strategic options in different industries and company situations

Tailoring Strategy to Fit Specific Industry and Company Situations

Firdaus Khan, Assoc. Professor, ICBM-SBE

Match the strategy to your stituation

Within which industry life-cycle stage are you operating?

1. Competing in an Emerging Industry

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

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

• Move quickly when technological uncertainty clears and a dominant technology emerges

• Form strategic alliances with– Key suppliers or

– Companies having related technological expertise

Strategic Moves

• Capture potential first-mover advantages

• Pursue – New customers and user applications

– Entry into new geographical areas

• Focus advertising emphasis on– Increasing frequency of use

– Creating brand loyalty

• Use price cuts to attract price-sensitive buyers

Strategic Moves

2.Competing in Turbulent, High Velocity Markets

What makes the industry “High-Velocity”?

• Rapid technological changes

• Short product life cycles

• Frequent launches of new competitive moves

• Rapidly evolving customer requirements & expectations

Positioning of Firms to Cope with Rapid ChangePositioning of Firms to Cope with Rapid ChangePositioning of Firms to Cope with Rapid ChangePositioning of Firms to Cope with Rapid Change

Must-have Competence• To constantly reshape firm’s strategy & basis for

competitive advantage in response to rapid & sometimes unpredictable changes in competitive conditions

Strategic Options in High-Velocity Markets

Which Position will the company take?

• REACT TO CHANGE

• ANTICIPATE CHANGE

• LEAD CHANGE

Objective: Stay on leading edge of technological advances

Translate technological advances into innovative new products

Focus R&D on critical areasDeepen expertise by mastering technology &

capturing learning curve effects

INVEST AGGRESSIVELY IN R&D

DEVELOP QUICK RESPONSE CAPABILITIES

– Shift resources– Adapt competencies– Create new competitive capabilities– Speed new products to market

RELY ON STRATEGIC PARTNERSHIPS- With other companies to quickly develop technology- With OEMs for components- Backward outsourcing, building internal resources

STAY FRESH

• Initiate fresh action, every few months – new/improved products, new geographic markets, refresh existing brands every 2 years.

• STAY IN THE LIMELIGHT• STAY INNOVATIVE & WELL-MATCHED TO

CHANGES IN MARKET PLACE.

3.Strategic Options in Mature Industries

Features of a Mature Industry

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

Strategic Pitfalls in a Maturing Industry

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

• Concentrating on short-term profits rather than strengthening long-term competitiveness

• Being slow to adapt competencies to changing customer expectations

• Being slow to respond to price-cutting• Having too much excess capacity• Overspending on marketing• Failing to pursue cost reductions aggressively

4.Strategy in Stagnant or Declining Industries

Features of Stagnant or Declining Industries

• Growth in Demand is less than economy’s growth rate. In fact demand could be falling.

• Competitive pressures intensify – rival firms fiercely battle for each other’s market share.

• Industry consolidation is visible through numerous mergers and acquisitions. No. of firms in the industry gets low.

Strategic Options for Competingin a Stagnant or Declining Industry

• Apply FOCUS strategy to zero in on the industry’s few fastest growing market segments.

• Build DIFFERENTIATION through quality improvement or product innovation to keep one’s customers loyal and locked-in.

• Fanatically DRIVE DOWN COSTS – Cut marginal activities from value chain, use

outsourcing– Consolidate under-utilized production facilities– Close low-volume, high-cost distribution outlets– Prune marginal products– Redesign internal processes to focus on niche segments

5.Strategy in Fragmented Industries

Features of Fragmented Industries

• No clear market leader. Industry is young and crowded with aspiring contenders

• Demand is diverse and geographically scattered• Low entry barriers & absence of scale economies• Buyers usually order in small quantity and

require customized or made-to-order products• Product/service may be global in nature, thus

putting many companies across the world in the same market arena

Strategy Horizons for Sustaining Rapid Growth

Strategy Based on Role in Industry (Competitive Strategy)

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Industry Concept of Competition

• Number of sellers and degree of differentiation• Entry, mobility, and exit barriers• Cost structure• Degree of vertical integration• Degree of globalization

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If Dell wants to expand …

Advantage in the market

Share of marketShare of market

Share of mindShare of mind

Share of heartShare of heart

Hypothetical Market Structure

10%

Market

Nichers

20%

Market

Follower

30%

Market

Challenger

40%

Market

Leader

Competitive Positions & Moves

• Market Challenger - Offensive Strategy:OBJECTIVE(S)

• build new or stronger market positions and/or• create competitive advantage

• Market Leader - Defensive Strategy: OBJECTIVES

• protect competitive advantage• reduce risk of being attacked• discourage the offensive strategies of rivals• Blunt the impact of any attack

6.MARKET CHALLENGER STRATEGIES

Who is a Market Challenger?

• Firm has a strong, but not dominant position in the market.

• Wants to aggressively gain market share• Typically targets the market leader, but also

targets other smaller, more vulnerable companies

Strategizing to Challenge the Market Leader

• Define the strategic objective and opponents• Choose a general attack strategy• Choose a specific attack strategy

(A)General Attack Strategies

Frontal Attack

Encirclement

AttackBypass Attack

Flank Attack

Guerrilla Warfare

Frontal Attack

• Direct, head-on assault on Leader’s star product, prime markets or strategic customers

• Rarely used, since it is expensive • Attacking the leader’s strength will require R&D,

intensive advertising, better service/quality = ‘Fire Power’

• Be prepared for retaliation from Leader firm

Eg: McDonalds frontal attack on market leader Starbucks by

launching McCafe

Frontal Attack best suitable when..

• Market is relatively homogeneous• Brand equity is low or customer loyalty is low• Products have poor/peripheral level of

differentiation• Leader has resource constraints, cannot quickly

release funds to fight back

Flank Attack

• Attack the leader at its weakest point – a blind spot (ignored segment), least important markets or products/brands that have low strategic importance.

• Objectives: Gain a foothold before frontal attackDistract the leader

Eg: In terms of the narrow biscuits market, ITC challenged Britannia by a ‘flank’ product – Orange Sunfeast. Cream biscuits was a segment the leader ignored.In terms of terms of broad FMCG market, ITC built a ‘bypass’ biscuits brand Sunfeast (HUL ignored it since it was biscuits segment) then moved to HUL’s domain with ‘frontal attack’ Vivel & Fiama de Wills and ‘flank’ attack Aashirwad staples

Encirclement Attack• Attack strengths & weaknesses of the Leader

simultaneously• Surround the leader with issues to that need

urgent attention and resources• Challenger must have superior resources and a

decentralized structure.

Samsung vs. Apple in Smartphone Market

• Samsung gave ‘phablets’ to Asian users (Asian languages have characters that be drawn faster)

• It is into chips and display screen, etc. therefore can compete on price and features with Apple. Samsung is the world’s largest chip maker

• Advertising budget increased 5 fold & patents filed were the second highest (after IBM)

• Adopted android to challenge iOS.

Samsung’s new ads directly compare Apple’s iPhone5S to Galaxy S III

Bypass Attack• Challenger diversifies products into markets and

segments overlooked by Leader• Challenger wants to avoid a head-on collision

with leader, does not have enough resources or wants to creep up to the leader through stealth.

• The objective is to confront the leader indirectly and it surprise it

• As discussed earlier, ITC bypassed HUL by building a biscuits brand – Sunfeast.

• Then it added other food items under Sunfeast such as Pasta, used Shahrukh as brand ambassador. It also built classmates brand

• Having built a stronghold in FMCG business, it attacked HUL in shampoos, soaps, skincare, staples, etc.

• Sun bypassed Star & Zee by getting into regional south Indian languages for expat viewers across the world & gaining in numbers

Guerilla Attack

• Challenger launches small, intermittent hit-and-run attacks to harass and destabilize leader

• Attack across unpredictable geographies and in different forms

• Objective: keep the leader busy in putting out small bush fires so that overall strategic focus wanes

• It is not a long term strategy, has limited usefulness

(B) Specific Attack Strategies

• Price discounts• Lower-priced goods• Value-priced goods• Prestige goods• Product proliferation• Product innovation

• Improved services• Distribution innovation• Manufacturing-cost

reduction• Intensive advertising

promotion

Offensive Strategies for Runner-Up Firms• Best “mover-and-shaker” offensives

– Pioneer a leapfrog technological breakthrough– Get new/better products into market ahead of

rivals and build reputation for product leadership– Be more agile and innovative in adapting to

evolving market conditions and customer needs– Forge attractive strategic alliances with key

distributors and/or marketers of similar products– Find innovative ways to dramatically drive down

costs to win customers from higher-cost rivals– Craft an attractive differentiation strategy

7.MARKET LEADER STRATEGIES

The firm with Industry Leadership has

• A strong to powerful market position

• A well-known reputation

• A proven strategy

Key strategic concern of Leader-

How to sustain dominant leadership position?

7. Strategic Options for Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy

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Figure 11.6 Six Types of Defense Strategies

POSITION DEFENSE

• Position defense involves occupying the most desirable market space in the minds of the consumers, making the brand almost impregnable.

• Dettol (“Be 100% sure)

FLANK DEFENSE The market leader should erect outposts to

protect a weak front or possibly serve as an invasion base for a counterattack.

Eg: Flipkart found small challengers such as Jabong & Myntra driving online shoppers to their sites based on fashion, so Flipkart decided to remedy this neglected category.

PRE-EMPTIVE DEFENSE• A more aggressive strategy is to attack before

the challenger launches its offense. • Eg: Sam Walton in early days – Ben & Franklin

stores restrained Dunham’s Sterling Store• Phil Knight of Nike has an aggressive celebtity

endorsement strategy.• Xerox has 500+ patents to deter rivals from

entering market• MS ploy to bundle internet explorer with

Windows os.

COUNTER OFFENSIVE DEFENSE• When attacked most market leaders will respond with a

counterattack. • P&G’s Oral B launch • Inundate market with products• BOGO strategy• 4.5mn retail outlets, P&G was elbowed out of shelf

space

Counter-Offensive Defense

• It is throwing toothbrushes, pastes, and brand events and promotions with trade partners, and discounts, all to deny or delay giving P&G even a toehold

• Colgate has hiked its advertising and promotion spends by 31% during the first half of this calendar year.

MOBILE DEFENSE• In mobile defense, the leader stretches its domain over

new territories that can serve as future centers for defense and offense through market broadening and market diversification.

• Market broadening involves shifting focus from the current product to underlying generic need. ( Example. Petroleum companies get involved into oil, coal, nuclear and hydroelectric industries.

• Market diversification involves shifting into unrelated industries ( Reynolds, Philips, cigarette companies, moved to produce beer, liquor, soft drinks and frozen industries)

8.Market Follower Strategies

Counterfeiter

Cloner

Imitator

Adapter

9. Niche Specialist Roles

• End-User Specialist• Vertical-Level

Specialist• Customer-Size

Specialist• Specific-Customer

Specialist• Geographic Specialist

• Product-Line Specialist

• Job-Shop Specialist• Quality-Price

Specialist• Service-Specialist• Channel Specialist

10. Strategy for Crisis-ridden, Weak businesses

Strategic Options• Launch an offensive turnaround strategy

(if resources permit) or

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

• Pursue a fast-exit strategy or

• Adopt an End-Game strategy

(A) Undertaking a Turnaround

• Sell off assets to generate cash and/or reduce

debt

• Revise existing strategy

• Launch efforts to boost revenues

• Cut costs

• Combination of efforts

(B) Liquidation Strategy

• Wisest strategic option in certain situations

– Lack of resources

– Dim profit prospects

– May serve stockholder interestsbetter than bankruptcy

• But unpleasant in implementing

– Hardship of job eliminations

– Effects of closing on local community

(C) End-Game 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 largest

feasible cash flow– Long-term - Exit market

When Is End-Game Strategy the Choice ?• 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 resources

in higher opportunity areas• Business is not a major component of

diversified firm’s portfolio of businesses

11. Making Cooperative Moves

• Share resources, not duplicate• Learn from each others’ strengths• Share risks……However, • Loss of control over operations• Possible transfer of valuable trade secrets• Threat of partner taking undue advantage

• (A) JOINT VENTURESun Pharma & Merck – to create & sell generic

drugs in developing countriesSAB Miller & Molson Coors Brewing co. – new JV

for US operations to challenge giant rival Anheuser Busch

Options in Cooperative Moves

• (B) STRATEGIC ALLIANCE- June 2011 Twitter announced a strategic alliance

with Yahoo! Japan regarding tweets under various functions in Yahoo! Japan

- Merck & PAREXEL – contract manufacturing of biosimilars

Options in Cooperative Moves

• (C) CO-LOCATION- Clustering of fast-food brands/restaurants/automobile

manufacturing in a particular location- Ramkote – second-hand two wheelers & components market - Dharavi – largest slum, but more known now for export

quality leather business. - Oxford street, Bond street, Fashion street, etc

Options in Cooperative Moves

• (D) CO-OPETITION- Put aside rivalry for critical initiatives - Merck & Roche developing tests to detect cancer & to promote

Hepatitis treatment- NEC, Japan & HP are frenemies. 3 relationships: Customer,

Supplier & Competitor. - NUMMI, California manufactures Toyota & GM cars ( to

compete against Honda & Nissan)

Options in Cooperative Moves

10 Commandments for Crafting Successful Business Strategies

1. Its always about improving CORE COMPETENCE ….therefore enhancing SUSTAINABLE COMPETITIVE ADVANTAGE

2. Necessary skill – PROMPTNESS… in adapting & responding to changing market conditions such as unmet customer needs & buyer wishes for something better, emerging technological alternatives, new initiatives of rivals.

10 Commandments (contd)3. Look at the business environment realistically:

Hope for the best but PREPARE FOR THE WORST4. NEVER UNDERESTIMATE YOUR OPPONENT’S

RETALIATORY POWER & RESOLVE5. NEVER indulge in a price war. Cut prices ONLY

through an established cost advantage6. Continuously scan for strategic gaps, avoid red

oceans

10 Commandments 7. Keep making incremental improvements if not

exponential ones. Running a business = treadmill 8. Keep focus on the strategic buyer and engage all

stakeholders, use cooperation strategies9. A happy/committed employee is the best

customer! 10. Its all about the MISSION….what is your “raison

d’etre”? Why are you here?