understanding the factors that determine a company’s...
TRANSCRIPT
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Screen graphics created by: Jana F. Kuzmicki, Ph.D.
Troy University
Diagnosing a company’s situation has two facets Assessing the company’s external or macro-
environment Industry and competitive conditions Forces acting to reshape this environment
Assessing the company’s internal or micro-environment Market position and competitiveness Competencies, capabilities,
resource strengths and weaknesses, and competitiveness
Understanding the Factors that Determine a Company’s Situation
Figure 3.1: From Thinking Strategically About the Company’s Situation to Choosing a Strategy Figure 3.2: The Components of a Company’s Macro-environment
Key Questions Regarding the Industry and Competitive Environment
What are the industry’s dominant economic traits?
How strong are competitive forces?
What forces are driving change in the industry?
What market positions do rivals occupy? What moves will they make next?
What are the key factors for competitive success?
How attractive is the industry from a profit perspective?
Market size and growth rate Number of rivals Scope of competitive rivalry Buyer needs and requirements Degree of product differentiation Product innovation Supply/demand conditions Pace of technological change Vertical integration Economies of scale Learning and experience curve effects
Question 1: What are the Industry’s Dominant Economic Traits?
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Table 3.1: What to Consider in Identifying an Industry’s Dominant Economic Features Learning/Experience Effects
Learning/experience effects exist when a company’s unit costs decline as its cumulative production volume increases because of
Accumulating production know-how
Growing mastery of the technology
The bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume
Question 2: How Strong Are Competitive Forces?
Objectives are to identify
Main sources of competitive forces
Strength of these forces
Key analytical tool
Five Forces Model of Competition
Figure 3.3: The Five Forces Model of Competition
Figure 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry What Are the Typical
Weapons for Competing?
Lower prices
More or different performance features
Better product performance
Higher quality
Stronger brand image and appeal
Wider selection of models and styles
Bigger/better dealer network
Low interest rate financing
Better or more ads
Stronger product innovation capabilities
Better customer service
Stronger capabilities to provide buyers with custom-made products
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Figure 3.5: Factors Affecting Threat of Entry Figure 3.6: Factors Affecting Competition From Substitute Products
Figure 3.7: Factors Affecting Bargaining Power of Suppliers Figure 3.8: Factors Affecting Bargaining Power of Buyers
Question 3: What Forces Are Driving Industry Change and What Impacts Will They Have?
Industries change because forces are driving industry participants to alter their actions
Driving forces are the major underlying causes of changing industry and competitive conditions
Where do driving forces originate? Outer ring of macroenvironment Inner ring of macroenvironment
Table 3.2: The Most Common Driving Forces
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Question 4: What Market Positions Do Rivals Occupy?
One technique to reveal different competitive positions of industry rivals is strategic group mapping
A strategic group is a cluster of firms in an industry with similar competitive approaches and market positions
Example: Strategic Group Map of Selected Automobile Manufacturers
A firm’s best strategic moves are affected by Current strategies of competitors Future actions of competitors
Profiling key rivals involves gathering competitive intelligence about Current strategies Most recent actions and public announcements Resource strengths and weaknesses Efforts being made to improve their situation Thinking and leadership styles of top executives
Question 5: What Strategic Moves Are Rivals Likely to Make Next?
Key Success Factors (KSFs) are competitive factors and attributes that affect every industry member’s ability to be competitively and financially successful
KSFs are those particular attributes that are so important that they spell the difference between Profit and loss Competitive success or failure
KSFs can relate to Specific strategy elements Product attributes Resources Competencies Competitive capabilities Market achievements
Question 6: What Are the Key Factors for Competitive Success?
Table 3.3: Common Types of Industry Key Success Factors
Involves assessing whether the industry and competitive environment presents a company with an attractive or unattractive opportunity
for earning good profits Factors to consider:
Industry growth potential Whether competitive forces are growing stronger/weaker Whether driving forces will favorable/unfavorably impact
industry profitability Degree of risk and uncertainty in industry’s future Whether the industry confronts severe problems Firm’s competitive position in industry vis-à-vis rivals Firm’s potential to capitalize on industry opportunities or
the vulnerabilities of weaker rivals Whether a firm has sufficient competitive strength to
defend against unattractive industry factors
Question 7: Does the Outlook for the Industry Offer an Attractive Opportunity?
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Core Concept: Assessing Industry Attractiveness
The degree to which an industry is attractive or unattractive is not the
same for all industry participants or potential entrants.
The opportunities an industry presents depend partly on a
company’s ability to capture them. Screen graphics created by: Jana F. Kuzmicki, Ph.D.
Troy University
Company Situation Analysis: The Key Questions
1. How well is the company’s present strategy working?
2. What are the company’s resource strengths and weaknesses and its external opportunities and threats?
3. Are the company’s prices and costs competitive?
4. Is the company competitively stronger or weaker than key rivals?
5. What strategic issues merit front-burner managerial attention?
Figure 4.1: Identifying Components of a Single-Business Company’s Strategy
Question 1: How Well Is the Company’s Present Strategy Working?
Must begin by understanding what the strategy is Identify competitive approach
Low-cost leadership? Differentiation? Best-cost provider? Focus on a particular market niche?
Determine competitive scope Broad or narrow geographic market coverage? In how many stages of industry’s production/
distribution chain does the company operate?
Examine recent strategic moves Identify functional strategies
Table 4.1: Key Financial Ratios: How to Calculate Them and What They Mean
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Table 4.1: Key Financial Ratios: How to Calculate Them and What They Mean (con’t)
S W
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Question 2: What Are the Company’s Strengths, Weaknesses, Opportunities and Threats ?
Core Competencies – A Valuable Company Resource
A competence becomes a core competence when the well-performed activity is central to a company’s competitiveness and profitability
Often, a core competence is knowledge-based, residing in people, not in assets on a balance sheet
A core competence is typically the result of cross-department collaboration
A core competence gives a company a potentially valuable competitive capability and represents a definite competitive asset
Examples: Core Competencies
Expertise in integrating multiple technologies to create families of new products
Know-how in cost efficient supply chain management
Speeding new/next-generation products to market
Better after-sale service capability
Skills in manufacturing a high quality product
Capability to fill customer orders accurately and swiftly
A distinctive competence is a competitively valuable activity that a company performs better than its competitors
A distinctive competence is a competitively potent resource source because it Gives a company a competitively valuable
capability unmatched by rivals Can underpin and add real punch
to a company’s strategy Is a basis for sustainable competitive
advantage
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Distinctive Competence – A Competitively Superior Resource Examples: Distinctive Competencies
Toyota Low-cost, high-quality
manufacturing of motor vehicles
Starbucks Innovative coffee drinks
and store ambience
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What Is a Resource-Based Strategy?
Companies with competitively valuable resource strengths and competencies often deploy these capabilities to Boost the competitive power
of their overall strategy Bolster their position in the marketplace
Resource-based strategies Attempt to exploit company resources to offer
value to customers in ways rival cannot match Can focus on eroding the competitive potency of
a rival by developing different resources that effectively substitute for the strengths of the rival
Table 4.2: What to Look for in Identifying a Company’s Strengths, Weaknesses, Opportunities, and Threats
Identifying External Threats
Some possibilities: Emergence of cheaper/better technologies Introduction of better products by rivals Entry of lower-cost foreign competitors Onerous regulations Rise in interest rates Potential of a hostile takeover Unfavorable demographic shifts Adverse shifts in foreign exchange rates Political upheaval and/or burdensome
government policies
Role of SWOT Analysis in Crafting a Better Strategy
Figure 4.2: The Three Steps of SWOT Analysis
Assessing whether a firm’s costs are competitive with those of rivals is a crucial part of company situation analysis
Key analytical tools
Value chain analysis
Benchmarking
Question 3: Are the Company’s Prices and Costs Competitive?
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Figure 4.3: A Representative Company Value Chain Example: Value Chain Activities for a Bakery Goods Maker
Primary Activities Supply chain management
Recipe development and testing
Mixing and baking
Packaging
Sales and marketing
Distribution
Support Activities
Quality control
Human resource management
Administration
Figure 4.4: Representative Value Chain for an Entire Industry Example: Value Chain Activities
Pulp & Paper Industry
Timber farming
Logging
Pulp mills
Papermaking
Distribution
Determining whether a company’s costs are in line with those of rivals requires Measuring how a company’s costs compare
with those of rivals activity-by-activity
Requires having accounting data to measure cost of each value chain activity
Activity-based costing entails Defining expense categories according
to specific activities performed and Assigning costs to the activity
responsible for creating the cost
Activity-Based Costing: A Key Tool in Analyzing Costs
Table 4.3: The Difference between Traditional Cost Accounting and Activity-Based Cost Accounting: An Example from Air Conditioner Manufacturing
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Focuses on cross-company comparisons of how certain activities are performed and costs associated with these activities Purchase of materials Payment of suppliers Management of inventories Getting new products to market Performance of quality control Filling and shipping of customer orders Training of employees Processing of payrolls
Benchmarking Costs of Key Value Chain Activities
Cost competitiveness depends on how well a company manages its value chain relative to how well competitors manage their value chains
When a company’s costs are out-of-line, the activities responsible for the higher costs may be due to any of three parts of industry value chain 1. Activities performed by suppliers 2. A company’s own internal activities 3. Activities performed by forward channel allies
Activities, Costs, &
Margins of Forward
Channel Allies
Internally Performed Activities, Costs, & Margins
Activities, Costs, &
Margins of Suppliers
Buyer/User Value
Chains
What Determines If a Company Is Cost Competitive?
Figure 4.5: Translating Company Performance of Value Chain Activities into Competitive Advantage
Whether a company is competitively stronger or weaker than key rivals hinges on the answers to two questions
How does the company rank relative to competitors on each important factor that determines market success?
Does the company have a net competitive advantage or disadvantage vis-à-vis major competitors?
Question 4: Is the Company Stronger or Weaker than Key Rivals?
Table 4.4: Illustrations of Unweighted and Weighted Strength Assessments
Reveals strength of firm’s competitive position vis-à-vis key rivals
Shows how firm stacks up against rivals, measure-by-measure – pinpoints firm’s competitive strengths and competitive weaknesses
Indicates whether firm is at a competitive advantage / disadvantage against each rival
Identifies possible offensive attacks (pit company strengths against rivals’ weaknesses)
Identifies possible defensive actions (a need to correct competitive weaknesses)
Why Do a Competitive Strength Assessment ?
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Based on results of both industry and competitive analysis and an evaluation of a company’s competitiveness, what items should be on a company’s “worry list”?
Requires thinking strategically about Pluses and minuses in the industry
and competitive situation Company’s resource strengths and weaknesses
and attractiveness of its competitive position
Question 5: What Strategic Issues Merit Managerial Attention?
A “good” strategy must address “what to do” about each and every strategic issue!
Screen graphics created by: Jana F. Kuzmicki, Ph.D.
Troy University
Strategy and Competitive Advantage
Competitive advantage exists when a firm’s strategy gives it an edge in Attracting customers and
Defending against competitive forces
Convince customers firm’s product / service offers superior value A good product at a low price
A superior product worth paying more for
A best-value product
Key to Gaining a Competitive Advantage
What Is Competitive Strategy?
Deals exclusively with a company’s business plans to compete successfully
Specific efforts to please customers
Offensive and defensive moves to counter maneuvers of rivals
Responses to prevailing market conditions
Initiatives to strengthen its market position
Narrower in scope than business strategy
Figure 5.1: The Five Generic Competitive Strategies Wal-Mart’s Approach to Managing Its Value Chain
Institute extensive information sharing with vendors via online systems
Pursue global procurement of some items and centralize most purchasing activities
Invest in state-of-the-art automation at its distribution centers
Strive to optimize the product mix and achieve greater sales turnover
Install security systems and store operating procedures that lower shrinkage rates
Negotiate preferred real estate rental and leasing rates with real estate developers and owners of its store sites
Manage and compensate its workforce in a manner to yield lower labor costs
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Key Characteristics of Southwest Airlines’ Low-Cost Provider Strategy
Mastery of fast turnarounds at gates (25 minutes vs. 45 minutes for rivals) allows
Planes to fly more hours per day More flights to be scheduled per day with fewer aircraft More revenue generated per plane on average than rivals
Elimination of several services results in cost savings
In-flight meals Assigned seating Baggage transfer to connecting airlines First-class seating and service
Fast, user-friendly online reservation system Facilitates e-ticketing Reduces staffing requirements at telephone
reservation centers and airport counters
Differentiation Strategies
Incorporate differentiating features that cause buyers to prefer firm’s product or service over brands of rivals
Find ways to differentiate that create value for buyers and are not easily matched or cheaply copied by rivals
Keeping the cost of achieving differentiation below the higher price that can be charged
Objective
Keys to Success
Benefits of Successful Differentiation
A product / service with unique, appealing attributes allows a firm to
Command a premium price and/or
Increase unit sales and/or
Build brand loyalty
= Competitive Advantage
Which hat is
unique?
Unique taste – Dr. Pepper Multiple features – Microsoft Vista and Office, iPhone Wide selection and one-stop shopping – Home Depot,
Amazon.com Superior service – FedEx Spare parts availability – Caterpillar Engineering design and performance – Mercedes,
BMW Prestige and distinctiveness – Rolex Product reliability – Johnson & Johnson Quality manufacture – Karastan, Michelin, Toyota Technological leadership – 3M Corporation Top-of-line image – Ralph Lauren and Starbucks
Types of Differentiation Themes
Where to Find Differentiation Opportunities in the Value Chain
Purchasing and procurement activities Product R&D and product design activities Production process / technology-related
activities Manufacturing / production activities Distribution-related activities Marketing, sales, and customer service
activities Activities, Costs, &
Margins of Forward
Channel Allies
Internally Performed Activities, Costs, & Margins
Activities, Costs, &
Margins of Suppliers
Buyer/User Value
Chains
How to Achieve a Differentiation-Based Advantage
Incorporate features that raise performance a buyer gets out of the product
Incorporate features that enhance buyer satisfaction in non-economic or intangible ways
Outcompete rivals via superior capabilities
Incorporate product features/attributes that lower buyer’s overall costs of using product
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Importance of Perceived Value
Buyers seldom pay for value that is not perceived
Price premium of a differentiation strategy reflects
Value actually delivered to the buyer
and
Value perceived by the buyer
Actual and perceived value can differ when buyers are unable to assess their experience with a product
Signaling Value as Well as Delivering Value
Incomplete knowledge of buyers causes them to judge value based on such signals as Price Attractive packaging Extensive ad campaigns Ad content and image Seller facilities or professionalism and
personality of employees Having a list of prestigious customers
Signals of value may be as important as actual value when Nature of differentiation is hard to quantify Buyers are making first-time purchases Repurchase is infrequent Buyers are unsophisticated
When Does a Differentiation Strategy Work Best?
There are many ways to differentiate a product that have value and please customers
Buyer needs and uses are diverse
Few rivals are following a similar differentiation approach
Technological change and product innovation are fast-paced
Best-Cost Provider Strategies
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation Make an upscale product at a lower cost
Give customers more value for the money
Deliver superior value by meeting or exceeding buyer expectations on product attributes and beating their price expectations
Be the low-cost provider of a product with good-to-excellent product attributes, then use cost advantage to underprice comparable brands
Objectives
Competitive Strength of a Best-Cost Provider Strategy
Competitive advantage is based on the capability to include upscale attributes at a lower cost than rivals’ comparable products
To achieve competitive advantage, a company must be able to Incorporate attractive features
at a lower cost than rivals Manufacture a good-to-excellent quality
product at a lower cost than rivals Develop a product that delivers good-to-
excellent performance at a lower cost than rivals Provide attractive customer service at a lower
cost than rivals
When Is a Best-Cost Provider Strategy Appealing?
When buyer diversity makes product differentiation the norm
When many buyers are also sensitive to price and value
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Key Characteristics of Toyota’s Best-Cost Provider Strategy for the Lexus
Design an array of high-performance characteristics and upscale features into Lexus models to make them comparable in performance/luxury to other high-end models, i.e. Mercedes, BMW
Transfer its capabilities in making high-quality Toyota models at low cost to making premium-quality Lexus models at costs below other luxury-car makers
Use its relatively lower manufacturing costs to underprice comparable Mercedes and BMW models
Establish a new network of Lexus dealers, separate from Toyota dealers, dedicated to providing a level of personalized customer service unmatched in the industry
Focus / Niche Strategies
Involve concentrated attention on a narrow piece of the total market
Serve niche buyers better than rivals
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
Objective
Keys to Success
Geographic uniqueness
Specialized requirements in using product/service
Special product attributes appealing only to niche buyers
Approaches to Defining a Market Niche Examples of Focus Strategies
Community Coffee Specialty coffee retailer
Animal Planet and History Channel Special interest Cable TV programs
Porsche Sports cars
Bandag Specialist in truck tire recapping
CGA Inc. Specialty insurance provider
Match.com Online dating service
Focus / Niche Strategies and Competitive Advantage
Achieve lower costs than rivals in serving a well-defined buyer segment
Focused low-cost strategy
Offer a product appealing to unique preferences of a well-defined buyer segment
Focused differentiation strategy
Which hat is unique?
Approach 1
Approach 2
Deciding Which Generic Competitive Strategy to Use
Each positions a company differently in its market and competitive environment
Each establishes a central theme for how a company will endeavor to outcompete rivals
Each creates some boundaries for maneuvering as market circumstances unfold
Each points to different ways of experimenting with the basics of the strategy
Each entails differences in product line, production emphasis, marketing emphasis, and means to sustain the strategy
The big risk – Mixing and matching pieces of the generic strategies to create a mixed bag or “stuck in the middle” strategy! This rarely produces a sustainable competitive
advantage or a distinctive competitive position !
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Table 5.1: Distinguishing Features of the Five Generic Competitive Strategies
Screen graphics created by: Jana F. Kuzmicki, Ph.D.
Troy University
Companies sometimes use strategic alliances or
collaborative partnerships to complement their own strategic initiatives and strengthen their
competitiveness. Such cooperative strategies go
beyond normal company-to-company dealings but fall short of merger or full joint venture
partnership.
Strategic Alliances and Partnerships Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two or more separate companies where there is Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence
Alliances often involve Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or
products
Merger – Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired
Merger-acquisition strategy Much-used strategic option Especially suited for situations where alliances do
not provide a firm with needed capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Merger and Acquisition Strategies
To create a more cost-efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into new product categories or international markets
To gain quick access to new technologies or competitive capabilities
To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities
Objectives of Mergers and Acquisitions
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Vertical Integration Strategies
Extend a firm’s competitive scope within same industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
Internally Performed Activities, Costs, & Margins
Activities, Costs, &
Margins of Suppliers
Buyer/User Value
Chains
Activities, Costs, & Margins of
Forward Channel Allies &
Strategic Partners
Strategic Advantages of Backward Integration
Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
Potential to reduce costs exists when Suppliers have sizable profit margins
Item supplied is a major cost component
Resource requirements are easily met
Can produce a differentiation-based competitive advantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial raw materials / parts / components
Strategic Advantages of Forward Integration
To gain better access to end users and better market visibility
To compensate for undependable distribution channels which undermine steady operations
To offset the lack of a broad product line, a firm may sell directly to end users
To bypass regular distribution channels in favor of direct sales and Internet retailing which may Lower distribution costs
Produce a relative cost advantage over rivals
Enable lower selling prices to end users
Outsourcing Strategies
Outsourcing involves having outsiders perform certain value chain activities rather
than performing them internally
Internally Performed Activities
Contract Manufacturers
Vendors with specialized expertise
Distributors or Retailers
Concept
Activity can be performed better or more cheaply by outside specialists
Activity is not crucial to achieve a sustainable competitive advantage
Risk exposure to changing technology and/or changing buyer preferences is reduced
It improves firm’s ability to innovate Operations are streamlined to
Improve flexibility Cut time to get new products into the market
It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently
Firm can concentrate on “core” value chain activities that best suit its resource strengths
When Does Outsourcing an Activity Make Strategic Sense?
Matching Strategy to a Company’s Situation
Most important drivers shaping a
firm’s strategic options fall into two categories
Firm’s internal resource strengths
and weaknesses
Nature of industry and competitive
conditions
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Matching a Company’s Strategy to Different Market Conditions
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
Features of an Emerging Industry
Strategy Options for Competing in Emerging Industries
Win early race for industry leadership by employing a bold, creative strategy
Push hard to perfect technology, improve product quality, 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
Strategy Options for Competing in Emerging Industries (continued)
Pursue new customers and user applications
Enter new geographical areas Make it easy and cheap for
first-time buyers to try product
Focus advertising emphasis on Increasing frequency of use
Creating brand loyalty
Use price cuts to attract price-sensitive buyers
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 Improve its competitive standing vis-à-
vis rivals
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
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Slowing demand breeds stiffer competition More sophisticated buyers demand bargains Greater emphasis on cost and service “Topping out” problem in adding
production capacity Product innovation and new
end uses harder to come by International competition increases Industry profitability falls Mergers and acquisitions reduce
number of rivals
Industry Maturity: The Standout Features Strategy Options for Competing 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, more flexible competitive capabilities
Stagnant or Declining Industries: The Standout Features
Demand grows more slowly than economy as a whole (or even declines)
Advancing technology gives rise to better-performing substitute products or lower costs
Customer group shrinks
Changing lifestyles and buyer tastes
Rising costs of complementary products
Competitive battle ensues among industry members for the available business
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
Strategy Options for Competing in a Stagnant or Declining Industry
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
Features of Turbulent Markets
Rapid-fire technological change
Short product life-cycles
Entry of important new rivals
Frequent launches of new competitive moves
Rapidly evolving customer expectations
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Figure 6.1: Meeting the Challenge of High-Velocity Change
Invest aggressively in R&D Keep products/services fresh and exciting Develop quick response capabilities
Shift resources Adapt competencies Create new competitive capabilities Speed new products to market
Use strategic partnerships to develop specialized expertise and capabilities
Initiate fresh actions every few months
Strategy Options for Competing 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
Keys to Success in Competing in High Velocity Markets
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,
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
Examples of Fragmented Industries
Book publishing Landscaping and plant nurseries
Auto repair Restaurants and fast food
Public accounting Apparel manufacturing and retailing
Hotels and motels Health and medical care
Paperboard boxes Furniture
Competing in a Fragmented Industry: The Strategy Options
Construct and operate “formula” facilities
Become a low-cost operator
Specialize by product type
Specialize by customer type
Focus on limited geographic area
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When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Advantages What Is a Blue Ocean Strategy?
Seeks to gain a dramatic, durable competitive advantage by
Abandoning efforts to beat out competitors in existing markets and
Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and
Allowing a company to create and capture altogether new demand
What Is Different About a Blue Ocean?
Typical Market Space
Industry boundaries are defined and accepted
Competitive rules are well understood by all rivals
Companies try to outperform rivals by capturing a bigger share of existing demand
Blue Ocean Market Space
Industry does not exist yet
Industry is untainted by competition
Industry offers wide-open opportunities if a firm has a product and strategy allowing it to
Create new demand and
Avoid fighting over existing demand
To Be a First-Mover or Not?
Key issue – Is the race to market leadership in an industry a marathon or a sprint?
Seeking a competitive advantage by being a first-mover involves addressing several questions Does market takeoff depend on development of
complementary products or services not currently available?
Is new infrastructure required before buyer demand can surge?
Will buyers need to learn new skills or adopt new behaviors?
Will buyers encounter high switching costs? Are there influential competitors in a position
to delay or derail the efforts of a first-mover?