Question

Identifying external and internal factors serve as the foundation for strategy formulation and policy implementation in organizations. This assignment is designed to aid you in identifying critical internal and external organizational factors. Focusing on a Caribbean company or organization of your choice, do the following:

1. Using Porter’s Five Forces Model to identify key elements of each competitive force that can impact the firm

      a. Evaluate the importance of each element for the organization

     b. Decide whether the collective strength of all the elements combined is valuable for staying in the industry

2. Develop an Internal Factor Evaluation Matrix (IFE) and a Competitive Profile Matrix (CPM) for your organization.

3. Construct an External Factor Evaluation Matrix (EFE) for your organization

4.   Based on your analyses and the industry type that your organization operates in, what type of strategy would you suggest your organization implement and why?

Answer 1

Company- Amazon

Porter’s five force model

1. Competitive rivalry or competition- Amazon is the world’s largest e-retailing company. Amazon faces severe competition in the industry due to high aggressiveness of the firms, availability of substitutes and low switching costs. Amazon should always consider competition in making strategic priorities to gain the competitive advantage and long-run sustainability in the organization. Example, Wal-Mart and Amazon compete with each other head-on-head.
2. Buyer’s power- The Amazon customers have a profound impact on the functioning of the company. This is because of the availability of substitutes and low switching costs. The availability of substitutes and low switching costs like multiple locations of the Wal-Mart stores becomes a strong force for the company. This factor determines the influence of customers on the industry and the firm. This strong bargaining power needs to be addressed during business challenges.
3. Supplier power- the control power of suppliers on the company in terms of supplying the goods and materials to the company is one of the Porter’s external forces on Amazon. The small population of suppliers has a strong force on Amazon. For example, when the number of suppliers is small, their decision on the price changes of equipment will have a direct influence on Amazon. Supplier power should be considered in strategic determinants to be the corporate giant in the industry.
4. Threat of substitutes- The high availability of substitutes and low switching costs is a great threat for Amazon. One classic example as stated above is Wal-Mart. The low price products are the value proposition of Wal-Mart which out beats Amazon in terms of pricing. Amazon should consider these threats in making strategic decisions to have a long-term success in the industry.
5. Threat of new entrants- There is high cost involved in developing brand for new entrants which prevents new companies entering in the market. Amazon’s high economies of scale pose the same criteria for new companies which are difficult for the industry.

b. collective strength of all the above mentioned forces or elements is very much valuable for Amazon in the industry. It is pertinent for Amazon to have a thorough knowledge on all these factors to help them be strategically competitive.

2. Internal Factor Evaluation Matrix (IFE)- for Amazon

KEY INTERNAL FACTORS	WEIGHT		RATING	WEIGTHED SCORE
STRENGTHS
1. Customer service		0.08	4	0.32
2. Latest technology and software		0.09	4	0.36
4. Strategic alliance		0.04	3	0.12
5. Management and leadership team		0.10	3	0.30
6. Brand name		0.08	3	0.24
7. Variety		0.08	4	0.32
8.Post Sales		0.07	3	0.21
WEAKNESS
1. Operating cost		0.05	1	0.05
2. Risk on high inventory		0.06	1	0.05
3. Small number of suppliers		0.05	2	0.10
4. Privacy issues online		0.10	2	0.20
Decrease in profit since 2004		0.1	1	0.1
6. No custom language		0.05	2	0.10
TOTAL		1		2.67

Weight - 0.0 = least important; 1.0 = most important

Ratings - 1 = major weakness; 2 = minor weakness; 3 = minor strength; 4 = major strength

Since the weighted score is above 2.5, Amazon has great internal strength to be the market leader in the industry.

COMPETITIVE PROFILE MATRIX

Critical Success factors	Weight	Rating	Weighted Score
Market share	0.05	4	0.20
Technology	0.15	4	0.20
Advertising	0.10	4	0.20
Management	0.15	4	0.60
Financial position	0.10	2	0.20
Software	0.15	4	0.60
Management	0.10	4	0.40
Global reach	0.10	4	0.40
e-commerce expertise	0.10	4	0.40
TOTAL	1		3.20

3. External Factor Evaluation Matrix (EFE)

Key external factors	Weight	Rating	Weighted Average
OPPORTUNITIES
1. Increase in state economy	0.08	3	0.24
2.Access to broadband	0.10	4	0.40
3. Increased customer spending	0.10	3	0.30
4. Low interest rates	0.04	3	0.12
5. Pressure from govt. to ban internet tax	0.08	3	0.24
6. Online sales	0.08	4	0.32
7. One currency across the globe- Euro	0.08	3	0.24
THREATS
1. Tax for EU customers	0.05	4	0.20
2. Currency fluctuation globally	0.15	3	0.25
3. Competition rivalry	0.15	4	0.60
4. Online security threats	0.15	4	0.60
5. Unstable political environment	0.09	4	0.36
TOTAL	1		3.87

4. Considering the above, I would suggest that Amazon have more focus on differentiation and cost leadership as strategic priorities in taking strategic decisions.