Transcript Tailoring Strategy to Fit Specific Industry and Company Situations

Ashesi University
COURSE TITLE : COMPETITIVE STRATEGY
SEMESTER : 1ST 2010/2011
MODULE 6: Tailoring Strategy to Fit Specific
Industry and Company Situations
Lecturer : Ebow Spio
Tailoring Strategy to Fit Specific
Industry and Company Situations
“ Strategy is all about combining choices of
what to do and what not to do into a system
that creates the requisite fit between what
the environment needs and what the
company does”
Costas Markides
Learning Objectives
•Recognize how and why different types of market
situations shape business strategy choices
• Understand when being a first-mover or a fastfollower or a late-mover can lead to competitive
advantage
• Gain some insights into crafting a successful
business strategy
Tailoring Strategy to Fit Specific Industry and
Company Situations
•
•
•
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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
Matching Strategy to
a Company’s Situation
Nature of industry
Most important
drivers shaping a
and competitive
conditions
firm’s strategic
options fall into
two categories
Firm’s competitive
capabilities,
market position,
best opportunities
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. Out-innovating the competition is often
on the best avenues to industry leadership.
• 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
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
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 the
company’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
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 distribution
channels and sales outlets
• Expand a company’s geographic coverage
• Expand product line to add models/styles to appeal to a wider
range of buyers
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
Industry Maturity: The Standout
Features
• 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
Strategy Options for Competing
in 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”
• 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
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
Strategy Options for Competing
in a Stagnant or Declining Industry
• Pursue focus strategy aimed at
fastest growing market segments
• Stress differentiation based on quality
improvement 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
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 as
possible
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
Fig. 8.1: Meeting the Challenge of High-Velocity Change
Strategy Options for Competing
in High-Velocity Markets
• 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 develop
specialized expertise and capabilities
• Keep products/services fresh and exciting
Keys to Success in Competing
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
Competitive Features
of a Fragmented Industry
• Absence of market leaders with large market shares or widespread buyer
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 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
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
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
Timing Strategic Moves : To be an
early mover
Being first to initiate a strategic move can have a high payoff in
terms of strengthening a company’s market position and
competitiveness when:
a. Pioneering builds a firm’s image and reputation with buyers
b. Early commitments to new technologies, new-style
components, distribution channels, and so on can produce an
absolute cost advantage over rivals
c. First time customers remain strongly loyal to pioneering firms
in making repeat purchases
d. Moving first constitutes a preemptive strike, making imitation
extra hard or unlikely
Timing Strategic Moves : To be a
late mover
There are times when there are actually advantages to being an adept
follower rather than a first-mover. Late-mover advantages or firstmover disadvantages arise when:
a. Pioneering leadership is more costly than imitating followership and
only negligible experience or learning-curve benefits accrue to the
leader
b. The products of an innovator are somewhat primitive and do not
live up to buyer expectation.
c. The demand side of the market place is skeptical about the benefits
d. Rapid market evolution gives fast-followers and maybe even
cautious late-movers the openings to leapfrog a first-mover’s
products
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.
10 Commandments for Crafting
Successful Business Strategies
3. Invest in creating a sustainable competitive
4.
5.
6.
7.
advantage, for it is a most dependable contributor
to above-average profitability.
Avoid strategies capable of succeeding only in the
best of circumstances.
Don’t underestimate the reactions and the
commitment of rival firms.
Consider that attacking competitive weakness is
usually more profitable than attacking competitive
strength.
Be judicious in cutting prices without an established
cost advantage.
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.
Exercises
• Listed below are 10 industries. Classify each one as (a) emerging, (b) rapidgrowth, (c) mature/slow-growth, (d) stagnant/declining, or (e) highvelocity/turbulent, and (f) fragmented. Do research on the Internet, if
needed, to locate information on industry conditions and reach a
conclusion on what classification to assign each of the following:
• (1) Exercise and fitness industry
• (2) Dry cleaning industry
• (3) Poultry industry
• (4) Camera film and film-developing industry
• (5) Wine, beer, and liquor retailing
• (6) Watch industry
• (7) Cell phone industry
• (8) Recorded music industry (CDs, tapes)
• (9) Computer software industry
• (10) Newspaper industry