Strategic Management through Analytical Processes
Researchers have developed a number of models to explain why some companies are successful while others fail in a given industry (Williamson & Jenkins 2003, p. 13). These models may differ in the approach to explaining why one company becomes successful and another fails in a given market. However, they tend to converge in agreement that certain factors are in play to determine and influence the performance of a company in terms of success and failure. Among the models used, there are the Porter’s Diamond, Porter’s Generic Strategies, and McKinsey’s 7s Framework. Each of these models explains in a different way the factors that contribute to the success or failure of a company in an industry (Sekhar 2009, p. 21).
Aims of the Essay
The aim of the current essay is to critically evaluate the analytical processes of Porter’s Diamond, Porter’s Generic Strategies, and McKinsey’s 7s Framework as they are applied to Apple Inc. The management essay specifically provides an exploration of these processes, with highlighting their advantages and disadvantages. It identifies their most effective areas within the company and ways of addressing deficiencies, which may be experienced as a result of using the model in the mobile industry. In general, the essay is aimed at providing a comprehensive critique of the models with practical approach to real issues in the telecommunication industry through opinions, observations, thoughts, and knowledge.
In the evaluation of the models applied to the telecommunication industry, the essay will use a case study approach, with Apple Inc. as a company of reference. The three models will be discussed in reference to the Apple’s business practices both in the national and international market. The essay will explore the areas where Apple has been successful, as well as those areas the company has been unsuccessful as a result of applying the principles espoused by the models.
Apple’s Strategic Approach to Management in Telecommunication Industry
Apple Inc. is one of the most successful technology companies in the world. The company produces a range of mobile devices, which are sold in many parts of the world. As it is a company that originates from the United States, several aspects have played a role in its success amid an industry that is rife with many other creative and innovative companies of the world. Some of these elements are derived from the internal and external conditions contributing to the company’s ability to leverage its competitiveness and strengths as a mobile technology company.
Analysis of the Case 3 Analytical Processes
Porter’s Diamond Model
The world business environment is changing very fast, and with this, businesses must understand how global forces influence their competitiveness in the market. An important aspect is the understanding of the dynamic business conditions in different markets and the areas where the conditions could be leveraged on to increase the prospects of the business succeeding (Morschett, Schramm-Klein & Zentes 2011, p. 61). Apple Inc. operates in different market conditions around the world, and this should influence how it makes its strategic choices in the market. The Porter’s Diamond model is used to analyze areas of weaknesses and strengths in relation to a particular market. The model also can be used to understand the competitive advantage that the company holds across the world. It gives an introduction to basic elements of factor conditions, firm characteristics, demand, and supporting, as well as related industries (Stimson, Stough & Roberts 2006, p. 25).
According to the model, the factor conditions represent the relevant situational conditions such as availability of raw materials, skilled labour, and infrastructure, among other conditions, which support the business activities of an organization (Sengupta, Bhattacharya & Sengupta 2006, p. 17). Factor conditions can also be grouped into material resources, human resources, capital resources and infrastructure. The demand factors on the hand represent customer demand for services and products and may influence the factor conditions. Demand factors shape the direction of the business in terms of innovation and development in the sense that high demand will call for further development and greater innovation of products and services (Kossowski 2007, p. 14).
The firm’s structure in terms of strategy and competition is another important part of Porter’s Diamond model. This element impacts on the way firms are established, managed, and organized. It also impacts on the characteristics of the domestic competition and by extension competition on the international market. Related and supporting industries represent the actual or potential industries that offer alternative product or service as to the ones offered by a firm (Michalski 2011, p. 32). To complete the diamond structure, Porter also includes the government policies and serendipity as factors that also influence the way an organization does its business in a given market. The principle of Porter’s Diamond model is that each of the elements in the model affects one another and firms should strategically manage them to avoid failure of its businesses.
Porter’s Generic Strategies
The strategies are applicable to businesses of all sizes and to all industries. The principle behind the model is that business firms do have three basic options to gain competitive advantage. The options are focus, differentiation, and cost leadership (Sekhar 2009, p. 45). Each of these options helps the business to gain market share through pricing and other mechanisms. For example, cost leadership helps the business to maintain average prices and lower costs while maintaining profitability of the business. A company can achieve cost leadership by having costs, which are below the average costs in the market. Alternatively, a business organization can achieve a competitive advantage through differentiation of the product or service by incorporating unique features that add value to the service or product (Bhandari 2012, p. 33). The focus option is normally a mix of differentiation and cost leadership by focusing on a niche market. It means that a company should present products/services in ways, which are not provided by competitors but through targeting a niche market.
Porter’s generic strategies model presents a three step approach to achieve the appropriate option. The first step involves analyzing of the strengths, weaknesses, opportunities, and threats facing the business in a given market. The SWOT analysis should indicate whether a business is likely to succeed with one option or the other. The second step involves the understanding of the nature of the industry in which the business operates. This is achieved by analyzing the five forces including political, social, economic, environmental, and technological characteristics of the market. The last step is comparing and contrasting the SWOT against the Five Forces, with a view of managing the supplier power, customer power, competition, and eliminate threats of substitution and new entry (Wilson 2006, p. 54).
The applicability of Porter’s generic strategies model is based on the ability to select the best option, as well as evaluate effectively the steps involved in the execution of the option selected. Apple has a focused strategy that involves entry in a niche market of highly innovative mobile devices. However, given the level of new entry and threat of substitution, it can be argued that Apple has not been able to achieve the necessary competitive advantage through the focus option. More companies are able to provide the same mobile devices with similar functionalities as those provided by Apple. Apple also does not provide cost leadership as an element of focus option since it has one of the highest priced products in the industry, especially for international consumers. Arguably, the model works best for the domestic market where consumers can afford to buy premium mobile devices from Apple.
McKinsey’s 7-S Framework
The McKinsey’s 7s Framework is a model that focuses on the internal strengths of a company, which could be leveraged to give it a competitive advantage. The model is useful as it can help to improve the performance of a business in terms of profitability and examine the potential effects that a business is likely to experience in future. It can also help align processes and departments at the time of restructuring and deliver the best approach to implementation of strategy at a firm. The seven elements of the model are divided in soft and hard elements (Mankins & Steele 2005, p. 89). The hard elements are easily defined and identified and can easily be influenced by strategic management. The hard elements are systems, structure, and strategy demonstrated in the form of organization charts and reports, information and technology systems, and strategy statements from the management. The soft elements, on the other hand, are difficult to define because they are not tangible and more related to the organizational culture. They include the style of management, skills of employees, common values, and staff experiences.
Each of the elements in the 7s calls for a business to have a strategic approach as to how it is controlled and managed internally. For instance, the strategy should be developed considering competition while structure should reflect the overall goal and objectives of the business. Systems denote the regular activities and processes that are undertaken to accomplish the job at hand while shared values mean the values held by the business in form of ethics and corporate culture (Kotler & Armstrong 2010, p. 70). Style has to do with the kind of management and leadership embraced from the top management to junior staff in positions of influence. Skills refer to the competencies and actual skills that the business has in terms of the quality and experience of the staff members to accomplish a given job (Lin & Sung 2013, p. 59).
One important principle of the McKinsey 7s is that each of the seven elements is affected by the other. For instance, a change in strategy may mean that all the rest are affected in order to achieve a level of elements that is optimized towards the achievement of the new strategy. Shared values, on the other hand, are considered as the most influential element of the internal processes as it defines the appropriateness or the relevance of the said elements towards the attainment of the competitive advantage in the market.
Applied to Apple, the McKinsey 7s model can help to understand the internal conditions at the company’s headquarters and how these elements contribute to the success of the company both in domestic and international markets. As an internationally operating company, Apple can use the 7 elements of the model to organize its internal processes and strategies, which subsequently affect the business practices in the international markets. For instance, the internal strategy of creating innovative mobile devices targeted at high end consumers is being applied to international markets. In this case, Apple’s products are priced above the average price of mobile devices in the international market. The concentration of skills at the company means that Apple can continue to be a market leader in mobile device production.
Critique of the 3 Analytical Processes
The three analytical processes can be applied to strategic management at Apple both at domestic and international level. However, there are a number of shortcomings that can be experienced whenever the models are applied. The first critic for Porter’s Diamond model is that since the international markets where Apple operates have differences in factor conditions, demand conditions, and government policies, the application of the model to strategic management at the company may not be practical. It means that Apple would need to develop the model, which is suited to a particular market where it operates. Thus, this can make the process be expensive, time consuming and invariably impractical to implement. Porter’s Diamond model does not also offer a clear explanation on how chance can contribute to the success of a company given the tremendous time that businesses spend to strategize and enter into new markets. In a business environment that is susceptible to so many elements including technological changes, consumer preferences, and competition, it would be insidious to depend on luck to succeed in any given market (Williamson & Jenkins 2003, p. 17). Businesses should have the capacity to control what happens to them in different markets and manipulate such conditions for their own advantage.
The Porter’s Generic Strategies Model gives the three options provided to become competitive in the market. The cost leadership option requires that businesses offer products and services at lower prices while maintaining profitability. For a company like Apple, which depends on costly research and acquires its components from different materials, the quality of its services defines the prices of the products that are produced. Apple uses quality and innovation to determine the prices of the products that it sells on different markets, both domestically and internationally. Though it is possible for Apple to attain cost leadership, this could be at the expense of the quality of product, which is a distinguishing characteristic of the company’s products. More importantly, the cost reduction sources might not be unique to Apple or any other company dealing with telecommunication as it becomes easier for competitors to copy the strategies used to reduce costs (Sekhar 2009, p. 27). As such, the company must continuously find ways of reducing the cost in order to remain below the average cost of their products/services in the market.
The same can be said about differentiation and focus as the other options for Apple. In fact, it has become easier for competitors in the telecommunication industry to differentiate mobile devices to target low cost market, an area that is not adequately served by Apple. The dependence on the niche market as an area of focus may be detrimental in long-term as it means that entry of new competitors will disrupt the demand for the products sold in the niche market. For example, Apple was the first telecommunication company to come up with the touch screen technology for mobile devices. This was a differentiation strategy that served the company’s interests for a short while before competitors could also produce touch screen phones. For now, it is no longer a competitive advantage for Apple and the company must innovate more in terms of software operating systems and applications suited to meet the needs of the consumers (Kew & Stredwick 2005, p. 30).
The McKinsey’s 7s Model only focuses on the internal processes and practices that define how the business operates. As such, using this model Apple should only concentrate on the internal factors and make them as good as possible to achieve the competitive advantage. The model ignores the impact of the external factors, which are outside the control of the company. For example, in terms of shared values, Apple as an American company has its own American values, but it sells its products in other markets in Europe and Asia where the ethical and business values might be different (Stimson, Stough & Roberts 2006, p. 19).
Political and environment conditions outside the internal processes of the company may also impact and influence the ease of doing business in the market. McKinsey’s 7s model ignores the interactions with the outside world including the policies of the government to influence the way foreign companies do their businesses in an international business environment. Thus, the model can suit a local company, which operates in a domestic market where the external conditions are not so much varied to affect their business (Morschett, Schramm-Klein & Zentes 2011, p. 47).
Main Outlines of Argument
Strategic management requires use of models to understand various conditions that exist in the market. The Porter’s Diamond Model of managing business is based on four key elements defined in the factor conditions, demand conditions, firm conditions, as well as related and supporting industries. Businesses could also succeed by chance and government policies that are applied in a given market. The elements in this model help to identify strengths and weaknesses facing a business. However, for a company like Apple, with widespread markets, the application of the model will require re-adjustment to reflect different conditions in each of the market.
The Porter’s Generic Strategies Model is based on three optional areas of cost leadership, differentiation, and focus. The challenge for applying this model to a company in the telecommunication industry is that competitors can easily come up with sources of cost reduction and differentiation. In this way, they reduce the competitive advantage of another company. The McKinsey 7s Model is founded on the seven internal processes of a company. The processes affect each other and define the way an organization carries out its business operations in the market. To an organization that operates in international market such as Apple, the seven elements may not be applied as the business requires adopting market strategies that reflect the condition in each market.
Reflection on What Analysis of the Topic Has Achieved
From the analysis of the topic of strategic management using models, it is evident that models are important tools that can help companies to become successful in any market by leveraging on their competitive advantage. However, businesses that operate in markets with unique characteristics should adopt a strategic approach that adequately addresses the needs of that particular market. Models can be used to improve the competitive advantage of a company, but they cannot and should not be applied exclusively, especially for companies that have business operations in foreign markets.
Issues of consumer preferences, technological changes, and government policies, environmental and political situations greatly affect the way businesses operate. It has been discovered that an incorporation of different models to strategic management of a business can improve the level of success that a company attains in a given market. The implication of the analysis is that Apple needs to adopt different strategic approaches, especially when considering some of the international markets where the culture and business values are different from its home country. It also needs to consider the elements of cost leadership and differentiation of its products as means of remaining competitive in the telecommunication industry.
Lessons Learned about Strategic Analysis
Strategic analysis needs to be approached from a holistic point of view where internal and external conditions are considered. The strengths and weakness as well as opportunities and threats that an organization faces in the industry form the basis of developing better strategies for effective operations. Management can use various models when thinking about entry in a new market and, therefore, gain a good competitive advantage over competitors. The domestic and international markets are different in terms of characteristics and conditions that influence the way businesses carry out their operations. It is, therefore, important that a strategic analysis approach should consider all the applicable models, which can capture the most relevant market conditions before entering into a new market.
The Porter’s Diamond Model, Porter’s Generic Strategies Model, and McKinsey’s 7s Model provide a good starting point to understanding of the market dynamics and can be used to leverage on the competitive advantage of any given company. The ability to apply the principles espoused in the models is what differentiates a successful business entity from a failed business entity.