Organisational Strategies (PFFOS) Summary 2022

Q1: Business Background
Porter's Five Forces and
Organisational Strategies
(PFFOS) Summary
How PFFOS affect the made
to measure business
How PFFOS affect the
RTW business
The porter’s five forces model
developed by Michael porter is a
strategic tool that analyzes the
attractiveness of the industry and
its likely profitability. It is one of
the most widely used strategic
management tool since its
inception in 1979. The model
suggests there are various forces in
the environment, which constantly
communicates, and affect the
industry and one should examine
them, analyze and recognize them
while formulating their business
strategies. These forces which he
identified includes keeping a close
eye on your rivals, assess the threat
that may arise due to substitution
available in the market, threat of
new entrants in the industry,
combat and minimize the
bargaining powers of customers
and suppliers in the value chain.
Porter further framed generic
strategies, which companies could
The measure business of Helen
Croker involves making
customized designer denim
jeans and jackets by taking
measurements of each client
individually and then custom
tailor the garments to fit the
client. She takes measurement
on her own for clients in town
and uses the online tool for
international clients where the
clients can take their
measurement themselves and
upload it in the online tool for
custom denims.
For this business, Helen is
using a Broad Differentiation
strategy where the
differentiated products
(customized denims) are made
available to large customer
base globally.
The porters 5 forces analysis
reveal the industry do not face
stiff competition as there are
not many manufacturers
The RTW or the Ready
to Wear collection is our
new launch that will be
made in Australia and
sold world wide at a
cheaper rate. The
generic strategy that
Helen is following for
this division of the
business is Cost
Leadership where low
cost standards products
will be made available
to a large group of
customers.
For the RTW business,
Porter’s 5 forces model
reveal that the
competition in this RTW
business is intense as
there are many players
offering standard RTW
products globally. The
customers enjoy huge
bargaining powers as
they are many and the
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follow to succeed in the industry.
These generic strategies are a
combination where the company
uses either cost or differentiation as
a basic strategy and then applies it
to a broad market or a niche
market. The framework includes
cost leadership where the company
provides low cost products to a
broader market, Differentiation
where the differentiated products
are available for a broad market.
The strategies cost and
differentiation focus emphasize
providing low cost or high
differentiation only to a narrow
segment of customers.
Companies using porters five
forces model can analyze the
environment in which they operate
and then select a generic strategy
with which they want to compete
in the market.
making customized products as
per clients measurement. The
bargaining power of customers
has low impact as there are not
many of them and each one of
them has separate requirement.
The firm uses organic yam
dyed cotton denims of different
weights as raw materials,
suppliers of which are limited
and thus they have high
bargaining powers and pose a
threat. The entry to this market
is easy and non-regulated, but
getting the set up ready and
gaining expertise requires time
minimizing the impact of new
entrants. Risk of substitution
directly is low as people will
continue to adorn denims and
customized denims are an
added advantage.
cost of switching is very
low and thus they can
affect the demand of the
product directly. The
industry has many
suppliers offering
similar products at
competitive prices
thereby reducing their
impact on the industry.
The threat of new
entrants is very high and
so is the threat of
substitution as there are
many players and huge
demand. The only
strategy to succeed in
this scenario is by
remaining cost
competitive while
providing high-quality
products.
(max 750 words)
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Q2: Cost allocation
i. Direct method of cost allocation
Support
department Overhead Production department
Cutting Machining
Administration 65,000 1
9∗65,000=7222.22 8
9∗65,000=57777.78
IT 42,500 1
10∗42,500=4250 9
10∗42,500=38,250
Design 55,000 0.5∗55,000=27,500 0.5∗55,000=27,500
ii. Step down method of cost allocation
Department allocated
Dept Allocating Overhead Administration Design IT Cutting Machining
Administration $ 65,000.00 $ 5,909.09 $ 5,909.09 $ 5,909.09 $ 47,272.73
Design $ 60,909.09 $ 30,454.55 $ 30,454.55
IT $ 48,409.09 $ 4,840.91 $ 43,568.18
Total $ 41,204.55 $ 121,295.45
iii. Reciprocal method – Using Solver Results
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Formula view
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