Questions On Porters Five Forces Model
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Published: Mon, 5 Dec 2016
Strategic Management is planning, applying and evaluating efficient decisions that will allow an organization to reach its long-term objectives. It is the path of identifying the organization’s mission, vision and objectives, developing strategies and plans, often projects and programs are designed to achieve these objectives, and assigning resources to implement the strategies and plans, projects and programs.
EXPLAIN PORTER’S FIVE FORCES MODEL.
Porter’s five forces model is an outline for the market analysis and business strategy development, It includes five forces that decide the competitive power and attractiveness of a market.
Porter referred those forces affect its capability to serve its consumers and make profit. A change in any of the forces make a business unit to re-assess the marketplace. Tough industry may look attractive start a business, it does not mean that every company in the industry will earn the same profitability. Organizations must apply their core competencies, business model or network to achieve a profit over the other competitors.
This model of Porter’s five forces include – threat of established rivals, threat of new entrants, threat of substitute products, bargaining power of suppliers and the bargaining power of customers or buyers.
SELECTING AN ORGANIZATION
When selecting an organization I have looked for places where I can study and apply Porter’s Five Forces model, and by carrying out a market research I have chosen Amaya lake hotel (Under Amaya Resorts & Spa),
Amaya brings guests authentic Sri Lankan experiences. Architecture, arts, music, dance, cuisine – Amaya incorporates each aspect of local culture into its retreats. Amaya Resorts & Spas is a subsidiary of Connaissance Holdings. Under Amaya Resorts & Spa they have three hotels. Amaya Lake, Amya Hills and Amaya Reef Hotel locate at three deferent locations. In this assignment I have chosen Amaya Lake hotel at Dambulla to study and apply Porter’s five forces model.
APPLY PORTER’S FIVE FORCES MODEL.
Porter’s Five Forces Analysis shows that there are five important elements that verify competitive control in a business location. Bellow are the studies and apply of Porter’s five forces for Amaya Lake Hotel,
1 Threat of New Entrants
Demand for Restaurants, Guest Houses and motels are still under the spot light. Yet majority of large chain hotels have established their authority with operating efficiency, and key marketing-mix outflow. This influential force has an immense impact on the small ordinary Hotels, Restaurants, bakers, Guest Houses and motels etc. Therefore, it possesses a tough obstacle for new companies who wish to come in to the hospitality industry. For instance, it becomes rather complicated for new competitors to raise adequate resources and establish extremely developed service. This is also evident in vast investments done by large chains like Amaya Resorts & Spa, on advanced technology for check-ins, checkouts and stock control systems that blow new competitors and the existing ones. Additional obstruction contains economies of scale and differentiation (in the provision of products or services with a higher perceived value than the competition) attained by Amya Lake with their insistent operational strategies in product development, promotional activity and better service.
2 Bargaining Power of Suppliers
This force stands for the control of suppliers, yet that can be influenced by foremost hotel chains and by creating fear of losing their business to other suppliers. Suppliers can be the holy owners of the decision making in terms of price. Yet this can be managed by having number of suppliers as an options, also it can bargain improved promotional prices that small individual hotels are unable to compete. By that power of control over the suppliers are owned by the service receiver. By which suppliers are also vulnerable by the rising capacity of large hotels to resource their supplies from overseas at better deals. At Amaya Lake they have well controlled the supplier power choosing many numbers of suppliers using their growing ability in hotel industry as well as the srong relationship with the other suppliers.
3 Bargaining Power of Customers
Porter said that more the service become uniformed consumers find many options to chose, hence more power is given to buyers. If a hotel does not identify customers need and brake the informality of the service, retaining customers will become bit of a hard task. At this point Amya Lakes famous loyalty card remains the most successful customer maintenance strategy that drastically increases the profitability of there business, also by taking care of customer needs, providing customized service, ensuring low prices, implementing better choices, adding value additions, having constant promotions they have attract many numbers of customers under their wing. This has contributed to retain their customer base over the period of time. Ecologically kind and ethically sound food and beverage products makes customers more glued to Amya Lake than the competitors in the market.
4 Threats of Substitutes
Substitution is having other medias to full fill once needs. For example in-house guest who wants to enjoy a meal have many choices. One is going to hotel restaurant and have the meal or order room service and have meals or go to an out side restaurant and have his meal. Having third option chosen reduces the demand, as there is a threat of consumers switching to the choices .In the hospitality industry this can be seen in the form of service-for-service or the substitute of need and is more weaken by new developments such as the way small hotels, restaurants, bars, clubs ectâ€¦ how this happens in a way of convenience, tailor maidens, easy access and proper customer care ectâ€¦. Amya Lake has overcome this by adding few value additions such as Bar, Restaurants, Gym, and Spots complex, DJ club for residents and non residence for affordable price with better service.
5 Bargaining Power of Competitors
Having many competitors in the market for the same industry, who provides uniformly smart services, make one with little control over the condition, where suppliers and buyers have the power to choice with whom they need to deal with, if they do not get a good deal from you. On the other hand, if only you provide one particular service and no one can do what you do, then you can often have wonderful force over suppliers which leads them to have no choice.
Hospitality trade has seen a considerable growth in the size and market power of the larger groups and small groups, with greater size it may attract reasonable number of guest who are utilizing range of value additions, which are now important characteristics of the segment. Yet some guest prefers small or mid size hotels with more privacy, affordable and more religious, as it was mentioned above, the power of choosing the place where a guest might want to go depends on competition among the industry. at Amaya Lake both customers will find there choices, since they have different room categories at different locations. Operating in a established market makes growth tough, this happens by the competition. This highly competitive market has speed up level of growth, ensuing in a circumstances in which hospitality sector may have to be innovative to maintain and build market share. Such innovation can be seen in the development of a variety of operating systems, in reaction to alter in consumer behavior. Market leaders have reacted by focusing on service, price and value additions. Amaya Lake is one of the chain hotels having its own customers in the market with other competitors like Sorrowwa Resorts & Spa, Gimanhala Hotel, Chaya Village, Heritance Kandalama Hotel, Thilanka Hotel by providing better service and value additions to its customers.
ADDITIONAL THEORIES WHICH DEVELOP PORTER’S IDEA
Porter’s Diamond of National Advantage Theory,
In this theory Porter highlighted that comparative advantage inhabit in the factor donation that a nation may be lucky enough to inherit. Factor aids include land, natural resources, labor, and the size of the local population.
Michael E. Porter said that a nation can generate new highly developed factor contributions such as skilled labor, a strong technology and knowledge base, government support, and culture. Porter used a diamond shaped diagram as the basis of a framework to demonstrate the determinants of national advantage. This diamond stands for the national playing field that countries set up for their industries.
Porter’s Diamond of National Advantage Frame work
The character points on the diamond and the diamond as a whole have an effect on four components that lead to a national comparative advantage. These components are:
The accessibility of resources and skills,
Information to decide which prospects to pursue with those resources and skills,
The goals of individuals in companies,
The force on companies to innovate and invest.
The point of the diamond are explains as follows.
I. Factor Conditions
A country creates its own important factors such as skilled resources and technological base.
The stock of factors at a given time is less important than the extent that they are upgraded and deployed.
Local disadvantages in factors of production force innovation. Adverse conditions such as labor shortages or scarce raw materials force firms to develop new methods, and this innovation often leads to a national comparative advantage.
II. Demand Conditions
When the market for a particular product is larger locally than in foreign markets, the local firms devote more attention to that product than do foreign firms, leading to a competitive advantage when the local firms begin exporting the product.
A more demanding local market leads to national advantage.
A strong, trend-setting local market helps local firms anticipate global trends.
III. Related and Supporting Industries
When local supporting industries are competitive, firms enjoy more cost effective and innovative inputs.
This effect is strengthened when the suppliers themselves are strong global competitors.
IV. Firm Strategy, Structure, and Rivalry
Local conditions affect firm strategy. For example, some companies tend to be hierarchical. Some companies tend to be smaller and are run more like extended families. Such strategy and structure helps to determine in which types of industries a nation’s firms will excel.
In Porter’s Five Forces model, low rivalry made an industry attractive. While at a single point in time a firm prefers less rivalry, over the long run more local rivalry is better since it puts pressure on firms to innovate and improve. In fact, high local rivalry results in less global rivalry.
Local rivalry forces firms to move beyond basic advantages that the home country may enjoy, such as low factor costs.
V. The Diamond as a System
The effect of one point depends on the others. For example, factor disadvantages will not lead firms to innovate unless there is sufficient rivalry.
The diamond also is a self-reinforcing system. For example, a high level of rivalry often leads to the formation of unique specialized factors.
VI. Government’s Role
The role of government in the model is to:
Encourage companies to raise their performance, for example by enforcing strict product standards.
Stimulate early demand for advanced products.
Focus on specialized factor creation.
Stimulate local rivalry by limiting direct cooperation and enforcing antitrust regulations.
Hunt Strategic group Analysis Theory,
A strategic group is a concept used in strategic management those companies within an industry that have similar business models. For example, Room categories in a hotel can be divided in to standard, deluxe or suits, based on the value added facilities. A restaurant in a hotel can be divided into several strategic groups including fast-food, cultural food, western food and fine-dining based on variables such as preparation time, pricing, and presentation. The number of groups within an industry and their work depends on the size used to define the groups. Strategy is the direction and scope of an organization over the long term which achieves advantages for the organization while business model refers to how the firm will generate revenues or make money.
Hunt (1972) invented the term strategic group while conducting an analysis of the appliance industry after he discovered a higher degree of competitive rivalry than suggested by industry concentration ratios. He attributed this to the existence of subgroups within the industry that competed along different dimensions making tacit collusion more difficult. These asymmetrical strategic groups caused the industry to have more rapid innovation, lower prices, higher quality and lower profitability than traditional economic models would predict.
The success of the Amaya Lake shows how far competitive power and attractiveness of a market can leads towards its productivity. It has proven their identity by making their servicing concept into a virus and spending it out into the culture via a variety of channels such as cultural aspects, geographical, and nature friendly experience.
In a rapidly changing business environment with high competitors’ Amaya Lake have to adopt new expansion strategies and diversified the existing in order to sustain its leading market position in an already established hotel sector. The company has constantly adapt to the fast changing circumstances. Strategy formulation has been regarded as a process of continuous learning, which includes learning about the goals, the effect of possible actions towards these goals and how to implement and carry out these actions. The quality of a formulated strategy and the speed of its implementation will therefore directly depend on the quality of Amaya Lakes behavioral learning processes.
In large organizations as Amaya Lake, strategy should be analyzed and implemented at various levels within the hierarchy. These different levels of strategy should be related and mutually supporting. Amaya Lake’s strategy at corporate level defines the businesses in which Amya Lake will compete, in a way that focuses resources to convert distinctive competence into competitive advantage.
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