Tailoring Strategy to Fit Specific Industry and Company

Situations

“The best strategy for a

given firm is ultimately a

unique construction

reflecting its particular

circumstances.”

Michael E. Porter

Industry Life Cycle Analysis

• The strength and nature of the five forces change as an industry evolves through its life cycle

• Managers must anticipate how the forces will changes as the industry evolves and formulate appropriate strategies

Stages in the Industry Life Cycle

Shakeout: Growth in Demand and Capacity

Strategies for: • Competing in Emerging Industries• Competing in Turbulent, High Velocity Markets• Competing in Maturing Industries• Firms in Stagnant or Declining Industries• Competing in Fragmented Industries• Sustaining Rapid Company Growth • Industry Leaders• Runner-up Firms• Weak and Crisis-Ridden Businesses• 10 Commandments for crafting Successful Business

Strategies

Matching Strategy to a Co’s Situation

Most important drivers shaping a firm’s strategic options fall into two categories

Firm’s competitive capabilities,

market position, best opportunities

Nature of industry and competitive

conditions

1. Features of an Emerging Industry

•New and unproven market

•Proprietary technology

•Lack of consensus regarding which competing technology will win out

•Low entry barriers

•Experience curve effects- cost reductions as volume builds

Emerging Industry (contd)

•First-time users; inducing initial purchase & overcoming customer concerns

•First-generation products - buyers delay purchase until technology matures

•Possible difficulties in securing RM

•Firms struggle to fund R&D, operations and build resource capabilities for rapid growth

Strategy Options in Emerging Industries

• Win early industry leadership by employing a bold, creative strategy

• Push to perfect technology, improve product quality, and develop attractive performance features

• Move quickly when a dominant technology emerges

• Form strategic alliances with– Key suppliers or– Cos having related technological expertise

Strategy options in Emerging Industries (contd)

• Capture potential first-mover advantages

• Pursue

– New customers and user applications

– Entry into new geographical areas

• Focus advertising emphasis on

– Increasing frequency of use

– Creating brand loyalty

• Use price cuts to attract price-sensitive buyers

2. 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

Strategy Options in High-Velocity Markets • Invest aggressively in R&D

• Develop quick response capabilities – Shift resources

– Adapt competencies

– Create new competitive capabilities

– Speed new products to market

• Use strategic partnerships to developspecialized expertise and capabilities

• Initiate fresh actions every few months

• Keep products/services fresh and exciting

Key Success Factors 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

3.Industry Maturity: Standout Features• Slowing demand stiffer competition

• More sophisticated buyers bargains

• Greater emphasis on cost and service

• No addition in production capacity

• Product innovation & new end uses - rare

• International competition increases

• Industry profitability falls

• Mergers & acquisitions reduce no of rivals

Strategy Options 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 flexible competitive capabilities

Strategic Pitfalls in Maturing Industry• Employing a ho-hum strategy with no distinctive

features thus leaving firm “stuck in the middle”

• Concentrating on short-term profits rather than strengthening long-term competitiveness

• Being slow to adapt competencies to changing customer expectations

• Being slow to respond to price-cutting

• Having too much excess capacity

• Overspending on marketing

• Failing to pursue cost reductions aggressively

• Demand grows more slowly thaneconomy as whole (or even declines)

• Competitive pressures intensify – rivals battle for market share

• To grow and prosper, firm must take market share from rivals

• Industry consolidates to a smaller numberof key players via mergers and acquisitions

Stagnant/declining industries: Standout Features

Stagnant/declining industries: Standout Features

Strategy Options in Stagnant/Declining Industry

• Pursue focus strategy aimed at fastest growing market segments

• Stress differentiation based on qualityimprovement 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

• Getting embroiled in a profitless battle for market share with stubborn rivals

• Diverting resources out of business too quickly

• Being overly optimistic about industry’s future (believing things will get better)

Stagnant Industry: Strategic MistakesStagnant Industry: Strategic Mistakes

Limitations of Models for Industry Analysis

• Life cycle issues– The embryonic stage can sometimes be

skipped– Industry growth can be revitalized– The time span of the stages can vary

• Innovation and change– Innovation can unfreeze and reshape industry

structure– An industry may be hypercompetitive, with

permanent and ongoing change

Comp features-Fragmented Industries• Absence of market leaders • Buyer demand diverse & scattered that many firms are required to satisfy

buyer needs• Low entry barriers • Absence of scale economies• Buyers require small amounts of customized products• Market for industry’s product may be globalizing, putting cos across world in

same market arena• Exploding technologies force firms to specialize just to keep up in their area

of expertise • Industry is young & crowded, with no firm having yet commanding a large

market share

Examples - Fragmented Industries

Book publishingLandscaping and plant nurseries

Auto repairRestaurant industryWomen’s dressesPaperboard boxesHotels and motels

Furniture

• Construct and operate “formula” facilities

• Become a low-cost operator

• Specialize by product type

• Specialize by customer type

• Focus on limited geographic area

Strategy Options in Fragmented IndustryStrategy Options in Fragmented Industry

Industry leaders

Runner-up firms

Weak or crisis-ridden firms

Strategies based on Co’s Mkt PositionStrategies based on Co’s Mkt Position

# 1. INDUSTRY LEADERS

Defining Characteristics

• Strong to powerful market position

• Well-known reputation

• Proven strategy

• Key strategic concern – How to sustaindominant leadership position

Strategy Options: Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy

Stay-on-the-Offensive Strategies• Be a first-mover, leading industry change

• Best defense is a good offense

• Pursue continuous improvement & innovation

• Force rivals to scramble to keep up

• Launch fresh initiatives to keep rivals off balance

• Grow faster than industry, taking mkt share from rivals

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

Strategic Options• Increase advertising and R&D• Provide higher levels of customer service • Introduce more brands to match rivals’ attributes • 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 & distributors

Fortify-and-Defend StrategyFortify-and-Defend Strategy

• 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 StrategyObjectives

Strategic Options

• Be quick to meet price cuts of rivals

• Counter with promotional campaigns

• Offer better deals to rivals’ major customers

• Dissuade distributors from carrying rivals’ products

• Provide salespersons with information about weaknesses of competing products

• Make attractive offers to key execs of rivals

• Use arm-twisting tactics on present customersnot to use rivals’ products

Muscle-Flexing Strategy

Risks

• Running afoul of antitrust laws

• Alienating customers with bullying tactics

• Arousing adverse public opinion

Muscle-Flexing Strategy

#2. RUNNER-UP FIRMS

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 domore than continue in trailing position

– Less access to economies of scale

– Difficulty in gaining customer recognition

– Inability to afford mass media advertising

– Difficulty in funding capital requirements

Obstacles for Runner-Up Firms Obstacles for Runner-Up Firms

Strategic Options

• 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

• Where big size does not yield a cost advantage, runner-up firms have 7 options

1. Offensive strategies to build market share

2. Growth-via-acquisition strategy

3. Vacant niche strategy

4. Specialist strategy

5. Superior product strategy

6. Distinctive image strategy

7. Content follower strategy

Strategic Options for Runner-Up Firms Not Disadvantaged By Smaller Size

Strategic Options for Runner-Up Firms Not Disadvantaged By Smaller Size

# 3. 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 an end-game strategy

Achieving a Turnaround

• Sell off assets to generate cash reduce debt

• Revise existing strategy

• Launch efforts to boost revenues

• Cut costs

• Combination of efforts

Liquidation Strategy

• Wisest strategic option if:

– Lack of resources

– Dim profit prospects

Unpleasant strategic option

– Hardship of job eliminations

– Effects of closing on local community

End-Game Strategy?

• Objectives

– Short-term - Generate largest feasible cash flow

– Long-term - Exit market

• Sacrificing market position for near-term cash flow/profit

10 Commandmentsfor crafting

Successful Business Strategies

• Always put top priority on crafting & executing strategic moves that enhance a firm’s competitive position in long-term and that helps establish it as an industry leader.

• Be prompt in adapting and responding to changing market conditions and unmet customer needs for better, emerging technological alternatives, and new initiatives of rivals.

• Invest in creating sustainable competitive advantage.

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

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

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

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

• Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality/service/etc

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

•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.