Strategy-A View from the Strategy-A View from the TopTop

Chapter 7-Business Unit Chapter 7-Business Unit Strategy: Contexts and Strategy: Contexts and

Special DimensionsSpecial DimensionsCrystal HillCrystal Hill

Stephen LechtenbergStephen LechtenbergAnand McGee Anand McGee Allison PurtellAllison PurtellJason TorresJason Torres

Strategy in Emerging Strategy in Emerging IndustriesIndustries

New Industries present new opportunitiesNew Industries present new opportunities Technologies are typically immatureTechnologies are typically immature

Costs are typically high and unpredictable, Costs are typically high and unpredictable, entry barriers are low, supplier entry barriers are low, supplier relationships are underdeveloped, and relationships are underdeveloped, and distribution channels are just emergingdistribution channels are just emerging

Timing can be critical in determining Timing can be critical in determining strategic success-first mover advantagestrategic success-first mover advantage

Strategic Leadership in Strategic Leadership in Emerging MarketsEmerging Markets

Need ability to shape the industry structure Need ability to shape the industry structure based on:based on: TimingTiming Method of entryMethod of entry Experience in similar situationsExperience in similar situations

Leadership opportunities: ability to control Leadership opportunities: ability to control product or process development through:product or process development through: Superior technologySuperior technology Quality or customer knowledgeQuality or customer knowledge Ability to leverage existing relationships with Ability to leverage existing relationships with

suppliers/distributorssuppliers/distributors Access to a core group of early, loyal customersAccess to a core group of early, loyal customers

First Mover AdvantageFirst Mover Advantage

Have the opportunity to shape Have the opportunity to shape customer expectations and define customer expectations and define the competitive rules of the gamethe competitive rules of the game

Examples:Examples: Microsoft: Windows Operating SystemMicrosoft: Windows Operating System Starbucks: Saturation of the market; Starbucks: Saturation of the market;

Selling CD’s, coffee merchandise, etc. Selling CD’s, coffee merchandise, etc. in storesin stores

Strategy in Growth Strategy in Growth IndustriesIndustries

Increased segmentation often accompanies Increased segmentation often accompanies the transition to market maturity the transition to market maturity

Cost control becomes an important element Cost control becomes an important element of strategy as unit margins shrink and new of strategy as unit margins shrink and new products and applications are harder to findproducts and applications are harder to find Process innovation important dimensionProcess innovation important dimension

Competing companies that enter growth Competing companies that enter growth industries are labeled followersindustries are labeled followers

FollowersFollowers

Have the opportunity to evaluate:Have the opportunity to evaluate: Alternative technologies Alternative technologies Delay investment in risky projects of Delay investment in risky projects of

plant capacity plant capacity Imitate or surpass superior product or Imitate or surpass superior product or

technology offeringstechnology offerings

Starbucks: Selling coffee in grocery Starbucks: Selling coffee in grocery storesstores

Internal Development or Internal Development or AcquisitionAcquisition

Internal development-creating a new Internal development-creating a new business in a somewhat unfamiliar business in a somewhat unfamiliar competitive environmentcompetitive environment

Turn to existing players in:Turn to existing players in: Joint VenturesJoint Ventures Alliances Alliances Acquisitions Acquisitions

2 issues analyzed as part of the decision 2 issues analyzed as part of the decision process:process: What are the structural barriers to entry?What are the structural barriers to entry? How will incumbent firms react to intrusion?How will incumbent firms react to intrusion?

Strategy in Mature and Strategy in Mature and Declining IndustriesDeclining Industries

Choose a balance between differentiation and Choose a balance between differentiation and low cost postures and deciding whether to low cost postures and deciding whether to compete in multiple or single industry segments compete in multiple or single industry segments

Firms earn profits during long maturity stage Firms earn profits during long maturity stage when they:when they: Concentrate on segments that offer chances for higher Concentrate on segments that offer chances for higher

growth or higher returngrowth or higher return Manage product and process innovation aimed at Manage product and process innovation aimed at

further differentiation, cost reduction, or rejuvenating further differentiation, cost reduction, or rejuvenating segment growthsegment growth

Streamline production and delivery to cut costsStreamline production and delivery to cut costs Gradually harvest the business in preparation for Gradually harvest the business in preparation for

strategic shift to more promising product or industriesstrategic shift to more promising product or industries

Strategy in Mature and Strategy in Mature and Declining IndustriesDeclining Industries

Companies should avoid:Companies should avoid: An overly optimistic view of the industry or the company’s An overly optimistic view of the industry or the company’s

position within itposition within it A lack of strategic clarity shown by a failure to choose A lack of strategic clarity shown by a failure to choose

between a broad-based and a focused competitive between a broad-based and a focused competitive approachapproach

Investing too much for too little returnInvesting too much for too little return Trading market share for profitability in response to short-Trading market share for profitability in response to short-

term performance pressuresterm performance pressures Unwillingness to compete on priceUnwillingness to compete on price Resistance to industry structural changes or new practicesResistance to industry structural changes or new practices Placing too much emphasis on new product development Placing too much emphasis on new product development

compared with improving existing onescompared with improving existing ones Retaining excess capacity Retaining excess capacity

Take caution in exit decisionsTake caution in exit decisions

Industry Evolution and Functional Industry Evolution and Functional Priorities Priorities

Early DevelopmentEarly Development Slow growth in salesSlow growth in sales Research and development emphasisResearch and development emphasis Rapid technological change in productRapid technological change in product

Emerging StateEmerging State Success associated with technological skill and being the first in Success associated with technological skill and being the first in

a new marketa new market Marketing advantage has a widespread awarenessMarketing advantage has a widespread awareness Rapid growth brings new competitorsRapid growth brings new competitors

Maturity StageMaturity Stage Sales growth continues, but at a decreasing rateSales growth continues, but at a decreasing rate Technological change in product design slowsTechnological change in product design slows Promotional and pricing advantages key internal strengthsPromotional and pricing advantages key internal strengths

Declining StageDeclining Stage Strengths center on cost advantages and superior supplier and Strengths center on cost advantages and superior supplier and

customer relationshipscustomer relationships

Strategy in Fragmented Strategy in Fragmented IndustriesIndustries

Fragmented industriesFragmented industries - no - no company or group has enough company or group has enough market share to affect industry market share to affect industry structure or outcomes.structure or outcomes.

To thrive in these markets, segment To thrive in these markets, segment the market based on:the market based on: Product, customer, type of order, or Product, customer, type of order, or

geographic areageographic area Combined with “no frills” posture. Combined with “no frills” posture.

Strategy in Deregulating Strategy in Deregulating IndustriesIndustries

Artificial constraints are lifted and Artificial constraints are lifted and new players are allowed to enter.new players are allowed to enter. Deregulating environments undergo Deregulating environments undergo

change twice: when market is opened change twice: when market is opened and 5 years later.and 5 years later.

Can be good and bad for companiesCan be good and bad for companies

Dealing with Challenges Dealing with Challenges in Deregulated Marketsin Deregulated Markets

Four distinct strategic postures:Four distinct strategic postures: 1.) Broad based distributors that offer a wide 1.) Broad based distributors that offer a wide

range of productsrange of products

2.) Low cost entrants that develop into niche 2.) Low cost entrants that develop into niche playersplayers

3.) Focus segment marketers that emphasize 3.) Focus segment marketers that emphasize the company’s value the company’s value

4.) Shared utilities that focus on market based 4.) Shared utilities that focus on market based economies of scales available to smaller economies of scales available to smaller competitors. competitors.

Pricing in Newly Pricing in Newly Deregulated IndustriesDeregulated Industries

When new competitors enter, the When new competitors enter, the market demands reduced prices.market demands reduced prices. Results from efficiencies and Results from efficiencies and

competitive effectscompetitive effects Startups are inefficient and shared Startups are inefficient and shared

markets reduce efficiencies of scale markets reduce efficiencies of scale and scope.and scope.

How to Adjust Prices How to Adjust Prices CorrectlyCorrectly

1.) Measure up against the most 1.) Measure up against the most relevant competitors.relevant competitors.

2.) Switch prices but don’t allow a 2.) Switch prices but don’t allow a price gapprice gap

3.) Pay attention to valued 3.) Pay attention to valued customerscustomers

4.) Keep costs high enough to be 4.) Keep costs high enough to be able to run your businessable to run your business

Strategy in Strategy in Hypercompetitive Hypercompetitive

IndustriesIndustries Characterized by intense rivalryCharacterized by intense rivalry Successful strategies often are based Successful strategies often are based

on taking the competitor by surprise on taking the competitor by surprise and then moving on as the and then moving on as the competition tries to recovercompetition tries to recover

Hypercompetitive MarketsHypercompetitive Markets Rapid innovation and speedRapid innovation and speed Superior short-term strategic focusSuperior short-term strategic focus Market awarenessMarket awareness

Competitive Reactions Competitive Reactions Under Extreme CompetitionUnder Extreme Competition 6 Actions6 Actions

Retool strategy and restore its Retool strategy and restore its importanceimportance

Manage transition economicsManage transition economics Fight aggregation with disaggregationFight aggregation with disaggregation Seek out new demand and new growthSeek out new demand and new growth Use a portfolio of initiatives to increase Use a portfolio of initiatives to increase

speed and flexibilityspeed and flexibility Count on strategic riskCount on strategic risk

Business Unit Strategy: Business Unit Strategy: Special DimensionsSpecial Dimensions

SpeedSpeed Newest and least understoodNewest and least understood Pace of progress that a company displays Pace of progress that a company displays

in responding to current or anticipated in responding to current or anticipated business needsbusiness needs

Speed MerchantsSpeed Merchants Strategy built on rapid pace converting Strategy built on rapid pace converting

core competencies into competitive core competencies into competitive advantages which alter competitive advantages which alter competitive landscapes in their favorlandscapes in their favor

Pressures to SpeedPressures to Speed

Speed is universally popularSpeed is universally popular Speed-oriented companies are Speed-oriented companies are

rewarded with loyalty and rewarded with loyalty and commitment.commitment.

Suppliers will bear extra costs and Suppliers will bear extra costs and responsibilities. responsibilities.

Sources for Increasing Sources for Increasing SpeedSpeed

CustomersCustomers Demand responsiveness Demand responsiveness

Need for creating a new basis for Need for creating a new basis for competitive advantagecompetitive advantage Innovation, development, manufacturing, Innovation, development, manufacturing,

distributiondistribution Competitive PressuresCompetitive Pressures

with increasing competition, speed must be with increasing competition, speed must be maximizedmaximized

Industry ShiftsIndustry Shifts Speed is important in industries with short Speed is important in industries with short

product life cyclesproduct life cycles

Requirements of SpeedRequirements of Speed

Executives must foster a “fast” Executives must foster a “fast” culture.culture.

Actions must be taken on the Actions must be taken on the following issues:following issues: Refocusing the business missionRefocusing the business mission Creating a speed-compatible cultureCreating a speed-compatible culture Upgrading communicationUpgrading communication Refocusing business process reengineeringRefocusing business process reengineering Committing to new performance metricsCommitting to new performance metrics

Requirements of Speed Requirements of Speed (cont.)(cont.)

Refocusing the business missionRefocusing the business mission Board and officers articulate a long-term vision for a speed Board and officers articulate a long-term vision for a speed

oriented company.oriented company.

Creating a speed-compatible cultureCreating a speed-compatible culture Facilitate speed by nurturing an organizational culture that is Facilitate speed by nurturing an organizational culture that is

conductive to speed and adopt and evaluation system.conductive to speed and adopt and evaluation system.

Upgrading communicationUpgrading communication Upgrading methods for clear and timely communication.Upgrading methods for clear and timely communication.

Refocusing business process reengineeringRefocusing business process reengineering Reorganize to eliminate barriers that create distance Reorganize to eliminate barriers that create distance

between employees and customers.between employees and customers.

Committing to new performance metricsCommitting to new performance metrics Metrics include: sales volume, customer satisfaction, Metrics include: sales volume, customer satisfaction,

processing time, cost controls, and marketing specifics. processing time, cost controls, and marketing specifics.

Methods to SpeedMethods to Speed

Internal analysis to determine where Internal analysis to determine where speed exists and where is does not.speed exists and where is does not.

Eliminate “speed gaps”.Eliminate “speed gaps”. Three categories:Three categories:

Streamlining OperationsStreamlining Operations Upgrading TechnologyUpgrading Technology Forming PartnershipsForming Partnerships

Methods to Speed (cont.)Methods to Speed (cont.) Streamlining OperationsStreamlining Operations

Speed-enhanced ability to obtain quick post-Speed-enhanced ability to obtain quick post-implementation feedback from the implementation feedback from the marketplacemarketplace

Upgrading TechnologyUpgrading Technology Use of latest IT to create speed. Goal is to Use of latest IT to create speed. Goal is to

connect manufacturers with retailers to connect manufacturers with retailers to enhance information sharing. enhance information sharing.

Forming PartnershipsForming Partnerships Sharing business burdens is a way to Sharing business burdens is a way to

shorten time needed to improve market shorten time needed to improve market responsiveness.responsiveness.

Ex: Ford, General Motors, and Chrystler Ex: Ford, General Motors, and Chrystler

Creating Value Through Creating Value Through InnovationInnovation

Strategy requires InnovationStrategy requires Innovation Clayton Christensen – Clayton Christensen – disruptive and disruptive and

sustaining innovationsustaining innovation Computer hardware industryComputer hardware industry GEGE

Fostering InnovationFostering Innovation

3M3M’s unparalleled culture:’s unparalleled culture:1)1) Top level comittmentTop level comittment

2)2) Long term focusLong term focus

3)3) Flexible organizationFlexible organization

4)4) Loose and tight planning and controlLoose and tight planning and control

5)5) Appropriate incentives Appropriate incentives

Performance and Performance and ProfitabilityProfitability

PerformancePerformance Booz Allen HamiltonBooz Allen Hamilton Boston Consulting GroupBoston Consulting Group

ProfitabilityProfitability Unsatisfied with returnsUnsatisfied with returns ““Mismanagement of the Innovation Mismanagement of the Innovation

process”process” Measurement MetricsMeasurement Metrics