Question

 

Case Study 1: Time Warner Memo 3

Please be sure to review the CASE: Time Warner Cable on page 468 of your textbook. This will be useful and important when answering the Case Study Questions. Please let me know if you have any questions! Please read the memo below and reply with your answer as a manager.

Memo 3

To: Junior Executive, Strategy Group

From: Vice President, Strategy Group

Re: Strategic Analysis

For our upcoming executive retreat, the Strategy Group has been tasked with competing a strategic analysis of our business and our industry. While there are a number of different approaches that we can take, I would like to rely on Porter's "Five Forces" framework for our analysis of the industry structure.

Please provide an outline of each the five forces as it relates to the cable industry and whether conditions in the industry are favorable to long-term profitability.

Answer 1

Porter's Five forces Analysis of Time Warner Cable

The Porter's Five forces model can be used to analyze the industry in which Time Warner Cable operates, in terms of attractiveness through inherent profit potential. The information analyses using the model can be used by strategic planners for Time Warner Cable to make strategic decisions. Following are analyses of Time Warner Cable industry using each of five forces of Porter's model.

Threat of New Entrants

• The economies of scale is fairly difficult to achieve in the industry in which Time Warner Cable operates. This makes it easier for those producing large capacities to have a cost advantage. It also make production costlier for new entrants. This makes the threats of new entrants a weaker force.
• The product differentiation is strong within the industry, whereas firms in the industry sell differentiated products rather a standardized product. Customers also look for differentiated products. There is strong emphasis on advertising and customer services as well. All of these factors make the threat of new entrants a weak force within cable industry.
• The capital requirements within the industry are high, making it difficult for new entrants to set up businesses as high expenditures need to be incurred. Capital expenditure is also high because of high Research & Development costs. All of these factors make the threat of new entrants a weaker force within this industry.

Bargaining Power of Suppliers

• The number of suppliers in the cable industry in whichTTime Warner Cable operates is a lot. This means that the suppliers have less control over prices and this makes the bargaining power of suppliers a weak force.
• The product that these suppliers provide are fairly standardized, less differentiated and have low switching costs. This makes it easier for buyers like Time Warner cable to switch suppliers. This makes the bargaining power of suppliers a weak force.
• The industry in which cable operates is an important customer for its suppliers. This means that the industry's profits are closely tied to that of the suppliers. These suppliers, therefore, have to provide reasonable pricing. This makes the bargaining power of suppliers a weaker force within the industry.

Bargaining Power of Buyers

• The number of suppliers in the industry in which Time Warner Cable operates is a lot more than the number of firms producing the product. This means that the buyers have a few firms to choose from, and therefore, do not have much control over prices. This makes the bargaining power of buyers a weaker force within the industry.
• The product differentiation within the industry is high, which means that the buyers are not able to find alternative firms producing a particular product. This difficulty in switching makes the bargaining power of buyers a weaker force within the industry.
• The quality of the products is important to the buyers, and these buyers make frequent purchases. This makes the bargaining power of buyers a weaker force within the industry.

Threat of Substitute Products or Services

• There are very few substitutes available for the products that are produced in the industry in which Time Warner Cable operates. The very few substitutes that are available are also produced by low profit earning industry. This means that there is no ceiling on the maximum profit that firms can earn in the industry in which Time Warner cable operates. All of these factors make the threat of Substitute Products a weaker force within the industry.
• The very few substitutes available are of high quality but are way more expensive. Comparatively, firms producing within the industry in which Time Warner Cable operates sell at a lower price than substitutes, with adequate quality. This means that buyers are less likely to switch to substitutes products. This means that the threat of Substitute products is weak within the industry.

Rivalry Among Existing Firms

• The number of competitors in the industry in which Time Warner Cable operates are very few. Most of these are also large in size. This means that firms in the industry will not make moves without being unnoticed. This makes the rivalry among existing firms a weaker force within the industry.
• The very few competitors have a large market share. This means that these will engage in competitive action to gain position and become market leaders. This makes the rivalry among existing firms a strong force within the industry.

Implications of Porter's Five Forces on Cable Industry

By using the above information in Cable industry five forces analysis, strategic planners will be able to understand how different factors under each of the five forces affect the profitability of the cable industry. A stronger force means lower productivity, and a weaker force means greater profitability. Based on this a judgment of the industry's profitability can be made and used in strategic planning.