Porters Generic Strategies - Coursework Example

Strategic Management Contents Contents 2 Introduction 3 Main Body 4 Porters Generic Strategies 4 Porters Diamond Model 6 Mc Kinseys’ 7s 9 Conclusion12 References 14 Introduction Strategic management encompasses implementation and formulation of major initiatives and goals. They are mainly framed by top management of a company. It is based on identification of resources and external or internal environmental conditions assessment. Strategic management helps in providing overall direction to a firm. This concept comprise of specifying objectives of organization, developing plans and policies to succeed towards objectives, and finally allocating resources for plan implementation. There has been numerous frameworks and models developed in order to facilitate strategic decision making. These models usually are adapted in competitive dynamics and complex environments. Strategic management approach is not static and feedback loop is incorporated in the models to monitor plan execution. Apple Inc. is a multinational corporation of America that has its headquarters in California. The company manufactures, design and sells personal computers, consumer electronics, online services and computer software. Apple Inc. was originally founded in 1976 by Steve Jobs, Ronald Wayne and Steve Wozniak. It was originally launched for selling personal computers but it was later shifted to developing consumer electronics. Samsung is a multinational conglomerate of South Korea and has its headquarters in Seoul. It comprises of many affiliated business and subsidiaries, and majority of them comes under Samsung brand. Samsung was originally a trading company which was founded in 1938 by Lee Byung-chul. In late 1960s the company had entered into electronics industry. As per financial statistics of 2013, Samsung accounts for US$ 327 billion. In terms of revenue, Apple lies in the second position in comparison to Samsung. In this study various strategic frameworks shall be used such as Mc Kinseys’ 7s, Porter’s generic strategies and Porter’s Diamond. The advantages or disadvantages associated with these models would also be highlighted in this particular study. There will be a brief description regarding the ways in which such models help in developing selected companies. Main Body Porters Generic Strategies Porter’s generic strategies state the procedure through which a company can achieve competitive advantage in the market place. Michael Porter’s generic strategies have been elaborated in figure1. Figure 1: Porters Generic Strategies (Source: Magretta, 2013) Figure1 denotes that there are three strategies in this model- low cost, focus or differentiation. An organization usually targets at gaining more than one competitive advantage. For instance implementing low cost strategy can be a means of achieving competitive advantage as well differentiating the brand from others on basis of creating customer value. There are often two kinds of scope chosen by an organization such as either focused or offering product line across multiple market segments. These generic strategies mainly reflect the wide choices been made both in terms of scope and competitive advantage. Cost leadership strategy is when a firm target customers in all possible segments just on the basis of setting low prices. On the other hand, an organization targeting customers with the support of every other attributes apart from price is known as differentiation strategy. The dimensions along which a firm differentiates its products or services are all related to competition (Pringle, 2008). However costs are effectively minimized in those aspects that do not bring forth differentiation so as to be cost competitive. Focus strategy is when a company is focusing on one or more than one market segments. In this strategy there are two subdivisions such as cost focus and differentiation focus. Cost focus is related to a firm offering low cost in a given scope. Whereas differentiation focus is all about creating differentiation within that scope. Apple Inc. has been able to set up their brand image in the industry due to its continuous struggle towards developing innovative product line. In comparison to its competitors Apple has a high performance standard in the industry. The model framed by Michael Porter states that any of the four generic strategies can be implemented by a firm and it depends on what an organization needs to deliver to consumer market. Telecommunications industry is an intensely competitive sector. In order to survive in this industry many players offer low prices to its target market. However this kind of strategy does not suit the brand image which Apple Inc., has developed all through these years (Proctor, 2014). The management believes in customer retention through delivery high quality and creative products. Competitive advantage can be achieved through various ways and it determines the position of a company in customer mind. For instance, Apple is more inclined towards differentiation strategy rather than cost leadership strategy. This strategy posture of the company can be greatly observed in all its products. Though Apple products are costly but they offer something exceptional to its end customers. Tim Cook, CEO of the company, proclaimed in a press conference that Apple is not about making the best out of the product categories but it is focused more on achieving desirable results in the market place. Apple Inc. has sustained its market position by analyzing well customer’s hidden demand and producing products accordingly much before any other players in the industry. On the contrary, Samsung deals in a different domain. This firm has been delivering creative products but at competitive prices. As per the model of generic strategies, Samsung has adopted two scopes known as cost leadership and differentiation. The company has been offering products which are innovative though not at par with Apple. Major strengths of Samsung are advanced technology, creative solutions and new products. All its strategies are developed surrounding these internal strengths. Samsung has been focusing on two competitive scopes since it has wider target market in comparison to Apple. High competition in the telecommunications sector demand for innovative products at best prices (Wintzer, 2007). The major difference between Apple and Samsung is that Apple Inc. focuses more on differentiation strategy whereas Samsung believes in collaborating two scopes together. Generic strategies differ in both the companies since their mission or goals are completely different. Apple can be stated as a more market focus company and Samsung is a customer centric company. Porters Diamond Model Porter’s diamond model was developed to demonstrate the reasons behind some organizations becoming competitive in specific locations. In this model a cluster approach is highlighted where a company’s competitiveness is associated with performance of other firms. These factors are added within value chain of a company in regional or local context, or customer-client relation. Figure 2: Porters Diamond Model (Source: Porter, 2008) There are six different elements encompassed in Diamond model of Michael Porter as stated in figure2. They are factor conditions, demand conditions, supporting and related industries, rivalry, firm structure and strategy, chance and government. Factor conditions are mainly human resources, knowledge resources, infrastructure, capital resources and physical resources. Specialized resources can be defined as those resources which are significant for a particular industry and is essential for competitiveness. Special resources can be developed effectively so as to substitute any weakness. Demand conditions available in local market help firms to obtain competitive advantage. Sophisticated buyers present in home market usually pressurize companies to manufacture advanced goods and innovate at a faster rate in comparison to other players. Supported and related industries are capable of producing inputs which are essential for internationalization and innovation. These industries are responsible for providing cost effective inputs. However they eventually participate in all forms of upgrading process. This in turn stimulates other firms to innovate products. Rivalry, firm structure and strategy can be considered as the fourth aspect of competitiveness. In order to achieve success it is important to reflect upon development of companies, their management procedure and ways by which they set realistic goals (Ulwick, 2005). On the other hand, intense rivalry in domestic markets is also essential since it creates pressure on firms to be creative and compete efficiently with other players. Government has a strong influence on all of the aspects of competitiveness. This factor is able to influence demand conditions in local market, competition amongst firms and supply conditions related to production. Government interventions are likely to occur at national, regional or local levels. Chance events can be defined as occurrences which takes place outside a firm’s control. These events are essential because they initiate discontinuities during which some firms witness loss while others gain competitive advantage. Apple Inc. operates in its domestic market and also has its presence in global markets. There are certain market conditions which governs the business operations of the company. In America, consumer demand is high and they are more inclined towards innovative product line. Apple Inc. is able to meet such hidden demand of local and international market. The firm’s strategy is to differentiate its products so as to remain competitive in the market place. Major rivals of the firm in telecommunications sector is Nokia and Samsung. Demand conditions are dependent on unique features offered by a firm at the most competitive price. Apple’s products are comparatively high ended but deliver exceptional value to customers (Lasserre, 2012). Specialized resources form an essential component of factor conditions of Apple. These resources mainly comprise of expertise possessed by key personnel and brand image developed from past many years. Supporting industries of the company are software and hardware industries. The wide array of advancements in these industries facilitate faster rate of innovation. Apple’s telecommunication products are dependent on these software applications and technological advancements enable the firm to incorporate such innovative features. On the other hand, stable governmental conditions of local market enhance success and growth of the firm. However laws and regulations of other regions are taken into consideration during international expansion. Samsung operates in a completely different market segment and believes in competitive pricing strategy. The political conditions at South Korea are quite moderate and this helps the firm to promote its products or import essential components from overseas. It can be stated that offering products at best prices with exceptional features has made the company achieve competitive advantage. Unlike Apple, factor conditions for this company are infrastructure and capital resources rather than expertise. Though the concept of supporting industries remains the same but their strategy or structure varies greatly. Apple Inc. comprises of an autocratic structure where top authority governs the entire process. Samsung has been able to achieve desirable position in the market place due to participative approach where team members are continuously motivated to contribute their creative ideas or solutions. Mc Kinseys’ 7s Mc Kinseys’ 7s model is usually applied by an organization for formulating and developing the marketing capabilities of an organization with a different and unique perspective. Mc Kinseys’ 7s model can be applied in all types of organization. The model was developed by the consultants of Mc Kinsey namely Robert Waterman, Julien Philips and Tom Peters in the year 1980. Mc Kinsey model mainly consist of the following elements: Strategy, Skill, Style, System, structure, staff and shared values. The most important feature of this model is that the key elements are closely related to each other. Figure 3: Mc Kinseys’ 7s model Mc Kinseys’ 7s model is applied to different situations. This model is mainly used for organizational change, to design and plan out new strategy, identifying the process through which the strategy will work out, assisting in the organizational mergers and also finding out the workings of the organization and the relation that it maintains (Malan, 2003). The diagram in figure 1 reflects the 7 elements of Mc Kinseys’. Analysis OF apple by applying Mc Kinseys’ 7 S Model Strategy: It is process or tactic adopted by the organization to gain competitive advantage and to compete in the competitive market successfully on a long term basis. The strategy that is adopted by apple is to provide the products to its target market or consumers focusing on the niche market (Michalski, 2011). Structure: It defines the process in which the units are maintained and also deals with the way in which one is accountable to other. Structure represents and reveals the organizational chart of the organization. Apple is mainly designed in functional structure. Systems: It signifies and defines the steps or the methods which mainly deals with the decision making and daily activities of the organization. Apple identifies the best of its employees and awards the employees who will perform excellently. Skills: It represents the talent or capability of the employees to perform well in the organization. During the time of formulating a strategy and structure it depends on the employee how they will implement it by applying their skills. Apple has the core competencies in Research and development, innovation and skills of the organization. Staff: It defines the number of employees that the company should select, recruit and reward. Apple has more than 49,400 employees in the organization and also includes the supervisors, managers Style: It defines the process by which a company will be managed by the senior level managers and the way they deal with different course of action also includes chief executive officer of the company. Apple mainly adopts leadership style. Apple believes that a good leader will affect the leadership, satisfaction of the team. Shared Values: It represents the set of rules and regulations which assist the actions of the organization and behavior of the employees in the organization. Apple was established with a clear mission and vision in order to change the world with the application of technology. Now in recent year’s apple is very much determined and committed to provide the best computer experience for personal use to the different class of consumers around the world. Mc Kinseys’ 7s model is mainly divided into soft and hard areas. It is observed that the strategy, structure and system are hard which is more comfortable and easy in identification as compared to that of the soft elements which include the style, staff, skills and shared values. Soft elements are usually very hard and difficult in management. The soft elements are the foundation of the organization and they are helpful in providing more competitive advantage as compared to that of the hard elements. Mc Kinseys’ 7s model is very helpful as it provides in identification of areas that are not identified, formulating the organizational design, adopting the required changes, and reviewing on a continuous basis. Mc Kinseys’ 7s model is often used as the tool or the weapon in supervising and monitoring the different modifications that are undergone in the internally in the organization (Rasiel, 1999). The main difference between apple and Samsung in applying Mc Kinseys’ 7s model is that Samsung mainly deals with telecommunication together with the computer solution. Apple mainly deals with controlling and providing solutions for all related aspects of computer. Thus it can be concluded that application of Mc Kinesis model is best suitable for Apple as compared to that of Samsung. Conclusion In this study there are three strategic models incorporated to describe the competitive position of Apple and Samsung. These two companies in telecommunications industry has been operating in different market segments. Apple Inc. has its competitive advantage in context of providing differentiated product line. On the contrary, Samsung focuses on innovation as well as competitive prices. Firstly Porter’s generic strategies have certain strengths that facilitate identifying key weakness within a firm. The four dimensions of the model demonstrate various competitive advantages which can be acquired by a firm. For instance, Apple is inclined towards differentiation strategy but its high prices result into loss of market share. This can be considered as a weakness for the firm because its products might fail in regions where customer purchasing power is low. Innovative strategies of the company are a value added component but desirable market share can only be acquired when customers witness value for money. In competitive market place, a firm can only sustain its business operations when its product line is able to satisfy wider base of consumer market. However Apple is unable to do so since other players in the industry focus on product differentiation as well as its prices. Porter’s Diamond model is another strategic tool that denotes different forces which affects a firm’s position. The major forces affecting Apple’s operations are demand conditions, rivalry and government interventions. These forces can also be stated as external to a firm that is not within a firm’s control. Apple Inc. is able to deal with factor conditions appropriately since it possesses expertise to handle its global operations. Factor conditions have helped the firm to outperform in the industry and achieve its set desirable targets. On the contrary, government interventions differ from one country to another. This in turn results into proper planning and careful execution of business strategies. It can even be stated as weakness for the firm because it greatly affects the profit margins of a business. Demand conditions are fluctuating factors where high market demand initiates business growth and success. The diamond model has helped in identifying these internal and external factors. Apple Inc., has developed its business operations in every possible step where it takes into consideration not only strengths such as factor conditions but even external threats like government interventions or market demand conditions. This model has supported the firm to plan strategies that could mitigate wide array of internal or external risks. On a broader context, diamond model not only defines competitive position but elaborates on forces which are often not reflected upon by a firm. Mc Kinseys’ 7s is also incorporated in this study to analyze the market position of Apple and then comparing it with its rival company Samsung. The model is about defining strategic design of a firm. There are different elements highlighted in this model such as skills, structure, etc., that needs to be present within every firm. This helps to hire talented people who can contribute creative solutions for enhancing revenue margins of a firm. McKensies7s model facilitate firm’s development through outlining different strategies which can be incorporated in the firm. It is highly important for a firm to frame appropriate organizational structure so that inputs can be appreciated and resulted outcomes meet the set goals. On basis of this model it can be stated that Apple focuses on skill development of team members in order to creative thinking. In overall context, all three strategic models are well aligned with firm’s development and success in competitive market place. References Lasserre, P., 2012. Global strategic management. Singapore: Palgrave Macmillan. Magretta, J., 2013. Understanding Michael Porter: The Essential Guide to Competition and Strategy. Boston: Harvard Business Press. Malan, A., 2003. Applying McKinseys 7S Model within Managed Healthcare Systems (MHS) to Assess the Organization’s Effectiveness and Ability to Adapt. South Africa: Rand Afrikaans University. Michalski, A., 2011. The McKinsey 7-S Framework: Invented in the 1980s and Still a Possibility for Success Today. United States: GRIN Verlag. Porter, M. E., 2008. Competitive advantage: creating and sustaining superior performance. New York: Simon and Schuster. Pringle, H., 2008. Brand immortality: how brands can live long and prosper. Great Britain: Kogan Page Publishers. Proctor, T., 2014. Strategic marketing: an introduction. New York: Routledge. Rasiel, E., 1999. The McKinsey Way. United States: McGraw Hill Professional. Ulwick, A. W., 2005. Business strategy formulation: theory, process and the intellectual revolution. USA: IAP. Wintzer, E., 2007. Global Competition and Strategic Management. Germany: GRIN Verlag. Read More