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Tailoring Strategy
Chapter Title
to Fit Specific
Industry and
Company Situations

Screen graphics created by:


16/e PPT Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region

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


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“In a turbulent age, the only


dependable advantage is
reinventing your business
model before circumstances
force you to.
Gary Hamel and Liisa Valikangas
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Chapter Roadmap
u Strategies for Competing in Emerging Industries
u Strategies for Competing in Rapidly Growing Markets
u Strategies for Competing in Maturing Industries
u Strategies for Competing in Stagnant or Declining Industries
u Strategies for Competing in Turbulent, High-Velocity
Markets
u Strategies for Competing in Fragmented Industries
u Strategies for Sustaining Rapid Company Growth
u Strategies for Industry Leaders
u Strategies for Runner-up Firms
u Strategies for Weak and Crisis-Ridden Businesses
u Ten Commandments for Crafting Successful Business
Strategies
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Matching Strategy to
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a Company’s Situation

Nature of industry
and competitive
Most important
conditions
drivers shaping a
firm’s strategic
options fall into Firm’s competitive
two categories capabilities,
market position,
best opportunities
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Features of an Emerging Industry


u New and unproven market
u Proprietary technology
u Lack of consensus regarding which of
several competing technologies will win out
u Low entry barriers
u Experience curve effects may permit
cost reductions as volume builds
u Buyers are first-time users and marketing involves inducing
initial purchase and overcoming customer concerns
u First-generation products are expected to be rapidly
improved so buyers delay purchase until technology
matures
u Possible difficulties in securing raw materials
u Firms struggle to fund R&D, operations and build resource
capabilities for rapid growth
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Strategy Options for Competing


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in Emerging Industries
u Win early race for industry leadership by employing a bold,
creative strategy
u Push hard to perfect technology, improve product quality,
and develop attractive performance features
u Consider merging with or acquiring another firm to
è Gain added expertise
è Pool resource strengths
u When technological uncertainty clears and a dominant
technology emerges, try to capture any first-mover
advantages by moving quickly
u Form strategic alliances with
è Companies having related technological expertise or
è Key suppliers
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Strategy Options for Competing


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in Emerging Industries (continued)


u Pursue new customers and user applications
u Enter new geographical areas
u Makeit easy and cheap for first-time buyers to try
product
u Focus advertising emphasis on
è Increasing frequency of use
è Creating brand loyalty

u Use price cuts to attract price-sensitive buyers

8-7
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Strategic Hurdles for Companies


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in Emerging Industries
u Raising capital to finance initial operations until
è Sales and revenues take off
è Profits appear
è Cash flows turn positive
u Developing a strategy to ride the wave of industry
growth
è What market segments to pursue
è What competitive advantages to go after
u Managing the rapid expansion of facilities and sales to
position a company to contend for industry leadership
u Defending against competitors trying to horn in on the
company’s success
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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
u Can boost its market share and
u Improve its competitive standing vis-à-vis rivals

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Strategy Options for Competing


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in Rapidly Growing Markets


u Drivedown costs per unit to enable price
reductions that attract droves of new customers
u Pursue rapid product innovation to
è Set a company’ s product offering apart from rivals
è Incorporate attributes to appeal to growing numbers of
customers
u Gain access to additional distribution
channels and sales outlets
u Expand a company’ s geographic coverage
u Expand product line to add models/styles to appeal
to a wider range of buyers
8-10
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Test Your Knowledge


Which one of the following is not likely to be a suitable strategy
option for companies competing in rapid-growth industries?
A. Driving down costs per unit so as to enable price reductions that
attract droves of new customers
B. Pursuing rapid product innovation, both to set a company’ s product
offering apart from rivals and to incorporate attributes that appeal to
growing numbers of customers
C. Gaining access to additional distributional channels and sales
outlets
D. Expanding the product line to add models/styles that appeal to a
wider range of buyers
E. Putting top priority on heavy advertising and other marketing-related
actions calculated to strongly differentiate its product offering from
rivals
8-11
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Industry Maturity: The Standout Features

u Slowing demand breeds stiffer competition


u More sophisticated buyers demand bargains
u Greater emphasis on cost and service
u“ Topping out”problem in adding
production capacity
u Product innovation and new
end uses harder to come by
u International competition increases
u Industry profitability falls
u Mergers and acquisitions reduce number of rivals
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Strategy Options for Competing


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in a Mature Industry
u Prune marginal products and models

u Emphasize innovation in the value chain

u Strong focus on cost reduction

u Increase sales to present customers

u Purchase rivals at bargain prices

u Expand internationally

u Build new, more flexible competitive capabilities


8-13
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Strategic Pitfalls in a Maturing Industry

u Employing a ho-hum strategy with no distinctive


features thus leaving firm “stuck in the middle”
u Being
slow to mount a defense against stiffening
competitive pressures
u Concentrating on short-term profits rather than
strengthening long-term competitiveness
u Being slow to respond to price-cutting
u Having too much excess capacity
u Overspending on marketing
u Failing to aggressively pursue cost reductions
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Stagnant or Declining Industries:


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The Standout Features


u Demand grows more slowly than economy as
whole (or even declines)
u Advancing technology gives rise to better-
performing substitute products
u Customer group shrinks
u Changing lifestyles and buyer tastes
u Rising costs of complementary products
u Competitivebattle ensues among industry
members for the available business
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Strategy Options for Competing


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in a Stagnant or Declining Industry


u Pursue focus strategy aimed at
fastest growing market segments
u Stress differentiation based on quality
improvement or product innovation
u Work diligently to drive costs down
è Cut marginal activities from value chain
è Use outsourcing
è Redesign internal processes to exploit e-commerce
è Consolidate under-utilized production facilities
è Add more distribution channels
è Close low-volume, high-cost distribution outlets
è Prune marginal products
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End-Game Strategies
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for Declining Industries


u An end-game strategy can take either of two paths

è Slow-exit strategy involving

n Gradual phasing down of operations

n Getting the most cash flow from the business

è Fast-exit strategy involving

n Disengaging from an industry during early stages of


decline

n Quick recovery of as much of a company’


s investment as
possible
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Features of High-Velocity Markets

u Rapid-fire technological change

u Short product life-cycles

u Entry of important new rivals

u Frequentlaunches of
new competitive moves

u Rapidlyevolving
customer expectations
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Fig. 8.1: Meeting the Challenge of High-Velocity Change
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8-19
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Strategy Options for Competing


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in High-Velocity Markets
u Invest aggressively in R&D
u Initiate fresh actions every few months
u Develop quick response capabilities
è Shift resources
è Adapt competencies
è Create new competitive capabilities
è Speed new products to market
u Use strategic partnerships to develop
specialized expertise and capabilities
u Keep products/services fresh and exciting
8-20
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Keys to Success in Competing


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in High Velocity Markets


u Cutting-edge expertise
u Speed in responding to new developments
u Collaboration with others
u Agility

u Innovativeness

u Opportunism

u Resource flexibility
u First-to-market capabilities
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Competitive Features
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of a Fragmented Industry
u Absence of market leaders with large market shares or widespread
buyer recognition
u Product/service is delivered to neighborhood
locations to be convenient to local residents
u Buyer demand is so diverse that many firms
are required to satisfy buyer needs
u Low entry barriers
u Absence of scale economies
u Market for industry’s product/service may be globalizing, thus
putting many companies across the world in same market arena
u Exploding technologies force firms to specialize just to keep up in
their area of expertise
u Industry is young and crowded with aspiring contenders, with no
firm having yet developed recognition to command a large market
share
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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
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Competing in a Fragmented Industry:


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The Strategy Options

u Construct and operate “formula”facilities

u Become a low-cost operator

u Specialize by product type

u Specialize by customer type

u Focus on limited geographic area


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Test Your Knowledge

Which of the following is unlikely to be a promising option for


competing in a fragmented industry?

A. Employing deep price discounting, extensive advertising, and


other muscle-flexing maneuvers to gain market dominance in
a select few country markets

B. Specializing by product type or becoming a low-cost operator

C. Specializing by customer type

D. Focusing on a limited geographic area

E. Constructing and operating "formula" facilities at many


different locations

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For Discussion: Your Opinion

What classification would you assign to each of the


following industries— emerging, rapid-growth,
mature/slow-growth, stagnant/declining, high-
velocity/turbulent, or fragmented?
A. Dry cleaning industry
B. Cigarette industry
C. Cell phone industry
D. MP3 player industry
E. Satellite radio industry

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For Discussion: Your Opinion

Assume you are charged with crafting a strategy for


XM Satellite Radio. What strategy alternatives would
you be inclined to give strong consideration? What
strategy alternatives would you be inclined to reject
as unsuitable? Justify your answer.

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Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth
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Risks of Pursuing
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Multiple Strategy Horizons


u Firm should not pursue all options
to avoid stretching itself too thin

u Pursuit of medium- and long-jump


initiatives may cause firm to stray
too far from its core competencies

u Competitive advantage may be difficult to achieve


in medium- and long-jump businesses that do not
mesh well with firm’
s present resource strengths

u Payoffs of long-jump initiatives may prove elusive


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Strategies Based on a
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Company’s Market Position

u Industry leaders

u Runner-up firms

u Weak or crisis-ridden firms


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Industry Leaders:
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The Defining Characteristics

u Strong to powerful market position

u Well-known reputation

u Proven strategy

u Key
strategic concern –How to sustain
dominant leadership position
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Strategy Options: Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy

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Stay-on-the-Offensive Strategies

u Be a first-mover, leading industry change


u Best defense is a good offense
u Concentrate on achieving a competitive advantage
and then widening the advantage over time
u Relentlessly pursue continuous improvement
and innovation, being first to market with
è Technological improvements
è New or better products
è More attractive performance features
è Customer service improvements
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Stay-on-the-Offensive Strategies (continued)

u Aggressively seek out ways to


è Cut operating costs
è Establish competitive capabilities rivals cannot match
è Make it easier for potential customers to switch their purchases from
other firms to the leader’
s own products
u Aggressively attack profit sanctuaries of important rivals
u Launch fresh initiatives to expand overall industry
demand
è Spur creation of new families of products
è Make product more suitable for consumers
in emerging-country markets
è Discover new uses for product
è Attract new users of product
è Promote more frequent use
u Grow faster than industry, taking market share from rivals
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Fortify-and-Defend Strategy

Objectives

u Make it harder for new firms to enter and for


challengers to gain ground

u Hold onto present market share

u Strengthen current market position

u Protect competitive advantage

8-35
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F-XC A N GE F-XC A N GE
PD PD

!
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Fortify-and-Defend Strategy:
.d o .d o
c u-tr a c k c u-tr a c k

Strategic Options
u Increase advertising and R&D
u Provide higher levels of customer service
u Introduce more brands to match attributes of rivals
u Add personalized services to boost buyer loyalty
u Keep prices reasonable and quality attractive
u Build new capacity ahead of market demand
u Invest enough to remain cost competitive
u Patent feasible alternative technologies
u Sign exclusive contracts with best suppliers and
distributors
8-36
H H
F-XC A N GE F-XC A N GE
PD PD

!
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.d o .c .d o .c
c u-tr a c k c u-tr a c k

Muscle-Flexing Strategy

Objectives

u Play competitive hardball with smaller


rivals that threaten leader’
s position

u Signal smaller rivals that moves to cut


into leader’
s business will be hard fought

u Convince rivals they are better off playing


“follow-the-leader”or else attacking each
other rather the industry leader
8-37
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Muscle-Flexing Strategy:
.d o .d o
c u-tr a c k c u-tr a c k

Strategic Options
u Be quick to meet price cuts of rivals
u Counter with large-scale promotional campaigns if
rivals boost advertising
u Offer better deals to rivals’major customers
u Dissuade distributors from carrying rivals’products
u Provide
salespersons with documentation about
weaknesses of competing products
u Make attractive offers to key executives of rivals
u Use arm-twisting tactics to pressure present
customers not to use rivals’products
8-38
H H
F-XC A N GE F-XC A N GE
PD PD

!
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.d o .c .d o .c
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Muscle-Flexing Strategy

Risks

u Running afoul of antitrust laws

u Alienating customers with bullying tactics

u Arousing adverse public opinion

8-39
H H
F-XC A N GE F-XC A N GE
PD PD

!
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.d o .c .d o .c
c u-tr a c k c u-tr a c k

Types of Runner-up Firms

u Market challengers
è Use offensive strategies to gain market share

u Focusers I’m
trying!
è Concentrate on serving a
limited portion of market

u Perennial runners-up
è Lack competitive strength to do
more than continue in trailing position
8-40
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Obstacles Runner-Up
.d o .d o
c u-tr a c k c u-tr a c k

Firms Must Overcome

u When big size is a competitive asset, firms


with small market share face obstacles
in trying to strengthen their positions

è Less access to economies of scale

è Difficulty in gaining customer recognition

è Inability to afford mass media advertising

è Difficulty in funding capital requirements


8-41
H H
F-XC A N GE F-XC A N GE
PD PD

!
W

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Strategic Options
.d o .d o
c u-tr a c k c u-tr a c k

for Runner-Up Firms

u Whenbig size provides larger rivals with a cost


advantage, runner-up firms have two options

è Build market share

n Lower costs and prices to grow sales or

n Out-differentiate rivals in ways to grow sales

è Withdraw from market

8-42
H H
F-XC A N GE F-XC A N GE
PD PD

!
W

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O

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N
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c u-tr a c k c u-tr a c k

Offensive Strategies for Runner-Up Firms:


Building Market Share
u Acquire smaller rivals to expand company’
s market reach
and presence
u Find innovative ways to drive down costs
to win customers from higher-priced rivals
u Craft an attractive differentiation strategy
u Pioneer a leapfrog technological breakthrough
u Be first-to-market with new or better products and build
reputation for product leadership
u Outmaneuver slow-to-change market leaders in adapting
to evolving market conditions and customer needs
u Forge strategic alliances with key distributors, dealers, or
marketers of complementary products
8-43
H H
F-XC A N GE F-XC A N GE
PD PD

!
W

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N
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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!

8-44
H H
F-XC A N GE F-XC A N GE
PD PD

!
W

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O

O
N

N
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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

8-45
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Vacant Niche Strategy


.d o .d o
c u-tr a c k c u-tr a c k

for Runner-Up Firms


u Focus strategy concentrated on end-use
applications market leaders have neglected

u Characteristics of an ideal vacant niche

è Sufficient size to be profitable

è Growth potential

è Well-suited to a firm’
s capabilities

è Hard for leaders to serve

8-46
H H
F-XC A N GE F-XC A N GE
PD PD

!
W

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Specialist Strategy for Runner-Up Firms

u Strategy concentrated on
being a leader based on

è Specific technology

è Product uniqueness

è Expertise in

n Special-purpose products

n Specialized know-how

n Delivering distinctive customer services

8-47
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Superior Product Strategy


.d o .d o
c u-tr a c k c u-tr a c k

for Runner-Up Firms


u Differentiation-based focused strategy based on
è Superior product quality or
è Unique product attributes

u Approaches

è Fine craftsmanship
è Prestige quality
è Frequent product innovations
è Close contact with customers to
gain input for better quality product
8-48
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Distinctive Image Strategy


.d o .d o
c u-tr a c k c u-tr a c k

for Runner-Up Firms


u Strategy concentrated on ways to
stand out from rivals
u Approaches
è Reputation for charging lowest price
è Prestige quality at a good price
è Superior customer service
è Unique product attributes
è New product introductions
è Unusually creative advertising
8-49
H H
F-XC A N GE F-XC A N GE
PD PD

!
W

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Content Follower Strategy


.d o .d o
c u-tr a c k c u-tr a c k

for Runner-Up Firms


u Strategy involves avoiding
è Trend-setting moves and
è Aggressive moves to steal
customers from leaders
u Approaches
è Do not provoke competitive retaliation
è React and respond
è Defense rather than offense
è Keep same price as leaders
è Attempt to maintain market position
8-50
H H
F-XC A N GE F-XC A N GE
PD PD

!
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c u-tr a c k c u-tr a c k

Weak Businesses: Strategic Options

u Launch an offensive turnaround strategy


(if resources permit)

u Employ a fortify-and-defend strategy


(to the extent resources permit)

u Pursue a fast-exit strategy

u Adopt a harvest strategy


(a slow-exit type of end-game strategy)

8-51
H H
F-XC A N GE F-XC A N GE
PD PD

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Achieving a Turnaround:
.d o .d o
c u-tr a c k c u-tr a c k

The Strategic Options

u Sell off assets to generate cash and/or reduce debt

u Revise existing strategy

u Launch efforts to boost revenues

u Cut costs

u Combination of efforts
8-52
H H
F-XC A N GE F-XC A N GE
PD PD

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What Is a Harvest Strategy?

u Steers middle course between status quo and


exiting quickly

u Involves gradually sacrificing market position


in return for bigger near-term cash flow/profit

u Objectives

è Short-term - Generate largest


feasible cash flow

è Long-term - Exit market


8-53
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Types of Harvest Options

u Reduce operating expenses to rock-bottom

u Hold reinvestment to minimum

u Place little priority on new capital investments

u Emphasize stringent internal cost controls

u Trim advertising and promotion expenses

u Do not replace employees who leave

u Shave equipment maintenance


8-54
H H
F-XC A N GE F-XC A N GE
PD PD

!
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When Should a Harvest


.d o .d o
c u-tr a c k c u-tr a c k

Strategy Be Considered?
u Industry’
s long-term prospects are unattractive
u Building up business would be too costly
u Market share is increasingly costly to maintain
u Reduced levels of competitive effort will not trigger
immediate fall-off in sales
u Firm can re-deploy freed-up resources
in higher opportunity areas
u Business is not a major component of
diversified firm’s portfolio of businesses
8-55
H H
F-XC A N GE F-XC A N GE
PD PD

!
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Liquidation Strategy

u Wisest strategic option in certain situations


è Lack of resources
è Dim profit prospects
è May serve stockholder interests
better than bankruptcy

u Unpleasant strategic option


è Hardship of job eliminations
è Effects of closing on local community

8-56
H H
F-XC A N GE F-XC A N GE
PD PD

!
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10 Commandments for Crafting


.d o .d o
c u-tr a c k c u-tr a c k

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.
8-57
H H
F-XC A N GE F-XC A N GE
PD PD

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10 Commandments for Crafting


.d o .d o
c u-tr a c k c u-tr a c k

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.
8-58
H H
F-XC A N GE F-XC A N GE
PD PD

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10 Commandments for Crafting


.d o .d o
c u-tr a c k c u-tr a c k

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.
8-59
H H
F-XC A N GE F-XC A N GE
PD PD

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c u-tr a c k c u-tr a c k

Test Your Knowledge

Which of the following does not qualify as a "commandment"


for crafting successful business strategies?
A. Place top priority on crafting and executing strategic moves that will
enhance a company's competitive position for the long-term.
B. Avoid stuck-in-the-middle strategies that represent compromises
between lower costs and greater differentiation and between broad
and narrow market appeal.
C. Strive to open up very meaningful gaps in quality or service or
performance features when pursuing a differentiation strategy.
D. Be judicious in cutting prices without an established cost
advantage.
E. Sell or close a crisis-ridden business immediately— turnaround
strategies are doomed to fail.

8-60