Strategic Assessment of Simulation

Blog topic #8

Strategic Assessment of Simulation

The assignment will examine the strategic management concepts to operating our simulated company throughout this semester by applying Michael Porter’s competitive forces, which include the intensity of rivalry, the threat of substitutes, barriers to entry, the power of supplier, and the power of buyers.

Our main goal generally was to focus on how we are going to turn the company which is a crucial iniative. We were not exactly focus in making big numbers for our industry, but to achieve a growth constant along the time. Our simulation company has as shareholders the people that composed the group number 6.

In Porter economic model, competition among rival firms drives profits to zero. But competition is not perfect and firms are not unsophisticated passive price takers. Rather, firms strive for a competitive advantage over their rivals. The intensity of rivalry among firms varies across industries, and strategic analysts are interested in these differences. Therefore our company, tried to implement a strategy which will help our company face the high level of rivalry. The obvious advantage that we had is the fact that we were not in first point trying to maximize profits. Also our company had a low concentration ratio and that indicates that a high concentration of market share is held by the other firms.

In Porter's model, substitute products refer to products in other industries. To the economist, a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A product's price elasticity is affected by substitute products and since more substitutes become available, the demand becomes more elastic since customers have more alternatives. A close substitute product constrains the ability of firms in an industry to raise prices. But in our case, we did not raise our prices because our objective was not in big numbers of dollars but to keep our company growing.

The power of buyers is the impact that customers have on a producing industry. In general, when buyer power is strong, the relationship to the producing industry is near to what an economist term called monopsony, which is a market in which there are many suppliers and one buyer. Under such market conditions, the buyer sets the price. In reality few pure monopsonies exist, but frequently there is some asymmetry between a producing industry and buyers.

A producing industry requires raw materials, labor, components, and other supplies. This requirement leads to buyer-supplier relationships between the industry and the firms that provide it the raw materials used to create products. Suppliers, if powerful, can exert an influence on the producing industry, such as selling raw materials at a high price to capture some of the industry's profits. With that said, one must consider the cost of switching companies. There are considerations such as the actual cost switching to a more expensive; also the quality of the products might change to a bad one. It is not only incumbent rivals that pose a threat to firms in an industry; the possibility that new firms may enter the industry also affects competition. In theory, any firm should be able to enter and exit a market, and if free entry and exit exists, then profits always should be nominal. In reality, however, industries possess characteristics that protect the high profit levels of firms in the market and inhibit additional rivals from entering the market: these are barriers entry.

To sum up, I will say that the industry is a low attractive, because we financed through issuing bonds and we also bought back some stocks. We tried to boost the earning per share and reaching the debt-equity ratio to 1. We expanded new capacity very late and this cost us a lot of sub-contract money. We tried to catch up; it was a bit too late. Overall the simulation was very exiting; it was a great management experience which urged us for important decisions taking.

Diagnosing Strategic Problems

Diagnosing Strategic Problems

According to porter for a firm to be successful, it should select vigorously pursue a strong strategy. That is, a firm must deliberately choose an identifiably distinctive position in the industry, in order to be perceived as an industry-wide cost leader, an industry differentiator. This industry must defend his position by erecting entry barriers.

As an example of company which suffers too many customer complaints due to the fact that their network was so welcome compare to the competition has to offer such as (AT&T, Verizon) is T-Mobile. T-Mobile strategy was not able to deliver a set of benefits different from those offered by AT&T and VERIZON. Because, T-Mobile strategy is neither a quest for the best way of competing nor an effort to be all things to every customer.

T-Mobile USA has built its subscriber base in part through the acquisition of regional carriers. In 2008, the company made a move to strengthen its presence in the southern US with purchase of Suncom for $2.4 billion. The deal added over a million customers in the southern US and Caribbean region to T-Mobile's books. Here this strategy was not well implemented; it doesn’t define a way of competing that delivers unique value in a particular set of uses or for a particular set of customer.

The second symptom that indicate T-mobile may have strategic problem is that T-mobile slow to introduce new products in a fast changing environment compare to AT&T which enable the magnificent phone with all in one Option meaning a i-pod and a phone in only one component: i-phone. Product that carries thousand of customers the first week of appearance. T-mobile was expected to fit not only increases competitive advantage but also makes a strategy harder to imitate by the competitors, therefore the company will lack any disadvantage.

Formulating" Business Strategy"

Strategy Formulation

Given the information from the environmental scan, the firm should match its strengths to the opportunities that it has identified, while addressing its weaknesses and external threats.

To attain superior profitability, the firm seeks to develop a competitive advantage over its rivals. A competitive advantage can be based on cost or differentiation. Michael Porter identified three industry-independent generic strategies from which the firm can choose.

Competitive advantage is a firm's ability to transform inputs into goods and services at a maximum profit on a sustained basis, better than competitors. Comparative advantage resides in the factor endowments and created endowments of particular regions. Factor endowments include land, natural resources, labor, and the size of the local population. Michael Porter identified two basic types of competitive advantage:

* Cost advantage

* Differentiation advantage

A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself.

Cost and differentiation advantages are known as positional advantages since they describe the firm's position in the industry as a leader in either cost or differentiation.

Porter's Generic Strategies

Target Scope	Advantage
	Low Cost	Product Uniqueness
Broad (Industry Wide)	Cost Leadership Strategy	Differentiation Strategy
Narrow (Market Segment)	Focus Strategy (low cost)	Focus Strategy (differentiation)

Source: CQ RESEARCHER

As an example of a company which used market share and cost leadership, to reflect his company operations. Whirlpool Corporation was considering expanding into Europe by acquiring Philips' Major Domestic Appliance Division. From the framework of customers, costs, competitors, and government, there were several pros and cons to this proposed strategy.

Since Philip's had a relatively small market share in the European appliance market, one must analyze the cost structure to determine if the acquisition would offer Whirlpool a competitive advantage. With the acquisition, Whirlpool would be able to cut costs on raw materials, depreciation and maintenance, Research and Development, general and administrative costs. These costs represented 53% of Whirlpool's cost structure. Compared to most other industries, this percentage of costs that could benefit from economies of scale is quite large. It would be reasonable to expect a 10% reduction in these costs, an amount that would decrease overall cost by 5.3%, doubling profits. Such potential justifies the risk of increasing the complexity of the organization.

Because of the different preferences of consumers in different markets, a purely global strategy with standard products was not appropriate. Whirlpool would have to adapt its products to local markets, but maintain some global integration in order to realize cost benefits. This strategy is known as "mass customization."
Whirlpool acquired Philip's' Major Domestic Appliance Division, 47% in 1989 and the remainder in 1991. Initially, margins doubled as predicted. However, local competitors responded by better tailoring their products and cutting costs; Whirlpool's profits then began to decline. Whirlpool applied the same strategy to Asia, but GE was outperforming Whirlpool there by tailoring its products as part of its multi-domestic strategy.

The effectiveness of Porter's Model

The five forces on the effectiveness of Porter’s model are the followings:
The potential new entrant
The bargaining power of buyer
The bargaining power of suppliers
Threat of substitute products
The rivalry among competitors
The potential new entrant which is low attractive, in this model potential competitor are not presently competing in an industry but have the capability to do so. Power is also affected by the ability of people to enter your market. If it costs little in time or money to enter your market and compete effectively, if there are few economies of scale in place, or if you have little protection for your key technologies, then new competitors can quickly enter your market and weaken your position. If you have strong and durable barriers to entry, then you can preserve a favorable position and take fair advantage of it.
The bargaining power of buyer which is medium attractive, shows how it is easy for customers to switch from company to company. Here you ask yourself how easy it is for buyers to drive prices down. Again, this is driven by the number of buyers, the importance of each individual buyer to your business, the cost to them of switching from your products and services to those of someone else, and so on. If you deal with few, powerful buyers, they are often able to dictate terms to you.
The Bargaining power of suppliers which is low attractive and his factors are resources that impact the industry. Here you assess how easy it is for suppliers to drive up prices. This is driven by the number of suppliers of each key input, the uniqueness of their product or service, their strength and control over you, the cost of switching from one to another, and so on. The fewer the supplier choices you have, and the more you need suppliers' help, the more powerful your suppliers are.
The threat of substitute products which is medium attractive and in this model, the more the number of substitute and the more that consumer perceive them less as effective alternatives to their need satisfaction. This is affected by the ability of your customers to find a different way of doing what you do – for example, if you supply a unique software product that automates an important process, people may substitute by doing the process manually or by outsourcing it. If substitution is easy and substitution is viable, then this weakens your power.
The rivalry among competitors which is highly competitive, rivalry refers to the intensity of competition among existing firms. What is important here is the number and capability of your competitors – if you have many competitors, and they offer equally attractive products and services, then you’ll most likely have little power in the situation. If suppliers and buyers don’t get a good deal from you, they’ll go elsewhere. On the other hand, if no-one else can do what you do, then you can often have tremendous strength.

The industry I will be talking about, is the wireless industry: I choose the leader in the industry which is AT&T. The power and influence that AT&T has over competitors are the followings:
* Advanced GSM network
* Global System for Mobile Communications
* GPRS – General
* UMTS – EDGE – Enhanced Data rates for GSM Evolution
* 3G High speed data
The competitive advantage that AT&T has over competititors is the following:
* GSM services on cruise lines
* 61 million wireless customers
* Nation’s largest digital voice and data network
* $37.5 billion revenues
* $2.5 billion net income
* High speed Internet access on wireless handsets in the U.S. Global revenues grew to $640 billion in 2008
* Analysts forecast that the market will reach $570 billion by 2010

Housing Preservation and Development (HPD) mission's statement

A mission statement encompasses four main components; the task, vision, values and goals.
A company should not functions without following the guidelines of their mission statement. Because a company functioning without focusing on their mission statement has failed to achieve their objectives.

Mission Statement
Using a variety of preservation, development and enforcement strategies, HPD strives to improve the availability, affordability and quality of housing in New York City. As the nation's largest municipal housing agency, HPD works with private, public and community partners to strengthen neighborhoods and enable more New Yorkers to become homeowners or to rent well-maintained, affordable housing.

I believe that HPD mission's statement is an example of sounded mission statement because today, in great part due to the work of HPD, the vacant and boarded-up buildings that were once a blight on many of the City's neighborhoods have been transformed into safe, affordable homes for families. Once-abandoned lots now contain new townhouses, parks and gardens. Communities that were devastated not long ago are now vibrant, as commercial activity has returned and public safety initiatives have encouraged parents to allow their children to play outside. HPD's housing programs have helped to restore and rebuild housing as well as to improve the quality of life in New York City's richly diverse communities.

Welcome to my Business Intelligence blog

Monday, 18th February 2008

Thank you for visiting my blog!

My name is Honore Yonli, I'm majoring in Finance and Investments with a minor in information studies ; just to inform my fellows students that this minor is the one I would urge to take because its(Develop advanced skills in information literacy, including the ability to identify information needs, formulate precision searches for efficient information retrieval, evaluate information and reformulate searches for greater precision, and employ retrieved information in the creation of new products (research papers, presentations,Web pages), and the ethical and legal use of information.
I actually work at Credit Suisse at the Executive Dining region, where I have an exposure to the corporate world. And I believe the experience I will acquire from there will help me in my future career. I also intent to become a Chartered Financial Analyst, and I would like to have the opportunity to discuss with classmates who are also candidates so we can share ideas about how to overcame this exam which led to a promising future.

HONORE YONLI