Tailoring Strategy to Fit Specific Industry and Company Situations

1. Tailoring Strategy to Fit Specific Industry and Company Situations Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region

2. “In a turbulent age, the only dependable advantage is reinventing your business model before circumstances force you to. Gary Hamel and Liisa Valikangas

3. ChapterRoadmap • 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

4. Matching Strategy toa Company’s Situation • Nature of industry and competitive conditions Most important drivers shaping a firm’s strategic options fall into two categories • Firm’s competitive capabilities, market position, best opportunities

5. Features of an Emerging Industry • New and unproven market • Proprietary technology • Lack of consensus regarding which ofseveral competing technologies will win out • Low entry barriers • Experience curve effects may permitcost 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

6. 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

7. Strategy Options for Competing in Emerging Industries (continued) • Pursuenew customers and user applications • Enternew 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

8. Strategic Hurdles for Companiesin 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

9. 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 What Is the Key to Success forCompeting in Rapidly Growing Markets?

10. 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 distributionchannels and sales outlets • Expand a company’s geographic coverage • Expand product line to add models/styles to appeal to a wider range of buyers

11. 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

12. 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 newend uses harder to come by • International competition increases • Industry profitability falls • Mergers and acquisitions reduce number of rivals

13. Strategy Options for Competingin 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

14. 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

15. 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

16. Strategy Options for Competingin a Stagnant or Declining Industry • Pursue focus strategy aimed atfastest growing market segments • Stress differentiation based on qualityimprovement 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

17. End-Game Strategiesfor 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

18. Features of High-Velocity Markets • Rapid-fire technological change • Short product life-cycles • Entry of important new rivals • Frequent launches ofnew competitive moves • Rapidly evolvingcustomer expectations

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

20. Strategy Options for Competingin 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 developspecialized expertise and capabilities • Keep products/services fresh and exciting

21. Keys to Success in Competingin High Velocity Markets • Cutting-edge expertise • Speed in responding to new developments • Collaboration with others • Agility • Innovativeness • Opportunism • Resource flexibility • First-to-market capabilities

22. Competitive Featuresof a Fragmented Industry • Absence of market leaders with large market shares or widespread buyer recognition • Product/service is delivered to neighborhoodlocations to be convenient to local residents • Buyer demand is so diverse that many firmsare 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

23. 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

24. 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

25. 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

26. For Discussion: Your Opinion What classification would you assign to each of the following industries—emerging, rapid-growth, mature/slow-growth, stagnant/declining, high-velocity/turbulent, or fragmented? A. Dry cleaning industry B. Cigarette industry C. Cell phone industry D. MP3 player industry E. Satellite radio industry

27. 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.

28. Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth

29. Risks of PursuingMultiple Strategy Horizons • Firm should not pursue all optionsto avoid stretching itself too thin • Pursuit of medium- and long-jumpinitiatives may cause firm to straytoo far from its core competencies • Competitive advantage may be difficult to achieve in medium- and long-jump businesses that do not mesh well with firm’s present resource strengths • Payoffs of long-jump initiatives may prove elusive

30. Strategies Based on a Company’s Market Position • Industry leaders • Runner-up firms • Weak or crisis-ridden firms

31. Industry Leaders:The Defining Characteristics • Strong to powerful market position • Well-known reputation • Proven strategy • Key strategic concern – How to sustaindominant leadership position

32. Strategy Options: Industry Leaders Stay-on-the-offensive strategy Fortify-and-defend strategy Muscle-flexing strategy

33. Stay-on-the-Offensive Strategies • Be a first-mover, leading industry change • Best defense is a good offense • Concentrate on achieving a competitive advantageand then widening the advantage over time • Relentlessly pursue continuous improvementand innovation, being first to market with • Technological improvements • New or better products • More attractive performance features • Customer service improvements

34. 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 leader’s 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 consumersin emerging-country markets • Discover new uses for product • Attract new users of product • Promote more frequent use • Grow faster than industry, taking market share from rivals

35. Fortify-and-Defend Strategy • Make it harder for new firms to enter and for challengers to gain ground • Hold onto present market share • Strengthen current market position • Protect competitive advantage Objectives

36. Fortify-and-Defend Strategy: Strategic Options • Increase advertising and R&D • Provide higher levels of customer service • Introduce more brands to match attributes of rivals • Add personalized services to boost buyer loyalty • Keep prices reasonable and quality attractive • Build new capacity ahead of market demand • Invest enough to remain cost competitive • Patent feasible alternative technologies • Sign exclusive contracts with best suppliers and distributors

37. Muscle-Flexing Strategy • Play competitive hardball with smallerrivals that threaten leader’s position • Signal smaller rivals that moves to cutinto leader’s business will be hard fought • Convince rivals they are better off playing “follow-the-leader” or else attacking eachother rather the industry leader Objectives

38. Muscle-Flexing Strategy:Strategic Options • Be quick to meet price cuts of rivals • Counter with large-scale promotional campaigns if rivals boost advertising • Offer better deals to rivals’ major customers • Dissuade distributors from carrying rivals’ products • Provide salespersons with documentation about weaknesses of competing products • Make attractive offers to key executives of rivals • Use arm-twisting tactics to pressure present customers not to use rivals’ products

39. Muscle-Flexing Strategy • Running afoul of antitrust laws • Alienating customers with bullying tactics • Arousing adverse public opinion Risks

40. I’m trying! Types of Runner-up Firms • Market challengers • Use offensive strategies to gain market share • Focusers • Concentrate on serving alimited portion of market • Perennial runners-up • Lack competitive strength to domore than continue in trailing position

41. Obstacles Runner-UpFirms Must Overcome • When big size is a competitive asset, firmswith 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

42. Strategic Optionsfor 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

43. Offensive Strategies for Runner-Up Firms: Building Market Share • Acquire smaller rivals to expand company’s market reach and presence • Find innovative ways to drive down coststo 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

44. 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!

45. 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

46. Vacant Niche Strategyfor Runner-Up Firms • Focus strategy concentrated on end-use applications market leaders have neglected • Characteristics of an ideal vacant niche • Sufficient size to be profitable • Growth potential • Well-suited to a firm’s capabilities • Hard for leaders to serve

47. Specialist Strategy for Runner-Up Firms • Strategy concentrated onbeing a leader based on • Specific technology • Product uniqueness • Expertise in • Special-purpose products • Specialized know-how • Delivering distinctive customer services

48. Superior Product Strategyfor 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 togain input for better quality product

49. Distinctive Image Strategyfor Runner-Up Firms • Strategy concentrated on ways tostand 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

50. Content Follower Strategyfor Runner-Up Firms • Strategy involves avoiding • Trend-setting moves and • Aggressive moves to stealcustomers 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