Strategic Management - Understanding a model Essay

Strategic Management - Understanding a model - Essay ExampleStrategy has, therefore, been defined as a unifying theme transport coherence and direction to the organization towards its goals (Grant, 2010). These goals have expanded beyond the traditional realm of profit maximization towards economic value creation, disruptive innovation or techniques as well as considering the social and environmental dissemble of firms activities. Strategy, therefore, aligns stakeholders (shareholders, investors, personnel, suppliers, etc) with respect to organizational goals and facilitates their attainment. 1.2 Porters five forces model- History The figure (see Appendix 1) shows that, in the 1950s and 1960s, strategic management was focused on corporate plan and growth along with tighter financial controls and budgeting (Grant, 2010). Medium-term horizons, including 5-year plans, were set and used to develop macro-economic forecasts (Grant, 2010). The market players were comparatively independen t and were governed primarily by the macro-economic forces, with little regard to the strategy of other players. The 70s, with the internationalization of economy and events such as surge in cover prices further emphasized macro-economic volatility (Grant, 2010). Strategists approached a more granular level of analysis to find the best direction for the firm. Porters model of the 5 Forces highlighted the economic implications on industry structure which put knowledge-based innovation and strategy at the forefront (Ryall, 2013). The model goes beyond the traditional narrowly defined spatial relation of competition as competing merely for profits to encompass other competitive forces such as suppliers, buyers, substitutes and threat of new entrants in the market (Porter, 2008). The model provides perspicacity into the competitiveness of an industry, demonstrating that not all industries are equally profitable (see Appendix 2). It is rooted in the notion of creating and maintaining a competitive advantage (Nilsson & Rapp, 2005). Though (corporate) planning remains part of strategic design, the Five Forces model places this exercise in a more realistic industry-specific context. 1.2.2 Porters Five Forces Model - commentary 1.2.2.1 New Entrants It is important to consider that the threat of new entrants will depend on barriers to entry, and even barriers to exit as well as the reaction from incumbents. The speculation identifies typical barriers to entry as i. Economies of scale which result in lower production costs for already established players owing to their large volumes. ii. Significant coronation is required for differentiation to override customer loyalty towards already established brands. iii. Capital requirement to build the business (plants, facilities, R&D efforts etc.) or resembling acquisition of an existing business. iv. Experience in the business as well as patent protection provides a cost advantage to incumbents v. Regulations and laws p rescribing business policies that impact costs or result in delay to enter the market (Henry, 2008). Furthermore, the reaction of incumbents creates additional threat to the shares of newcomers. i. Retaliation ii. Slow growth of industry or over-capacity The lack of capacity may make it difficult to absorb new entrants. This can occur in several phases of an industrys cycle. iii. The price conditions must enable the newcomer to be profitable. In this case, the total costs of entry should be lower than the market price