Revision : Strategies - Porter's Generic Strategies

Porter’s generic strategies are one of the most popular tools used when undertaking a competitive analysis in any industry. According to Porter (1985) companies can generally choose from two broad strategies, product differentiation or cost efficiency in broad market scope, or they may pursue product differentiation or cost efficiency strategies within a particular customer segment.

To put it simply, companies usually choose to maximise their profit through offering products or services in lower prices, or offering superior quality products or services for higher price. And this can be done for the whole business or for a particular customer segment.

A focus strategy “is defined by its emphasis on a single industry segment within which the orientation may be toward either low cost or differentiation” (Czinkota and Ronkainen, 2007, p.196).

When pursuing a cost leadership strategy the company prices its products or services at a lower level than competition. Cost leadership strategy is associated with engagement in economies of scale and maintaining strict control of costs. Differentiation strategy, on the other hand, focuses marketing efforts on quality and uniqueness in relation to specific aspects of products or services.

There are many advantages product differentiation strategy provides to the business. Product differentiation strategy increases the level of customer loyalty dramatically by mentioning the statistical data according to which US consumer loyalty to a single brand varies from 30 percent in batteries up to 70 percent in cigarettes.

When conducting competitive analysis companies should seek following information: current strategy and future objectives of competitors, assumptions about the industry in which competitors believe, and strengths and weaknesses of competitors.

Example: Application of Porter’s Generic Strategies to Warner Bros.

According to Porter’s generic strategies differentiation in broad competitive scope marks the main competitive advantage of Warner Bros. The company engages in diversification in two levels: the quality of products and their delivery.

The quality of Warner Bros. films and entertainment products are diversified in a way that they attempt to stand out in terms of narrative and nature of ideas communicated through them, as well as, through attracting famous A-list actors and actresses. In terms of delivery and consumption, on the other hand, diversification is achieved through focus on digitisation of media and entertainment.

Moreover, some of the popular series produced by Warner Bros. such as The Bing Bang Theory, Two and Half Men, Mentalist, and Vampire Diaries have attracted acclaim of critics due to high levels of originality on various aspects of the show.

Revision : Strategies - Ansoff's Matrix

Ansoff Growth matrix assists businesses to increase their revenues by offering four different growth options depending on products and markets.

According to the matrix market penetration is a type of growth where the company attempts to increase the level of sales of existing products into current markets.

Product development growth strategy, on the other hand, involves introducing new products into current markets. A situation where a business enters new market with its existing products is marked as market development growth strategy.

Diversification growth strategy can be achieved through offering new products into new markets.

For example, this principle is followed by Warner Bros., although the extent of utilisation of each individual growth strategy varies. Warner Bros. uses market penetration and product development strategies in the US in particular through periodically introducing popular entertainment shows. Due to the following to this strategy for the season of 2012 – 2013, Warner Bros. Television has accounted for more than 30 per cent of top shows on broadcast TV in the US (Annual Report, 2013).

Acquisition of 55 per cent of Shed Media plc, one of the leading entertainment firms in the UK for USD 100 million in 2010 (Annual Report, 2013) can be referred in order to illustrate market development strategy of Warner Bros. Diversification strategy, as discussed above is engaged by Warner Bros. in relation to quality of content and the manners of delivery and consumption of films and entertainment products and services.

Revision : Analysis on Starbucks & The Coffee Industry

For this entry I have decided to make revisions that would be relevant to my exams.

Utilising the knowledge from my previous entries, I endeavour to provide my SWOT, PESTLE and Porter's 5 Forces analyses for Starbucks and the coffee industry.

Starbucks SWOT analysis
Strengths	Weaknesses
Sound financial records No. 1 brand in coffeehouse segment valued at $4 billion Starbucks experience Largest coffeehouse chain in the world Employee management	Coffee beans price is the major influence over firm’s profits Product pricing Negative publicity
Opportunities	Threats
Extend supplier range Expansion to emerging economies Increase product offerings Expansion of retail operations	Rising prices of coffee beans and dairy products Trademark infringements Increased competition from local cafes and specialization of other coffeehouse chains Saturated markets in the developed economies Supply disruptions

PESTLE Analysis

Political

• The key political imperative that Starbucks faces is the concerns over sourcing of its raw materials that has attracted the attention of the politicians in the West and in the countries from where it sources its raw materials. This is the reason why Starbucks is keen on adhering to social and environmental norms and to follow sourcing strategies that are appropriate and in conformance to the “Fair Trade” practices that have been agreed upon by global corporations and the governments of the developing and the developed countries.
• The other political imperative that Starbucks faces is the need to adhere to the laws and regulations in the countries from where it sources its raw materials. This has been necessitated because of activism and increased political awareness in the developing countries, which form the basis for Starbucks’ sourcing strategies.
• The third political imperative, which Starbucks faces, is the regulatory pressures within its home market in the United States because of greater scrutiny of the business processes that multinationals based in the US are now subject to.

Economic

• The foremost external economic driver for Starbucks is the ongoing global economic recession, which as explained in the introduction has dented the profitability of many companies.
• However, studies have shown that consumers instead of cutting down on their coffee consumption are shifting to lower priced alternatives which is an opportunity for Starbucks.
• Of course, the company still has to contend with rising operational and labor costs as the inflationary macroeconomic environment coupled with the falling profitability is squeezing the company from both ends of the spectrum.

Socio-Cultural

• Though Starbucks can offer cheaper alternatives as mentioned previously, it has to do so without sacrificing the quality and this is the key socio cultural challenge that the company faces as it expands its consumer base to include the consumers from the lower and the middle tiers of the income pyramid.
• Apart from this, the “green” and the “ethical chic” consumers who fret about the social and environmental costs of the brands they consumer means that Starbucks has to be cognizant of this trend.
• Third, the retiring baby boomer generation means that spending by the older consumers is likely to taper off and hence, Starbucks would have to lookout for tapping the Gen X and the Millennials as part of its strategy.

Technological

• Starbucks is well poised to reap the benefits of the emerging mobile wave and as it has tied up with Apple to introduce app based discount coupons, it can expect to ride the mobile wave with ease.
• The company has already introduced Wi-Fi capabilities in its outlets so that consumers can surf the web and do their work while sipping coffee. This is indeed an added value to the Starbucks brand and something, which enhances the consumer experience.
• It can also introduce mobile payments and this is something that it is already testing out in pilot locations in the United States.

Legal

• Starbucks has to ensure that it does not run afoul of the laws and regulations in the countries from which it sources its raw materials as well as the home markets in the United States.

Environmental

• There have been several concerns about the business practices of Starbucks from the activists, international advocacy groups, and from the consumers themselves. Therefore, Starbucks has to take into account these concerns if it has to continue holding on to the trust it enjoys with its consumers.

Conclusion

The preceding analysis proves the point that Starbucks is operating in a relatively stable external environment. The main reason for this is the fact that it operates in the Food and Beverages space which means that despite the recession, consumers cut down on the consumption to a certain extent and not completely. Therefore, the task before Starbucks is to lower costs and increase the value so that it retains its consumer base and attracts consumer loyalty.

Porter's 5 Forces

Rivalry among existing competitors is high within the industry Starbucks operates in with major competitors like Costa, McDonald’s, Caribou Coffee, and Dunkin Donuts and thousands of small local coffee shops and cafes.

Starbucks customers possess large amount of bargaining power because there is no and minimal switching cost for customers, and there is an abundance of offers available for them.

The threat of substitute products and services for Starbucks is substantial. Specifically, substitutes for Starbucks Coffee include tea, juices, soft drinks, water and energy drinks, whereas pubs and bars can be highlighted as substitute places for customers to meet someone and spend their times outside of home and work environments.

Starbucks suppliers have high bargaining power due to the fact that the demand for coffee is high in global level and coffee beans can be produced only in certain geographical areas. Moreover, the issues associated with African coffee producers being treated unfairly by multinational companies are being resolved with the efforts of various non-government organisations, and this is contributing to the increasing bargaining power of suppliers.

Threat of new entrants to the industry to compete with Starbucks is high, because it is easy to enter into this market because there are no governmental restrictions or proprietary know-how inhibiting others from entering. Furthermore, the technology is common, easy to access, and relatively inexpensive, making entry to the market fairly easy.

Placing Organisations in Context

An organisation's context involves its “operating environment.” The context must be 
determined both within the organisation and external to the organisation. It is important to 
understand the unique context of an organisation before starting the strategic planning. 

To establish the context means to define the external and internal factors that the organizations 

must consider when they manage risks. An organization’s external context includes its outside 

stakeholders, its local operating environment, as well as any external factors that influence the 

selection of its objectives (goals and targets) or its ability to meet its goals. An organization’s 

internal context includes its internal stakeholders, its approach to governance, its contractual 

relationships with its customers, and its capabilities and culture (Pojasek, 2013). 

Context matters because it determines the influence and priority of stakeholder roles. It also 

helps determine how readily sustainability programs can be adopted and even whether they can 

help get the organisation to where it needs to be to address its social license to operate. If 

customers or principal stakeholders come from different contexts, this may systematically 

influence the statement of the goals and other operating requirements no matter what kind of 

organisation is involved.

Three valuable tools to establish context for an organisation are : 

1. SWOT Analysis

SWOT Analysis is a useful technique for understanding your Strengths and Weaknesses, and for identifying both the Opportunities open to you and the Threats you face.

When using SWOT analysis, be realistic about the strengths and weaknesses of your organisation. Distinguish between where your organisation is today, and where it could be in the future. Also remember to be specific by avoiding grey areas and always analyse in relation to the competition (i.e. are you better or worse than competition?). Finally, keep your SWOT analysis short and simple, and avoid complexity and over-analysis since much of the information is subjective. Thus, use it as a guide and not a prescription.

2. Porter's Five Forces

The Porter's Five Forces tool is a simple but powerful tool for understanding where power lies in a business situation. This is useful, because it helps you understand both the strength of your current competitive position, and the strength of a position you're considering moving into.

Conventionally, the tool is used to identify whether new products, services or businesses have the potential to be profitable. However it can be very illuminating when used to understand the balance of power in other situations.

3. PESTLE Analysis

PESTLE analysis is in effect an audit of an organisation's environmental influences with the purpose of using this information to guide strategic decision-making. The assumption is that if the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes.

A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the environment in which an organisation is operating. Specifically a PESTLE analysis is a useful tool for understanding risks associated with market (the need for a product or service) growth or decline, and as such the position, potential and direction for an individual business or organisation.

Management Theory

     This week we looked at management theories as a useful tool briefly. Management theory can be defined as a collection of ideas which set forth general rules on how to manage a business or organisation. A theory addresses how managers and supervisors relate to their organisations in the knowledge of its goals, the implementation of effective means to get the goals accomplished and how to motivate employees to perform at the highest standard.

Classical School

The two theories that we focused on were :

Scientific management theory which is considered by most to be the brainchild of Frederick Winslow Taylor - embracing careful specification and measurement of all organisational tasks. Tasks were standardised as much as possible. Workers were rewarded and punished. This approach appeared to work well for organisations with assembly lines and other mechanistic, routinised activities.

Max Weber  embellished the scientific management theory with his bureaucratic theory. Weber focused on dividing organisations into hierarchies, establishing strong lines of authority and control. He suggested organisations develop comprehensive and detailed standard operating procedures for all routinised tasks.

    

                      

Human Relations School

Elton Mayo has been considered as the father of the human relations movement, which later became organisational behaviour. The other two important co-researchers are F.J. Roethlisberger and William J Dickinson. They believed that organisations always involve interrelationships among members and that it is the managers’ role to see that relationships are as conflict-free as possible, in order to accomplish the organisation’s objectives. They believed that the human aspects of business organisations had been largely ignored and felt that satisfaction of psychological needs should be the primary concern of the management.

Systems Approach

Systems theory has come up via media with an integrated and holistic approach to management problems. This has emerged as a way of looking at the organisation as a whole. Chester Barnard, George Homans, Philip Selznick and Herbert Simon are some of the advocates of the systems theory.

Contingency Theory

Basically, contingency theory asserts that when managers make a decision, they must take into account all aspects of the current situation and act on those aspects that are key to the situation at hand. Basically, it’s the approach that “it depends.” For example, the continuing effort to identify the best leadership or management style might now conclude that the best style depends on the situation.

     Though practice of management existed thousands if years ago, most of them needed to be refined and synthesised to call them management principles. The early 'autocratic period' of management is characterised by the use of absolute authority, coercion and force. Development of a unified and integrated management theory out of 'the management theory jungle' has some difficulties like applied science nature of the subject, lack of coherent theoretical concepts of its own and heavy reliance on concepts borrowed from other disciplines.

Organisational Design & Structure

Carrying over the momentum from the previous week, the aim for the week commencing the 20th of January was the introduction to related ideas of organisational design and structure. This entails considering the purpose it serves, the possible connection between structure and strategy and the principles as well as objectives of organisational structure.

Organisational structure is the skeleton of an organisation. It is an expression of who is performing the various functions and tasks of a company and how these people relate to one another. Organisational structure encompasses a list of the various job positions, titles and duties of a business, and the reporting structure or chain of command among them. Structure is a statement of the current state of affairs, not the ideals, intentions or betterment of an organisations.

Design in an organisation is much the same as for buildings, clothing and vehicles -- it's a plan. When a company's leaders develop plans for how their company should function or would perform better, they undertake the business of organisational design. Good design takes inventory of all the tasks, functions and goals of a business, and then develops groupings and orderings of job positions, departments and individuals to best and most efficiently achieve those ends. Usually, designs are expressed through an organisational chart, which helps players throughout an organisation understand functions and power relationships.

Centralised organisational structures rely on one individual to make decisions and provide direction for the company. Small businesses often use this structure since the owner is responsible for the company’s business operations. Decentralised organisational structures often have several individuals responsible for making business decisions and running the business. Decentralised organisations rely on a team environment at different levels in the business. Individuals at each level in the business may have some autonomy to make business decisions.



The organisational culture of a business reflects the mentality, work ethic and values of the company's owners and employees. Some firms are regarded as having a cut-throat culture in which employees aggressively compete for promotions and bonuses without regard to one another's feelings. Other firms have a family-friendly culture or a culture that encourages creativity. 


Organisational structures do not always require significant amounts of planning time. Many businesses have organisational structures that simply evolve during the business’s lifetime. Business owners often set the tone based on how they manage employees. Employees will perceive how the owner handles different business situations and simply adjust their work style accordingly. This will create an organisational structure by default, with no serious planning involved.

Introduction to Organisations & Management

Following an induction week filled with ice breaking activities, the week commencing on the 13th of January brought with it the aim of introducing us students  to the two key concepts that will be a constant theme throughout the module and indeed the whole course; organisation and management.

Unbeknownst to us this started with a seemingly playful activity called The Marshmallow Challenge.

                                                                                                 Our winning entry.

It was later revealed that this ties in to Team Role Inventories ; it was devised by Meredith Belbin to measure preference for nine Team Roles.


To me this was insightful as a tool to gauge one's affinity to each of the nine roles and strategise team dynamics. Team dynamics are the unconscious, psychological forces that influence the direction of a team’s behaviour and performance.  They are like undercurrents in the sea, which can carry boats in a different direction to the one they intend to sail.

Team dynamics are created by the nature of the team’s work, the personalities within the team, their working relationships with other people, and the environment in which the team works.

Team dynamics can be good - for example, when they improve overall team performance and/or get the best out of individual team members.  They can also be bad - for example, when they cause unproductive conflict, demotivation, and prevent the team from achieving its goals. Awareness to our expected contributions and allowable weaknesses allows us to plan accordingly for efficient group work.

Next, we had a look at managing in organisations. First we have to understand the meanings of management. I found this abstract by Colin Hales to be quite comprehensive :

"When human beings 'manage' their work, they take responsibility for its purpose, progress and outcome by exercising the quintessentially human capacity to stand back from experience and to regard it prospectively, in terms of what will happen; reflectively in terms of what is happening; and retrospectively in terms of what has happened. Thus management is an expression of human agency, the capacity actively to shape and direct the world, rather than simply react to it."

                                            Ten management roles - Henry Mintzberg

To conclude the week my study group prepared a presentation on an organisation; in our case, the South Korean multinational conglomerate company, Samsung Group - analysing its management setting. As group leader I implemented all the ideas on efficient management and together we successfully procured a Prezi (an ingenious piece of presentation software in my honest opinion).