Chapter 5 Business Strategies in Different Industry and S ectoral Contexts

Chapter 5 Business Strategies in Different Industry and Sectoral Contexts

Alex Bregger Mark EnglehardtChase BarlowDaniel Crawford

Overview The Evolution of Personal Computers The Industry Life Cycle Strategy at different Stages of the Life

Cycle Strategy in Public Sector and not for

profit contexts Scenario Planning

The Purpose of this chapter is to help us to understand how managers adapt their strategies to fit their environments, how they go about predicting change and adapting their strategies to cope with change.

The Evolution of Personal Computers The origins of the PC can be traced back

to the 1970s Early machines were built from kits Pre assembled machines came to the

market around 1975 by companies such as Tandy, Commodore and Apple.

The potential of this new market was soon recognized and new firms started to pile in.

The Evolution of Personal Computers By 1981 the market was estimated at

$3000 million and there were 150 companies producing micro computers.

The first movers captured and early lead with apple 20%, Tandy 15%, and Commodore 7%.

The interesting this is that the leaders adopted very different strategies.

The Evolution of Personal Computers The Industry hit a 2nd Phase in the early

1980s with the launch of IBMs PC IBM purchased key elements of the

product from third-party suppliers and adopted an open strategy

The PC was a hit and a bandwagon effect was created.

The Evolution of Personal Computers The IBM PC became the “de facto standard”

computer. But this open strategy allowed for this popular

product to be copied by the competition. Once the clone products were out in the

market, consumers began to move away from IBM.

Companies like Microsoft and Intel who owned intellectual property of there products began to see better returns.

The Evolution of Personal Computers While IBM adopted and open strategy ,

Apple did the opposite. Steve jobs did this by producing as

much as possible “in house” Manufactured end to end computer

systems, including add on equipment suck as disk drives, keyboards, and monitors.

Long-term Benefits Costly short-term

The Evolution of Personal Computers Lost lead position by making

differentiated, highly expensive products Held on to a core of loyal customers, and

developed niche markets High profit margins allowed apple to

devote more money to research and development.

Research led to the development of iPod, iPhone, and iPad.

The Status of the PC today Growth in “cloud computing” has led to

new competitors in the PC market. Amazon offers rented storage space,

streaming movies, and TV shows. IBM sold its computing business to

Chinese Lenovo Dell, Hewlett-Packard, and Acer are

diversifying into new business areas

Strategy at different stages of the life cycle

The Industry Life Cycle Introduction: Sales are small, high costs,

low quality, customers are risk tolerant. Growth: accelerating market penetration Maturity: caused by increasing market

saturation, demand is wholly for replacement Decline: industry becomes challenged by

new industries that produce superior substitute products.

Introduction Rapid increase in the number of firms “de novo” entrants “de alio” entrants High gross profits require heavy

investments in innovation

Growth Dominant design usually emerges Market rapidly expands Significant financial resources are

essential

Maturity Growing importance of a strong

competitive advantage Cost efficiency Number of firms begins to fall

“Shakeout” phases

Decline Can be the result of several factors Causes key strategic issues such as…

Excess capacity Lack of technical change and innovation High average age of human and physical

resources Aggressive price competition

Public and Non-Profit Sectors Public Sector

Commonly defined in relation to Ownership Funding (all/part of it is from gov’t) Interests they serve (national/public)

Provide public goods Flood prevention systems Street lights National defense

Non-Profit Organizations Most commonly found in areas of:

Education Health Care Social services

Profits are used to fund the goals of the organization

Key Differences: Public vs. Private Organizations

1) Multiple, potentially conflicting goals

Public: competition for resources & fulfilling public needs

Private: shareholders profit

2) Distinctive constraints & Different levers

Public: must account for public opinion

Private: minimize cost, maximize profit

3) Absence of Market Forces:

Public: not affected by the harsh market conditions of the private sector

4) Monopoly Power Public: state in

control unresponsive to customer needs

Private: Regulations protect consumers from monopoly power

Key Differences: Public vs. Private Organizations 5) Less Autonomy & Flexibility:

Public: little freedom to change the rules or exercise personal discretion as compared to the private sector

6) Increased Accountability Public: subject to higher

scrutiny; highly vested in public trust

Private: Accountable mainly to shareholders

7) Less Predictability Private: subject to

a highly fluctuating market with minimal predictable behavior

Stakeholder’s Analysis “The process of identifying,

understanding, & prioritizing the needs of key stakeholders so that they can

participate in strategy formation and the strategic direction of the company”

Stakeholder Analysis1) Identification of the list

of potential stakeholders – usually involves a brainstorming session between informed parties

2) Ranking Stakeholders according to importance and influence

3) Identifying the criteria that each stakeholder is likely to use to judge the organization’s performance

4) Deciding how well the organization is doing from its stakeholders perspective

5) Identifying what can be done to satisfy each stakeholder

6) Identifying and recording longer term issues with individual stakeholders and stakeholders as a group

Scenario Planning • An organization’s ability to adapt to changes is

dependent on its capacity to anticipate changes in the environment

• Hard to predict the future • Using Scenario Analysis, a systematic way of thinking

about the future • Not necessarily a forecasting technique • Scenarios are stories that describe how the world

might look in the future

Constructing Scenarios • Herman Kahn, “hypothetical sequences of events for the

purpose of focusing attention on causal process and decision points”

• Construct several distinct, internally consistent narratives• 5 to 25 years into the future (Shorter if fast-moving

sector)• Use to review and test strategic options• Quantitative or qualitative (combination of both)

Steps in building and using scenarios

1. Defining purpose of analysis2. Deciding on time horizon 3. Identifying key trends 4. Identifying key uncertainties 5. Creating the scenarios and checking that they

are internally consistent 6. Identifying indicator that might signal which

scenario in unfolding 7. Assessing the strategic implication of each

scenario

Scenario Analysis Value of scenario analysis is not just in the results, but

also the process. Tool to bring together different ideas and insights Identifying potential opportunities and threats Generate and evaluate alternative strategies Encourage innovation and flexible thinking from

managers “Evaluating the likely performance of different

strategies under different scenarios can help identify which strategies are most robust and flexible and can ultimately assist in contingency planning”

The World Wide Fund for Nature (WWF)

Grown from small group of conservationist, to a global network

Now employs around 5000 across the world Particular success with ‘charismatic’ species in campaigns Later, their campaigns were seen as opportunistic and

crisis-driven 1986, changed name to emphasize that its remit was

broader than conservation a particular species and their habitats

Expanded mission to reduction of wasteful consumption and pollution

Worldwide Fund for Nature 1990s, problems began to emerge that

eventually resulted in the organization reconsidering its structure and governance arrangements

Originally, WWF was structured as network of independent national organizations with central secretariat in Switzerland

WWF International did not have authority to enforce strategy, instead relied on the cooperation of the national bodies

Procedures became more slow and increasingly more bureaucratic as the organization grew in size

In response, restructured WWF to achieve more unified approach