Porter’s Five Forces Model Industry Analysis

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Using any industry with which you are familiar, please analyze the industry using Porter’s Five Forces Model

Supplier power

Suppliers in the smartphone industry play a very vital role which could affect prices at any given time. Microchips which are a key material in the manufacture of smartphones are supplied by few dealers, thus making the suppliers powerful when it comes to determination of prices. The microchips are unique because they are used to store program information as well as other information used as memory in the gadgets. Thus, it is very difficult for smartphone manufacturers to do without microchips.

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With most of the microchips supplies originating from Japan and other parts of South East Asia, including South Korea, Singapore, and Taiwan, the suppliers have easily driven up prices whenever the regions experiences natural calamities and disasters. In 2011, for instance, microchip prices shot up after a fierce Tsunami hit Japan in early 2011.

The capacities of the microchips suppliers influences operations of smartphone manufacturers, forcing them to either scale up or down the production in order to match with the supply of microchips. The cost of switching suppliers is also exorbitant for the smartphone manufacturers as the delays and technical implications are likely to affect performance (Kleinmann, Xin & Jaderstrom, 2012). Each supplier has unique standards, thus implying that phone manufacturers have to ensure that their smartphones have to be compatible with the microchips being purchased.

Buyer power

The power of buyers in the smartphone industry is high as every manufacturer attempts as much as possible to differentiate their model of smartphones. Although the number of buyers keeps increasing as many mobile phone users discover the potential of smartphones, a majority of them make their choices depending on the performance of the specific brands. The buyers can easily drive prices down by shunning products that fail to meet their expectations and insisting to buy those that accurately meet their specifications.

For most buyers, there is literally very little cost incurred as a result of switching from one brand of a smartphone handset to the other. The user contracts mainly involve the American Telephone & Telegraph, abbreviated as AT&T, which is the main cellular service provider. Majority of the manufacturers do not have tying deals with customers that may seem to lock-in buyers and discourage them from switching to other brands (Boone & Kurtz, 2010).

Each individual buyer is also very important for the smartphone manufacturers because the firms experience very small profit margins for every unit sale. Thus, the companies value all their buyers because the industry has continuously adapted a more standardized feature where the different brand manufacturers continue to ape what their competitors are doing. In other words, users of a smartphone brand, say Samsung, can still get the same services and applications even after switching allegiance to a different brand name, like HTC.

Competitive rivalry

The different competing firms have improved on their individual performances as each manufacturer seeks to compete effectively with the other market players in the industry. Most manufacturers have enhanced their competitive advantage by jointly operating with Google, which manufactures smartphone software Android, to attract buyers in the market.

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Apple’s iPhones have particularly been leading the competition in the industry, courtesy of the highly performing IOS software which allows users to buy stuff online from the iStore, including MP3 music and applications. Android has also enhanced its competition by creating the Market, which also provides users with an opportunity to buy items online, including applications and MP3 music.

Other industry players like Nokia have a joint operation deal with Microsoft to provide the handset manufacturer with a highly efficient online presence and performance so as to equally vie for huge market representation and market as is the case with other main players. The almost uniform kind of services and products offered in the industry has reduced the power of the smartphone manufacturers as consumers are presented with a range of alternatives to choose from.

Although Apple remained a pioneer in the industry for some time following a series of unique innovations and releases into the market, virtually all players currently sell the same or similar products and service features, thereby reducing the strength of one particular player. Equally, third party developers of software applications are currently being hosted by different operating software, thus providing an opportunity for users to enjoy a range of these services from whatever platform they wish (Hill & Jones, 2008).

Threat of substitution

The threat of substitution is high in the smartphone industry because users can alternatively enjoy the same services using other different gadgets and devices. Laptops and mini laptops are portable and can support a number of user applications that are available to smartphone users.

These devices can also support communication between users in different locations, including through electronic mail services and chat services. Laptops can also download MP3 music, movies, and a host of other services from the internet which can be enjoyed by users in the same way smartphone users enjoy.

Threat of new entry

The threat of entry into the industry by new players remains relatively high. Although higher economies of scale are involved as majority of the players are also highly established, comparatively small scale performers can join forces and operate as one. For instance, Erricsson combined forces with Sony to form Sony Erricsson which is one of the biggest players in the industry at the moment. There is also relatively little technological protection in the industry as manufacturers copy others’ products in order to gain a foothold. There has been an increase in cases where brand manufacturers have sued their rivals for copying their technologies and integrating the same in their innovations. Recently, a court ruled in favor of Apple Inc. in a case the company had sued its main rival, Samsung Electronics, for copyright infringement of its technology mostly applied in its iPhone brand (Magretta, 2012).

From a strategic management perspective, examine the U.S. domestic automobile industry. Which of the influences in the broad (remote) environment do you see as having the greatest impact in the next 18 months? Why?

The US domestic automobile industry will still be under the effects of the global financial credit crisis within the next 18 months. Most industries have been hard hit by the economic slowdown that was experienced in the world right from the year 2008. The purchasing power for most individuals has been diminished throughout this period as the prices of basic commodities remain exorbitantly high.

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Thus, purchasers have restricted themselves to acquiring only basic and essential commodities while leaving out products considered as mere luxury (Hiraide & Chakraborty, 2012). Most motor vehicle dealers have experienced a reduction in demand for automobiles and have consequently been forced to trim their workforce size in order to comfortably operate within the limited budgets.

The impact of the economic crisis is likely to force vehicle dealers to lower prices as they seek to woo potential customers into acquiring the vehicles. Although this could further strain the limited profit margins, dealers will have no option but to employ this strategy so as to influence the demand. Once the demand finally shows positive signs of recovery, the dealers could also gradually scale up the prices in order to meet the costs incurred during the period of low productivity (Klier & Rubenstein, 2012).

Explain the relationship between a firm and the various levels of external environment. Which stakeholder in the operating environment do you believe to be the most important? Why?

Technology is an important aspect of the firm because it enables an organization to increase productivity very effectively and streamline its operations in a more standardized manner. Technology, thus, enables the firm to cut down on its costs of operations and enable the firm to increase its efficiency and rate of performance. However, technology might also prove detrimental to the organization particularly when it is outdated and, therefore, requires much time and resources to revitalize it and make it effective (Ang, 2008).

The legal environment mainly affects the firm in the sense that the government requires all organizations to adhere to set policies and rules. Some of these policies and regulations require a lot of resources in order to execute, thus incurring additional expenses to the firms. The legal environment also protects the firm from unethical and illegal practices from other external players, such as competing firms, who may wish to employ unacceptable methods to win markets and consumers (Krishnamurti, Sěvić & Šević, 2005).

The economic environment also plays a significant role in impacting on the firm and its operations. Economic factors such as high interest rates by banks could hinder companies from seeking to obtain loans in order to expand their activities and operations, and thus perform dismally as a result. Other factors, such as the global financial crisis, have also negatively affected business performance by companies as purchases dwindle and firms are forced to cut down on their operation costs through lay off of extra workers.

The cultural environment of an organization refers to the cultural backgrounds represented by the individual employees working at the firm. An organization must operate in a way that is respectful to the individual cultures of the employees. Employees must be able to relate well with their employer, which is the organization itself, as well as be able to relate with their colleagues at the firm (Katzner, 2005).

The most important stakeholder of a firm is the employee. Organizations operate with a view of providing their products and services to the market, and therefore target to impress their clients. However, if employees are not comfortable with their own organization, it would be difficult for the firm to please any of the other remaining stakeholders. Therefore, the leading stakeholders for any organization often are the employees. Employees reflect to the rest of the stakeholders whether or not the company will be in a position to satisfy their needs and expectations as well.

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How do we identify direct competitors and what are some of the common mistakes in identifying them? What tools are used to assist executives in examining direct competitors?

Direct competitors can easily be identified by thoroughly analyzing the kind of goods or services that they deal in. If the goods or services offered by a rival firm resemble the ones offered by your company, then effectively the rival firm qualifies to be considered as a direct competitor. Direct competitors also target the same customers and employ the same price mechanisms to win over the market.

A marketing plan will provide a manager with the necessary intelligence to strategically arrange operations such that competitors may not be able to take advantage of the company. This will involve collecting of facts regarding the operations of the competitor firm, such as pricing mechanism, promotional strategies, and even ordering for supplies and employing of workers in order to establish the operations of the competitor (Srikaew & Baron, 2009).

In Porter’s model we are asked to consider potential entrants and substitute products as additional competitors. On what basis do we judge whether a firm is a potential entrant? On what basis do we determine if a competing product is a substitute?

A firm is regarded to be a potential entrant in the Five Force analysis model as postulated by Porter if it can meet the capital requirements needed to enter an industry. Established firms that are already operational often enjoy their economic positions by virtue of the elaborate financial power that they enjoy as a result of participating in the business for longer durations of time.

This makes them difficult competitors to beat especially for a smaller firm whose financial capacity may not match that of an already established company. However, a strong financial base for a new entrant could prove very supportive in the sense that the company will have the financial power to acquire the necessary assets and materials, and equally create a competitive advantage able to attract customers.

The incumbency advantages enjoyed by a firm could also act as a strong pointer to its capabilities of entering an industry or market and effectively competing with the established players. Large firms which have been operational but serving other markets or industries could decide to shift their business focus or expand their portfolio to cover new industries and markets.

Such firms will be potential entrants by virtue of their proprietary technology or patents which they hold. Thus, their past experiences and level of skill will be the main competitive advantage that they enjoy, which makes them a threat (Karakaya & Yannopoulos, 2011).

Weaker barriers to market entry also provide an opportunity to potential market entrants to be viewed as a threat by the already established industry players. If a company attains the entire mandatory requirements set by government policies and legal structures, then it becomes a strong indicator to other industry players that the company could possibly enter the industry and pose a threat to their operations.

A competing product could be considered to be a substitute threat if buyers in the market can equally derive the same utility from the product. The threat becomes more dangerous to the established industry players if the substitute product or service can be acquired at a comparatively cheaper cost. An easy to find substitute that is also viable to the buyers will effectively compete with the products manufactured by established industry players, and consequently reduce their power (Suh & Aydin, 2011).

Please compare and contrast the terms environmental determinism, strategic choice, stakeholder approach, enactment, and adaptation

Environmental determinism is a perspective which considers the physical environment to be the main determinant of culture and not social conditions. This view considers human beings to be defined strictly by their stimulus-response, or environment-behavior which they can hardly deviate from.

This school of analysis considers with high regard the position of the environment being both deterministic and dominant while seeking to design a strategy. In this case, therefore, strategy is only considered to be a reactive process with the organization being considered as passive (Pizam & Holcomb, 2008).

Strategic choice forms a significant part in the process of strategy formulation within an organization or firm. Various choices have to be selected upon in order to be able to instill value while thinking about value. When managers draw out their strategies, some choices may appear to be so apparent but a reflection of the same in the long run may point at the influence of unexpected events determining the results.

Thus, in choosing strategy, managers literally evaluate available options before selecting on the best possible one and consequently take probable actions to ensure that targeted results are achieved. Strategy choices have to ensure that they remain challenging enough in order to effectively compete with other rival firms. Strategic choices are basically realized through thorough analytical skills and high level judgment capability (Cao & Zhang, 2011).

Stakeholder approach is a concept which emphasizes on making decisions while bearing in mind those to be affected by changes in the climate, as well as those to be involved in the adaptation implementation. Organizational operations often have consequences on the surrounding environment, which affect communities living close to or neighboring the firm (Minoja, 2012). These consequences could turn out to be negative in terms of environmental implications, individual’s health, or even culturally distorting the basis of a community.

As such, it is upon the organization to ensure that before any such decisions are made, these implications need to be analyzed fully in order to ensure the negative effects are mitigated. Organizations need to maintain cordial relations with the communities which neighbor such institutions in order to also receive support in return, mainly in form of employment skills and market.

Enactment as a concept in strategy formulation and management refers to the constant self-formation process involving both organizations as well as individuals. Often, employees of an organization further form themselves into groupings or smaller organizations basically in two different ways; in the first instance, they achieve stability by virtue of enacting interaction cycles. The second way is by the development of rules which are considered appropriate for enhancing desirable behaviors.

Thus, enactment theory refers to the process through which workers in an organizational set up to achieve coordination and continuity (Hochwarter & Thompson, 2012). Enactment as a process needs to be coordinated effectively through the support of rules and roles that every individual needs to adhere to. Through the enactment theory, it is possible to determine a rationale through which routine and strategic behavior can be effectively distinguished.

In day to day normal practice, whatever occurs in place of the company is usually routine, random, and scripted, but never strategic. While organizations continuously undergo the process of organization, they equally undergo constant change which consequently results to enactment.

The enactment comes about as a result of people’s consciousness to involve themselves in relationships. Employees of an organization are a team and individuals cannot separate themselves and operate as individuals in terms of how they think of the meaning they ascribe to themselves, the meaning they ascribe to other actors, as well as the meaning they ascribe to the environment.

Adaptation seeks to provide an organization with the best possible formula that enables it to operate effectively in a given business climate or environment. Managers design business strategies in the hope that their organizations may limit the amount of risk facing the organizations and consequently make the best out of the tough situation.

Such risks, however, may limit the operations and performances of other rival or competing firms, thus providing the firm with the most adaptive strategy the opportunity to excel in its operations and performances.

While managing risk, managers explore various alternatives and act, sometimes on uncertain decisions, in order to achieve their strategic objectives. It is the adaptation of the strategies by managers that eventually enables the company to attain its objectives and compete with other rival firms effectively (Kriauciunas, Parmigiani & Rivera-Santos, 2011).

What do we mean by saying a resource-based view of the firm? What are these resources and what makes them valuable?

The resource-based view of a firm refers to the analysis of a company on the basis of the resources that are typically set out. A resource is anything that is related to an organization which could either be its strength or weakness in the long run. In other words, it refers to anything that appears fixed and which can hardly be altered in the near future, like an organization’s physical plant or its capital assets (Flouris & Oswald, 2006).

Analyzing a firm on the basis of its resources gives an insight on its competitive advantage. Firms exist in order to sustain their businesses for the long run and there is need that the resources in question are diverse. Additionally, the resources also need to be hard to substitute as well as difficult to emulate by competitors in order to give the firm a perfect assurance that indeed the resources have a competitive advantage.

Thus, the resource-based view of a firm considers a number of key aspects which include a critical and highly potential resource in the disposal of the firm, a resource which is of high value, not easily substitutable, and one that is difficult to be emulated by competitors (Madhok, Li & Priem, 2010).

Basing on the above analysis of a resource-based view, an airline company could consider its competitive resources to be the fleet of airplanes that it keeps. If the company maintains the fleet in the air for longer durations of time than its rival firms, the company manages to get maximum return from its resources.

Studies indicate that Southwest Airlines has the highest number of flight durations for its planes, averaging 11.5 hours each day, which exceeds the industry’s average duration of 8.6 hours per day. The Airliner manages to achieve this through maintaining a standardized fleet of airplanes and trying to avoid airports that seem to be congested, thus improving the turnaround times.

Other characteristics that enhance the resource competitive advantage of a firm include its past history. Often, firms that pioneered the sale or marketing of a particular brand of product may sustain this competitive advantage only because they pioneered in the marketing of the product.

However, it is prudent to point out that long-term sustainability has very little effect on the resource competitive advantage of the company. The strategic move of the company’s long term viability remains less clear particularly because of the competitive nature of the markets where firms operate (Brahma & Chakraborty, 2011).

Please compare and contrast Porter’s five forces model with the Blue Ocean perspective. Are these competing approaches? Please explain your rationale.

Porter’s Five Force model of industry analysis basically seeks to enable players in an industry on how to dominate the market. On the contrary, the Blue Ocean perspective of industry analysis seeks to find new opportunities to enable players get a chance to create new markets. Organizations can produce both high profits and growth through the creation of demand in a market space that has not previously been contested.

The “Blue Ocean” refers to the uncontested market space. Unlike the five forces identified by Porter, which act in a market, the Blue Ocean model does not maintain head-to-head competition between different players in the same market or industry. The concept of the “Blue Ocean” is actually the opposite of the “Red Ocean”, which implies the market environment that is already known (Yang & Yang, 2011).

In Porter’s Five Force analysis model, the concept of the Red Ocean easily applies. The five force analysis considers a market environment where there are several players trying to outperform each other as they target to win the market. Although rules are defined in the five force analysis postulated by Porter, what players seek to do is to expand their capabilities by literally taking advantage of weaknesses showcased by competitors.

The five forces that Porter identifies are aimed at giving an insight to the competing organization to analyze in the market situation in terms of new competition developing and eating out on the market potentials, threat of substitute products being adopted and utilized by the market as an alternative to a player’s provisions, services, and products, as well as checking the possible rivalry that could emerge as a result of the different players pursuing their intentions and objectives.

The other forces which Porter also gives significant attention to is the power of suppliers in the industry and how their actions could end up affecting players, and the extent of the power of the buyers and their effects on players.

The Blue Ocean, in contrast, is a market environment or experience that is first of all non-existent. Here, competition is totally non-existent because demand does not exist at all. Thus, rather than fight for a demand that already exists in the market, this model looks at the prospects of innovating value.

While Michael Porter believes that businesses can only be successful if they maintain either niche-markets or operate at very low costs, the Blue Ocean idea as introduced by Charles Hill maintains that businesses will equally manage to be successful if they focus on value innovation that cuts across conventional market segments. Value, according to the Blue Ocean concept, is very important in enhancing performance instead of competing within a single market that is crowded (Chen & Hsieh, 2008).


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