Strategic Management Porter\'s Five

Strategic Management

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. Its services span the entire document life cycle and involve both electronic and printed media. Bowne helps clients create, edit and compose their documents, manage the content, translate the documents when necessary, personalize the documents, prepare the documents and in many cases perform the filing, and print and distribute the documents, both through the mail and electronically."

They also make the statement that the industry they are engaged in has many small, independent contractors that share in the overall profitability of the industry. This has made it necessary for Bowne to continue to create products and processes that its customers will use to increase its promise of increased profitability.

First, it is necessary to look at the financial stability of the company relative to what they say. Financially, Bowne slid in their market share in both 2008 and 2009. The reason for this can be seen in the fact that the company is in a very competitive market which requires constant research and development to keep ahead of competitors. Overall revenue decreased by almost $175 million over those two years. While Bowne continued to innovate, they obviously lost some significant business as did many companies during this period. The one measure that has decreased which may speak to the overall strength of the business is that its debt to total capital decreased. Generally, this means that the company is not financing using debt and that they are more financially secure because they are using equity to finance. Since equities have been decreasing in the last two years, this number should have gone up. This speaks to the inherent strength of the company overall, as they have reduced their workforce to a sustainable number, and cut out unnecessary businesses (Bowne, 2009).

The Five Forces Model lists "threat of new entrants, threat of substitute products or services, rivalry among existing competitors, bargaining power of suppliers, and bargaining power of buyers" (Porter, 2008) as the forces that are arrayed against any business. The strategic plan of Bowne & Co. has to successfully determine how they can combat, or work with, all of these forces in order to continue being a profitable company.

The industry that Bowne is engaged in is one in which there are so many competitors that it is difficult to find any profit using staid models. Therefore, there must be new innovation in the products and processes they use. Bowne's competitors range in size from the small, independent shop, to large corporate concerns, such as Bowne, which are diversified into many different aspects of document services. Bowne has used the financial services side of its business as its major supplier of revenue, so they have had to continue to innovate to remain viable. This innovation has been, mainly, in the fast changing world of internet services. Bowne has made their documents more user-friendly and accessible, so its clients can continue to use them with accuracy. Bowne has also bought out smaller businesses that have created innovative products that will invigorate the larger company. In these ways, Bowne has been able to increase the way that their industry conducts business, and thereby grow their profitability.

In any business where there is an increased level of profitability, such as Bowne has created through innovation, there will also be new competitors vying for that extra profit. As new competitors enter the market, existing companies must determine new streams or they will see their profits decrease. Bowne & co. have tried to stay ahead of the many new competitors that are entering the market by expanding what they can do within the confines of their industry. One of the main ways that Bowne has done this is to increase their share of the compliance reporting market. Bowne (2009) says that compliance reporting is not as volatile as the rest of the market because every company needs to make sure that they are paying their taxes, and staying current with the reporting that various government agencies require. About the competitors, Bowne (2009) says;

"The primary competitors provide end-to-end, digital services ranging from message design services, to technical solutions design and implementation, to printing and distribution via mail or online delivery. Bowne is focused on providing the full range of services required to support clients with data integration, document creation, production, distribution and management solutions that address the growing variable personalized communications needs of many industries."

Because Bowne is a one-stop shop for their customers, they are able to maintain their market share against the competition that provides just a portion of what the customer needs. By making sure that they can continue to do this, and through the innovations provided by the internet, Bowne is in a position to increase their profitability.

The next force the Porter mentions is the threat that there will be substitutes coming into the market. The document services industry is always devising new ways to deliver, structure and maintain the documents that they provide. Because of this constant change, Bowne must constantly be looking for new ways to conduct their business. Bowne is continuously trying to stay ahead of any substitute products is to use electronic media to expand their business, and one concrete example of this is Bowne Virtual Dataroom. This is a "a hosted online data room capability, which provides a secure and convenient means for clients to permit due diligence of documents in connection with securities offerings, mergers and acquisitions and other corporate transactions" (Bowne, 2009). By using such innovations as they become available, Bowne is able to outdistance any substitutes that may be created for their existing products or processes.

The customers who buy the products from companies like Bowne can go to any of other competitor if they have better products, prices, or services. Bowne, realizing this, has determined to listen to their customers and make new products available to them. The new products are not designed to publicly tout the innovative capabilities of the company, but to make it easier for customers to use and modify the products. Because Bowne has stayed up with the stated needs of its customers, it has been able to grow its base.