Organizational Culture

Porter’s Five Forces Model of Competition

Michael Porter (Harvard Business School Management Researcher) designed various vitalframeworks for developing an organization’sstrategy. One of the most renowned amongmanagers making strategic decisions is the fivecompetitive forces model that determines industrystructure. According to Porter, the nature of competition in any industry is personified in the following five forces:

i. Threat of new potential entrants

ii. Threat of substitute product/services

iii. Bargaining power of suppliers

iiii. Bargaining power of buyers

v. Rivalry among current competitors

FIGURE: Porter’s Five Forces model

The five forces mentioned above are verysignificant from point of view of strategyformulation. The potential of these forces differsfrom industry to industry. These forces jointlydetermine the profitability of industry because theyshape the prices which can be charged, the costswhich can be borne, and the investment requiredto compete in the industry. Before making strategicdecisions, the managers should use the five forcesframework to determine the competitive structureof industry.

Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potentialcompetitors:Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if givena choice. Entry of new players increases the industry capacity, begins a competition for market share and lowers the current costs. The threat of entry by potential competitors is partially a function of extent of barriers to entry. The various barriers to entry are-

• Economies of scale

• Brand loyalty

• Government Regulation

• Customer Switching Costs

• Absolute Cost Advantage

• Ease in distribution

• Strong Capital base

2. Rivalry among current competitors: Rivalryrefers to the competitive struggle for market share between firms in an industry. Extreme 

ORGANIZATIONAL OPERATING GOALS

ORGANIZATIONAL OPERATING GOALS

There are many advantages to establishing organizational goals: 

They guide employee efforts, justify a company's activities and existence, define performance standards, provide constraints for pursuing unnecessary goals and function as behavioral incentives. 

There are two main types of organizational goals: official and operative. Official goals detail a company's aims as described in their public statements, such as the corporate charter and annual reports. They help to build the organization's public image and reputation.

Approaches to Mesuring Organizational Effectiveness

Approaches to Measuring Organizational Effectiveness

Four Approaches to Organizational Effectiveness :

          

1. Goal Approach:

The Goal Approach is also called rational-goal orgoal-attainment approach, it has its origins in the mechanistic view of the organization. This approach assumes that organizations are planned, logical, goal-seeking entities and they are meant toaccomplish one or more predetermined goals. Goalapproach is worried with the output side andwhether or not the organization attains its goals withrespect to preferred levels of output. It seeseffectiveness with respect to its internalorganisational objectives and performance. Typicalgoal-attainment factors include profit and efficiency maximization.

2. System Resource Approach:

This approach to Organizational Effectiveness was developed in response to the goalapproach. The System Resource Approach sees an organization as an open system. The organization obtains inputs, participates in transformation processes, and generates outputs. This approach emphasizes inputs over output. It sees mostorganizations as entities which function in order tosurvive,at the same time rivaling for scarce andvalued       resources. It assumes that the organizationconsists of interrelated subsystems. If any sub-system functions inefficiently, it is going to influence the performance of the whole system.

3. Internal-Process Approach

This approach has been developed in response to a fixed output view of the goal approach. It looks at the internal activities. Organizational effectivenessis assessed as internal organizational health andeffectiveness.
According to Internal-Process approach effectiveness is the capability to get betterat internal efficiency, coordination, commitment andstaff satisfaction. This approach assesses effort as opposed to the attained effect.

Miles and Snow’s Organizational Strategies

To succeed in any competition requires a strategy. It doesn’t particularly matter where you are competing, or what you are competing in, you are going to need a strategy if you are to come out on top.

That concept is true in sports, and it is certainly true in business. Even companies with the best products in the world need a sound strategy in order to make sure those products wind up in the hands of as many consumers as possible. An organization without a clearly defined strategy is destined to fail.

The ideas presented in this tool can be greatly helpful when trying to ensure that all actions taken within an organization are working toward the same desired result. If a company’s strategy does not make sense of the goals that it has in place, it will be difficult to reach a satisfactory conclusion.

Miles and Snow identify four unique strategies that are used by organizations. Below we will quickly look at each of these four, and what they say about the underlying business.

Prospector

When an organization falls into the category of Prospector, they are expected to consistently be on the forefront of innovation and development. Rather than sitting still with products that have been previously developed and taken to market, prospecting organizations are always seeking to create the ‘next big thing’.

 Defender

As the name would indicate, this is an organization that is satisfied with their current place in the market – and they are going to work hard to defend it as the years go by. Instead of investing time and money into trying to develop new products to take to the market, this kind of an organization is going to sit back and reap the rewards of what they have already created.

It should be noted that a firm does not have to remain in just one of these strategy categories for its entire existence. It is quite common for firms to shift from one to the other as markets develop. Commonly, companies that were once considered innovative in their space will slide gradually into defender territory as less and less innovation is possible in their given market. Understanding when and how to shift from one strategy to another is crucial if profits and market share are to be maintained.

Analyzer

In many ways, organizations that land in the analyzer category are a blend of the first two options on the list. These tend to be some of the biggest companies around, as they have the capacity to both develop new technologies and products as well as defend the market for those they have already created.

 Usually, the companies that are true analyzers will not actually be the first to create something, but they may instead improve upon the creation of another firm. Therefore, they are innovators to a degree, but not in the truest sense of the word. This type of firm will generally sit back, observe the market and its demands, and then seek to fill those demands as successfully as possible. Thanks to their typically large size, this type of company can be late to the market with a specific product and still be successful in the end.

Reactor

The final category on the list, those firms that land in the reactor category really have no one specific approach to their business. It should go without saying that organizations generally do not want to fall into the reactor class, as this means that they are simply trying to catch up with the market as things change over time.

Taking a reactive approach to business is how many large companies wind up losing market share over time. Even businesses with great ideas, products, and employees can wind up lagging behind if their management team takes a reactive approach to their decision making. It is nearly inevitable that companies who react to the market are going to be passed up by the organizations who innovate, defend, or analyze successfully.

It is important to know where your organization fits within this framework. Once you have a clear picture of which of these four ways you are going to use to compete in the market, you can then structure the design of your operations in a way that will suit the strategy you have taken.