Major Questions in Business Strategy - Essay Example

Question1: Environmental Analysis/Five Forces The competitive forces analysis is concerned with the external environment and the various stakeholders of the firm. According to Porter, there are five competitive forces in the environment of a business entity namely the suppliers, buyers, customers, potential entrants, and product substitutes. Thus, environmental analysis helps managers come up with strategic moves in response to the trends and changes in the current environment. The degree of rivalry in an industry is usually measured by exit barriers, industry concentration, fixed cost, value added, industry growth, intermittent overcapacity, product differences, switching costs, brand identity, and diversity of rivals. Strategic moves in countering rivalry are by changing prices, improving product differentiation, creatively using distribution channels, and exploiting relationship with suppliers. Buyer power also has significant implications on the operation of a business entity. Accordingly, buyers are strong if they are concentrated; they purchase a significant purchase of output: and posses a credible backward integration threat. Suppliers are other important stakeholders. Like buyers, stakeholders are strong if they are concentrated; have credible forward integration threat; there is significant cost to switch to other suppliers; and ironically, if their customers are strong. Barriers to entry or exit are determined by specific factors like government regulations, existence of patents or proprietary knowledge, required specific assets, and organizational economies of scale. Entry is relatively easier if the industry requires common technology, little brand franchise, access to distribution channel, and low scale threshold. Exit is easy if assets are salable, exit costs are insignificant, and when business is independent. Threat of substitutes come from are dependent on switching costs, buyer inclination to substitute, and price-performance trade-off of substitutes. The concept of environment analysis will be briefly applied to Vodafone Group PLC. Rivalry is relatively high in the global mobile industry as a lot of competitors are seizing opportunities to penetrate into lucrative markets by employing aggressive strategies. Potential entrants' face relatively high barriers to entry due to high start-up costs to cover very specialized equipments and intensive advertising. Supplier power is low as providers are abundant. Buyer's power is strengthened by the presence of various competitors in the market with insignificant switching costs. Threat from substitutes is high due to low switching costs. Environmental analysis is an indispensable tool which helps managers understand their stakeholders while helping them craft competitive strategies. Question 2: Corporate Value Creation/Value Chain Analysis Value chain is a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. Value chain categorizes the value-adding activities of an organization. This essay will identify the basic components of value a company's value chain. In order to show how a value chain is employed by managers, it will list the functions of value chain analysis as well as apply it to specific companies. Figure 1 shows the primary and support activities in the typical value chain of a business organization. Primary activities involve those activities which start as the procurement of raw materials from suppliers to bringing them to customer. Inbound logistics involve the "receiving, warehousing, and inventory control" of the company's input. Meanwhile, operations comprise the value adding activities which transforms the raw materials into the final output. Outbound logistics are the activities which are necessary to bring the finished product to customers like storage, order fulfillment, warehousing, etc. Marketing and sales are the company's effort to attract buyers to purchase the products. Maintenance and ehancement of products' value through customer support and repair services. All these activities in the value chain are designed to add value that the customer derived from the company's products or services. Figure 1. Primary Activities of the Value Chain P Source: Adapted from Michael E. Porter, Competitive Advantage (New York: The Free Press, 1985), pp. 37-43 The main goal of support activities is to facilitate the primary activities. Procurement is essentially the purchasing of raw materials and other inputs utilized in value adding activities. On the other hand, technology and development, process automation and other technologies which are used to simplify and aid in the company's production. Human resource management involves the process of recruitment, development, motivation, and compensation of employees working for the business. Meanwhile, general administration refers to activities relating to the general management, accounting and finance, legal and regulatory affairs, safety and security, management information systems, forming strategic alliances and collaborating with strategic partners, and other "overhead functions (Thomson 2002)." The concept of value chain analysis will be applied to Coca-cola. Coca-cola's value chain starts with the procurement of inputs from its suppliers which are shipped to its production plants. As the company operates on a global level, the "secret ingredients" are shipped to countries for production. Production takes place at local plants where mixing and bottling are done. After production they are shipped to distributors' warehouses or straight to retailers. Selling and promotion are managed by the marketing department while after sales service is also provided. These activities are supported by the company's R&D, human resources, and logistics. Value chain analysis highlights the development of competitive advantage from the company's activities. The analysis looks at all the levels of the company's value chain and opts to identify the activities, which may yield competitive advantage to a company either through cost or differentiation. As business process outsourcing is becoming a global trend for business entities, these activities may be within the direct ownership of a company (in house) or outsourced. Question 3: Strategic Alliances Strategic alliance is a mutually beneficial long-term formal relationship formed between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. It is a synergistic arrangement whereby two or more organizations agree to cooperate in the carrying out of a business activity where each brings different strengths and capabilities to the arrangement. Strategic alliance is strongly illustrated by companies' sponsorship activities of major events like Olympics. One example is McDonald, which is a very famous supporter of Olympics. McDonalds and the Olympics Committee team up to pursue a mutually beneficial alliance. The sponsorship can be referred to as a promotional alliance as both parties try to promote the products of McDonald. The Olympics gain from this through McDonald's financial support. McDonalds also feeds a number of athletes each year. Meanwhile, McDonalds is also given the opportunity to promote its product through the pamphlets, brochures, and promotional materials by Olympics. As the activity entices audience worldwide, it is also a promotional effort with a very large scope. Strategic alliances bring enterprises benefits like: increase in capital for research and product development and yet lower risk; decrease in product lead times and life cycles; ability to bring together complementary skills and assets that neither company could easily develop on its own; access to knowledge and expertise beyond company borders; rapidly achieve scale, critical mass and momentum; expansion of channel and international market presence; building credibility in the industry and brand awareness; providing added value to customers; and in establishing technological standards for the industry that will benefit the firm. The use of strategic alliances greatly helps companies to enhance their performance by teaming up with a competitive partner. However, it should also be noted that the formation of strategic alliance has various disadvantages. Among these are: high commitment of time, money, and people; difficulty of identifying a compatible partner; potential for conflict; a small company risks being subsumed by a larger partner; payment difficulties; potential risk in the country where the strategic alliance is based; and issues relating to ownership. Read More