External analysis
How can a smartphone company use external analysis to gain competitive advantage?
1. Apply 5 forces model for the smartphone industry
According to Hill and Jones, the five forces model serves the purpose to identify opportunities and threats in the external business environment, by analysing “competitive forces” (Hill & Jones, 2012, p. 42). Once created by Michel E. Porter this particular framework functioned as a useful tool for managers to approach the external analysis.
The following visualization of the framework gives a good overview of the framework, which will be explained further more.
(Hill & Jones, 2012, p. 43)
1) Risk of entry by potential competitors
New companies can threaten the position of the existing ones if there are no barriers or protections for the latter. These risks of potential competitors depend on factors, such as the level of protection for technology, specialist knowledge, economies of scale as well as cost advantages (MindTools, 2013).
2) Bargaining power of buyers
Buyers have the power to influence the price system, since the companies are the ones depending on the customer’s buying behaviour. The degree of influence customers have on a company depends on the amount of customers, difference between competitors, price sensitivity as well as the ability to substitute (MindTools, 2013).
3) Bargaining power of suppliers
Suppliers on the other hand use their power to provoke the exact opposite- to raise the price. The level of power the suppliers have over a company depends almost entirely on the companies’ need for or dependability on their
help (MindTools, 2013).
4) Threat of substitutes
Substitution can be achieved by outsourcing or by operating a previously automatic procedure manually. The threat of substitutes depends however on its simplicity and feasibility (MindTools, 2013).
5) Intensity of rivalry among established firms
A company’s power is based on its uniqueness, which leaves its customer no other choice, but to buy a particular product or make use of a certain service from this specific company. Too many similarities with other companies threaten the sales and empower suppliers, who are then in the lucky position to choose the best deal (MindTools, 2013).
Sources:
Hill, C.W.L. & Jones, G.R. (2012). Strategic Management theory: An Integrated Approach. (10th ed.). Cengage Learning MindTools, Essential skills for an excellent career. (2013). Porter’s Five Forces; Assessing the Balance of Power in a Business Situation. MindTools Ltd. From http://www.mindtools.com/pages/article/newTMC_08.htm International Data Corporation. (2013). Worldwide Mobile Phone Market Forecast to Grow 7.3% in 2013 Driven by 1 Billion Smartphone Shipments, According to IDC. IDC Corporate USA. From http://www.idc.com/getdoc.jsp?containerId=prUS24302813 Pogue, D. (2013). iPhone review: New 5S can’t ‘wow’ in a mature smartphone market. The Globe and Mail Inc. From http://www.theglobeandmail.com/technology/gadgets-and-gear/gadgets/iphone-review-new-5s-cant-wow-in-a-mature-smartphone-market/article14394282/
2. Apply PESTEL model for the smartphone industry
(Hill & Jones, 2012, p. 74)
According to Hill and Jones the six added external forces- as displayed in the picture- are examined in a PESTEL analysis.
1) Political and legal forces:
This part deals with rules and regulations that derive from political and legal authorities. It is important to analyse the national and international legal system, to identify the transnational business opportunities and limits. (MindTools, 2013)
2) Demographic forces:
“Demographic forces are outcomes of changes in characteristics of a population, such as age, gender, ethnic origin, race, sexual orientation, and social class.” (Hill, Jones, 2012, p. 75)
3) Global forces:
Global forces deal with situations such as international trade and investment barriers, as well as economic growth that result in market opportunities, but also in a greater competition and an increase in profitability. (Hill, Jones, 2012)
4) Macroeconomic forces:
According to MindTools the Macroeconomic forces deal with the current economic situation- stability, growth, stagnation or decline, a prognosis for the future as well as the effect it has on people. (MindTools, 2013)
5) Social forces:
Social forces are based on values, changing mind-sets and lifestyle and deal with situations such as health consciousness, education or social mobility. (MindTools, 2013)
6) Technological forces:
Technological change can make established products obsolete overnight and simultaneously create a host of new product possibilities. (Hill, Jones, 2012, p.75) The purpose is to encounter technological developments that are beneficial for your company, as well as those who could threaten the value of your product or service. (MindTools, 2013)
Example:
The increasing health consciousness as a change in lifestyle in way of
thinking had a huge impact on the tobacco industry, which had to experience an immense loss in revenues. Coca Cola on the other hand changed their strategy and produced light products; Fanta and Sprite followed. A follow up to Cola Fanta and Sprite light, was Cola Zero. But not only the amount of calories was minimized to almost zero, also a caffeine- free alternative was finally available.
Sources:
Hill, C.W.L. & Jones, G.R. (2012). Strategic Management theory: An Integrated Approach. (10th ed.). Cengage Learning MindTools, Essential skills for an excellent career. (2013). PEST Analysis; Identifying “Big Picture” Opportunities and Threats. MindTools Ltd. From http://www.mindtools.com/pages/article/newTMC_09.htm
3. What are the opportunity’s and threats of the smartphone industry For Samsung:
Opportunities:
The opportunities for Samsung lie in the growth of the following: India’s smartphone market, the advertising industry, the tablets market as well as the demand for quality application processors.
Threats:
The threats are however in the closest business environment: The Smartphone market in developed countries is saturated, the technology changes rapidly, margins decline on hardware productions, price wars as well as Apple’s iTV launch.
For Apple:
Opportunities:
High demand for their products, such as the recent iPad mini or the iTV, as well as the previously mentioned growth of the tablets market, a strong growth of the mobile advertising market and the “increasing demand for cloud based services” are the biggest opportunities for Apple.
Threats:
Sources:
Google:
Sources:
Microsoft
Example:
Sources:
4. What critics exist regarding the 5 forces and the PESTEL model? The Kaplan Financial Knowledge Bank criticises that Porter sees a threat in every single of the five forces and looks at everything form a purely profit perspective. Customers are largely treated as a thing to fight over for competitive advantage. Customer satisfaction on the other hand gets missed out. With respect to the PESTEL model the KFKB criticises the naive perception this model provokes: Encountered market growth= profit (Kaplan Financial Knowledge Bank, 2013).
Edward Walter argues, “There are no rational rules that by which variables are chosen and interrelated in a model. Nor are there rational rules to indicate what potential variables should be left out of the model. ” (Walter, 1981, p. 93) Instead variables should be chosen instinctively.
Leadley and Forsyth present six main criticisms regarding Porter’s five-force model, which are the following: 1) Static: The static model is contradictory to the dynamic environment. 2) The organization’s interests come first: Contradictory to the essence of non- government organisations or charities 3) Byers are the same as any other aspect of the micro environment: The customer should be the main focus 4) The environment is a threat to the organisation: The consideration of buyers and suppliers as a a threat is an
obstruction for corporations or partnerships- which are in real life often desired and even necessary 5) Human resources and strategy: The model does not consider the HR part (It disregards cultures as well as management skills) 6) Predictive rather than emergent: Elements are supposed to develop “as the strategy proceeds so can be both proactive and reactive as the environment changes.” (Leadley, Forsyth, 2004, p. 227)
Sources:
Kaplan Financial Knowledge Bank. (2013). Porter’s five forces model. Kaplan Financial Limited from http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/Porter’s%20five%20forces%20model.aspx Kaplan Financial Knowledge Bank. (2013). PEST(EL) Analysis. Kaplan Financial Limited from http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki%20Pages/PEST(EL)%20analysis.aspx Walter. E. (1981). The immorality of Limiting Growth. SUNY Press. From http://books.google.de/books?id=rZu-Ch1haR4C&pg=PA93&dq=pestel+model+criticism&hl=en&sa=X&ei=8RE4UsWgHsGXtQbarIC4Aw&ved=0CDkQ6AEwAg#v=onepage&q=pestel%20model%20criticism&f=false Leadley, P., Forsyth, P. (2004). Marketing: Essential Principles, New Realities. Kogan Page Publishers. From http://books.google.de/books?id=cd6Sjxu2lesC&pg=PA226&dq=five+forces+model+criticism&hl=en&sa=X&ei=BhM4UuieNsTn4QTT4YCgAg&ved=0CDQQuwUwAA#v=onepage&q=five%20forces%20model%20criticism&f=false
5. Apply the industry life cycle on the smartphone industry. S.57 (Hill and Jones)
Example:
Illustration of the 10- year life cycle for smartphone operating systems:
(Woyke, 2013)
Sources:
Hill, C.W.L. & Jones, G.R. (2012). Strategic Management theory: An Integrated Approach. (10th ed.). Cengage Learning Narayanan. V.K., O’Connor, G.C. (2010). Encyclopedia of Technology and Innovation Management.
