Wk2-DA2

Q1. Industry competitive analysis. Analyze your company’s industry from the point of view of Porter’s Five Forces (if your industry operates in perfect or monopolistic competition), Game Theory (if your industry operates in oligopolistic competition) or the Resource Based View of the Firm (if your industry operates as a full monopoly), and any other strategy frameworks that provide insight to your understanding of the industry.

Student’s answer 1

The electrical switchgear market has elements of monopolistic competition and oligopolistic competition. The National Electrical Manufacturers Association (NEMA) provides a list of 21 manufacturers, of this list, four are direct competition for Powercon and are the larger manufacturers (“Switchgear - NEMA,” 2017, “Related Manufacturers”). These few leading competitors lend to a more oligopolistic competition type, particularly when purchasing new equipment. Game theory can guide managers when there is little information available (Roy, 2003, p. 128). One tool that is helpful in analyzing the competition is using a payoff matrix with arrows that point towards the most beneficial situation for each competitor (Roy, 2003, p. 128).

Additionally, some of the leading companies, such as GE and Siemens, operate multinationally, and may develop joint ventures (JVs) as the need for expansion arises. The uncertain environment created by a JV may cause each company to operate in its best interest, even though it hurts the JV (Roy, 2003, p. 130). The investing companies of the JV can utilize game theory to predict the needs of the partner company and strategize the how unique competencies can be used advantageously (Roy, 2003, p. 137).

Alternatively, many of these manufacturers have developed their own equipment design, and while the functionality is similar, it is more difficult to add-on to a switchgear lineup of a competing manufacturer. Often, this monopolistic style design requires organizing a shutdown of the power and opening the equipment. Furthermore, if a technician is not available on site, one may need to be contracted to facilitate the analysis of the equipment design. Once the design has been studied, it requires additional engineering time, which is charged to the customer for custom work.

This is a higher cost and more difficult for the customer than simply purchasing the equipment from the same manufacturer. Even for a company like Powercon that specializes in customization, this differentiation strategy presents challenges in the reproduction of design (“Porter’s Generic Strategies,” 2017, “Differentiation Strategy,” para. 2). Electrical switchgear is generally purchased once every 15-30 years by companies, not individuals. The differentiation strategy is appropriate in this instance, because the customer is less impacted by the price (“Porter’s Generic Strategies,” 2017, “Differentiation Strategy,” para. 5).

References

Porter’s Generic Strategies. (2017). Thousand Insights. Retrieved 8 April 2017, from https://thousandinsights.wordpress.com/articles/on-strategy-planning/porters-generic-strategies/

Roy, A. (2003). Game theory in strategic analysis. Journal of Management Research (09725814), 3(3), 127-138.

Switchgear - NEMA . (2017). Nema.org. Retrieved 16 April 2017, from https://www.nema.org/Products/Pages/Switchgear.aspx

Student’s answer 2

I am an employed by a large utility company in the Washington, D.C. area. The company that I work for, PEPCO (Potomac Electric Power Company), is in the electric utility industry.  One year ago, the company was purchased by Exelon Corporation that is headquartered in Chicago, Illinois. PEPCO operates pretty much as a full monopoly as there are no other competitors in the regions in which it services.  The Business Dictionary defines a full monopoly as “a market situation where one producer controls supply of a good or service, and where the entry of new producers is prevented or highly restricted” (www.businessdictionary.com).  An article written by Arnold Kling, “What happens when there is no market for reliability,” asserts that “the fact that Pepco is a monopoly means that its incentive to improve its operations is limited. Regulators may cajole and threaten, but ultimately Pepco is like an employee with tenure—no matter how badly it performs, it can never be fired” (www.aei.org/publication/the-economics-of-pepco/). 

According to Grant, “the relationships between resources, competition, and profitability include the analysis of competitive firms and the means by which the process of resource accumulation can sustain competitive advantage are termed ‘the resource-based view of the firm’”(1991, p. 115).  In the resource-based view, a company’s “resources and capabilities are the primary source of profit for the firm” (p.  116). These are the things that make up the company’s competitive advantage.  There is also the fact that most utility companies are monopolies in the areas in which they operate.  Its customers have no other options or alternatives, as in the case of the electric utility that I work for.  The closest competitor to PEPCO, in terms of distance in miles, is Duke Energy.  Duke Energy services customers in the Carolinas, the Midwest, and Florida.  PEPCO services customers in Washington, D.C., and Montgomery and Prince George’s counties in the state of Maryland.  Exelon does business in “48 states and Canada” (www.exeloncorp.com). The competitive edge that PEPCO has over Duke Energy is the fact that Exelon purchased it and as a result PEPCO has access to the knowledge, skills, and abilities that Exelon possesses in order to assist it in its market.  According towww.exeloncorp.com, Exelon has been the “top-ranked electric and gas utility on the Fortune 500 every year since 2008.”  Exelon also has capabilities that Duke Energy does not such as the fact that it has “one of the nation’s cleanest and lowest cost power generation portfolios” (www.exeloncorp.com). “Capabilities are described by Schmitz as being needed to bundle, to manage, and otherwise exploit resources in a manner that provides value added to customers and creates advantages over competitors” (2012)

Exelon may be vulnerable in its nuclear business which represents 59% of its entire portfolio (www.exeloncorp.com).  Its facilities may become vulnerable to terrorist attacks.

http://www.aei.org/publication/the-economics-of-pepco/

www.businessdictionary.com

www.duke-energy.com

www.exeloncorp.com

Grant, R.M. (1991). The resource based theory of competitive advantage: Implications for strategy formulation, California Management Review, 33(3).  114-135. (UMUC Library).

Schmitz, A. (Trans.). 2012. Resource-based theory.

Q2. This is the place to post links to current items from newspapers, magazines, journals or blogs. Explain how this news item or journal article is applicable to one or more topics from this week's learning. 

Student’s answer

Article link: http://fortune.com/2017/03/06/verizon-unlimited-data-plans/

This article directly relates to the resources-based theory of competitive advantage that is discussed in the Grant piece. Verizon has lost a lot of customers over the years because they did not offer an unlimited data plan. Verizon's recent decision to offer an unlimited data plan forced other leaders in the industry to make changes to their offerings in order to remain competitive. This strategic move may have been a way for Verizon to highlight the inefficiency of competitor's network and resources through the strength of theirs (Grant, 1991). 

In comparison to the other major wireless carriers, Verizon has invested much more in increasing their networks capacity and offers the most reliable service. This competitive advantage allowed Verizon to offer HD quality video streaming while T-Mobile. Sprint, and AT&T offered a lower quality streaming experience (Pressman, 2017). In response to this, T-Mobile and Sprint decided to include HD video streaming, which will undoubtedly affect their bandwidth. This decision may help highlight Verizon's network advantage and bring over customer's who are frustrated with slow speeds from clogged networks. 

This dynamic in the industry also makes it hard for new entrants because they will likely be unable to compete. They will lack the resource to provide quick, affordable, and reliable service to customers who are used to the unlimited experience (Pressman, 2017). 

References

Grant, R. M. (1991). The Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review, 33(3), 114-135

Pressman, A. (2017, March 6). Verizon unlimited data plan could wear down the competition. Retrieved from http://fortune.com/2017/03/06/verizon-unlimited-data-plans/

Verizon. (2017). Unlimited data and talk & text plans. Retrieved April 12, 2017, from https://www.verizonwireless.com/plans/verizon-plan/