Operations Management: Porter's Five Forces, Importance, Product Design, Supply Chain Design, Outsourcing, and Merger Guidelines

RUNNING HEAD: Operations Management
Operations Management

Operations Management 1
Contents
Section 1..........................................................................................................................................2
Section 2..........................................................................................................................................3
Section 3..........................................................................................................................................4
Section 4..........................................................................................................................................8
References......................................................................................................................................10

Operations Management 2
Section 1
Porter’s Five Forces framework is used as a tool for the purpose of analyzing the business
competition. These forces are referred to as the microenvironment by Porter for contrasting it
from the macro environment which is a more general term. It consists of the forces which are
considered to be close to the company and which, in turn, affects the ability of the company in
making a profit and serving the customers. The five forces framework has been developed by
Porter in response to the then popular SWOT analysis (Dobbs, 2014). The framework is based on
the structure- conduct- performance paradigm.
a) The elements of Porter’s five forces framework include the following:
Threat of new entrants- new firms are attracted by the high return yielding profitable
industries. Profitability for the other businesses in the industry is decreased due to the
entrance of new firms. Perfect competition will exist till the time entrance of new firms is
made difficult by the incumbents. For example, threats such as government policy,
capital requirements, etc.
Threat of Substitutes- same economic need is resolved by a different technology by the
substitute product. The examples of substitutes include automobiles, airlines, ships and
trains, cellular telephones and landlines, and wine and beer. The potential factors in this
element involve product differentiation, availability and ease of product substitution,
switching costs of the buyer and price performance of the substitute.
Bargaining power of customers- it is also known as the market of outputs which include
the capability of the customers of putting the firms under pressure. This also affects the
sensitivity of the customers to price changes. Measures can be taken by the firms for
reducing buyer power like the implementation of loyalty program. If the buyers have
various alternatives, buyer’s power is high. On the other hand, it is low where the buyers
have few choices (Keyte & Locher, 2016).
Bargaining power of suppliers- it is also known as the market of inputs. Supplier of
components, raw materials, services and labor to the firm acts as the source of power

Operations Management 3
when there is only small number of substitutes. The potential factors of this element
include switching costs of the supplier in response to the switching costs of the firm, the
impact of inputs on differentiation and cost, the degree of input differentiation, employee
solidarity, supplier competition, etc.
Industry Rivalry- the major determinant of industry competitiveness in most of the
industries is the intensity of competitive rivalry. The marketing strategy of the
competitors must be taken into consideration by the businesses so that the needed
changes can be made. The potential factors of this element include advertising expense
level, degree of transparency, etc.
b) When Porter's five forces are applied to the operation strategy, it allows organizations to
attain competitive advantages and attain the benefit of reduced costs. The application of
the model will further allow the businesses to continuously update their technology and
processes in order to stay ahead of the competitors. Also, it allows them to research
alternate strategy which can assist them in taking leadership in the industry.
Section 2
Earlier the importance of operations management was not recognized by businesses. Finance and
marketing functions were dominated by American corporations following the World War II.
Operations function was given secondary importance as there were no significant competitors. In
1970s and 1980s, American corporations faced challenges due to increased competition and a
decline in productivity growth. Lack of competition made the firms forget about bringing
improvements in their processes and methods. Therefore, the firms became incapable to
compete. For the purpose of regaining their competitiveness, the companies moved towards the
process which was overlooked by them i.e. operations management. The focus on
competitiveness and operations led to the recovery of corporations. By giving importance to the
operations, the corporations were then able to achieve long-term success (Hitt, Xu & Carnes,
2016).
The impact of these developments on operations management was severe. The most important
development include just- in- time systems in the 1980s. It allowed the organizations to achieve