Porter's Five Forces Model and Strategic Management
as Applied to Bowne & Company
Porter's Five Forces Model and Strategic Management
as Applied to Bowne & Company
Bowne & Co., Inc. is a financial services company which has been in business for 235 years. During this time the company has grown to become the world financial services leader in communication services, investor/shareholder relations and communications, and capital markets communication guidance. The communications side of financial services is Bowne's specialty, as they provide "regulatory and compliance documents; personalized financial statements; enrollment kits; and sales and marketing collateral" (Bowne, 2009). The company has expanded its operations in recent years due to the wish to be involved in all aspects of their customer's financial transactions. In February of 2010, Bowne merged its services with those of R.R. Donnelley & Sons in an all cash deal. Bowne will remain completely autonomous except in the matter of a very few caveats which were agreed upon by both companies.
The industry that Bowne competes in is highly diversified with many small independent companies providing all-inclusive document services also. Bowne & Co. maintain a large portion of their business in the area of compliance reporting because it "is less sensitive to capital market changes and represents a recurring periodic activity, with seasonality linked to significant filing deadlines imposed by law on public reporting companies and mutual funds" (Bowne, 2009). Due to this major function of the business, and the large amount of business that Bowne realizes in this sector, fluctuations in the financial sector do not impact its business to a great degree.
Bowne has been instrumental in creating innovative products which have maintained its stance as an industry leader. New products include:
FundSuite SX: "converts raw financial data into effective commuinications, reports and filings" (Bowne, 2009).
Bowne Compliance Trak and Bowne Compliance Trak Advisor.
Smartapps: a content management system.
FundAlign: this program allows better communication to take place between mutual funds and investment management firms.
Bowne Compliance Driver
And, many more applications, programs and communication devices which allow for increased compliance and streamlined communication. With the innovation and market share that they have enjoyed, Bowne looks like a company poised for a great future.
Strategic Planning Literature Review.
Strategic planning (also called strategic management) is a method that companies use to grow their business despite the negative forces that exist. For a definition, Lamb (1984) says;
"Strategic management is an ongoing process that evaluates and controls the business and the industries in which the company is involved; assesses its competitors and sets goals and strategies to meet all existing and potential competitors; and then reassesses each strategy annually or quarterly [i.e. regularly] to determine how it has been implemented and whether it has succeeded or needs replacement by a new strategy to meet changed circumstances, new technology, new competitors, a new economic environment., or a new social, financial, or political environment."
This means that a company must look at all possible future outcomes that are associated with their particular business, the industry as a whole, and the customer base that they serve. With this knowledge they can grow their profit and sustain a growth. Without a certain amount of strategic planning, a company will not be able to anticipate what is happening within the industry and their profitability will drop to zero (Grant, 2007).
Strategic planning needs an outline from which decisions are made. In the late 1970's one was formulated that had become an industry standard when using the process of strategic management. Porter's "Five Forces Model" (Porter, 2008) is a design by which an organization can examine all facets of its business and determine how they can grow and maintain their profitability. Porter argued that "the nature and degree of competition in an industry hinged on five forces: the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products and the jockeying among current contestants" (Slaw & Yu, 2004). These are all negative outcomes for a business which, if not managed, could ruin the business in the long run. Porter said the "collective strength of these forces determines the ultimate profit potential of an industry" (Slaw & Yu, 2007). As an example of this: a product or a process emerges that has very few manufacturers, but large profit potential. This industry will then attract new businesses which wish to share in the profits. Because of this they will eventually drive the profit potential of the companies involved in the industry to zero. Unless, that is, the individual companies use innovation and strategic planning to forestall this eventuality. The "Five Forces Model" became a standard because it was simple to see what how the negative forces internal and external to the company could erode its profitability in this one area.
Therefore, a company cannot remain stagnant within a single industry. If Company A continues to sell the same profitable widget that others are also starting to sell without going through a strategic planning process, they will fail as a business.
However, strategic management and planning themselves cannot become stagnant processes either. As the business community changes, so do planning needs. Banks recently went through a new planning opportunity when the internet gave their customers the ability to bank online (Slaw & Yu, 2007). Banks needed to come up with new strategies at first because it was a brand new type of service which had never affected them before. But, when new strategies were in place, they had to be malleable also. Because of the changing face of the internet, and with new laws that had to be constructed to combat such crimes as identity theft, strategic planning stratagems must also be able to change with the new forces that arise (Grant, 2007). A company must also be savvy enough to see what either use new innovation quickly, or innovate themselves to stay ahead of the curve.
There are also some negatives associated with an aggressive strategic planning approach. While a large profit stream may be found that exceeds the goals of the company, they could also experience profound losses if they plan too aggressively and the industry does not support their intended direction (Grant, 2007). As a matter of fact, "more than a few [industry executives] have been indicted by judicial authorities, and some have begun serving prison sentences" (Grant, 2007). This has led companies into a quandary. Of course, there must be innovation, but the company involved I the expansion must remain, at least somewhat, cautious. Like the "robber barons" who saw nothing wrong with fleecing customers and strong-arming competitors, ethics has to play a part in the process also.
When managers plan for the future, they can "use either conscious, controlled, formal processes in the form prescribed by various methods such as 'management technique' as presented in this article, or informal ways based on a manager's experiences, intuition, vision, emotions" (Cesnovar, 2006). Proceeding based on the instincts of a leader is "congruent with strategy-as-practice, and [is] faster, more flexible and convenient for managing in a less comprehensive and complex internal company environment" (Cesnovar, 2006), but it is not recommended for a large, company-wide change. Fast and flexible are good in any situation, but it should be a result of a complete strategic planning regimen before the change needs to take place (Grant, 2007).
One final consideration for a strategic process to work is that because of the "past we now have a greater awareness of what the strategy paradigm can and cannot do for an organisation and the importance of the interaction of internal and external stakeholders in participating in the strategy process" (O'Shannassy, 2003). Again, following the "Five Forces Model" there are internal and external forces at work. To ignore any portion of the process is negligent. Since the strategic planning process has been around for a long time it is possible to determine when such a process will work and when it will not. Or, a company can modify the strategic management process they are using to better fit the fast-paced world that business now exists within.
The remainder of the paper will examine the business, Bowne & Co., using strategic planning techniques and Porter's "Five forces Model" to see if the company has used the advantages that they have to instill a model that is sustainable within their industry. The focus will be on the innovation with which they are trying to grow their profitability and remain viable as a company
Analysis of Bowne & Co., Inc.
It is important initially to understand what business Bowne is primarily in. They are a document services company that primarily serves the financial industry. The company's prospectus (Bowne, 2009) says Bowne;
"is a global leader in providing business services that help companies produce and manage their shareholder, investor, and marketing communications. These communications include, but are not limited to, regulatory and compliance documents; personalized financial statements; enrollment kits; and sales and marketing collateral.…