chapter 5: business strategies in different industry and sectoral contexts foundations of strategy...
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Chapter 5: Business strategies in different industry and sectoral contextsFoundations of Strategy
Rebecca EggermanAlexander Johnson
Miguel LopezHannah StephensCarissa Tarnowski
Purpose of this chapterTo help us understand how
managers adapt their strategies to fit their environments, how they go about predicting change and adapting their strategies to cope with change.
Introduction and objectives
One of management’s greatest challenges=ensuring enterprise adapts to its environment and it’s changes
Changes in environment are driven by: technology, consumer need, politics, economic growth, and a host of other influences
Competition as a strategy?Creates a dynamic process where
firms compete for a competitive advantage, to only see it eroded through imitation and innovation by rivals.
Different industries= different patterns
Different industry patterns of change help to predict how industries are likely to evolve over time
Every industry follows a unique development path
Look for common drivers
Industry life cycle
Extent to which industries follow a common development pattern, examine the changes in industry structure over the cycle and explore the implications for business strategy.Starting point in understanding
how managers operating in various environments adapt their strategies and anticipate change
Life cycle diagram
Opening case: The evolution of Personal ComputersEarly 1970s- the personal computer (PC)
was originated through Intel’s microprocessor
Mid 70’s- pre-assembled machines came on to the market that included a basic operating system and software◦Tandy, Commodore, Apple
By 1981-market of about $3000 million with about 150 companies processing microcomputers◦Apple~20%, Tandy~15%, Commodore~7%◦All used very different strategies
IMB vs. Apple
Previously neglected PC market and focused on mainframe computers until 1980s
Adopted an open strategy that allowed third-parties to access the technical details so complementary products could be developed
Very little of their PC was exclusive and was very easily copied
Produced as much of his PCs in house as possible
This strategy had long term benefits, but short-term was very costly
Lost its lead position in the market by producing highly differentiated, more expensive products that were incompatible with IBM standard
Developed particular niches in the home, education, and desk-top publishing markets
Downturn of the PCPC evolved as a general machine made
versatile by adding new software functionsCreated a more complex, less secure, less
reliable and less fit-for-use than single purpose devices
The PC has increasingly become only one of many devices adopted by users
Under threat as the platform in which software is written because an array of other devices are growing in popularity and tablet computers are starting to have an impact on low-end laptop sales
How technology companies are resurrecting their fortunesApple- Created devices such as
the iPod, the iPhone, and the iPadDigital camera manufacturers-
developed products that download direct to printers
Game manufacturers- consoles primarily for gaming also connect to internet
Product vs. industry life cycles
Introduction
Growth
Maturity
Decline
Introduction
Growth
Maturity
Decline
Product life cycle Industry life cycle
What is the difference?Supply side of the product live
cycle
Extent the industry product live cycle by introducing multiple generations of a product
Industry
Let’s look at the graphs
Product
Let’s take a closer look
Product Life Cycle
Industry Life Cycle
Forces BehindDemand Growth
◦Introduction stage Sales are small, and rate of market
penetration is low
◦Growth stage Market penetration is accelerated
◦Maturity stage Market becomes saturated
◦Declined stage Challenge Industry
The production and diffusion of knowledgeIntroduction stage
◦Technology advances rapidly◦Potential consumers know little
about the productGrowth stage
◦The transition phase reflects the emergence of dominant designs and technical standards
◦Focus away from product innovation towards process innovation
Dominant designs and technical standards
Dominant design: a product architecture that defines the look, functionality, and production method for the product and becomes accepted by the industry as a whole◦Underwood Model 5
Introduced 1899 Establish the architecture and main features
Moving carriage Ability to see the characters being typed Shift function or upper case and a replaceable
Dominant designs and technical standardsTechnical standard: a
technology or specification that is important for compatibility
Dominant design and technical standard are closely related
But dominant design may or may not have a technical standard
How general is the life cycle pattern?It varies greatly from industry to
industry◦Railroad
Introduction phase extended from the building of the first railroad in 1827
Entered the growth phase in 1870’s In the 1959s, it started to enter the decline
stage
◦Digital audio player Introduction phase 1997-1998 2001, entered its growth stage 2008-2009, entered the maturity stage
Introduction Growth Maturity Decline
Demand Limited to early adopters: high income Avant-garde
Rapidly increasing market penetration
Mass market replacement/repeat buying. Customers knowledgeable and price sensitive
obsolescence
Technology Competing technologies. Rapid product innovation
Standardization around dominant technology. Rapid process innovation
Well-diffused technical knowhow: quest for technological improvements
Little product or process innovation
Products Poor quality wide variety of features and technologies. Frequent design changes.
Design and quality improve. Emergence of dominant design.
Trend to commoditization Attempts to differentiate by branding, quality, bundling
Commodities the norm: differentiation difficult and unprofitable
Manufacturing
Short production runs. High skilled labor content. Specialized distribution channels
Capacity shortages mass production. Competition for distribution
Emergence of overcapacity. Deskilling of production. Long production runs. Dist. Carry fewer lines
Exports from countries with lowest labor costs.
Trade Producers and consumers in advanced countries
Exports form advanced countries to rest of world
Production shifts to newly industrializing then developing countries
Exports from countries with lowest labor costs
Competition
Few companies Entry, mergers and exits
Shakeout. Price competition increases
Price wars, exits
Key success factors
Product innovation. Establishing credible image of firm and product.
Design for manufacture. Access to distribution. Brand building. Fast product development. Process innovation.
Cost efficiency through capital intensity, scale efficiency and low input costs
Low overheads Buyer selection. Signaling commitment. Rationalizing capacity
Life cycle strategies: IntroductionDe novo –start ups and de alio-
diversifying firms. Basis of entry is innovation
◦Wide variety of product types and diversity of technology.
Born global companies
Growth phaseSkill in controlling manufacturing
ability is key◦Access to distribution◦Financial resources◦Reduce costs
Maturity phaseEfficiency is the key to survival
◦Low wages, low overhead and cost of production
Shakeouts◦High rate of firm failure◦New niche markets are created◦Labor moves to nations where costs
are lowest (developing nations)
Decline phaseDue to excess capacityLack of technical changeDeclining number of competitors High age of physical and human
resourcesAggressive price competition
◦Balance between capacity and output and nature of demand.
◦Must capture residual market demand
Public SectorsOwnership vested in government
◦Controlled by politiciansProduce public goods
◦Ex. Street lighting, flood prevention, national defense
Paid for by taxationFor public benefit
◦Approved by lawNot required to make profit
Non-Profit SectorsPhilanthropic goalsOverlap of a social enterpriseSeek profit to distribute a limited
amount to those that “own capital”
Profit not main goal◦Ex. Engaging in fair trade,
disadvantaged equality
Key differences
1. Shaped by political considerations
2. Must account for public constraints
3. Correct market failure or cut off from market forces
4. State controlled monopolies, ex. Postal services
5. Little freedom to change rules
6. Subject to public scrutiny7. Slower market to change
1. Prioritizing shareholder's interests
2. Does not have to assess public needs
3. Price and resource mechanisms absent
4. Weak customer influence in monopolies
5. Great flexibility in regulation
6. No obligation to public satisfaction
7. High-tech and constantly changing
Public Private
Non-profit UniquenessEmployment of volunteers
◦Promote employment based on philanthropic goal interests
Fundraising◦Becoming more competitive
Stakeholder AnalysisDefinition: the process of identifying,
understanding and prioritizing 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
1) Identify the list of potential stakeholders
2) Rank stakeholders
3) Identify criteria stakeholders will likely use to
judge performance
4) Decide how the organization is doing from its stakeholders’ perspective
5) Identify what can be done to satisfy each
stakeholder
6) Identify and record longer term issues with individual stakeholders and stakeholders as a group
Power Interest Grids Definition: array stakeholders in a matrix with
stakeholder interest forming one dimension and stakeholder power the other
Stakeholder interest◦ Political interest
Stakeholder power
◦ Ability to affect the organization’s future
Used to identify which stakeholder interests and power bases should be taken into account
Helps identify what coalitions amongst stakeholders managers may wish to encourage or discourage
Power Interest GridsPlayers
◦ Both interest and significant power
Subjects◦ Interest but little power
Context Setters◦ Power but little direct interest
Crowd◦ Neither interest nor power
SH Power/Interest Grid
Response to SHs’ Positions
Whole Foods Market
Scenario Planning
Scenario analysis◦ a systematic way of thinking about how the future might unfold
that builds on what we know about current trends and signals
Not forecasting
Quantitative ◦ Models events and run simulations to identify likely outcomes
Qualitative◦ Narratives◦ Useful in engaging insight and imagination of decision-makers
Similar to productive paranoia
An Example with WFMCheck flexibility of strategy in case of major
drought
1-5 years
Higher prices with decreased product availability
Create the scenarios that are likely to happen in a
major drought
Identify red flags for each drought scenario
Ask “what if” for each scenario to evaluate
strategic flexibility
Key Steps in Building and Using Define the purpose of the analysis
Decide on the time horizon
Identify key trends
Identify key uncertainties
Create scenarios and check for internal consistency
Identify indicators that might signal which scenario
is unfolding
Assess the strategic implications of each scenario
Now that we have completed this chapter you should be able to… Recognize,
◦ the different stages of industry development and understand the factors that drive the process of industry evolution
◦ the particular challenges that face managers engaged in strategic decision making in public sector and not-for-profit-contexts
Identify the key success factors associated with industries at different stages of their development and the strategies appropriate to different stages in the industry life cycle
Use stakeholder analysis to gain an understanding of political priorities
Use scenarios to explore industry and organizational futures
Questions? Comments?