Advise Ruhi on whether Porter's five forces analysis is the most useful approach when developing S2U's new business strategy.

Mark scheme

Marking points from the official mark scheme (Feb/Mar 2023). The mark or mark type is shown in brackets.

1. [AO1 Knowledge and understanding (3 marks)] Knowledge can be awarded for any relevant business knowledge.
2. [AO1 Knowledge and understanding (3 marks)] The meaning and purpose of business strategy; plan of action to achieve the vision and objectives of a business and upon which decisions are made.
3. [AO1 Knowledge and understanding (3 marks)] The meaning and purpose of strategic management (the entire process of identifying, choosing and implementing the planning of business activity): analysis (identifying options and understanding the business, market and external environment), choice (between strategic options) and implementation (the decision making of implementing a strategic decision).
4. [AO1 Knowledge and understanding (3 marks)] Understanding of Porter's five forces (do not reward repetition of Appendix 4, but understanding of the forces/model is rewardable).
5. [AO1 Knowledge and understanding (3 marks)] Other approaches to develop business strategy, including; blue ocean strategy, scenario planning, SWOT analysis, PEST analysis, core competence framework, Ansoff matrix, force field analysis, decision trees,
6. [AO2 Application (2 marks)] Data about from Appendix 4;
7. [AO2 Application (2 marks)] Threat of new entrants; few barriers to entry, price is more important than brand loyalty to most customers.
8. [AO2 Application (2 marks)] Bargaining power of buyers; well-informed customers, highly price sensitive.
9. [AO2 Application (2 marks)] Intensity of competitive rivalry; S2U is market leader in country Z, growing market size, many international competitors
10. [AO2 Application (2 marks)] Bargaining power of suppliers; software suppliers have monopoly power, hardware is a very competitive market
11. [AO2 Application (2 marks)] Threat of substitutes; many substitutes, little differentiation between services
12. [AO2 Application (2 marks)] S2U's sales are declining.
13. [AO2 Application (2 marks)] Kareem (previous CEO) left to pursue a TV career. Previous success of S2U may have been largely based on Kareem's success.
14. [AO2 Application (2 marks)] Ruhi has just become CEO (in 2022) after Kareem left S2U.
15. [AO2 Application (2 marks)] Ruhi has asked an external management consultant business to analyse the market.
16. [AO2 Application (2 marks)] New business strategy needed to enable growth.
17. [AO3 Analysis (8 marks)] Analysis for the usefulness of Porter's five forces (analysis of the content of the appendix L1 AN and L2 AN );
18. [AO3 Analysis (8 marks)] Analysis of the external environment of the threat of new entrants:
19. [AO3 Analysis (8 marks)] Few barriers to entry so S2U with a large market share may be able to use their monopoly power to keep out competitors.
20. [AO3 Analysis (8 marks)] S2U may benefit from economies of scale which also reduce the threat of new competitors.
21. [AO3 Analysis (8 marks)] S2U uses dynamic pricing, and having a large market share may be able to reduce price to keep out competition.
22. [AO3 Analysis (8 marks)] Analysis of the bargaining power of buyers:
23. [AO3 Analysis (8 marks)] Transparent market, especially with IT systems being well-documented on internet. S2U may need to focus on what makes their service better than what is available.
24. [AO3 Analysis (8 marks)] Economies of scale may allow S2U to lower prices better than many competitors.
25. [AO3 Analysis (8 marks)] Analysis of intensity of competitive rivalry:
26. [AO3 Analysis (8 marks)] Market leader in country Z may give S2U a competitive advantage and economies of scale.
27. [AO3 Analysis (8 marks)] Market is growing – may allow S2U to achieve their increase in sales.
28. [AO3 Analysis (8 marks)] Outside of country Z market is more competitive – may lead to continued reduction in profit margin (as prices drop to gain international market share).
29. [AO3 Analysis (8 marks)] Analysis of bargaining power of suppliers:
30. [AO3 Analysis (8 marks)] Software suppliers have the power to set prices which may make it difficult for S2U to control their prices as their costs will be determined by the suppliers. However, as the market leader, S2U may be able to afford to make a loss in the short run where a smaller competitor may not.
31. [AO3 Analysis (8 marks)] The hardware market is the opposite and gives S2U more control over costs and therefore prices.
32. [AO3 Analysis (8 marks)] Analysis of threat of substitutes:
33. [AO3 Analysis (8 marks)] Many substitutes and little differentiation make it difficult for S2U to build up brand differentiation which is important in this market (market research).
34. [AO3 Analysis (8 marks)] Analysis for the usefulness of Porter's five forces (as a whole L1 AN and L3 AN );
35. [AO3 Analysis (8 marks)] Enables S2U to evaluate the competitive rivalry in the market and to gauge the competitiveness of the industry. May lead to S2U developing a new marketing strategy to increase sales revenue.
36. [AO3 Analysis (8 marks)] Helpful for S2U to plan for the future (marketing, operations, HRM etc.) and develop new approaches to stay in the market or to develop new market possibilities.
37. [AO3 Analysis (8 marks)] Gives S2U insight into how they should communicate with their suppliers – the importance of keeping their suppliers happy - in this scenario the suppliers have a great deal of power (monopoly) and S2U needs to understand this so they do not lose this relationship.
38. [AO3 Analysis (8 marks)] Gives S2U insight into how they should communicate with their customers – the importance of keeping customers happy - price sensitive and well informed. S2U may have market power, but no power to increase prices.
39. [AO3 Analysis (8 marks)] Arguments against the usefulness of Porter's five forces:
40. [AO3 Analysis (8 marks)] No analysis of the internal elements that may be important in the strategic analysis of S2U or implementation of a new strategy. SWOT and core competency analysis would provide this insight that is needed before any strategy can be developed.
41. [AO3 Analysis (8 marks)] Porter's five forces is unlikely to help when S2U is making a strategic choice between future strategies – approaches such as investment appraisal and decision trees may be required to make a strategic choice.
42. [AO3 Analysis (8 marks)] This approach was completed by an external management consultancy business – with no investment in S2U, to what extent can this information be relied upon to base future decisions?
43. [AO3 Analysis (8 marks)] The five-force analysis was completed in 2022 – is it still relevant in 2023?
44. [AO3 Analysis (8 marks)] The five-force analysis is looking at how the market has operated in the past, with no guarantee of how it may operate in the future. The technology market, in particular, is dynamic and fast changing, so the analysis may be out-of-date before it can be used.
45. [AO3 Analysis (8 marks)] The five-force analysis is only looking at the IT support market, it does not take into account other external influences, such as the economy of country Z (and other countries), political changes and other technology markets, such as might be analysed in a PEST analysis.
46. [AO4 Evaluation (7 marks)] A judgement about the usefulness of Porter's five forces when developing a new business strategy for S2U.
47. [AO4 Evaluation (7 marks)] Judgement may depend upon; the validity of the data, the external environment in country Z and abroad, whether S2U is staying in the same market, or whether it will diversify, the use of other approaches in tandem with Porter's five forces.
48. [AO4 Evaluation (7 marks)] Weighing up of the relevant arguments for the use of Porter's five forces in making decisions about developing a new strategy for S2U.
49. [AO4 Evaluation (7 marks)] Weighing up of the relevant arguments for the use of other approaches instead of (or in tandem with) Porter's five forces.
50. [AO4 Evaluation (7 marks)] Accept all valid responses.