Chapter 8

88

Chapter TitleChapter Title

16/e PPT16/e PPT

Tailoring Strategy to Fit

Specific Industry and

Company Situations

Screen graphics created by:Jana F. Kuzmicki, Ph.D.

Troy University-Florida Region

McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

8-2

Matching Strategy toa Company’s Situation

Most important

drivers shaping a

firm’s strategic

options fall into

two categoriesFirm’s competitive

capabilities, market position,

best opportunities

Nature of industry

and competitive

conditions

8-3

New and unproven market Proprietary technology Lack of consensus regarding which of

several competing technologies will win out Low entry barriers Experience curve effects may permit

cost 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

Features of an Emerging Industry

8-4

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

8-5

Strategy Options for Competing in Emerging Industries (continued)

Pursue new customers and user applications

Enter new 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

8-6

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

8-7

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

8-8

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 new

end uses harder to come by International competition increases Industry profitability falls Mergers and acquisitions reduce number of rivals

Industry Maturity: The Standout Features

8-9

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

8-10

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

8-11

Cutting-edge expertise

Speed in responding to new developments

Collaboration with others

Agility

Innovativeness

Opportunism

Resource flexibility

First-to-market capabilities

Keys to Success in Competingin High Velocity Markets

8-12

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

8-13

Industry Leaders:The Defining Characteristics

Strong to powerful market position

Well-known reputation

Proven strategy

Key strategic concern – How to sustaindominant leadership position

8-14

Strategy Options: Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy

8-15

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

8-16

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

8-17

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

Muscle-Flexing Strategy

Objectives

8-18

Running afoul of antitrust laws

Alienating customers with bullying tactics

Arousing adverse public opinion

Muscle-Flexing Strategy

Risks

8-19

What Is a Harvest Strategy?

Steers middle course between status quo and exiting quickly

Involves gradually sacrificing market positionin return for bigger near-term cash flow/profit

Objectives

Short-term - Generate largestfeasible cash flow

Long-term - Exit market

8-20

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

8-21

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

When Should a HarvestStrategy Be Considered?

8-22

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

Liquidation Strategy

8-23

10 Commandments for Crafting Successful Business Strategies

1. Always put top priority on crafting and executing strategic moves that enhance a firm’s competitive position for the long-term and that serve to establish it as an industry leader.

2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.

8-24

10 Commandments for Crafting Successful Business Strategies

3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability.

4. Avoid strategies capable of succeeding only in the best of circumstances.

5. Don’t underestimate the reactions and the commitment of rival firms.

6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.

7. Be judicious in cutting prices without an established cost advantage.

8-25

10 Commandments for Crafting Successful Business Strategies

8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes.

9. Endeavor not to get “stuck back in the pack” with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.

10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing “arms race” and/or price wars.