Explaining the Three Conceptual Frameworks by Michael Porter - Essay Example

?Information Management A company achieves competitive advantage by relevantly lowering prices or by providing greater benefits and service that qualify for higher prices. Michel Porter proposed three conceptual frameworks to this effect. The frameworks include generic strategies, Five Forces Model, and Value Chain. This paper will explain these frameworks and give examples of how Apple Company has built competitive advantages using information technology and information systems. The paper will hence analyse the limitations of the three conceptual frameworks. Knowledge management as analyzed in business management is a very fundamental aspect in any organization. This paper will equally explain why information and knowledge have become more important in contemporary societies, differentiating industrial from knowledge economies. The paper will relevantly apply the framework Knowledge Management Value Chain to explain how Knowledge Management Systems can improve knowledge management in organisations, and the limitations of such systems. Explaining the three conceptual frameworks by Michel Porter The three generic strategies for building a competitive advantage include cost leadership, differentiation, and focus. The focus strategy has two variables that include cost focus and differentiation focus. In cost leadership, a company seeks to become a low cost producer in its area of specialization where it must find and exploit available sources of cost advantage. This is possible only where the company is able to command prices in the neighborhood of the average price. In this case, cost advantage is dependent on the structure of the industry and its sources are not exclusive and may include proprietary technology, the pursuit of economies of scale, and preferential access to raw materials. A firm that manifests cost leadership guarantees competitive advantage. Dell Computer Company falls in this strategy. On the other hand, in differentiation strategy, a company seeks uniqueness in the dominant features of its business specialization. The uniqueness attracts a premium price in the company products. The company achieves this by focusing and providing on the most fundamental attributes and needs among buyers in the concerned industry. Mercedes Benz cars fall in this strategy. In cost focus strategy, the company seeks a lower-cost advantage in the minor market segments. It focuses on a basic product that is dominant and high priced but acceptable to sufficient consumers. A small retailer featuring its own-label is a good example in this strategy. In the differentiation focus strategy, a company seeks differentiation between needs and wants that an existing competitor is not providing within just one or a small number of target market segments. A perfume shop is a good example (Porter, 1998, p. 11-15). The five forces model addresses the operating environment of a company and includes the threat of entry, the power of buyers, the power of suppliers, the threat of substitutes, and competitive rivalry. The force of threat of entry notes that the ease of easier of new companies to enter the industry generates stiff competition. As such, the numerous conditions that limit the threat of new entrants to the market are the barriers to entry. On the other hand, the force of threat of substitutes is the probability of a consumer to change to a competitive product or service. This arises from the similarity of substitutes. The lower the changing cost the greater the threat. The force of power of suppliers relates to the amount of pressure that suppliers can place on a business. The larger the suppliers pressure power, the greater the competitive advantage. The force of pressure customers relate to the pressure that a customer can place on a business. The greater the customers pressure power, the less the competitive advantage of the company. The force of competition rivalry describes the intensity of competition between existing firms in an industry. Competitive advantage falls with an increase in competition. The competition can be on basis of price or non-price dimensions but in any case, this force is the major determinant of a company’s competitiveness. The value chain is the main tool for analyzing supply chain activities and isolating differences in approach and relative cost. It helps in understanding how the company compares with competitors at a detailed level. The value chain subdivides into primary value activities and support value activities (Porter, 1998, p.36-39). Limitations of the frameworks The value chain calls for a lot of expertise, not applicable to all businesses, its scale and scope is intimidating, and it is challenging to understand a value chain. Indeed, the three frameworks are only applicable to particular businesses and highly depend on the business’s scope of operations. How Apple Company has built competitive advantages over its competitors using information technology and information systems The company uses information technology to build elegant, perfect, high class, convenient, and wide range hardware and software. The company has used technology to design iPods, iPods, iPhones, and laptops that beat the standards of its competitors. Its products are the most valued in the market where they perform various functions at once for different personalities. The company uses information technology in marketing its products where it details how its products will affect customer’s lives. The iPod ads use the latest information technology. Indeed, the creative use of information technology and information systems gives Apple products a premium price (Clayton, 2012, p.1). Importance of information and knowledge Information and knowledge management defines the success of a business in the modern world. It helps in creating new knowledge, disseminating it effectively and helps in the application of the new knowledge. It helps in classifying and organizing the existing information thus enabling the creation and establishment of new knowledge. Through information and knowledge management, we initiate and realize innovations, share crucial information and manage relationships within the organization. Differentiating industrial and knowledge economies An industrial economy is also known as old economy and focuses on basing wealth on ownership of physical capital. On the other hand, knowledge economy is the new economy and focuses on basing wealth on access to intellectual capital. The industrial economy also focuses on products, productivity, planning, and control of scarce resources, and considerably produces to stock. Knowledge economy focuses on customers, perform to order, allocate abundant resources, and ensure customer satisfaction (Leliaert, 2003, p.1). How Knowledge Management Systems can improve knowledge management in organisations The systems help in the acquisition and storage, and dissemination of information necessary in knowledge management. The systems also help in understanding knowledge culture, the discovery of knowledge, definition of the knowledge workstations, and the expert knowledge used in knowledge management. Additionally, the systems define the best stores to maintain knowledge databases and manage knowledge. The systems offer decision support systems that are very significant in knowledge management. The Knowledge Management Systems provides a systematic, effective, and detailed way of handling knowledge in a business organization. Limitations of Knowledge Management Systems There is need for expertise in understanding the different steps of these systems, which might not be available to all. The systems can only apply to particular businesses and thus not inclusive. The language used and the complexity of the systems may be challenging to small business enterprises. Moreover, the process is long and the benefits may not be worth waiting for a business with a small scope of operations. Works Cited Clayton, J 2012, iPad in Business, Viewed 2 April 2012, < http://www.apple.com/ipad/business/profiles/crescent-construction/> Leliaert, P 2003, Industrial vs. Knowledge Economy Porter, M 1998, Competitive advantage: Creating and Sustaining Superior Performance Simon and Schuster, 1998. Read More