1 Tailoring Strategy to Fit Specific Industry and Company Situations I.Strategies for Competing in...

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Tailoring Strategy to Fit Specific Industry and Company Situations

I. Strategies for Competing in Emerging Industries of the Future

A. Emerging Industry – one that is in its early, formative state.

1. The distinctive features of an emerging industry are:

a. Market is new and unproven.

b. Most buyers are first-time users

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c. Companies are in a grow-and-build mode

1. Adding people

2. Acquiring or constructing facilities

3. Gearing up production

4. Trying to broaden distribution and gain buyer acceptance

2. Business models and strategies are unproven

3. Important product design problems and technological problems remain to be worked out


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B. Strategy-making challenges of Emerging Industries 1. Because the market is new and unproven, there

may be much speculation and many opinions about how hit will function, how fast it will grow, and how big it will get. With little historical data available, projections are tough to make.

2. Much of the technological know-how tends to be proprietary and closely guarded. However, sometimes the technology is developed by collaborative efforts of several enterprises.

3. Often there is no concensus regarding which of several competing technologies will win out or which product attributes will prove decisive in winning buyer favor.

4. Entry barriers tend to be low.

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5. Experience curve effects often permit significant cost reductions as volume builds.

6. Marketing task involves inducing initial purchase and overcoming customer concerns about product features, reliability, and conflicting claims of rivals.

7. Many potential buyers expect first-generation products to be rapidly improved, so they delay purchase until technology and product design mature.

8. Firms sometimes have difficulties in securing raw materials.

9. Firms sometimes run short of funds for R & D and start-up.


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C. KEY ISSUES:

1. How to finance initial operations until sales and revenues take off

2. What market segments and competitive advantages to go after in trying to secure a front-runner position.


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D. Strategy Options for Companies in Emerging Industries

1. Try to win the early race for industry leadership by employing a bold, creative strategy

2. Push hard to: a. Perfect the technologyb. Improve product qualityc. Develop attractive performance features


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3. As technological uncertainty clears and a dominant technology emerges, adopt it quickly.

4. Form strategic alliances with key suppliers to gain access to specialized skills, technological capabilities, and critical materials or components.

5. Acquire or form alliances with companies that have related or complementary technological expertise so as to out compete rivals on the basis of technological superiority.


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6. Try to capture any first-mover advantages associated witha. Early commitments to technologies and raw

materials suppliersb. Expanding product selectionc. Improving stylingd. Capturing experience curve effectse. Opening up new distribution channels

7. Pursue a. New or different customer groupsb. New geographical areas to enterc. New user applications


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8. Make it easy and cheap for first-time buyers to try the industry’s first-generation product and then shift advertising focus from building product awareness to increasing frequency of use and creating brand loyalty.

9. Use price cuts to attract the next layer of price-sensitive buyers into the market.


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E. The short-run value of winning the early race for growth and market share leadership has to be balanced against the longer-range need to build a durable competitive edge and a defendable market position.

F. Young companies in fast-growing markets face three strategic hurdles: 1. Managing rapid company growth 2. Defending against competitors trying to horn in on

the success of industry pioneers. 3. Building a competitive position extending beyond the

initial product or market.


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II. Strategies for Competing in Turbulent, High-Velocity Markets

A. High-Velocity Markets – industry situations characterized by rapid-fire technological change, short-product life cycles, entry of important new rivals into the marketplace, frequent launches of new competitive moves by rivals and rapidly evolving customer requirements and expectations – all occurring at once.


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B. The central strategy-making challenge in a turbulent market environment is managing change – there are three strategies to deal with high-velocity change: 1. It can react to change – a defensive strategy2. It can anticipate change – still fundamentally

defensive but can open up new opportunities that are better than just reacting.

3. It can lead change – this is an offensive strategy aimed at putting a company in the driver’s seat.


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C. Competitive success in fast-changing markets tends to hinge on a company’s ability to improvise, experiment, adapt, reinvent, and regenerate as market and competitive conditions shift rapidly and sometimes unpredictably.

D. The following strategies offer the best payoffs: 1. Invest aggressively into R & D to stay on the

leading edge of technological know-how.2. Develop the organizational capability to

respond quickly to important new events.


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3. Rely on strategic partnerships with outside suppliers and with companies making tie-in products to perform those activities in the total industry value chain where they have specialized expertise and capabilities.

4. Initiate fresh actions every few months, not just when a competitive response is needed.

5. Keep the company’s products and services fresh and exciting enough to stand out in the midst of all the change that is taking place.


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E. When a company’s strategy doesn’t seem to be working well, it has to quickly regroup – probing, experimenting, improvising, and trying again and again until it finds something that strikes the right chord with buyers and that puts it in sync with markets and competitive realities.


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III. Strategies for Competing in Maturing Industries A. Maturing Industry – one that is moving from rapid

growth to significantly slower growth. 1. Industries are mature when nearly all potential

buyers are already users of the industry’s products 2. Market demand consists mainly of replacement sales

to existing users. 3. Growth hinges on the industry’s ability to attract

new buyers and convince existing buyers to up their usage.

4. Typically mature industries have a growth rate of less than 5 percent.


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B. The onset of market maturity usually produces fundamental changes in the industry’s competitive environment.

1. Slowing growth in buyer demand generates more head-to-head competition for market share.

2. Buyers become more sophisticated, often driving a harder bargain on repeat purchases.

3. A greater emphasis on cost and service.

4. Firm's have a "topping out" problem in adding production capacity.

5. Product innovation and new end-use applications are harder to come by.


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6. International competition increases

7. Industry profitability shrinks

8. Stiffening competition induces a number of mergers and acquisitions among former competitors, drives the weakest firms out of the industry, and produces industry consolidation in general.


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C. Strategic Moves in Maturing Industries 1. Prune the product line 2. Put more emphasis on process innovation 3. Push hard for cost reduction 4. Find ways to increase sales to present

customers 5. Purchase rival firms at bargain prices 6. Expand internationally 7. Build New or More Flexible Capabilities


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D Strategic Pitfalls In Maturing Industries

1. Not pursuing a strategy which gives the company a strong image with buyers -- getting STUCK IN THE MIDDLE with a fuzzy strategy, no clearly staked-out market position, an "average" image with buyers, and no competitive advantage.

2. Putting more emphasis on boosting short-term profits than on strengthening the firm's long-term competitive position.

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1. Waiting too long to respond to price-cutting by aggressive, ambitious rivals.

2. Getting caught with too much excess capacity as growth slows.

3. Failing to pursue cost reduction soon enough and aggressively enough.

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IV. Strategies for Firms in Stagnant or Declining Industries

A. Stagnant or Declining Industries – demand is growing more slowly than the economy wide average or is even declining.

B. Features of Declining Industries

1. Demand grows slower than the economy as a whole or even begins a long-term slide.

2. Competitive pressures intensify -- there's a heated battle for market share.


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3. To grow and prosper, companies must take market share away from rivals.

4. The industry consolidates to a small number of key players -- strong companies acquire weak companies and weak companies merge with each other to maintain competitive viability.


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C. Strategy Options for Competing in Declining Industries

1. Pursue a focus strategy by identifying, creating, and exploiting growth segments within the industry.

2. Pursue differentiation based on quality improvement and product innovation.

3. Work diligently and persistently to drive costs down by:

a. Cutting marginally beneficial activities out of the value chain.

b. Outsourcing functions and activities that can be performed more cheaply by outsiders.


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c. Redesigning internal business processes to exploit cost-reducing e-commerce technologies.

d. Consolidating underutilized production facilities.

e. Adding more distribution channels to ensure unit volume needed for low-cost production.

f. Closing down low-volume, high-cost retail outlets.

g. Pruning marginal products from the firm’s offerings.


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D. The Strategic Pitfalls of Competing in a Stagnant Industry

1. Getting trapped in a profitless war of attrition.

2. Diverting too much cash out of the company too quickly, thus accelerating its demise.

3. Over-optimism about the industry's future.


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V. Strategies for Competing in Fragmented Industries

A. Fragmented industries – populated by hundreds or even thousands of small and medium-sized companies, many privately held firms and none with a substantial share of total industry sales. There is an absence of a market leader with a large market share or widespread buyer recognition.


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B. The competitive features of fragmented industries:

1. Market demand is so extensive and so diverse that very large numbers of firms can easily coexist trying to accommodate the range and variety of buyer preferences and requirements and to cover all the needed geographic locations.

2. Low entry barriers

3. Absence of scale economies (there is a cost advantage associated with size; there may be, instead, a cost disadvantage associated with being big)


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4. The market for the industry's product/service is becoming more global, putting companies in more and more countries in the same competitive market arena.

5. The technologies embodied in the industry’s value chain are exploding into so many new areas and along so many different paths that specialization is essential just to keep abreast in any one area of expertise.

6. The industry is young and crowded with aspiring contenders, with no firm having yet developed the resource base, competitive capabilities, and market recognitions to command a significant market share.


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C. Some fragmented industries consolidate over time as growth slows and the market matures.

D. Competitive rivalry in fragmented industries can very from moderately strong to fierce.

E. Strategy Options for Companies in Fragmented Industries 1. Constructing and operating "formula" facilities 2. Becoming a low-cost operator 3. Specializing by product type 4. Specializing by customer type 5. Focusing on a limited geographic area


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F. PRINCIPLE: In fragmented industries, competitors usually have the strategic latitude to:

1. Compete broadly or to focus

2. Pursue either a low-cost or differentiation-based competitive advantage.


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VI. Strategies for Sustaining Rapid Company Growth A. Companies that focus on growing revenues and

earnings at a rapid or above-average pace year after year generally have to craft a portfolio of strategic initiatives covering three horizons.

1. Horizon 1 – Strategic initiatives to fortify and extend their position in existing businesses.

2. Horizon 2 – Strategic initiatives to leverage existing resources and capabilities by entering new businesses with promising growth potential.

3. Horizon 3 – Strategic initiatives to plant the seeds for ventures in businesses that do not yet exist.


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B. The lesson of successful growth companies is that keeping a company’s record of rapid growth intact over the long term entails crafting a diverse population of strategies, ranging from short-jump incremental strategies to grow present businesses to long-jump initiatives with a 5 – to 10- year growth payoff horizon.


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D. The Risks of Pursuing Multiple Strategy Horizons 1. A company cannot place bets on every

opportunity that appears or it might be stretched too thin.

2. Medium-jump and long-jump initiatives can cause a company to stray too far from its core competencies and end up trying to compete in businesses for which it is ill suited.

3. The payoffs of long-jump initiatives often prove elusive – and only a few may evolve into truly significant contributors to the company’s revenue and profit growth.


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VII. Strategies for Industry Leaders A. Industry leaders are typically companies

that are well known, strongly entrenched and have proven strategies keyed either to low-cost leadership or differentiation.

B. The main strategic concern for a leader revolves around how to defend and strengthen its leadership position, and maybe become the DOMINANT leader instead of just the leader.


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C. Three contrasting strategic postures are open to industry leaders and dominant firms:

1. Stay-on-the-offensive strategy – idea is to be a first mover and to stay a step ahead of your rivals and force them to react and play catch-up.

a. The best defense is a good offense.

b. Pursue continuous improvement and innovation


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c. Be first with:(1) technological improvements(2)new or better products(3)more attractive performance features(4)quality enhancements(5) improved customer service (6)ways to cut operating costs (7)ways to make it easier and less costly for

potential customer to switch their purchases from runner-up firms to its own products


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d. Set the pace for cost reduction

e. The idea is to grow faster than the industry itself.

2. Fortify-and-defend strategy – essence of this strategy is to make it harder for challengers to gain ground and for new firms to enter.

a. The idea is to hold on to present market share, strengthen current market position, and protect whatever competitive advantage the firm has.


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b. Specific defensive actions can include:(1) Raise the competitive ante for challengers and

new entrants via increased spending for advertising, higher levels of customer service, and bigger R & D budgets.

(2) Introduce more product versions or brands to match the product attributes that challenger brands have or fill vacant niches.

(3) Add personalized services or extras to boost customer loyalty and make switching harder.

(4) Keeping prices reasonable and quality attractive.(5) Building new capacity ahead of market demand

to discourage smaller competitors.


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(6) Investing enough to remain cost-competitive and technologically progressive.

(7) Patenting the feasible alternative technologies.1. Signing exclusive contracts with the best

suppliers and dealer distributors.c. don’t wish to risk antitrust action or where

firms wish to milk its present position and cash flow because the industry’s growth prospects are low.


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2. Muscle-flexing strategy – dominant leader plays competitive hardball when smaller rivals rock the boat with price cuts or mount new market offensives that directly threaten its position. 1. Specific responses are:

a. Quickly matching and maybe exceeding challengers’ price cuts

b. Using large promotional campaigns to counter challengers’ moves to gain market share.

c. Offering better deals to major customers.


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2. The leader may also use various arm twisting tactics to pressure present customers not to use the product of rivals.

3. The risks of this strategy are getting into trouble with antitrust laws.


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VIII.Strategies for Runner-Up Firms A. Have smaller market shares than the "first-tier"

industry leaders. B. Three types:

1. Market challengers – employ offensive strategies to gain market share and build a stronger market position.

2. Focusers – seek to improve their lot by concentrating their attention on serving a limited portion of the market.

3. Perennial runners-up – lack the resources and competitive strengths to do more than continue in trailing positions and/or content to follow the trend setting moves of the market leaders

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C. In industries where big size is definitely a key success factor, firms with small market shares have some obstacles to overcome:

1. less access to economies of scale in manufacturing, distribution, or marketing and sales promotion.

2. difficulty in gaining customer recognition 3. weaker ability to use mass media

advertising 4. difficulty in funding capital requirements


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D. Small firms have two options here: 1. initiate offensive moves to gain sales and market

share a. This can be done by using lower prices to win

customers from weak, higher cost rivalsb. Merge with or acquire rival firms to achieve

the size needed to capture greater scale economies

c. invest in new cost-saving facilities and equipment.

d. pursue technological innovations or radical value chain revamping to achieve dramatic cost savings.

2. withdraw from the business

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E. It is a mistake to view runner up firms as less profitable or unable to hold their own against the biggest firms. Many of these firms enjoy good reputations and profitability.

F. Seven approaches for runner up firms: 1. Offensive strategies to build market share – key

is to build a competitive advantage of its own. Avoid attacking the leader head-on with an imitative strategy. Approaches to use:a. Pioneering a leapfrog technological

breakthrough


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b. Getting new or better products into the market consistently ahead of rivals

c. Being more agile and innovative in adapting to evolving market conditions

d. Forging attractive strategic alliances with key distributors, dealers or marketers of complementary products

e. Finding innovating ways to dramatically drive down costs and then win customers from rivals.

f. Craft an attractive differentiation strategy.


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2. Growth-via-Acquisition Strategy – merge with or acquire rivals to form an enterprise that has greater competitive strength and a larger share of the overall market.

3. Vacant-Niche Strategy – concentrate on customer or end-use applications that market leaders have bypassed or neglected. The vacant niche has to be large enough to be profitable and have growth potential.


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4. Specialist Strategy – trains its competitive effort on one technology, product or product family, end use, or market segments. The aim is train the company’s resource strengths and capabilities on building competitive advantage through leadership in a specific area.

5. Superior Product Strategy – Use a differentiation-based focused strategy keyed ot superior product quality or unique attributes. Sales and market efforts are aimed directly at quality-conscious and performance-oriented buyers.


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6. Distinctive Image Strategy – Build a strategy around ways to make the company stand out against competitors. A variety of strategic approaches can be used: a. create a reputation for charging the lowest prices b. providing prestige quality at a good price c. go all out to give superior customer service d. designing unique product attributes e. being a leader in new product introduction f. devise unusually creative advertising


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7. Content Follower Strategy – directly refrain from initiating trendsetting strategic moves and from aggressive attempts to steal customers away from leaders. Prefer approaches that will not provoke competitive retaliation, and often opt for focus and differentiation strategies that keep them out of the leaders’ path. They react and respond rather than initiate and challenge.


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IX. Strategies for Weak and Crisis-Ridden Businesses

A. Firms in an also-ran or declining competitive position have four basic strategic options:

1. Offensive turnaround strategy

2. Fortify and defend strategy

3. Immediate abandonment strategy

4. End-game strategy


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B. Turnaround Strategies for Businesses in Crisis

1. Needed when a business worth rescuing goes into crisis.

2. Objective: arrest and reverse the sources of competitive and financial weakness as quickly as possible.

3. Management’s first task is to determine what is at the root of the poor performance.


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4. Common causes for crisisa. Taking on too much debtb. overestimating potential for sales growthc. ignoring the profit-depressing effects of an overly

aggressive effort to "buy" market share with deep price cuts

d. being burdened with heavy fixed costs because of an inability to use plant capacity

e. betting on R & D efforts to boost competitive position and profitability and failing to come up with effective innovations.


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f. betting on technological long shotsg. being too optimistic about the ability to

penetrate new markets h. making frequent changes in strategy i. being overpowered by more successful rivals.

5. Successful business turnaround can be achieved by:a. Selling off assets – essential when cash flow is a

critical consideration and when the most practical ways to generate cash are (1) through the sale of some of the firm’s assets and (2) through retrenchment


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b. Strategy Revision – when weak performance is caused by bad strategy, the task of strategy overhaul can proceed along any of several paths: (1) shifting to a new competitive approach to rebuild

the firm’s market position(2) overhauling internal operations and functional area

strategies to better support the same overall business strategy

(3) merging with another firm in the industry and forging a new strategy keyed to the newly merged firm’s strengths

(4) retrenching into a reduced core of products and customers more closely matched to the firm’s strengths


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c. Boosting Revenues – aim at generating increased sales volume. Necessary when (1) there is little or no room in the operating budget to cut expenses and still break even. (2) when the key to restoring profitability is increased utilization of existing capacity.

d. Cutting Costs – work best when an ailing firm’s value chain and cost structure are flexible enough to permit radical surgery, when operating inefficiencies are identifiable and readily correctable, when the firm’s costs are obviously bloated and there are many places where savings can be quickly achieved, and when the firm is relatively close to its break-even point.


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e. Combination Efforts – usually essential in grim situations that require fast action on a broad front. 6. Turnaround efforts tend to be high-risk

undertakings and they often fail. Even when successful, turnaround may involve numerous attempts and management changes before long-term competitive viability and profitability are finally restored.


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C. Liquidation – the Strategy of Last Resort 1. Necessary when a business is too far gone to be

salvaged or is not worth salvaging given the resources it will take and its profit prospects.

2. Most unpleasant and painful of all the strategies because of the hardship of job eliminations and the efforts of business closings on local communities.

3. The problem is determining when a turnaround is possible and when it isn’t.


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D. End-Game Strategies – steers a middle course between preserving the status quo and exiting as soon as possible.

1. Harvesting – phasing-down strategy that involves sacrificing market position in return for bigger near-term cash flows or current profitability.

2. An end-game strategy is a reasonable strategic option fro a weak business in the following circumstances: A. When the industry’s long-term prospects are

unattractive


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b. When rejuvenating the business would be too costly or at best marginally profitable.

c. When the firm’s market share is becoming increasingly costly to maintain or defend.

d. When reduced levels of competitive effort will not trigger an immediate or rapid falloff in sales.

e. When the enterprise can redeploy the freed resources in higher-opportunity areas

f. When the business does not contribute other desired features.3. End-game strategies make the most sense for diversified

companies that have side-line or noncore business units in weak competitive positions or in unattractive industries.

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X. 10 Commandments for Crafting Successful Business Strategies A. Place top priority on crafting and executing strategic

moves that enhance the company’s competitive position for the long term.

B. Be prompt in adapting to changing market conditions, unmet customer needs, buyer wishes for something better, emerging technological alternatives, and new initiatives of competitors.

C. Invest in creating a sustainable competitive advantage. D. Avoid strategies capable of succeeding only in the most

optimistic circumstances.


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

F. Consider that attacking competitive weakness is usually more profitable and less risky than attacking competitive strength.

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

H. Strive to open up very meaningful gaps in quality or service or performance features when pursuing a differentiation strategy


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I. Avoid "stuck in the middle" strategies that represent compromises between lower cost sand greater differentiation and between broad and narrow market appeal.

J. Be aware that aggressive moves to wrest market share away from rivals often provoke retaliation in the form of a marketing "arms race" or price war – to the detriment of everyone’s profits.


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