Вы находитесь на странице: 1из 15

NATIONAL LAW UNIVERSITY ODISHA

STRATEGIC MANAGEMENT PROJECT

COMPANY ASSESSED: DELOITTE

SUBMITTED TO:
Dr. Kamala Kanta Dash
Visiting Professor

SUBMITTED BY:
Anmol Bharuka-16bba001
Anamika-16bba005
Arushi Gupta-16bba014
Kilemsungla Jamir-16bba027
Surabhi Sagar-16bba048
TABLE OF CONTENTS

INTRODUCTION.................................................................................................................... 3

DELOITTE - ABOUT ............................................................................................................. 5

THREAT OF NEW ENTRANTS ........................................................................................... 6

THREAT OF SUBSTITUTES ................................................................................................ 7

BARGAINING POWER OF BUYERS ................................................................................. 9

BARGAINING POWER OF SUPPLIERS ......................................................................... 11

COMPETITIVE RIVALRY ................................................................................................. 13

CONCLUSION ...................................................................................................................... 15
INTRODUCTION

Five forces model was created by M. Porter in 1979 as a simple framework for assessing and
evaluating the competitive strength and position of a business organization. This theory is
based on the concept that there are five forces that determine the competitive intensity and
attractiveness of a market. Porter’s five forces help to identify where power lies in a business
situation and is useful both in understanding the strength of an organization’s current
competitive position, and the strength of a position that an organization may look to move into.
Strategic analysts often use Porter’s five forces to understand whether new products or services
are potentially profitable. The theory can also be used to identify areas of strength, to improve
weaknesses and to avoid mistakes. These forces determine an industry structure and the level
of competition in that industry. The stronger competitive forces in the industry are the less
profitable it is.

The five forces identified are:1

1) Threat of new entry: Profitable markets attract new entrants, which erodes profitability.
Unless incumbents have strong and durable barriers to entry, for example, patents, economies
of scale, capital requirements or government policies, then profitability will decline to a
competitive rate.

2) Threat of substitution: Where close substitute products exist in a market, it increases the
likelihood of customers switching to alternatives in response to price increases. This reduces
both the power of suppliers and the attractiveness of the market.

3) Buyer’s power: An assessment of how easy it is for buyers to drive prices down. This is
driven by the: number of buyers in the market; importance of each individual buyer to the
organization; and cost to the buyer of switching from one supplier to another. If a business has
just a few powerful buyers, they are often able to dictate terms.

1
Porter’s five forces, Ovidijus Jurevicius<https://www.strategicmanagementinsight.com/tools/porters-five-
forces.html> accessed on 28 March 2018.
4) Supplier’s power: An assessment of how easy it is for suppliers to drive up prices. This is
driven by the: number of suppliers of each essential input; uniqueness of their product or
service; relative size and strength of the supplier; and cost of switching from one supplier to
another.

5) Competitive rivalry: The main driver is the number and capability of competitors in the
market. Many competitors, offering undifferentiated products and services, will reduce market
attractiveness.
DELOITTE - ABOUT

Deloitte Touche Tohmatsu Limited, commonly referred to as Deloitte, is a multinational


professional services network based in the UK. It is one of the Big Four accounting
organizations and by revenue and number of professionals, it is the largest professional services
network. It was established in the year 1845 by William Welch Deloitte. Taxation, Auditing,
Management Consulting, Financial Advisory, Risk Advisory are among the areas which the
company provides services in. The number of employees as per 2017 report is 2,63,900.
Deloitte currently has the largest market share in auditing among the top 500 companies in
India. It has been ranked number 1 in market share in consulting by Gartner. Furthermore, the
Kennedy Consulting Research and Advisory ranks Deloitte number 1 in management
consulting and global consulting based on the revenue.
Monitor Deloitte is the multinational strategy consulting practice of Deloitte Consulting LLP.
Monitor Deloitte provides strategy consulting services to the senior management of other major
organizations and governments. It helps its clients deal with a variety of management areas
including Corporate and Business Strategy, Digital Strategy, Organization and Leadership,
Economic Development and Security, Marketing and Pricing. Monitor Deloitte was earlier
known as Monitor Group which came to be known as Monitor Deloitte after the acquisition of
Monitor Group by Deloitte in January 2013.
Monitor Deloitte is a market facing strategy and business transformation practice. It is led by
Bansi Nigja. Also, the Monitor Group was founded by six entrepreneurs in 1983 which
includes Michael Porter and Joseph B Fuller.
THREAT OF NEW ENTRANTS

Threat of new entrants is the first force of Porter’s 5 forces model. The model uses the 5 forces
to analyse the intensity of competition and profitability levels in the industry. This force
determines the ease to enter into the industry. There are various barriers to entry in an industry
such as Economies of Scale, Brand Loyalty , Government Regulation, Customer Switching
Costs , Ease in distribution and Strong Capital Base . The barriers and their intensity is also
determined by the industry in which the firm operates . The new entrants need to answer the
following questions :
 What is the threat of starting a new business in this industry?
 How easy is it to start a new business in a particular industry considering the present
growth and opportunities?
 What are the rules and regulations that would have to be complied with?
 What is the amount of capital that would be required to start the business?
 What are the factors which would work in the favor of the business and how can these
factors be exploited?

A threat of new entry lies upon the profitable industry that yields higher returns. Entry of new
firms would lead to reduced profitability in the form of income, unless the entry is blocked by
the incumbents.
It becomes easy to enter into a market when there is common technology, little brand franchise,
low scale threshold and easy access to distribution channels. However , it becomes difficult to
enter the market when there is patented or proprietary know how, difficulty in brand switching,
restricted distribution channels and high scale threshold.
In case of Deloitte which is one of the 4 big accounting firms of the world, the threat of new
entrants is virtually zero. In fact, the risk of the Big Four becoming 3 is also almost zero.
Deloitte has established itself as one of the Big Four consultancy firms in the world and is
hence well –established and has a high scale threshold. It is very difficult for new firms to enter
into the arena of the working of the BIG 4 and to compete with them.
THREAT OF SUBSTITUTES

Porter's force of risk of substitutes definition is the accessibility of an item that the customer
can buy rather than the business' product. A product by a competing company that offers
comparative advantages to the to the consumer like the product produced by the company is a
substitute product. Identifying substitutes involves searching for other products or services that
can perform the same function as the industry’s product or service. Positioning an industry’s
products or services against the substitutes may take place via collective industry actions such
as sustained advertising by industry participants.

One of the biggest disadvantages of an array of easily accessible and competitively priced
substitute goods or services is that it leads to the placing of a ceiling on the prices offered to
the customers, the industries in an effort to not incentivise their customers to shift to another
substitute tend to lower their prices and in the long run erode the overall profitability and
positioning of their business in the industry. The increasingly competitive marketplace and
highly educated customers with awareness of the array of alternatives available to them have
made achieving profits an uphill task for the sellers. Sugar producers are competing with other
manufacturers of sweets as well as the entire sugar-free products industry, the steel industry
with aluminum as well the plastic industries. The lower costs of substitutes, with even slightly
better performance, quality or specialization creates an intense competitive pressure in the
market.

According to Porter’s 5 forces, the threat of substitutes creates a competitive environment in


the market. The risk of substitution in the market creates an atmosphere of competitiveness in
the market for the companies and has an impact on organizations' capacity to gain profits. The
existence of a substitute product has an impact on the profits of the company as consumers are
provided the option to settle for the substitute product. This creates competition as well as
threatens the potential of making profits for the company. Substitutes have proved to be highly
volatile, creating a reduction in potential profits during positive economic times and intense
competition during normal economic times. Adding to that the price ceiling placed on products
by substitutes collectively affects the profit margins of varied industries, thus interlinking them
with one another even if they are located in far-away sectors of the economy affecting business
and entire industries at the same time.
According to Potter, the threat of substitution is high if-
• Substitute product is cheaper than industry product.

• Consumer switching costs are low

• Substitute product quality is equal or superior to industry product quality

• Substitute performance is equal or superior to industry product performance

The threat of substitution if low if-


• Consumer switching costs are high
• Substitute product is more expensive than industry product
• Substitute product quality is inferior to industry product quality
• Substitute performance is inferior to industry product performance
• No substitute product is available2

Deloitte is a leading firm in advisory services with 57% of its revenue coming from the same
(2017). 3As such, it suffers no threat of substitution in this sphere from any of the Big 4 firms.
However, with PwC, EY and KPMG focusing mainly of their audit services, Deloitte falls far
behind in the same with the lowest recorded revenue of 24% only. Hence, it could be said that
Deloitte suffers a threat of substitution in its audit services by the other audit centered firms
despite the fact the firms such as PwC charges the highest fees but its services are at par.

Figure 1 Big 4
2017 Revenues

2
https://strategiccfo.com/threat-of-substitutes-one-of-porters-five-forces/
3
https://www.cfoinnovation.com/story/14077/slicing-ever-juicier-pie-big-four-deloitte-vs-ey-vs-kpmg-vs-pwc
BARGAINING POWER OF BUYERS

Among others, one of the significant elements in Michael Porters Five Forces theory is one
relating to the bargaining power of the buyers. It requires the analysis of the industry from the
perspective of the service providers or sellers on how the consumer choices and powers have
an impact on the competitive structure of various industries among independent organizations.
Buyers through their preferences and business decisions affect the profitability of businesses
in an economy by creating a pressure on the sellers to ensure delivery of high-quality goods or
services, customer friendly dealings, and lower prices.
The power with the buyers has a lasting impact in the market theory wherein it has been proved
to affect the competitive structure of any industry while also determining the amount of normal
or abnormal profits or losses for the sellers. Increased buyer power will lead to stronger
consumers who will have the upper hand in dealings and by insisting on better quality, goods
and services will lead to increase in costs for the seller thus making the industry more
competitive and lower profit margins for the entire industry. Decreased buyer power will lead
to consumers having no say in terms of quality and price of products or services offered, their
interests being at the mercy of the seller who enjoys a less competitive industry environment
while making huge profits.
Various circumstances and factors would reflect the real power exercised by buyers in a
particular industry. The buyers yielded substantial power when they form a significant part of
seller’s client base or when they are concentrated and purchase maximum volumes of goods
and services offered by the seller. The buyers trading with the industry represents a significant
share of their business affairs. When products are uniform and undifferentiated, or numerous
similar alternatives are present in any industry where the sellers are playing against each other
the buyers enjoy the benefits of better quality goods and services at lower prices. Low
switching costs, or the costs which would be incurred by the buyer if they choose to shift their
trade relations from one supplier to another, also empower the buyer. When the buyer is
informed or has full knowledge of how the market functions and how forces of demand, supply
and costs implement themselves in the market and base their decisions on the same they can
say to be powerful. Other factors such as the absence of any threshold for quality of goods and
services demanded, low profits for suppliers, and in-house productions and concessions imply
increased buyer power and competition and lower profits for suppliers.
However, in a scenario where the buyers are scattered, or not concentrated and buyer switching
costs are extremely high, which means changing of suppliers would lead to the incurrence of
huge costs, the buyer power is low. When the goods sold in the market are highly differentiated,
or unique to each seller the absence of substitutes gives sellers an upper hand over the buyers.
Being insensitive to the price of goods and services offered, or uninformed about the market
conditions and products offered, or buying goods and services in small portions or low volumes
also decrease the power of the buyers. The results will not always be straightforward.
Therefore, it is necessary to consider the nuances of the analysis and the particular
circumstances of the given firm and industry when using these data to evaluate the competitive
structure and profit potential of a market.

Analysing the consultancy services industry and Deloitte’s position therein as one of the Big
4, with few competitors matching the standards of services provided by Deloitte the buyer
power is weakened thus giving them higher bargaining power in dealings and transactions and
ability to achieve higher profits in the face of the low competitive structure of the market. The
lower buyer power in the industry has definitely made it more profitability potential for the
seller while making it more attractive. Even in the face of low competition, Deloitte maintains
and works upon improving the quality of goods and services offered to its clients while
combining specific industry related knowledge and broad functional and technical knowhow
on ensuring buyers or customers are attracted, engaged and retained. They transform the
everyday information relating to customers into accountable insights and data which further
their profitable ventures and decisions.
BARGAINING POWER OF SUPPLIERS

The bargaining power of the Supplier puts pressure on the industry. They can do so by
increasing prices, decreasing the quality of production or their availability. This force of
Porter’s five forces model forces the shaping of a competitive industrial structure of the entire
industry. They act as threats to the industry as they have the ability to reduce the industrial
profit making potential by getting a hold on the economic value of the products and services
created by them. The relative bargaining power of the suppliers become high when:
 The industry of the suppliers is more concentrated than the one it is trading with.
 The dependency on the industry being traded with is not high in terms of their
revenues.
 If suppliers are changed, the incumbent firms usually have to bear severe switching
costs.
 There is differentiation in the products being sold by the suppliers.
 No substitutes are available readily for the products or services that the supplier is
aiming to offer.
 Suppliers have the power to credibly threaten to “forward-integrate” into the industry.

For better understanding of this Force of Porter’s 4 forces a detailed example of the Airline
Industry can be given. There are two major suppliers of aircrafts namely, Boeing and Airbus
which produce large commercial jets. They become more powerful than the airliners as the
airline manufacturing industry is much more concentrated, with it comprising of only two giant
firms while there are numerous small and large commercial airliners around the world. Such
difference is concentration keeps the two suppliers at utmost pedestal. The commercial airlines
shall face heavy switching costs if they aim to shift from say, Boeing fleet of aircrafts to Airbus.
Apart from the change in fleets, the pilots and the crew would need to be freshly trained in
order to fly a new model of planes. Further, maintenance and other technical capabilities would
need to be expanded. Apart from that based on the range and passenger capacity of the fleets,
the routes of many aircrafts would also be required to be altered. This becomes even more
necessary to do so as the aircrafts being manufactured by the two companies are highly
differentiated with completely different ways to fly and to operate.
The Bargaining Power of a Supplier becomes low generally when there is low supplier
concentration, low switching costs, availability of substitutes, the buyers are more price
sensitive and educated, further there is no threat of forward integration by the suppliers.
When it comes to the management consulting field, there is a large presence of various player
and the environment smells of competition. The firms are faced with the pressure of providing
the best strategies to their clients which becomes a matter of growing pressure in such a highly
competitive market. Large firms aim at providing services of high specialty on a large scale.
Firms like McKinsey focus on field strategy, while Accenture puts heavy emphasis on
technological developments. Deloitte on the other hand acts as a generalist delivering strategy
through implementation services at a higher level.
When it comes to the bargaining powers of the suppliers, the major suppliers in the industry
are the consultants themselves. The supplier power in these firms are relatively high. These
firms are big, rich, having a clientele spread across the world, with their alumni working
everywhere ranging from regulatory bodies, government departments, educational institutes,
etc. Deloitte, to have a strong power over the industries it serves, aims at harnessing its
consultants in order to provide top class consultancy ideas in every field that it functions. It
puts a large emphasis on training its consultants. Deloitte opened its own university named as
Deloitte University in 2011. The university is committed to providing growing opportunities
to professionals by helping them take an ownership of their careers. Its curriculum delivers a
cutting-edge learning that would help develop the next generation of international business
leaders and advisors. The institute acts as a hub of all consultancy training. It provides training
to its employees so that they become better consultants as well as conducts training programs
for the firms that are its clients availing its services. The goal of the company is not to create a
better consultant, but to gain buy-in in order to retain top individuals. For Deloitte, the
bargaining power of the suppliers seems to be low as it considers the job seekers to be its
supplier and their power to bargain becomes low as many of them seem to be interested in
working for the firm itself.
COMPETITIVE RIVALRY

One critical force that Porter discusses is the level and intensity of competition that companies
face while operating in the same market. In the event that there are more organizations rivalling
each other, the subsequent result would imply that costs, benefits and technique will be driven
by it. A company can result in having no influence in the market that it is operating in if a wide
range of competing quality products is available in the industry which allows customers to
easily move on to an alternate company providing better products. Determining competitive
rivalry includes looking into the number of competitors the company has, the difference in
quality between the companies, switching cost and also customer loyalty.

Alternately, without this competition, companies have the capacity to unreservedly decide
profit margins and costs without being managed by what the client finds appealing.

Intensity of Rivalry is High if any of the following occurs:


• Competitors are numerous
• Competitors have equal size
• Brand loyalty is insignificant
• Competitors are strategically diverse

Intensity of Rivalry is Low If any of the following occurs:


• Competitors are few
• Unequal size among competitors
• Brand loyalty is significant
• Competitors are not strategically diverse

Deloitte has established itself to be the largest firm providing professional services on the
planet in terms of its revenue ($36.8 billion in 2016) as well as the number of employees. A
line of service at Deloitte is Audit and Assurance services and Deloitte strives to provide a
differentiated audit, one that provides more insight to investors. However, only 25% of its
revenue comes from audit giving the impression that it focuses very less on the same unlike
the other 3 Big Four firms and more on consulting ($13.1 billion in 2016, a third of total profit).
Deloitte is thus trying to increase their engagement in audit, at the same time, experiencing
intense rivalry from firms such as PricewaterhouseCoopers which centres itself vigorously
around audit and gains 43% of its income. PwC is a key player in audit with their accountants
furnishing services to the highest number of Fortune 100 clients for the highest fees. Deloitte
likewise also faces rivalry from EY (Ernst and Young) who provides auditing services to 23%
of the Fortune 500 and comes second to PwC.

Furthermore, Brand Finance in 2017 declared PwC as the 8th most effective brand in the world
determined by the ‘Brand Strength Index’ while Deloitte simply fell off the Top 20. Given the
fact that Deloitte has immersed itself in a wide range of consulting services, it has turned into
potential issue as it has failed to create itself a strong brand while trying juggle a lot of things.
Besides, PwC is the 50th most profitable overall brand in 2018 with Deloitte trailing not far
behind at 59th place.

According to the data collected by Audit Analytics, Deloitte has been held respectably reliable
for the past few years. The number of clients lost by the firm is less than the number of clients
that it gained. In 2016, Deloitte lost 28 clients however also gained 29 and in 2015 it lost 26
engagements but gained 31. The same however is not the same for the rival firm PwC who lost
42 clients and won just 18 in 2016 and also suffered a similar loss of 25 engagements in 2015.
The data from Audit Analytics suggest that by far most of changes involved clients moving
from one of the Big Four firms to another and as such,. 22 out of 29 new clients of Deloitte
were from one of the Big Four firm while also losing 17 put of 28 of its lost clients to another
Big Four firm.

Thus, competitive rivalry is high for Deloitte keeping in mind to Potter’s determinants for
competitive rivalry as it faces intense competition from similarly sized and strategically diverse
companies, which include the Big 4 firms. Furthermore, brand loyalty seems to be not very
significant as it is still losing its clients to the other Big four companies despite also gaining
some few.
CONCLUSION

The company Deloitte operates in an external environment characterized by low threat of entry
of young companies into the market, high client bargaining power, and stiff competition. In
connection to this, for many years Deloitte has been using cost leadership and differentiation
strategy to overcome the tough competition brought about by the other three companies. The
use of this strategy promoted the company’s competitive advantage. Besides, the company uses
VRIO framework to analyse its resources. The company’s human capital is among the
resources that satisfy all the requirements and; therefore, these resources are useful in
promoting Deloitte’s competitive advantage. Deloitte prides itself due to its rare, valuable,
imitable human capital and ability to offer a wide variety of services. For Deloitte to increase
further its competitive advantage, it is recommended that it applies focus strategy on
maintaining and working upon improving the quality of goods and services offered to its clients
while combining specific industry related knowledge and broad functional and technical
knowhow on ensuring buyers or customers are attracted, engaged and retained. Considering
that competition is the strongest force in Deloitte, strategic efforts must focus on improving the
competitive advantage of the company by the help of better expertise.
While Porter's Five Forces is an effective and time-tested model, it has been criticized for
failing to explain strategic alliances. The operations in the manufacturing sector are far
different to those in the service industry. Additional modelling tools are likely to help round
out the understanding of a business and its potential. A value chain analysis aims to help
companies understand where they have the best productive advantage. Deloitte should focus
on human resources management value chain activities so as to capture the best of its people.
They should therefore be driven by the strength of its people who would ensure that high
quality services which are a cut above the rest are offered to their clientele. The efforts should
thus focus not only on recruitment of high quality staff but also on their training and
development to ensure they remain relevant to the ever changing world. Whereas primary
activities largely utilize the professional skills possessed by the staff, the support activities
should largely focus on empowerment and retention of human resources for high quality
professional and client service.