Five Forces model

Porter’s model is one of the structured ways in which the industry environment is analyzed. He says that the stronger each of these five forces is, the more difficult it will be for the company to raise prices and make more profits. A strong force is equivalent to a threat, a weak force is equivalent to an opportunity. It is up to the operations formulators to recognize the opportunities and the threats as they arise and design an appropriate strategic response from the operation function. As it is a dynamic world, the strength of each of the competitive forces can change over time due to factors external to (i.e. beyond the control of) the company. The relative strengths of these forces can also be engineered by the company through an appropriate choice of a strategy and thus, tilt the competitive forces to its advantage. For instance, in the Toyota production system, the force of bargaining power of suppliers is lessened by removing the ‘bargaining’ bit. This is done by means of ‘single sourcing’ and by placing tremendous emphasis upon vendor relations and vendor development. The threat of substitute products can be minimized by providing a variety in the first place. This requires an appropriate manufacturing strategic response through a cost conscious yet flexible system of manufacturing. The risk of entry of potential competitors can be reduced through making / providing a quality product / service as the customer desires at an affordable price. Also, a wider range of product variety and timely services could be provided. Bargaining power or buyer can be lessened through building long standing relationships between the two companies through an atmosphere of transparency and through a dedicated service orientation. Operations strategy and consequent actions can be built around these organizational necessities.

(1) Risk of entry by potential competitors
(2) Bargaining power of suppliers
(3) Bargaining power of buyers
(4) Threat of substitute products
(5) Rivalry among established firms.

Operations strategic action and its relationship with other functional areas of management:

Operations strategies cannot function in isolation. A synergy is to be sought between operations and other functions. A company’s competitive advantage stems from such holistic or complete approach towards its strategic posture. There is no point in manufacturing function adopting a strategy of product differentiation through superior quality, without an adequate supportive strategic action by, say human resources development function to upgrade the skills of people and enhance motivation through its HRD strategy. Similarly, the operations function needs strategic support from the research and development function in improving the process capabilities introduction of new/modified technologies or coming up with better substitutes for inputs. Moreover, for modified new products, it is necessary that marketing function provides insight into the customers’ requirements. In this case, marketing operations and R&D functions have to work in tandem.

Ultimately, whether it is the operations strategy or a marketing strategy, its source is in organization’s strategic decision and thus, all functional strategies have to serve the organizational interests. For instance, lean production is a manufacturing response to the organizational need for serving the customer just in time. Time based competition as an organizational strategy leads to the manufacturing strategy of building flexibility and adaptability in the production system. This again has to have a parallel supportive strategy of the logistics function and appropriate marketing arrangements. IT must be noted that marketing under time based competition is a wholly new ball game. The purpose (What are we trying to achieve?) must be clear at the organizational level, so that appropriate functional strategic response is generated supporting the organization’s purpose.