Porters 5 forces

For my future, I am interested on running my own business. After learning Porter 5 force, it let me know more how to analysis a industry in micro environment. Recently, Tesco puts U.S. grocery chain in bankruptcy. The reason may come from too many competitors in US like Kroger, which was the fifth and largest supermarket chain in the world or Wholefooods, the top 100 largest retail chains in the world. And the bargaining of buyer power is high. People have many choices to switch. Thus they may need to plan a unique strategy to catch back their customers, and they have to look at different level of supermarket as their competitors, cannot just look at those with similar level.

McDonald

I would like to look at why McDonald can keep their customers and being successful in such long run even there are others potential competitors. 


McDonald in the past: 

Now: 

Threat of New Entrants: very high

• Low level of experience, people don’t need professional skills or specialist knowledge or experience, and the training is easy as well.
• Not expensive to enter the industry, the costs for foods are low.

• Low economic of scale, as the industry can buy foods in bulk, so as to get lower cost.
• Low barriers to entry, so it’s easy for new industry to enter.

Threat of substitute products: very high

• Many substitutions like Mos burger, subway, Burger king, they both are the worldwide fast foods shop and they sell similar products. So customers can easily switch for similar products. 

• The substitute can also be the other fast foods shop that selling other products.

For example:

Bargaining power of supplier: Not sure

• As I don’t know the number or size or their suppliers, so I can’t measure it. If the number and size of suppliers is high, then the supplier power is high. It is not good for company.

Bargaining power of buyer: very weak

• Although there are many substitutes, but I found they are selling in a unique way. Other than products, they sell the experience, I mean the culture and the feeling that given to the customers. They mainly are bringing a message of happiness.

Here are their slogans from the past:

1990 Food, folks and fun

1997 Enjoy more (United Kingdom)

2000 We love to see/make you smile

2000 Put a smile on

2002 Every time a good time

Thus it simply delivers a message to customers that eating in McDonald is enjoyable and joyful. This help to keep their customers loyalty. And this is the different with its competitors. Mosburger or subway doesn’t have such impressive message delivered. I think it also is the reason why they can catch their customers for not easy switch to others substitute.

Competitive Rivalry: Low

• There are many competitors selling similar products and service.
• Even though it is not commodity products. But they have high customer loyalty.

After analyze their 5 forces, I found they both have strength and weakness, which is easy to let the new industry to enter the market, however, their competitive power is very strong.

Analysis of planning my future business:

As I want to run my own business, so I am keep thinking which type of business should I operate with using 5 forces to analyze the market.

Finally, I prefer to open a chocolate industry. The reason was…. because I love to eat chocolates. Haha of course it’s not just only this reason. The main reason is  I analyze the market with 5 forces.


Threat of New Entrants: High

Although the cost and time of entry is low, and it doesn’t need much experience, but it requires specialist knowledge of making chocolate, its not quite difficult, people can learn easily. So it's very easy to enter the market.

Threat of substitute products: High

Recently, chocolate shop becomes famous, some new chocolate store were opened such as Godiva, the famous worldwide brand. Other than that, I cannot just look at the chocolate store. There also have some brand that sell in supermarket. Also the own brand in supermarket, like Sainburys, they have their own brand chocolates.

Bargaining power of supplier: Not sure

As I still don’t know the actual number of chocolate supplier in the market, but I think there are quite many since I’ve search on the web. So I guess the supplier power could be quite high.

Bargaining power of buyer: strong

Since there are many substitutes, so it’s easy for customer switching to other brands. So it’s easy for them to drive prices down. It should have something unique to lower down their power.

Maybe to design more on the outlook to attract customers.

Competitive Rivalry: Low

There are many substitutes which selling the same type of products.

The intense competition puts strong downward pressure on prices. If I want to build customer loyalty, it may take more time.

Although it looks there are more disadvantages then benefit for opening chocolate shop. It seems quite easy to enter, but if I want to get over my competitors, I have to be special.

To be unique, I hope my store is not just for selling chocolates, but also be a café so to let people gossip or chat with their friends, to offer some coffee or juice as well. And design a relax place, to let them feel eating chocolate can bring joy and relax.

Maybe something like this, 

or this, 

Management Theory

Based on the idea of Organizational structure and design taught on last week, management theory is to solve the management challenges, like span of control or chain of command will affect the running of its business.  There are different management approaches that have evolved over 100 years covered in this week’s lecture.

It reminds me news on last year. I was quite shocked at it. A producer in China, Foxconn, it provided electronic manufacturing services, mainly for phone. In 2010, there were startling 18 staff commits suicide within 12 month due to heavy pressures, the media dubbed the tragedy as “suicide express.”, they treat their staff as robot, every staff just follow the order or superiors, they don’t have chance to express their feeling, so they chose to commit suicide to raise the society aware. 

Workers report:

“working to the point of tears” 

“we are more like machines than the machinery” 

“the air conditioners are only here for the sake of the machinery”

This management approach was scientific management by Frederick Winslow Taylor, they streamlined the factory production process, the workers are required to repeat the same routine movements on the production line. They are not able to think, make changes. Just.like they have become part of the machinery, so they became lack of human dignity, social ability, even feel lost.

It also applied to bureaucracy by Max Weber, it brings lots of pressure to staff. Workers have to stick with rules or procedures, if they made mistakes or displease their managers are sometimes punished to spend hours writing out copies of CEO Terry Gou’s personal sayings. They manages their labor based on the principles of obedience. 

A right approach can well develop strategies for operating a business, it could brings better planning, organizing, controlling and leading, and those can definitely increase work efficiency and motivated staff. 

Take for example, if Microsoft operate under Max Weber’s theory, then the staff cannot express their thought, it leads to less idea come out, and they would not be so enthusiastic on work, it may affect the work effectiveness. So this theory is not suitable for IT or creative company.

However, there is no best way for management approach because organization are different in size, culture and value. 

There are some theories that I am quite appreciate and prefer to used in modern company, which are human relation described by Elton Mayo, scientific management by Frederick Winslow Taylor, and theory Y by McGregor. Since I am the person who don’t want to be strict controlled by others, if I were the worker, I will feel stressful if just doing what others asked me to do, and too many rules restricted, it causes me staff discretion, so I am sure I cannot fit in Max Weber’s theory, what he said is to stick with and obey rules, just followed manager’s order. It may suitable for government organization but not in business organization.

Although it can maintain the consistency of the work, I have to say I am not agree with that, we should think what we want, to me, life would be meaningless if treated me like machines, I think personal growth and development is more important, it could bring better work if allow everyone to say their opinions, as they may have brilliant ideas. And being innovative is good for planning business.

Elton mayo-human relation

I hope to work in a company that treats me as a human being but not just workers. So I prefer human relation approach by Elton mayo, it focuses on job satisfaction and group behavior. For example, a nice working environment can motivate staff to perform better. If I working in that environment,

I will be more satisfied on my job, and likely to spend more time to work. Because I will enjoy working here, good mood is always performing better than bad mood. It may bring up more ideas which benefit productivity and efficient.  Job satisfaction could always motivate staff to work harder.

Example:
IKEA believe that employees were more productive and committed when the company took care of them and their needs.  Its’ culture is to give family-like feelings that makes relationships between employees strong and open. 

And I think teamwork is very important in a company, it always works better than individual. More idea or thought can create through discussing with colleges, same as doing projects in school, the work can be more efficiency and improving quality. In addition, it facilitates the exchange of ideas and opinions. For instance, I did a creative activity with four of my classmates in the first week, it has to combine three elements to create a product, and we come up more creative and innovative ideas during the discussion, members are motivating each others in a team, if I only work in individual, I am sure the work quality must low down.

Combining different thought and knowledge of people could bring up a brilliant idea.




















Example:
In IKEA,  their culture is based on the positive spirit of team, enthusiasm and fun. They strive for people who share positive attitude and values. And they stated working with them is like working with friends. In the video, they talked about the culture of IKEA is 
moving, to find a better way and how the staff think the company.

Frederick Winslow Taylor-scientific management

On the other hand, although people dubbed it as emotionless, but I think part of the approaches should keep. Select staff to train and teach to develop their skills is important to a company, train and develop not only do improve staff’s skills but benefit to company as well. It takes advantages on both sides. 

Example:
In IKEA,  they will select high potential leaders and specialists to be Backpacker, which they can go on two six-month assignments in two countries. One of the assignments will be in another area than the one they are working in now. For the fellow staffs, they offers a variety of internal training programmes for those who want to learn something new and grow.

Dougals McGregor-theory Y
Another theory that I appreciate was theory Y mentioned by Dougals McGregor, he concerned about self-motivated and self-control, he emphasized to trust employee’s abilities. To me, being trust is a large motivation for work. For example: IKEA believe every individual has something valuable to offer which means they trust their staff.

Example:
I quite appreciate IKEA will review what’s done today and ask what can be done better tomorrow, so as to find new ideas and inspiration. This is kind of self-reflect and self-motivated, to keep improving themselves in reviewing the work on each day.
And self-motivated and self-control is needed for everyone, especially in work place, it can do better work if you always motivated and well control by yourself, if not, you may slow down the work efficiency.

An organization even can mix several approaches. Actually I think combine few approach is more effective, it is perfect to have several good approaches together. IKEA is the company which use several approaches. 

Other than that, Google also combine few approaches, it combined theory of human relation, scientific management and Hawthorne effect. Because Google emphasis on “Don’t be evil”, and they are quite concerned about team work and nice working environment which is defined as human relation, and they provide free training to staff. Moreover, they offer lots of good service such as free foods, free health care, they regard staff’s feeling, not only for staff, they even benefit to their family, which covered travel insurance and emergency assistance. And they state “We Are Family”, it gave better feeling to employees.

Organizational design and structure

Different organizations are working under different structure, so it has different ways to divide work and co-ordinate activities to achieve certain objectives. This week we learnt in class about formal VS informal, like Apple is a formal organization, they concerned with the relationship on hierarchical, and has its own set of distinct rules and regulation while informal focused on relationships between employees, such as, Sussex study group, we get together informally within University of Sussex, the communication is very fast and efficient. Also, I’ve learnt different structure like tall, flat and matrix structure, both can be centralized or decentralized, in which showing different chain of command and span of control, those are very important for organizing an organization.

Real life examples that I can think of: 

Tall structure

The government organization like Bank or NHS is tall structure, lots of process needed to go through for a decision, if you were sick, after you have to fill in form, it needed wait for long time to consult the client. Or if you want to open a bank account, it has to wait for around 5 days, they need to run lots of process. For instance, after I arrive here, I had some problems of opening bank account due to my surname, at first the staff in bank said it's fine to put it in the front, but after that they block my account because the superior don't allow it, then I have to wait 5 days again to activate it.

org chart:

org chart:

Flat structure

Google is considered as flat structure, since they had short chain of command, they split into small team for projects, delegated the decision-making to lower level. Manager have to in charge fifty to hundred of people, they giving chance for every employees to share their opinion or idea, so to have faster communication, and more idea can be created.

org chart:

Matrix structure

A bag manufacturer like Channel was divided into the sales and distribution, financial accounting, and production departments. They manufactures a variety of products, for project, they will name in Model 1, Model 2, Model 3, and so on. A person or several persons are selected from different department to communicate with others department. The Salesperson position will report to the Sales and Distribution department, and to the Model 1 department.

org chart: 

Further research on organization design structure

It raised me a question, Apple and Samsung, both private technological organization are the well-known companies of the world, their selling are substantial increase in a short period. So I am interested in how different or any similarity on their structure or management, since they both are the big competitors within the market of mobile phone.

Decision-making can be either centralized or decentralized. If most of the important decisions are made at the top, it’s centralized. If decisions are delegated to lower level, it’s decentralized.

After doing some research, it’s interesting to note that both of them are centralized. There are many advantages and disadvantages. 

Samsung:

Example

“I think elsewhere top managers respect their chief designer’s decision, but at Samsung, they overrule designers and have the final say about what design we go with. That limits our capability. To be better than a good fast follower, Samsung needs a more horizontal culture and to empower designers.”

Reason

It seems their decision-making are done by top manager but not listen to their designer. They just giving command to their staff.


Apple:

Example

Just over a month before the first iPhone was to be released in 2007, the authors report, a frustrated Steve Jobs summoned his senior team.

Steve had been using a prototype iPhone for a few weeks, carrying it around in his pocket. When his lieutenants were assembled, he pulled the prototype out of his pocket and pointed angrily to dozens of scratches on its plastic screen.

People would carry their phones in their pockets, Steve said. They would also carry other things in their pockets–like keys. And those things would scratch the screen.

And then, with Apple just about to ramp up iPhone production, Steve demanded that the iPhone’s screen be replaced with unscratchable glass.

“I want a glass screen,” Steve is quoted as saying. “And I want it perfect in six weeks.”

Reason

Although Steve jobs have already gone, but he is the previous CEO of Apple, I really appreciate of his talent. By the way, the story shows he made the decision of replace the iPhone’s screen with unscratchable glass, and just inform his staff during the meeting.

Centralized

From the above stories of Samsung and Apple, there are only number of supervisors centralizes the control. Direct control and supervision can bring better co-ordination and management control, which had less conflict of authority and duplication of work, it also can reduce costs. And it can provide a consistent strategy across the organization, which easy to implement a common policy. 
However, it shows the staff will not have loyalty to work, just like the designer in Samsung are not satisfy of its structure, it leads to less consistency and responsive.

In this photo, the hand looks like it controlling many subordinates.

My experience

After the lecture, I also reflected of my father’s job, he organized a handbag company in Hong Kong, China and Italy. I’ve been to working trip with him, so I knew a bit how he manages his staff. Since his company is not really big, so there are fewer layer of management, which means short chain of command, and wide span of control, so he act as the boss and manager at the same time, he delegated the authority of decision-making to his staff, and I found the decision can be made very fast, this is essential for work efficient, since his staff don’t have to ask before making decision. For example, the staff don’t need to ask for the shifting date every time, they can decided on their own, it help efficiency the work. And he knows all the staff well, thus he can distribute the work based on personality or what they good at, like if the staff is very careful, putting him to be the accountant is the best choice, different people responsible for different part, higher efficiency can be made. Also, closer relationship can motivated his staff, a harmony-working environment can be maintained .