Question Two: Competitive Forces

Question Two: Competitive Forces

Introduction.

The five competitive forces framework was developed by Porter, in which he analyzed and evaluated business and organization competitive strengths that made them attractive in the market. Since then, the Porter analysis has been used by companies in strategizing and analyzing their potential profitability by understanding their macro and microenvironment. Any business needs to analyze these forces in the industry they wish to venture. These competitive forces help in determining the intensity in the market, attractiveness, and viability of that business in a specific sector. While venturing in a business, an investor is supposed to critically analyze threats of new entrants, competition rivalry, determining the power of suppliers, customer’s capabilities and also assess the threat from substitute products. The named factors are the competitive forces that help an investor in deciding their points of strengths, where to improve on their weaknesses through innovation, and also avoiding mistakes.

Porters’ five forces are essential in making critical decisions concerning business by determining key areas that need improvement as well as developing a competitive advantage over other firms in an industry. Current economies have a lot of competition, and buyers have a lot of information concerning specific businesses and products. Therefore, companies are forced to keep on being innovative to remain in business. For a business to go concern and be sustainable, investors have to be conscious of their macro and micro factors that affect their business and how to overcome them. This paper aims to critically analyze these competitive forces and how they influence decision making in industries. The Coca-Cola company is used in making a case study to understand the influence of the five competitive forces.

Rivalry among existing competitors.

This force is usually the strongest among the five factors. Rivalry from existing competitors refers to competition from established businesses in an industry, that is, companies offering the same services or products. A lot of competition in providing the same product makes the market unattractive due to lower profitability. When a particular business has so many players in it, it easy for customers to switch their loyalty to competitors where the products may be undifferentiated. Competition from significant players who act as price leaders may hurt an investor who is trying to enter into the business since the prices are determined by the market leaders’ hence low profitability. For a business to remain afloat in a competitive industry, they have to undergo a lot of costs in marketing and promotions. This activity is done to create loyalty from customers. Higher operational costs and advertising costs affect the profitability of the business since market leaders already set the price. Companies employ defensive and offensive tactics and strategies to remain in a competitive business. Some of the defensive mechanism undertaken is improving the quality of products and differentiating them from those of rivals, lowering prices and also increasing a wider variety of products. This is an advantage to buyers as they can get goods and services at a lower cost and are of high quality. An example is The Coca-Cola Company, which faces competition from companies such as Pepsi in producing soft drinks. Coca-Cola has invested in doing a lot of marketing and also offering a wide variety of products to maintain market leadership.

Threats from Substitutes

The other competitive force is threats from substitute products. This force refers to products or services that offer the same benefit to those products from your company. It easy for customers to switch to other products or services if they find there is value for money in those products. This poses a significant threat to any business, and therefore they have to strategize in improving their products or services quality to prevent customers from switching to other products. For example, a customer may change from taking soft drinks to drinking fresh fruit juices. Threat helps companies to make strategic innovations and decisions in improving their products to mitigate this threat. For example, Coca-Cola started production of passion sodas and non-sugary sodas to avoid their customers’ switching to other companies that offer fruit juices and soft drinks. The threat may be sever for a company if the substitute products are provided at lower prices, and consumers are comfortable in using the products.

Potential of New Entrants

Company decisions and operations are also affected by the forces of new entrants into the market. If the barriers to market entry are low, there will be a lot of entrants into the market hence higher competition. Increasing barriers of entry in a market lower the threats from new entrants. Factors that influence the entry of new participants in a market are; economies of scales from existing companies, government regulations, the requirement of capital to start a new business, and also customers’ switching cost to other products. New entrants are potential threats in that they can pull a sizeable number of customers, the outlook of the industry is risky, and if they are offering products of higher quality. Existing participants can make it difficult for new companies to enter by lowering the prices hence lock in the customers. An example is when Coca-Cola faced a potential threat from a new entrant company called Softa Sodas. They dropped their prices and increased their brand visibility, and hence the company was unable to cope in the market.

Power of Buyers

Customers are the heart of every business operation; no business would survive with no customers. The ability of customers to determine the prices of the products is a significant force in any business. The client base for business is very critical since, if a business has a small client base, it means that customers are the one who sets the prices as they can negotiate. In the example of the Coca-Cola Company, the buyer has little influence in setting the prices since they are many buyers. If the category of the buyers is price sensitive, the companies have dictated the prices they should set their products. Information by the buyers is also critical and influences the operations of a business. For this reason, companies are investing in maintaining brand loyalty.

Power of Suppliers

Suppliers are a vital force in an industry as they can push the costs of goods and services. Suppliers are critical in providing inputs hence affect the profitability of a business. If suppliers push the costs of inputs up, the businesses are forced to sell their products at higher prices or get lower profit. If suppliers are few, they have more power hence able to set the prices, and if the suppliers are many, they are not able to set prices of inputs hence lower switching costs.

Question Four: Organization Structure

Introduction.

For organizations to achieve specific objectives, they have to run their activities in structured ways. These activities include the procedures followed, and rules, way responsibilities are shared in an organization, and individual roles. The structure that the organization adopts determines how information flows with an organization as well as the efficiency of the entire value of the company. They are a different form of the structure an organization may adopt to align itself with its goals. Traditionally, most companies adopted a centralized structure with a chain of command from top to bottom. Other organizational structures adopted over time include functional structure, divisional structure, and matrix, and network structure, among many others. A critical analysis of the merits and demerits of each structure is done.

Functional Structure

This is a structure whereby people in an organization are set according to their responsibilities. For example, in a company, there may be a sales and marketing department, stocks and inventory department, accounts, and finance department, among others. In this kind of structure, every department reports to a single source of authority, mainly head of the department. This kind of structure helps an organization achieve its objectives by controlling the performance of each employee per department. An example is at General Motors Company, where different departments work under the same company goal. In this company, there is the sales department, assembly, and mechanical department among other departments.

One of the key merits of this kind of structure is that by putting people who share the same skills, it helps in achieving higher performance. Secondly, the sharing of communication is clear and frictionless among the department since the number of communication channels is reduced. Additionally, being organized in the form of departments, employees have better chances of career growth and have deep insight into the operations of certain departments. Duplication of responsibilities is minimized as each department has a clear role of responsibilities. Finally, there is higher accountability of work since each person knows their responsibilities.

One of the major drawbacks of a functional structure is that there repetition of work throughout hence a lot of boredom among employees, which makes them lose enthusiasm to work. Secondly, people tend to focus more on their own departments hence ignoring the interest of other departments. This discourages innovation and participation among employees. Additionally, there is reduced teamwork among employees from different departments. This kind of structure is very rigid and slow to adapt, hence effecting any change or any decision making process is very low. Bureaucratic hierarchy, poor interdepartmental relations, and lack of teamwork are bad for any business.

Divisional Structure

This is a kind of structure whereby the responsibilities and functions of an organization are divided into divisions. The division adopted may be from different geographical areas or different products. Big companies adopt this kind of structure with a wide range of products or different branches under the same organization. The divisions are given autonomy in the way they operate and run business within an organization. A division structure is also known as a market-based structure. An example of a company that has adopted this kind of structure is The Coca-Cola Company, where it has different centers of distribution in the world operating as individual divisions.

One advantage of a divisional structure is that the entire organization is flexible in running their operations. From an aggregate point of view, failure of one division doesn’t translate to failure of the entire organization; hence the company can leverage on many divisions. Additionally, the organization can gauge the performance of each division directly. Divisional structures are efficient and effective in coordinating their activities in that they are flexible in the management system. The divisional structure allows a company to cover a wider market area hence more sales and performance of the entire organization.

One of the demerits of organizational structure is that there rivalries among divisions within the same organization. This competition is unhealthy for the overall business performance. Competition may lead to one division undermining another. Secondly, opening and running different incurs a lot of operational and running costs to the organization, which may translate to losses to the organization. There may be a lot of tax implications. Having different divisions within a company duplicates the roles and resource in the divisions—lastly, there a lot of inefficiencies when some functions are separated, such as finance.

Matrix Structure

A matrix structure is an organization structure whereby the employees are classified and grouped by different operational responsibilities. Companies adopt a matrix structure with large operations in different geographical locations across different industries. In this kind of structure, information is shared across task boundaries, and therefore there is a lot of specialization and increase of knowledge. The structure is, however, complex and versatile.

One advantage of the matrix structure is that there is an effective utilization of human resources. Secondly, there is an explicit way in which the objectives of a certain project are integrated reliably with the functions. In a matrix structure, there is a teamwork spirit that is of importance to their entire organization. Further, there is no disruption of organizational functions as a team member have well-scheduled activities.

One disadvantage of the matrix structure is that it is very complex, and therefore a lot of time lost in doing coordination. Managing two projects with two different bosses may be very difficult to manage as well as taking care of the interest of each boss. Thirdly, there are a lot of overhead costs due to the management system. Finally, there is a possibility of conflicting management orders.