Michael E. Porter is a theorist he designs a model which helps the business firms to make the decision about the business process for making the capacity expansion. The key 5- steps of Porter’s model are as follows:
1. Identify the Options:
Identification of the options which a business firm has like it plants size, type, and the expected possible reply from its competitors.
2. Future Forecasting:
The approximate real future forecasting is very necessary for every business. That needs in every area of the business like in demand and supply analysis, market and industry analysis and technology and developments analysis. When the appropriate real information a company receive from all its ends that help them to make a decision about their capacity expansion.
3. Analysis of the Competitors:
Every business in the market has competitors and the reactions from the competitors are very important for the business. Their reaction always influences over the firms strategic planning and helps the firm to understand its worth and make the new strategic planning for its future value assessment in the market.
4. Industry and Market Share:
The Business firm always needs to make a true analysis about its industry and market share and make a rational decision according to it.
5. Consistency Check:
Before going to make a decision about the capacity expansion the business needs to test its consistency level over the new decisions. That helps them to handle the inconsistency in their operations.
The business firms need to deal efficiently and effectively with the uncertainty about the future and needs to do more work on R&D for that purpose. The use of the practical capacity helps the business firms in capital budgeting and in cost allocation like the factory overhead costs allocation.
That’s are the key steps of the famous theorist Michael E. Porter model which helps the business firm to make a decision through a process of the firm’s capacity expansion.
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