Management
Porter’s Five Forces
This is a framework for any industry analysis as well as a strategy for business development founded by Michael Porter. The model uses ideas developed in industrial organization. It derives five forces that determine the competitiveness and attractiveness of a business in the marketplace (Roy, 2011, p. 81). Within the model, Porter focused on the microenvironment factors that affect any business in terms of its capability to provide services to clients and increase profitability. This implies that for the company to change any of the factors, it must reassess the marketplace. These forces include three from the horizontal competition: threat of substitute products, threat of new entrants and rivalry. The remaining two are vertical to a company, and they include bargaining power of suppliers and bargaining power of customers.
Each of the five forces presents significant implications for profitability of a business. For instance, availability of close product substitutes increases the propensity of clients to change their preferences and go for alternatives in reaction to price change (Mennen, 2010, p. 143). On the other hand, the threat of new entrants in the marketplace raises chances of completion. Analysis of the model reveals that profitable markets, which produce high income, will attract industries. The consequence is many new entrants that effectively reduce profitability. To curb this problem of new entrants, incumbents are crucial to block the new firms into the market so that profit rates remain as high as possible. Rivalry in most cases determines the competitiveness of a market. Sometimes, rival companies compete effectively as opposed to the non-price perspectives of competition like innovation and marketing. This model of pure competition means that risk adjusted rates of income should remain constant across industries and firms. Huge economic studies affirm that diverse corporations can maintain different segments of profitability. This is well illustrated in the structure of the firms.
The bargaining power of customers influences the market output and prices for products. This is regarded as the ability of customers pressurizes an industry so that it affects clientele sensitivity to price changes. In this case, an industry should maintain a balance between buyer concentration and firm concentration. The bargaining power of suppliers is also significant in determining the competitiveness of an industry. Suppliers may refuse to work with the industry or alter their prices extremely high. This especially affects unique resources. When this happens, it is critical for firms to maintain a balance between supplier switching costs and the firm switching costs to sustain competitiveness (Roy, 2011, p.92).
Although Porter’s Five Forces of competitive advantage model is well structured, it is subject to a wide range of criticisms. This implies that the model has both advantages and disadvantages. A close evaluation of the model reveals that its main weaknesses emanate from a historical perspective in which the model was established. At the time this model was founded, in the 1980s, the world economy was characterized by cyclical growth. This is when main corporate objectives are profitability and the existence or otherwise survival. A principal strategy for achieving these objectives was optimization of technique in relation to the external environment (macroenvironment) (Mclvor, 2005, p. 33). This period was marked with stability in development for most industries, as opposed to the current case.
Essentially, the importance of Porter’s Five Forces Model is reduced through a number of factors: 1. economically, the model proposes a classic perfect market. This means that the more a firm is managed, the less momentous perspectives the model can offer. 2. This model is well utilized in analyzing basic market structures. This implies that a well-structured description and evaluation of five forces are hard to utilize in sophisticated industries that have multiple relationships, product clusters and sections. A small perspective taken on certain aspects of such industries offers the risk of missing imperative elements.
In addition, the model proposes relatively static market segments. This is contrary to the current state of dynamic markets. The argument in this case is that technological processes and changing market entrants from small businesses or start-up companies may utterly transform the business structures. Similarly, it may change entry barriers and links as well as the chains of supply (Mennen, 2010, p. 146). This model can be used for further assessment of the situation. This, however, does not imply that the model will present some imperative advice for prevention purposes. Another important area of evaluating the model is that it is based on the competition design. It presumes that industries attempt to attain competitive advantages over their competitors in the marketplace. This is the same case when it concerns suppliers and consumers. The theory does not focus on such techniques as strategic alliances, value chain, enterprise networks and electronic coordination of information systems of firms.
Porter’s Five Forces model is a form of imperialism embedded in a discourse. This deters the power of managers as a group in culturally suitable fabric of science and objectivity. Instructions for genetic techniques are hard to implement. They remain legal discussions of choice by most managers. As a result, managers should have a sense of reality in accordance to the effects of forgetting, neglecting of denying the subjectivity. This is an essential circumstance to deliver the generic strategies potential (Mclvor, 2005, p. 69).
Stakeholder Mapping
In any industry, it is imperative for managers to undertake the stakeholders mapping or analysis to ensure the corporation is gaining profitability. This is usually the identification of the firm’s chief stakeholders, evaluation of their interests and the manner in which such interest impact on the company’s risk and viability. It is pertinent to note that stakeholders in any business activity are indispensable parties in decision-making (Jeffs, 2008, p. 122). These are people or groups having similar objectives in the industry. The model of stakeholder’s mapping is related to not only the institutional appraisal but also social analysis. This depends on the information derived from the two approaches and contributes to the combination of such information in one framework. The significance of the stakeholders mapping is that it adds to the industry or project design. It also helps to establish suitable forms of stakeholders’ engagement.
The most fundamental reason as to why companies need to carry out a stakeholders mapping is to help managers and consultants to evaluate an industry’s environment. It follows that they inform the negotiating position in industry decisions. Stakeholders mapping extracts the objectives of concerned parties in relation to the problems that the firm is trying to address. In doing this, the model helps stakeholders, senior managers of a company and advisors to establish conflicts of interests. This is critical in evaluating the company’s risk before finances are released for specific investments (Kuenkel, Gerlach & Frieg, 2011, p. 201). In addition, stakeholders mapping helps concerned individuals to establish links between stakeholders that can be improved and enable coalitions of industry sponsorship, ownership and collaboration. At this level, the industry will be in a position to ascertain levels of engagement by different parties in different departments and therefore, their overall contribution to the profitability of the company activities.
In the event of stakeholders mapping, it is crucial to establish their impact and significance in the events of a company. This offers a baseline for key stakeholders and those that are minor to the corporation. Major stakeholders should significantly influence the success of a project within a firm. Influential stakeholders have the mandate to make decisions about capital timelines of a project within the company. A close analysis of the stakeholders mapping process reveals that there are those participants in the industry whose needs and objectives are the priority in the industry. When the two groups are combined during mapping, it is possible to classify them into groups that can help identify assumptions and risks that require management through project design (Kuenkel, Gerlach & Frieg, 2011, p. 197).
In stakeholders mapping, influence is imperative. This is because it defines the power that stakeholders possess over the project, to manage the decisions made towards the success of a project in an industry (Weiss, 2008, p. 17). As a result, they enable implementation or influence the industry negatively. The influence should be understood as the level to which individuals, parties or firms hold the ability to persuade other into deciding and embracing certain courses of action. The ability to influence decision-making process for stakeholders depends on the nature of the organization of stakeholders. In the stakeholders mapping, most analysts fail to consider the form of influence that stakeholders have in projects. For instance, some of influence by certain stakeholders can be informal as others take a formal trend of influence.
During stakeholders mapping, it is essential to draw assumptions and risks that affect the firm design and engagement. This is because the success of any firm depends on the validity of the assumptions established about some stakeholders, as well as the risk facing the operations of the firm. A number of these risks emanate from conflicts of interest. In most cases, stakeholders’ interactions and reactions towards the activities in the industry affect the process operations. Planners should identify the most significant assumptions based on key stakeholders that are essential in case profitability is to be attained in the industry.
Through evaluation of influence and significance of radical stakeholders, a number of risks emerge. Generally, risks are evident from those stakeholders that are highly influential. However, this may involve interests that are not in accordance to the company objectives. As a result, the influential parties have the power to prevent the operations from taking place. In such cases, companies usually run the risk of killer assumption (Jeffs, 2008, p. 100). For example, essential assumptions for operations or project in an industry may include the necessity for output. This may happen between project sponsors, identifying and strengthening the activities that are needed for a bigger collaboration of support. On the other hand, stakeholders mapping enhances the ability of principal stakeholders to take part more efficiently. In case such outputs are needed to achieve the purpose and objective of a project, it would be vital to carry out a revision of activities necessary in achievement of the specified output.
References
Roy, D. (2011). Strategic Foresight and Porter’s Five Forces: towards a Synthesis. New York: GRIN Verlag
Mennen, M. (2010). Global Corporate Strategy – A Critical Analysis and Evaluation of Amazon.com. New York: GRIN Verlag
Mclvor, R. (2005). The Outsourcing Process: Strategies for Evaluation and Management. Boston: Cambridge University Press
Jeffs, C. (2008). Strategic Management. New York: SAGE
Kuenkel, P., Gerlach, S. & Frieg,V. (2011). Working with Stakeholder Dialogues. California: BoD – Books on Demand
Weiss, J. W. (2008). Business Ethics: A Stakeholder and Issues Management Approach. New York: Cengage Learning
