Five Forces In Gaining Competitive Advantage Information Technology Essay

Aalsmeer Flower Auction is known as Bloemenveiling Aalsmeer is a flower auction, located in Aalsmeer, the Netherlands. It is the largest flower auction in the world. The auction building of the flower auction in Aslsmeer is the third largest building in the world, in terms of floorspace, covering 990,000 m² (10.6 million sq ft). Flowers from all over the world ( Europe, Colombia, Ethiopia, etc) are traded on a daily basis at the Aalsmeer facilities.

Other than that, AFA offers global growers, wholesalers and exporters a central marketplace in which to trade flowers and plants. It gives them access to a range of marketing channels and financial information, storage and logistics facilities. Within the floricultural value chain, growers are the initial suppliers. Demand comes from exporters, importers, wholesalers, cash and carry stores, and retailers. Within this chain, auctions play a mediation role- they bring together suppliers and buyers and so determine prices. Sometimes these are world prices, since many parties throughout the world use them as price indicators. Another role is to increase efficiency by breaking large consignments from growers into smaller amounts for buyers.

Electronic network, customer demand, mergers and acquisitions, changes in buyers and professional growers forced the Aalsmeer board to respond to these changes in order to maintain their business and connect with suppliers and buyers. With these latest developments, Aalsmeer Flower Auction value chain seems to be under pressure.

2.0 Objectives

From the case study, I have defined the current situation of Aalsmeer Flower Auction. The following objectives are the most relevant in order for the company to improve and move forwards:

To be able to cope with the change of consumer tastes

Improve communication within the company, with customers and also with the suppliers

New technologies opportunities- by developing a new modern information system and technology within the company

Increase trade outside the auction

Increasing of power of retailers- threats rather than objectives

2.1 Problem statement

Aalsmeer Flower Auction is in a stable state until several issues are always there, threatening their position in the flower industry. However, identify problems and solutions are needed as soon as possible Aalsmeer Flower Auction back into place. First of all, the pressures come from the electronic- driven flower market. Another method of floral company made the dangerous Aslsmeer flowers auctions. This is because the new business and innovative way is to have a good feedback, the new business concept is very popular with customers.

Next, the auction does not meet the needs of retailers. . Retailers required for fresher products, more varieties, smaller quantities and multiple deliveries each week. They found that, in order to meet the needs of retailers is very important because they are one of the major clients of the auction.

Mergers and acquisitions among retailers have doubled the size and strength, and the threat of the auction. At the same time, growers have become more professional and new business, sales or electronic methods.

3.0 SWOT analysis

The SWOT Analysis identified the key strengths and weaknesses within the company and describes the opportunities and threats facing Aalsmeer Flower Auction.

Strengths

Very efficient for small lots trading by using the Dutch auction clock method.

The product is from a seller to a buyer’s auction facilities to effectively transfer is a central hub to provide logistical support.

Auction provides order tracking, payment and delivery of effective period of a one-day settlement system.

Very efficient and low costs for shared communications infrastructure- simple visual communications for competitors, product, price and other trading information on the clock.

This product is on behalf of itself, a simple code identifies the level and quality level of total growers. Therefore, buyers can check the products in the auction hall, and if they want to do.

Top flower auction in the world

Weaknesses

Buyers and sellers have to come to the auction hall himself.

By using the Dutch auction clock method, auction price for specific products decrease during the day. To assure fameless, assignment of auction sequence for different growers is done by lottery system.

Packaging costs are in occurred multiple times for transport to and from the auction. Multiple handling of flowers can damage rating.

Buyers and growers perceive quality grades as too broad, artificially inflating valuation of products at the lower end of quality rating.

Requires synchronous communications for trading and collocation of parties to the limited trading floor. Growers do not know final demand patterns for products.

Opportunities

A simple computerized for communication bids

The old system can be used as a back up to the new system when it is put in place.

New information system can helps the company transfer the products quicker

Threats

The auctions can exclude growers and buyers who do not meet various criteria, therefore auction rules are tend to favour the growers

Dutch growers face increasing competition for lucrative European markets from low-cost foreign competitors such as Kenya, Spain, Israel, India and Colombia etc.

Foreign competitors have lower labour cost, fewer environmental regulations and lower trade tariffs.

The global diffusion of agricultural technologies and cheaper air transport make international growers more potent competitors.

3.1 IPO Model

IPO Model

Figure 1 source: website image IPO Model [1] 

A system can be modelled using the basic IPO model.  Figure 1 illustrates the three fundamental component parts: Input, Process and Output.  The IPO model describes how a process can transform and input to give a desired output.

The new system of IPO model can be apply in AFA due to the system able to ensures the feedback process and the quality of their product. Besides that, it can also help the current and future science and technology support programmes. This closed loop feedback process ensures the quality of, not only evaluation results, but also current and future science and technology support programmes (John Barber, 1999)

4.0 Porter’s five forces in gaining competitive advantage

For many organisations, the key question is “How can I gain competitive advantage?” In relation to his work on the five forces model, Porter (1980) proposed three different competitive strategies in which organizations may be able to adopt one.

Overall cost leadership to become the low cost producer

Differentiation of your product or service

Focus on niche to change the scope of competition by narrowing the market not well served by your competitors.

Using Porter’s (1990) model of international competitive advantage, Aaslmeer Flower Auction is analysed. This analysis discloses that the basic issues of production are a huge deal more important in the evolution of flower export industries. Aalsmeer Flower Auction is already one of the leading Dutch economies, having 11,000 growers and 5,000 buyers.

porters-five-forces-model.jpg

Figure 2 source: Google image of Portal’s competitive forces [2] 

As you can see the graph at above, suppliers, substitutes, buyers and potential entrants will come to industry rivalry.

To apply in AFA business, suppliers power is medium due to auctions are owned by grower cooperatives and increasing competition from cheaper overseas growers. However, substitutes are low threat due to Dutch auction widely accepted as the most efficient price determination method for flower trade. For the potential entrants is low threat as well due to AFA have high barriers to entry, relationships with buyers and growers, sophisticated logistic capabilities and space for staging auctions/ distribution centre (TFA). At last, buyer power is high for the AFA business due to buyers are becoming more sophisticated and increased buyer concentration.

This will attempt to bring together international demand with supply from AFA, focus on demand instead of supply and low cost per transaction for the business.

4.1 Analysing the exchange organisation

As information technology and telecommunications, diffusion and bandwidth, which is transmitted from the site traffic on the interface of supply. The impact on the electronics market is expected to increase rapidly. Their effectiveness is very dependent on manufacturing and design.

4.2 Industry-level strategy and information systems

Enterprises constitute an industry. In this analysis level the key question is how and when we should be against the competition and cooperation in the industry to others? The principal concepts of Porter’s competitive forces model for analyzing strategy at the industry level is very profitable in the most strategic analyses emphasize competition, cooperating with other firms or the firms in related industry in certain situations at times.

In the considerably, the quantity of customers would have multiplied and company must now keep abreast with all of the information requirements to manage its financial portfolios, marketing channels and storage facilities, thoroughly because of the AFA company now has reached global sales status.

This must be done via Electronic Media in all outlets available. The e-trading service could convenience for the buyers and sellers of the world to move at the click of a button, instantaneously.

As the IT consultant, they advice that the implementation of information systems would improve communication searches, monitoring and information sorting in order to reduce transaction costs and the production of all buyers in the market to provide economic advantages.

5.0 Systems theory systems development

Systems theory provides analysis and a powerful tool for improving business processes. This is the behaviour and interactions with the research and systems.

Development is a systematic activity, will produce an information system solution, an organization’s problem or opportunity to go. This is a structural problem with the system analysis, system design, programming, testing, conversion, constitutes a unique solution in the production and maintenance activities. With the information system in AFA possible, there are some models can be seen as in the development of new systems for the company.

5.1 Traditional System Development Life Cycle (SDLC)

The systems development life cycle (SDLC) is a conceptual model used in project management that describes the stages involved in an information system development project, from an initial feasibility study through maintenance of the completed application(Exandrou, M., 2010). SDLC consists of 5 steps of systems development will be developed according to the AFA needs. The steps of traditional systems development may vary from one company to the next, but most common and approaches steps are system investigation, system analysis, system design, system implementation, and system maintenance and review (Ralph Stair and George Reynolds, 2008). See below figure.

Figure 3: SDLC steps [3] 

Step 1: System Investigation

The first step of SDLC is quite important and it will help AFA to identify the potential root problems in their business. AFA can accomplished by interviewing users and consulting with support personnel (Marios Alexandou, 2010). AFA can find solutions to solve the problems once the problems are identified and decided to use the system required, the development should proceed to system analysis (Ralph Stair and George Reynolds, 2008).

Step 2: System Analysis

After system investigation, the second to be approach is system analysis. System analysis is a step which is how the solutions solve the problem. This step involves studying existing systems and work processes to identify strengths, weaknesses, and opportunities for improvement (Ralph Stair and George Reynolds, 2008).

Step 3: System Design

Third step is system design, this step shows how the system works as well as explaining how system outputs, inputs, and user interface; specifies hardware, software, database, telecommunication, personnel, and procedure components are link together (Ralph Stair and George Reynolds, 2008). Furthermore, the system is designed to assist AFA business processes.

Step 4: System implementation

According to Ralph Stair and George Reynolds (2008), the newly designed information system has to complete several tasks before it can be installed and ready to operate. See below figure (5) to know what are the tasks needed to accomplish.

Figure 4: System implementation [4] 

Step 5: System maintenance and review

The last step is system maintenance and review is to maintain the system and make sure everything is stable and usable by users. This system are involves checking, changing and enhancing the system to be more useful in achieving user and organizational goals (Ralph Stair and George Reynolds, 2008). The employees of AFA must know how to operate with the system and if modification is needed, then only can fits into the organization management.

Advantage of SDLC

According to Dane Philip (2008), the advantages of using SDLC are

Clear project objectives

Stable project requirements

Progress of systems is measureable

Strict sign-off requirements

Disadvantage of SDLC

According to Dane Philip (2008), the disadvantages of using SDLC are

Time consuming

Never backward (traditional)

Little room for iteration

Difficulty responding to changes

5.2 Prototyping

Iteration 1

Determine requirement Iteration 2

Determine requirement

Analyze alternatives

Changeover

Changeover

Implement design

Specify design

Analyze alternatives

Implement design

Specify design

Analyze alternatives

Implement design

Specify design Iteration 3 (final)

Determine requirement

Changeover

Figure 5: Prototyping process [5] 

After the system implementation process in traditional SDLC, it is suggested that a prototyping (figure 5) process is taken before the process of system maintenance and review. The purpose of implementing prototyping in the midst of SDLC is to make sure the system is suitable to be used by users. Prototyping takes an iterative approach to the systems development process (Ralph Stair and George Reynolds, 2008). According to Ralph Stair and Geroge Reynolds (2008), each iteration will identify and analyze the requirements and alternative solutions. Besides that, new solutions are designed and a portion of the system is implemented. After that, the users are then encouraged to try the prototype and provide feedback. Prototyping begins with creating a preliminary model of a major subsystem or a scaled-down version of the entire system (Ralph Stair and George Reynolds, 2008). See figure (5) above, there are 3 iterations to go through in a prototype process. The first iteration is being used as testing model for the second iteration until the complete system is developed (Ralph Stair and George Reynolds, 2008). Once the system are formed, the whole system will goes through system maintenance and review process in SDLC. So, the whole system development life cycles should be in this form, see figure (6) below.

System Investigation

System Analysis

System Design

System Maintenance and Review

Prototyping

System Implementation

Figure 6: Mix of SDLC and Prototyping [6] 

Advantages of prototyping

There are several advantages being outlined by Dane Philip (2008), they are

Strong dialogue between developers and users

Missing functionality can be identified easily

Confusing or difficult functions can be identified

Quick implementation of incomplete but functional application

May generate specifications for a product application

Encourages innovation and flexible designs.

Disadvantages of prototyping

There are several disadvantages being outlined by Dane Philip (2008), they are

Contract may be awarded without rigorous evaluation of prototype

Identifying non-functional elements difficult to document

Incomplete application may cause application not to be used as the full system was designed

Client may be unknowledgeable

Approval process and requirement is not strict

Requirements may frequently change significantly

5.3 The purpose of choosing SDLC and Prototyping model

AFA is new user in e-commerce. Therefore, the most appropriate the two methodologies can be adopt and in relevance to the business and information requirement discussed above it is concluded that SDLC and prototyping model to be use by AFA. Take for example:

It is not expensive in using these two models for AFA want to reduce its transaction cost and will adopt a system that supports its objective and it does not require highly skilled term members for the term members at AFA are not familiar with electronic auction, so they have no experience about e-commerce.

6.0 Impact and effectiveness of the new systems

Organization

In addition, more and more companies are changing the way their business is mainly to electronic-driven market. The information system has been used to gain their competitive advantage. Therefore, the Asian Film Awards introduced a new system to survive.

Nowadays, a suitable and the most critical systems are very important to the organization. First, the new system must be consistent with organizational goals. This is because senior management can help to use the system to make major policy decisions and the decision will determine the fate of the organization. That the goals set by the organization is mainly to maximize profits and shareholder profits. In addition, the use of ERP in the organization, organization get rid of the old system and replaced by a single integrated system to them, which in turn reduced the organization by the old system cost.

Management

A well maintain management is very important to a company. Management is able to reduce the costs of management in working processes are done by computers because the system had replaced the labor. In other words, computerized in the documents or data are very important for a management system because of the company can cut down the labor cost and time in working process.

Employee

Company change their system to computer-based able to make employee task easier which is no longer has the need to the paper work and this can save time for the employee and the cost as well. For accountants, able to key in those financial documents every detail into the system using computer for them to pay out salary easier due to the large amount of employees in AFA, so the system can make them convenience and fast to pay out salary. The system makes job easier and improve productivity among the employees.

However, employees need to take times to adapt the new system. Company should open training classes for employees to train and learn how to use the system.