Strategic Management Final Exam Questions
Porter’s Five Forces model looks at different aspects of an industry that shape the competition within the given industry. In his argument, Porter states of the narrow perspective with which manager define competition given that it (competition) is not a factor for only direct competitors (Porter 2008). The basis of the model therefore is the fact that, “competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products” (Porter 2008). Thus, the intensity of the rivalry within an industry from all the five forces helps in the definition of the structure of an industry, molding the character of competitive interactions within the said industry.
Using Porter’s Five Forces model, its relevance is particularly visible in the analysis of the US automobile industry. The automobile industry in the US is among the most competitive with three main automobile manufacturers being the most dominant. These, also referred to as the “Big Three,” include Ford, Daimler Chrysler and GM (Pearlstein, 2005).
The threat posed by a new entrant in the auto industry is very low given the colossal amount of capital any new entrant will require to enter the market. Additionally, most established companies have established brand loyalty with customers. It would therefore take a lot marketing and advertising for any new company to establish fully in the US.
Rivalry in the automotive industry is high. The Big Three, while having dominated the US market in the past, now have competition from new market entrants such as Toyota, KIA and Honda. These have entered the market and offered consumers cheaper varieties, which has consequently increased the rivalry.
The threat of substitute in the US automotive industry is relatively low. This is because few options exist that offer the convenience, affordability and independence accorded by vehicles. Alternative options that include train, bus and planes are inconvenient in personal time, luggage capacity and independence. Thus, even with soaring gas prices, it is likely that vehicles will still be in use.
Consumers’ bargaining power is very strong in the automotive industry. Given that consumers can also hire vehicles and therefore not necessarily purchase them, the consumers continue to wield stronger bargaining power than the manufacturers. It is also easy to switch brands from one manufacturer to another.
Most suppliers depend on particular car manufacturers to purchase their products. As such, the suppliers’ bargaining power is relatively low, since any loss of a manufacturer means death to the supplier’s business. Additionally, the US automotive industry has only a few car manufacturers, therefore giving suppliers little of choice in substitute companies to supply to.
Critics of Porter’s model have criticized the fact that the model usually does not give much details into what the customer needs are (Denning, 2012). Therefore, while the customer should be the central focus of a company and of strategy, the model gives precedence to competition and industry size. It is possible that in giving precedence to these, as well as strategy, the company, in the end lose will the most important element, the customer.
Developed back in the 80s Porter’s Five Forces Model assumes that the industry is stagnant. With a change in technology and market dynamics, it is possible that the markets have changed and do not therefore follow such streamlined thought. Additionally, the framework usually analyses an industry. According to Porter (2008), the model is applicable to an exact industry and not to sections within an industry. This is misleading since industries can further be divided into segments and sections, not covered by the model.
Suppliers, competitors and buyers are mostly unrelated since there is no interaction among them. This is an assumption made by the framework. In the real sense however, there is direct interaction among these three entities, which the model denies.
The Balanced Scorecard is a system for strategic planning and management adopted by private, public, for-profit, non-profit and governments for the alignment of enterprise activities with both the organizational vision and strategy for the improvement of the internal and external communications, while monitoring the organizational performance against the strategic goals (Kaplan, 2010). David Norton and Robert Kaplan introduced the system in 1992 after wide research in both public and private companies on the role of intangible assets on value creation (Kaplan, 2010).
At the center of the balanced scorecard (BSC) are the organization’s vision and strategy, these are tied to four perspectives, which work together to form a complete organization and therefore guide performance. The four perspectives herein are the financial, internal business processes, customer and organizational learning and growth (Kaplan, 2010). The conceptualization of the BSC, with these four perspectives, is therefore to measure organizational performance (Bisbe & Barrubes, 2012).
The four perspectives herein, therefore, smooth the progress of balancing long and short-term, expected results and performance drivers as well as objective and quantifiable but subjective performance indicators (Simoes & Rodrigues, 2013). For each perspective therefore, the BSC forms a central part since it is integrated within the desired organizational objectives.
Moreover, each perspective has objectives within it, with a provision for the measures used for the achievement of the said objectives, the targets to be reached and the initiative an organization can use for the achievement of the objectives. In essence, therefore, these four perspectives offer a window to manager through which they can monitor organizational performance, while making adjustments (control) where necessary for achievement of the given objectives (Lawrie, Kalff & Andersen, 2005). The activities within each of the perspectives are therefore important in helping the manager of the organization understand peripheral performance and through this understanding, enact necessary and applicable intervention, and as well inform the evolution of organizational strategy according to market changes. BSC in its primary construction stipulates each of the four perspectives and within each perspective identify the measures and indicators that are vital for organizational performance (Bisbe & Barrubes, 2012).
An advantage of using is its focusing feature. Thus, it enables managers to focus since it provides the position of the company in relation to each perspective. The positioning that BSC gives is usually aligned with a particular strategy, which the company has formulated (Bisbe & Barrubes, 2012). With such a clear visibility of the position of a company therefore, managers are capable of monitoring and controlling the activities set within each perspective in the scorecard. With such monitoring and control, it is possible for managers to achieve best practice performance levels using the BSC.
BSC is also instrumental in overcoming deficiencies related to the traditional evaluation of performance systems based on financial indicators alone. With the knowledge of the different elements and stakeholders that form the organizational operation environment such as employees, customers and investors, BSC recognizes the need for the satisfaction of these multiple objectives (Lawrie, Kalff & Andersen, 2005). In the same breath, BSC sees financial indicators not as a final entity and indicator of performance, but as part of a diverse set of performance measures.
One of the limitations of the BSC is the high chance of resistance from employees. The resistance in this case may come from the managers or other lower cadre employees who may feel the BSC is not adding any value and therefore resist its implementation. Managers may especially view the system as burdensome to their work, and as an indicator of lack appreciation of their work.
The successful construction and implementation of BSC requires valuable information to be useful in driving the process. Therefore, any incomplete, inaccurate and irrelevant information supplied to the system may end up creating a non-viable BSC. This reliance on information given thus makes the system prone to errors.
BSC is intensive in time and cost. Thus, while the system is effective if accurately implemented, it remains highly costly and time consuming since it requires a deep understanding of the process. The absence of a staff with knowledge in the process means that external consultation will be required, which is costly to the organization. The system specifically requires, for its effectiveness, the need for knowledge on the theory behind it, its processes, measures and its use for performance and process improvement. This requires that an organization train the whole staff, a feat that is not only challenging but also almost impossible for small organizations.
Bisbe, J. & Barrubes, J. (2012). The Balanced Scorecard as a Management Tool for Assessing and Monitoring Strategy Implementation in Health Care Organizations. Rev Esp Cardiol, 65(10): 919-927
Denning, S. (2012, November 24) Even Monitor Didn’t Believe in Five-Forces Analysis. Forbes
Kaplan, R. S. (2010). Conceptual Foundations of the Balanced Scorecard. Harvard University.
Lawrie, G., Kalff, D. & Andersen, H. (2005). Balanced Scorecard and Results-Based Management. Berkshire: 2GC
Pearlstein, S. (2005, March 25). Big Three Lumbering Toward Failure. The Washington Post
Porter, M. E. (2008). The Five Competitive Forces that Shape Strategy. Harvard Business Review
Simoes, A. M. & Rodrigues, J. A. (2013). The Effectiveness of the Balanced Scorecard on Strategy Management Processes: A Case Study in a Portuguese Industrial Company. Global Advanced Research Journal of Management and Business Studies, 2(3):154-164