Michael Porters Change of View - Essay Example

Michael Porter’s Change of View Table of Contents 1Introduction 3 2The role of business in the society 33The five forces 4 1Supply power 4 2Buyer power 4 3Competitive Rivalry 4 4Threat of Substitution 5 5Threat of New entry 5 4Creating shared value 6 5Moving Beyond Trade –Offs 6 6Roots of Shared Value 7 7How shared value is created 8 8Redefining productivity in the value chain 9 9Conclusion 9 Bibliography: 10 1 Introduction At around 1979, a young economist and associate professor Michael E. Porter brought about a revolution in the management field. The revolution was all about the study of competitive strategy for corporations, regions and more recently, health care and philanthropy. In essence, Porter evaluated the strategy job to understand and cope with competition. He said that, most managers’ defined competition in a narrow way like it only occurred among direct competitors (Porter 2008). Nevertheless, competition for profits basically goes afar establishing industry rivals that include other competitive forces such as customers, suppliers, potential entrants and substitute products. Although, there are different companies undertaking different objectives, the core factors that shape the market with profitability are similar. The only way to understand industries is by analysing the industry through the use of underlying structures that are related to the five forces. 2 The role of business in the society Any business must have a role in society. In essence, businesses create prosperity where healthy businesses need a healthy community. Moreover, there has been an over growing alertness of major challenges that are in the society. In particular, there has been the lack of sufficient resources and capabilities form the government and non profitable organization to handle these challenges (Kotter 1996). However, more of the public sees business as prospering at the outlay of the society and even though there has been notable corporate citizenship activities the legitimacy of business has gone down amicably (Paton and McCalman 2008) ss Fig 2; The connection /disconnection between Society and Business. 3 The five forces Porter’s five forces tool is simple but powerful especially when it comes to evaluating the business because it help in understanding both the strength of the current, competitive position and the strength of the position in which one is aiming to achieve in the market. It enables one to take advantage of the present situation of strength to improve any situation that is associated to weakness. Moreover, it is used to identify new products, services and/or businesses that have the potential of making a profit. This analysis presumes that there are five crucial forces that determine competitive power in any given situation (Porter 2008). 1 Supply power Supply power allows you to understand how suppliers accelerate prices in the market. This is particularly present in the number of suppliers with regard to key input, the exceptionality of their products/services, they strength plus the control they have over you. Moreover, the issue of switching from one supplier to another is also witnessed. Essentially, the few choices you have in suppliers, the more need of suppliers’ help especially due to their power. 2 Buyer power Buyer power gives a chance to evaluate the easiness in which buyers can bring prices down. It is mostly influenced by the number of buyers’ especially individual buyers in one’s business including the cost of them moving from one buyer to another. However, dealing with few powerful buyers can be challenging as they may be forced to dictate purchasing terms to the seller. 3 Competitive Rivalry Competitive Rivalry indicates the number and ability of competitors that are present. In case, several competitors are offering equal attractive products /services, then there is a likely hood of little power in the situation. Suppliers and buyers have the greatest impact in the market, in that if they are not offered good deals, they move to another market. Likewise, if the market is unique in their products to extent of having competition, then there is the presence of incredible strength. 4 Threat of Substitution Threat of Substitution is influenced by the ability of customers to identify different ways in which business are being carried out. The supply of unique products may be substituted through manual processing or outsourcing. This automatically led to weakening of power in the products that is available in the market. 5 Threat of New entry Threat of New entry revolves around power in that is demonstrated by the ability of people entering the market. Lack of protection for key technologies and few economies in scale can pave the way for new competitors in the market. However, strong and desirable barriers protect market territories and preserve favorable position in the market (Hoskisson 2008). Fig 1. Five forces that determine competition 4 Creating shared value In the recent years, business has been seen as one causing social economic and environmental problems because most of the countries have been perceived to be thriving under the expense of the wider community. Moreover, several businesses that have began embracing corporate responsibility has been seen to cause social failures leading to a drastic fall in legitimacy measures. This diminished trust in business has pushed the politicians into setting policies that undermine competitive and sap economic growth (Czinkota and Ronkailen 2007). Essentially, companies have the major problem due to the fact that they remain trapped in the outdated approach to the creation of value that had come forth over the past few decades. They have continuous viewed the creation in a narrow perspective leading to a miss in, what is more, important like the needs of customers hence disregarding broader influences that verify their long term success. Government and civil society have also tried to find the solution to this problem by attempting through addressing social weaknesses at the cost of business (Hoskisson 2008). However, companies must make an effort in bring the business and society back because most of these companies have remained stuck in a mindset social responsibility where the societal issues are at the periphery and not at the core. This solution lies in the principle of shared value which basically involves creating economic value in a way that also creates value for society by means of addressing the needs and challenges that are facing it. Practically, business must be in a position to rejoin company success with social progress (Kotter 1996). Companies that have been known to thrive in businesses such as Nestle have embarked in important efforts to create shred value by merging the ideas of society and the performance of corporate. The government should also identify regulatory framework that encourages shared value rather than work against it. The purpose of the corporation must be redefine to as creating shared value but not just for profit making only. 5 Moving Beyond Trade –Offs The society and the business fraternity have been in war for the longest period ever because economists have legitimized the idea of providing societal benefits through ensuring that companies have tempered their economic success. There is also the presence of externalities, which arise especially when companies create social costs that they do not have to bear, those that include pollution. Hence, the society must impose regulations on taxes and penalties so that companies can learn how to internalize the externalities (Daft et. al.2010). The perception has greatly changed the strategies of companies who to some extent have barred environmental and social considerations from their economic thinking. Companies have also taken broader context where they do their businesses as a given and resisted regulatory standards. Conversely, the government has often regulated the market in a manner that makes shared value very difficult to achieve. This implies that both sides perceive each other s as an obstacle in the pursuing of goal (Genus 1998). However, the concept of shared value recognizes that the societal and conventional needs define the markets and the social harms or flaws often generate internal costs for firms like wasted energy or raw materials. There is a need, therefore, to ensure that remedial training is put in place to compensate for inadequacies in education. Handling societal harms and constraints does not raise the cost for firms since they are in a position to innovate through the use of new technologies, operating methods and management approaches thus increases their productivity and expend their markets (Stack and Burlingham 1994). Thus, shared value is neither about personal values nor about the distribution of the value that has already is being created by the firm, but it all about the expansion of the total pool of economic and the social value. For instance, the fair-trade in purchasing aims at increasing the revenue proportion that goes to poor farmers through the payment of higher prices for the same crops. Hence, fair trade is more of redistribution other than expanding the overall amount of value created. 6 Roots of Shared Value The fundamental level in a market dictates that company competitiveness and the health of a community that surrounds it are closely related. Any business needs a successful community, not only in creating demand for its products but also provide critical public assets and a supportive environment. Conversely, a community needs successful businesses to provide opportunities to its citizens. This interdependence dictates that public policies that undermine the productivity and competitiveness of the surrounding businesses are self-defeating especially in a global economy where facilities and jobs are easily movable (Jain 1989). Past view of capitalism indicates that business contributes to society by making a profit, which maintains investments, employment, purchases and taxes. Hence, being able to conduct business as usual is a sufficient social benefit. In fact, the perspective has permeated management thinking for the past two decades. Businesses have continually focused in enticing consumers into buying more products from them. The result includes competition in pricing, innovations, organic growth that is slow and a competitive advantage that is not clear (Aladwani 2011). This kind of competition has shown that the communities in which companies operate witness small benefit even as profit rises. Their perception is that profit comes at their expense especially in the current economic recovery where the rising of earning has done less in offsetting the high level of unemployment, distress in the local business sector, and other severe pressures emanating from. According to Sammie and Roth 1992, the theory of strategy holds that in order for any company to be successful, it must create a distinctive value proposition that must meet the need of a specific range of customers. It gets the competitive advantage from how it puts up the value chain that is involved in creating, producing, delivering, selling, and supporting its products or services. It has taken business people decades to study how to position and design activities and integrate them. In trying to understand the business environment, managers have placed most of their attention on the industry or a particular business in, which the company competes. 7 How shared value is created The concept of shared value is described as policies and operating practices that boost the company while concurrently advancing the economic and social condition in the communities in, which it operates. A creation of shared value looks at identifying and intensifying the connections between societal and economic progress. This concept denoted that economic and social progress must be addressed using value principle. Value is said to be benefits that are related to costs. The creation of value is a situation where profit is portrayed by revenues earned from customers minus the costs gained. Companies can create economic value through the creation of societal value (Tallman 2007). In essence, three ways are used to do this. First, there must be re-conceiving products and markets. That is meeting the need of society through products and reaching the unserved/ underserved customers with the products. Second is redefining productivity in the value chain by better use of resources across the chain to improve basic productivity. Third is to enable the local cluster to develop by improving suppliers’ skills, as well as, building supportive industry clusters at the location of company. The concept of shared value basically resets the boundaries of capitalism. Through the connection, the success from various companies has led to improvement that is witnessed in the society (Wood 2002). It enables the opening up of several ways in which needs are served, efficiency is gained, differentiation is created, and markets are expanded. Moreover, the capacity to create shared value applies to advanced economies and developing countries at the same level although specific opportunities vary in accordance to industries and companies. 8 Redefining productivity in the value chain The value of companies cannot be evaded as it affects and is affected by numerous societal issues like use of water, healthy and safety, working conditions and equal treatment in the work place. The opportunities that create shared value come up due to societal problems that are capable of creating economic costs in the firm’s value chain. According to Witcher and Chau 2010, issues such as externalities actually impose internal costs on the firm even in the deficiency of regulation or resource taxes. Businesses are not the sole players in searching for profitable solutions towards social problems, but a wider generation of social entrepreneurs is among those who pioneer new products that are able to meet social needs by use of viable models of business. Needless to say, the shares value applies equally to both government and nonprofit organizations. 9 Conclusion According to porter’s a number of companies today are beginning to appreciate that marginalized supplier are not in a position to remain productive or even improve their quality. The five forces have been able to analyse the situation of the market. Increase in access to inputs and technology that is shared combined with proper financing enables the improvement in supply quality and productivity leading to access of the growing volume. Moreover, improve in productivity automatically leads to lower prices. When suppliers are stronger their environmental impact often falls leading to improved efficiency hence share value is created. Bibliography: Aladwani, A. M., 2011. Change Management Strategies for Successful ERP Implementation. Retrieved on 25th October, 2012 from http://www.peoplesoft-planet.com/Change- management-strategies-for-successful-ERP-implementation.html. Czinkota, R.M and Ronkailen, A.I., 2007. International marketing. United States: Thompson. Daft, L. R. et al., 2010. Management. Andover, Hampshire: Cengage Learning EMEA. Genus. A., 1998.The management of change: perspectives and practice. London; Boston: International Thomson Business Press. Hoskisson, E. R., 2008.Competing for advantage. Mason, OH: Thomson/South-Western. Jain, S. C., 1989, Standardization of international marketing strategy: some research hypotheses. Journal of Marketing. 13 (1): 42-60. Kotter, J. P., 1996. Leading change. Cambridge. 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