4. • WOKOUN, R., PELUCHA, M. Knowledge Economy as the Modern Phenomenon of Competitiveness of States and Regions. 14th International Colloquium on Regional Sciences, eds. Klimova, V., Zitek, V., pp 25-36. ISBN: 978-80-210-5513-1. • LG Electronics, Inc., SWOT ANALYSIS. LG Electronics, Inc. SWOT Analysis. 2013, s. 1-8. • Electronic Equipment & Instruments Industry Profile: Global. Electronic Equipment & Instruments Industry Profile: Global. 2011, pp. 1-41. • TARR, G. REPORTER'S NOTEBOOK. TWICE: This Week in ConsumerElectronics. 2013, Vol. 28, Issue 9, pp. 3-3. • LG Electronics Inc." n.d. Company Information, EBSCOhost (accessed March 10, 2013). • ANNUAL REPORT 2011. LG ELECTRONICS, Inc. www.lg.com [online]. [Accessed 2013-05-29]. Availablefrom: http://www.lg.com/global/investor-relations/reports/annual-reportw. • ZMEŠKAL, Z. Application of decomposition multi-attribute methods ahp and anp in financial decision-making. In: Managing And Modelling Of Financial Risks - 6th International Scientific Conference Proceedings, Pts 1 And 2. ed. Čulík, M, 2012, Ostrava: VSB-Technical University of Ostrava, Faculty of Economics, pp. 689-699.

  17. Thankyou for yourattention! Jiří Franek jiri.franek@vsb.cz AlešKresta ales.kresta@vsb.cz

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