Software Industry in the US - Essay Example

Software industry analysis Introduction Every industry is affected by different forces - internal and external. The software industry is among the industries that are very susceptible to the external forces and the reason for this are the high growth rates of the industry. Software industry is a "very young" and promising industry. The employment in this industry is high and more and more young people study IT related subjects (U.S. Department of Labor,2006). Therefore, it is considered as an industry that will play a "vital" role in the national economy. General and task environment The general environment is consisted of the wide economic, technological, demographic, sociocultural, environmental and political -legal environment. The forces have profound impact on the industry and on the organization. The global economic recession will affect both the national economies and the organization. The consumers' disposable income will be reduced. The weak economy negatively affected software sales, increasing pressure on software firms' gross margins. This means that higher marketing and operational capabilities should be more important than R&D capabilities i.e. the ability to rapidly innovate. The technological environment consists of the skills and equipment used in design, production and distribution. R&D capabilities are thought to be particularly important in software industry. In this industry,being first to market is often essential to becoming the de facto standard. Given the rapid rate of change in the software industry, we would expect that firms having higher R&D capabilities would have a distinct advantage (Slaughter & Shanling & Shang, 2006). The demographic forces result from changes in the nature, composition and diversity of a population. More and more households use the Internet. The baby boomers age i.e. people that are over 54 are interested in using a computer.The education and entertainment software segment is growing very quickly (U.S. Department of Labor, 2006). On the business side, computer networks are popular in the businesses and businesses are interested in products that improve network operations. The market requires more service for client/server networks and the popularity of Intranets is expected to continue. The trend in business customers is to have their data accessible, secure and private. On the other hand, the task environment includes immediate persons involved in producing, distributing and promoting the offering and therefore it includes internal and external factors that are influenced by the general environment. The task environment forces are suppliers, distributors, customers and competitors. The suppliers provide organization with inputs. The managers of the organization need to secure reliable input sources. The suppliers provide raw materials, components and even labor. In the case of the software industry the suppliers provide mainly components and service. It can be hard to work with suppliers' shortages and lack of substitutes. Suppliers who are in a good bargaining position are those that possess scarce items so they can raise the price. Managers' preference is to have many similar suppliers of each item. The distributors are organizations that help others to sell goods. Microsoft, which is a leader of the software industry, uses mainly wholesalers for selling its products to the SOHO market whereas Microsoft sells directly to the large customers. The distributors can threaten not to carry your product unless a strong brand name is established as it is in Microsoft's case whereas the actual power is in the hands of the producer. Customers are the people who buy the goods. For Microsoft, there are business, home and government buyers. The competitors are other organizations that produce similar goods. The most serious force facing managers is the rivalry between competitors. High levels of rivalry often means lower prices and profits become hard to find. Software industry is characterized by intense rivalry but due to the fact that the R&D departments continuously innovate , the competitors do not lower prices, on the contrary the gross margins of the industry are quite high. Barriers to entry keep new competitors out and result from: economies of scale and brand loyalty.Microsoft has achieved both since it has economies of scale due to the large scale production and it has established a strong brand (Standard & Poors, 2008) . Impact of the environment on the organization The external environment is consisted of the following factors: Competitors The changing of economic structure Impact of the society Financial management Legal or political systems The impact of the environment The competitors try to get advantage over the other by either diversifying the existing products and services or by finding means to offer better options for the same worth of money. The managers have to be always alert and informed about the competitors' movements. They have to be one step ahead from the competition in order to remain successful. Economy is also important. Nowadays, the economy is in a crisis declining the standards of living resulting in the decline of the business. The business is influenced by the actions of customer because of activities which alter depending on factors such as maturity level, populace, type of vocation and spare time activities. The managers should always be aware of the consumers' purchasing behavior otherwise they will not be in the position to formulate an effective marketing strategy. On the financial management side a very important factor is the interest rate because the elevated the rate, more will be the expenditure to act as a stop on payments in the economy. The managers are responsible for having created the necessary assets and minimize therefore the risk. Software industry used to work with very high gross margins, most of the big companies have the necessary liquidity to overcome the current crisis. Smaller companies are in danger so they have either to specialize in niche markets or create strategic alliances - mergers ((Slaughter & Shanling & Shang, 2006). The legal system with its regulations provides the framework on which the organization runs. The legal system is very important for the big software industries since some of them had to face the antimonopoly laws (e.g. Microsoft). Finally, the environment is important and the modern trend is to protect the environment. More productions have turned out to be alert of the affiliation between their cost-effective movements that is compromising produces and providing assistance for earnings making sure the environment is not at stake at any cost. The environment is not very important for software companies since they are not among these organizations that pollute their environment. A very important factor for software industry is an internal one and that is the corporate culture. The beliefs and attitudes of people are the most important component of the work culture. The culture is influenced by the manager's behavior, the employee selection (the new employees have to fit in the existing corporate culture).The nature of the business is also an important component. Silicon Valley firms had to build new corporate cultures since no models existed in the industry. The characteristics of this culture are: long hours, high turnover, enthusiasm, technology is the king over the customer, everyone wants to be an entrepreneur. Unfortunately, the negative effects of this culture are stress, tension, drug use, alcoholism and divorce (Slaughter & Shanling & Shang, 2006). Finally, the last component is the external culture i.e. the culture of the surrounding community. Nowadays, the software industry so far has managed to adapt successfully to the surrounding communities since it employs a pool of talented people all around the world. Conclusion The software industry is at the maturity stage in the PLC (product life cycle) i.e. it has to strengthen its marketing and operations capabilities, a fact accentuated by the global economic crisis. Customers become more demanding and price sensitive and only an organization that has the above mentioned abilities will overcome the crisis. At the same time, it has to create an organization culture that will keep talented employees satisfied and provide them with quality of life and therefore achieve a competitive advantage since it is a knowledge - based industry and people make the difference. References Slaughter ,S., Shanling,L., Shang, J. (September 8,2006). The Economic Value of Software Firms' Strategies and Capabilities in the Internet Boom and Bust: An Empirical Study. Retrieved December 18, 2008, from http://digital.mit.edu/wise2006/papers/6B-1_wise-abstract-slaughter.pdf Standard & Poors .(December 15, 2008).Microsoft Corp Stock Report. U.S.Department of Labor. Career Guide to Industries.(2006).Software Publishers. Retrieved December 17, 2008, from http://www.bls.gov/oco/cg/cgs051.htm#nature Read More