Business Analysis
Answers
Professional Level – Essentials Module, Paper P3
Business Analysis
June 2008 Answers
Tutorial note: These model answers are considerably longer and more detailed than would be expected from any candidate in the examination. They should be used as a guide to the form, style and technical standard (but not in length) of answer that candidates should aim to achieve. However, these answers may not include all valid points mentioned by a candidate – credit will be given to candidates mentioning such points.
1
(a)
One possible approach to answering this question is provided by using Michael Porter’s five forces framework. The framework is designed to analyse ‘the structure of an industry and its competitors’ (Porter, 2004). There are five inter-connecting forces in the framework; potential entrants (the threat of entry), the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes and the competitive rivalry that exists amongst existing organisations in the industry. Each of these is now considered in turn in the context of AutoFone, focusing on those factors that have a significant effect on their industry.
It must be recognised that other models might have been used in framing this answer and credit will be given for using appropriate models in the context of the AutoFone retail shops division.
Potential entrants (the threat of entry)
New entrants into an industry bring new capacity and resources with which they aim to gain market share. Their entry may lead to price reductions, increased costs and reduced profitability for organisations already in that market. Potential entrants may be deterred by high barriers to entry and by the threat of aggressive retaliation from existing competitors in the industry.
In the context of AutoFone’s retail sales business, the following barriers appear to be the most significant:
Access to supply channels
The retail outlets of AutoFone were established before
Professional Level – Essentials Module, Paper P3
Business Analysis
June 2008 Answers
Tutorial note: These model answers are considerably longer and more detailed than would be expected from any candidate in the examination. They should be used as a guide to the form, style and technical standard (but not in length) of answer that candidates should aim to achieve. However, these answers may not include all valid points mentioned by a candidate – credit will be given to candidates mentioning such points.
1
(a)
One possible approach to answering this question is provided by using Michael Porter’s five forces framework. The framework is designed to analyse ‘the structure of an industry and its competitors’ (Porter, 2004). There are five inter-connecting forces in the framework; potential entrants (the threat of entry), the bargaining power of suppliers, the bargaining power of buyers, the threat of substitutes and the competitive rivalry that exists amongst existing organisations in the industry. Each of these is now considered in turn in the context of AutoFone, focusing on those factors that have a significant effect on their industry.
It must be recognised that other models might have been used in framing this answer and credit will be given for using appropriate models in the context of the AutoFone retail shops division.
Potential entrants (the threat of entry)
New entrants into an industry bring new capacity and resources with which they aim to gain market share. Their entry may lead to price reductions, increased costs and reduced profitability for organisations already in that market. Potential entrants may be deterred by high barriers to entry and by the threat of aggressive retaliation from existing competitors in the industry.
In the context of AutoFone’s retail sales business, the following barriers appear to be the most significant:
Access to supply channels
The retail outlets of AutoFone were established before