Strategic Management Essay
8 Tailoring Strategy Chapter Title to Fit Specific Industry and Company Situations “In a turbulent age, the only dependable advantage is reinventing your business model before circumstances force you to. Gary Hamel and Liisa Valikangas 8-2 Chapter Roadmap
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 Strategies for Industry Leaders Strategies for Runner-up Firms Strategies for Weak and Crisis-Ridden Businesses Ten Commandments for Crafting Successful Business Strategies 8-3
Matching Strategy to a Company’s Situation Nature of industry Most important drivers shaping a firm’s strategic options fall into two categories Firm’s competitive capabilities, market position, best opportunities 8-4 and competitive conditions Features of an Emerging Industry
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 8-5
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 8-6
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 8-7 Strategic Hurdles for Companies in 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 8-8 What Is the Key to Success for Competing in Rapidly Growing Markets?
A company needs a strategy predicated on growing faster than the market average so it Can boost its market share and Improve its competitive standing vis-a-vis rivals 8-9 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 distribution channels and sales outlets Expand a company’s geographic coverage Expand product line to add models/styles to appeal to a wider range of buyers 8-10 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 new end uses harder to come by International competition increases Industry profitability falls Mergers and acquisitions reduce number of rivals 8-11
Strategy Options for Competing in 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 8-12 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 8-13
Stagnant or Declining Industries: The Standout Features Demand grows more slowly than economy as whole (or even declines) Advancing technology gives rise to betterperforming 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 8-14
Strategy Options for Competing in a Stagnant or Declining Industry Pursue focus strategy aimed at fastest growing market segments Stress differentiation based on quality improvement 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 8-15 End-Game Strategies for 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 8-16 Features of High-Velocity Markets Rapid-fire technological change Short product life-cycles Entry of important new rivals Frequent launches of new competitive moves Rapidly evolving customer expectations 8-17 Fig. 8. 1: Meeting the Challenge of High-Velocity Change 8-18 Strategy Options for Competing in 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 develop specialized expertise and capabilities Keep products/services fresh and exciting 8-19 Keys to Success in Competing in High Velocity Markets Cutting-edge expertise Speed in responding to new developments Collaboration with others Agility Innovativeness Opportunism Resource flexibility First-to-market capabilities 8-20 Competitive Features of a Fragmented Industry
Absence of market leaders with large market shares or widespread buyer recognition Product/service is delivered to neighborhood locations to be convenient to local residents Buyer demand is so diverse that many firms are 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 8-21 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 8-22 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 8-23 Fig. 8. 2: Three Strategy Horizons for Sustaining Rapid Growth 8-24
Risks of Pursuing Multiple Strategy Horizons Firm should not pursue all options to avoid stretching itself too thin Pursuit of medium- and long-jump initiatives may cause firm to stray too 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 8-25 Strategies Based on a Company’s Market Position Industry leaders Runner-up firms Weak or crisis-ridden firms 8-26 Industry Leaders: The Defining Characteristics Strong to powerful market position Well-known reputation Proven strategy
Key strategic concern – How to sustain dominant leadership position 8-27 Strategy Options: Industry Leaders Stay-on-the-offensive strategy Fortify-and-defend strategy Muscle-flexing strategy 8-28 Stay-on-the-Offensive Strategies Be a first-mover, leading industry change Best defense is a good offense Concentrate on achieving a competitive advantage and then widening the advantage over time Relentlessly pursue continuous improvement and innovation, being first to market with Technological improvements New or better products More attractive performance features Customer service improvements 8-29 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 consumers in 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 8-30 Fortify-and-Defend Strategy Objectives 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 8-31 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 8-32 Muscle-Flexing Strategy Objectives Play competitive hardball with smaller rivals that threaten leader’s position Signal smaller rivals that moves to cut into leader’s business will be hard fought Convince rivals they are better off playing “follow-the-leader” or else attacking each other rather the industry leader 8-33 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 8-34 Muscle-Flexing Strategy Risks Running afoul of antitrust laws Alienating customers with bullying tactics Arousing adverse public opinion 8-35 Types of Runner-up Firms Market challengers Use offensive strategies to gain market share Focusers Concentrate on serving a limited portion of market Perennial runners-up
Lack competitive strength to do more than continue in trailing position 8-36 Obstacles Runner-Up Firms Must Overcome When big size is a competitive asset, firms with 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 8-37 Strategic Options for 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 8-38
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 costs to 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 8-39 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! 8-40 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 8-41 Vacant Niche Strategy for 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 8-42 Specialist Strategy for Runner-Up Firms Strategy concentrated on being a leader based on Specific technology Product uniqueness Expertise in Special-purpose products Specialized know-how Delivering distinctive customer services 8-43 Superior Product Strategy for 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 to gain input for better quality product 8-44 Distinctive Image Strategy for Runner-Up Firms
Strategy concentrated on ways to stand 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 8-45 Content Follower Strategy for Runner-Up Firms Strategy involves avoiding Trend-setting moves and Aggressive moves to steal customers 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 8-46 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) 8-47 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 8-48 What Is a Harvest Strategy? Steers middle course between status quo and exiting quickly Involves gradually sacrificing market position in return for bigger near-term cash flow/profit Objectives Short-term – Generate largest feasible cash flow Long-term – Exit market 8-49 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 8-50 When Should a Harvest Strategy 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 resources in higher opportunity areas Business is not a major component of diversified firm’s portfolio of businesses 8-51 Liquidation Strategy Wisest strategic option in certain situations Lack of resources Dim profit prospects May serve stockholder interests better than bankruptcy Unpleasant strategic option Hardship of job eliminations Effects of closing on local community 8-52 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 catchup. 8-53 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. 8-54 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. 8-55