5. IMPLEMENTATION OF PORTER’S MODEL AT XARA INC.
The challenges confronted by the Xara Inc. before employing Porter’s model are summarised below:
• The financial meltdown in US excessively impacted the business growth of the Xara Inc. especially after the global economic crises 2008.
• Title insurance was a major vertical for the Xara Inc. However, title insurance industry was detrimentally impacted in the US. The existing customers had ample challenges and some of them filed for bankruptcy. Therefore, to grow an existing customer business was abstruse.
• Staffing was a major issue due to volume fluctuations and the customers were not ascertaining any minimum order commitment.
• 50% of Xara Inc.’s revenues were coming from a major banking client. This was a high risk situation as there was overdependence on one customer. Moreover, the banking industry was in doldrums.
• Rising employees and infrastructure costs were devouring from profitability.
• Employee retention.
• The company was dispensing a ‘me too’ service with no strong differentiators.
• There was no creaminess for the customers.
• Existing competitors were profoundly entrenched into client firms and new competitors were coming up fast as entry barriers were low.
• Acquiring other banking customers was difficult due to the current equity participation structure.
• There were regulatory concerns against outsourcing.
• Sentiments of nationalism.
Xara Inc. preferred to opt the Porter’s Model to cope up with the boosting competition in the industry, other issues and challenges confronted by the company. They analysed the five forces and constructed a draft model for implementation.
Summary of five competitive forces analysis is mentioned below:
5.1. Threat of New Entrants...
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...ever the major suppliers are in India, Philippines and China. In India, they are located in cities i.e. Bangalore, Chennai and Pune. Due to excess industry capacity, suppliers are always willing to diminish prices to retain or embellish their share.
Extensive exit barriers: No
The exit barriers are not extensive. If a company does not realise any profit, it can easily fold up business by laying off its employees and surrendering the office and infrastructure. However, this could lead to a loss of reputation. There is also an alternative to sell off the business to a competitor.
Intense rivalry: Yes
There is an intense rivalry due to lack of differentiation, excess capacity and slow industry growth. Once the quality threshold is reached, price becomes a major differentiator. This leads to zero sum competition and consequently, drives down industry profitability.
For the first 30 years of the company's existence it enjoyed huge profits from selling only automobile insurance. These large profits were achieved, due in part, to its targeted market which are generally people in the age range of 30-60 who are classified as a low risk "good drivers". The company's structure of selling insurance directly to the customer while providing excellent customer service is also a driving force to its success.
The interesting part of this industry is the fact that there is no company with a dominant market share. Even though some revenue numbers might be higher for some companies, each company has a specialty that it brings to the industry. One of the main costs is manufacturing their products. A major reason the companies are moving manufacturing plants to Asia and South America is to lower manufacturing costs.
Analysing McDonalds (fast food outlets) using Porters 5 Forces model – sometimes called the Competitive Forces model.
I choose to do the porter’s five forces analysis over the automotive industry. But before I start talking about the automotive industry I would like to talk about what the porter’s five forces model is and what it does. “The porter’s five forces model is a tool for examining the industry level competitive environment, especially the ability of firms in that industry to set prices and minimize costs” (McNamara, 2012). This model describes the competitive environment in terms of five basic competitive forces. “These forces are: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and services, and the intensity of rivalry
The major issues facing the company comprises of there being multiple businesses with different demands. There are separate levels of performance and success as well as growth chances for each of the sector and the firm needs to tackle with issues in each of these divisions (Dube, J.P., 2004).
Porter's five forces analysis is an industry analysis model developed by Michael E. Porter as a tool for developing business strategies to become or stay competitive in an industry or marketplace as per (Braze, 2013).
Maintaining profits in this competitive industry is very difficult. The top competitors in the industry have an extensive portion of the entire market, nearly 80% of the market they control. This makes it extremely difficult for small entities entering the market to hold onto their position in the market and stay competitive.
The bargaining power of L & T suppliers is high. Most L & T suppliers are organised making the company to be one of the largest engineering companies in Malaysia (and one of the top five private sector companies). Its diversity in engineering sector gives it a strategic position and bargaining power. Moreover, L & T faces reduction of prices by its competitors. For instance, increase in
Threat of substitutes in market as best quality is not always a priority for some customers as they are price sensitive.
The number of suppliers available for each input drives the bargaining power of suppliers. More the suppliers, lower would be their bargaining power.
In the first weeks, our inventory could keep up with the incoming orders in the supply chain which is the ultimate affect of the uncertain customer demand. As the wholesaler, I was dealing with the orders of the retailer who is responsible for the direct customer orders which was stable at
•Perfect competition: This happens when lots of small firms compete against one another. These firms are in a very challenging industry to manufacture the socially optimum output level at a very small cost to the firm.
Business Process Management (BPM) is considered as the umbrella of our research. This chapter introduces an overview of BPM which offers a set of diversity values for organizations. Figure 2.1 represents the different areas that we covered in this chapter.
There is increased competition- This is a consequence of capitalism. Increased competition leads to improvement in terms of quality and efficiency of production. It also leads to low prices of products in the market, as producers want to have a larger share of the consumer market. In a capitalistic perspective, businesses that produce high quality products at a low price enjoy a larger market share.
Managers and strategists are often faced with a dilemma while trying to understand the determinants of profitability of industries they compete in as well as potential industries they may wish to compete. To this effect, several analytical frameworks are employed; the most widely used being the Porter’s Six Forces model. This paper seeks to bring to light the shortcomings of using the Porter’s Six Forces model as an analytical framework to determine which industries are profitable or not.