Tag Archives: Michael Porter

Learn About Michael Porter’s 5 Forces Model using the EBSCO Library Database

English: Porter Generic Strategies

English: Porter Generic Strategies (Photo credit: Wikipedia)

Michael Porter's Diamond of Advantage

Michael Porter’s Diamond of Advantage (Photo credit: Wikipedia)

Illustration of Porters 5 Forces. Illustrates ...

Illustration of Porters 5 Forces. Illustrates article Porter 5 forces analysis (currently available in 11 languages). (Photo credit: Wikipedia)

Català: Michael Porter. Česky: Michael Porter....

Català: Michael Porter. Česky: Michael Porter. Dansk: Michael Porter. Deutsch: Michael Porter. Español: Michael Porter. Suomi: Michael Porter. Bahasa Indonesia: Michael Porter. Nederlands: Michael Porter. ‪Norsk (bokmål)‬: Michael Porter. Polski: Michael E. Porter. Português: Michael Porter. Српски / Srpski: Majkl Porter. Svenska: Michael Porter. Українська: Майкл Портер. 16 лютого 2009. (Photo credit: Wikipedia)

You will use the EBSCO Library Database for this exercise.

 

 

 

 

Watch these Porter’s Model Videos:

1.  Michael Porter Interview

https://www.youtube.com/watch?v=mYF2_FBCvXw

2. http://www.youtube.com/watch?v=DViVtgD0xwE Michael Porter “You Need a Strategy for your Organization”

Go to EBSCO and find the MarketLine Industry Report for “NEW CARS IN THE US”. Read the entire report.

Go to page 14 of 40 in this report and you will see the “Five Forces” Analysis of this industry

Now you are ready to Identify Porter’s Five-Forces Model Table

  1. Create a table with the five forces on the left and snip and insert the 5 forces diagrams into the right side of the table table using the graphics in this report and your snipping tool on your computer under “Accessories”.
  2. Now research your industry form you final project using the same process and find your industry’s 5 forces.
  3. Create a table for your project. You r will tweet these slides at the end of the semester an part of your oral presentationl.

Watch this Generic Strategy Mini Lecture:

http://www.youtube.com/watch?v=V14kuqYEsxE&feature=share&list=ULV14kuqYEsxE

Watch this video: http://www.youtube.com/watch?v=QPu4v_Ae0Vc&index=4&list=ULV14kuqYEsxE

4. Michael Porter Ties it all together at UNC Chapel Hill: “What is Strategy”

http://www.youtube.com/watch?v=KvYwKM5bY0s

5. How to make America more competitive; Michael Porter is interviewed by Charlie Rose

Five forces

Threat of new entrants

Profitable markets that yield high returns will attract new firms. This results in many new entrants, which eventually will decrease profitability for all firms in the industry. Unless the entry of new firms can be blocked by incumbents (which in business refers to the largest company in a certain industry, for instance, in telecommunications, the traditional phone company, typically called the “incumbent operator”), the abnormal profit rate will trend towards zero (perfect competition).

The following factors can have an effect on how much of a threat new entrants may pose:

  • The existence of barriers to entry (patents, rights, etc.). The most attractive segment is one in which entry barriers are high and exit barriers are low. Few new firms can enter and non-performing firms can exit easily.
  • Government policy
  • Capital requirements
  • Absolute cost
  • Cost disadvantages independent of size
  • Economies of scale
  • Economies of product differences
  • Product differentiation
  • Brand equity
  • Switching costs or sunk costs
  • Expected retaliation
  • Access to distribution
  • Customer loyalty to established brands
  • Industry profitability (the more profitable the industry the more attractive it will be to new competitors)

Threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives. For example, tap water might be considered a substitute for Coke, whereas Pepsi is a competitor’s similar product. Increased marketing for drinking tap water might “shrink the pie” for both Coke and Pepsi, whereas increased Pepsi advertising would likely “grow the pie” (increase consumption of all soft drinks), albeit while giving Pepsi a larger slice at Coke’s expense. Another example is the substitute of traditional phone with a smart phone.

Potential factors:

  • Buyer propensity to substitute
  • Relative price performance of substitute
  • Buyer switching costs
  • Perceived level of product differentiation
  • Number of substitute products available in the market
  • Ease of substitution
  • Substandard product
  • Quality depreciation

Bargaining power of customers (buyers)

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer’s sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives.

Potential factors:

  • Buyer concentration to firm concentration ratio
  • Degree of dependency upon existing channels of distribution
  • Bargaining leverage, particularly in industries with high fixed costs
  • Buyer switching costs relative to firm switching costs
  • Buyer information availability
  • Force down prices
  • Availability of existing substitute products
  • Buyer price sensitivity
  • Differential advantage (uniqueness) of industry products
  • RFM (customer value) Analysis
  • The total amount of trading

Bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs. Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm when there are few substitutes. If you are making biscuits and there is only one person who sells flour, you have no alternative but to buy it from them. Suppliers may refuse to work with the firm or charge excessively high prices for unique resources.

Potential factors:

  • Supplier switching costs relative to firm switching costs
  • Degree of differentiation of inputs
  • Impact of inputs on cost or differentiation
  • Presence of substitute inputs
  • Strength of distribution channel
  • Supplier concentration to firm concentration ratio
  • Employee solidarity (e.g. labor unions)
  • Supplier competition: the ability to forward vertically integrate and cut out the buyer.

Intensity of competitive rivalry

For most industries the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Potential factors:

Undergrad Stategic Chapter 5: Strategy Options

Schematic representation of vertical and horiz...

Schematic representation of vertical and horizontal integration in the automotive industry (Photo credit: Wikipedia)

World locations of Fiat Group automobile manuf...

World locations of Fiat Group automobile manufacturing sites (own,license and joint ventures). (Photo credit: Wikipedia)

Diversification (marketing strategy)

Diversification (marketing strategy) (Photo credit: Wikipedia)

Chapter 5 – Strategies in Action

 

Chapter 5 provides basic guidelines for when various strategy options have historically been most effective.

These are the basic 11 types of strategies for a manufacturer of steel office desks:

 

  • Forward integration:  opens retail stores to sell its desks.
  • Backward integration:  purchases a steel mill to control its supply of steel at a reasonable price.
  • Horizontal integration:  purchases a competing desk manufacturer.
  • Market Penetration:  launches a loyalty program to reward a company that buys a large number of desks for their many global subsidiaries.
  • Market Development: begins to offer desks in India, a new geographic market area for the company.
  • Product Development:  develops a special desk with a steel cabinet for electronics.
  • Related Diversification:  the company will now manufacture and sell steel chairs.
  • Unrelated Diversification:  the company will offer a credit card for its customers.
  • Retrenchment: the company is cutting jobs in 20 markets in the west.
  • Divestiture:  the company is selling off its plastics division.
  • Liquidation:  the company is selling off the equipment previously used in its now defunct plastics division.

    English: A desk for use on my wikipedia userpage.

    English: A desk for use on my wikipedia userpage. (Photo credit: Wikipedia)

Schematic representation of vertical and horiz...

Schematic representation of vertical and horizontal integration in the automotive industry (Photo credit: Wikipedia)

This chapter describes Porter’s generic strategies and other important strategy options inluding: outsourcing, reshoring, first-mover advantages, joint ventures, and partnering in the context of strategic planning.

Learning Objectives:

 

1.         Define and discuss secondary buyouts and dividend recapitalizations.

2.         Identify the benefits and drawbacks of merging with another firm.

3.         Discuss the value of establishing long-term objectives.

4.         Identify 16 types of business strategies.

5.         Identify numerous examples of organizations pursuing different types of strategies.

6.         Discuss guidelines when particular strategies are most appropriate to pursue.

7.         Discuss Porter’s five generic strategies.

8.         Describe strategic management in nonprofit, governmental, and small organizations.

9.         Discuss the nature and role of joint ventures in strategic planning.

10.       Compare and contrast financial with strategic objectives.

11.       Discuss the levels of strategies in large versus small firms.

12.       Explain the first mover advantages concept.

13.       Discuss recent trends in outsourcing and reshoring.

Complete the Assurance of Learning Exercise #5C and tweet your answers to: What Strategies should PepsiCo pursue in 2014?

 

English: Porter Generic Strategies

English: Porter Generic Strategies (Photo credit: Wikipedia)

International Business Strategy

Value Chain White

Value Chain White (Photo credit: Jinho.Jung)

Portrait of Henry Ford (ca. 1919)

Portrait of Henry Ford (ca. 1919) (Photo credit: Wikipedia)

Illustration of Porters 5 Forces. Illustrates ...

Illustration of Porters 5 Forces. Illustrates article Porter 5 forces analysis (currently available in 11 languages). (Photo credit: Wikipedia)

English: Porter's Value Chain

English: Porter’s Value Chain (Photo credit: Wikipedia)

Michael Porter's Diamond of Advantage

Michael Porter’s Diamond of Advantage (Photo credit: Wikipedia)

English: Capabilities value contribution to st...

English: Capabilities value contribution to strategy (Photo credit: Wikipedia)

Diversification (marketing strategy)

Diversification (marketing strategy) (Photo credit: Wikipedia)

How to Define a Marketing Strategy

How to Define a Marketing Strategy (Photo credit: budcaddell)

The SWOT-landscape systematically deploys the ...

The SWOT-landscape systematically deploys the relationships between overall objective and underlying SWOT-factors and provides an interactive, query-able 3D landscape. (Photo credit: Wikipedia)

Sample mission statement

Sample mission statement (Photo credit: Wikipedia)

English: Ford Motor Company global locations F...

English: Ford Motor Company global locations Français : Sites mondiaux de Ford Motor Company (Photo credit: Wikipedia)

English: Figure 8: Example of a value chain ma...

English: Figure 8: Example of a value chain map for organic cotton, from inputs to consumption. Belongs to The Organic Business Guide. (Photo credit: Wikipedia)

International Business Strategy involves sales, investments and logistics decisions in countries where the corporation does business. It involves business activities and cross border transactions of goods, services and resources in industries such as: finance, banking, insurance, construction, manufacturing, technology, etc.

For this class, you are researching a large multinational corporation with headquarters outside the US. They probably have a  worldwide approach to markets and production with operations in more than a country. They are listed on a foreign stock exchange. Some well-known US MNCs that you have studied in other classes may include: fast food companies such as McDonald’s and Yum Brands, vehicle manufacturers such as General Motors, Ford Motor Company,  consumer electronics companies like Apple and technology companies like Google. Most of the largest corporations operate in multiple national markets.

Individual country profiles may require MNCs to modify their business practices from one country to the next.

Here’s my

International

Business Strategy Pinterest Board http://www.pinterest.com/socialmediaevie/strategy-options-for-globalization/

International Business Strategy involves formulating international strategies at the corporate level, business unit level and departmental level of the organization. International managers must identify the company’s mission and goals and analyze the company’s operations by performing a value-chain analysis.

The strategies that the firm pursues will impact the firm’s organizational structure. The business environment can impact product decisions as well; whether to pursue standardization or adaptation as well as where to locate facilities.

Català: Michael Porter. Česky: Michael Porter....

Català: Michael Porter. Česky: Michael Porter. Dansk: Michael Porter. Deutsch: Michael Porter. Español: Michael Porter. Suomi: Michael Porter. Bahasa Indonesia: Michael Porter. Nederlands: Michael Porter. ‪Norsk (bokmål)‬: Michael Porter. Polski: Michael E. Porter. Português: Michael Porter. Српски / Srpski: Majkl Porter. Svenska: Michael Porter. Українська: Майкл Портер. 16 лютого 2009. (Photo credit: Wikipedia)

Strategy is the set of planned actions taken by managers to meet company’s specific short-term and long-term goals and objectives. Strategy addresses the following issues:

  • Who is the target customer for the organization’s products and services?
  • Where are the customers and how do they buy? What is considered “value” to the customer?
  • Which businesses, products and services should be included or excluded from the portfolio of offerings?
  • What is the geographic scope of the business?
  • What differentiates the company from its competitors in the eyes of customers and other stakeholders?
  • Which skills and capabilities should be developed within the firm?
  • What are the important opportunities and risks for the organization?
  • How can the firm grow, through both its base business and new business?
  • How can the firm generate more value for investors? WIkipedia
English: Figure 10: SWOT-Analysis of the organ...
English: Figure 10: SWOT-Analysis of the organic business idea. Belongs to The Organic Business Guide. (Photo credit: Wikipedia)

 

The development of an effective strategy requires clear objectives and a plan to achieve them.

1. Start with a SWOT Analysis: what are the capabilities and strengths? What does the company do better than the competition.

  • Strengths give the business  a competitive advantage including Core Competencies (an ability that competitors find extremely difficult or impossible to replicate)
  • Weaknesses place the business at a disadvantage relative to others
  • Opportunities are external environmental variables that the firm should exploit
  • Threats are variables in the external the environment that could be problematic of hinder strategic success

Strategic decisions are based upon the assessment of the competitive environment as well as the external national and international business environments.

A well-defined strategy coordinates and harnesses organizational resources. Firms must determine what products to produce and where to produce them. Divisions and departments must effectively and efficiently carry out the plan globally.

Different international locations possess a rich mosaic of cultural, political, legal, and economic traditions and processes. Factors that add to the complexity of planning and strategy internationally includes differences in: accounting standards, labor standards, living standards and environmental standards. Tariffs and import and export regulations as well as trade agreements must be analyzed.

Diversification (marketing strategy)

Diversification (marketing strategy) (Photo credit: Wikipedia)

 

Strategy formulation includes external environmental analysis including the political, economic, social, technological and regulatory landscape. The industry environment and the competitive behavior of rivals must be researched including: the bargaining power of buyers/customers and suppliers, threats from new entrants to the industry and the ability of buyers to find viable substitute products.

 

The company must formulate a Mission Statement that identifies why the company exists and how the operations and activities impact stakeholders: suppliers, employees, stockholders and consumers. International companies must be sensitive to the needs of stakeholders in different nations.

Stockholders’ needs for financial returns must be balanced against the public interest in countries where production is located.

 

Value Chain Dark

Value Chain Dark (Photo credit: Jinho.Jung)

Value-chain analysis is the process of dividing a company’s activities into primary and support activities and identifying those that create value for customers. In the primary activities, it considers inputs, transformation processes and outputs.

New Marketing Strategy
New Marketing Strategy (Photo credit: Intersection Consulting)

 

The concept was first described and popularized by Michael Porter in his 1985 best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.

Primary activities include inbound and outbound logistics, manufacturing, marketing and sales, and customer service. Support activities include firm infrastructure, human resource management, technology development, and procurement. Each activity is a source of strength or weakness for a company.

National differences in language, religious beliefs, customs, traditions, and climate complicate strategy formulation. Manufacturing processes must be adapted to the supply of local workers, local customs and traditions. Political and legal systems must be coordinated to implement international strategies.

There are two basic International Strategies:

a. A Multinational Strategy adapts products and marketing strategies in each national market to suit local preferences.

  1. Benefit: monitor buyer preferences in each local market and respond quickly and effectively to new buyer preferences.
  2. Drawback: cannot exploit scale economies in product development, manufacturing, or marketing.
  3. Not suited to industries in which price competitiveness is a key to success.

b. A Global Strategy offers the same products using the same marketing strategy in all markets.

  1. Firms take advantage of scale and location economies by producing entire inventories or components in a few optimal locations.
  2. They perform product R&D in one or a few locations and design promotional campaigns and advertising strategies at headquarters.
  3. Benefit: cost savings from standardized products and marketing; lessons learned in a market are shared.
  4. Drawback: yet a firm employing this strategy may overlook differences in buyer preferences. Only simple modifications in features. Competitors can step in and satisfy unmet local needs creating a niche market.

There are different Corporate-Level Strategies

a. A Growth Strategy is designed to increase the scale or scope of a corporation’s operations. Scale refers to the size of a corporation’s activities; scope to the kinds of activities it performs. This can be accomplished through organic growth that relies on internally generated growth or through mergers and acquisitions, joint ventures, and strategic alliances to reduce competition, expand product lines, or expand geographically.

b. A Retrenchment Strategy reduces the scale or scope of a corporation’s businesses. Corporations cut back the scale of operations when economic conditions worsen or competition increases by closing factories with unused capacity and laying-off employees. Corporations reduce the scope of activities by selling unprofitable business units.

Business-Level Strategies involves the general competitive strategy in the marketplace and includes:.

a. A Low-Cost Leadership Strategy refers to the lowest cost of operation. It exploits economies of scale to have the lowest cost structure of any competitor in an industry and is driven by size, scope and learning curve principles. Cost leadership is a concept developed by Michael Porter and it describes a way to establish competitive advantage. Companies attempt to curtail and control administrative costs and the costs of its various primary activities, including marketing, advertising, and distribution. Low-cost leadership based upon efficient production in large quantities guards against aggressive rivals. A low-cost leadership strategy works best with mass-marketed products aimed at price-sensitive buyers.

b. A Differentiation Strategy involves a company that crates services and products that are perceived as unique and exclusive. Companies strive to develop a loyal customer base to offset smaller market shares and higher costs of producing and marketing an exclusive product or service. Products can be differentiated on the basis of quality, brand image, and product design.

c.   A  Focus Strategy Company focuses on the needs of a narrowly defined market segment by being the low-cost leader, by differentiating its product, or both. Some firms serve the needs of a single geographic area.

There are basically four types of International Organizational structures. The structure involves how a company divides its activities among separate units and coordinates activities among those units.

1. An International Area Structure organizes a company’s global operations into countries or regions. Each geographic division operates as a self-contained unit, with decision making decentralized to country or regional managers. This structure is useful when there are vast cultural, political, or economic differences among nations or regions. Managers become experts on the unique needs of their buyers; since units act independently, cross-fertilization of knowledge across units can be limited.

2.  An International Divisional Structure with its own manager keeps domestic and international activities separate. A general manager for each nation in which a company operates controls product manufacturing and marketing within that market. The manager becomes a specialist in foreign exchange and exporting activities in that market. The firm hopes to reduce costs, increase efficiency and prevents international activities from disrupting operations at home. Potential problems can arise wen there is poor coordination between the international division and the rest of the company.

3. A Global Product Structure divides worldwide operations primarily according to a company’s product areas and is well-suited to a firm with a diverse set of products.

4. A Global Matrix Structure splits the chain of command between product and area divisions. Each manager reports to two bosses: the president of the product division and the president of the geographic area and brings together geographic area managers and product area managers for decision making. This can improve organizational agility, increase local responsiveness, reduces costs and coordinates worldwide operations.

Centralized decision making generally at headquarters. Decentralized decision making occurs at lower levels, such as in international subsidiaries. International companies may centralize decision making in certain geographic markets and decentralize it in others. Centralization helps coordinate international subsidiaries and maintain strong central control over financial resources by channeling  the subsidiary’s profits back to the parent. Companies may centrally design policies, procedures and standards to enhance a single global organizational culture.

Decentralized decision making is beneficial when local responsiveness is important. Subsidiary managers have their finger on the pulse of local culture, politics, and legal issues. Decentralized decisions result in products that are well-suited to the needs and preferences of local buyers.

Work teams can be useful in International Organizations because they can improve responsiveness by cutting across functional boundaries that slow decision making in an organization. Some cultures are less individualistic and more collectivist, this can impact the effectiveness of the team approach.