8

Tailoring Strategy Chapter Title to Fit Specific Industry and Company Situations
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
2007 The McGraw-Hill Companies, Inc. All rights reserved.

15/e PPT
McGraw-Hill/Irwin

In a turbulent age, the only

dependable advantage is
reinventing your business

model before circumstances

force you to.
Gary Hamel and Liisa Valikangas
8-2

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 to a Companys Situation

Nature of industry
Most important and competitive conditions

drivers shaping a
firms strategic options fall into two categories

Firms competitive capabilities, market position, best opportunities

8-4

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
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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
Make

new geographical areas

it easy and cheap for first-time buyers to try product advertising emphasis on

Focus

Increasing frequency of use

Creating brand loyalty

Use

price cuts to attract price-sensitive buyers

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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 companys success
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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

its competitive standing vis--vis rivals

Improve

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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 companys 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 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 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 companys 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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Industry Maturity: The Standout Features

Slowing

demand breeds stiffer competition emphasis on cost and service

More

sophisticated buyers demand bargains

Greater

Topping Product

out problem in adding production capacity innovation and new end uses harder to come by

International
Industry Mergers

competition increases

profitability falls and acquisitions reduce number of rivals

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Strategy Options for Competing in a Mature Industry

Prune

marginal products and models

Emphasize
Strong

innovation in the value chain

focus on cost reduction

Increase

sales to present customers

rivals at bargain prices

Purchase Expand Build

internationally

new, more flexible competitive capabilities

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Strategic Pitfalls in a Maturing Industry

Employing Being

a ho-hum strategy with no distinctive features thus leaving firm stuck in the middle slow to mount a defense against stiffening competitive pressures

Concentrating
Being

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

slow to respond to price-cutting

Having

too much excess capacity

on marketing
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Overspending Failing

to aggressively pursue cost reductions

Stagnant or Declining Industries: The Standout Features

Demand

grows more slowly than economy as whole (or even declines) technology gives rise to betterperforming substitute products

Advancing

Customer
Changing Rising

group shrinks
lifestyles and buyer tastes

costs of complementary products

Competitive

battle ensues among industry members for the available business

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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
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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 companys investment as possible
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Features of High-Velocity Markets

Rapid-fire

technological change

Short
Entry

product life-cycles
of important new rivals

Frequent

launches of new competitive moves evolving customer expectations

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Rapidly

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

8-19

Strategy Options for Competing in High-Velocity Markets

Invest

aggressively in R&D

Initiate

fresh actions every few months

quick response capabilities

Develop

Shift resources

Adapt competencies
Create new competitive capabilities Speed new products to market

Use

strategic partnerships to develop specialized expertise and capabilities

products/services fresh and exciting
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Keep

Keys to Success in Competing in High Velocity Markets

Cutting-edge

expertise

Speed

in responding to new developments

with others

Collaboration

Agility
Innovativeness Opportunism Resource

flexibility capabilities
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First-to-market

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 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 publishing Landscaping and plant nurseries Auto repair Restaurant industry Public accounting Womens 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
by customer type

Specialize

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 industriesemerging, rapid-growth, mature/slow-growth, stagnant/declining, highvelocity/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

8-28

Risks of Pursuing Multiple Strategy Horizons

Firm

should not pursue all options to avoid stretching itself too thin of medium- and long-jump initiatives may cause firm to stray too far from its core competencies advantage may be difficult to achieve in medium- and long-jump businesses that do not mesh well with firms present resource strengths of long-jump initiatives may prove elusive
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Pursuit

Competitive

Payoffs

Strategies Based on a Companys 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 dominant 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 advantage and then widening the advantage over time

Relentlessly

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 consumers in emerging-country markets Discover new uses for product Attract new users of product Promote more frequent use
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Grow faster than industry, taking market share from rivals

Fortify-and-Defend Strategy
Objectives
Make

it harder for new firms to enter and for challengers to gain ground onto present market share
current market position

Hold

Strengthen Protect

competitive advantage
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Fortify-and-Defend Strategy: Strategic Options

Increase

advertising and R&D more brands to match attributes of rivals

Provide

higher levels of customer service

Introduce Add

personalized services to boost buyer loyalty

Keep
Build

prices reasonable and quality attractive

new capacity ahead of market demand enough to remain cost competitive feasible alternative technologies

Invest Patent Sign

exclusive contracts with best suppliers and distributors

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Muscle-Flexing Strategy
Objectives
Play

competitive hardball with smaller rivals that threaten leaders position smaller rivals that moves to cut into leaders business will be hard fought rivals they are better off playing follow-the-leader or else attacking each other rather the industry leader
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Signal

Convince

Muscle-Flexing Strategy: Strategic Options

Be

quick to meet price cuts of rivals

Counter
Offer

with large-scale promotional campaigns if rivals boost advertising

better deals to rivals major customers

Dissuade
Provide

distributors from carrying rivals products

salespersons with documentation about weaknesses of competing products

Make
Use

attractive offers to key executives of rivals

arm-twisting tactics to pressure present customers not to use rivals products

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Muscle-Flexing Strategy
Risks
Running

afoul of antitrust laws

Alienating

customers with bullying tactics

Arousing

adverse public opinion

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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

Im trying!

Perennial

runners-up

Lack competitive strength to do more than continue in trailing position

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Obstacles Runner-Up Firms Must Overcome

When

big size is a competitive asset, firms with 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 Options for 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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Offensive Strategies for Runner-Up Firms: Building Market Share

Acquire smaller rivals to expand companys market reach and presence Find innovative ways to drive down costs to 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
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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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Vacant Niche Strategy for Runner-Up Firms

Focus

strategy concentrated on end-use applications market leaders have neglected of an ideal vacant niche

Characteristics

Sufficient size to be profitable

Growth potential

Well-suited to a firms capabilities

Hard for leaders to serve
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Specialist Strategy for Runner-Up Firms

Strategy

concentrated on being a leader based on

Specific technology Product uniqueness Expertise in

Special-purpose products Specialized know-how Delivering distinctive customer services

8-47

Superior Product Strategy for Runner-Up Firms

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 to gain input for better quality product
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Distinctive Image Strategy for Runner-Up Firms

Strategy

concentrated on ways to stand 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
8-49

Content Follower Strategy for Runner-Up Firms

Strategy

involves avoiding

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
8-50

Weak Businesses: Strategic Options

Launch

an offensive turnaround strategy (if resources permit)

a fortify-and-defend strategy (to the extent resources permit) a fast-exit strategy

Employ

Pursue

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 existing strategy

Revise

Launch

efforts to boost revenues

Cut

costs of efforts
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Combination

What Is a Harvest Strategy?

Steers

middle course between status quo and exiting quickly gradually sacrificing market position in return for bigger near-term cash flow/profit

Involves

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
little priority on new capital investments

Place

Emphasize
Trim

stringent internal cost controls

advertising and promotion expenses

Do

not replace employees who leave

equipment maintenance
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Shave

When Should a Harvest Strategy Be Considered?

Industrys

long-term prospects are unattractive

Building
Market

up business would be too costly

share is increasingly costly to maintain

Reduced

levels of competitive effort will not trigger immediate fall-off in sales can re-deploy freed-up resources in higher opportunity areas is not a major component of diversified firms portfolio of businesses
8-55

Firm

Business

Liquidation Strategy
Wisest

strategic option in certain situations

Lack of resources
Dim profit prospects May serve stockholder interests better than bankruptcy

Unpleasant

strategic option

Hardship of job eliminations Effects of closing on local community

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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 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 of rivals. Responding late or with too little often puts a firm in the precarious position of playing catchup.
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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. Dont 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 immediatelyturnaround strategies are doomed to fail.
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