• Q2: How do the five forces of competition affect the attractiveness of an industry? How is industry attractiveness generally defined or operationalised?
– L2 and Chapter 2 (week 2)
– Memory cue: Think about the picture (either from the L2 slides or textbook ch. 2)
Q4: Many companies announce in their corporate communications: “Our people are our most important resource.” In terms of the profit-earning potential of an organisational resource or capability, can employees be considered to be of the utmost importance? Why/why not? Present a persuasive argument with as many illustrative examples as possible. – L3 week 3
– ch. 3
– Memory cue: VRIO
– part of the resource-based view of the firm (RBV)
• Q6: Discuss the difference between incremental and radical innovation. Illustrate with examples.
– L5 week 5
– ch. 13
– Memory cue: Think about sample companies first, then characterise them. Strategic Focus segment on 3M (p. 399) interesting and helpful.
• Q8: What are the advantages and disadvantages of being a first mover, second mover, and late mover? – ch. 5 (pp. 143-145) – L7 week 7 – Memory cue: First think about sample companies for each of the 3 movers, then think about their (most likely) relative strengths and weaknesses.
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Q2. The five forces of competition
Industry attractiveness is the ease of profit making in regards to the risks involved. It is based on the number and strength of rivals as well as the scale of growth in demand for goods and services. In general, this is the potential of a market to generate profit in future. (Hanson, Hitt, Ireland, & Hoskisson (2017, p. 80) argues that Porter’s five forces can be used to measure rivalry intensity, profit margins and attractiveness of a sector. According to the model, five competitive forces control every market and industry.
The first aspect is the threat of new entrants. Such bring in the additional capacity of production. It is detrimental to existing businesses especially when the demand for goods is not increasing. Extra capacity tends to minimize the costs of the clients. However, this reduces the revenue and returns for competing enterprises. New entrants tend to have the intent of acquiring a significant market share which is entirely threatening to other firms. Nevertheless, this forces these companies to become more efficient and effective than before to gain a competitive advantage. Thus, aspects like product differentiation are embraced by firms. The government can control entry into industries through licensing (Hanson et al., 2017, p. 84).
The second factor is the bargaining power of customers. Powerful clients minimize the profit potential in a market. Consumers tend to elevate completion within a marketplace as it forces down the prices. More so, they bargain for the enhanced quality and higher service levels. Such outcomes are attained through encouraging rivalry amidst the firms in the industry. For a reason, consumers do not incur any switching costs from seller to the other (Hanson et al., 2017, p. 86). The third driving force of competition is the threat of substitute products (Hanson et al., 2017, p. 87). Such is so as merchandizes of similar functions present a significant threat particularly when clients incur little or zero switching costs. Also, this is also detrimental when the substitute is of lower prices and higher quality compared to existing ones in the market. Nonetheless, differentiation of products in regards to the aspects that a client values tend to reduce the substitutes’ attractiveness. These dimensions may include services after sale, price, and location.
Another force is rivalry amidst established competitors. In any market system, there is a mutual dependency between firms. For an action taken by one corporate typically invites competitive responses. Competition becomes stiff when a company is challenged by the actions of its competitor. Also, this intensifies when a firm identifies an opportunity to enhance its position within the system. Some of the visible elements on which competition is based on entail prices, innovation as well as quality. In this case, enterprises prefer to differentiate products from its competitors’ in ways that clients can value (Hanson et al., 2017, p. 89).
Lastly, Hanson et al., (2017, p. 86) assert that the bargaining power of suppliers in a market affects the buyers’ competitive surrounding and influences a buyer’s capability to accomplish profitability. Dominant suppliers can pressure firms by increasing prices, decreasing product quality and minimizing the availability of inputs. In general, these represent costs to businesses. Consequently, this creates a competitive sector and decreases profit potential for enterprises. On the flip side, a week supplier is typically at the mercy of firms in regards to quality and price. Hence, this lowers competition levels and elevates profit potential for businesses.
Q4. Utmost important resource in business
In the global market, the success of a business is dependent more on its intangible resources than its tangible assets. As much as it is challenging to measure the value of intellectual capacities, the importance of aspects like knowledge is relatively growing to that of physical capabilities. Hanson et al., (2017, p. 110) depict that intangible assets are the primary drivers of the economic growth of the United States (U.S) since the 1900s. Workers can be physically replaced. Their knowledge and skill sets, however, are irreplaceable. Hence, a good workforce is not replaceable.
Intangible resources, such as knowledge, are barely visible (Hanson et al., 2017, p. 110). Hence, it is much challenging for competitors to apprehend and imitate as substitutes. In fact, the more invisible they are, the more a firm is sustainable as it adds its competitive advantage. Moreover, these resources are highly likely to be leveraged. For example, sharing of knowledge amidst workers does not eradicate its value for any other individual. On the contrary, this generates additional knowledge. Thus, this tends to enhance performance within the organization. In this case, employee engagement from top to bottom can be exploited to better productivity in the firm. When the workers are engaged, they not only acquire knowledge but also feel connected to a business. Such is so particularly with a company that is well known and trusted with rectifying the situation in regards to the feedback. Undoubtedly, staffs are an essential asset to a company as they are primary drivers for a company’s success. Engaging employees synchs the talent strategies under the direction of an organization. Consequently, this boosts their morale and in turn brings about other critical aspects of overall productivity.
The skills of personnel, gained through experience or innate, account for the most significant output in the company. It is the efficiency as well as the talent of an employee that determines the pace and growth of corporations. There are numerous functions in an organization, and a right person at the right task increases effectiveness and efficiency of work done. It is of great essence to understand that the workforce is the foundation of a firm and long-running corporation. In spite of the level, middle or senior, it is the employees that run the business. Their dedication, strength and emotional connection with the enterprise cannot be assessed in regards to monetary value.
Regardless of the company‘s product, employees can be regarded as the most essential assets. In today’s modern world, the domain is dynamic with continuous changes. Thus, it is the labor force that differentiates a company from its rivals. Without staffs, the primary goal of most companies which is sustainability through profit-making would not be achieved. For a reason, profitability is attained through customer satisfaction and retention as well. Most staffs have direct contact on a daily basis with the customers. Only employees can bring about the satisfaction of consumers through delivering high levels of customer services. Subsequently, this establishes an impressive client encounter and raises consumer loyalty. Ultimately, this drives a profit increment. In contrast, overall low workforce morale negatively affects the operations of the company. Consequently, this dramatically brings about unsatisfied clients and adversely affects profit levels (Hanson et al., 2017, p. 110).
Q6. Incremental and radical innovation
Radical and incremental innovations are the two forms of internal change produced by firms when exploiting research and development (R&D) activities. Majority of these changes are incremental. They build on knowledge bases that are already in existence and offer small enhancements in the current merchandise lines. Further, in nature, they are not only linear but also evolutionary. The markets for these innovations are well defined. The product attributes are well apprehended, and the profit margins drop. Technologies for production tend to be efficient, and rivalry is mainly based on price. An example of this would be adding a soap agent a distinct type of whitening agent. Another example would be the enhancement of television to color from ‘black and white’ over the last few years. Incremental innovations are more embraced compared to radical ones (Hanson et al., 2017, p. 442).
On the other hand, radical innovations typically offer substantial technological breakthroughs and generate new knowledge. In nature, these innovations are not only non-linear but also revolutionary. They utilize new technologies to attend to markets that are newly created as well. An example of such developments would be the establishment of personal computers (PCs). Reinventing the PCs by creating a “radically new computer-brain chip” could also be another instance of radical innovation. Superchips ought to have a capacity to undertake about a trillion calculations in every second. Therefore if researchers were able to develop them, such innovation would appear to revolutionize the assignments PCs could process. Radical changes, in general, create new functionalities for clients. For this reason, this aspect of innovation can be regarded as a strong potential that can result in substantial growth in revenue as well as profits. A critical part of this technological dimension is generating new processes (Hanson et al., 2017, p. 443).
The risks involved in establishing radical innovations are quite high. For this reason, these technologies are rare as it is evident that they are difficult to implement. There are high levels of uncertainty in regards to the technological value and the opportunities in the market. Such is so as the radical innovations entail the creation of new knowledge. Creativity is demanded under this dimension. A business’s current technological data is barely exploited. Nevertheless, creativity discovers and synthesizes existing information from various domains. The information is then utilized to establish new merchandizes that can be used in an entrepreneurial way. In this case, products venture into new markets, attract clients and acquire access to new resources as well.
Both radical and incremental innovation can establish value. Thus, this means that enterprises ought to identify the right situations to emphasize on either type. Nevertheless, the radical ones have the potential to impart more significance to a corporation’s efforts to gain returns which are above-average. Moreover, a large percentage of radical innovations come from autonomous strategic behavior. On the contrary, the most significant number of incremental innovations spring up from induced strategic behavior. It is essential to comprehend that both changes result in intentional efforts which are referred to as internal corporate venturing (Hanson et al., 2017, p. 443).
Q8. Likelihood of Attack
A first mover is a business that commences a competitive action to add its competitive advantage to enhance its position in the market. In general, this group allocates financial resources for product innovation, aggressive advertising as well as advanced R&D. These firms ought to have readily accessible finances to invest in research and development substantially (Hanson et al., 2017, p. 176).
A firm gains a set of benefits from being the first to establish a market product. One of the main gains is recognition of the brand. In the history of corporations, reputation has been created by first-movers like The Coca-Cola Company. Building a reputation brings about loyalty amidst clients and draws new consumers to the firm’s products even after other enterprises have ventured into the market. Further, switching costs represent another benefit. Once the first business successfully establishes itself, other clients may find it inconvenient to switch to other brands. Also, a company gets to experience economies of scales. Such is particularly true in regards to manufacturing and technological costs. First mover firms tend to have a longer learning curve than others. Hence, this enables them to create more cost-efficient ways of product production and delivery.
Nevertheless, the pioneering costs may be relatively higher than of later entrants. Such expenses are inclusive of training and educating consumers. Besides, there are high risks involved as the levels of uncertainties are great as well. Hence, a company may find itself in a situation of overestimated economies of scale (Hanson et al., 2017, p. 177).
A second mover is an organization that responds to the competitive actions of a first mover through imitation. The group is typically more cautious than the first-movers. A firm such as the American Home Mortgage Holdings Inc. (AHMH) falls under this category. For a reason, the company’s CEO allowed it to take note of where other corporations had failed (Hanson et al., 2017, p. 177).
Customer development is one of the gains to being a second-mover. A firm can get to learn what consumers want from an existing corporation. A rival with traction shows that clients perceive the remedy as valuable. Thus, at first, a second-mover needs not to do much on product validation. A company can be confident that it has something that the customers will purchase. Consequently, costs are significantly reduced since the market is already established. Hence minimal expenses are used for aspects of training and client education. Besides, the likelihood of losses is likely to be minimal. For a reason, risks of uncertainties are subsequently reduced one the first-movers establish themselves in the market.
In spite of this, a second-mover may encounter barriers to entry. Such is so especially when first-movers have already created a strong reputation for themselves and the switching costs are minimal. In this case, clients may find no reason for moving to the products offered by the second movers unless the prices are significantly reduced. As a result, second-movers may adversely suffer due to overestimated economies of scale. A further decrease in prices to attract consumers may lead to a huge reduction of revenues and profit margins which are essential for a company’s sustainability.
Late-movers, on the other side, are firms which respond to competitive actions after a significant amount of time. They tend to follow the activities of the first-movers and response of the second-movers. Late-movers are more likely to attain long-term success than early movers. Such is so as they have the opportunity to learn how well ideas and concepts were received by the public. Consequently, this is helpful in mitigating risks. Also, this minimizes the amount of R&D investment in determining the distinct perspectives of the general consumers. The late-movers can learn from early movers. Thereby, this category is presented with a chance of enhancing the products and minimizing the costs involved (Hanson et al., 2017, p. 178).
Regardless, late-movers are much faced with the challenge of entering a market. For a reason, early movers tend to establish entry barriers to the sectors they serve. Hence, the late-movers are deprived the convenience and profitable strategies to venture into a new industry. Moreover, these businesses can harm their reputation. Such is so as the imitation of products can be regarded as “ripping off” clients. Late-movers are highly bound to have a tough time acquiring a market share of an existing product.
Hanson, D., Hitt, M., Ireland, D., & Hoskisson, R. E. (2017). Strategic Management: Competitiveness and Globalisation (7th ed.).