Discuss Porter’s five force model discussed in Chapter 2.
The model assists companies to make assessments on the nature of competition in an industry so as to come up with appropriate corporate strategies. The five forces in Porters model are divided into horizontal forces which are threat of substitutes, threat of new entrants and competitive rivalry and vertical forces, which are bargaining powers of buyers and bargaining power of customers (Grundy, 215). These forces can be explained as follows.
This is relates to how intense the industry is in terms of the number of firms or size of companies operating in the industry. The company major rival is Verizon with whom they steal customers from their competitor number three Sprint. AT &T strategy to remain ahead has been to diversification to optimally compete with Verizon by building extensive fiber optic networks, high definition televisions and high internet connections (Grundy, 219).
Barriers to entry
To gain entry to the market new entrants will be required to overcome these barriers. A T & T barriers to entry began early for instance in 1940s it was able to provide microwave relay systems nationwide in three decades that was more effective than the copper wiring used by their competitors. Recently, the company has acquired patents related to compression of video, essential to video technology. Other companies that need to use this technology have to obtain a license form AT & T failure to do so will be infringing on their rights. This posses a barrier to their competitors (Grundy, 219).
Threat of substitution
A T & T does not have threat of substitution for communication; it is a major provider of services in telecommunications and a top competitor in the world. Consumers can only move to other companies offering the same services like Verizon but cannot find substitution to these services.
It refers to buyers’ strength which determines their ability to have control over price. Companies in this industry have high buyer’s power since anyone can cancel and move services within minutes to the rivals in the retail services. to combat this A T & T joined forces with Apple to forge the service of the iphone such that they are only compatible to telecommunication services from AT & T.
Control of suppliers
AT&T wide ranges of supplies are sourced from manufactures or authorized distributors as well as value added resellers. The suppliers’ powers for AT&T is hence not sufficient because a selected group of manufactures is sought and because suppliers do not sell directly to them (Grundy, 225).
What businesses make up the company’s strategic group?
AT & T Company offer of wide range of complementary products such as wireless telephone services, internet services or landlines, the company ensures competitiveness through some strategic highlights against its rivals. These include differentiation, reliable, superior as well as fastest service that maximally embrace technology (AT&T Inc. SWOT Analysis, 4). Its aim is not to be the lowest in cost but work towards low market costs in comparison to some of their rivals who offer poor services at low costs. Its large scale operations provides significant economies of scale and bargaining power with diversified products to the market which provide a huge customer base and strengthened brand recognition (Grant, 356).
In technology, AT &T utilization of their R&D departments the company has developed one of the quickest and most extensive networks. This extensive wireless and wired network enables the company to provide reliable and quick services to a huge base of subscribers. The company has leveraged wire line user base with strong data, video as well as business offerings. It is also in the process of establishing its Uverse network that is entirely comprised of fiber optics which carries data with high speeds (AT&T Inc. SWOT Analysis, 4)
In manufacturing, the Company has a well-established policy in sourcing and procuring of raw materials at low costs (AT&T Inc. SWOT Analysis, 6). There is also a strong management team existing which can be reflected by a return on investment of 7.23% in its past 5 years compared to its closest competitor Verizon at 3.26%. The company also has diversified skills and knowledge in the field of technology to smoothly run all the services offered and see the advancement of the company in its field (AT&T Inc. SWOT Analysis, 7).
“AT&T Inc. SWOT Analysis.” SBC Communications, Inc. SWOT Analysis (2014): 1. Publisher Provided Full Text Searching File. Web. 9 June 2015: 1-11
Grant, Robert M. Contemporary strategy analysis and cases: text and cases. John Wiley & Sons, 2010: 345-421
Grundy, Tony. “Rethinking and reinventing Michael Porter’s five forces model.”Strategic Change 15.5 (2006): 213-229.