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
Motivation
• Decision making processes in firms
• Structure and hierarchy of decision making
• Application of decision making support
using simple tools
GOAL AND MOTIVATION
Goal: Implementation of multiple attribute decision making
method to strategic decision making with example of Porter‘s
Five Forces Analysis
Presentation outline
Introduction
The problem of strategic decision making
Multiple attribute decision making methods
Analytic hierarchy process
Analytic network process
Application of AHP/ANP on Five Forces Analysis
Results and discussion
PRESENTATION OUTLINE
•
•
•
•
•
•
•
Introduction
INTRODUCTION
• Levels of uncertainty are changing but they still
seem to have and upward trend
• Strategic decision making has to adapt to multiple
attribute problems
• Use of decision support tools
• Application and implementation of multiple
attribute decision making methods
The problem of strategic decision making
THE PROBLEM OF STRATEGIC DM
• Company vision and long-term goals
• Flexibility and effectiveness
• Competitive edge
Five forces analysis
FIVE FORCES ANALYSIS
• 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).
• Original five forces model:
• Ability to evaluate each alternative using a large
number of criteria
• Estimate weights or
• Finding optimal (best) alternative using:
Multi-level decomposition methods (AHP, ANP
and Fuzzy AHP an fuzzy ANP)
Compromised criteria (TOPSIS, VIKOR)
Outranking (ELECTRE, PROMETHEE)
MULTIPLE ATTRIBUTE DECISION MAKING MATHODS
Multiple attribute decision making methods ❶❷
• 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 ATTRIBUTE DECISION MAKING METHODS
Multiple attribute decision making methods ❶❷
Analytic hierarchy process (AHP)
ANALYTIC HIERARCHY PROCESS
Consists of four steps:
I. hierarchy design (goal definition, identification of
alternatives, identification of evaluation factors,
assignment of criteria and factor relationships
and finishing of the hierarchy),
II. identification of priorities (application of pairwise comparison, point evaluation of
significance, repeating of the procedure for all
hierarchy levels),
III. combination and,
IV. evaluation (weighted values of alternative
solutions).
Analytic network process (ANP)
ANALYTIC NETWORK PROCESS
• The ANP feedback approach replaces hierarchies
with networks, and emphasizes interdependent
relationships among the decision criteria and
permit more systematic analysis.
• Open structure with networks, loops and clusters
of criteria
• More demanding on time and logic of pairwise
comparisons
General application of AHP/ANP
a)
ANP(b)
b)
Degree
1
3
5
7 W 
Descriptor
Goal
Goal
Criteria
i and j are equal
...
...
W
W11 of criteria
goalpreference
Low
i before j 1n 
wij preference
wij i before j
W21 ofWijcriteria
Strong
...
W2 n 
criteria

Very strong preference of criteria i
...Criteria ...
subbefore
Criteria
criteria
j


Wij
9
Absolute preference
Wn ( n i1)before
Wn ,nj 
alternatives
Wn1 W n 2of...criteria
2, 4, 6, 8 Medium
Wij values for more precise
Wij
preference determination.
Alternatives
Alternatives
GENERAL APPLICATION OF AHP/ANP
AHP (a)
• Competitors: market share (c1), product range(c2),
distribution
channels
(c3);
Low-cost
strategy
with
Goal
Criteria
Sub-criteria
Strategies
• Customers:
relationship with current customers
ST1
sustainable quality
GEOM
Eigenvect
(c4), customer Competitors
sensitivity
on changes and quality
of
c1, c2, c3 S*w/wStrategyor1
(COMP) Weight
ST1products
C1 C2 and
C3 services
EAN
S*w
(c5), potential
of new
(S1)
C1 customers
1
2 (c );
2Customers
1,587
0,479
1,521
3,172
3,176
c 4, c 5, c 6
6 (CUST)
C2
1/2
1 quality
4 1,260of substitutes
0,380
1,181
3,104
0,088
• Substitutes:
(c
),
availability
7
Strategic
Substitutes
Strategy
2
C3 ofdecision
1/2 1/5
1(c
0,464
0,140 c ,substitutes
0,456
3,253
substitutes
),
upcoming
(c
);
(SUBST)
c
,
c
7
8
9
8
9
(S
2)
3,311
3,157
9,529
• Threat of new Threat
entrants:
estimated costs of entrance
of new
c10, c11
to the market (centrants
to the entrance
9), other barriers
(ENTR)
Strategy 3
(c10);
(S3)
Suppliers
c12, c13, c(c
14
• Suppliers: costs
of raw materials
),
currency
risk
11
(SUPP)
(c12), reliability of suppliers (c13).
APPLICATION OF AHP/ANP ON FIVE FORCES ANALYSIS
Application of AHP/ANP on Five Forces Analysis ❶❷
Utility
Supermatrix
functionofofANP
AHP
GOAL COMP CUST SUBST ENTR SUPP c1
c2
c3
c4
c5
c6
c7
c8
c9
ST1
ST2
ST3
c10
c11
c12
c13
c14
0
0
0
0
0,112 0,112 0,112
0
0
c012
0
0
0
0
0
0,184 0,600 0,400
14
2 i
0,584 0,200 0,200
0
0
0
0
0
0
0
0
0,232 0,200 0,400
0,605 0,582 0,332
0
0 c1 0
Criteria
c2 0 c03 0 c4 0 c50 0c6 0 c7 0 c08 0 c9 0 c010 0 c11 0 c012 0 c13 0 c014 0 U1(a0i
COMP 0,464 1,000 0,196 0,292 0,517 0,294
0
0
0
0
0
0
0
0
0
0
0
0
0
0 0,464 0,464 0,464
0,200 0,3060,292
1,000 0,146
0,070 0,238
0,1010,1370,127
0,052
0,037
0,044 0 0,015
0,1000 0,033
0,0330,200 0,200
CUST Weights
0
0
0 0,021
0
0
00,0590 0,016
0
0
0
0
0 0,200
GOAL
SUBST 0,112 0,087 0,435
ENTR 0,058 0,466 0,299
SUPP 0,166 0,140 0,070
0,630
c1
0
0
0,152
c2
0
0
0,218
c3
0
0
ST1
ST2
ST3
c4
c5
c6
c7
c8
c9
1,000
0,077 0,069
0
0
0
Criteria
0
Equal
0
0
Weights
0
0
0
0
0
0
0
c1 0,637 c2 0
0
0
4
0
0
0
c50
0
1,000
0
0
6
7
1,000
0
0
0,258
0
0,105
0
0,332
0
0
0
0
0
0
0
0
0
0
c03
c
0
0
0
0
c08
0
0
0
0
0
c12
c13
c14
ST1
0
0
0
0
0
0
0
0
0
0
0,200
ST2
ST3
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
c
c
0
0
c010
0
0
0
0
0
0
0
0
1,000
0
0
1,000
0
0
0
0
c9
0
1,000
c11
c13
c
U (a )
0,126
0,030 00,044 0 0,127
0,052
0,0210 0,067
0,1060 0,028 00,150 0 0,050
0,1200 0,040
0,040
0,528
0
0
0
0
0
0
0
0
0 0,291 0,109 0,528
0
ST10
0
ST20
0
ST30
c10
c11
0
0,661 0,471
0,466 1,000
0,1430,5000,140
0,128
0,687
0,630 0 0,117
0,7090 0,637
0,5580,058 0,450
0,058
0
0
0 0,359
0
0
00,1130 0,405
0
0
0
0
0 0,058
0,091 0,168 1,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0 0,166 0,166 0,166
0,208 0,433
0,286 0 0,333
0,5170 0,127
0,3790 0,481
0,151 0 0,268
0,1130 0,105
0,122 0,251
1,000 0,276
0
0
0
0
0
0
0
0
0
0
0 0,479 0,595 0,230
1,000
0
0
0
0
0
0
0
0
0
0
0 0,380 0,128 0,122
0,131 0,100
0,571 00 0,528
0,595
0,12400 0,186
0,50800 0,114
0,218 00 0,614
0,17900 0,258
0,320 0,298
1,000
0
0
0
0
0
0
0
0
0
0
0 0,140 0,276 0,648
0
0,140
0,140
0
0
0
0 0,359
0
0
00,1130 0,405 1,000
0
0
0 0,105
0,661
0,466 00,143 0 0,140
0,128
0,687
0,630 0 0,117
0,7090 0,637
0,5580,309 0,438
0,750
0
0
0
0
0
0
0
0
0
0
0
0 1,000 0
0
0
0 0,250 0,833 0,750
0,250
1,000 0
0,250
0
0
0
0
0 0,517
0
0
00,3790 0,481
0
0
0 0,750
0,208
0,433
0,286 0 0,333
0,276
0,127
0,151 0,268
0,1130 0,105
0,1220,167 0,240
0,600
0
0
0
0
0
0
0
0
0
0
0
0
0
0 1,000 0
0 0,582 0,168 0,600
0,131
0,100
0,595
0,186
0,218 0 0,614
0,1791,0000,258
0,3200,484 0,322
0,2000,528
0,200
0
0
00,571
0
0
0 0,124
0
0
00,5080 0,114
0
0
0
0
0 0,109
0
0
0
0
0
0
0
0
0
0
0
0
0
0 1,000 0,309 0,349 0,200
0,661 0,466 0,143 0,140 0,128 0,359 0,687 0,113 0,405 0,630 0,117 0,709 0,637 0,558 1,000 0
0
0,208 0,433 0,286 0,333 0,276 0,517 0,127 0,379 0,481 0,151 0,268 0,113 0,105 0,122 0 1,000 0
0,131 0,100 0,571 0,528 0,595 0,124 0,186 0,508 0,114 0,218 0,614 0,179 0,258 0,320 0
0 1,000
APPLICATION OF AHP/ANP ON FIVE FORCES ANALYSIS
Application of AHP/ANP on Five Forces Analysis ❶❷
Results and Discussion ❶❷
Comparison of results of AHP/ANP
Five forces ANP
Criteria
SubLocal
Global
Equal criteria
Criteria
Criteria
priorities criteria priorities priories
priorities
priorities
c1
0,630
0,292
0,126
Alternative
generic
strategies
ANP priorities
c2
0,151
0,070
0,030 COMP
COMP
0,464
0,342
Low-cost strategyc3with sustainable
ST1
0,431
0,218 quality
0,101
0,044
c4
0,637 the brand
0,127 and
0,127
Differentiation strategy
to enhance
ST2
CUST
0,200
c5
0,258
0,052
0,052 CUST 0,2470,195
address new
customers
c6
0,105
0,021
0,021
Strategy of focus con
high-tech0,333
products to
gain and 0,067
0,037
7
ST3
0,322
SUBST
0,112
csuperiority
0,528
0,059
0,106 SUBST
0,126
sustain technical
8
c9
0,140
0,016
0,028
c10
0,750
0,044
0,150
ENTR
0,058
ENTR
0,202
c11
0,250
0,015
0,050
c12
0,600
0,100
0,120
SUPP
0,166
c13
0,200
0,033
0,040 SUPP
0,137
c14
0,200
0,033
0,040
Criteria
SubGlobal
Local
criteria priorities priorities
c1
0,058
0,479
AHP
U
(a
)
AHP
U
(a
1
i
2
i)
c2
0,026
0,214
c3 0,450
0,0370,4380,307
c4
0,044
0,402
0,251
0,240
c5
0,038
0,348
c6
0,027
0,250
c7 0,298
0,0500,3220,491
c8
0,035
0,345
c9
0,017
0,164
c10
0,064
0,588
c11
0,045
0,412
c12
0,052
0,499
c13
0,023
0,227
c14
0,028
0,274
RESULTS AND DISCUSSION
Five forces AHP
Results and Discussion ❶❷
RESULTS AND DISCUSSION
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.
References
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: Creating Global Economies Through
Innovation 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 Consumer
Electronics. 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]. Available from: http://www.lg.com/global/investorrelations/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.
REFERENCES
BARTES, F. New Era Needs Competitive Engineering. In: Liberec
Economic Forum 2011, ed. Kocourek, A. pp. 53-60. ISBN: 978-80-7372755-0.
GHOLAMI, M., H., SEYYED-ESFAHANI, M. An Integrated Framework for
Competitive Market Strategy Selection by Using Fuzzy AHP. Tehnicki
vjesnik / 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 KnowledgeBased 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 0-07-05437102.
SAATY, T., L. Decision making with dependence and feedback: the
analytic network process. 1. Ed. Pittsburgh: RWS Publications, 1996, 370
s. ISBN 9780962031793.
Thank you for your attention!
Jiří Franek
jiri.franek@vsb.cz
Aleš Kresta
ales.kresta@vsb.cz