The Importance of "Attractive Network Position" for a Company

Initially, the question to ask is, what is, in fact, meant by the terms “attractive network position” and “effective management of a network position” when discussing the operation of business networks. Defining these expressions will allow us to gain a deeper understanding of the day-to-day running of these firms. Being in an “attractive network position” refers to the positive effect, that a supplementary customer of the particular service, has on the worth of that manufactured good, to other people, within the network (Shapiro & Varian, 1999). “Effective management of a network position” refers to the need for managers to go beyond what the customer desires, in order to organise the running of the firm in complex network situations (Ritter, 1999).

There are numerous theories intended at capturing the firm’s network management; such as: network competence and network capabilities, (Ritter, 1999) which are used to uphold relationships with external partners. One may argue that for a firm to operate in an attractive position, executives must be strategic by analysing the commerce or environmental conditions in which they work. After that, they evaluate the strengths and weaknesses of the group of actors that they are in opposition to. With this taken into consideration, they aim to sculpt a distinct tactical position where they can surpass their competitors by constructing a competitive advantage (Kim & Mauborgne, 2009). The fundamental sense here is that a company’s strategic choices are restricted by the situation. So, according to this approach, a firm’s success is dependent on its behaviour, which in essence is dependent on essential structural factors such as number of suppliers and buyers and barriers to entry (Kim & Mauborgne, 2009).

In spite of this, there are numerous concerns which firms face when they make an attempt to bring in above-normal proceeds within business networks. Firstly, as demonstrated earlier in this essay, if firms are not in an attractive position within the business network, others may appear to be more commercially appealing than them. One may in fact use “Porter’s 5 Forces” to evaluate the attractiveness of different network positions. This framework was developed in 1979 by Michael E Porter of Harvard Business School as a simple theory for reviewing the competitive vigor and position of a business organisation (CGMA, 2013).

The five forces are: supplier power; a measurement of how unproblematic it is for suppliers to increase their prices, buyer power; a measurement of how unproblematic it is for buyers to decrease prices, competitive rivalry; which refers to the amount of competitors that there are in the market, and includes the capabilities of these competitors, threat of substitution; refers to the existence of similar products in the same market, in which it is the likely case for consumers to shop elsewhere for their product, especially if prices are too high and threat of new entry; which refers to cost-effective markets attracting innovative competitors (CGMA, 2013). For example, this can be applied to the case study of Marks & Spencer’s. In 2012, Next, which by many, is regarded as M&S’s little sister, overtook M&S in terms of stock market value and net worth (Neate, 2014). In 2013 and 2014, M&S were experiencing a great deal of problems, including their biggest one being their competition with Next, because they both target roughly the same market of young and middle-aged women (Neate, 2014).

In contrast to Next, M&S were perceived to be old-fashioned and unresponsive to modern buying habits, therefore, arguably, having a poor focus on their target customers (Neate, 2014). Subsequently, this case study partially supports Porter’s Five Forces analysis because evidently M&S have suffered the consequences of the ‘threat of substitution’ in which Next, their strongest competitor are contributing to the hindrance of their sales. As a result, these ‘Five Forces’ can be used in practice, to consider the changing characteristics of the industry and it is said that strategic market analysts frequently apply Porter’s five forces to comprehend whether innovative products or services are lucrative (CGMA, 2013). One common perception is that firm positioning within the business network is entirely dependent on their capabilities. Therefore, one must consider the capabilities of the firm before assessing the network positions, using the framework of Porter’s Five Forces. For example, the Pearson case study supports this because in 2013, Pearson implemented a strategic change of focusing on merely digital learning at the expense of all other types of learning (Harrison, 2013). The company aimed to spend over £150 million on restructuring this education services provider (Harrison, 2013).

Accordingly, Pearson decided to re-position in the network, altogether because as a company, they thought that the economic value of education and skills will continue to increase, so they would be able to build a stronger, more profitable and faster growing company (Harrison, 2013). So, this case study demonstrates that certain firms are able to re-position themselves within the network in order to increase their appeal towards their customers. Subsequently, it is said that as firms re-position themselves within the network, they must fulfill this particular position so that they can follow through on their exact proposals and make the most of its share of excess worth (Neilson, Martin & Powers), therefore supporting the statement which acknowledges that firms must be in an attractive network position to be sustainably profitable. One may argue that in order to advance and examine a firm’s approach and strategy, one should use the Strategic Position and Action Evaluation analysis skeleton model; also known as: SPACE, which is a methodical assessment of four main issues that maintain equilibrium of the external and internal factors that should verify the broad premise of the approach (Simister, 2011).

The four main issues referred to in the model are: industry attractiveness, environmental stability (external), competitive advantage and financial strength (internal). So, arguably, by intermixing ratings on each element on one SPACE matrix diagram, the skeleton model channels the calculated agenda. The reason is that financial strength is desirable in order to counteract for environmental instability. The more demanding and complicated the imminent environment is, the more imperative it is to have strong financials. Then, industry attractiveness and competitive advantage are seen as potentially substitute foundations of greater profit and if both favour the company, then results should be outstanding but if both are unfavourable, then the company poses potential problems (Simister, 2011).

Another key idea for many firms is that their success is determined by the amount of money earned within their network; i.e. being sustainably profitable. Therefore, after firms have behaved in a certain way in order to acquire an attractive network position, their main focal point tends to be on where the money is within the network and how they can get their hands on the money. This links with the fact that powerful relationships are interconnected with effective management of a network position because power and control over the relationships, within firms, are in command of the flow of value. This can lead to a post-contractual power shift, which concentrates on the responsibility of institutions, such as, firms, in influencing financially viable behaviour (Hamilton, 1919).

This statement can be supported by the fact that buyer-supplier relationships are portrayed by using four different power structures: buyer dominance, buyer-supplier independence, buyer-supplier interdependence and supplier dominance (Campbell & Cunningham, 1983) and (Cox, Sanderson & Watson, 2000). I shall use the case study of ‘Hewlett-Packard’s Telecoms Testing Equipment Division’ to back up this initiative. To give a general idea about the case, the testing equipment division subcontracted a considerable share of its manufacturing procedures to its supply foundation in order to decrease its time to market. This shows that they, as a company, strongly advocate value for money.

In addition to this, we can recognise which type of relationship characterises this case study by assessing the different ways in which buyers and suppliers interact. For example, HP Telecoms built up a guiding principle in which the suppliers fabricated to HP designs, hence steering clear of the possibility of lock-in, which can modify the balance of power. Also, we are told that HP Telecoms get quality inputs from its manufacturing subcontractors, which shows that they as a company are controlling the dominance and that they get their share for the surface value. Consequently, from all this information we can conclude that their relationship can be labelled as ‘buyer dominated’, when using the power structures to measure these existing relationships.

Now that this has been clarified, one may argue that successful profitability is caused by 3 main components: strategy positioning, market and procurement and the two factors that link them all together are: power and control. For example, if we revisit the case study of Marks and Spencer’s, they did not achieve successful profitability because their market and procurement were not well executed, and one can declare the same about their strategy, aswell because they were evidently targeting the wrong types of customers which illustrates their lack of clarity and arguably their failure, as a company. Explaining how successful profitability can be achieved may be perceived as something relatively straightforward; however, it is very difficult to achieve because there are a wide range of constraints on firms in the real world. These constraints include: the presence of competitors, economic constraints, such as, the amount of earnings that consumers usually must spend and technological constraints, which includes how businesses function, which in turn is established by the technologies available to them (LLP, 2018). Furthermore, there are additional factors in which businesses, nowadays, are constrained by, including, social constraints (LLP, 2018). Recently, for example, customers have chosen more healthy foods as opposed to those that are heavily saturated in fat and contain high levels of processed elements, so businesses must respond to changes in their environment, in order to modify these changes (LLP, 2018).

In theory, making these modifications, as a firm, should be reasonably unproblematic because you are simply responding to changes in public opinion, however, in practice, this is not the case because firms must be constantly aware of these external drawbacks and how they vary over time. For example, this hypothesis can be supported by the case study of Dell. During the 1990s, they experienced their best years in terms of high revenue sales because their consumers recognised the individuality of their particular product (Reuters, 2012). However, Dell is a typical example of a company that was very successful during those years but then suddenly began to struggle excessively. Reasons for their plummet include the tough macroeconomic situation at the time and cannibalisation, however all companies had to deal with these setbacks (Reuters, 2012). For many, they argue that the biggest difficulty for Dell was the presence of competitors, such as, Apple and Lenovo, who in comparison to Dell, were not facing an existential crisis and were more appealing to the general population as they were both improving their supply chains and corresponding to Dell’s undeviating replica, without long delays and technological problems (Reuters, 2012).

To conclude, we have reviewed a few case studies that have demonstrated that it is the case that firms need to be able to operate in an attractive network position in order to be sustainably profitable and that powerful relationships with its customers and suppliers are imperative in generating profits and controlling the flow of value. Therefore, all firms should aspire to operate in this way in order to meet the terms of their effective management.