Type of Business and Focus of the Business according to Porters Three Generic Strategies - Case Study Example

Name: Tutor: Subject: Date: Type of Business and Focus of the Business according to Porter’s Three Generic Strategies ABC ltd is a wholesale company that deals with sales of a wide range of household goods to its customers. The company is always in pursuance of providing best quality products at customer friendly prices. By following a cost leadership focus as noted by Miller 37-41 the firm’s focus is to offer its products in most sectors of the industry through low pricing of its products. The primary goal of ABC Ltd is to keep its prices low as it continues to roll out its retail strategy to emerging markets. For this to work out, ABC Ltd is working closely with its main suppliers to ensure that price changes are kept at the minimum and also that the prices remain as low in a constant manner. ABC targets a large market and the focus of the company is based on reducing costs. This way, the firm can compete with any other company with regard to price and earn higher unit profits. XYZ ltd, on the other hand, is a banking institution offering financial services to its customers. Just like in any other industry the banking industry faces competition from other players and financial services providers, hence the need to adapt a strategy that gives a bank a competitive edge over its competitors. XYZ ltd focuses on a differentiation strategy which enhances long-term relationships with customers. The bank endeavors to offer unique services that add value to the customer. This strategy enables the bank to adopt an advice-oriented approach which offer customers personalized consulting. This way, the bank differentiates itself from competitors through its individual and in-depth consulting that is as well replicated in the fees charged which is charged at a premium. Main Divisions The Main divisions of ABC ltd include the wholesale division, the retail division and the Management information system. The wholesale division sells good and products for resale to other businesses or institutions. These products are manufactured, packaged, priced and distributed to the stores or the warehouses for storage. The retail division includes a chain of stores through which customers can buy a variety of products for their use. The management information system is responsible for availing important and relevant information to the management to enhance sound decision making for efficient and effective management of the company. It enhances analysis and facilitation of strategic and operational activities within the organization. XYZ ltd on the other hand has a number of divisions as well. The main divisions include the management which is supported by the Management Information System. There is also the corporate division that deals with clients from corporate organizations or large businesses. There is also the retail division that deals with individual customers and addresses their varying needs such as, cash deposits, enquiries, withdrawals, and loans. Extent to Which MIS Division Is Helping Similar Organizations Generate Business Intelligence and Attain Competitive Advantage The Management information division can be of essence to any organization for it to attain a competitive edge over its competitors. This division is responsible for all information and communication strategies and solutions in any organization. The management information systems avail important information to the management about the market . For instance the new trends in the market, what the customers want, as well as important information about competitors that can be useful in attaining a competitive advantage. According to Miller 37-41, such information can help an organization know what products and services they need to offer, and also how to provide these products and services to their customers in a more appealing manner than their competitors. Information systems also enable a company to connect with the global market and learn what other players in the global market are doing in order to remain competitive. Through the information systems, the communication barrier has been broken hence enabling real time communication even where there is a long distance between the conversing individuals. This enhances timely decision making for better and effective operational efficiency. For instance, in merchandising outlets, The Information systems have been automated to reorder goods and products that have been sold out and the system is also able to identify the slow moving goods hence avoiding overstocking. A direct link between the stores, the central computer system and the suppliers enhances better coordination and planning. Porter’s Value chain and Porter’s Five forces analysis of ABC Ltd and XYZ Ltd The value chain is used to analytically examine the undertakings of a company and how these undertakings interact with each other and affect each other’s cost and performance as indicated by Daniel in Strategic Foresight and Porter’s Five Forces. These activities underline the sources of a company’s competitive edge if conducted at a lower cost and in a better manner than the competitors. They include primary and supporting activities that add value to the products and services of a firm. ABC Ltd For ABC ltd, the company’s activities are monitored through the use of information systems. This enhances transparency and efficiency of operations as information is shared in real time. The company has also put in place a storage system that allows ease in storage and retrieving of products from the stores. This avoids delays or goods being damaged while being stored or retrieved. The company has established stores at varying locations. This enhances faster delivery of goods in different areas. The company has also employed technical competence for the purpose of maintenance of its machinery and motor vehicles. This ensures that production, branding and distribution are uninterrupted through the course of operations.ABC also ensures that it has in place skilled and competent work power through a well integrated recruitment strategy. ABC has a well established security system that enhances the security of its goods and products while in the stores and also while being transported. Through the use of information systems, the company has in place an established marketing network to deal appropriately with institutional and individual customers. XYZ on the other hand has a training programme for its employees to ensure that their skills and competence are in continuous development. This keeps them in touch with new and upcoming market trends and new technologies. Due to the ever-changing environment as a result of technological advancements, XYZ also has in place a well integrated and established information system that enables data and information sharing. Data collected from different branches and from customers reaches the top management for decision making and problem solving purposes without much effort and in a timely manner. The bank also has in place a long term contract with a security company to ensure their services are delivered in a secure and safe environment within the bank and while also transporting cash to and from the various branches. Porters five analysis of ABC Ltd and XYZ Ltd ABC Ltd Competitive analysis: Porters five forces According to Andreas 2012 from Porters five forces framework, Porters five forces is a theoretical framework used to analyze an industry and the environment in which it operates and develop strategies. These forces are the rivalry intensity, new entrants, bargaining power of buyers and that of suppliers as well and threat of substitutes. Rivalry among competing sellers The house hold goods industry has a lot of direct competition from other companies or business chains within the same industry. Such is the case with ABC Ltd as they face a lot of direct competition from other businesses offering products that directly compete with theirs. This rivalry drives companies to make efforts that can enhance them to stand out from their rivals through their prices, quality of their products and convenience. The large number of competitors in the industry in addition to the high expectations of customers highlights the extent of rivalry from competing firms. Potential New entrants This is one of the major competitive forces that face most companies in this industry. This is brought about by the nature of the industry which has few barriers of entry. It does not call for much effort to start a business. However, new entrants also have to overcome the challenge posed by the disadvantage of experience, for instance, the required licenses as noted by porter from the book Competitive Strategy: Techniques for analyzing industries and competitors. They also need to have substantial amounts of capital to start with as well as shaking off the brand loyalty by customers to the brands that are already in existence. Despite these barriers, new entrants still pose a strong competitive force as a result of the available opportunities and minimal barriers to entry. Substitutes Products According to Andreas, substitute goods also pose competitive pressure to existing companies. However, for a substitute to be regarded and competitive it has to be; readily available and the price should be quite attractive, the quality, service and other characteristics of the substitute should be perceived by the customers as being comparable or superior and the cost the customer is to incur while switching should be minimal. Suppliers bargaining power According to Daniel from Strategic Foresight and Porter’s Five Forces, suppliers have more bargaining on instances when; a company’s cost of switching to another supplier is considerably high, whereby the inputs or the supplies have a shortage and the demand is high, and when the suppliers of a certain input are just a few. On Such instances when there is greater demand for their products, suppliers have some power over negotiations, pricing and other aspects due to the high demand. Buyers Bargaining Power Due to the fragmentation and differentiation in the sale of house hold goods. The bargaining power of buyers is relatively strong. This is because if a company or an outlet prices are too high customers will not hesitate to conduct business with one of the rival competitors. If quality is not satisfactory to the customer, they may as well switch. This calls for companies to thereby make an effort to satisfy their customers according to the way they want to bargain since they have many options that they could turn to. Porters five analysis of XYZ Threat of New entrants There is a low threat of new entrants in the banking industry in comparison to other industries such as those selling house hold items. This is because of the regulatory as well as large capital requirements. Among other barriers to new entrants in this industry include; licensing by the government, RBI regulations, soaring preliminary investment among others. Bargaining power of suppliers There is a high bargaining power of suppliers in the banking industry due to a number of reasons. This has been brought about by rise in investment opportunities such as; bonds that are tax free, equity market and mutual funds among others. For such reasons, those who provide funds tend to be more demanding hence a high bargaining power. Threat of substitutes There is a high threat posed by substitutes in this industry as well. This is due to the wide array of investment and borrowing opportunities. Other financial services providers such as non-banking financial companies are bringing about a huge threat to the market share of the banks. This is because such alternative banking services might be attained at lower costs for the same purpose. Competitive rivalry This force highlights the power of competition between other players and banking industry in the financial markets. When there is a high competitive pressure, it brings forth pressure on prices and margins as well as on the profitability of any finance player in the sector. Customers bargaining power The bargaining power of customers in this industry is high. This is brought about by the high costs of switching, the loyalty of the customers and long term finance. It is also as a result of availability of other options from the bank’s competitors. Conclusion Whether a company or a banking institution is new or established in the industry, the businesses’ profitability is heavily dependent on the five forces of competition, referred to as Porter’s five forces as well as those activities that add value to the product or service a firm provides. These factors are key to a business’s survival and economic value within the industry. From the above analysis it is evident that for a firm to remain and enhance its competitive advantage over its competitors, there is a need adopt a strategic approach that will add value to the company’s products and services while also minimizing costs as noted by Miller 37-41. This is because through provision of high quality products that add value to the customer or to the service being delivered a company is able to beat competition and retain its customers. It is also important for both companies ABC Ltd and XYZ ltd to adopt information technology in their day to day running. With the ever-changing technological advancements most businesses are in the modern day being carried out through the internet. Most competitors have adopted the modern technology in their businesses so as to keep up with the latest trends and technology. To be in a position to compete with such firms, there is a need to adopt the latest technologies too. Through internet for instance, customers can check the products they want to buy from a Store such as ABC and make an order from the comfort of their homes. Banks on the other hand, such as XYZ should also ensure that its business and services are incorporated into the online portal to enhance service delivery to their customers. Work Cited Andreas, S., (2012), Porter’s Five Forces Framework. GRIN Verlag. Daniel, R., (2011), Strategic Foresight and Porter’s Five Forces: Towards a Synthesis. GRIN Verlag, 2011 Miller, D. 1992 The generic strategy trap The Journal of Business Strategy 13(1):37-41 1992) Porter, M.E., (1980) Competitive Strategy: Techniques for analyzing industries and competitors New York: The Free Press. Read More