The five competitive forces that shape strategy by Michael Porter raises very fundamental points about how companies should approach their marketing and business operations. The article is based on the premise that businesses environments are very dynamic and keep changing from time to time. As such, it is critical for a business to continuously analyze its environment in order to remain competitive. Both public and private sector organizations work within different environments in which they interact with different resources to achieve their objectives. Business environment refers to the amalgamation of different internal and external factors that affect an organizations operations. As such, a business environment includes factors such as a companys clients, suppliers, technology, employees, competitors, regulatory frameworks, economic trends, government activities, and market structures among other factors. Therefore, both public and private sector organizations have to be familiar with their environmental conditions in which they operate in order to ensure efficient delivery of services to the customers, as well as facilitating the organizations strategic planning and management into the future. Consequently, it is important to identify the various environmental factors that affect an organizations performance and gain insights on the potential impact that these factors can cause to the organization.
In order to manage an organization effectively with its environment in mind, the concepts of strategic management and strategic planning come to mind. These are crucial management processes that help in ensuring the company utilizes its available resources to the best of their abilities in order to attain their objectives and desired vision (Courtney, Marnoch, & Williamson, 2009, p.55). Strategic management refers to the practice of systematically analyzing different factors associated with an organizations internal and external business environment in order to create a solid basis for attaining and maintaining optimal management practices in an organization (Raghunathan & Sarkar, 2016, p.114). This entails designing appropriate strategies to deal with various issues emanating from an organizations environment such as customers, competitors, partners and internal factors like the employees and resources available in the organization. The main objective of strategic management is to attain a higher level of organizational performance through better alignment of strategic priorities and corporate policies of an organization.
Strategic planning emerged as a critical component of strategic management in the 1960s. It has remained vital for planning processes in contemporary organizations. Implementation of strategies general involves setting desired goals and objectives as well as determining the various actions that will lead to the organization achieving the goals, mobilizing resources that will ensure the organization executes its plan effectively and efficiently (Courtney, Marnoch, & Williamson, 2009, p.57). It is the responsibility of senior management to define strategies for their organizations; creating detailed plans of implementing the strategy as well as setting up appropriate structures for evaluating the plan. Strategic planning is important for any organization. A clear understanding of the process of strategic planning is crucial for successful implementation of the same.
Several theoretical models can be used to analyze a company and its business environment. One of the most widely used models is the Five Forces Model that was developed by Michael Potter. The Five Forces model of analysis helps companies to assess profitability of their respective industries in order to develop their competitive strategies to enter and dominate a specific market. The model focuses on analyzing five of the most important factors affecting an industry and profitability within specific markets. The five factors of analysis are threats of new entrants, threat of substitutes, bargaining power of suppliers, bargaining power of customers, and competition from rival companies (Porter, 2008). Porters five forces of analysis model can be a very important framework of examining the industry to enable the companys management to strategies for the future. An example of how the Five Forces model can be used to analyze the competitive strategies of an organization is as detailed below. The example is based on one of the leading global brands, ROVI Corporation.
The company deals in a wide range of technologies, patents, and products, including software licensing, copyright protection, as well as providing search recommendation on various devices including digital video recorders, set top boxes, television sets, as well as mobile phones and tablet gadgets. The organization maintains a huge metadata base, which other firms such as manufactures of consumer electronics, social networks, cables operators, and websites rely upon for their market insights. The company maintains in-depth information on products such as movies, television shows, books, games, celebrities, and music. Its main objective is to organize information for consumption in the digital entertainment field. Currently, the company has more than 5000 issued or pending licenses across the world.
New entrants in the market are likely to lead to reduced productivity, decrease in market share. The information technology industry is very lucrative and dynamic and is therefore bound to attract many new investors and emergence of other startup companies. Rovi should beat off competition from new entrants by ensuring it has a large pool of loyal customers.
Substitute products in the information technology or the electronic industry are mostly counterfeit products that resemble the original products of established companies. These products often go for low prices and can easily affect an established companys profitability (Porter, 2008). Substitutes provide consumers with cheaper alternatives and can drive them away from costly original products offered by established companies such as Rovi Corporation. In order to beat off the threat of substitutes, Rovi should offer highly quality products at affordable prices while also having different products targeting a different market segment depending on the segments financial status.
Bargaining power of customers refers to the ability of buyers to put a company under pressure to change its pricing strategy (Porter, 2008). Buyers can threaten to shift competitors if the company does not change prices in their favor. Rovi Corporation can resolve this by providing customers with a lot of information regarding its products, offering reasonable prices, enforcing a customer loyalty plan and considering views of various consumer groups on pricing.
Bargaining power of suppliers refers to the various sources of raw materials, labor, and components necessary for the firm to produce its products (Porter, 2008). This bargaining power is expressed in the suppliers willingness to cooperate with the company by charging high prices for their resources. In order to overcome this challenge, Rovi Corporation should locate its offices close to suppliers of key raw materials and establish a great working relationship with them.
Intensity of competition resulting from rivals can put a firm under pressure to change its strategy or risk losing its position in the market. Rovi Corporations main competitors are IBM Software, Oracle Corporation, Microsoft Corporation, and SAP SE.
In conclusion, Rovi Corporation is one of the leading companies providing digital entertainment services. The company has grown immensely and is now a major player in the global entertainment industry. An analysis of the companys business environment based on the Five Forces model devised by Michael Porter indicates that the organization needs to approach its business processes strategically by focusing on several issues such as the emerging competition, substitute products, as well as the role of suppliers and customers in the industry.
Courtney, R., Marnoch, G., & Williamson, A. (2009). Strategic planning and performance: an exploratory study of housing associations in Northern Ireland, Financial Accountability & Management, 25, 1, pp. 55-78.
Porter, M.E. 2008. The Five Competitive Forces That Shape Strategy. Harvard: Harvard business Review.
Raghunathan, S, & Sarkar, S 2016, 'Competitive Bundling In Information Markets: A Seller-Side Analysis', MIS Quarterly, 40, 1, pp. 111-145
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