Session5.ppt

Tailoring Strategy to Fit Specific Industry and Company SituationsMcGraw-Hill/IrwinCopyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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

Matching Strategy toa Companys SituationMost important drivers shaping a firms strategic options fall into two categoriesFirms competitive capabilities, market position, best opportunitiesNature of industry and competitive conditions

Industry TransformationPorter & Rivkin, HBSP 7-10-2000

Industry TransformationSystem change occurs in two modes:EvolutionRevolutionPeriods of transformation give companies latitude to influence future industry structurePhases of transformation:The triggerExperimentationConvergence

Industry TransformationStructural analysis is an important tool in setting strategy.New emphasis on:SubstitutionShaping competitionAddressing uncertaintyDeveloping a posture

The Leaders DisadvantageCoughlin, HBSP, 2-11-2002

The Leaders (Dis)advantageSize AdvantagesScale economiesScope economiesNetwork effectsLearning effectsTiming AdvantagesPreemptionReputation effectsBuyer switching costsPatents or institutional barriers

Pioneering costsDemand uncertaintyTechnology uncertainty

Only the paranoid survive Andy GroveThe Leaders (Dis)advantage

Little historical data for projectionsCompeting and/or proprietary technologyDesired product attributes are unknownBuyers need a great deal of information to purchaseRelatively low entry barriersExperience curve effectsCharacteristics of an Emerging Industry

Strategy Options for Competing in Emerging IndustriesRapid and continuous innovationPursue mergers and acquisitionsTake a first-mover positionSeek new markets: customer; geographicReduce adoption costs for the buyerShift from building awareness to increasing frequency of purchase or usePerform value chain analysisReduce price

Strategic Hurdles for Companiesin Emerging IndustriesRaising capital to finance initial operations untilSales and revenues take offProfits appearCash flows turn positiveDeveloping a strategy to ride the wave of industry growthWhat market segments to pursueWhat competitive advantages to go afterManaging the rapid expansion of facilities and sales to position a company to contend for industry leadershipDefending against competitors trying to horn in on the companys success

Characteristics of Rapidly Growing MarketsIncrease in the number of competitorsIncrease in price sensitivityImportance of distribution networksCreation of buyer loyalty

Strategy Options for Competing in Rapidly Growing MarketsDrive down costs per unitPursue rapid product innovation Gain access to additional distribution channels and sales outletsExpand a companys geographic coverageExpand product line to add models/styles to appeal to a wider range of buyers

Slowing demand breeds stiffer competitionMore sophisticated buyers demand bargainsGreater emphasis on cost and serviceTopping out problem in adding production capacityProduct innovation and new end uses harder to come byInternational competition increasesIndustry profitability fallsMergers and acquisitions reduce number of rivalsCharacteristics of a Mature Industry

Strategy Options for Competingin a Mature IndustryPrune marginal products and modelsEmphasize innovation in the value chain Strong focus on cost reductionIncrease sales to present customersPurchase rivals at bargain pricesExpand internationallyBuild new, more flexible competitive capabilities

Strategic Pitfalls in a Maturing IndustryEmploying a ho-hum strategy with no distinctive features thus leaving firm stuck in the middleBeing 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-cuttingHaving too much excess capacityOverspending on marketingFailing to aggressively pursue cost reductions

Characteristics of Declining IndustriesDemand grows more slowly than economy as whole (or even declines)Advancing technology gives rise to better-performing substitute productsCustomer group shrinksChanging lifestyles and buyer tastesRising costs of complementary productsCompetitive battle ensues among industry members for the available business

Pursue focus strategy aimed at fastest growing market segmentsStress differentiation based on quality improvement or product innovationWork diligently to drive costs downCut marginal activities from value chain Use outsourcingRedesign internal processes to exploit e-commerceConsolidate under-utilized production facilitiesAdd more distribution channelsClose low-volume, high-cost distribution outletsPrune marginal productsStrategy Options for Competingin a Stagnant or Declining Industry

End-Game Strategiesfor Declining IndustriesAn end-game strategy can take either of two pathsSlow-exit strategy involvingGradual phasing down of operationsGetting the most cash flow from the businessFast-exit strategy involvingDisengaging from an industry during early stages of declineQuick recovery of as much of a companys investment as possible

Characteristics of High-Velocity MarketsRapid-fire technological changeShort product life-cyclesEntry of important new rivalsFrequent launches of new competitive movesRapidly evolving customer expectations

Invest aggressively in R&DInitiate fresh actions every few monthsDevelop quick response capabilities Shift resourcesAdapt competenciesCreate new competitive capabilitiesSpeed new products to marketUse strategic partnerships to develop specialized expertise and capabilitiesKeep products/services fresh and excitingStrategy Options for Competingin High-Velocity Markets

Cutting-edge expertiseSpeed in responding to new developmentsCollaboration with othersAgilityInnovativenessOpportunismResource flexibilityFirst-to-market capabilitiesKeys to Success in Competingin High Velocity Markets

Characteristics of a Fragmented IndustryAbsence of market leadersProduct/service is delivered to neighborhood locationsBuyer demand is diverseLow entry barriers Absence of scale economiesMarket for industrys product/service may be globalizingExploding technologiesIndustry is young and crowded with aspiring contenders

Examples of Fragmented IndustriesBook publishingLandscaping and plant nurseriesAuto repairRestaurant industryPublic accountingWomens dressesMeat packingPaperboard boxesHotels and motelsFurniture

Competing in a Fragmented Industry: The Strategy Options Construct and operate formula facilitiesBecome a low-cost operatorSpecialize by product typeSpecialize by customer typeFocus on limited geographic area

Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth

Strategies Based on a Companys Market PositionIndustry leaders Runner-up firmsWeak or crisis-ridden firms

Industry Leaders:The Defining CharacteristicsStrong to powerful market positionWell-known reputationProven strategyKey strategic concern How to sustain dominant leadership position

Strategy Options: Industry LeadersStay-on-the-offensive strategyFortify-and-defend strategyMuscle-flexing strategy

Types of Runner-up FirmsMarket challengersUse offensive strategies to gain market shareFocusersConcentrate on serving a limited portion of marketPerennial runners-upLack competitive strength to do more than continue in trailing position

Characteristics of Runner-UpFirmsWhen big size is a competitive asset, firms with small market share face obstacles in trying to strengthen their positionsLess access to economies of scaleDifficulty in gaining customer recognitionInability to afford mass media advertisingDifficulty in funding capital requirements

Strategic Optionsfor Runner-Up FirmsWhen big size provides larger rivals with a cost advantage, runner-up firms have two optionsBuild market shareLower costs and prices to grow sales or Out-differentiate rivals in ways to grow salesWithdraw from market

Strategic Approaches for Runner-Up Firms1. Vacant niche strategy2. Specialist strategy3. Superior product strategy4. Distinctive image strategy5. Content follower strategy

Weak Businesses: Strategic OptionsLaunch an offensive turnaround strategy (if resources permit)Employ a fortify-and-defend strategy (to the extent resources permit)Pursue a fast-exit strategyAdopt a harvest strategy (a slow-exit type of end-game strategy)

Achieving a Turnaround: The Strategic OptionsSell off assets to generate cash and/or reduce debt Revise existing strategyLaunch efforts to boost revenuesCut costsCombination of efforts

What Is a Harvest Strategy?Steers middle course between status quo and exiting quicklyInvolves gradually sacrificing market position in return for bigger near-term cash flow/profitObjectivesShort-term - Generate largest feasible cash flowLong-term - Exit market

10 Commandments for Crafting Successful Business Strategies1. Always put top priority on crafting and executing strategic moves that enhance a firms 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.

10 Commandments for Crafting Successful Business Strategies3. 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. Dont 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.

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.

Competition in the Video Game Console Industry

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