Thursday, April 1, 2010

External Analysis [MBA]

In preparation for my MBA finals and graduation on April 18, I'm reviewing Strategic Management by Charles Hill and Gareth Jones and trying to apply the lessons to my Web strategy business, Gunner Technology.

Chapter 2 is External Analysis: The Identification of Opportunities and Threats.

This chapter explains how external factors influence a firm in an industry with a big portion being focused on Porter's Five Forces Model, which says that five forces shape the competition within an industry:

  1. The risk of entry by potential competitors
  2. The intensity of rivalry among established companies within an industry
  3. The bargaining power of buyers
  4. The bargaining power of suppliers
  5. The closeness of substitutes to an industry.
According to Porter, the stronger each of these forces is, the more limited is the ability of established companies to raise prices and earn greater profits.

Andrew Grove, the former CEO of Intel, added one more to that list: Complementors. He basically said that the stronger the presence of companies in other industry that build products that complements the products of your industry, the more valuable your products are.

These seems to be the biggest force for Gunner Technology. The Internet is constantly innovating and creating tools and services that allow Gunner Technology to better serve our clients.

Gunner Technology could suffer from entry, but there are so many small businesses in the United States and, local to us, here in LA, that there are plenty of clients to go around.

Because there are so many potential clients, rivalry has been pretty weak. 

We don't really bargain with our buyers. We work for the amount of work that best suites our clients, show them what it will cost, and they tell us if they want our services or not. We have gotten creative with some of our clients, including accepting product for payment, etc. But it has always been a mutually beneficial agreement.

We don't have suppliers. Hosting? Sure, but between Dreamhost, App Engine and AWS, we don't bargain.

The biggest substitute to Gunner Technology would be to hire full-time staff to do what we do, which is cost prohibitive to small businesses. Additionally, there would be non-virtual mediums in which to substitute for the virtual campaigns we provide such as television, radio and print. But marketing is only part of what we do, it's cost prohibitive and doesn't provide the unique engagement we specialize in.

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