Strategies for Industries

7/21/2019 Strategies for Industries

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Strategiesfor

Specific Industryand

Company Situations



“In a turbulent age, the

only dependable

advantage is reinventing

your business model

before circumstances force

you to.Gary Hamel and Liisa Valikangas



Type of Industries

• Emerging Industries

• Rapidly Growing Markets

• Maturing Industries

• Stagnant or Declining Industries

• Fragmented Industries

• Turbulent, High-Velocity Markets

• Sustaining Rapid Company Growth

• Industry Leaders

• Runner-up Firms

• Weak and Crisis-Ridden Businesses

• Guidelines for Crafting Successful Business Strategies



Matching Strategy to

a Company’s Situation

Most important

drivers shaping a

firm’s strategic

options fall into two

categoriesFirm’s competitivecapabilities, market

position, best

opportunities

Nature of industry

and competitive

conditions



Strategies for Competing

inEmerging Industries



Copyright © Houghton MifflinCompany. All rights reserved.

6 | 6

An embryonic industry is one that is justbeginning to develop when technologicalinnovation creates new market or productopportunities.

A growth industry is one in which first-timedemand is expanding rapidly as many newcustomers enter the market.

Embryonic and Growth Industries

Companies must understand the factors that affect amarket’s growth rate – in order to tailor the businessmodel to the changing industry environment.




6 | 7

Market Characteristics: Embryonic

and Growth Industries• Reasons for slow growth in market demand

– Limited performance and poor quality of the first products

– Customer unfamiliarity with what the new product can do for them

– Poorly developed distribution channels

– Lack of complementary products

– High production costs

• Mass markets typically start to develop when:

– Technological progress makes a product easier to use and increases its

value to the average customer. – Key complementary products are developed that do the same.

– Companies find ways to reduce production costs allowing them to lowerprices.




6 | 8

Market Development

and Customer GroupsBoth innovators and early adopters enter the marketwhile the industry is in its embryonic state.

Figure 6.1




6 | 9

Market Share of Different

Customer SegmentsMost market demand and industry profits ariseduring the early and late majority customersegments.

Figure 6.2



• 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 permitcost reductions as volume builds

• Buyers are first-time users and marketing involves inducing initialpurchase 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



Strategy Options for Competing

in Emerging Industries

• Win early race for industry leadership by employing a bold, creativestrategy

• Push hard to perfect technology, improve product quality, anddevelop attractive performance features

• Consider merging with or acquiring another firm to – Gain added expertise

– Pool resource strengths

• When technological uncertainty clears and a dominant technologyemerges, try to capture any first-mover advantages by movingquickly

• Form strategic alliances with

– Companies having related technological expertise or

– Key suppliers




in Emerging Industries (continued)

• Pursue new customers and user applications

• Enter new geographical areas

• Make it easy and cheap for first-time buyers totry product

• Focus advertising emphasis on

– Increasing frequency of use

– Creating brand loyalty

• Use price cuts to attract price-sensitive buyers




6 | 13

Four Nonprice Competitive Strategies

Figure 6.8



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 thecompany’s success



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




in Rapidly Growing Markets

• Drive down costs per unit to enable pricereductions 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 numbersof customers

• Gain access to additional distributionchannels and sales outlets

• Expand a company’s geographic coverage

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




inMature Industries




6 | 18

Mature Industries

• Evolution of mature industries

– Industry becomes consolidated as a result of the fierce competition during

the shakeout stage.

– Business level strategy is based on how established companies collectivelytry to reduce strength of competition.

– Interdependent companies try to protect industry profitability.

• Strategies

– Deter entry into industry Product proliferation Maintaining

Price cutting excess capacity

– Manage industry rivalry

Price signaling Capacity control

Price leadership

Nonprice competition

A mature industry is dominated by a small number of largecompanies whose actions are so highly interdependent that successof one company’s strategy depends on the response of its rivals.




6 | 19

Strategic Implications of

Market Growth Rates• Different markets develop at different rates.

• Growth rate measures the rate at which the industry’s

product spreads in the marketplace.

• Growth rates for new kinds of products seem to have

accelerated over time:

– Use of mass media • Low-cost mass production

• Factors affecting market growth rates:

– Relative advantage • Complexity

– Compatibility • Observability

– Availability of • Trialability complementary

productsBusiness-level strategy is a major determinant ofindustry profitability. The choice of business modeland strategies can accelerate or retard market growth.



• Slowing demand breeds stiffer competition

• More sophisticated buyers demand bargains

• Greater emphasis on cost and service

• “Topping out” problem in addingproduction capacity

• Product innovation and newend uses harder to come by

• International competition increases

• Industry profitability falls

• Mergers and acquisitions reduce number of rivals

Industry Maturity: The Standout

Features




in a Mature Industry

• reduce 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



Strategic Pitfalls in a Maturing

Industry

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

• Being slow to mount a defense against stiffeningcompetitive pressures

• Concentrating on short-term profits rather thanstrengthening long-term competitiveness

• Being slow to respond to price-cutting

• Having too much excess capacity

• Overspending on marketing

• Failing to aggressively pursue cost reductions




inFragmented Industries



Competitive Features

of 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 firms

are required to satisfy buyer needs• Low entry barriers

• Absence of scale economies

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

• Exploding technologies force firms to specialize just to keep up in theirarea of expertise

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



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



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




inDeclining Industries




6 | 28

Declining Industries

• Reasons for and severity of the decline – Reasons: technological change, social trends, demographic shifts

– Intensity of competition is greater when: The decline is rapid versus slow and gradual.

The industry has high fixed costs.

The exit barriers are high.

The product is perceived as a commodity.

– Not all industry segments typically decline at the same rate Creating pockets of demand

• Strategies – Leadership – seeks to become dominant player in declining industry – Niche – focuses on pockets of demand that are declining more slowly – Harvest – optimizes cash flow – Divestment – sells business to others

A declining industry is one in which market demand has leveledoff or is falling and the size of total market starts to shrink.Competition tends to intensify and industry profits tend to fall.



• 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


in a Stagnant or Declining Industry



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 aspossible




6 | 31

Factors for Intensity of Competition in

Declining IndustriesFigure 6.13




6 | 32

Strategy Selection in a

Declining Industry

Choice of strategy isdetermined by:• Severity of the

industry decline• Company strength

relative to theremaining pocketsof demand

Figure 6.14



What Is a Harvest Strategy?

• Steers middle course between status quo andexiting quickly

• Involves gradually sacrificing market position

in return for bigger near-term cash flow/profit

• Objectives

– Short-term - Generate largestfeasible cash flow

– Long-term - Exit market





• 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 triggerimmediate fall-off in sales

• Firm can re-deploy freed-up resources

in higher opportunity areas

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

When Should a Harvest

Strategy Be Considered?



• Wisest strategic option in certain situations

– Lack of resources

– Dim profit prospects

– May serve stockholder interests

better than bankruptcy

• Unpleasant strategic option

– Hardship of job eliminations

– Effects of closing on local community

Liquidation Strategy




inOther Industries



High-Velocity Markets



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

Fig 8 1: Meeting the Challenge of High Velocity Change



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



• 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


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

Keys to Success in Competing

in High Velocity Markets





10 Commandments for Crafting

Successful Business Strategies

3. Invest in creating a sustainable competitiveadvantage, for it is a most dependablecontributor 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 attackingcompetitive strength.7. Be judicious in cutting prices without an

established cost advantage.

f f



10 Commandments for Crafting

Successful Business Strategies

8. Employ bold strategic moves in pursuingdifferentiation strategies so as to open up verymeaningful gaps in quality or service or advertisingor other product attributes.

9. Endeavor not to get “stuck back in the pack” with nocoherent long-term strategy or distinctivecompetitive position, and little prospect of climbinginto the ranks of the industry leaders.

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

Documents

Strategies for Industries