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Chapter TitleChapter Title

16/e PPT16/e PPT

Tailoring Strategy to Fit

Specific Industry and

Company Situations

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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“In a turbulent age, the

only dependable

advantage is reinventing

your business model

before circumstances

force you to.Gary Hamel and Liisa

Valikangas

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Chapter Roadmap

Strategies for Competing in Emerging Industries Strategies for Competing in Rapidly Growing Markets Strategies for Competing in Maturing Industries Strategies for Competing in Stagnant or Declining Industries Strategies for Competing in Turbulent, High-Velocity

Markets Strategies for Competing in Fragmented Industries Strategies for Sustaining Rapid Company Growth Strategies for Industry Leaders Strategies for Runner-up Firms Strategies for Weak and Crisis-Ridden Businesses Ten Commandments for Crafting Successful Business

Strategies

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Matching Strategy toa Company’s Situation

Most important

drivers shaping a

firm’s strategic

options fall into

two categoriesFirm’s competitive

capabilities, market position,

best opportunities

Nature of industry

and competitive

conditions

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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

Features of an Emerging Industry

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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

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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

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Strategic Hurdles for Companiesin 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

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What Is the Key to Success forCompeting 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

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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 distributionchannels and sales outlets

Expand a company’s geographic coverage Expand product line to add models/styles to appeal

to a wider range of buyers

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Test Your Knowledge

Which one of the following is not likely to be a suitable strategy option for companies competing in rapid-growth industries?

A. Driving down costs per unit so as to enable price reductions that attract droves of new customers

B. Pursuing rapid product innovation, both to set a company’s product offering apart from rivals and to incorporate attributes that appeal to growing numbers of customers

C. Gaining access to additional distributional channels and sales outlets

D. Expanding the product line to add models/styles that appeal to a wider range of buyers

E. Putting top priority on heavy advertising and other marketing-related actions calculated to strongly differentiate its product offering from rivals

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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

Industry Maturity: The Standout Features

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Strategy Options for Competingin a Mature Industry

Prune 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

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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

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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

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Pursue focus strategy aimed atfastest growing market segments

Stress differentiation based on qualityimprovement 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

Strategy Options for Competingin a Stagnant or Declining Industry

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End-Game Strategiesfor 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

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Features of High-Velocity Markets

Rapid-fire technological change

Short product life-cycles

Entry of important new rivals

Frequent launches ofnew competitive moves

Rapidly evolvingcustomer expectations

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Fig. 8.1: Meeting the Challenge of High-Velocity Change

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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 developspecialized expertise and capabilities

Keep products/services fresh and exciting

Strategy Options for Competingin High-Velocity Markets

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Cutting-edge expertise

Speed in responding to new developments

Collaboration with others

Agility

Innovativeness

Opportunism

Resource flexibility

First-to-market capabilities

Keys to Success in Competingin High Velocity Markets

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Competitive Featuresof a Fragmented Industry

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

Product/service is delivered to neighborhoodlocations to be convenient to local residents

Buyer demand is so diverse that many firmsare 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

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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

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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

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Test Your Knowledge

Which of the following is unlikely to be a promising option for competing in a fragmented industry?

A. Employing deep price discounting, extensive advertising, and other muscle-flexing maneuvers to gain market dominance in a select few country markets

B. Specializing by product type or becoming a low-cost operator

C. Specializing by customer type

D. Focusing on a limited geographic area

E. Constructing and operating "formula" facilities at many different locations

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For Discussion: Your Opinion

What classification would you assign to each of the following industries—emerging, rapid-growth, mature/slow-growth, stagnant/declining, high-velocity/turbulent, or fragmented?

A. Dry cleaning industry

B. Cigarette industry

C. Cell phone industry

D. MP3 player industry

E. Satellite radio industry

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For Discussion: Your Opinion

Assume you are charged with crafting a strategy for

XM Satellite Radio. What strategy alternatives would

you be inclined to give strong consideration? What

strategy alternatives would you be inclined to reject

as unsuitable? Justify your answer.

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Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth

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Risks of PursuingMultiple Strategy Horizons

Firm should not pursue all optionsto avoid stretching itself too thin

Pursuit of medium- and long-jumpinitiatives may cause firm to straytoo 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

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Strategies Based on a Company’s Market Position

Industry leaders

Runner-up firms

Weak or crisis-ridden firms

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Industry Leaders:The Defining Characteristics

Strong to powerful market position

Well-known reputation

Proven strategy

Key strategic concern – How to sustaindominant leadership position

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Strategy Options: Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy

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Stay-on-the-Offensive Strategies

Be a first-mover, leading industry change

Best defense is a good offense

Concentrate on achieving a competitive advantageand then widening the advantage over time

Relentlessly pursue continuous improvementand innovation, being first to market with Technological improvements

New or better products

More attractive performance features

Customer service improvements

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Stay-on-the-Offensive Strategies (continued)

Aggressively seek out ways to Cut operating costs Establish competitive capabilities rivals cannot match Make it easier for potential customers to switch their purchases from

other firms to the leader’s own products Aggressively attack profit sanctuaries of important rivals Launch fresh initiatives to expand overall industry

demand Spur creation of new families of products Make product more suitable for consumers

in emerging-country markets Discover new uses for product Attract new users of product Promote more frequent use

Grow faster than industry, taking market share from rivals

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Fortify-and-Defend Strategy

Make it harder for new firms to enter and for challengers to gain ground

Hold onto present market share

Strengthen current market position

Protect competitive advantage

Objectives

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Fortify-and-Defend Strategy: Strategic Options

Increase advertising and R&D Provide higher levels of customer service Introduce more brands to match attributes of rivals Add personalized services to boost buyer loyalty Keep prices reasonable and quality attractive Build new capacity ahead of market demand Invest enough to remain cost competitive Patent feasible alternative technologies Sign exclusive contracts with best suppliers and

distributors

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Play competitive hardball with smallerrivals that threaten leader’s position

Signal smaller rivals that moves to cutinto leader’s business will be hard fought

Convince rivals they are better off playing “follow-the-leader” or else attacking eachother rather the industry leader

Muscle-Flexing Strategy

Objectives

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Be quick to meet price cuts of rivals Counter with large-scale promotional campaigns if

rivals boost advertising Offer better deals to rivals’ major customers Dissuade distributors from carrying rivals’ products Provide salespersons with documentation about

weaknesses of competing products Make attractive offers to key executives of rivals Use arm-twisting tactics to pressure present

customers not to use rivals’ products

Muscle-Flexing Strategy:Strategic Options

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Running afoul of antitrust laws

Alienating customers with bullying tactics

Arousing adverse public opinion

Muscle-Flexing Strategy

Risks

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Types of Runner-up Firms

Market challengers

Use offensive strategies to gain market share

Focusers

Concentrate on serving alimited portion of market

Perennial runners-up

Lack competitive strength to domore than continue in trailing position

I’m trying!

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Obstacles Runner-UpFirms Must Overcome

When big size is a competitive asset, firmswith small market share face obstacles in trying to strengthen their positions

Less access to economies of scale

Difficulty in gaining customer recognition

Inability to afford mass media advertising

Difficulty in funding capital requirements

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Strategic Optionsfor Runner-Up Firms

When big size provides larger rivals with a cost advantage, runner-up firms have two options

Build market share

Lower costs and prices to grow sales or

Out-differentiate rivals in ways to grow sales

Withdraw from market

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Acquire smaller rivals to expand company’s market reach and presence

Find innovative ways to drive down coststo win customers from higher-priced rivals

Craft an attractive differentiation strategy Pioneer a leapfrog technological breakthrough Be first-to-market with new or better products and build

reputation for product leadership Outmaneuver slow-to-change market leaders in adapting

to evolving market conditions and customer needs Forge strategic alliances with key distributors, dealers, or

marketers of complementary products

Offensive Strategies for Runner-Up Firms: Building Market Share

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Rule of Offensive Strategy

Runner-up firms should avoid

attacking a leader head-on with an

imitative strategy, regardless of

the resources and staying power

an underdog may have!

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Strategic Approaches for Runner-Up Firms

1. Vacant niche strategy

2. Specialist strategy

3. Superior product strategy

4. Distinctive image strategy

5. Content follower strategy

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Focus strategy concentrated on end-use applications market leaders have neglected

Characteristics of an ideal vacant niche

Sufficient size to be profitable

Growth potential

Well-suited to a firm’s capabilities

Hard for leaders to serve

Vacant Niche Strategyfor Runner-Up Firms

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Strategy concentrated onbeing a leader based on

Specific technology

Product uniqueness

Expertise in

Special-purpose products

Specialized know-how

Delivering distinctive customer services

Specialist Strategy for Runner-Up Firms

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Differentiation-based focused strategy based on

Superior product quality or

Unique product attributes

Approaches

Fine craftsmanship

Prestige quality

Frequent product innovations

Close contact with customers togain input for better quality product

Superior Product Strategyfor Runner-Up Firms

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Strategy concentrated on ways tostand out from rivals

Approaches

Reputation for charging lowest price

Prestige quality at a good price

Superior customer service

Unique product attributes

New product introductions

Unusually creative advertising

Distinctive Image Strategyfor Runner-Up Firms

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Strategy involves avoiding Trend-setting moves and

Aggressive moves to stealcustomers from leaders

Approaches Do not provoke competitive retaliation

React and respond

Defense rather than offense

Keep same price as leaders

Attempt to maintain market position

Content Follower Strategyfor Runner-Up Firms

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Weak Businesses: Strategic Options

Launch an offensive turnaround strategy (if resources permit)

Employ a fortify-and-defend strategy(to the extent resources permit)

Pursue a fast-exit strategy

Adopt a harvest strategy (a slow-exit type of end-game strategy)

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Achieving a Turnaround: The Strategic Options

Sell off assets to generate cash and/or reduce debt

Revise existing strategy

Launch efforts to boost revenues

Cut costs

Combination of efforts

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What Is a Harvest Strategy?

Steers middle course between status quo and exiting quickly

Involves gradually sacrificing market positionin return for bigger near-term cash flow/profit

Objectives

Short-term - Generate largestfeasible cash flow

Long-term - Exit market

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Types of Harvest Options

Reduce operating expenses to rock-bottom

Hold reinvestment to minimum

Place little priority on new capital investments

Emphasize stringent internal cost controls

Trim advertising and promotion expenses

Do not replace employees who leave

Shave equipment maintenance

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Industry’s long-term prospects are unattractive

Building up business would be too costly

Market share is increasingly costly to maintain

Reduced levels of competitive effort will not trigger immediate fall-off in sales

Firm can re-deploy freed-up resourcesin higher opportunity areas

Business is not a major component ofdiversified firm’s portfolio of businesses

When Should a HarvestStrategy Be Considered?

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Wisest strategic option in certain situations

Lack of resources

Dim profit prospects

May serve stockholder interestsbetter than bankruptcy

Unpleasant strategic option

Hardship of job eliminations

Effects of closing on local community

Liquidation Strategy

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10 Commandments for Crafting Successful Business Strategies

1. Always put top priority on crafting and executing strategic moves that enhance a firm’s competitive position for the long-term and that serve to establish it as an industry leader.

2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.

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10 Commandments for Crafting Successful Business Strategies

3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability.

4. Avoid strategies capable of succeeding only in the best of circumstances.

5. Don’t underestimate the reactions and the commitment of rival firms.

6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.

7. Be judicious in cutting prices without an established cost advantage.

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10 Commandments for Crafting Successful Business Strategies

8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes.

9. Endeavor not to get “stuck back in the pack” with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing “arms race” and/or price wars.

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Test Your Knowledge

Which of the following does not qualify as a "commandment" for crafting successful business strategies?

A. Place top priority on crafting and executing strategic moves that will enhance a company's competitive position for the long-term.

B. Avoid stuck-in-the-middle strategies that represent compromises between lower costs and greater differentiation and between broad and narrow market appeal.

C. Strive to open up very meaningful gaps in quality or service or performance features when pursuing a differentiation strategy.

D. Be judicious in cutting prices without an established cost advantage.

E. Sell or close a crisis-ridden business immediately—turnaround strategies are doomed to fail.