Michael Porters 5 Forces and Adrian Slywotzkys Value Migration - Coursework Example

Running Header: Business models Your name: Course name: Professors’ name: Date Michael Porter’s 5 Forces This model focuses on 5 forces that a business needs to consider when intending to enter into an existing market niche or when operating in the market. The forces are supplier power, buyer power, competitive rivalry, threats from substitutes, and threats from new entrants. The model works as a guideline for analyzing the potentials and the challenges facing a given market niche. Supplier power deals with the influence which suppliers have in the market, as an example, the influence that the supplier has on the market. In this case, the higher the supplier power the higher the risks of the business since suppliers can easily increase the prices of the raw materials needed for the business. The power of the buyer is the ability of the buyer to influence the company, this is particularly evident when there are many businesses and hence a number of choices available for buyers. Buyers can influence the price of product when there are many options for them. Competitive rivalry is also another important force, many competitors have an impact on the market, and they reduce the overall price of the product as well as the market share for each existing competitor. Threats from substitute products is another powerful force to a business, as an example Pepsi is a substitute for coke and hence reducing the market share for coke if they are available in one particular market niche (Hills & Jones, 2009, p.43). Threats from new entrants is also important in the sense that if there is a relative ease of market entrants, then the number of competitors can easily skyrocket if the market is potential. The Michael porter’s 5 forces are important in the analysis of the prevailing market condition. As an example, Peter wants to be a farmer, based on the conditions at the country side; he decides to use the five forces to analyze the situation. The findings are as follows: it is easy to enter industry, there are many competitors, there are moderate numbers of suppliers, and there are many buyers who are sensitive to prices (Hills & Jones, 2009, p.43). From this case, Peter needs to worry about new entrants, and competitors as well as buyers who have the power. This model is also useful in implementing strategic plan because it can be used to gauge the future of a particular industry. The market dynamics will reveal the best available options in the market and potential trends in the market (Hills & Jones, 2009, p.43). Advantages of the model i. The model analyses important aspects of the industry which should be understood by new entrants as well as existing businesses as they are affected equally by these variations. ii. This model presents a fundamental tool for understanding the existing market conditions. Disadvantages of the model i. The model does not give a full picture of the prevailing market conditions and hence an investor needs to consider other aspects not provided in the model such as the product life cycle and market gaps available and so forth. ii. The model may not always be accurate since the market conditions change based on demand and supply. Adrian Slywotzky’s Value Migration Value migration is the variation of the value creating forces in the market. Slywotzky postulated that value migrates from one business model to the other based on the ability of one model to fully satisfy customer’s needs. Slywotzky value migration has three types of value and three stages of value. The three types of value are: value flows between industries such as airlines to leisure, value flows between companies such as Photoshop to Microsoft and value flows between businesses within a company such as the IBM computers to PCs with integrated system. The three stages are value inflow stage which states that value is absorbed by other companies, value stability stage which describes competitive equilibrium with stable profit margins and market shares and finally value outflow stage which describes how companies lose value to other parts of the industry as a result of profit margin reduction. The inner working of the model is based on the principles of comprehending customer needs. By understanding customer needs, the business will be in a position to react more positively to the current and future needs of the customers. It also ensures that these needs are delivered ahead of competition and even positively anticipate the competitor’s reaction of the services or products offered to the market. Essentially, value migration deals with identification of the shifting business landscape. Value migration according to Slywotzky demands aggressiveness and quick thinking. This has been evident over the past three decades and specifically the last two decades when Microsoft which was then a small company dominated IBM and eventually become one of the strongest companies in the modern world (Russell &Cohn, 2012, p.44). Starbuck has also succeeded in the past few decades because of its concentration on value creation and correctly anticipating customer’s needs. For a business to be successful value migration is necessary, value migration is a holistic approach which can vary depending on the situation. As an example a company can employ value migration to implement strategic planning through leveraging on new technologies that breach market gaps, creating superior business designs that focus on customers, differentiate their products and configure their resources to better align with the existing business environment. The foundation of value migration according to Slywotzky is understanding customers highest priorities or preferences and strategically plan on meeting them before competitors do (Russell &Cohn, 2012, p.44).. Advantages of the model i. The model presents a good framework for establishing varying business processes that target specific market segments by addressing existing needs of the market. ii. Value migration has been used by companies over the past two decades because of its relevance in the existing environment. This is further backed by the fact that customer needs change with time. Disadvantages of the model i. Value migration may not be useful if poorly implemented. Businesses may anticipate wrong customer needs and hence making them less successful than anticipated. ii. Value migration is limited in the sense that it does not provide a way of dealing with competition and even how to react to competitor’s action. Other variables must be used to gain success in a dynamic market condition. W. Chan Kim and Renee Mauborgne’s Blue Ocean Strategy Blue ocean strategy according to Kim and Mauborgne is a strategy that focuses on creation new demand in areas within the market which are still uncontested or have less competition instead of competing in a field where there are a number of competitors already. These authors recommend organizations to create new industries within the existing industries in order to change the competitive landscape and also take advantage of being pioneers of the new industry in order to be sustainable and avoid competition which is not necessary. According to Kim & Mauborgne (2013) Blue Ocean implies these new areas which a company can pioneer and red oceans are existing highly competitive areas in the market. The founders of blue ocean strategy open organizational eyes by emphasizing on the fact that new markets are more potential, profitable and less expensive as compared to the existing red oceans. The primary difference between blue ocean strategy and other known business models such as the Porter’s five forces is the fact that blue ocean strategy avoids competitive confrontation by emphasizing on creating new markets through new products in the market (Jha, 2012). Blue Ocean strategy can be employed in strategic planning more effectively as compared to other strategies which are fully dictated by the existing market condition. As an example, a new product will always sell better than the existing market. This is even better if only a single company is producing the product (Jha, 2012). Blue strategy looks beyond the ordinary and drives innovation and creative thinking in order to create new demands. With increasing competitive platforms, this strategy is bound to become more popular as existing companies in highly competitive markets consider business diversification. Advantages of the model i. This model is important especially in the modern technology driven economy which has more potential of new markets and products as compared to the traditional landlocked markets of the past. ii. The Blue Ocean strategy encourages innovation through studying the existing environment in order to anticipate potential business needs which can be converted to business opportunities. Disadvantages of the model i. It is always difficult to venture into a new market/product because of uncertainty. This is the main reason why companies still prefer the red oceans which they can comfortably predict(Jha, 2012). ii. In the modern day market, ideas spread faster and hence making it far easy for competitors to copy the idea and hence turning it into a new war-front of a red ocean (Jha, 2012). References Hills, C., & Jones, G.(2009). Strategic Management Theory: An Integrated Approach. New York, NY: Cengage Learning. pp. pp.43-51 Russell, J., &Cohn, R. (2012). Value Migration. New Jersey, NJ: Book on Demand.pp.44-48. Kim, W. C., & Mauborgne, R.(2013). Blue Ocean Strategy: How To Create Uncontested Market Space And Make The Competition Irrelevant. New York, NY: Harvard Business Press. Jha, J.(2012). Summary of Blue Ocean Strategy By W. Chan Kim & Renee Mauborgne. New York, NY: Summary Town. Read More