Analysis by Value Chain and Porters Five Forces Model - Case Study Example

Analysis by value chain and porter’s five forces model Name Tutor Date Every business has its own unique structure. This includes the divisions, the type of products or services and the target customers. In order to gain the common goal, which is profit, the organizations need to go an extra mile. Many organizations may be engaging in the same products or services hence need for achieving competitive advantage. Only the best competitor survives in the market. Some of the activities that may be done by a competitor include improving the quality of its products and services, offering value packs and a combination of discounts (O’Brien, 2009). Management Information Systems are a great help in generating business intelligence. Porter’s generic strategies give a description of how a company pursues its competitive advantage across its preferred market boundary where it discusses about three generic strategies; lower cost, differentiated or focus whereas value chain is a sequence of operations that an organization performs so as to produce valuable services or products for the market. These will be discussed below. Company ABC, which deals with products, engages in wholesale business whereby, it provides the best quality and most diverse selection of household goods through offering value packs and combination discount offers. This company pursues its competitive advantages through offering its products at lower costs than the competition. On the other hand, XYZ, a service provider, is a local bank that provides financial services. Company ABC uses the focus scope whereby, it offers its products to selected segments of the market that is the household whereas XYZ provides its services to the entire community. According to Porter (2005), if a company does not choose one of the three strategies, then there will be wastage of useful resources. The focus strategy describes the extent through which the company competes basing on either cost leadership or differentiation. Like in the Wal-Mart, the firm can choose to compete in the larger market with a scope that is extensive or in a well-definedfocused market fragment that deals with constricted scope. The notion of the competition in both cases will still be differentiation or cost leadership. In the case of adopting niche strategy, few target markets are the focus. These markets should be dissimilar groups that deal with specialized essentials. Offering of low prices or differentiated products or services depends with the selected segment needs so as its resources and competencies. Rather than proficiencies, the firm aims at gaining a competitive advantage through innovation of products and brand marketing. A focused strategy targets market strategies that are not so much affected by substitutes. In adopting a broad focused scope, an organization must fulfill the needs of a mass market. Depending on its capabilities and resources, a firm must contend either on differentiation or price. Adopting a wide scope, Wal Mart has also adopted a cost of leadership strategy in the larger market. In general, if a firm wants to follow a cost leadership strategy, then it will offer relatively lower prices than its competitor to target customers in most segments of an industry (Gamble, Strickland, & John, 2010). Other than price, firms target customers based on other attributes to increase profits, the strategy it pursues is the differentiation. To remain cost competitive, it seeks to minimize costs in areas that do not differentiate it. In the course of following a focus strategy, it focuses on one or a few segments. It may either attempt to offer cost focus or differentiation focus. The cost leadership strategy involves an organization overpowering its competitors through appealing to price- sensitive customers. To achieve this, the firm sets the lowest prices relatively in the market segment that is targeted. Firm ABC achieves lowest price offering while still making profits and a high return on investment, it has to operate at lower costs compared to its rivals. The three main ways to achieving this is; attaining a high asset turnover through production of high volumes of output while XYZ provides efficient and more services. Mass production result in high market stake and also creates an entry hindrance to potential competitors that may arise, who may not be able to match the economies of scale set. The second way of achieving this is through attaining low indirect and direct operating costs by offering high capacities of products that are standardized. Overhead expenses are also kept low by paying of low wages and establishing cost- conscious systems among many others. To maintain this strategy, an uninterrupted search for cost bargains is needed in all aspects of the business. This will involve controlling of the cost of production, subcontracting, increasing usage of the asset aptitude and lessening any other costs such as that used in advertising and distribution. The distribution strategy is useful in obtaining wide distribution cover while the promotional involves making a positive effect out of product features that are low. The final element is ensuring low cost by controlling the supply chain. To achieve this, bulk purchase is practiced to enjoy quantity discounts, pinning down suppliers, like in the case of Wal Mart, initiates bidding for contracts that are competitive, to keep inventories low, methods such as just- in- time purchasing are used when working with salespersons (Porter, 2005). Differentiation strategy includes distinguishing products in whichever way so as to efficiently compete. Where the target customer segment is not price- sensitive, customers have certain needs that are not well served, and the firm has the capability of giving out the best, differentiating strategy is then appropriate. For ABC Company, it would include innovative processes like in branding while for XYZ, it will include patents, unique technical expertise and personnel that are endowed. ABC and XYZ will be considered to have successful differentiation when the company accomplishes finest price for the product or service, rise in the revenue per unit or the achievement of the customers’ loyalty in purchasing the brand of the company. Differentiation is not effective in a case where its brand can easily be replicated by its competitors. It however increases profits when the additional price of the product is more than the additionalexpense to acquire the final product or service (Gamble, Arthur, Strickland & John, 2010). There are variants on the differentiation strategy which includes the shareholder value model and the unlimited resources model. The shareholder value model argues that a differentiation advantage can be created by the timing of the use of specialized knowledge for as long as the knowledge remains unique. The model suggests that customer’s main aim of buying a product or service is to be able to have access to its unique knowledge but this advantage is not dynamic since the purchase is not a regular event. On the other hand, by practicing a differentiation strategy, the unlimited resources model uses a large base of resources that allows an organization to outlive its competitors (Sekhar, 2006). This actually provides a short- term advantage whereby a firm will not sustain its competitive position, eventually if it lacks the capacity for continuous innovations. A Management Information System typically known as MIS provides important information that enables organizations to manage themselves resourcefully and commendably. The unique feature of MIS unlike other information systems is the ability it has to analyze and expedite strategic and operational activities. It deals with decision support systems, resource management enterprise, resource planning, human resource management, enterprise performance management, project management, supply chain management and customer relationship management. Managers of an organization benefit from Management Information Systems through the three types of information it provides; detailed- this confirms activities, summary- which simplifies information to read it easily, exception- this deals with all other information outside the normal scope of daily activities (Wickramasinghe & Von, 2007). In order to achieve competitive advantage using the Management Information Systems, ABC, XYZ and other similar organizations highlight their strengths and weaknesses due to the employees’ performance and availability of revenue reports among others. Business processes and operations can be improved through the identification of these aspects. The second advantage of Management Information Systems is the fact that it gives the overall show of the company and acts as a planning gesture. The third advantage of Management Information Systems is the ability of keeping records of the customer data which includes feedback. This can help the company to set their processes in accordance to the need of customers and this helps the company to perform direct and also promotion activities. All these advantages enable a company to gain competitive advantages through operating better, cheaper, faster and even uniquely in comparison with the other rival firms in the market (O’Brien, 2009). A value chain is a series of activities that a firm operating in a specific industry performs in order to deliver a valuable service for the market. In this case, company XYZ, which provides financial services follows performance of the value chain. In 1990’s, the concept of value chain analysis was first introduced. As a means of identifying poverty reduction strategies, value chain analysis has been incorporated in the development sector by upgrading along the value chain. Categorizing the generic value-adding operations, the value chain broadly carries out these processes under the two major activity-sets; physical value chain and virtual value chain. A physical value chain, also known as traditional is performed with an aim of enhancing a product or service. The activities improve through the experience gained from the business conduct. The services provided by XYZ improve gradually by the experience gained by its service providers. On the other hand, virtual value chain enables completely new horizon of market space through the introduction of computerized business systems. The value chain captures the value generated along the chain. ABC may require its parts suppliers to be located closer to its assembly plant whereas XYZ may require its location to be nearer a larger population to minimize the cost of transportation and avoid intermediaries respectively. The value chain is also useful in plant maintenance where work selection, work planning and work scheduling and execution can be located. ABC will have its useful plant for production of goods maintained whereas XYZ will have its computers maintained to enable ease of locating the day to day operations. Value chain is also useful in evaluating private or public companies when the publicly known data lacks from direct competition. The value chain group which is developed by a value Reference Model offers information model for value chain management, surrounding the process domains of the customer relations, network of supply and development of product. Guiding the modeling, design and measurement of business performance, the integrated process framework distinctly encompasses the plan, execute and govern the necessary requirements for the design, the product and also customer aspect of business. The six business functions of the value chain include research and development, product, services or process design, production, sales and marketing and lastly distribution (Porter, 2005). Basing on the above analysis, there are other various ways of improving business effectiveness and efficiency in company ABC and XYZ so that they may achieve better competitive advantages. One of the ways is to give employees secure and consistent access to information so as to react quickly to business changes when need be in order to remain ahead of the competitors. Another way is to provide employees with tools like Virtual Private Networks to enable them access information through reaching people even outside job. The third way to improve is through creating efficient business processes with partners to meet the business needs through a reliable network. Incorporation of videoconferencing, unified communication and other technologies makes it easy to collaborate, providing favorable condition for working together that is suppliers, manufacturers and customers to boost efficiency and reduce costs. Enabling employees to use phone systems is another important way in that, it avoids missed calls which lead to project delays, lost revenues and opportunity waste is another way to improve effectiveness and efficiency in businesses than the competitors. By hiring a managed service provider for the network administration, frees the IT staff to enable them focus on other tasks that are IT related hence use their time more effectively. By developing a long term technology plan frees the baggage to employees of learning to use new technologies in the cases of replacement of the obsolete. This saves a lot of time which can be used somewhere else in improving further effectiveness and efficiency of a firm to remain ahead of competitors. Lastly, streamlining the communication system of the customers is the best way to keep customers satisfied since delivering will be faster. In summary, the value chain and porter’s five forces analysis shows various ways of activities that a firm can engage in order to deliver valuable products and services. Additional ways such as streamlining the operational network also helps in providing better products and services to still be ahead of competitors. Since it said that survival is only for the fittest, the best firm to outdo it competitors will survive. References Gamble, Arthur, A., Strickland, & John, E. (2010). Crafting and executing strategy. Boston: McGraw- Hill/ Irwin. O’Brien, J. (2009).Management information systems- managing information technology in the internetwork enterprise. Boston: Irwin McGraw-Hill. Porter, E. (2005). Competitive advantage. New York: Simon and Schuster. Sekhar, G. V. S. (2006). Business policy and strategic management. S.l.: I K International Publi. Wickramasinghe, N., & Von, L. D. K. J. E. (2007). Knowledge-based enterprise: Theories and fundamentals. Hershey, PA: Idea Group Pub. Read More