How the sector matrix framework is useful for analyzing demand and supply in an industry - Essay Example

?HOW THE SECTOR MATRIX FRAMEWORK IS USEFUL FOR ANALYZING DEMAND AND SUPPLY IN AN INDUSTRY College Development of strategies and systems is important because the systems basically develop into the company structure and forms dynamism in its sectors. These changes made over years of development and industrial decision making lead into the final tapering of new developments around us each day. Management training is also important. Moreover, it should be upgraded from time to time to ensure that the organization gains and maintains its competitive advantage over other players in the industries. A strategic management system is one that maintains good follow up on matters in the firm over time. It is important that management strategies be consistent and systematic (Ansoff 1979). According to Porter (1985), a firm’s competitive advantage is achieved by quality development of differentiation and leadership in the chain of that firm. Porter classifies these chain activities into two groups; the primary and the support activities. Primary activities are activities such as marketing and sales, inbound-outbound logistics, and service. Inbound logistics receive actual raw material during the beginning of the production process. Operations comprises of physical activities of processing raw materials. Outbound logistics involve storage of produced goods while marketing and sales refers to the actual and physical processes of sale of goods and marketing. Services relate to activities that follow after sale to customers. Support activities include technology advancement, firm infrastructure and management of human resource. Primary systems are aided by firm infrastructure which consists of the company’s culture and its systems of control. The human resource management engages in activities like hiring, firing and training staff. Technology advancement factors are useful support to activities during work process and procurement such as purchasing and obtaining material. Primary activities are those activities directly and physically involved in the production process while support activities comprises of those processes indirectly and not physically involved in production and sale of products created. Furthermore, Porter argued that support activity provides an anchor on specific primary activities while firm infrastructure support the entire line as a whole. Sector matrix is a long known phenomenon. Since organization of production processes was challenged, it has been a topic of debate. The challenges began after Porter. When observations made by scholars of management like Geffen came up with the commodity value chains. Value chains are further argued against the sector matrix Froud et al (1998). Maiden arguments made concern overall effect of a single factor such as firm infrastructure on the cause of competitive advantage. It is argued that competitive advantage is an aspect of many activities incorporated together to gain the firm a general step ahead. This argument led to value adding effect of more than one activity being achieved in production, marketing and delivery of products. Sector matrix system is developed especially for complex management structures. Though a popular system that is established effectively in many organizations, the matrix has its limitations. Sector matrix is a system of management with a number of managers in different departments who report to one overall manager. The strategy is excellent in some large firms. It is however yet to be adopted by other companies that follow trend and wish to use it. Sector matrix framework has been an issue of trying and making mistakes. It has created such downfalls and rising cycles for companies trying to incorporate it for the very first time. Sector matrix in general is only efficient in the long run. Some of the challenges faced by organizations with or trying to adopt the matrix include; decision process complications. These could be lengthy since major decisions have to involve departments while it could just be frustrated by mere arrogance from the various groups in management. Departmental organization may be hard that to manage. Sector matrix framework is altogether effective in dealing with sophisticated structures of organization. Other problems encountered involve anarchy shortcomings and power imbalance issues. These are contributed by people’s inability to realize who the actual manager or boss is and often creates a form of confusion. Anarchy occurs as a result of communication issues, it is however easy to deal with. All in all sector matrix seems to be the most common form of strategy in the modern corporation world as so many companies utilize it. Some of the firms include; including Shell Oil, Texas Instrumentals Bechtel and the World Bank. Sector matrix framework has a greatest advantage over other forms of firm framework because of its dynamism and ability to live up to change, it is a highly responsive system. The World Bank which has a dual accountability for example, reports effectiveness of sector matrix framework. Some of the advantages of the matrix are the ability to tap innovation and retain it. The matrix system has aided the bank in maintaining its relevance to its service clients. As a sophisticated system the matrix allows for the bank to manage its high level knowledge on operations. The value adding process in the value adding chain creates an overlapping effect. Sector matrix framework stemmed from such arguments as these. Integration of production oriented process into a market oriented gave rise to sector matrix in these debates. Value chains comprise of activities that create value for the organizations and are well perpetrated. The value adding process makes it easy for firms to run since the cost paid by a customer for a product exceeds cost incurred in its production so that the value added is catered for. This creates a cost advantage for the supplier with products. A strategic management system allows for easy configuration of the entire value adding process. Value adding process is the second step in extending commodity adding operations of firms that are on the mark step for an entire revolution. Other than cost advantage, it is an effect of value adding chain that leads to an advantage with cost by pushing them from a firm’s value adding chain. Firms derive their benefits from differentiation. Differentiation is the process of identifying a firm’s competitors’ activities and studying them then analyzing them to do better than they do and be a step ahead of them. Cost advantage can be achieved through; timing market entry, realized economies of scale among others (Basingstoke 2008). Sector matrix framework challenges the idea of production process since the process cannot claim complete eligibility by itself. This is because of development in the industry that takes into account new material in production processes. These processes vary with development. Product chains have become less efficient. A study of the matrix sector brings to comprehension markets more than just production chains and value chains. Sustainability of product and value chains in the long run is not completely reliable in situations where the industry is sophisticated for example, motor companies like Ford Motor Company (Bowman et al 1987). Companies as motor firms like Ford and pharmaceutical product making firms engage in creating products that require different strategy. The production process for companies as this is quite diverse. Products in these companies are made according to customers demand. Some can be specifically custom made for their needs in both the motor company and pharmaceutical firms. This is because pharmaceutical products are created according to the need of drugs and current emerging trends of lifestyle that predict diseases. The situation requires expansion and use of more advanced technology which product chain process could not by itself inculcate yet remain efficient. Matrix sector is a result of competition among firms that need to survive in the market and a tactic of sustainability for already grown firms. Maturity in the long run as an effect of factors of production like technology that Porter considered as support activities. They are showever, the main contributors to value addition in the chain that provide respective firms with a competitive advantage over other players in the industry (Saloner et al 2001). The overall effect of value addition revolves around the demand and supply context. Demand, which engages households is determined by a firm’s spending and disposable income of a consumer. Supply on the other hand reflects activities of production by companies in the market context that happen across its sectors for financial benefit. Activity of the households in the value chain process determines the consumers leverage when price is set by the firms. The links between value chains among firms influences forces of demand and supply. Since there is more than one firm in the industry attempting to compete against each other, prices of goods are leveled within certain range. This range of product prices is created from the basic law of demand. Consumers will always prefer more quantity when good prices are low and reason with low cost goods than high cost goods except in special cases. Grant et al (2008). Good management of vertical chain of value adding of a firm is a major step in gaining success amongst other suppliers in an industry. For example, a firm that goes ahead to reduce its transportation costs by locating its premises just around its target market and near its source of raw material has hold of the market with reduced costs (Lamb 1984). A good strategic management system is useful in smooth running of matters. It is in itself a value adding factor, it creates efficiency and saves on time for production since activities are well laid out and set to run smoothly. Saving time means producing more units or the firms part thus increasing economies of scale. Management as well creates a sense of quality in goods produced which would make them more preferred to those of rival firms in the industry and create a competitive advantage for the sole player among suppliers of the same good. Some of the good management systems will run their value adding chains by outsourcing the chain. The level to which a firm performs its upstream and downstream chain process is that firm’s degree of vertical integration. Managers decide whether or not to outsource a firm’s chain activities. The decision however lays on other supplier’s ability to perform the same activity more cheaply or not. Whether the process will improve on time saving factor, its flexibility depends on the system’s quality (Hill at el 1998). Value adding chain takes into account supplier value chain, firm value chain and buyer value chain. The firm’s horizontal involvement in sector matrix analysis is however not a complete new thing that disregards commodity chain but it is an improvement of the same. It is an extension of what applied in a much diversified context to allow for further developments in the industry. A good management strategy emphasizes on developing relations across the lines horizontally. This relations include very physical or primary involvements as Porter would put it. Such primary activities like use of one’s products as raw material for other production purposes and selling such material to firms promote the firm’s control over its competitors while expanding itself. This strategy gains the supplier firms competitive advantages since they can easily control other firm’s resources and in the general picture their supply efficiency in demand supply setting. Demand and supply is creation and control of a market. There has been not one organization that can claim to have a perfect management. The process is developed only to be best suited for structure of firm organization, to meet its needs by aiding in its day to day running. Sector matrix has its advantages over commodity chains and value chains. It is therefore adoptable for several situations before a better framework is formed from its extension. Sector matrix can be said to be the beginning of great dimensional change in the market structure. Bibliography. Ansoff, H. I. (1979). Strategic management. New York, Wiley. Basingstoke, Macmillan. Grant, R. M. (2008). Contemporary strategy analysis. Malden, MA, Blackwell Pub. Besanko, D., Dranove, D., & Shanley, M. (2000). Economics of strategy. New York, Wiley. Bowman, C., & Asch, D. C. (1987). Strategic management. Hill, C. W. L., & Jones, G. R. (1998). Strategic management theory: an integrated approach. Boston, MA, Houghton Mifflin. Lamb, R. (1984). Competitive strategic management. Englewood Cliffs, NJ, Prentice-Hall Saloner, G., Shepard, A., & Podolny, J. M. (2001). Strategic management. New York, John Wiley. Saloner, G., Shepard, A., & Podolny, J. M. (2001). Strategic management. New York, John Wiley. . . Read More