Strategy-A View from the Top Chapter 7-Business Unit Strategy: Contexts and Special Dimensions

1. Strategy-A View from the TopChapter 7-Business Unit Strategy: Contexts and Special Dimensions Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres

2. Strategy in Emerging Industries New Industries present new opportunities Technologies are typically immature Costs are typically high and unpredictable, entry barriers are low, supplier relationships are underdeveloped, and distribution channels are just emerging Timing can be critical in determining strategic success-first mover advantage

3. Strategic Leadership in Emerging Markets Need ability to shape the industry structure based on: Timing Method of entry Experience in similar situations Leadership opportunities: ability to control product or process development through: Superior technology Quality or customer knowledge Ability to leverage existing relationships with suppliers/distributors Access to a core group of early, loyal customers

4. First Mover Advantage Have the opportunity to shape customer expectations and define the competitive rules of the game Examples: Microsoft: Windows Operating System Starbucks: Saturation of the market; Selling CD’s, coffee merchandise, etc. in stores

5. Strategy in Growth Industries Increased segmentation often accompanies the transition to market maturity Cost control becomes an important element of strategy as unit margins shrink and new products and applications are harder to find Process innovation important dimension Competing companies that enter growth industries are labeled followers

6. Followers Have the opportunity to evaluate: Alternative technologies Delay investment in risky projects of plant capacity Imitate or surpass superior product or technology offerings Starbucks: Selling coffee in grocery stores

7. Internal Development or Acquisition Internal development-creating a new business in a somewhat unfamiliar competitive environment Turn to existing players in: Joint Ventures Alliances Acquisitions 2 issues analyzed as part of the decision process: What are the structural barriers to entry? How will incumbent firms react to intrusion?

8. Strategy in Mature and Declining Industries Choose a balance between differentiation and low cost postures and deciding whether to compete in multiple or single industry segments Firms earn profits during long maturity stage when they: Concentrate on segments that offer chances for higher growth or higher return Manage product and process innovation aimed at further differentiation, cost reduction, or rejuvenating segment growth Streamline production and delivery to cut costs Gradually harvest the business in preparation for strategic shift to more promising product or industries

9. Strategy in Mature and Declining Industries Companies should avoid: An overly optimistic view of the industry or the company’s position within it A lack of strategic clarity shown by a failure to choose between a broad-based and a focused competitive approach Investing too much for too little return Trading market share for profitability in response to short-term performance pressures Unwillingness to compete on price Resistance to industry structural changes or new practices Placing too much emphasis on new product development compared with improving existing ones Retaining excess capacity Take caution in exit decisions

10. Industry Evolution and Functional Priorities • Early Development • Slow growth in sales • Research and development emphasis • Rapid technological change in product • Emerging State • Success associated with technological skill and being the first in a new market • Marketing advantage has a widespread awareness • Rapid growth brings new competitors • Maturity Stage • Sales growth continues, but at a decreasing rate • Technological change in product design slows • Promotional and pricing advantages key internal strengths • Declining Stage • Strengths center on cost advantages and superior supplier and customer relationships

11. Strategy in Fragmented Industries • Fragmented industries - no company or group has enough market share to affect industry structure or outcomes. • To thrive in these markets, segment the market based on: • Product, customer, type of order, or geographic area • Combined with “no frills” posture.

12. Strategy in Deregulating Industries • Artificial constraints are lifted and new players are allowed to enter. • Deregulating environments undergo change twice: when market is opened and 5 years later. • Can be good and bad for companies

13. Dealing with Challenges in Deregulated Markets • Four distinct strategic postures: 1.) Broad based distributors that offer a wide range of products 2.) Low cost entrants that develop into niche players 3.) Focus segment marketers that emphasize the company’s value 4.) Shared utilities that focus on market based economies of scales available to smaller competitors.

14. Pricing in Newly Deregulated Industries • When new competitors enter, the market demands reduced prices. • Results from efficiencies and competitive effects • Startups are inefficient and shared markets reduce efficiencies of scale and scope.

15. How to Adjust Prices Correctly • 1.) Measure up against the most relevant competitors. • 2.) Switch prices but don’t allow a price gap • 3.) Pay attention to valued customers • 4.) Keep costs high enough to be able to run your business

16. Strategy in Hypercompetitive Industries • Characterized by intense rivalry • Successful strategies often are based on taking the competitor by surprise and then moving on as the competition tries to recover • Hypercompetitive Markets • Rapid innovation and speed • Superior short-term strategic focus • Market awareness

17. Competitive Reactions Under Extreme Competition • 6 Actions • Retool strategy and restore its importance • Manage transition economics • Fight aggregation with disaggregation • Seek out new demand and new growth • Use a portfolio of initiatives to increase speed and flexibility • Count on strategic risk

18. Business Unit Strategy: Special Dimensions • Speed • Newest and least understood • Pace of progress that a company displays in responding to current or anticipated business needs • Speed Merchants • Strategy built on rapid pace converting core competencies into competitive advantages which alter competitive landscapes in their favor

19. Pressures to Speed Speed is universally popular Speed-oriented companies are rewarded with loyalty and commitment. Suppliers will bear extra costs and responsibilities.

20. Sources for Increasing Speed • Customers • Demand responsiveness • Need for creating a new basis for competitive advantage • Innovation, development, manufacturing, distribution • Competitive Pressures • with increasing competition, speed must be maximized • Industry Shifts • Speed is important in industries with short product life cycles

21. Requirements of Speed • Executives must foster a “fast” culture. • Actions must be taken on the following issues: • Refocusing the business mission • Creating a speed-compatible culture • Upgrading communication • Refocusing business process reengineering • Committing to new performance metrics

22. Requirements of Speed (cont.) • Refocusing the business mission • Board and officers articulate a long-term vision for a speed oriented company. • Creating a speed-compatible culture • Facilitate speed by nurturing an organizational culture that is conductive to speed and adopt and evaluation system. • Upgrading communication • Upgrading methods for clear and timely communication. • Refocusing business process reengineering • Reorganize to eliminate barriers that create distance between employees and customers. • Committing to new performance metrics • Metrics include: sales volume, customer satisfaction, processing time, cost controls, and marketing specifics.

23. Methods to Speed • Internal analysis to determine where speed exists and where is does not. • Eliminate “speed gaps”. • Three categories: • Streamlining Operations • Upgrading Technology • Forming Partnerships

24. Methods to Speed (cont.) • Streamlining Operations • Speed-enhanced ability to obtain quick post-implementation feedback from the marketplace • Upgrading Technology • Use of latest IT to create speed. Goal is to connect manufacturers with retailers to enhance information sharing. • Forming Partnerships • Sharing business burdens is a way to shorten time needed to improve market responsiveness. • Ex: Ford, General Motors, and Chrystler

25. Creating Value Through Innovation • Strategy requires Innovation • Clayton Christensen – disruptive and sustaining innovation • Computer hardware industry • GE

26. Fostering Innovation • 3M’s unparalleled culture: • Top level comittment • Long term focus • Flexible organization • Loose and tight planning and control • Appropriate incentives

27. Performance and Profitability Performance • Booz Allen Hamilton • Boston Consulting Group Profitability • Unsatisfied with returns • “Mismanagement of the Innovation process” • Measurement Metrics