Changing Business Environment
Business organizations strive to gain a competitive edge against their rivals, generate sustained profits, and make good strategic decisions in an environment where Information Technology has a significant impact on the way businesses are run. To maintain a strong market position in a purely competitive and dynamically changing business environment, business executives find themselves called upon to model their business organizations according to Michael Porter’s five industry forces.
Rivalry
One of the industries influenced by these forces is the book selling industry. The industry’s uniqueness makes it an attractive venture. The uniqueness, measured on the degree of concentration in the industry is determined by the percentage shares held by book selling business organizations. According to Porter (124) low market shares indicate high concentration while high market shares indicate low industry concentration. However, the field remains attractive despite the concentration factors. Many years of competition and copy right laws have made the industry to be more disciplined.
According to Porter (123), rivalry may be characterized by cutthroat competition. Competing firms use the pricing mechanism to beat their rivals by adjusting product prices in response to market conditions, if the books and other materials in the chain have the same content.
Vertical and horizontal communication mechanisms are incorporated in the organization’s business operations. Efficient and effective communication channels enable business organizations to establish good relationships with suppliers, evaluate customer satisfaction and needs, determine the market size and trends, identify and constantly monitor inventories, evaluate potential gains, understand the cultural settings and customer behavior, identify industry exit rates, and determine switching costs. This also enables business executives to innovatively strategize their business interests in the ever changing dynamic business environment (Akbar 1). Examples include the retail chain such as Kroger and Albertson.
Threat of Substitutes
The uniqueness with which the book selling industry operates becomes more complicated as substitute books can only be made available from the same author. Different authors may provide similar content and the influence of other factors such as the use of technology to advertise and reach a wider audience plays a significant role in reaching the market (Porter 200).
A business executive may design a pricing strategy by using the product price elasticity technique. When the demand for books and related materials goes down, prices may be adjusted downwards to stimulate and boost demand. In addition to that, business executives may evaluate supplier power in terms of their business organization and the customer. One such example is the way Amazon.com profiles customers.
Buyer Power
This approach enables a business organization to establish strong relationships with suppliers and customers by evaluating the operating environment (Ireland, Duane & Hitt, 56). Though strong buyers tend toward monopsony where a single buyer exists with many suppliers like the government and the department of defense, book selling is less characterized by powerful buyers. Powerful buyers possess the threat of backward integration characterized by a bigger firm buying a smaller firm (Johnson & Scholes 5).
Weak buyers are characterized by the potential to cause forward integration. Book selling relies heavily on measurable factors such as distribution channels, the level of buyer fragmentation, and supplier power.
If a business organization increases the price of books in an environment strewn with many alternatives, a competitive advantage is created for competing organizations that have lower prices. In addition to that, technology may be incorporated in the pricing mechanism by reducing the cost of accessing a book and related materials. NetFlix is an example of a business organization that has reduced buyer power by factoring technology into its operations.
Supplier Power
The effects of price variations by competing firms and the concentration of firms determine the buyers’ choice. According to Porter (213) customers can switch to business organizations that offer products they perceive to be appropriately priced as per inherent qualities. Book sellers at times can influence forward integration by producing and distributing their products through appropriate outlets. This may lead to tight controls as is the case with De Beers Group.
The effect of supplier power is measured on the degree of standardization of a product, customer strengths, and the degree of backward integration.
Threat of New Entrants
Though business organizations may freely enter and leave the book selling business environment, the uniqueness of the business industry is a significant factor in inhibiting free entry and exit. The vicious circle of creating barriers and destroying them characterizes this industry. According to Porter (234), business executives employ different pricing mechanisms, value addition strategies, asset specificity, supply chain channels, and e-commerce strategies to maintain a strong market position and a competitive edge against rivals. Other factors include government laws and regulations, copy right laws, and economies of scale. In addition to that, the use of information technology has had a significant impact on book selling businesses as it has become increasingly easier to access books on-line. This is the case with new mobile service providers.
Works cited
Akbar, Michael. Elements of the Strategic Management Process. 2002-2010. Web.
Ireland, R. Duane, Hoskisson Robert E., Hitt, Michael E. Understanding Business Strategy, 2e, South-Western, 2009.
Johnson, Gerry, & Scholes, kevan. Exploring Corporate Strategy. Porter, Michael, E. Competitive Strategy: Techniques for Analyzing Industries and Competition. Free Press. 2004.