Business Strategies in Different Industry & Sectoral ContextsFoundations of Strategy: Chapter 5

Team 5

Overview

All companies have to adapt to change Driving forces that affect an industry

environment: External Forces + New Competitive

Change = Change in an industry environment

Objective: Understand how managers adapt to and predict change

Industry Life Cycle

Supply-side equivalent of the Product Life Cycle Likely to be of longer duration than that of a single

product 4 phases

› Introduction/emergence› Growth› Maturity› Decline

Factors that drive ILC› Demand Growth› Production Knowledge

Demand Growth

Stage of the life cycle are defined by the changes in an industry’s growth rate over time

Introduction› Sales are small› Market penetration rate is low› Costs are higher and lower quality › Customers tend to be affluent and risk-tolerant

Growth› Accelerated market penetration› Technical improvements and increased efficiency

Demand Growth Cont’d

Maturity › Market saturation continues to increase

Decline› New industries produce new, superior

products

Production & Diffusion of Knowledge

A new industry is created from new knowledge in the form of product innovation

Introduction:› Product technology advances rapidly› Sales are primarily aimed at enthusiasts and

pioneers Over the span of the life cycle:

› Customers become increasingly informed and are able to judge various products better

Dominant Designs & Technical Standards

Dominant Design: product architecture that defines the look, functionality and production method. It is accepted as the industry standard; design may not be proprietary or hold a profit advantage

Overall configuration of a product or system

EX: Underwood Model 5 Typewriter

Dominant Designs & Technical Standards Cont’d

Technical Standard: technology or specification that is important for compatibility; intellectual property

Emerge when network effects arise – or a need for users to connect in some way

Strategy at different stages of the life cycle

•Introduction•Growth Phase•Maturity Phase•Decline Phase

Introduction Phase

Number of firms in an industry increases rapidly during early stages

Basis of entry is product innovation Subsequent success comes from winning

the battle for technological leadership Born Global Companies- derive

significant competitive advantage from the use of resources and the sale of output in other countries

Growth Phase

As demand grows in the domestic market a dominant design usually emerges

Key challenge becomes scaling up As the market expands, the firm needs

to adapt its product design and manufacturing capability to large scale production

Maturity Phase

Cost efficiency through scale economies, low wages and low overheads become the key success factors

Industries go through “shakeout” phases during which firm failures increase sharply depending on international competition

Special niche markets develop in the process

Decline phase

Decline can be a result of technological substitution

Key features of declining industries are:› Excess Capacity› Lack of technological change› High average age of both physical and

human resources› Aggressive price competition

Public Sector

Defined by: Ownership Funding• Public Goods• Market Failure

Interests Served

Not-for-profits

Surplus funds are used to pursue organizational goals

Education, Health Care, Social Services, Arts and Culture, Religion

Social Enterprises

Have philanthropic goals

Prioritize social responsibilities

Organizational type

Ownership Funding/Revenue Source

Interests Served

Government Department

Public Government Public

State-owned Enterprise

Public Sales of goods and services/government

Public

Charity Trustees Donations/Government

The focus of the organization’s mission

Public-private partnership

Public and Private

Sales of goods and services/government

Public and Private

Social Enterprise

Private or Trustees

Sales of goods and services

The focus of the organization’s mission

Private Enterprise

Private Sales of goods and services

Private

Impacts on Strategy

Multiple, potentially conflicting goals Distinctive constraints and different

levers An absence of market forces Monopoly power Less autonomy and flexibility Increases accountability Less predictability

Specific Impacts on Not-for-profits

The employment of volunteers

Fundraising

Oster’s Six Forces Model

Relations among existing

organizations

Threat of new

entrants

User groups

New substitut

es

Supplier industry

Funding groups

Stakeholder Analysis

The process of identifying, understanding and priortising the needs of key stakeholders so that the questions of how stakeholders can participate in strategy formulation and how relationships with stakeholders are best managed can be addressed.

Key steps in Stakeholder Analysis

1. Identification of the list of potential stakeholders2. Ranking stakeholders according to their

importance and influence on the organization3. Identifying the criteria that each stakeholder is

likely to use to judge the organization’s performance.

4. Deciding how well the organization is doing from its stakeholders’ perspective.

5. Identifying what can be done to satisfy each stakeholder.

6. Identifying and recording longer term issues with individual stakeholders and as a group.

Scenario analysis

A systematic way of thinking about how the future might unfold that builds on what we know about current trends and signals.

Key Steps in building and using scenarios:

Defining the purpose of the analysis Deciding on the time horizon Identifying key trends Identifying key uncertainties Creating the scenarios and checking that

they are internally consistent Identifying indicators that might signal

which scenario is unfolding Assessing the strategic implications of

each scenario