Introduction
The Science Applications International Corporation (SAIC) is an American information technology company that offers information support, engineering and government services (“Science Applications International Corporation”). Information technology is, “the technology involving the development, maintenance, and use of computer systems, software, and networks for the processing and distribution of data” (Merriam-Webster, 2016). Founded in 1969 and headquartered in Tysons Corner, Virginia the company has roughly 15,000 employees around the world and is a world leader and integrator in technical, intelligences, and engineering to technology markets. Some of its key business operations include designing and developing solutions to customer needs that are technology related.
The most important client for SAIC is Defence structures – 63% of all contracts (in money dimention) were with US Army, Navy or Air Forces. 11% of contracts were with Inteligance structures and only 22% - for Federal civilian. SAIC is one of key structural element in informational defence system of USA.
Main products and services of SAIC are: hardware integration and logistic (SCM, Land Platform Upgrade, Aircraft and Maritime Platform Missions Systems and Integration, etc.); Intelligense, Surveilance, and Reconnaissenes (Biometrics, Computer Network Defence, Quike Reaction Prototiping, etc.); Software Integration, IT Managed Services, and Cyber, Cloud, and Data Science.
A leader in supply chain management and integrating global networks, the company also provides offers many services as well as “end-to-end capabilities and solutions across mission and enterprise lifecycles” (“Science Applications International Corporation”). SAIC’s diversified contract has catapulted the company into its current position allowing the company to aid diplomatic missions and advance warfighter protection equipment. SAIC supports programs that are of “national importance” in an effort to aid in solving the problems that are plaguing the country.
The strategy of SAIC is baised on the mission – to be the premier technology integrator on the market, making a proufound difference for costumers by providing best-in-class solutions.
Michael Porter’s Five Forces
Michael Eugene Porter is an American professor most known for his Five Competitive Forces model. He is one of the leading figures in economic development and competitive strategy; much of his work has been recognized globally. The Five Forces model describes an organization’s competitive advantage and the two main threats that any business faces once operating (Mohapatra, 2011). The first threat involves external forces which include: macro-environment competition—government policies and competitors offering customers similar products and/or services for a similar or cheaper price (Mohapatra, 2011). The second threat comes from the bargaining power of buyers and suppliers, and the ability of other emerging organizations to adopt and mimic products and/or services—also known as easy entry (Mohapatra, 2011).
Porter’s Five Forces model can be applied to every industry as the specific players may change but their roles do not. According to Porter , “Understanding the competitive forces, and their underlying causes, reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time” (Porter, 2008, p. 26). In the information technology (IT) world, technology allows managers to detect changes or signs of changes in outside forces and enables them to make necessary changes and adjust. Managers can use IT to create strategies that will tackles outside forces such as, “competitors, entry and exit barrier, for managing suppliers and customers and still be compliant with environmental policies (Mohapatra, 2011). Ultimately, technology can be used to manage unforeseen changes and bring stability back within an organization’s business model (Mohapatra, 2011).
Threat of New Entrants
The first of Porter’s Five Forces is the threat of new entrants. Basically, when a new competitor enters an existing industry it will shift the dynamics within the market and potentially put a cap on the potential of the market and its profit. For example, a new entrant that aims to increase its market share influences the market’s prices, costs, and the rest at which others can invest in order to compete (Porter, 2008). New entrants shake up the existing competition especially when they are diversifying from other markets (Porter, 2008). However, the threat of new entrants can be low or high depending on the barriers to entry within a market.
Of course, Defence Sector is strictly carefull in cooperation with new companies, but still there are plenty possibilities for newcomers. Moreover, modern informational threats (USA – China informational conflicts) leads to more needs in informational and technical safety. And, naturelly, only some new companies can meet these needs.
Barriers to Entry
Barriers to entry are the obstacles that determine whether a new entrant is likely to succeed in a new market or not. According to Porter, “entry barriers are advantages that incumbents have relative to new entrants [] there are seven major sources (Porter, 2008, p. 26). These barriers include: the costs associated with entering a market, competing in a marketing where existing players hold a large majority of the market share, and lack of resources. If there are certain barriers that make it difficult to enter the market and succeed, new entrants are less likely to occur. When the barriers are low and the threat is high, this forces existing players to lower their prices and/or boost their investments in order to discourage new competitors (Porter, 2008).
As for Defence sector the entry barriers, naturally, are very hidgh because of extreamly high importance of industry. Moreover, the market is well developed and competitiveness is very high, so it is hard to enter this market. But still there is a possibility to take some niche – and, maybe, this is the easiest way for entrants.
Competition Among Rivals
Although competition appears to sound beneficial in the market, it can be detrimental when too much competition is present. High amounts of rivalry between competitors ends up limiting the overall profitability of an industry (Porter, 2008). There are several ways in which rivalry occurs between competitors which include: “price discounting, new product introductions, advertising campaigns, and service improvements” (Porter, 2008, p. 32). It is especially destructive when organizations begin to focus solely on price competition because the price changes and profits are transferred from the industry and fall on the customers who end up paying more (Porter, 2008).
According to Porter, “the degree to which rivalry drives down an industry’s profit potential depends, first, on the intensity with which companies compete and, second, on the basis on which they compete” (Porter, 2008, p. 32). Price competition is not likely to occur unless the products and/or services of the organizations are similar or there are little to no switching costs for buyers (Porter, 2008). When this occurs, competitors will seek to decrease prices in effort to attract customers to their products. There are other ways that organizations will compete on other features outside of price (these ways do not decrease the profitability of the industry). For example, competitors can compete on the features of a product, customer and support services, low deliver times, appealing brand images (Porter, 2008). This type of competition is welcomed because it improves value for customers.
Such out-of-prace competitive situation is on SAIC’s market. The biggest competitor for SAIC is ACN (Accenture plc) with market capitalization over $62 billion (in contrast to $2 billion for SAIC). But the closest (direct) competitor for SAIC is BAH (Booz Allen Hamilton Holding Corporation) with $4 billion of market capitalization. High competitiveness in this case leads to better service for Defence Sector, because the first factor for client is not the price, but quality of the product.
Bargaining Power of Buyers
The bargaining power of buyers heavily influences an organization’s prices. Powerful customers can force prices down and demand better quality and service (Porter, 2008). Powerful buyers can pit organizations against one another when buyers find another product that they perceive as the equivalent; which will cause the industry profitability to suffer. These type of buyers are powerful because they have leveraging power, are often price sensitive—either to low or high prices—and can use their leverage to put pressure on organizations to reduce prices (Porter, 2008). According to Porter, “large-volume buyers are particularly powerful in industries with high fixed costs, such as telecommunications equipment, offshore drilling, and bulk chemicals” (Porter, 2008, p. 30).
Obviously, the Defence market is ruled by the customer. It is strategic industry for the whole nation, so the bargaining power of buyer is very strong. But, as it was said previously, this situation leads not always to price competition – but for continuos increasing thq quality of products. And SAIC is not a exclusion – the company always tries to be on the edge of innovative development.
Bargaining Power of Suppliers
Powerful suppliers will have an effect on organizations and their operations. This is due to the factors surrounding the suppliers. Factors than increase a supplier’s bargaining power include: charging higher prices, limiting quality or services, or shifting costs to industry participants (Porter, 2008). When a supplier increases its prices, those cost are passed on to the organization who either embodies the costs or passes them to customers. If a supplier serves more than one company then it does not have to rely completely on the industry it sells to earn a profit which gives the supplier more bargaining power. Suppliers also hold more power when the supplier has a large market share in a certain industry. Also, a supplier offering a differentiated product holds power because switching costs for changing suppliers is high and it is difficult for organizations to find other suppliers who offer the same product for a lower price (Porter, 2008). Supplier bargaining power is highest when the product is difficult to find.
Threat of Substitutes
The last force in the Five Forces model is the threat of substitutes. This threat occurs when other organizations begin offering a product that is similar to one that an organization is offering; however it may be cheaper or lack certain characteristics. According to Porter, “a substitute performs the same or a similar function as an industry’s product by a different means (Porter, 2008, p. 31). Examples of this are medical drugs which include the same ingredients as leading brands but are sold at a lower cost. When the threat of substitutes is high it can dramatically cut profits for organizations.
What makes substitutes so detrimental is because they limit the potential of an industry’s profit by placing a ceiling on prices (Porter, 2008). This is only combatted by intense marketing, positive product performance, or other means to differentiate one’s product as superior in comparison to the substitutes (Porter, 2008). Substitutes are higher in demand when the buyer’s switching costs are low or when the buyer is sensitive to pricing. They are also especially popular during difficult economic times when buyers prefer cheaper alternatives. This is because substitutes, “offers an attractive price-performance trade-off to the industry’s product [] the better the relative value of the substitute, the tighter is the lid on an industry’s profit potential (Porter, 2008).
The substitutional threat is very high for SAIC because of highly competitive market. Despite some really extraodenary products that SAIC have in its product range, the needs of the client is still the same for a long time (informational safety and technical integration), so it is naturaly that other companies could find different ways to meet these needs. And only continuous development that is based on innovations could block this threat.
References
Science Applications International Corporation: About SAIC. Retrieved from
http://www.saic.com/about/about-saic/
Porter, E., M. (2008). The Five Competitive Forces That Shape Strategy. Harvard Business
Review. Retrieved from https://hbr.org/2008/01/the-five-competitive-forces-that-shape-
strategy/ar/1
Mohapatra, S. (2011). IT and Porter’s Competitive Forces Model and Strategies. Xavier Institute
of Management. DOI: 10.1007/978-1-4419-6108-2_14
Merriam-Webster. (2016). Retrieved from http://www.merriam-
webster.com/dictionary/information%20technology
