Management Strategy: The Five Competitive Forces that Shape Strategies - Assignment Example

Management Strategy What is the strategy? According to the porter (1996) the gist of a strategy is on the activities performed by the company to compete effectively and sustainably with the competitors. He defined strategy as executing different activities from what competitors are doing or performing related activities using a special approach. Contrary to operation effectiveness, the competitive strategy should be viewed as a sustainable tool that withstand competition for the long term rather than focus on short-term goals such as reduced prices to attract customers. Also, he claimed that even if the company adopts a management practice without a proper strategy, the tool is doomed to fail for a short while. From the framework provided, it’s clear that Porter definition of strategy supports the staying in power. This is because in his argument he clearly categorizes that, organizations should adopt the best strategy even if the companies adopts emerging management practices. The strategy stipulates the guidelines with which the company can compete effectively with the rivals for a long time, unlike fads management practices which quickly fades away. 2. The five competitive forces that shape strategies The five forces tools by Porter are an easy but strong tool for comprehending where in a situation does the business power lies. This is essential since it assists in knowing both your current competitive locus and the strength of the spot the company is moving into. Typically, porter’s tool is utilized to assess if new commodities, services or ventures has a probability of being profitable. The five significant forces entails:- The power of supplier: in this context, you determine the ease with which the suppliers can increase the prices of the commodities. The assessment is guided by the number of key input suppliers, the distinctiveness of the commodities, the control and power they have over you, the expense of shifting from one supplier to the other, and among others. The minimum the alternative you have and the more you require assistance from suppliers, the more influential the suppliers. The power of buyer: in this scenario, you assess by yourself the ease with which the buyers can lower the prices. Also, this is guided by buyers’ number, the significance of each specific buyer to the business, the expense they will incur in shifting from your goods and services to those of competitors and much more. Therefore, given that you operate with few, influential buyers, then there is higher probability that they can command terms to you. The rivalry of competition. The gist of the matter is the number and the ability of rivals. If the competitors are numerous, and they produce goods or services that are almost similar to yours, then you have minimum control over the situation. Consequently, if the key players, suppliers, and buyers, do not get a better deal from you, then they are likely to move to the rival. However, if you are unique with what you do, then will have greater power. Substitute threat. The customers capability influences this in devising an alternative way of doing what you do. For instance, in some processes, the customers may opt to do things manually or outsource rather than buy software that automates the process. Therefore, provided substitutes are simple and viable; then this reduces your influence. New Entry threat. The ability of people to enter the market affects the power. If the entry to the market requires less time and capital, also, if there exist few economies of scale, and the key technologies are unprotected, the chance of entrance of a new competitor is high which might affect your position. Nonetheless, if you have powerful and long-term obstacles to entry, then you hold a significant position and optimize on it. On the framework, Porter systematically gives the way in which the business can stay in power for a sustainable period. These are clear concepts with the realistic outcome given the market the business is prevailing in. Conceptualizing these forces may guide the business to be in control than fading away. 3. Building your companies vision According to Collins and Porras (1996), vision is a guiding principle on the basics to maintain and what future to advocate progress towards. They claimed that good vision is characterized by two things; the two are core ideology and envisioned future (Collins & Porras, 1996). Core ideology also known as scheme Yin defines the reason for our existence and what we represent. It’s the most important ideology in business since it provides the cohesion that binds the organization together as it thrives, decentralizes, grows globally, and diversifies. Core ideology is subdivided into two parts; core values and core purpose. The core values refer to the driving principles and canons. The values are meant for internal organization and require no outside control since they have intrinsic value. In additions, they are essential in reminding the employees the objective of the company. Core purpose of the ideology represents objective of company’s existence. The purpose engulfs the heart of the business. Contrary to the company’s goals or strategies that are achievable and changes with time, purpose cannot be fulfilled and hence act like a horizon star for the company. Though it may not change, purpose instigates changes. Envisioned future forms the secondary part of the vision. It has two parts; a ten-thirty years bold goals and a clear description of scenario after achieving the goals. Envisioned future phrase is somehow contradicting since on one part it talks about compactness and the other part it consists of unrealized time. Vision-level BHAG, where visionary organizations usually utilize audacious mission. On top of BHAG, the forecast requires a clear description of what it will be to attain the BHAG. Following these components, the business may develop a lucrative and optimistic vision. Collins and Porras provides a strategy that assist businesses in staying in power. This is through the development of a clear and optimistic vision which will continuously give direction to the firms in its activities. They have also clearly indicated the benefits accruing from a good vision. 4. Reinventing Your Business Model According to Johnson, Christensen and Kagermann (2008), to reinvent the new business model, the business ought to comprehend the existing model and consequently emerge with a huge way to assist people to get major works accomplished. They claimed that the problem with companies to realize the new growth on innovative models was due to lack of definition of the model during development, and failure to comprehend the existing one on company strength, interdependency, and restrictions. They proposed three new blueprints to address these problems; first is to think about the opportunity to fulfill the need of a customer who requires a job done. Secondly is to make a map road on how to satisfy those wants at a profit, and lastly is to make a comparison with the existing model of the company and see how incorporated changes to the model to suit the opportunity. The basic components of a successful model include, a consumer value proposition (CVP) which emphasizes on crafting value to customers. Moreover, Profit formula shows the value of the company during the process of initiating values to end users. The formula consists of revenue model, structure of the cost, resource velocity and margin framework. Also, the main processes and key processes are primary components of customer satisfaction. On the framework, the author is advocating on the ways business can re-evaluate their model to stay profitable. This aids the businesses to stay in power than fade away. Question two Example one Porter’s generic strategies clearly define the approach businesses should adopt to cope effectively with competition while enjoying maximized profits subject to a set of constraints. To begin with, reduction of inventory carrying and holding expenses is a cost leadership strategy. Essentially, this strategy advocates for increased efficiency as well as reduction of costs within the production process. More so, the produced units under this strategy are meant to serve a vast customer base depending on the demanded quality. However, the competitive advantage of a company is vulnerable to technological changes. Additionally, competitors could also lower the production expenses thereby introducing price competition that is unhealthy for businesses. Within the CapSim simulation framework, production capacity is dictated by the space available for holding stock. The inventory may be purchased or may comprise of production units. Either way, costs associated with holding and carrying the stock are incurred, implying that their reduction is paramount for cost leadership to be realized and maintained. Therefore, the first shift gives the probable units of production as components of plant and equipment. The second shift presents the optimal costs associated with the number of units regarding wages and inventory related expenses. This is effective in planning for production capacities. According to Porter (2008), it is imperative that for cost leadership strategy to remain effective, the business ought to be connected in an active and well-protected supply chain. This would imply minimal holding costs and, therefore, lower retail prices. Also, CapSim simulation compels that predictions be made before embarking on inventory investment. This is helpful in that resources will be optimally utilized for overall profitability. Example two High investment in research and technology is the most important factor in differentiation strategy. This management tactic is intended to create exclusive products that the target market can easily identify with. The main aim of the strategy is counter the effects of price competition by offering tailored products at a premium range of prices. Furthermore, unique products are meant to create consumer loyalty as this will trigger production of high-quality goods. Additionally, differentiation strategy is crucial in creating “no substitute” notion among prospective customers. This is important in maintaining the market share regardless of stiff competition. CapSim supports this strategy by offering the research and development utility. Business size and performance are assessed to enhance appeal to customers. More specifically, any revisions about materials, costs, time, and automation are quantified and the associated costs adjusted accordingly. Moreover, the simulation is useful in measuring product reliability by determining the likely amount of time the product will stay in a given market niche before failing. All these are important factors in determining what a unique commodity to produce is, and the related constraints in pursuit of sustainability. Notably, it is mandatory to build a production plant one year before a new product is made. Likewise, the research and development screen must be visited before production and introduction of the product into the market. Since research and development is a capital intensive function, the products end up having relatively higher prices than the substitutes from competitors. The management benefits from optimized operating costs and the customers benefit by getting products that meet their specific tastes and preferences. Besides, the business can put up with emerging market trends as well as familiarize with probable demographics. Example three Investment in appropriate marketing is inevitable during the implementation of focus strategy. Porter (2008) postulates that this strategy is ideal for small firms but not exclusively. This is because it is based on the ability of a business to concentrate on a specific niche and produce commodities as dictated by the customers. Furthermore, it assumed that this strategy is particularly useful where entry of substitute goods is not easy, and competition is considerably weak due to already acquired loyalty by customers. The application of this strategy implies that there is low investment about resources and that there is the advantage of specialization. CapSim supports this strategy by offering the utility of sales and promotion budgeting. Under sales, the focus is majorly on the distribution channels and the sales people. The market is well segmented, accessibility is clearly defined, and the costs of the activities are estimated based on contribution. Under the promotion, it is assumed that the larger the budget, public awareness about the products is proportionately higher. By the end of a business period, the simulator provides a customer report that predominantly consists of feedback about awareness, accessibility and pricing. The company can, therefore, focus on customer perception and decide on the best media to use in reaching out to the targeted market segment. Also, CapSim takes into consideration the period of accounts receivable and accounts payable. Their effects are then quantified so as to help in determining the optimal time to pay creditors and collect dues from debtors who collectively form an important source of operating funds. References Collins, C. (2015). Why So Many Management Strategies Become Fads That Fade Away. Retrieved from http://www.forbes.com/sites/mikecollins/2015/06/11/why-so-many-management-strategies-become-fads-that-fade-away Collins, J. C., & Porras, J. I.(1996). Building Your Companies Vision. Harvard Business Review. 74 (5): 65-77 Dvorak. P. (2006). Why Management Trends Quickly Fade Away. Retrieved from www.wsj.com/articles/SB115127414542190162 Johnson, M. W., Christensen, C. M., & Kagermann, H. (2008). Reinventing Your Business Model. Harvard Business Review. 86 (12): 50-59. Porter, M. E (1996). What is Strategy? Harvard Business Review. 74 (6): 61-78 Porter, M. E. (2008). The Five Competitive Forces That Shape Strategies. Harvard Business Review. 86 (1): 78-93. Porter, M. E. (2008). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York. Simon and Schuster. Read More