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.