Forces and Trends
Category : Articles
In today??™s business world, applying concepts and implementing innovative and long-term strategies to ensure growth play vital role in organizational success. One important concept to consider is the environmental scanning, involves three different environments, such as remote or global operational environment, the industry in which companies compete, and the internal environment within the companies. Environmental scanning looks into such concepts as social, environmental, economic, technological, competitors, suppliers, and capabilities, all allow the companies to collect data and identify forces and trends relevant to the current market conditions.
In its research of three companies, Team B collected information on how external factors influence companies??™ choices of direction and action, as well as the organizational structure. The factors included the two out of three components of external environment, such as remote and industry environment. In order for the three chosen companies to establish a strategic agenda the management must understand how the environmental factors work in the industry and their affect on the companies. This paper will further go into detail on how these forces operate within the companies??™ frameworks, as well as analyze the ways for companies to take advantage of opportunities that they create.
Company Synopses and Key Concepts
During the late 1980??™s and into the early 1990??™s the US Government realized they were facing a drastic loss of its Information Technology workforce to the competition as technology industries boomed and wages surpassed what the government could afford to pay. The US Government began losing its most valuable resource to the competition because salaries could not match or keep up with the competition. The mentioned economic force was not equipment or sales, in this instance, but the investment they had made to train and educate the staff, both civilian and military. Thus, the effects of nature and degree of competition in an industry had shown its face within the US Government. Essentially the government was encountering the threat of substitute services because these same employee??™s were being hired by the contracted service providers that were supporting operations. To counter this and to retain employees the Government created what is now known as the CP-34 IT Program Management to devise ways to retain and attract new employees to compete with industry. Although in most industries people are considered resources and not property, the US Government looks at its human resources as property because of the investment and contractual relationship to each of the positions these people fill to accomplish the government??™s mission to give the tax payers the best price for the tax dollars spent paying for these employee pay and up-keep. Today the US Government is looking for innovative ways as well as outside the industry to retain its highly skilled staff as well as implementing alternatives that will attract new employees to fill the now vacant positions within the civilian workforce.
IT Personnel Shortage resulting from the remote environment
Graham Spanier, President of Penn State University, made a speech in 1998 in which several issues involving the IT personnel market was addressed. His speech is almost 10 years old. His projections were somewhat of a premonition of where the IT market is as far as personnel and is very indicative of the competitive force that information technology (CP-34) program managers are confronted with.
??? 1 in 10 IT positions are unfilled. Half of those positions are in IT corporations and the other half are in other industries; this statistic is a major force that makes retention and hiring difficult for CP-34 managers because up until recently the federal government has been limited in the amount of benefits and salary that it could offer personnel. However, the implementation of the new National Security Personnel System (NSPS) will help in this area. NSPS will allow CP-34 managers to offer salaries and benefits that are similar and competitive to what other large corporations are offering.
??? The Bureau of Labor Statistics projects that more than 1 million new computer scientists and engineers, systems analysts, and computer programmers will be needed within a matter of years–most of them to fill newly created jobs; the need for IT personnel has outpaced the availability of IT personnel. In his speech Graham Spanier mentions that his most important message is that it is imperative that higher education accelerate its efforts to meet Americas needs for new workers to address the explosion in information science and technology professions.
??? Several executives in the IT industry (approx 68%) have listed the lack of skilled workers as a significant impediment to their growth. The CP-34 program has enhanced this area for the U.S. Army by taking the initiative to train IT personnel. (Spanier, 1998)
Globalization ??“ Economic and Social
Competition for IT talent is not limited to United States corporations. In the past U.S. corporations were able to look offshore in places such as India for IT talent. Lucrative job offers always worked in the past. This is no longer the case. For example Infosys Technologies Ltd., an Indian based software provider plans to spend $100 million to 25k workers and college graduates around the world over the next year. Although the dollar amount is not nearly as massive this initiative is the same as the CP-34; spend funds to educate and recruit talent. Tata Consultancy Services located in Bangalore will hire 30.5k in the next year, 1k of those will be from the United States. That is 1k trained and skilled IT personnel that is no longer available to the CP-34 program.
Indian corporations are opening offices around the world and recruiting local talents. India??™s initiative is successful. For example an American citizen working for Tata states ???The major difference between working for this company and an American firm are the time zones,” said Dubiel.??? (Lewis, 2006)
Currently, more than 10k American work in India for Indian information technology consulting and other outsourcing firms, a number that is expected to grow according to John McCarthy, vice president of Asia Pacific research at Forrester Research in Cambridge. Meanwhile, American firms seeking to reduce labor costs are stepping up off-shoring efforts and will be sending more white-collar jobs abroad. McCarthy estimates that US employers will move 3.4 million jobs and $136 billion in wages overseas by 2017. The sending of IT white-collar jobs abroad could ease the competition for IT skills within the United States. Logically, if a corporation is filling IT needs with abroad personnel then the supply of IT personnel available to the CP-34 program will be enhanced.
Military Impact – economic
Like the private industry, the United States military is increasingly depending of IT personnel to perform critical functions. The economic boom of the 1990??™s, rapid growth of available IT jobs, and low employment rates created issues for the U.S. Military. The convergence of IT trends did not lessen the burden on the military but intensified competition between the military and corporations for limited IT talent.
A study by the National Defense Research Institution concluded that the military as a whole had successfully implemented programs to retain personnel in the military. Although military recruitment and retention has improved the reenlistment of IT personnel in the Army is lower. (Hosek, 2004) This is a significant issue for the CP-34 program. The CP-34 program is primarily focused on the training, retention and recruitment of civilians. A lack of military talent in the IT field generally impacts the system by placing a higher burden on the civilian workforce to fill the gap. A strategy for the CP-34 managers could be to capture the talent that is escaping the army ranks. As mentioned earlier the NSPS provides government managers the ability to compete for talent based on salary. This strategy should be aggressively pursued since the people the personnel that did not reenlist has benefited from U.S. Army training funds.
Dell Corporation achieved the largest world market share in 2003. By implementing its innovative strategies, such as direct selling and Just-in-Time, Dell has met great success while no other company has managed to apply these methods and achieve great profits. With its efficiency and mass customization, Dell surpassed the tough competition obstacles and became a leader on the market. Today, the company??™s management is looking at expanding its market share and introducing its products in the Asian markets, particularly in China.
The Porter model of competition expands the arena for competitive analysis. It allows managers to develop strategic plan in order to accomplish organizational objectives and goals effectively and efficiently. The two out of five industry environment forces that relate to Dell Corporation are presented below.
New entrants to a market can threaten the market share of competitors already in the market. In other words, ???new entrants to an industry bring new capacity, the desire to gain market share, and often substantial resources. The seriousness of the threat of entry depends on the barriers present and on the reaction from existing competitors that the entrant can expect. If barriers to entry are high and a newcomer can expect sharp retaliation from the entrenched competitors, he or she obviously will not pose a serious threat of entering??? (Pearce, J. & Robinson, R., 2004).
According to Pearce and Robinson, the six major barriers to entry include economies of scale, product differentiation, capital requirements, cost disadvantages independent of size, access to distribution channels, and government policy. The economies of scale ???force the aspirant either to come in on a large scale or to accept a cost disadvantage??? (2004). In the IT industry, which Dell belongs to, the economies of scale are most common barriers to entry when it comes to R&D, marketing, production, and service, as well as distribution and financing.
Product differentiation refers to identification of brand products and involves entrants??™ attempts and determination to gain customer loyalty and includes customer service, advertising, and leading the industry.
Next, capital requirements are another entry barrier and involve the company??™s need to invest its resources in order to compete. ???Capital is necessary not only for fixed facilities but also for customer credit, inventories, and absorbing start-up losses. While major corporations have the financial resources to invade almost any industry, the huge capital requirements in certain fields, such as computer manufacturing and mineral extraction, limit the pool of likely entrants??? (Pearce, J. & Robinson, R., 2004).
Additionally, the barrier of cost disadvantages independent of size represents the companies that ???have cost advantages not available to potential rivals no matter what their size and attainable economies of scale. These advantages can stem from the effects of the learning curve, proprietary technology, access to the best raw materials sources assets purchased at preinflation prices, government subsidies, or favorable locations. Sometimes cost advantages are enforceable legally, as they are through patents??? (Pearce, J. & Robinson, R., 2004).
The last two barriers to entry are the access to distribution channels and the government policy; they deal with secure distribution of company??™s products and the limitation and controls imposed by the government of the country in which a company operates.
New entrants, such as IBM, are interested in entering the Chinese market to try to gain a large market share from existing competitors in the market. By using the direct model strategy, Dell is using a different approach to woo the Chinese consumers. Dell??™s Just-In-Time (J-I-T) inventory keeps inventory costs to a minimum, and companies like China??™s market leader Legend are beginning to move to Dell??™s J-I-T model and selling direct to their corporate customers.
Dell??™s barrier to entry in China involves dealing with the government, political forces, as well as legal issues. Many foreign firms have to depend on Chinese resellers to make their products available to the public. Foreign companies may need to form joint venture agreements with established Chinese companies. China??™s regulations state that if goods were not manufactured in China, they could not be sold directly to the mainland. Despite protectionist tariffs on foreign firms, Dell can still undermine Legend??™s prices.
The external environment of a company consists of outside conditions that affect a firm??™s performance. An analysis of this external environment allows a firm to identify key conditions that are beyond its direct control and those elements on which it can have an affect. There are five areas that make up the general environment: technological factors, economic factors, social factors, political factors and ecological factors; Below is the analysis of two factors of the external environment that will help Dell identify the opportunities and threats in the computer industry in China.
The first element in general environment is technology. The technological segment includes the institutions and activities involved with creating new knowledge into new outputs, products, processes, and materials. In the computer industry, technology continues to be smaller and faster than ever. It is essential for a company like Dell to be aware of technological changes that might influence its industry. ???Creative technological adaptations can suggest possibilities for new products, for improvements in existing products, or in manufacturing and marketing techniques. Technological forecasting can help protect and improve the profitability of firms in growing industries. It alerts strategic managers to both impending challenges and promising opportunities??? (Pearce, J. & Robinson, R., 2004). Ability of Dell??™s management to predict future technological capabilities as accurately as possible is the key to the company??™s success in the future.
In Dell??™s case, providing access to technologies developed by state R&D institutions has proven to be a key government resource. It was observed that by the year 2000, mainland China??™s annual PC production would reach 7.6 million, which makes China the third largest in the world, after the U.S. and Japan. In addition, the information and capabilities of the internet is a great opportunity for companies like Dell to get their names into the public domain, as well as a fast way to tailor services to their customer segments. Additionally, Dell faces a threat in the technological segment in its business in China, which is the high cost of the internet, as well as the restriction to selected web sites. However, most likely, Dell??™s information, with its business content, will be displayed on the internet without restriction.
The economic environment refers to the nature and direction of the economy in which a company competes. ???Because consumption patterns are affected by the relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry. On both the national and international level, managers must consider the general availability of credit the level of disposable income, and the propensity of people to spend. Prime interest rates, inflation rates, and trends in the growth of the gross national product are other economic factors they should monitor??? (Pearce, J. & Robinson, R., 2004).
China represents one of the planet??™s last great IT sales opportunities. This became one of the main reasons for American companies??™ willingness and desire to take advantage of China??™s large population and its buying power. However, despite of China??™s population of 1.2 billion people, one can not necessarily classify all the people as paying customers with purchasing power. For instance, the China??™s middle class primarily resides in one of four heavily populated areas, while the lower classes, or so called peasants, live outside of these four cities and consist of about one billion people that are not a true representation of the buying customer pull.
An important fact for Dell to consider is that the primary threat that computer companies encounter in China is the threat of software piracy. One of the reasons is that because despite its economic opportunities, China has a shortage of skilled labor. Computer companies such as Dell must acknowledge the fact that the average Chinese consumer can not afford investing in a brand name when it comes to computers and licensed software; in addition, very few people in China have bank accounts or possess credit cards. Dell??™s management must be aware that Chinese customers prefer to choose the cheapest computer systems available, which potentially leads to piracy.
Finally, since 1999, China is considered to be the fifth largest personal computer market, after such countries as the Japan, Britain, United States, and Germany. Dell??™s entry to China will benefit from the fact that along with China??™s prosperous economy, it is a rapidly growing and expanding country with modern infrastructure and many opportunities.
Foundry Networks, Inc. is a leading provider of high performance enterprise and small office/home office (SOHO) networks. By implementing innovative strategies, such as installing networking solutions that is compatible with everyone else??™s network devices and software. They have accomplished this by selling packaged solutions that use open source/open code programmable software and devices that can be purchased off the shelf. Foundry has met great success while none of the other leading companies have managed to apply these methods and achieve great profits. With its efficiency and low cost customization, Foundry surpassed the competition and has achieved a top 10 position in the market. Today, the company??™s management is looking at expanding into the broadband networking end-to-end solutions market. They have begun introducing its products further into more industries as well as deeper into the global IT arena. They are committed to continuous innovation that leads the IT industry in price-performance from the enterprise edge to the service providers down to the desk top.
Balance of the five forces of competition through Alliances, Partnerships or variations
Micrins Surgical Instruments / Foundry customer
Although companies like Micrins Surgical Instruments, a manufacturer of plastic and reconstructive surgery supplies, tried all possible means to avoid lowering their standards to stay in business. They found that if they did not take alternative strategy measures to repel the threat of new entrants they were not going to survive the market or the competition. Many companies across various industries such as GM in the auto or Foundry in the technology industries have found themselves in like situations within the arena of fighting against the threats of both products and services. Each of these situations occurred because they reached a point where they considered their products high-end and those high end products have made the company become a leader. Bottom line, in cases like Micrins the end product is more expensive than the competition. Thus, allowing the competition to run them out of the market, their quality products created. As Micrins found out lower-priced tools are available throughout the market once there is a market. Foundry on the other hand has leveraged this to their advantage and incorporated these products into their product line. Micrins, rather than risk degrading their name, resisted the temptation to produce lower-priced, lower-quality products for years. However, the allure becomes too attractive to ignore and they found an alternative. (Band, J, 2003) Micrins alternative was launching a subsidiary company to sell lower end and lower priced products, called Mejor, in an attempt to capture the lower end of the market and to regain lost customer revenue. (Micrins Surgical, 2007).
It is too early to tell if the Micrins strategy is effective because of the short period of time Mejor has been in place as a subsidiary. However this alternative is one that can be considered as well as partnerships or alliances with other companies of like industry, as Foundry did with their existing product lines. Although there are major differences between the technology and medical supply industries there are commonalities. Micrins is a customer of Foundry and use Foundry equipment to run their operation so there is a parent child relationship within their IT architecture. There are relative concepts and processes that can be carried between any industries as the auto industry has become well known for. Furthermore, the idea of balancing price, quality, and brand reputation without surrendering market share is logical. (Band, J. 2003) This concept supports as well as balances all five of the forces: the threat of new entrants, the bargaining power of customers, bargaining power of suppliers, the threat of substitute products or services, and the jockeying among current contestants. A solid end-state strategic plan that includes any variation of these alternatives will provide an alternative that does not lower any company name or brand standards and can assist in achieving a balance of all five forces.
Specialization – Technological Factors
Companies like Foundry have specialized within a very tight “niche” within the Information Technology industry that can cross many industries. By developing their products in this fashion they have been able to reach within all industries by focusing on horizontal needs of their customer base. As was published within the LAN Product News, in 2007, this type of specialization specifically is being focused in the wireless and hopefully into their broadband network solutions within the sector of local area networks of IT industry and includes companies like Aruba, Colubris, Extricom etc??¦ and they are melded together to create and support specific IT Wireless Network functions. Once a customer purchases a product from them they in turn will utilize the services and support of their open source / open code partner companies to attain the specific companies networking needs. They reach into a specific market where network services, enterprise hardware and software packages are needed and focus on developing IT architectures to support those needs. Foundry specializes in the network router aspects specifically with open ended manufactured systems. They build their routers so they can be packaged with any other companies networking equipment and can be sold for integration into any type of industry wired or wireless.
Although this strategy has triggered a disruptive effect it has opened the doors to new technologies being integrated into many different industries. For example companies like Cisco that introduced the first generation of Voice over Internet Protocol (VoIP) services were building systems that required the purchase of only their equipment otherwise it would not function. The prices of these packaged systems were very high and small companies and local businesses were not able to afford to integrate these cost saving technologies into their businesses. By creating other diverging technologies that were open ended and would function with any other system companies like Foundry and Aruba were able to enter into the markets as a team of sort by specializing within just a small aspect of a big picture.
As Gabriel Brown, Chief Analyst for Unstrung Insider pointed out the strategy taken by the entry level Information Technology Company has caused companies like Cisco Systems and Siemens to focus on tight integration with the vertical applications that drive the heart of their corporations rather than closed systems that will not work with other products. (LAN Product News, 2007) The concept of divergence in strategies has created a dynamic as well as competitive market within the IT industry.
Concentration – Social Forces
The Ability to pick the right market stakeholders and fine tuning the market strategies will be a competitive advantage in the long-run. Foundry has gained a broad customer base that was previously dominated by the leading IT companies like Cisco and Siemens by using specialization strategies. However, Foundry??™s customer base is directed towards and includes the small office and home office (SOHO) markets because of their specialization in the use open source equipment that can be tailored and geared specifically to any industry whether it is education, local government, healthcare, hospitality or financial services. The targeted groups that Foundry has gained in these areas are primarily the ones that have the need for the specific IT products and services that are emerging however, would have been cost prohibitive and otherwise would not have spent the dollars for either Cisco or Siemens to have engineered, developed and designed to meet their specific needs. Foundry has been able to gain these markets by providing lower cost products that meet their standards and can be substituted for what Cisco or Siemens would have provided. Although large companies like the US Government, have been loyal in the past to both Cisco and Siemens, even they are reaching outside those boundaries to companies, like Foundry that are providing proven quality products and services at a much lower cost. Thus companies like Foundry are seizing upon the golden opportunity of carefully selecting the markets and industries that can not afford the big company packaged deals during start up or corporations that are in a budget squeeze.
Overview – Strategic Adaptability and Relevance to Each Organization
In the above three companies??™ synopses and analysis of environmental factors gathered by the members of Team B, competition plays a major role when it comes to determining the optimal strategic advantage and the best course of action for each company identified. After all, competition is the essence of strategy formulation; ???competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. Customers, suppliers, potential entrants, and substitute products are all competitors that may be more or less prominent or active depending on the industry??? (Pearce, J. & Robinson, R., 2004).
The CP-34 Program mission, vision, and values will benefit the Army as a whole due to its focus on providing knowledgeable personnel. Productivity and trained personnel is at the forefront of the CP-34 program goal of ensuring that the Army acquire and retain the personnel that is needed to provide a quality level of support. Strategic management of this program brings numerous challenges to key leaders within an organization of such magnitude. However, flexibility and awareness of those external factors which may present obstacles is vital in formatting a set of decision and actions to formulate and implement a plan to meet the future goals of the CP-34 Program. External forces will be offset through the NSPS. NSPS is one strategy that the CP-34 managers will use to attract, retain and employ the best-of-the-best. The NSPS will be a large part of the CP-34 strategic strategy.
In Dell??™s case, although there are still certain problems that the company needs to address, Dell has accomplished a lot within a decade. With the data gathered from a thorough environmental scan and all factors considered, Dell will reach its peak and will head upwards toward dominating new markets. By expanding its product mix and diversifying, Dell will encounter many growth-oriented opportunities. Dell has proven successful at diversifying in the past, from its expansion in the server, services and storage markets, to PDAs and projectors, there is no doubt that the success will carry on. As an established firm, the company has much room to expand by exploring new markets in Asia and introducing its products in China.
In the case of Foundry the preceding outlined an analysis of the forces and trends that are influencing the industry environments surrounding their current operations and strategic approach that landed them in the top 10. The strategic adaptability and relevance of each of these examples can be tailored to meet the needs of any corporation or company to achieve a strategic advantage at any given point. However in the case of Foundry they are trying to enter into and bank on entry into providing end-to-end Broadband services. The environmental factors that have been identified through out this paper can guide and serve as an indicators and opportunities for long term impact for any company that is looking for alternatives to their current way of doing business. Even Foundry is in need of a new innovative way of doing business. However, for their success into the emerging Broadband technologies they must re-look some of their haphazard strategies in many respects and choose a more solid path to enter into an emerging market. What ever methods are chosen long-term objectives must be determined, while establishing attainable short-term goals that support these objectives while conducting periodic reviews of both processes and practices to include implementing modifications at any given time. In the end effect overall effectiveness will be realized with a combined open-minded yet strategically calculated approach.
The US Government, Dell, and Foundry are going through internal and external organizational changes related to the changing market environment. The analysis of all three companies demonstrated their potential to lead the way in the industry, provided that they take advantage of data and information collected from the environmental scanning factors, as well as market expansion opportunities. Competition and market conditions have always been the common aspects and likely contributors to an organization??™s management processes. The ability of such organizations to quickly adjust, overcome obstacles, and see challenges as opportunities and ways to improve is what determines success and separates leaders from followers. In other words, ???Future prosperity will depend not on how economic activity is labeled, but on economies??™ ability to innovate and their capacity to adjust??? (Industrial metamorphosis, 2005).
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