Free «Strategic Foresight and Porter's Five Forces» Essay Sample
MDCM, found in 1972, is a leading company in medical device manufacturing. It has highly skilled employees. The company’s parent holding is in USA with its subsidiaries in over 35 countries. The company held over 42% of market share by 1972. The increase in their market share results from its ability to give consumers high quality products. MDCM works hand-in-hand with its customers giving it a competing edge over the competitors. Unfortunately, its competitor adopted this strategy leading to stiff completion in the industry. Consequently, it faced challenges to maintain their market share; thus, declining in profitability.
MDCM’s rapid expansion, resulting from the acquisition of other companies, posed a significant challenge in its operation. Although the acquisition strategy aimed at fighting the stiff competition, the move led to serious administrative challenges. It is because of diseconomies of scale that inspired production and marketing inefficiencies. Thus, the company’s move to increase its capital base by merging with other companies of the same level of technologies did not bear fruit because of following. MDCM’s expansion did not fully utilize the economies of scale. There was no alignment of the firm’s activities to the cooperate objectives. For example, the high cost incurred due to poor procurement policy such as excess stock of raw material lead to the high cost of storage. Another challenge was a breakdown of communication within the organization due to the adoption of weak IT strategy. Lack of corporate strategy integrated with IT strategic plans further worsened the performance of the company. The lack of activities coordination in the organization contributed even more. For example, there was poor coordination of the manufacturing process leading to some facilities lying idle while others working overtime. In addition, the sales department failed to achieve its objective due to contradicting activities within sales managers of the MDCM. In responding to these challenges, the firm launched an invention strategy named Horizon 2000. Horizon 2000 focused in consolidating the firm activities as a way of cutting down MDCM’s operating cost. However, horizon 2000 requires IT strategy support that will boost communication within and outside the firm leading to reduced production cost. Therefore, the new management targets to reduce production cost trough the creation of enabling IT strategy, which focuses on the areas of potential weaknesses.
Porter’s five forces of competition best describe the business environment in which MDCM operates. Thus, analysis of the Company’s business environment using Porter’s five forces will help point out some of its operating inefficiency.
Threat of Substitute
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In a competitive environment, business strives to produce high quality products at a lower cost per unit. This helps company to create high consumer value making its products competitive compared to competitor’s products. As a result, majority of firms seeks to increase in scale of production, to make it possible to provide goods and services at reduced cost per unit. This is because large-scale production enables firms to spread their fixed cost over large volumes of products. This result in lower cost per unit; thus, helping in the creation of high consumer value. MDCM’s to increase its scale of production through acquisition of other firms is in the right direction, to achieve lower cost f production. However, lack of integrated IT strategy to increase the production efficiency pose a significant challenge to the company’s continuity. This is because MDCM’s product suffers from stiff competition of rival firms in the industry. Therefore, a scale of production managed by well-planned IT strategy must be installed (Roy, 2011).
Threat of New Entrants
MDCM may loss its market holding due to the existence of potential competitors in the industry. This is because new entrance will further tighten the competition leading to loss of the current company’s consumers to the rival firms. Currently, MDCM is suffering from production inefficiencies due to poor coordination of production activities. In addition, poor marketing and distribution strategies increase the chances of new entrants. Thus, the company should invest in information technology, to cut down its cost of production per unit making the market unfavorable for new entrants.
When buyers have powers to determine the price of the commodity through bargaining, the company will have no option but to accept the price that buyers prefer. Thus, the company should diversify iits product to ensure that it meets needs of different buyers in the market. This will avoid a monopsony in the market giving the company a range of decision on pricing mechanism to adopt. This force is not essential in MDCM case because the company has a large pool of customers (Roy, 2011). In addition, the company should enhance its research and design by using new technological innovation to enhance information collection and data processing.
The concentration of suppliers is essential in any business. This is because suppliers determine the availability of raw material that the company intends to use. In competition, some firms enter into contracts with the supplier to ensure continuous supply of raw materials, and making the raw material unavailable to other competitors. In the case of MDCM, it should use vertical contracting to ensure availability of raw materials for the company use. However, MDCM company main problem result from the lack of proper raw material procurement policies (Roy, 2011). The company should identify few raw materials suppliers with the abilities to meet the company’s raw materials requirements.
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This is the significant five forces of competition. This is because, in any industry, firms will continue to compete to maintain their market. In addition, new firms will enter the market up as long as firms are enjoying supernormal profit in the industry. The intensified competition (rivalry) situation is the one, which MDCM is experiencing now. Firms use various techniques to gain competitive advantage in the market, which include changing of prices, enhanced product differentiation, use of proper distribution channels, and developing lasting relationships with suppliers (Roy, 2011).
MDCM’s Poor performance can be changed by staging appropriate strategic choices to meet the company’s objectives. From the analysis, above, MDCM failure results from lack of proper IT strategy that integrates the company’s production, marketing, and distribution functions. This has led to failure by the company in achieving its objective, which is, to reduce the operating through enhancement of production and marketing efficiency. Therefore, the company’s IT strategy should target all departments in the organization to ensure improvement of objectives as a whole.
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