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Michael Porter's models for industry structure, competitive strategy, and value chains
 
    Here is the link to wikipedia- Industry structure, Competitive Strategy, Value Chain
 
    Born May 23, 1947, Michael Porter is known as the father of the modern strategy field. He is one of the main researchers and thinkers in competitive analysis. As stated in the book, "organizations examine the structure of their industry and determine the design of supporting information systems."
 
    Let's begin with the industry structure. Industry structure is determined by 5 forces. Porter created the 5 forces model which determine an industries profitability. These 5 forces are;
              1. Bargaining power of customers Examples of bargaining power of customers: buyer volume, information, product substitution, price spent, product differences, brand                                                                                 identity.   
              2. Threat of substitutions Examples that relate to threat of substitutions: relative price performance of substitutes, switching cost, and buyer propensity to substitute.
              3. Bargaining power of suppliers Examples of bargainin power of suppliers: differentiation of inputs, availability of substitute inputs, competition among suppliers and cost                                                                                relative to total purchase in the industry                            
              4. Threat of new entrants/Barries to entry Examples of threats on new entrants/Barriers to entry are: economies of scale, proprieatary produc differences, brand identity,                                                                                              and capital requirements 
              5. Rivalry among other firms in the business. For example: industry growth, intermittent overcapacity, and concentration and balance. 
    Depending on how strong or weak the forces are, determines the characteristics of an industry.Organizations will look at the forces to study them and see how weak or strong they are or how they will react to the forces. Once the 5 forces are analyzed, it leads the organization to think ahead for a competitive strategy.
 
 

Porter's 5 forces model

 
    An organization responds to its structure by choosing a competitive strategy. Porter developed the 4 competitive strategies model. As stated in the book Using MIS by David M. Kroenke, "an organization can focus on being the cost leader, or it can focus on differentiating its products from those of the compertition. Further more, the organization can employ the cost on differentiation strategy across an industry, or it can focus it's strategy on a particular industry segment."(Kroenke, pg.68) In order for this to be effective, Porter says the "organizations goals, objectives, culture and activities must be consistent with the organizations strategy." A company can decide to focus on a low cost or differentiation  strategy. Wal-Mart is a good example of low cost strategy. They are the leading industry in low cost. For differentiation Lexus is a great example. They focus more on the luxury differentiation and features compared to their competitor Mercedez. Some companies will try to integrate both but can be complicated. Mercedez Benz does that by offering a a luxury car at a low price. Things like that can ruin a companies reputation.
 

Porter's competitive strategy

 
 
 
    In order to determine the Value Chain Structures an organization first needs to analyze the structure of their industry and create a competitive strategy. The organization needs to be structured and organized to implement that strategy. As defined by Porter, Value is "the amount of money that a customer is willing to pay for a resource, product or service." Margin is difference of the value that an activity generates and the cost of the activity. Organizations will add cost to an activity as long as it has a positive margin. This brings us to what a value chain is. According to the book, It "is a network of value-creating activities." A value chain consists of 5 primary activites inbound logistics, operations/manufacturing, outbound logistics, sales and marketing and customer service. 1. Inboung Logistics which receives and stores raw materials and distributes them to manufacturing in the order they are needed. 2. Operations/Manufacturing which. 3. Outbound Logistics which is warehousing and physically distributes the finished good to buyers. 4. Sales and Marketing it draws buyers to purchase the products, for example ads and tv comercials. 5. Customer Service which assits customer's use of the product. Customer service can have an impact on their product's value.                                                                            
 
    The four support activites contribute indirectly to the products production, sale and service. They are procurement, technology, HR, and Firm infrastructure.1. Procurement which is in charge of where to get its inputs from vendors and getting them for a good price. 2. Technologies includes R and D, and other activities in the firm. They do this to add value to activivities. 3. HR takes care of recruiting, compensating, evaluating and training employees. 4. Firm Infrastructure consist of the companies culture, structure, and control systems. All in all an organizatin can create a competitive advantage by cutting the cost of individual value chain activities or by reorganizing it. Some cost driver related to the value chain activities are its location, entry time, economies of scale etc... A value chain can affect another chain, either a positive or a negative reaction, so chosing how to allocate cost in each activity can be critical.  

Porter's value chain

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