Business Strategy Chapter 8 Tailoring Strategy to Fit Specific Industry and Company Situations

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S 1:Tailoring  Strategy  to  Fit  Specific  Industry  and Company Situations
S 2:Matching  Strategy  to a  Company’s  Situation

Most important drivers shaping a firm’s strategic options fall into two categories:

Nature of industry and competitive conditions.

Firm’s competitive capabilities, market position, best opportunities.

S 3:Features  of  an  Emerging  Industry

•New and unproven market

•Proprietary technology

•Lack of consensus regarding which of
several competing technologies will win out

•Low entry barriers

•Experience curve effects may permit
cost reductions as volume builds

•Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns

•First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures

•Possible difficulties in securing raw materials

•Firms struggle to fund R&D, operations and build resource capabilities for rapid growth

S 4:Strategy  Options  for  Competing in  Emerging  Industries

•Win early race for industry leadership by employing a bold, creative strategy.

•Push hard to perfect technology, improve product quality, and develop attractive performance features.

•Consider merging with or acquiring another firm to:

–Gain added expertise.

–Pool resource strengths.

•When technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly

•Form strategic alliances with :

–Companies having related technological expertise or

–Key suppliers.

S 5:Strategy  Options  for  Competing in  Emerging  Industries  (continued)
•Pursue new customers and user applications.

•Enter new geographical areas.

•Make it easy and cheap for first-time buyers to try product.

•Focus advertising emphasis on:

–Increasing frequency of use.

–Creating brand loyalty.

•Use price cuts to attract price-sensitive buyers.

S 6:Strategic  Hurdles  for  Companies in  Emerging  Industries

•Raising capital to finance initial operations until:

–Sales and revenues take off.

–Profits appear.

–Cash flows turn positive.

•Developing a strategy to ride the wave of industry growth:

–What market segments to pursue.

–What competitive advantages to go after.

•Managing the rapid expansion of facilities and sales to position a company to contend for industry leadership.

•Defending against competitors trying to horn in on the company’s success.

S 7:What  Is  the  Key  to Success  for Competing  in  Rapidly  Growing  Markets?

A company needs a strategy predicated on growing faster than the market average so it

•Can boost its market share and.

•Improve its competitive standing vis-à-vis rivals.

S 8:Strategy  Options  for  Competing in  Rapidly  Growing  markets

•Drive down costs per unit to enable price reductions that attract droves of new customers

•Pursue rapid product innovation to

–Set a company’s product offering apart from rivals.

–Incorporate attributes to appeal to growing numbers of customers.

•Gain access to additional distribution
channels and sales outlets.

•Expand a company’s geographic coverage.

•Expand product line to add models/styles to appeal to a wider range of buyers.

S 9:Industry  Maturity:  The  Standout  Features

•Slowing demand breeds stiffer competition

•More sophisticated buyers demand bargains.

•Greater emphasis on cost and service.

•“Topping out” problem in adding
production capacity.

•Product innovation and new
end uses harder to come by.

•International competition increases.

•Industry profitability falls.

•Mergers and acquisitions reduce number of rivals.

S 10:Strategy  Options  for  Competing in  a  Mature  Industry

•cut back marginal products and models.

•Emphasize innovation in the value chain.

•Strong focus on cost reduction.

•Increase sales to present customers.

•Purchase rivals at bargain prices.

•Expand internationally.

•Build new, more flexible competitive capabilities.

S 11:Strategic  Pitfalls  in  a  Maturing  Industry

•Employing a ho-hum strategy with no distinctive features thus leaving firm “stuck in the middle”.

•Being slow to mount a defense against stiffening competitive pressures.

•Concentrating on short-term profits rather than strengthening long-term competitiveness.

•Being slow to respond to price-cutting.

•Having too much excess capacity.

•Overspending on marketing.

•Failing to aggressively pursue cost reductions .

S 12:Stagnant  or  Declining  Industries:
The  Standout  Features

•Demand grows more slowly than economy as whole (or even declines).

•Advancing technology gives rise to better-performing substitute products.

•Customer group shrinks.

•Changing lifestyles and buyer tastes.

•Rising costs of complementary products.

•Competitive battle ensues among industry members for the available business.

S 13:Strategy  Options  for  Competing in  a  Stagnant  or  Declining  Industry

•Pursue focus strategy aimed at
fastest growing market segments.

•Stress differentiation based on quality
improvement or product innovation.

•Work diligently to drive costs down

–Cut marginal activities from value chain.

–Use outsourcing.

–Redesign internal processes to exploit e-commerce.

–Consolidate under-utilized production facilities.

–Add more distribution channels.

–Close low-volume, high-cost distribution outlets.

–Prune marginal products.

S 14:End-Game  Strategies for  Declining  Industries
•An end-game strategy can take either of two paths

–Slow-exit strategy involving

•Gradual phasing down of operations.

•Getting the most cash flow from the business.

–Fast-exit strategy involving

•Disengaging from an industry during early stages of decline.

•Quick recovery of as much of a company’s investment as possible.

S 15:Features  of  High-Velocity  Markets
•Rapid-fire technological change.

•Short product life-cycles.

•Entry of important new rivals.

•Frequent launches of new competitive moves.

•Rapidly evolving customer expectations.

S 16:Meeting the Challenge of High-Velocity Change

S 17:Strategy  Options  for  Competing in  High-Velocity  Markets

•Invest aggressively in R&D.

•Initiate fresh actions every few months.

•Develop quick response capabilities:

–Shift resources.

–Adapt competencies.

–Create new competitive capabilities.

–Speed new products to market.

•Use strategic partnerships to develop
specialized expertise and capabilities

•Keep products/services fresh and exciting

S 18:Keys  to  Success  in  Competing in  High  Velocity  Markets

•Cutting-edge expertise.

•Speed in responding to new developments.

•Collaboration with others.

•Agility.

•Innovativeness.

•Opportunism.

•Resource flexibility.

•First-to-market capabilities.

S 19:Competitive  Features of  a  Fragmented  Industry

•Absence of market leaders with large market shares or widespread buyer recognition.

•Product/service is delivered to neighborhood locations to be convenient to local residents.

•Buyer demand is so diverse that many firms are required to satisfy buyer needs.

•Low entry barriers.

•Absence of scale economies.

•Market for industry’s product/service may be globalizing, thus putting many companies across the world in same market arena.

•Exploding technologies force firms to specialize just to keep up in their area of expertise.

•Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share.

S 20:Examples  of  Fragmented  Industries

Book publishing

Landscaping and plant nurseries

Auto repair

Restaurant industry

Public accounting

Women’s dresses

Meat packing

Paperboard boxes

Hotels and motels

Furniture

S 21:Competing  in  a  Fragmented  Industry:  The  Strategy  Options
•Construct and operate “formula” facilities .

•Become a low-cost operator .

•Specialize by product type.

•Specialize by customer type.

•Focus on limited geographic area.

S 22:Three Strategy Horizons for Sustaining Rapid Growth

S 23:Risks  of  Pursuing Multiple  Strategy  Horizons

•Firm should not pursue all options to avoid stretching itself too thin.

•Pursuit of medium- and long-jump initiatives may cause firm to stray too far from its core competencies.

•Competitive advantage may be difficult to achieve in medium- and long-jump businesses that do not mesh well with firm’s present resource strengths.

•Payoffs of long-jump initiatives may prove elusive.

Business Strategy Chapter 7 Outsourcing Strategies

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S 1:Outsourcing  Strategies

Concept

Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities.

Internally Performed Activities

Suppliers

Support Services

Functional Activities

Distributors or Retailers

S 2:When  Does  Outsourcing Make  Strategic  Sense?

•Activity can be performed better or more cheaply by outside specialists.

•Activity is not crucial to achieve a sustainable competitive advantage.

•Risk exposure to changing technology and/or changing buyer preferences is reduced.

•It improves firm’s ability to innovate

•Operations are streamlined to

–Improve flexibility

–Cut time to get new products into the market

•It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently.

•Firm can concentrate on “core” value chain activities that best suit its resource strengths. 

S 3:Risk  of  an  Outsourcing  Strategy

¨Farming out too many or the wrong activities, thus

¡Hollowing out capabilities

¡Losing touch with activities and expertise that determine overall long-term success

S 4:Offensive  and  Defensive  Strategies

Offensive Strategies:

Used to build new or stronger market position and/or create competitive advantage.

Defensive Strategies

Used to protect competitive advantage (rarely lead to creating advantage)

S 5: Principles  of  Offensive  Strategies

•Focus relentlessly on:

–Building competitive advantage and

–Striving to convert it into decisive advantage

•Employ the element of surprise as opposed to doing what rivals expect.

•Apply resources where rivals are least able to defend themselves.

•Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals.

S 6:Types  of  Offensive  Strategy  Options

1. Offer an equally good or better product at a lower price

2. Leapfrog competitors by being:

–First adopter of next-generation technologies or

–First to market with next-generation products.

3. Pursue continuous product innovation to draw sales and arket share away from less innovative rivals.

4. Adopt and improve on the good ideas of other companies.

S 7:Types  of  Offensive  Strategy  Options (con’t)

5. Deliberately attack market segments where a key rival makes big profits .

6. Attack competitive weaknesses of rivals.

7. Maneuver around competitors and concentrate on capturing unoccupied or less contested market territory.

8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals.

9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating

S 8:Using  Offensive  Strategy  to Achieve  Competitive  Advantage

•Strategic offensives offering strongest basis for competitive advantage entail

–An important core competence

–A unique competitive capability

–A better-known brand name

–A cost advantage in manufacturing
or distribution

–Technological superiority

–A superior product

S 9: Defensive  Strategy

— Objectives

—Lessen risk of being attacked

—Blunt impact of any attack that occurs

—Influence challengers to aim attacks at other rivals .

Approaches

uBlock avenues open to challengers

uSignal challengers vigorous
retaliation is likely

S 10:Block  Avenues  Open  to  Challengers

•Participate in alternative technologies.

•Introduce new features, add new models, or broaden product line to close gaps rivals may pursue.

•Maintain economy-priced models.

•Increase warranty coverage.

•Offer free training and support services.

•Reduce delivery times for spare parts.

•Make early announcements about new products or price changes.

•Challenge quality or safety of rivals’ products using legal tactics.

•Sign exclusive agreements with distributors.

S 11:Signal  Challengers  Retaliation  Is  Likely

—Publicly announce management’s strong commitment to maintain present market share.

—Publicly commit firm to policy of matching rivals’ terms or prices.

—Maintain war chest of cash reserves.

—Make occasional counter-response to moves of weaker rivals.

S 12: Web  Site  Strategies

—Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?

—Five Web site approaches:

—Use to disseminate only product information.

—Use as minor distribution channel.
to sell direct to customers.

—Use as one of several important distribution channels to access customers.

—Use as primary distribution channel to access buyers.

—Use as exclusive channel to transact sales with customers.

S 13:Brick-and-Click  Strategies: An  Appealing  Middle  Ground  Approach.

—Approach

—Sell directly to consumers and

—Use traditional wholesale/retail channels.

—Strategic appeal for wholesalers and retailers.

—Economic means of expanding a company’s economic reach

—Provide both existing and potential customers another choice of how to.

—Communicate with a company.

—Shop for product information.

—Make purchases.

—Resolve customer service problems.

S 14:Choosing  Appropriate Functional-Area  Strategies

—Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves

—Functional strategies include

—Research and development.

—Production.

—Human resources.

—Sales and marketing.

—Finance.

Tailoring functional-area strategies to
support key business-level strategies is critical!

S 15: First-Mover  Advantages

—When to make a strategic move is often as crucial as what move to make

—First-mover advantages arise when

—Pioneering helps build firm’s image and reputation

—Early commitments to new technologies,
new-style components, and distribution
channels can produce cost advantage

—Loyalty of first time buyers is high

—Moving first can be a preemptive strike

S 16:First-Mover  Disadvantages

—Moving early can be a disadvantage (or fail to produce an advantage) when

—When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader.

—Innovator’s products are primitive, not living up to buyer expectations.

—Demand side of the market is skeptical about the benefits of new technology/product of a first-mover.

—Rapid technological change allows followers to leapfrog pioneers .