Business Strategies in Different Industry and Sectoral Contexts

1. Business Strategies in Different Industry and Sectoral Contexts Chapter 5

2. Introduction • Purpose of this chapter: • Understand how managers adapt strategies to fit environments • How managers predict change • How managers adapt strategies to cope with change

3. Evolution of Personal Computers • 1980s Initial leaders • Apple 20% of market • Tandy 15% of market • Commodore 7% of market • IBM enter market • Open strategy • As a result of changing marketplace, structure of PC industry and the way manufacturers compete is changing

4. Industry Life Cycle Product life cycle: four stages a product enters into upon creation; Introduction, Growth, Maturity, Decline Industry life cycle: similar to product life cycle, it is four stages a new market enters into. It has the same four stages as product life cycle. There are two factors that drive industry evolution those are demand growth, and production and diffusion of knowledge

5. Demand Growth The four stages are defined primarily by growth reflected in the life cycle Introduction stage growth is slow. This stage is comprised of little experience, few customers, small scale of production resulting in high costs and low quality In the growth stage results in more companies entering the market because of technical improvements, and increased efficiency Maturity stage is where the market is fully saturated with companies, demand switches to replacement

6. Demand Growth Cont. Finally in the decline stage companies are plagued by new industries producing technologically superior products

7. Production and Diffusion of Knowledge The flow of knowledge in emerging industries influences how quickly a industry may enter each respective stage As knowledge for an industry increases dominant designs and technical standards emerge Dominant designs refer to overall configuration of a product or system, while technical standards are specifications that interface with compatibility Technical standards especially emerge where network effects are present Customers choose same technology to avoid being stranded with non compatibility

8. Product and Process Innovation Once a dominant design has been set in an industry this marks the switch from product innovation to process innovation that typically occurs during the growth stage When a dominant design is set companies switch to incremental product innovation to avoid customers being stuck with wrong technology Companies switch to manufacturing and focus on product reliability, leading to falling costs and greater availability resulting in more companies entering the market

9. Differences in Industry Life Cycles Industry life cycles are different for each industry The railroad industry had it’s introduction in 1827, and it’s growth phase did not come until 1870’s and decline in 1950’s US car industry was introduced in 1890, and it wasn’t until 1913-15 that it entered it’s growth stage However online businesses experience much more rapid life cycles Online gambling has gone from introduction to apparent maturity in just a few years

10. Differences in Industry Life Cycles Also industry life cycles can go through revivals or rejuvenation through breakthrough product innovation Ex: HDTV’s Also industry life cycles may be at different stages in different countries allowing companies to switch focus when a product reaches decline stage in a certain country

11. Strategy at Different Stages of the Life Cycle

12. The Introduction Phase

13. The Introduction Phase

14. The Growth Phase • As demand grows in domestic and international markets, a dominant design usually emerges. • As market expands, the firm needs to adapt its product design and manufacturing capability. • Access to distribution becomes critical. • Overseas demand may be initially serviced by exports. Eventually production and assembly may shift away from advanced countries and these countries will start to import.

15. The Maturity Phase • Competitive advantage is increasingly a quest for efficiency. • Low wages and low overheads become key success factors. • Number of firms begins to fall.

16. The Maturity Phase Contd. • PC industry experienced ‘shakeout’ period in the 1990’s. • Only 20% of firms that began producing PCs in the previous 22yrs had survived. • Whereas in 1987 there were 286 firms in the market, by 2010 only 6 leading firms dominated (Acer, Apple, Dell, Hewlett-Packard, Lenovo and Toshiba) • All together, these companies accounted for 60% of global sales.

17. The Decline Phase • Can be a result of technological substitution, changes in consumer preferences, demographic shifts or foreign competition. • Key features are: • Excess capacity • Lack of technical change • A declining number of competitors • High average of both physical and human resources • Aggressive price competition

18. Key Success Factors and Strategy • During introductory stage, product innovation is the basis for initial entry. Moving from 1st generation to 2nd generation of products, investment requirements grow. Capabilities in product development also need to be supported by manufacturing, marketing, and distribution.

19. Key Success Factors and Strategy 2. Once the growth stage is reached, key challenge is scaling up. As the market expands, the firm needs to adapt its product design and manufacturing capability to large-scale production. Access to distribution becomes critical.

20. Key Success Factors and Strategy 3. With the maturity stage, competitive advantage is increasingly a quest for efficiency. Cost efficiency through scale of economies, low wages, and low overheads become key success factors.

21. Key Success Factors and Strategy 4. The transition to decline intensifies pressures for cost cutting. It also requires maintaining stability by encouraging orderly exit of industry capacity and capturing residual market demand.

22. Strategy in public-sector • Public sectors • Ownership usually vested in government • Serve national/public interest • Provide services not provided by market • Street lights, drainage systems, and national defense

23. Strategy in the not for profit sector • Not-for-profits • Surplus funds pay for organizations goals • Taxes and regulation are special • Usually found in education, healthcare, and religion.

24. Key Differences in public and private organizations • Multiple, potentially conflicting goals • Distinctive constraints and different levers • An absence in market forces • Monopoly Power

25. Continued Less autonomy and flexibility Increased accountability Less predictability

26. Differences that impact not-for-profit strategies The employment of volunteers Fundraising

27. Stakeholder Analysis The process of identifying, understanding and prioritizing the needs of key stakeholders so that the questions of “how stakeholders can participate in strategy formulation” and “how relationships with stakeholders are best managed” can be addressed

28. Stakeholder Analysis The needs and goals of stakeholders often conflict and organizations are involved in an ongoing process of balancing and managing multiple objectives and relationships.

29. Stakeholder Analysis Outline of the key steps in stakeholder analysis Identification of the list of potential stakeholders Ranking stakeholders according to their importance and influence on the organization Identifying the criteria that each stakeholder is likely to use to judge the organization’s performance

30. Stakeholder Analysis Deciding how well the organization is doing from its stakeholders’ perspective Identifying what can be done to satisfy each stakeholder Identifying and recording longer term issues with individual stakeholders and stakeholders as a group

31. Stakeholder Analysis Level of Interest Low High Low Crowd Subjects Power Context Setters Players High To assist with this analysis Ackermann and Eden suggest the use of power interest grids.

32. Stakeholder Analysis The grid is used to identify which stakeholder interests and power bases should be taken into account but it also helps to identify what coalitions amongst stakeholders managers may wish to encourage or discourage

33. Stakeholder Analysis Level of Interest Low High Low Monitor Keep Informed Power Keep satisfied Manage closely High To demonstrate how managers might see themselves responding to different groups in order to gain their compliance

34. Stakeholder Analysis In contrast stakeholders categorized as part of the crowd might be considered passive, but they do have the potential to reposition themselves by taking a more active interest therefore they need to be monitored.

35. Scenarios • Herman Kahn (pioneered use of scenarios) • Events constructed for purpose of focusing attention on casual process and decision points • Different ways but mainly: distinct, internally consistent narratives of future in 5 to 25 years • Definition: stories of how the world might look in the future and used to review and test strategic options

36. Scenario Analysis • Systematic way of thinking about how the future might unfold using trends and signals • Doesn’t predict future/forecast events • Can be qualitative or quantitative or both • Pioneered by Royal Dutch Shell oil company • Life of investment projects (up to 50 years) greatly exceeded time horizon for forecasting

37. Scenarios Planning • Defining the purpose of analysis • What are they designed to serve? • What strategies to adopt for certain outcomes • Deciding on the time horizon • Typically 10 to 15 years but open to change • Also depends on purpose of analysis

38. Scenarios Planning (cont.) • Identifying key trends • Need to be mapped and assessed • Trends/driving forces bringing change and their impact • Identifying key uncertainties • Basis of alternative futures • Uncertainty (pace, relation) • Consideration of large-scale disruptive change

39. Scenarios Planning (cont.) • Creating scenarios and checking their internal consistency • Identified and described based on trends + uncertainties • Descriptions need to be plausible and internally consistent • Identifying indicators that might signal unfolding scenarios • Scenarios becoming more likely than others

40. Final Steps in Planning • Assessing the strategic implications of each scenario • Using ‘what if’ approach to focus on questions the exercise sought to address • Results equally as important as process • Bringing together, surfacing, identifying, generation and evaluation, encouraging; building

41. Book Example & Nike • Local government and scenario planning • Northshire Council and UK’s central government e-initiatives for activities • Workshop by academic experts to decision-makers • Two main ideas of uncertainty gave way to four scenarios • Nike in relation to steps in scenario analysis • Key trends & key uncertainties • Implications and signals of scenarios