Porter's Five Forces

This week’s lessons talked about Porter’s Five Forces. This is a simple analysis tool to help us analyse a business and find how much power it can potentially possess in a certain industry. It is very useful as it would help us to understand the market that business may wish to enter, and how competitive that industry may be. Once we understand the industry, we can device strategies to take advantage of the strengths, or find a way to improve on the weaknesses that it may face. 

Looking at the fashion industry, and specifically at American Apparel, we can apply Porter's Five 

Forces. 

Intensity of Competitive Rivalry - HIGH

American Apparel is in direct competition with many different clothing brands, such as Urban Outfitters, American Eagle, Aeropostale, Gap, etc. There are many different clothing companies that compete directly with American Apparel. American Apparel and their competitors have to constantly be innovative and get new customers as well as retain their customer base. As fashion constantly changes, they have to be quick to catch onto these trends and determine new fashion trends to respond to consumer preferences. 

Threat of New Entrants - RELATIVELY LOW

In the fashion industry, some of whom have been in business for almost 30-40 years, they have managed to establish some credibility in the business and there is some form of brand loyalty in the fashion industry. American Apparel has not been in the industry for that long, thus lacks the brand loyalty of some of its bigger competitors.

Bargaining Power of Customers - HIGH

American Apparel is relatively high-end clothing, although it is not luxury clothing. As it is generally not seen as an essential good, thus is relatively price elastic. Furthermore, there is not cost in switching companies as it is as simple as walking into another shop in a shopping mall. If one clothing brand increases it price, customers can easily find a more affordable option. 

Bargaining Power of Suppliers - LOW

There are many suppliers of cotton and lycra and other raw materials in the clothing industry. If a supplier raises its costs, a company can easily switch supplies. 

Threat of Potential Substitutes - LOW

In the clothing industry as a whole, threat of substitutes are non-existent as there are no substitutes for clothers, barring some technological breakthrough. However, within the clothing industry, customers can switch between high-end brands and lower-end brands. 

It is also interesting to note that American Apparel is a vertically integrated business. American Apparel started as a wholesale brand that manufactures and sold t-shirts to screen printing companies. It has since started retailing clothing in stores, and not only manufacturing and selling t-shirts wholesale. 

Classical and Modern Management Theories - Can they co-exist?

Management can be defined as the process of designing and maintaining an environment in which individuals, working together in groups, efficiently accomplish selected aims (Koontz and Weihrich 1990). This week we learnt about the many different classical approaches to management. 

One of the approaches to management that we learnt is the scientific approach, which is Taylor’s theory of management. His management is based on four principles. 

1. Instead of forming habits or using the common sense of workers to complete work, use the scientific method of analysing the work to determine the most efficient way of completing the job. 
2. Instead of randomly assigning workers to a certain task, study work pattern and find the most efficient way to do a specific job. 
3. Supervise the performance of the workers and then provide instructions and give feedback to them to ensure that they maximize their efficiency. 
4. Allocate work between managers and workers to ensure that managers have time to plan and train workers, ensuring workers perform their tasks efficiently. 

His approach to management would work on organizations that follow a systematic approach in production, typically for lower-skilled workers ie. a beer brewing company. However, in a organization with high-skilled workers, the workers may feel disempowered if they are not given any autonomy in the work they do. Additionally, this approach would probably not work in industries or organizations that require innovation and creativity, as the lack of autonomy would probably limit one’s creativity. Thus, Taylor’s approach to management is, in my opinion, still applicable to modern businesses, but this does not mean that it is applicable to ALL moden businesses. 

Other than the classical theories, I found another modern theory which is the contingency theory. The contingency theory is the assumption that no one theory or method for business management can apply to all businesses or to all circumstances. 

From what I understand, the approach indicates that the issues that the organization faces needs to be analyzed and dissected, and then only can we address those issues while considering the environment and context in which the issue is happening. 

I think that the contingency theory is very effective as different companies face different issues or problems in their management and there is no one method that would work for all businesses. Google has a very successful management approach, but this does not mean that it would work for another organization. 

Organizational Structures

In this week’s lessons, we learnt about the importance of having a good and suitable structure in an organization. Some of these structures that we have learnt about were

1. Centralisation and Decentralisation
2. Span of Control and Chain of Command
3. Tall and Flat 
4. Matrix Structures

We were tasked to research on an organization and write a report on that organization, investigating it’s company’s organizational structure. My group did research on Google and found that it adopts mainly a decentralized and flat structure. However, we found that Google has an interesting span of control. It adopts a wider span of control in its higher management and gets narrower at the middle and lower management levels. 

I think that different organizations may suit different organizational structures. Google’s organizational structure may be a great model and there definitely are great practices that other organizations can adopt from Google, but not all of Google’s practices would work for other companies. I feel that organizational structures have to be adapted to suit the company’s needs. Sometimes, it is now simply black and white. A company doesn’t have to either tall or flat, it can be a combination of both, just like in Google. 

For example, Google’s decentralized organizational structure empowers its employees to make decisions and come up with innovative ideas. This works for Google as it is often at the cutting-edge of technological software etc, and its products need to be innovative and creative. Thus, Google’s decentralized structure that empowers their employees to innovate and think independently and freely are likely to work for companies such as Apple and Samsung, who also have to innovate to stay on top of their markets. 

However, this decentralized structure may not be the best approach for organizations such as Starbucks or Burger King, who wish to maintain a standardized global image and ensure consistency in their customer’s experience and the food and beverage quality in all its locations. 

Thus, what I’ve learnt this week is that there are many different advantages and disadvantages to the different types of structures, and companies will have to decide on which structure will help them to achieve their goals and maximize their resources. 

Business Organizations and Management Structure

This week, we covered business organizations and discussed the structures in business organizations. We learnt that our lives are very dependent on these organizations. We learnt about the four common features of an organization - people, objectives, structure and management.

An organization is one that uses resources (inputs) such as land, labour, capital and enterprise and produces an end product of higher value. In “A” level Economics, I learnt that that scarcity is the fundamental economic problem of unlimited wants in a world of limited resources. Hence, it is essential for organizations to have a good management to ensure that organizations use use these limited resources to produce an end product of higher value makes the most out of the limited resources. 

In my tutorial lesson with Rob, we discussed the importance of having a good structure and management. Having a sound structure in an organization is extremely beneficial as people will be delegated certain jobs, and these jobs will be delegated after considering their strengths. Having the right people doing the right jobs will also be much more efficient for the company, and less resources will be wasted. Hence, having a good structure in a company will ensure that the company’s resources will be put to good use and the company will likely be more cost efficient, and thus the company’s profits are likely to increase. Efficiency in a company would also help it to achieve its objectives. 

But even with a sound structure in an organization, it would still be difficult to be successful without good managers and leaders. Warren Bennis wrote in his 1989 book “On Becoming a Leader” that a manager focuses on systems and structure, while a leader focuses on people. Although a leader and a manager may seem to have very similar roles, the difference is that a manager simply manages people - they may help to coordinate tasks and jobs, but a leader will motivate and inspire. I feel that in today’s world, it is far more important to be a good leader rather than just a manager. A good leader  would be able to recognize the strengths and weaknesses of their workers, and inspire them to improve and develop their talents and skill set. 

On a different note, we were tasked to research on an organization and it’s management and present our findings to the class. My group decided to research on Tesco. Within our group, we decided to take on different roles to prepare for our presentation. I worked on creating the presentation slides and my group mates worked on gathering the information and data. By working on different tasks, we managed to prepare our presentation without much hiccups. It was interesting to see how Tesco’s mission statement eventually resulted in how it managed to add value to its resources. Tesco wanted to share knowledge and experience, so it trains and develops its entire workforce, empowering emplyees with brain power and knowledge. This would also help it to achieve it’s other mission - to understand customers and act responsibly for their communities. 

What I find the most interesting about all these things I’m learning about is that I can see it being applied in real life.