BUSINESS-LEVEL STRATEGIES AND INDUSTRY ENVIRONMENTS

1. BUSINESS-LEVEL STRATEGIES AND INDUSTRY ENVIRONMENTS BUSINESS 189 (chpt. 6) SPRING 2007 DR. MARK FRUIN

2. NIKE’S WINNING WAYS • TRADITIONALLY A LEADER IN TRACK AND BASKETBALL SHOES • TO TAKE ADVANTAGE OF COMPETENCIES IN DESIGN AND MARKETING, NIKE ENTERS NEW MARKET SEGMENTS • CONVERSE • HURLEY INTERNATIONAL • COLE HAAN • THE RESULT: SOARING ROIC

3. HOW TO LEAD IN EVOLVING INDUSTRIES • INDUSTRIES ARE COMPOSED OF SEGMENTS • SEGMENTS ARE DEFINED AS? • UNDERSTAND WHAT’S GOING ON IN THE INDUSTRY AND TARGET PRODUCT/ MARKET SEGMENTS ACCORDINGLY

4. SUSTAINING COMP ADVANT IN DIFF INDUSTRY ENVIRONMENTS • RECOGNIZE DIFFERENT INDUSTRY ENVIRONMENTS • FRAGMENTED INDUSTRIES VERSUS • EMBRYONIC • GROWTH (EMERGING & SHAKEOUT) • MATURE • DECLINING

5. FRAGMENTED IND IS NEW • A LARGE NUMBER OF SMALL AND MED-SIZED COMPANIES • LOW BARRIERS TO ENTRY • HARD TO REALIZE ECONOMIES OF SCALE & SCOPE • BETWEEN GENERIC STRATEGIES, WHICH ONE APPLIES???

6. OVERCOMING FRAGMENTATION • CHAINING STRATEGY (WAL-MART) • FRANCHISING (CENTURY 21, McD) • HORIZONTAL MERGER (BUDWEISER) • CONSOLIDATE W/ NEW TECH • AMAZON, eBAY, GOOGLE (?) • HIGH LEVELS OF PERSONAL/PROFESSIONAL SERVICE • HIGH END HEALTH CLUBS, LAW FIRMS

7. EMBRYONIC/EMERGING/GROWTHINDUSTRIES • EMBRYONIC INDUSTRY IS WHEN TECHNOLOGY BEGINNING TO DEVELOP • TECH INNOVATION DRIVES INDUSTRY • WHICH INDUSTRIES EMBRYONIC TODAY? • EMERGING/GROWTH IND WHEN MARKET DEMAND BEGINS TO GROW RAPIDLY • MARKET DEMAND DRIVES INDUSTRY • OBVIOUSLY DEMAND GROWTH TAKES TIME

8. E/E/G INDUSTRIES • SLOW GROWTH AT FIRST BECAUSE • LIMITED PERFORMANCE/POOR QUALITY • CUSTOMERS UNFAMILIAR W/ NEW TECH • LACK COMPLEMENTARY PROD • PRODUCTION COSTS HIGH • INDUSTRY GOES FROM EMBRYONIC -> HIGH GROWTH - WHY? • TECH PROGRESS MAKES PRODUCT EASIER TO USE & INCREASES THEIR VALUE • COMPLEMENTARY PRODUCTS APPEAR • PRODUCT/PROCESS COSTS GO DOWN

9. TECHNOLOGY/S-CURVE HINGES PARTLY ON CUSTOMER DEMAND • INNOVATORS (1%) • TECHIES, GEEKS • EARLY ADOPTERS (5%) • ENGINEERS, ENTREPRENEURS • EARLY MAJORITY (24%) • PRAGMATISTS • LATE MAJORITY (45%) • STUCK IN THE MUD BUT NOT LUDDITES • EXTRA CREDIT: WHO ARE LUDDITES? • LAGGARDS (24%)

10. CROSSING THE CHASM • GORDON MOORE, FORMER CEO OF INTEL & ORIGINATOR MOORE’S LAW (WHICH IS?) • MANY COMPANIES CANNOT TRANSITION FROM EMBRYONIC TO GROWTH MARKETS • THERE MAY BE TWO OR THREE “CHASMS” • THEY FAIL TO DEVELOP THE MASS MARKETS NEEDED TO GROW PRODUCT • FAIL ON PROD FEATURES AND/OR CUST CHAR • APPLE (I) AS FIRM THAT FELL IN THE CHASM?

11. TIPPING POINT • BIG CHANGES CAN HAPPEN SUDDENLY • TIPPING PT THEORY FROM EPIDEMIOLOGY • STATE OF CONTAGIOUSNESS • GRADUAL, ALMOST IMPERCEPTIBLE CHANGE RAPIDLY ACCELERATES AT A CERTAIN POINT • CRITICAL MASS CAN UNLEASH EPIDEMIC MOVEMENT: SUDDENLY EVERYONE’S INFECTED

12. TIPPING PT • EPIDEMICS ARE A FUNCTION OF: • THE PEOPLE WHO TRANSMIT INFECTION (INFECTIOUS AGENTS) • INFECTIOUS AGENT ITSELF (HOW VIRULENT; HOW TRANSMITTED?) • ENVIRONMENT IN WHICH INFECTIOUS AGENT OPERATES (HUMAN BEINGS ARE MORE SENSITIVE IN CERTAIN ENVIRONMENTS THAN OTHERS; CERTAIN ENVIR MORE CONDUCIVE) • SUPPORT FOR IRAQ WAR (ESP. W/ DEMO CONGRESS) • ATTITUDES TOWARD GLOBAL WARMING • LIKELIHOOD OF BUYING A PRIUS

13. FACTORS AFFECTING RATE OF ADOPTION • PRODUCT’S RELATIVE ADVANTAGE • COMPATIBILITY WITH EXISTING NEEDS AND HABITS • COMPLEXITY OR DEGREE OF DIFFICULTY IN UNDERSTANDING/USING • TRIALABILITY • OBSERVABILITY • EXISTENCE OF COMPLEMENTARY PROD

14. FIGURE 6.4 RATES OF DIFFUSION • WHAT’S THE DIFFERENCES BETWEEN THE 45 DEGREE RATES OF DIFFUSION AND THE NEARLY 90 DEGREE RATES? • WHICH IS MORE IMPORTANT IN DRIVING DIFFUSION - FIRMS OR TECHNOLOGIES? • CAN ANYTHING DIFFUSE MORE RAPIDLY THAN CELL PHONES? • RATE OF DIFFUSION DEPENDS ON?

15. HOW SOON WILL RIVALS APPEAR? • HOW IMPORTANT ARE COMPLEMENTARY ASSETS & HOW MANY SOURCES ARE AVAILABLE? • HEIGHT OF BARRIERS TO IMITATION IN PRODUCTS & PROCESSES? • HOW MANY CAPABLE RIVALS? • GO IT ALONE, LICENSE OR PARTNER?

16. GO IT ALONE, PARTNER OR LICENSE? • EASE OF IMITATION/REPLICATION (INCLUDES REVERSE ENGINEERING) • EASY/NOT-SO-EASY • IMPORTANCE OF COMPLEMENTARY ASSETS/RESOURCES/TECHNOLOGIES • IMPORTANT/NOT-SO-IMPORTANT • NUMBER OF CAPABLE COMPETITORS • FEW vs MANY • DOMESTIC vs GLOBAL

17. TIPPING PTS & VIRAL MRTNG • SOME PEOPLE ARE VERY INFLUENTIAL • LEAD ADOPTERS/LEAD SUPPLIERS • SOME PEOPLE CAN “INFECT/AFFECT” MANY OTHERS (ESP. IF YOU USE A TECH. WITH SCALE, SCOPE & LEVERAGE, LIKE INTERNET) • RECENT EXAMPLES: DONALD & ROSIE • ANGELA AND MADONNA • WHY IS DONALD SQUARING OFF WITH WORLD PRO WRESTLING GUY?

18. B-L (PRODUCT/MARKET SEGMENT) STRATEGIES IN MATURE INDUSTRIES • B-L STRATEGY ABOUT HOW FIRMS COLLECTIVELY REDUCE STRENGTH OF COMPETITION (IN MATURE INDUSTRIES) • STRATEGIES TO DETER ENTRY • STRATEGIES TO MANAGE RIVALRY • STRATEGIES TO CONTROL SUPPLY AND DISTRIBUTION

19. MATURE INDUSTRY STRATGIES • REMEMBER PRODUCT DIFFERENTIATION ACHIEVED IN 3 WAYS IN FUNCTIONAL SENSE • QUALITY, INNOVATION & CUSTOMER RESP/SAT • STRATEGIES TO DETER ENTRY • PRODUCT PROLIFERATION • FILL ALL THE NICHES • PRICE CUTTING • NEW FIRMS TYPICALLY HAVE HIGHER COSTS • MAINTAINING EXCESS CAPACITY • PUT NEW ENTRANTS ON NOTICE THAT YOU’RE WILLING & ABLE TO RAMP UP PROD & FILL PIPELINE

20. COMPETITIVE ADVANTAGES • ARE ACHIEVED BY MAKING CHOICES • PRODUCT FEATURES • WHICH CUSTOMERS/WHERE • BASED ON ORGANIZATIONAL CAPABILITIES • REQUIRE CONTINUED UPGRADING • INVESTING • PRACTICING (ORG. LEARNING) • EVALUATING/ASSESSING/COMPARING & CONTRASTING • MAKING CHOICES/DISCRETION = MNGMNT

21. STRATEGIES TO MNG RIVALRY • PRICE SIGNALING • CREDIBLE WILLINGNESS TO CUT PRICES • PRICE LEADERSHIP • TAKE LEADERSHIP IN SETTING PRICES OR RESPOND RAPIDLY WHEN OTHERS DO • NON-PRICE COMPETITION • PRODUCT DIFFERENTIATION • MARKET PENETRATION (E.G., ADVERTISING) • PRODUCT DEVELOPMENT • MARKET DEVELOPMENT • PRODUCT PROLIFERATION

22. STRATEGIES TO CONTROL SUPPLY & DISTRIBUTION • VERTICAL INTEGRATION STRATEGIES • TO MAKE OR BUY DECISIONS • COMPLEXITY OF PRODUCTS/PROCESSES • AFTER MARKET CARE • VERTICAL DIS-INTEGRATION STRATEGIES • WHY OUTSOURCE/OFFSHORE • NOT OUR DISTINCTIVE COMPETENCE • SOMEONE ELSE CHEAPER, BETTER & FASTER • RESULTS OF OUTSOURCING FOR CAPABILITIES

23. DOMINANT STRATEGY • A STRATEGY WHERE YOU ARE BETTER OFF, NO MATTER WHAT RIVALS DO • HOWEVER, AS PRISONER DILEMMA (2 PERSON/FIRM GAME) SHOWS • IF NEITHER FIRM CAN TRUST THE OTHER • BOTH MORE ARE LIKELY TO SUFFER • IN MANY COP SHOWS, THE KEY ISSUE • IN MANY COMPETITIVE SITUATIONS, THE KEY ISSUE • SHOULD I REMOVE REBATES OR NOT?

24. STRATEGY IN DECLINING IND • ONCE DEMAND STARTS TO FALL, AN INDUSTRY IS IN DECLINE • HOWEVER, IT’S TECHNOLGY THAT DRIVES INDUSTRY LIFE CYCLE, NOT DEMAND • INTENSITY OF COMPETITION IN DECLINING INDUSTRIES VARIES WITH • RATE OF DECLINE • HEIGHT OF EXIT BARRIERS, INCLUDING REPUTATION EFFECTS • AMOUNT OF SUNK COSTS • IF PRODUCTS ARE DIFFERENTIATED OR NOT

25. MATURE VS. DECLINING INDUSTRIES • MATURE • SALES FALL OFF TO 1-2% GROWTH • REPLACEMENT SALES PREDOMINATE • # OF FIRMS DECLINES • NO (OR LITTLE) PROPRETAIRY TECHNOLOGY • DECLINING • FALLING SALES • CUSTOMERS DO NOT REPLACE • FEWER FIRMS YET • OCCASIONALLY, NEW WRINKLES ON TECHNOLOGY

26. STRATEGIES FOR DECLINING INDUSTRIES • LEADERSHIP STRATEGY • BUY OUT RIVALS, PICK UP MKT SHARE • NICHE STRATEGY • FIND PROFITABLE SEGMENTS • HARVEST STRATEGY • OPTIMIZE CASH FLOW AS EXIT INDUSTRY • DIVESTMENT STRATEGY • SELL OUT FAST (BEFORE OTHERS CATCH ON)

27. QUESTIONS • WHAT ARE THE DANGERS ASSOC WITH BEING LEADER IN EMBRYONIC AND GROWTH INDUSTRIES? • FIRST-TO-MARKET vs FAST FOLLOWER • TO WHAT EXTENT CAN FIRMS CONTROL INDUSTRY PROFITABILITY? • WHEN, WHERE & HOW? (AT WHAT STAGE?) • ECONOMIES OF SPEED • WHEN IS THIS LEGAL-ILLEGAL? • WHAT REQUIRED TO SUSTAIN CONSPIRACY?

28. MORE QUESTIONS • HOW DO GENERIC COMPETITIVE STRATEGIES INTERSECT/INTERACT WITH INDUSTRY LIFE CYCLE? • GENERIC COMP. STRAT. TOO SIMPLISTIC, AFTER THIS CHAPTER!! • WITH PRODUCT LIFE CYCLE? • ARE PRODUCT LIFE CYCLE EFFECTS CONSISTENT ACROSS ALL THE SEGMENTS OF AN INDUSTRY? • SAME SORT OF QUESTIONS WITH REGARD TO F-L STRATEGIES • IN OTHER WORDS, INTERACTION EFFECTS