Business Economics - Business Objectives and Models of the Firm

Business Economics - Business Objectives and Models of the Firm

Standard textbook analysis usually pays no attention to the market power of the firm's customers or their suppliers, or to the dynamic nature of factors which determine the key dimension of market structure, including entry, existence of rivalry and intensity of rivalry. As a consequence, corporate strategists have developed more sophisticated approaches to the characterisation of market structures and models of the firm, which recognise many more types of market structures than perfect competition, monopoly and oligopoly. One of the best known models of this kind is the "five forces approach" to the structural analysis of industries, developed by Harvard professor Michael Porter in 1980. A detailed analysis of his model is available in most university libraries.

According to Porter's model, the structure of competition in an industry can be described in terms of five major "forces", including:

  • The intensity of rivalry among existing firms
  • The threat of entry
  • The threat of substitutes
  • The power of buyers
  • The power of suppliers

Each of these forces is in turn determined and influenced by a number of different factors, which require separate analysis. The interaction of the five forces taken together gives an impression of how attractive the industry is to the firms within it. Although the five forces model is much more complete than standard textbook approaches to market structures, it is also much less rigorous. Its value does not lie in providing predictions for every conceivable type of industry, but in giving executives a checklist which they can use to identify the most important features of competition in their industry.

Biz/ed Company Facts

Individual companies' organisational structures can be found in the Biz/ed Company Facts section. Leading organisations provide answers to typical student questions, basic data and case studies. This is an excellent facility for student presentations, essays, dissertations and for general interest.

Currently the following companies can be accessed:

  • BP Amoco
  • Boots
  • McDonald's
  • Trades Union Congress

Each section contains a list of Frequently Asked Questions (FAQs) which link directly to the answers supplied by the company concerned. Areas of business organisation which are covered include human resource management, strategy, marketing, organisation and accounting and finance. Each set of company facts is updated annually, so that the data and information remain topical and up to date.

Dun & Bradstreet also have facts on company data and although most of the services are not free, they are fairly comprehensive.

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