Porters Five Forces - Case Study Example

Introduction Marston Tools plc is a manufacturer and distributor of hand tools inclusive of a wide product range. Now the company faces high competitive rivalry in this industry. The only way for Marston Tools to survive is through adopting information systems and Internet applications that will create operational effectiveness and make strategic positioning possible. The current stage of analysis has shown that the information system must be a monitoring and feedback system which will cater for the delays and waste in manufacturing and purchasing activities. The information system that is implemented should also be flexible and scalable so that it can adapt to the changes in the products and manufacturing technology. The top management should recognize that this will involve project management which will require changes in the organizational structure. Therefore the process of managing change becomes relevant. The design and acquisition of information systems and internet applications requires an analysis of the role of the information systems function in a business. Analysis Porter’s five forces The industry faces a high level of competitive rivalry. The threat of new entrants is high given the increased competition from manufacturers overseas. There is also competition from lower cost substitute products. Changes in the manufacturing technology have been copied by manufacturers in countries where the same manufacturers have the added benefits of lower materials and labour costs. As a result the industry has been flooded with lower cost substitute products. Because of the availability of these substitute products, the customers have more bargaining power. This means that Marston Tools must be able to maintain a high level of manufacturing quality in order to remain competitive. By integrating information systems strategy with business strategy, the company will be able to achieve this objective. When it comes to acquiring and developing the right business information systems, Porter’s five forces should be assessed in terms of how they impact upon the company’s profitability. As the previous analysis indicates, the industry is characterized by changes in the products and manufacturing technology. This increases the competition. Porter’s five forces is an important tool in identifying the competitive dynamics in the industry (Hill and Jones, 2007). The company’s information strategy should be formulated accordingly. As mentioned before, the industry experiences changes in the products and manufacturing technology. Porter’s five forces analysis reveals that these changes can easily be copied by manufacturers overseas who also have the added benefits of lower materials and labour costs. Therefore Marston should not define operational effectiveness in terms of continuously improving the manufacturing technology leading to proprietary content or distinctive processes (Kotler and Armstrong, 2005). Rather it should be defined in terms of delivering unique value to the customers in the form of higher quality. Therefore when it comes to the design and acquisition of information systems, the management should focus upon creating a system that is aligned to the strategic objective of delivering high quality to the customers. In this manner the company raises switching costs thus lowering the bargaining power of buyers. The company operates in an industry which has a high threat of new entrants, a high threat of substitute products and high bargaining power from the buyers. Value chain Currently the company is operating a computer-based system of production scheduling and control. This enables the company to facilitate coordination of different departments by creating a production schedule based upon orders received and sales forecasted. However the company is still facing problems in guaranteeing customer delivery dates and this is affecting sales. Therefore the new business information system should address this problem. However the implementation of the information system will affect both primary activities and support activities. The primary activities of both inbound and outbound logistics will be affected. By implementing a new information system, the company will be able to facilitate Internet-enabled demand planning. This creates the platform for advanced planning and demand management. Because the information system provides collaborative integration with customer forecasting systems, it can lead to improvements in planning, inventory control, product costing and shop floor control. Operating the new system will also require changes in human resource management. Because it will be a top down system, the business information system will necessitate changes in the organization structure. The management should train the employees in the use of Internet-based sharing and dissemination of company information. Such an information system facilitates coordination of sales, accounting, manufacturing and production to address delays and waste in purchasing and manufacturing. These are the problems that are currently affecting the company value chain. Procurement can be improved upon through linkage of purchase, inventory and forecasting system with the supplier. Through Internet-enabled demand planning that is generated by knowledge directories accessible from all parts of the organization, the management would be able to create a value chain that is able to react to change in the products and manufacturing technology (Kotter and Schlesinger, 2008). In this manner the operational effectiveness of the value chain can be enhanced through an information system. SWOT The company’s strength is in the experience and expertise gained from operating for such a long time in the industry. As a result it is in a better position to react to changes in the competitive dynamics. The company also has a strong product range which enjoys customer loyalty because of its high quality. As a result the company enjoys a well-established reputation. The company’s weakness is in human resource management and its inability to guarantee customer delivery dates. The company has placed considerable pressures on the employees so that they are not motivated to work for the company. Although the company is currently operating a production scheduling system, it is not addressing the delays and waste that are occurring in the purchasing and manufacturing activities. The company does have an opportunity for growth because its products are catering to two customer segments: professional users and do-it-yourself users. The customers have been prepared to pay extra for getting the high quality that is guaranteed by the company. Marston Tools could gain more market share if it could address the weaknesses that are currently hampering the maximum operational effectiveness of the value chain. By continuing to emphasize upon delivering higher quality in its information system, the company could grow market share. The threat is in the high competitive rivalry. Foreign competition has been able to offer lower prices because they have access to lower materials and labour costs. This has eliminated many of the traditional companies. However technological changes have maintained market growth so that despite rising competition, the existing companies can continue to grow their market shares. By using the right information system, Marston Tools has an opportunity to grow market share by reacting fast to these changes. Solution The company should implement an enterprise resource planning system which would enable coordination of daily activities, efficient response to customer orders and management decision making (Laudon, 2011). The system should be custom build so that it is tailored to the requirements of the business. Although it would be more expensive to develop, it would enhance the value chain so that the investment would be recouped in the long run. A custom build application would also confer specific competitive advantage. Moreover, the company is already using a production scheduling system. The new system should be linked to this system in order to align with the business strategy. The information system has a specific level of complexity to address the special issues for the market that the company operates in. Therefore custom build is the best option. The system development life cycle begins with initiation during which the management looks at the current value chain and identifies those areas which require more information (Stair and Reyonolds, 2009). As mentioned before, the company currently operates a production scheduling system. Even though the company has had some success in operating the system, it has not been able to guarantee customer delivery dates or eliminate delays and waste in purchasing and manufacturing activities. These are the opportunities for improvements. Because the company has not been able to guarantee customer delivery dates, its sales have been affected. Therefore by implementing a custom build enterprise resource planning system, Marston Tools supports the business strategy of maximizing sales. The enterprise resource planning system can guarantee customer delivery dates through close coordination of production and inventory. It can also eliminate delays and waste in purchasing and manufacturing by standardizing the data generated by different functions thus improving management decision making. During initiation, the management should emphasize upon these areas of improvement in ensuring that the business strategy is supported and aligned (Pearlson and Saunders, 2010). The next phase of the development process is a feasibility study (Stair and Reyonolds, 2007). Although a custom build application is expensive to develop, the extra costs do support the company’s business strategy. As the company operates in highly competitive market conditions, its IS strategy should be aligned to the business strategy (Porter, 2001). A customer build application facilitates this alignment by being developed from ‘scratch’ so that it is tailored to the specific requirements of the business which are to ensure customer delivery dates, eliminate delays and waste in purchasing and manufacturing, and react to changes in the products and manufacturing technology. If the application enables the company to meet these requirements, then the extra costs of developing a custom build application are easily recouped in the form of enhanced profitability. Therefore the project is feasible. The next phase is the requirements analysis where the management should create a systems requirement report which will document the changes in planning, inventory control, product costing, shop floor control, finance, marketing, engineering and human resource management. The next phase is system design. The output of this phase is a design specifications document which takes into consideration task redesign, job design, process design and organization structure design. Once the design phase is completed, the application is built. The output is working software, user guides and system documentation. Then the application is implemented in the form of completion of user documentation and training, system changeover and evaluation of the system at regular intervals. These are the phases of the systems development life cycle through which the information system is created. The result is a custom build enterprise resource planning system. Marston Tools will need to make significant changes in the current value chain. Human resource management should be changed in order to facilitate the introduction of the new information system. The employees will have to be trained and motivated to use the new system. The company is already operating a computer-based system of production scheduling and control. Therefore the employees are familiar with the use of information technology. However they have little sense of job security and this hampers their productivity. The management should communicate with them extensively in order to create confidence in the new system. Changes in planning will be required in order to accommodate an Internet-enabled framework which facilitates Internet-based sharing and dissemination of company information. Inventory control will be changed to reflect the new procurement system which has real-time availability of information on demand planning. Product costing is changed to capture more accurate information. In shop floor control, advanced planning and scheduling is implemented in order to eliminate bottlenecks. Custom build applications might have bugs which should be tested for. Therefore the company should select the testing method. The testing process will have to be continuous as the system is expanded to address new information needs. Therefore the testing methodology should be incremental. The testing process can be conducted by programmers or testers. Therefore the company will have to maintain communications with the developer in order to continue the testing process. Developer expertise will also be required to train the end users. Then on-going maintenance is required either to correct errors or to add further functionality to the system. As mentioned before, implementation of the new system will require significant changes in the organizational structure. Therefore it is essential for the management to pay high level attention to the development life cycle so that when the system is implemented, it is aligned with the business strategy. The system development life cycle guides the design and acquisition of the enterprise resource planning system in alignment with the business strategy. Since this is a custom build system, the entire life cycle might take years. Therefore the management should make the necessary changes in the organizational structure so that the company will be able to accommodate this timescale. In this manner the life cycle of the custom build is aligned to support the business strategy. Conclusions/recommendations Marston Tools should implement a custom build enterprise resource planning system to address the current information needs. Because the company operates in a highly competitive environment, it has to develop a specific competitive advantage. This objective can be met with the above recommendation. By applying the methodology of the system development life cycle, Marston Tools can create a custom build enterprise resource planning system. The company will have to pay more to implement a custom build application. However it can be linked to the production scheduling system which is currently operating. This enables coordination of daily activities, efficient response to customer orders and improves management decision making. The five forces analysis indicates that the competitive dynamics of the market that the company operates in are not favourable. The situation is worsened by inefficiencies in the production scheduling system. The value chain analysis indicates that Internet-based sharing and dissemination of company information would address the areas of improvements. Given the strengths and weaknesses of the company as identified in the SWOT analysis, the company could capitalize upon the opportunities and minimize threats by implementing the new information system. It would enable the company to guarantee the customer delivery dates and eliminate delays and waste in purchasing and manufacturing activities. By going through the system development life cycle, Marston Tools ensures that it has an information system which is aligned to and supports the business strategy. Word count: 2331. References Hill, C. and Jones, G., 2007. Strategic management theory: an integrated approach. London: McGraw Hill/Irwin. Kotler, P., and Armstrong, G., 2005. Principles of marketing. London: Prentice Hall. Kotter, J.P., and Schlesinger, L.A., 2008. Choosing strategies for change. Harvard Business Review, March, pp. 130-139. Laudon, K.C., 2011. Management information systems. London: Prentice Hall. Pearlson, K.E., and Saunders, C.S., 2010. Managing & Using Information Systems. London: South western college pub. Porter, M.E., 1997. How competitive forces shape strategy. Harvard Business Review, July- August, pp. 1-10. Porter, M.E., 2001. Strategy and the internet. Harvard Business Review, March, pp. 1-21. Stair, R., and Reynolds, G., 2009. Fundamentals of Information Systems. London: McGraw Hill/Irwin. Appendix: Porter’s five forces Read More