Jonathan ParsonsProf. Andrew Raleigh09102016External Env.docx
- 1. Jonathan Parsons Prof. Andrew Raleigh 09/10/2016 External Environment Analysis of Riverbed Technology Corporation 1 Introduction External analysis entails evaluating the external environment under which an organization operates. An external analysis enables the organizational management to determine its competiveness strength and weakness in the external environment. Similarly, investors are able to determine if the organization is able to sustain the evolving trends in the market. Thus, an external analysis of the Riverbed Technology Corporation has been demonstrated in the presentation. The extent of the external environment in enabling the management of an organization to determine its ability to
- 2. prevail in the environment it operates is due to its ability to reflect on the chances and threats it faces in the external environment (Hill & Jones, 2014). Consequently, the management is able to determine the strategies to undertake to capitalize on the opportunities and minimize the threats. Similarly, the investors gauge the ability of the organization to penetrate the market competition in enhancing their wealth through the external analysis (Hill & Jones, 2014). Consequently, an external analysis is a critical management tool. 2 Company Overview Riverbed Technology Incorporation is an IT company that is located in America. The company is involved in the development of WANs improvement products. This means the firm produces products that are used in enhancing the performance of WANs called WAN optimization. Thus, the firm operates under the information technology services industry. Founded in 2002 May 23. The current CEO is Jelly M. Kennelly since 2002 Its headquarter is located at San Francisco , California, United States. Even though Riverbed Technology Corporation was initially publicly traded under sticker RVBD at NASDAQ, it was acquired in 2014 as a private equity. The firm is currently a private entity of the Thomas Bravo firm and the Ontario Teacher’s Pension Plan. 3
- 3. Industry Analysis The information technology services industry is currently facing intense demand due to rapid technology advancement currently. Similarly the need for efficient data processing is pushing the demand of the industry’s services significantly. However, the profitability and competitiveness of industry players depend on innovativeness and technical efficiency. The innovativeness prowess of a firm in the industry determines its competitiveness due to the need by different clients to customize their service application depending on their need. Similarly, technical ability is essential since it determines the ability to meet the complex needs of the technology the client is demanding. Thus a firm intending to enter the industry should focus on the two capability dimensions to penetrate the market. The industry analysis involves evaluating the key factors determining the ability of the players to attract the customers. Accordingly, the innovative services that a company is capable of delivering to the clients is critical due to the sensitivity of the tasks the clients intend to undertake. Thus, a competitive player in the industry has to ensure it has the innovation capability to realize advanced services that will ease the work of the clients. The technical capability on the other side implies the ability of the firm to possess the resources and skills that match the nature of the services been sought by the client. Consequently, a firm intending to enter the industry has to invest in the two factors to win the loyalty of the customers. 4 Competitive Analysis The closest competitors of the Riverbed Technology are Juniper Networks, F5 Networks, and the Cisco Systems.
- 4. The competitive advantage of the Riverbed Technology compared to its competitors is cost leadership. The cost leadership advantage implies offering services at a lower price to maximize sales. This strategy has enabled the Riverbed Technology to win the services of small businesses significantly. In contrast, the main competitor, Cisco Systems has the competitive advantage of service differentiation. The competitive advantage of differentiation involve offering unique or more attractive similar services to the consumers. The F5 Networks firm’s competitive advantage has a narrow cost leadership and differentiation. This means it has been playing its strategies in the middle of the two competitive advantages. The competitive advantage pursued by organizations lies between cost leadership and the product differentiation advantages. The cost leadership involves minimizing the operational costs, which allows the organization to offer its products at a lower price compared to its competitors. This approach gives the organization the competitive advantage of attracting more consumers to consume their services due to the value the consumers stand to gain from a reduced price (Teti, Perrini, & Tirapelle, 2014). In contrast, the differentiation involves differentiating the services been offered by the company to look more attractive or unique compared to the similar services been offered by the competitors in the same industry (Teti, Perrini, & Tirapelle, 2014). Thus, the organization is able to gain the differentiation advantage of offering its services at a premium price due to the added value of enhanced quality the consumers expect to gain from the services. 5
- 5. External Analysis Techniques The external analysis of the Riverbed Technology has been undertaken using various tools. The various techniques employed are PESTEL, Five forces, Opportunities & Threats, EFE, and the CPM analysis. The PESTEL technique investigates the political, economic, social, technology, environmental, and the legal factors that might affect the performance of the firm. The five forces investigates the impact of the new entrants, substitute products, bargaining power of suppliers, bargaining power of buyers, and the rivalry among the existing firm on the competitiveness of the firm. The opportunities and threats analysis evaluates the potential opportunities and threats in the external market to exploit and minimize respectively. EFE entails an evaluations of the external factors affecting the organization. CPM analysis involves the profiling the competitiveness dimensions of the firm against the competitors in a matrix. The five external analysis tools employed in conducting the external analysis of the Riverbed Technology Corporation are instrumental in demonstrating the ability or inability of the firm to prevail the industry competition. This is essential in enabling the management of the organization to determine the strategic actions that should be taken to overcome the deficiencies while capitalizing on the strengths it portrays (Hill & Jones, 2014). 6 Political, Economic, Social, Technology, Environment, & Legal (PESTEL) Analysis The political aspects faced by Riverbed Technology include
- 6. foreign government policies, tax policies, and labor laws. The economic factors include GDP growth, exchange rate, inflation rate, and the interest rate. The social factors faced are human development index, social culture and lifestyle, and demographic pattern. The technology factors faced are technology development, and internet concentration. The environment factors faced are disposal of used devices, increased pollution regulation, and green energy advocacy. The legal factor faced are patent issues, future legislation, and change of copyright laws. The factor of foreign government policies is likely to affect the operations of the Riverbed Technology due to the potential of its assets been nationalized in foreign countries or facing undue target due to the relationship the foreign government has against the U.S government (Hill & Jones, 2014). Similarly, the uncertain tax regime from the next U.S election between the Republican and Democrat has the potential of affecting the net income of the firm if the winning team increases the corporate tax rate (Hitt, Ireland, & Hoskisson, 2013). Equally, the potential of the government elected to come up with popular labor laws will affect the profitability of the firm due to the impact it will have on labor cost. The economic factor of GDP growth is critical since it will determine the new investment opportunities the economy will create in the coming years for the firm to exploit(Hitt, Ireland, & Hoskisson, 2013). Similarly, the appreciating U.S currency exchange rate against the foreign has the potential of affecting the actual revenue received from the foreign services it has offered once foreign denominated revenues they are turned to U.S dollar (Hitt, Ireland, & Hoskisson, 2013). Furthermore, the increasing interest rate in America is hurting the welfare of the
- 7. Riverbed Technology since it is increasing the interest expense on the loans it has borrowed from the bank. Equally, the rising inflation rate has a negative effect on the wealth of the firm since it is lowering the purchasing power of the cash reserves it holds and increasing cost of the raw materials (Hill & Jones, 2014). The social factor of human development index in the market is enhancing the interests of Riverbed since the increasing human development is expanding the potential human resource to employ in the future. However, the demographic pattern of reducing young people while the old generation is increasing threatens the potential of affecting human resource base in the future (Hill & Jones, 2014). The technology factors of technology development and internet concentration in the global are critical in enhancing the welfare of the Riverbed Technology due to the ease of business it is creating (Hill & Jones, 2014). However, the increasing regulation on disposal of electronic devices, pollution, and use of clean energy is likely to affect the financial performance of Riverbed due to the huge cost of operation it is likely to face. Similarly, the legal factors patent, change of legislation, and change of copyright laws has the potential of affecting the company due to potential litigations in the future (Hitt, Ireland, & Hoskisson, 2013). 7 Riverbed Technology's Porter’s Five Forces The chart above reflects the five forces of competition that Riverbed Technology is facing currently in the industry. The threat of new entrants in the industry moderate due to the
- 8. interest signaled by firms to enter due to the potential the industry will generate high returns in the future (Hitt, Ireland, & Hoskisson, 2013). Similarly, the threat of substitute services in the market is high due to the firms coming from China and offering the WAN boosters at a lower price, which will hurt the customer base of Riverbed Technology. However, the bargaining power of the suppliers is quite low due to the rivalry among the suppliers to acquire an outright right of supplying materials to the firms operating in the industry (Hill & Jones, 2014). The bargaining power of the buyers on the other hand is high due to the increasing number of firms offering the products in the market. Furthermore, the rivalry among the existing firms in the industry due to their high number while the customer base still remains low (Hill & Jones, 2014). 8 Riverbed Technology’s Opportunity & Threats AnalysisOPPORTUNITIES THREATS. Enter developing and emerging economies . Acquisition and merger . Strategic Alliance . Customization of products and services . Diversifying in software development services. Startling competitors from China Litigation problems Recall of WAN Optimization products it supplies. The decision to enter the developing and the emerging economies is a critical opportunity the firm can undertake due to the lucrative business opportunities emerging from these unexploited markets. Similarly, the decision to acquire an existing firm or enter into a strategic alliance has the opportunity of enhancing the operational capability of the firm,
- 9. which will promote its competitiveness in the industry(Hill & Jones, 2014). Furthermore, developing products that the clients can customize at ease depending on their needs has the opportunity of enhancing the competitiveness of the firm’s products in the future. Equally, the decision to diversify to software development services will enhance the operational base of the organization (Hitt, Ireland, & Hoskisson, 2013). However, the startling competitors from China has the potential of affecting the competitiveness of the firm’s products due to the discounted price they are selling their products. Furthermore, the patent issues been faced in the industry puts the firm under the risk of facing litigation due to copyright infringement. Similarly, the potential of the firm’s products to be found they are contravening the established standards demanding for recalls will expose the firm to huge financial losses (Hill & Jones, 2014). 9 External Factors Evaluation (EFE) AnalysisKey External FactorsWeightRatingWeighted ScoreOPPORTUNITIES Emerging and developing markets0.1140.44Acquisition and alliances0.0930.27Customization0.2420.48Diversification0.102 0.2THREATSChinese firms0.174.50.765Litigations0.0920.18Recalls0.230.6Total12.93 5 The opportunity of exploiting the emerging and developing markets has received the highest weight and rating due to the potential it holds in maximizing the market base of the Riverbed Technology. Similarly, the threat posed by the Chinese firms gas received the highest rating due to the impact it holds of persuading the loyal customers of the firm to switch their at the low price they are offering their products. Consequently, the
- 10. weighting and rating of the opportunities and threats has been informed by the impact of each factor (Hill & Jones, 2014). 10 CPM Analysis The table above demonstrates the competiveness total score of each company as evaluated across the four critical competitiveness factors. Accordingly, the analysis indicates Cisco is more competitiveness on average compared to the Riverbed Technology. In contrast, Riverbed Technology is more competitive compared to the Jupiter Corporation. 11 Significant Industry Trends The information technology services industry is current experiencing major trends that might affect the future of the industry players. One of the major trends been experienced in the industry is rapid technology changes. The technology changes are disrupting the strategies of the firms since they are forced adjust frequently to match the industry trend. Similarly, the customer behavior is another critical trend been experienced in the industry. The customers are increasingly changing their preferred company or product depending on the need they require in a given period. Furthermore, the trust of the technology product or service been offered by a given firm is playing an instrumental role in determining the ability of a firm to penetrate the market. The patent war is another significant trend been experienced in
- 11. the industry due to the close similarities and functionality of the products by different firms. The industry trends are critical in shaping the future competition dimensions that an organization should observe if intends to remain competitive. Accordingly, the analysis above indicates the industry is experiencing spontaneous technology changes, which demands the management of the firm to invest heavily on research and development to remain competitive (Sur, 2016). Similarly, the analysis indicates the trust and confidence the firm in the industry is able to invest in customers is critical in determining their loyalty in the future(Sur, 2016). Consequently, the management of the Riverbed Technology should pay attention to these two crucial dimensions. 12 References Hill, C. W., & Jones, G. R. (2014). Strategic management: Theory : an integrated approach. Boston: South-Western. Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2013). Strategic management: Competitiveness & globalization. Mason, OH: South-Western Cengage Learning. Sur, P.-A. (2016). 2016 Technology Industry Trends. Retrieved 2016, from Industry Perspectives: http://www.strategyand.pwc.com/perspectives/2016-technology- industry-trends Teti, E., Perrini, F., & Tirapelle, L. (2014). Competitive strategies and value creation: A twofold perspective analysis. Journal of Management Development , 33 (10), 949-976.
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