Strategies for Specific Industry and Company Situations

In a turbulent age, the

only dependable

advantage is reinventing
your business model before circumstances force
Gary Hamel and Liisa you to.Valikangas

Type of Industries
Emerging Industries Rapidly Growing Markets Maturing Industries Stagnant or Declining Industries Fragmented Industries Turbulent, High-Velocity Markets Sustaining Rapid Company Growth Industry Leaders Runner-up Firms Weak and Crisis-Ridden Businesses Guidelines for Crafting Successful Business Strategies

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

Strategies for Competing in Emerging Industries

Embryonic and Growth Industries

An embryonic industry is one that is just beginning to develop when technological innovation creates new market or product opportunities. A growth industry is one in which first-time demand is expanding rapidly as many new customers enter the market.
Companies must understand the factors that affect a markets growth rate in order to tailor the business model to the changing industry environment.
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Market Characteristics: Embryonic and Growth Industries

Reasons for slow growth in market demand

Limited performance and poor quality of the first products Customer unfamiliarity with what the new product can do for them Poorly developed distribution channels Lack of complementary products High production costs

Mass markets typically start to develop when:

Technological progress makes a product easier to use and increases its value to the average customer. Key complementary products are developed that do the same. Companies find ways to reduce production costs allowing them to lower prices.
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Both innovators and early adopters enter the market while the industry is in its embryonic state.

Market Development and Customer Groups

Figure 6.1

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Market Share of Different Customer Segments

Most market demand and industry profits arise during the early and late majority customer segments. Figure 6.2

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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 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

Four Nonprice Competitive Strategies

Figure 6.8

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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

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--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 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

Strategies for Competing in Mature Industries

Mature Industries
A mature industry is dominated by a small number of large companies whose actions are so highly interdependent that success of one companys strategy depends on the response of its rivals.

Evolution of mature industries

Industry becomes consolidated as a result of the fierce competition during the shakeout stage. Business level strategy is based on how established companies collectively try to reduce strength of competition. Interdependent companies try to protect industry profitability.

Strategies
Deter entry into industry Product proliferation Maintaining Price cutting excess capacity Manage industry rivalry Price signaling Capacity control Houghton Price Mifflin leadership Nonprice competition Copyright
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Strategic Implications Market Growth Rates

of

Different markets develop at different rates. Growth rate measures the rate at which the industrys product spreads in the marketplace. Growth rates for new kinds of products seem to have accelerated over time:

Use of mass media Low-cost mass production Complexity Observability Trialability complementary

Factors affecting market growth rates:

Relative advantage Compatibility Availability of Business-level strategy is a products
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major determinant of industry profitability. The choice of business model and strategies can accelerate or retard market growth.
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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

reduce 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

Strategies for Competing in Fragmented Industries

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

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

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

Strategies for Competing in Declining Industries

Declining Industries
A declining industry is one in which market demand has leveled off or is falling and the size of total market starts to shrink. Competition tends to intensify and industry profits tend to fall.

Reasons for and severity of the decline

Reasons: technological change, social trends, demographic shifts Intensity of competition is greater when:
The decline is rapid versus slow and gradual. The industry has high fixed costs. The exit barriers are high. The product is perceived as a commodity.

Strategies

Not all industry segments typically decline at the same rate Creating pockets of demand Leadership seeks to become dominant player in declining industry Niche focuses on pockets of demand that are declining more slowly Harvest optimizes cash flow Divestment sells business to others
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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

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

Factors for Intensity of Competition in Declining Industries

Figure 6.13

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Strategy Selection Declining Industry

in a
Figure 6.14

Choice of strategy is determined by: Severity of the industry decline Company strength relative to the remaining pockets of demand

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What Is a Harvest Strategy?

Steers middle course between status quo and exiting quickly

Involves gradually sacrificing market position in return for bigger near-term cash flow/profit
Objectives
Short-term - Generate largest feasible cash flow

Long-term - Exit market

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

When Should a Harvest Strategy Be Considered?

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

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

Strategies for Competing in Other Industries

High-Velocity Markets

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

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 catch-up.

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.

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.