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