Tailoring Strategy to Fit Specific Industry and Company Situations

1. Tailoring Strategy to Fit Specific Industry and Company Situations

2. ChapterRoadmap Strategic Choices Based on Industry context: • 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 Strategic Choices based on the company’s position in the industry: • Strategies for Industry Leaders • Strategies for Runner-up Firms • Strategies for Weak and Crisis-Ridden Businesses Ten Commandments for Crafting Successful Business Strategies

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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

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

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

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

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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

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

30. 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

31. 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

32. 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

33. 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

34. 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!

35. 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

36. 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

37. 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

38. 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

39. 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

40. 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

41. Weak Businesses: Strategic Options • Launch an offensive turnaround strategy(if resources permit) • Employ a fortify-and-defend strategy(to the extent resources permit) • Pursue a fast-exit strategy • Adopt a harvest strategy (a slow-exit type of end-game strategy)

42. Achieving a Turnaround: The Strategic Options • Sell off assets to generate cash and/or reduce debt • Revise existing strategy • Launch efforts to boost revenues • Cut costs • Combination of efforts

43. What Is a Harvest Strategy? • Steers middle course between status quo and exiting quickly • Involves graduallysacrificing market positionin return for bigger near-term cash flow/profit • Objectives • Short-term - Generate largestfeasible cash flow • Long-term - Exit market

44. 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

45. When Should a HarvestStrategy Be Considered? • Industry’s 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 resourcesin higher opportunity areas • Business is not a major component ofdiversified firm’s portfolio of businesses

46. Liquidation Strategy • Wisest strategic option in certain situations • Lack of resources • Dim profit prospects • May serve stockholder interestsbetter than bankruptcy • Unpleasant strategic option • Hardship of job eliminations • Effects of closing on local community