Johnson Matthey

1STRATEGIC ANALYSIS

Running head: STRATEGIC ANALYSIS

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2STRATEGIC ANALYSIS

Table of contents

1.0 Introduction …………………………………………………………………………………...3

2.0

Findings.........................................................

.................................................................

...........4

2.2 Critique of Porters Five

Forces...........................................................

.......................................6

2.3 Company

analysis.........................................................

.............................................................7

3.0 Does this theory and practice

work.............................................................

............................11

4.0

Conclusion.......................................................

3STRATEGIC ANALYSIS.................................................................

.......15

5.0

Recommendations..................................................

.................................................................

.15

References ......................................................

.................................................................

...........17

4STRATEGIC ANALYSIS

1.0 Introduction

Strategic analysis is very essential in ensuring continuous

success in an organization. In order to have a better strategic

plan, it is important to have a better analysis of the

organization in order to get to making informed choices. For us

to have a better understanding of this concept, we will have a

closer look at Johnson Matthey which is known globally for

selling of chemicals. This company has over the years adopted

very high levels of technology and science development in its

operations. Johnson Matthey has its operations in over 30

countries and its employment population is around 11,000 persons

(Weaver &Reidy, 2002). .

Since 1817 to date, the company has been refining and

developing products by use of precious metals. The company has

also been involved in manufacturing of high technology products

as well as very sophisticated chemicals. One of the company’s

notable products is the catalytic converter that reduces vehicle

5STRATEGIC ANALYSISemissions (Weaver &Reidy, 2002). This is a very essential

product that plays a great role I reduction of air pollution. It

is important to note that the company has over the years strived

to ensure that it has positive impact to the society and the

environment. Apart from being actively involved in pollution

control, Johnson Matthey has also been actively involved in

production of pharmaceutical products which plays a great role in

the healthcare sector (Weaver &Reidy, 2002). .

2.1 Overview & Critique of Porter’s Models of Competition

6STRATEGIC ANALYSIS

Porter’s five forces model is a very important analytical

tool named after its developer Michael porter. It is involved in

analysis of macro environment within which an organization

operates. Proper industry analysis using five forces model is

critical in determining an organizations competitive edge. The

porters model is concerned with five key areas which include; the

bargaining power of the buyers, the bargaining power of

suppliers, threat of new entrants and the threat of substitutes,

7STRATEGIC ANALYSISand the rivalry in the industry (Weaver &Reidy, 2002). . The

organization should analyse all these factors to determine its

position in the industry. This analysis is also important for

making critical decisions involving pricing, costs and level of

investment (Warner, 2010).

Porter asserts that the buyers’ bargaining power influences

the prices that organizations can charge for their products as

does the availability of substitutes. Buyers bargaining power

also has great influence on cost and investments because

different buyers demand different services. Powerful buyers will

demand costly services while the less powerful buyers will demand

less costly services (Weaver &Reidy, 2002). On the other hand,

bargaining power of the suppliers is a great determinant of the

raw materials costs and other important industry inputs. The

threat of new entrants influences prices and shapes amount of

investment organizations needs to put in place to prevent

entrants. Competitive rivalry influences the costs of competing

in the industry and eventually the prices for the products. The

costs of competitions may range from plant, product development,

8STRATEGIC ANALYSISadvertisings and sales and promotions. Increased rivalry may

result in low prices for products (Weaver &Reidy, 2002).

The porter’s theory asserts that firm’s competitive

environment has a common structure consisting of the above

discussed five forces. The forces are described as major

determinants of the industry attractiveness. The five forces are

critical as they can help the organization to identify its

strengths and weaknesses in relationship with the actual market

situation or state of competition. When an organization is

conversant with the five forces, it can then be able to have

offensive or defensive measures that can help achieve a

competitive advantage.. Therefore, the actions of the company can

shape the forces because not only the companies in the industry

are competitors, but also additional competitors may arise from

customers, potential new entrants and substitutes (Weaver &Reidy,

2002).

2.2 Critique of Porters Five Forces

Porter’s theory is based on assumption that the industry

structure is stable, but it can change over time as the industry

9STRATEGIC ANALYSISevolves. As a result of the dynamic nature of the industry, the

constant changes in competitiveness can result positive or

negative change in the firms’ profitability (Weaver &Reidy,

2002). In essence, the five competitive forces a function of

intrinsic industry characteristics, then the competitive strategy

would not be on the actions of the company, but instead would be

choosing the right industry. Competitiveness in the industry

would also mean understanding the five forces better than the

competitors; this would be detrimental to firms since they become

slaves of the industry structure. In essence, firms are capable

of influencing the five forces as described by the theory, which

would in turn change the industry attractiveness either

positively or negatively. Thus, the rules of the competition can

be shifted through strategic actions of the firm. Thus, they

cannot remain static as provided by porters (Webster, 2010).

Although porters’ five forces model is an important

analytical tool, its effectiveness in the present dynamic

business environment is reduced by its historical context in

which it was developed. At the inception of the theory, cyclical

growth was the centre-stage of the global economy while

10STRATEGIC ANALYSISprofitability and survival of the organization remained the

primary corporate objective (Webster, 2010). In fact, at its

formulation the industry growth was stable and predictable unlike

today’s dynamics. The assumption of a classic perfect market has

rendered the theory meaningless. The theory has more

concentration on competition where there is general assumption

that firms are always competing for competitive edge against

their rivals. However, the model does not take into consideration

other strategies like joint ventures, strategic alliances,

virtual-enterprise networks and electronic linking of information

(Webster, 2010).

The theory has also been criticized due to the modern global

economy and internet. The advance which has turned the globe into

a village has significantly killed the aspect of industries to an

extent it becomes meaningless to talk about the industries.

During strategy formulation, it should be understood that the

five forces do not eliminate creativity of finding new ways to

compete in the industry (Webster, 2010). The manager should use

the model to develop creative solutions to the aspects of the

industry structure that are most significant to profitability. In

11STRATEGIC ANALYSISfact, strategies that influence the industry structure such as

new products that undercut entry barriers and increase rivalry

may affect the industry profitability in the long run. In

addition, sustained price reductions as a result of increased

competition may also undermine differentiation in the industry

(Webster, 2010).

In summary, porters five forces model has some limitations

that make it irrelevant in modern market environment. The model

is static and not dynamic enough to take into consideration new

business models adopted by companies such as Amazon and eBay.

Nevertheless, the model remains a crucial tool for the manager to

think about their current situation and act in a way that would

lead to increased competitive advantage based on the current

market situation (Webster, 2010).

2.3 Company Analysis

In the modern business structure, there is several analysis

tools used in analysis for informed decision making and

determining the firms position within the industry. This section

of the paper analyses Johnson Matthey organization using porters

12STRATEGIC ANALYSISfive models to establish if the model fits with the

practitioner’s experience (Webster, 2010). The major aim of using

the model is to analyze the ability of the firm to generate and

maintain competitive advantage in an industry. Johnson Matthey

which has been operational since 1817 has been a global leader in

chemical industry. The company has been a leading company in

refining and distribution of gold, silver and platinum group

metals. It has also been recognized as the largest platinum

producer through its precious metal products division (Stoupin,

Rivera, 2008). It has also been actively involved in production

of emission control products, fuel cells and process catalysts.

The organization operates in over 30 countries on six continents

(Webster, 2010).

Threat of new entrants (low)

The chemical manufacturing industry is a sophisticated

industry. It is for this reason that entry into industry is not

an easy task especially due to the bureaucracy and level of risks

involved. The business requires very high initial capital, and

the competition among the existing companies is intense and

13STRATEGIC ANALYSISdominated by well established companies (Webster, 2010). However,

it is also important to understand that the market has few legal

barriers that protect the existing companies from new entrants.

In addition, the competing firms have well established brand

names and a reputable image. Johnson Matthey is a well known

brand, it has a large market share in various segments, and its

large size makes it very competitive over new entrants in the

chemical industry (Webster, 2010). The existing players in the

industry enjoy economies of scale which may not be easily

achieved by new entrants.

Suppliers bargaining power (weak)

The bargaining power of supplier is deemed weak in the

chemical manufactures and precious metal industry. This is

because there are many suppliers and few companies that deal with

such kind of supplies (Bogue&Buffa, 2012).. The different

companies can use different materials because the materials are

widely accessible and there is no threat from suppliers engaging

in forward integration. The competition by suppliers has resulted

to timely supplies and good relationships which has led the

company having a competitive advantage.Johnson Matthey is one of

14STRATEGIC ANALYSISthe companies that enjoy strong relationships with its suppliers.

Thus, its effective way of monitoring the supply chain lowers the

bargaining power of the suppliers (Webster, 2010).

Buyers bargaining power (low)

The buyers bargaining power in the industry is substantially

weak given that there are many buyers. The increased demand for

motor vehicles has resulted to increase in demand for emission

control products. Most of the company’s customers are auto

dealers and other corporate bodies that are environment sensitive

(Bogue&Buffa, 2012).The demand for precious metals has also been

on the rise and the limited number of players in this sector has

reduced the buyers bargaining power significantly. Johnson

Matthey has for several years dictated prices for its products

and consumers have only been price takers (Webster, 2010).

Threat of substitutes (moderate)

Chemical manufacturing industry has very sophisticated

products. For instance, Johnson Matthey has very sophisticated

products which may not get close substitute. Emission control

products and pharmaceutical products manufactured by the company

may not be easily substituted (Bogue&Buffa, 2012). This makes the

15STRATEGIC ANALYSISindustry immune from any threat of substitutes. Although there

could be elements of close substitutes, the quality of products

offered by Johnson Matthey would make the switching costs to be

unbearable to consumers thus giving the company a competitive

edge. The company s also in extensive research and development

thus producing new products that meets consumer demands.

Rivalry among the competitors (high)

Rivalry in this industry is high as the companies in the

industry compete for the market share. Continuous competition is

fuelled by the high consumer expectation and anticipation of

lower prices. In the industry, Johnson Matthey remains the low

cost manufacturing due to its production systems that is

efficient. Thus, it has a competitive advantage over its

competitors in the industry. Moreover, the company has strived to

increase brand loyalty among its consumers which has made the

company a competitive one in the industry (Bogue&Buffa, 2012).

Summary and Interpretation of the Analysis

From the analysis, it is evident that the five forces model

is a crucial analytical tool in making strategic decisions. The

information gathered from this analysis can be very essential in

16STRATEGIC ANALYSISstrategic planning on how profit maximization and achieving

competitive advantage can be achieved. The five forces analyzed

the chemical manufacturing industry so that the players in the

industry may align their actions to benefit from the analysis.

According to the porter’s theory, the players in an industry are

not always expected to conform to the industry but ay act in a

manner that they achieve organizational success. Johnson

Mattheyis very innovative and its creativity allows it to

introduce differentiated products in the market every time. This

action, often changes the industry structure because

differentiated products always kill competition (Bogue&Buffa,

2012).

After proper understanding of the analysis, the firm is

expected to engage in the process of pursuing strategies that

would help position themselves against the competitive forces in

the industry and achieve higher market share or profitability

(Bogue&Buffa, 2012). Actually, porters five forces model is a

powerful tool that helps the organization to know exactly where

power lies in a given business situation. This can help the

company understand its strength and its competitive position.

17STRATEGIC ANALYSISThus, with the understating of the power in the industry, it is

easier for the company to take the advantage of the situation and

improve its strength and avoid taking wrongful steps. Thus, it is

an important business planning tool even today (Perrow, 2000).

From the above chart, it isevident that the level of

emmisions has been on the rise. With the governments objective of

minimizing such emmisons, the sale of emmision control products

from Johnson Matthey is lkely to increase immensely. All

transport modes ranging from roads, air and maritime are prone to

such emmisions and thus expand market for Johnson Matthey’s

products.

18STRATEGIC ANALYSIS3.0 Does this Theory and Practice Work?

In the modern business environment, there is great confusion

on whether or not this theory really works in practice. As a

result, numerous researches have been undertaken by different

scholars in order to ascertain this question. This part of work

will outline how porters’ five forces model and practice are

working even today (Perrow, 2000). Porter’s five forces model is

one of the best tools to analyze the industry where a company

operates. It helps in giving the general view of the external

forces or factors that help determine the industry attractiveness

or profitability. The information from this analysis can be very

helpful to managers in making critical decisions on whether or

not to enter an industry based on the power or strength the

company has in the industry (Perrow, 2000). Nevertheless, it is

important to understand the various limitations that could hinder

strategic planning in an organization. It is important for

managers to understand that there are other external factors that

affect the industry apart from the five forces asserted by

porter. Thus, this model alone is not perfect until it is

combined with other models such as SWOT, PESTEL model, and

19STRATEGIC ANALYSIScompetitive generic strategies. This was the case with Johnson

Matthey when entering new markets (Perrow, 2000).

The major aim of companies is to satisfy the customer needs

as this is the prerequisite for the company profitability.

However, the company must determine its sustainability and

perpetuity as well as maintain its value for customers

(Dransfield, 2001). Scholars have argued thatthe industry

structure determines who captures the value and the threat of

entry determines the probability of new firms entering the

industry to compete away the value. It is important to

understand that at the inception of the porter’s model, the

industry structure was static. However, this has changed over the

years in terms of competitiveness which has drastically changed

in the modern economy.Internationalization has drastically

changed the market environment since competitors can come from

any side of the world (Dransfield, 2001). In addition, the

information age has transformed the value chain as the

organization takes all the roles of manufacturer, wholesaler, and

retailer. Despite the changes, porters model remain an important

analytical tool for industry analysis.The industry analysis

20STRATEGIC ANALYSISthrough porter’s model is essential for making decision on

whether or not to enter the industry and how well one can

position herself in the industry (Dransfield, 2001).

Industry analysis is crucial because the various forces

identified by Porter have different effects in different

industries. Some scholars argue that although Porter provided

that collective understanding of forces is crucial for the

company competition; each force has its own effect on the

industry (Hall, 2002). For instance, one force may be strong to

an extent that it acts as a barrier to enter in the industry. On

the other hand, the other four forces may be strong while one is

weak and cannot hinder the organization from entering the

industry. Therefore, if an organization is using the model to

analyze the industry; it should do it frequently because the

model assumes that the industry structure is static and does not

change. Thus, the model is the beginning point, and it has to be

adjusted to today’s industrial environment that is so dynamic

with the growth of globalization and the internet. The model

should be flexible and adaptive to the modern dynamic economy

(Hall, 2002).

21STRATEGIC ANALYSIS

It is important to note that although the five forces model

is effective in simple market structure analysis; its

effectiveness in dynamic and complex market structures is at

times compromised. In complex markets, technological

breakthroughs, and dynamic market entrants can change the market

structure, the supply chain and other marketing activities within

a very short time. This implies that the model can be used in

industry analysis but it lacks sufficient information since the

model mainly concentrates with competition. Thus, it will hardly

give meaningful information about preventive actions a company

may take (Das, 2013). The introduction of the internet economy in

the recent years puts the models under critique. Practitioners,

policy makers and business strategists may find the models

important in some situations, but the changes in economic

condition since the 20th century render the models ineffective in

some market situations. For instance, the rise of internet and e-

business has influenced almost all the industries. Therefore, the

five forces model cannot explain or analyze today’s dynamic

forces that can transform the whole industry (Das, 2013).


In addition, there has been increase in information

accessibility as a result of increased digitization. The

increased information access by new players from outside the

industry has enabled them to enter the industry and change the

market competition quickly by changing the basis of competition.

For instance, the introduction of the electronic shopping malls

that make use of credit cards do not depend on the assumptions of

porters five forces (Das, 2013). In addition, globalization has

led to the development of effective distribution logistics and

communication. These new changes in the industry have enabled

firms to act globally rather than in the industry context. Thus,

customers are able to compare prices globally and make decisions

based on the global prices (Das, 2013). This makes locally

oriented companies to find themselves in the global market, as

well. Global business requires that organization to employ better

strategies other than the ones suggested by Porter because the

global business environment is not static, but complex and

dynamic. With globalization, the competitive advantage does not

lie on the industry forces suggested by Porter, but on the

ability of the company to maintain and satisfy the needs of

23STRATEGIC ANALYSISglobal and mobile customers and manage their networks for

continual relationships (Hall, 2002).

Although the economic environment has changed over time,

Porters five forces model still plays a significant role in

strategic analysis. The five forces play a critical role in

providing the guidelines for the managers to develop strategic

plans for an organization. It should be understood that the

development of an effective business strategy depends on many

things and not one model. In fact, in early 1980, the strategy

was built on nothing but Porters five forces model and Value

chain models (Hall, 2002). Thus, each strategy should be

developed based on careful evaluation of the internal and the

external factors that affect the organization. Organizations

future development is highly dependable on this factors and calls

for proper analysis. Creativity and innovation are critical for

company to gain competitive advantage. It is also important to

involve the several analytical tools such as SWOT and PESTLE in

strategic management

4.0 Conclusion


From the case study, it is crystal clear that the porters

five forces model is an important analytical tool. Despite the

several challenges and limitations associated with model, it is

evident that the theory works in practice (Hall, 2002). However,

the constant changes in the business world have rendered the

model practicality in jeopardy. The model has however proved to

be a very critical tool since almost every business operates in

an environment where buyers, suppliers, competitors, new entrants

and substitutes are inevitable. The firms are obliged to have

customer value increased and this can only be achieved through a

systematic industry analysis.

5.0 Recommendations

From the analysis, it is crystal clear that porter’s five

forces model still remains an important strategic analysis tool.

Although the tool has been greatly affected by the dynamics and

complexities in the modern economy, it is true that the analysis

still has a lot to offer to modern management in terms of

strategic planning. As a result, the following recommendations

are suggested;


1. Policy makers, scholars and academicians should embrace the

five forces model for i implementing business strategies.

2. Organizations should combine Porter’s competitive strategy

models and other analytical tools to fit today’s dynamic

business environment so as to remain competitive.


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Johnson Matthey