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McGraw-Hill/Irwin 2007 The McGraw-Hill Companies, Inc. All rights reserved.

8

Chapter Title

15/e PPT

Tailoring Strategy

to Fit Specific

Industry and

Company Situations

Screen graphics created by:

Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region

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In a turbulent age, the only

dependable advantage is

reinventing your business

model before circumstancesforce 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-VelocityMarkets

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 Companys Situation

Most important

driversshaping a

firms strategic

options fall into

twocategories Firms competitivecapabilities,

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 ofseveral 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

initial purchase and overcoming customer concerns

First-generation products are expected to be rapidly

improved so buyers delay purchase until technologymatures

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 Competingin Emerging Industries

Win early race for industry leadership by employing a bo ld ,creat ive strategy

Push hard to perfect technology, improve product qual ity ,

and develop attractive perform ance features

Considermergingwith oracquir ing another f i rmto Gain added expertise

Pool resource strengths

When technolog ical uncertainty clearsand a dominant

technolog y emerges, try to captureany f i rst-moveradvantagesby moving quickly

Form strategic all ianceswith

Companies having related technological expertise o r

Key suppliers

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Strategy Options for Competingin Emerging Industries (continued)

Pursuenew customersand user app l icat ions

Enternew geog raphical areas

Make it easyand cheapforf i rs t -t ime buyersto try

product

Focus advert is ingemphasis on

Increasing frequency of use

Creating brand loyalty

Use pr ice cutsto attract price-sensitive buyers

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Strategic Hurdles for Companiesin Emerging Industries

Raising capitalto finance initial operations until Sales and revenues take off

Profits appear

Cash flows turn positive

Developinga strategyto ride the wave ofindust ry

growth

What market segments to pursue

What competitive advantages to go after

Managingthe rapid expansionoffacil i t iesand salesto

position a company to contend for industry leadership

Defending against competitors trying to horn in on the

companys success

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What Is the Key to Success forCompeting in Rapidly Growing Markets?

A company needs a strategy predicatedon

grow ing fasterthan the market averageso it

Can boost its market share and

Improve its competitive standing vis--vis rivals

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Strategy Options for Competingin Rapidly Growing Markets

Drive down costs per unit to enable pricereductions that attract droves of new customers

Pursue rapid product innovation to

Set a companys product offering apart from rivals

Incorporate attributes to appeal to growing numbers of

customers

Gain access to additional distribution

channels and sales outletsExpand a companys 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 no tlikely to be a suitable strategyoption 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 companys productoffering 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 awider 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 competitionMore sophisticated buyers demand bargains

Greater emphasis on cost and service

Topping out problem in addingproduction 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

Prunemarginal products and models

Emphasize innovat ionin the value chain

Strong focus on cos t reduct ion

Increase salesto present customers

Purchase rivalsat bargain prices

Expand internat ional ly

Build new, moref lexible competi t ive capabi l i t ies

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Strategic Pitfalls in a Maturing Industry

Employing a ho -hum strategywith no distinctivefeatures thus leaving firm stuck in the middle

Being s lowto moun ta defenseagainst st i f fening

compet it ive pressu resConcentrat ingon short-termprofits rather than

strengthening long-term competitiveness

Being s lowto respondto price-cut t ing

Havingtoo much excess capaci ty

Overspendingon market ing

Fail ingto aggressively

pursue cos t reduc t ions

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Stagnant or Declining Industries:The Standout Features

Demand grows more slowly than economy aswhole (or even declines)

Advancing technology gives rise to better-

performing substitute productsCustomer 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 strategyaimed atfastest growing market segments

Stress dif ferent iat ionbased on quality

improvement or product innovation

Work diligently to dr ive 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 strategycan take either of two paths

Slow-exitstrategy involving

Gradual phasing down of operations

Getting the most cash flow from the business

Fast-exitstrategy involving

Disengaging from an industry during early stages ofdecline

Quick recovery of as much of a companys investment aspossible

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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

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

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Investaggressively in R&D

Initiate f resh act ionsevery few months

Develop qu ick response capabi l i ties

Shift resources

Adapt competencies

Create new competitive capabilities

Speed new products to marketUse strategic p artnershipsto develop

specialized expertise and capabilities

Keep products/serv ices freshand exci t ing

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 widespreadbuyer 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 industrys 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 publishingLandscaping and plant nurseries

Auto repair

Restaurant industryPublic accounting

Womens dresses

Meat packingPaperboard 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-costoperator

Special izeby produc ttype

Special izeby customertype

Focus on l imi ted geog raph icarea

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Test Your Knowledge

Which of the following is unl ikelyto be a promising option forcompeting 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 thefollowing industriesemerging, 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-jump

initiatives 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 notmesh well with firms present resource strengths

Payoffs of long-jump initiatives may prove elusive

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Strategies Based on aCompanys 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 sustain

dom inant leadership posi t ion

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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 changeBest defense is a good offense

Concentrate on achieving a competitive advantage

and then widening the advantage over timeRelentlessly pursue continuous improvement

and 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 leaders 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 consumersin 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&DProvide higher levels of customer service

Introduce more brands to match attributes of rivals

Add personalized services to boost buyer loyaltyKeep prices reasonable and quality attractive

Build new capacity ahead of market demand

Invest enough to remain cost competitivePatent feasible alternative technologies

Sign exclusive contracts with best suppliers and

distributors

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Play compet i tive hardbal lwith smaller

rivals that threaten leaders position

Signal smaller rivals that moves to cut

into leaders business will be hard fought

Convince rivals they are better off playing

follow-the-leader or else attacking each

other rather the industry leader

Muscle-Flexing Strategy

Objectives

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

rivals boost advertising

Offer better deals to rivals major customersDissuade distributors from carrying rivals products

Provide salespersons with documentation about

weaknesses of competing productsMake 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 a

limited portion of market

Perennial runners-up

Lack competitive strength to do

more than continue in trailing position

Im

trying!

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Obstacles Runner-UpFirms Must Overcome

When big sizeis a compet i tive asset, firms

with smal l market shareface 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 sizeprovides larger rivals with a cos t

advantage, runner-up firms have two opt ions

Bu i ld 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 r ivalsto expand companys market reachand presence

Find innovat ive waysto dr ive down costs

to win customers from higher-priced rivals

Craft an attractive dif ferent iat ion strategy

Pioneer a leapfrog technological breakthro ugh

Be f i rst- to-marketwith neworbetter productsand build

reputation for product leadership

Outmaneuver slow -to-change market leadersin adapting

to evolving market conditions and customer needs

Forge strategic all ianceswith 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 f i rmsshould avoid

attacking a leader head-on with animitative strategy, regardless of

the resources and staying poweran 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

S

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Focus strategyconcentrated on end-useapplications market leaders have neglected

Characterist icsof an ideal vacant niche

Sufficient size to be profitable

Growth potential

Well-suited to a firms capabilities

Hard for leaders to serve

Vacant Niche Strategyfor Runner-Up Firms

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Strategyconcentrated 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

S i P d t St t

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Different iat ion -based focused strategybased on Superior product quality or

Unique product attributes

Approaches

Fine craftsmanship

Prestige quality

Frequent product innovations

Close contact with customers to

gain input for better quality product

Superior Product Strategyfor Runner-Up Firms

Di ti ti I St t

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Strategyconcentrated on ways tos tand outfrom 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

C t t F ll St t

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Strategyinvolves avoid ing Trend-setting moves and

Aggressive moves to steal

customers 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 s trategy

(if resources permit)

Employ a fort i fy -and-defend strategy(to the extent resources permit)

Pursue a fast-exit st rategy

Adopt a harvest strategy

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

A hi i T d

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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 coursebetween status quo and

exiting quickly

Involvesgradual ly

sacr i f ic ing market posi t ion

in return for biggernear-termcash flow/profit

Objectives

Short-term- Generate largest

feasible 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

Wh Sh ld H t

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Industrys 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 resources

in higher opportunity areas

Business is not a major component of

diversified firms portfolio of businesses

When Should a HarvestStrategy Be Considered?

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Wiseststrategic opt ionin certain s i tuations

Lack of resources

Dim profit prospects

May serve stockholder interests

better than bankruptcy

Unpleasantstrategic opt ion

Hardship of job eliminations

Effects of closing on local community

Liquidation Strategy

10 Commandments for Crafting

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10 Commandments for CraftingSuccessful Business Strategies

1. Always put top priority on crafting and executingstrategic moves that enhance a firms 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 ofrivals. Responding late or with too little often puts

a firm in the precarious position of playing catch-

up.


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3. Invest in creating a sustainable competitiveadvantage, for it is a most dependable contributorto above-average profitability.

4. Avoid strategies capable of succeeding only in the

best of circumstances.5. Dont underestimate the reactions and the

commitment of rival firms.

6. Consider that attacking competitive weakness is

usually more profitable than attacking competitivestrength.

7. Be judicious in cutting prices without an

established cost advantage.


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

advertising or other product attributes.

9.Endeavor not to get stuck back in the pack withno coherent long-term strategy or distinctive

competitive position, and little prospect ofclimbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves towrest crucial market share away from rivals oftenprovoke 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 notqualify 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 compromisesbetween 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 immediatelyturnaround

strategies are doomed to fail.

Documents

Student Ch008