8

Tailoring Strategy Chapter Title to Fit Specific Industry and Company Situations
Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
© 2007 The McGraw-Hill Companies, Inc. All rights reserved.

15/e PPT
McGraw-Hill/Irwin

“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

best opportunities 8-4 . market position.Matching Strategy to a Company’s Situation Nature of industry Most important and competitive conditions drivers shaping a firm’s strategic options fall into two categories Firm’s competitive capabilities.

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. 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 . improve product quality.

Strategy Options for Competing in Emerging Industries (continued)  Pursue new customers and user applications  Enter  Make new geographical areas it easy and cheap for first-time buyers to try product advertising emphasis on  Focus   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 its competitive standing vis-à-vis rivals  Improve 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 .

both to set a company’s product offering apart from rivals and to incorporate attributes that appeal to growing numbers of customers C. Pursuing rapid product innovation. Gaining access to additional distributional channels and sales outlets D. Driving down costs per unit so as to enable price reductions that attract droves of new customers B.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. Putting top priority on heavy advertising and other marketing-related actions calculated to strongly differentiate its product offering from rivals 8-11 . Expanding the product line to add models/styles that appeal to a wider range of buyers E.

Industry Maturity: The Standout Features  Slowing demand breeds stiffer competition emphasis on cost and service  More sophisticated buyers demand bargains  Greater  ―Topping  Product out‖ problem in adding production capacity innovation and new end uses harder to come by  International  Industry  Mergers competition increases profitability falls and acquisitions reduce number of rivals 8-12 .

more flexible competitive capabilities 8-13 .Strategy Options for Competing in a Mature Industry  Prune marginal products and models  Emphasize  Strong innovation in the value chain focus on cost reduction  Increase sales to present customers rivals at bargain prices  Purchase  Expand  Build internationally new.

Strategic Pitfalls in a Maturing Industry  Employing  Being a ho-hum strategy with no distinctive features thus leaving firm “stuck in the middle” slow to mount a defense against stiffening competitive pressures  Concentrating  Being on short-term profits rather than strengthening long-term competitiveness slow to respond to price-cutting  Having too much excess capacity on marketing 8-14  Overspending  Failing to aggressively pursue cost reductions .

Stagnant or Declining Industries: The Standout Features  Demand grows more slowly than economy as whole (or even declines) technology gives rise to betterperforming substitute products  Advancing  Customer  Changing  Rising group shrinks lifestyles and buyer tastes costs of complementary products  Competitive battle ensues among industry members for the available business 8-15 .

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 8-16 .

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
8-17

Features of High-Velocity Markets
 Rapid-fire

technological change

 Short
 Entry

product life-cycles
of important new rivals

 Frequent

launches of new competitive moves evolving customer expectations
8-18

 Rapidly

Fig. 8.1: Meeting the Challenge of High-Velocity Change

8-19

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

Keys to Success in Competing in High Velocity Markets  Cutting-edge expertise  Speed in responding to new developments with others  Collaboration  Agility  Innovativeness  Opportunism  Resource flexibility capabilities 8-21  First-to-market .

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 8-22 .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.

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 8-23 .

Competing in a Fragmented Industry: The Strategy Options  Construct and operate “formula” facilities  Become a low-cost operator  Specialize by product type by customer type  Specialize  Focus on limited geographic area 8-24 .

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. Constructing and operating "formula" facilities at many different locations 8-25 . Focusing on a limited geographic area E. Specializing by customer type D. and other muscle-flexing maneuvers to gain market dominance in a select few country markets B. extensive advertising. Specializing by product type or becoming a low-cost operator C.

or fragmented? A. mature/slow-growth. Cigarette industry C.For Discussion: Your Opinion What classification would you assign to each of the following industries—emerging. stagnant/declining. highvelocity/turbulent. rapid-growth. Cell phone industry D. Satellite radio industry 8-26 . MP3 player industry E. Dry cleaning industry B.

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. 8-27 .For Discussion: Your Opinion Assume you are charged with crafting a strategy for XM Satellite Radio.

8.Fig.2: Three Strategy Horizons for Sustaining Rapid Growth 8-28 .

and long-jump businesses that do not mesh well with firm’s present resource strengths of long-jump initiatives may prove elusive 8-29  Pursuit  Competitive  Payoffs .and long-jump initiatives may cause firm to stray too far from its core competencies advantage may be difficult to achieve in medium.Risks of Pursuing Multiple Strategy Horizons  Firm should not pursue all options to avoid stretching itself too thin of medium.

Strategies Based on a Company’s Market Position  Industry leaders  Runner-up firms  Weak or crisis-ridden firms 8-30 .

Industry Leaders: The Defining Characteristics  Strong to powerful market position  Well-known reputation  Proven strategy  Key strategic concern – How to sustain dominant leadership position 8-31 .

Strategy Options: Industry Leaders Stay-on-the-offensive strategy Fortify-and-defend strategy Muscle-flexing strategy 8-32 .

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 8-33 .Stay-on-the-Offensive Strategies  Be a first-mover.

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 8-34  Grow faster than industry. taking market share from rivals .

Fortify-and-Defend Strategy Objectives  Make it harder for new firms to enter and for challengers to gain ground onto present market share current market position  Hold  Strengthen  Protect competitive advantage 8-35 .

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

Muscle-Flexing Strategy Objectives  Play competitive hardball with smaller rivals that threaten leader’s position smaller rivals that moves to cut into leader’s business will be hard fought rivals they are better off playing ―follow-the-leader‖ or else attacking each other rather the industry leader 8-37  Signal  Convince .

Muscle-Flexing Strategy: Strategic Options  Be quick to meet price cuts of rivals  Counter  Offer with large-scale promotional campaigns if rivals boost advertising better deals to rivals’ major customers  Dissuade  Provide distributors from carrying rivals’ products salespersons with documentation about weaknesses of competing products  Make  Use attractive offers to key executives of rivals arm-twisting tactics to pressure present customers not to use rivals’ products 8-38 .

Muscle-Flexing Strategy Risks  Running afoul of antitrust laws  Alienating customers with bullying tactics  Arousing adverse public opinion 8-39 .

Types of Runner-up Firms  Market  challengers Use offensive strategies to gain market share  Focusers  Concentrate on serving a limited portion of market I’m trying!  Perennial  runners-up Lack competitive strength to do more than continue in trailing position 8-40 .

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 8-41 .Obstacles Runner-Up Firms Must Overcome  When big size is a competitive asset.

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 8-42 .

or marketers of complementary products 8-43 .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.

regardless of the resources and staying power an underdog may have! 8-44 .Rule of Offensive Strategy Runner-up firms should avoid attacking a leader head-on with an imitative strategy.

Specialist strategy 3. Distinctive image strategy 5.Strategic Approaches for Runner-Up Firms 1. Superior product strategy 4. Content follower strategy 8-45 . Vacant niche strategy 2.

Vacant Niche Strategy for Runner-Up Firms  Focus strategy concentrated on end-use applications market leaders have neglected of an ideal vacant niche  Characteristics     Sufficient size to be profitable Growth potential Well-suited to a firm’s capabilities Hard for leaders to serve 8-46 .

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 8-47 .

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 8-48 .

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 8-49 .

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 8-50 .

Weak Businesses: Strategic Options  Launch an offensive turnaround strategy (if resources permit) a fortify-and-defend strategy (to the extent resources permit) a fast-exit strategy  Employ  Pursue  Adopt a harvest strategy (a slow-exit type of end-game strategy) 8-51 .

Achieving a Turnaround: The Strategic Options  Sell off assets to generate cash and/or reduce debt existing strategy  Revise  Launch efforts to boost revenues  Cut costs of efforts 8-52  Combination .

What Is a Harvest Strategy?  Steers middle course between status quo and exiting quickly gradually sacrificing market position in return for bigger near-term cash flow/profit  Involves  Objectives  Short-term .Exit market 8-53  .Generate largest feasible cash flow Long-term .

Types of Harvest Options  Reduce operating expenses to rock-bottom  Hold reinvestment to minimum little priority on new capital investments  Place  Emphasize  Trim stringent internal cost controls advertising and promotion expenses  Do not replace employees who leave equipment maintenance 8-54  Shave .

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

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 8-56 .

emerging technological alternatives. 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. Responding late or with too little often puts a firm in the precarious position of playing catchup. unmet customer needs and buyer wishes for something better.10 Commandments for Crafting Successful Business Strategies 1. and new initiatives of rivals. Be prompt in adapting and responding to changing market conditions. 8-57 . 2.

4. 7.10 Commandments for Crafting Successful Business Strategies 3. 5. Invest in creating a sustainable competitive advantage. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength. Be judicious in cutting prices without an established cost advantage. 8-58 . for it is a most dependable contributor to above-average profitability. 6. Avoid strategies capable of succeeding only in the best of circumstances. Don’t underestimate the reactions and the commitment of rival firms.

10.10 Commandments for Crafting Successful Business Strategies 8. Endeavor not to get ―stuck back in the pack‖ with no coherent long-term strategy or distinctive competitive position. 8-59 . 9. 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. 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. and little prospect of climbing into the ranks of the industry leaders.

C. 8-60 . D. Be judicious in cutting prices without an established cost advantage. E. Place top priority on crafting and executing strategic moves that will enhance a company's competitive position for the long-term.Test Your Knowledge Which of the following does not qualify as a "commandment" for crafting successful business strategies? A. Strive to open up very meaningful gaps in quality or service or performance features when pursuing a differentiation strategy. Avoid stuck-in-the-middle strategies that represent compromises between lower costs and greater differentiation and between broad and narrow market appeal. B. Sell or close a crisis-ridden business immediately—turnaround strategies are doomed to fail.

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