36817821. Management Framework Guiding Strategic Thinking

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JOURNAL OFMARKETINGMANAGEMENT 2009 Vol 25 No 1-2 pp 31-49

Management framework guiding strategic thinking

in rapidly changing markets

David W. Cravens, M. J. Neeley School of Business, Texas Christian

University, USANigel F. Piercy, University of Warwick, UK*

Artur Baldauf, University of Bern, Switzerland

Abstract Developing a management framework to guide strategic thinking

in changing markets is increasingly critical for researchers and executives in

coping with the complex and rapidly changing global business environment.

Conventional training and practices have too often led strategy researchers and

executives to assume a stable competitive box around existing businesses, not

recognising the effects of radical and increasingly disruptive change on markets

and competitive space. New strategic thinking logic and initiatives require a

conceptual framework to guide obtaining information, perceptive interpretation

of strategic issues and trends, and choice of the right strategic initiatives. The

conceptualisation begins by determining the market-based strategic capabilities

needed to identify the nature and scope of determinants of market changes.

These changes must be identified, driven by new competition, new business

models, and creativity and innovation. Understanding fast changing markets

requires identifying new market space, conducting strategic segmentation

analysis, and determining customer value requirements. Finally, this knowledge

guides strategic vision and formulation and implementation of market-drivenstrategies for changing markets. The framework is based on conceptual logic

and empirical findings from multiple disciplines including marketing strategy

and strategic management

Keywords Market dynamics, Market-based capabilities, Customer value,

Strategic market vision

JOURNAL OF

MARKETINGMANAGEMENT

*Correspondence details and biographies for the authors are located at the end of the article.


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Journal of Marketing Management, Volume 25

INTRODUCTION

Volatility, reinvention, and fundamental changes in markets pose unprecedentedchallenges to researchers and executives. Unfortunately, too often traditionalconceptual models and theories fail to provide adequate insight for coping with this

new and rapidly changing business environment. Traditional market perspectives andconceptual logic may even blind researchers and strategic decision makers to the realthreats present in the changing competitive landscape and new market space, and toopportunities for added value which can be uncovered and exploited (Eisenhardt andBrown 1998; Huyett and Viguerie 2005).

Executives and strategy researchers need a strategic thinking framework to guidehow they examine all markets that are relevant to the core business of interest andhow to determine the strategic implications for the relevant markets. Strategicthinking in changing markets requires developing a revised conceptual perspectiveand new thought processes concerning market analysis and targeting and positioning

strategy formulation. The intent of strategic thinking is to more fully capture andanalyse the relevant forces creating new market opportunities and business strategyrequirements. Strategy initiatives may require altering market target and positioningstrategies, adopting new business designs, and/or entering new markets. In extremesituations the change pressures may result in exiting from the core business.

Illustrative of the challenges of the turbulent and demanding business environmentare Eastman Kodak’s delayed responses to the potential impact of digital photography(The Economist 2005; The Wall Street Journal 2007). The disruptive and pervasiverepercussions of digital imaging technology on traditional camera and film marketsdemanded a rapid transformation of Kodak’s strategic vision, business design andmarket-driven strategy. The severe consequences of delayed responses to the changingmarkets included major financial losses, extensive layoffs, and plant closures. By2007 digital overhaul had reduced the 1600 acre Kodak Park in Rochester, N.Y. to700 acres. Factories producing film, paper, and related products were disappearingrapidly. Two-thirds of U.S. households had digital cameras in 2006. Kodak’sprior management (new CEO in June 2005) had failed to estimate the speed andrate of decline of purchases in film markets around the world. Moreover, digitalphotography was rapidly cannibalising sales in developing countries where a muchslower transformation of photography markets was expected by management. WhileKodak has gained the lead position in the US digital camera market, adding to Kodak’sfinancial problems are the very small margins on digital cameras.

The reality is that while some markets are stable, many are changing rapidly andsometimes without warning. These markets require modifications in management’sstrategic thinking (Eisenhardt and Brown 1999). Signals may be given by shiftingcustomer value requirements, emerging technologies, new competition, and newbusiness models resulting from industry and value chain modifications. In somesituations changes in markets may be difficult to predict and strategy initiativesmay require trial and adjustments guided by market responses. The danger is notproactively responding to the threats and requirements of fast changing markets.

Many companies and industries are confronted with an array of changes in theircore markets, presenting strategy researchers and executives with complex challenges

but also exciting opportunities. These new challenges are driven by demandingcustomers with altered value requirements, aggressive global competition, marketturbulence rapid emergence of new technologies and the escalating globalisation

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Cravens, Piercy and Baldauf Management framework guiding strategic thinking 33

The conceptual logic underlying strategic thinking in rapidly changing marketshas failed to keep pace with the rapid alterations in markets and competitive space.Strategic thinking is marketing strategy analysis and decision making guided by arevised strategic framework. The processes for analysing and interpreting the impactof changing market structures and buyers’ value requirements need to be critically

examined and revamped to assist strategic thinking in changing markets. Theassumption often made in the past was that market structure would be stable and theobjective was to target the buyers with value requirements (benefits minus costs) thatmost closely match the firm’s capabilities to deliver superior value.

Our objective is to develop a revised conceptual framework to guide strategicthinking in changing markets. The conceptual logic is presented and described. Next,each of the major dimensions of the conceptual model is examined. Finally, importantimplications of the framework are considered.

STRATEGIC THINKING IN CHANGING MARKETS

Traditional market analysis and planning efforts typically assume that a market and theaccompanying market structure are in place, the market is then segmented, and one ormore market segments are targeted. However, when market boundaries reconfiguredue to new technologies, new competition, and the creation of new business designs,markets and competitive space may be drastically altered (Eisenhardt and Martin2000). The reality is that sustaining and building competitive advantage in marketsincreasingly requires altered strategic thinking.

The proposed conceptual framework for guiding strategic thinking in rapidlychanging markets is shown in Figure 1. The continuous process consists of fourinter-related stages. First, an organisation must have, or develop, three market-based

FIGURE 1 Management framework guiding strategic thinking in rapidly-changingmarkets

MARKET-BASED

STRATEGIC

CAPABILITIES

NATURE AND SCOPE

OF MARKET CHANGES

UNDERSTANDING FAST

CHANGING MARKETS

STRATEGIES FOR

CHANGING MARKETS

• Becoming Market-Oriented

• Market Sensing and Learning

Capabilities• Becoming Customer Centered

• Identifying New Market Space

• Strategic Segmentation Analysis

• New Competition

• New Business Models

• Creativity and Innovation

• Strategic Vision

• Strategy Implementation


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strategic capabilities: (1) a market oriented culture and processes, (2) well developedmarket sensing and learning competencies, and (3) customer centered processes. Thelack of these organisational strengths may account for many companies’ failure toidentify rapidly changing markets and the strategic implications. Second , the natureand scope of market changes and their impact on customer value requirements must

be identified. Third , gaining an understanding of what is happening in fast changingmarkets requires determining if new market space has emerged, applying strategicsegmentation analysis, and examining the resulting customer value requirements. Fourth, market-focused strategies must be developed for the relevant market(s). Thismay require changing the firm’s strategic vision about the future and/or alteringmarket targeting and positioning strategies.

The purpose of the framework is to provide a conceptual logic for strategic analysisof markets encountering rapid changes. Strategic thinking in changing markets isa continuing process. Markets are impacted by new customer value requirements,new technologies, new competitors, and new business designs. Stable markets are

increasingly the exception. Change has become the norm in contemporary marketsand competitive space. In more than a few situations market changes can be predictedand strategies adapted to the expected conditions. In some situations unstableand unpredictable markets may occur, demanding responsive actions involvingstrategic risks and rapid shifts that are improved over time, guided by learning andexperience.

The mandate for perceptive strategic thinking in turbulent and fast changingmarkets is dramatically illustrated in telecommunications markets. The rapid globalexpansion of the cell phone market; TV, broadband, and phone services from cablefirms; and rapid emergence of Voiceover Internet Protocol (VOIP) are redefining thetraditional telecom’s markets and their structures, incumbents’ business designs, and

competition into new market space. Telecommunications markets are experiencinga huge transformation. Fixed-line telephone services are being negatively impactedby an array of disruptions. For example, industry authorities expect consumer longdistance revenues in 2008 to decline to only one-half of the revenues obtainedfive years previously. Digital technology is the driver. The traditional telecoms areencountering severe competitive challenges. The availability of free voice services viaVOIP threatens to destroy the pricing models of the telecommunications industry(The Economist 2006). Importantly, the speed of change continues to escalate,further compressing the time available for management to develop effective responsesand for researchers to study markets. Recall, it took 50 years for the telephone to

gain widespread diffusion and a decade for the cell phone to do the same. Internettelephony should reach a critical mass in only a few years. Markets have becomeincreasingly complex and hypercompetitive and these changes are often global inscope (D’Aveni 1994). Excess capacities in many markets are drastically alteringopportunities and competitive space.

MARKET-BASED STRATEGIC CAPABILITIES

The conceptual logic for guiding strategic thinking in changing markets begins

with the development of market-based strategic capabilities (Figure 1). Essentialorganisational initiatives are: (1) creating a market-oriented culture and capabilitiesfor providing superior customer value (2) developing effective market sensing and

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learning processes (Slater and Narver 1995), and (3) becoming customer centred.These characteristics are necessary to effective strategic thinking in rapidly changingmarkets. Market-based capabilities are used to determine the nature and scope ofmarket changes and to identify and analyse new markets and competitive space.Interestingly, the impressive success of Samsung Electronics is based in part on a

culture of “perpetual crisis”, a powerful Value Innovation Program, and a long-termstrategic vision of controlling core technologies in an era of digital convergence. Thevision calls for radical cost-cutting to retain short-term competitiveness, but sustainedinvestment in R&D for long-term competitiveness. The goal of market leadership atSamsung is based on technology, design, and building brand equity.

Becoming market oriented

Market orientation consists of an organisational culture committed to customers,and the development of processes for delivering superior customer value (Slaterand Narver 1994). The culture should span the entire organisation to encourage

the support and proactive commitment of all personnel toward the pivotal role ofthe market in guiding business strategies. Providing customers with superior valuerequires obtaining information concerning customers, competitors, and markets;sharing the information across business functions; determining the implications ofthe information; and making decisions and implementing actions to deliver superiorcustomer value. Cross-functional information diagnosis and decision making areessential process activities. There are compelling research findings from manyinternational studies which indicate market-oriented companies display strongbusiness performance.

Extensive research has been conducted on market orientation (MO) and its

antecedents and consequences (Deshpandé and Farley 2004; Kirca, Jayachandran, andBearden 2005). A substantial knowledge base has been accumulated. There is strongsupport for a positive market orientation and business performance relationship. Theresearch findings point to the importance of an active role by top management inimplementing MO. Interestingly, centralised organisational structures apparently donot hamper MO initiatives. Moreover, the findings from a dozen countries provideconsistent support for the MO and performance relationship. A note of cautionis included in the research findings indicating that MO enhances success, since itsimpact needs to be accompanied with other performances antecedents (Hult andKetchen 2001).

Pivotal role of market sensing and learning

Effective market sensing and learning capabilities are essential for continuousmonitoring of trends and events in a company’s markets, learning from theseactivities, and proactively addressing opportunities and threats (Levinthal and Nardi1993; Cohen and Levinthal 1990). Research sponsored by the Marketing ScienceInstitute found that market sensing displayed the greatest impact on business processperformance of ten market-based capabilities (Ramaswami, Bharghava, and Srivastava2004). This research provides strong conceptual and empirical support indicatingthat market sensing is important to guiding strategic thinking in rapidly changing

markets. Although the importance of market sensing competencies is recognised,there are many examples of the failure of businesses to develop and apply thesecapabilities. Market sensing is essential in designing business and marketing strategies


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and creating new market space.Importantly, business research indicates that many U.S. companies do not

respond to fast-moving markets because they are unable to “read” their markets tounderstand and adjust to what customers want. These companies are struggling tomeet the demands of increasingly competitive international markets and sophisticated

customers (Business Performance Management Forum 2006). Pattern recognitionoffers a promising process for new market opportunity recognition (Baron 2006).

Market sensing differs from conventional approaches to market research andanalysis. The goal is not the collection and reporting of data; instead, it is the processof building management’s understanding of markets and competition and how theyare likely to change in the future. The signs of superior market sensing are competitiveinsight, advantage, predictive capabilities, and responsiveness to learning. Superiorityin market sensing is the basis for knowledge-based market-driven strategy, whichcharacterises high performers in diverse sectors - Toyota in automotive, and Target inretail - all underline the principle that those who “know more” perform better than

their competitors.Illustratively, Tesco, the third largest retailer in the world, displays impressivemarket sensing and learning capabilities (Rohwedder 2006). Tesco has captured30 per cent of the British grocery market with a share double that of the nearestrival. Tesco’s information sensing is supported by an extensive database. Over twelvemillion customers use Tesco Clubcards when making purchases, obtaining discounts,and receiving incentives on special promotions. Card members generate data on 15million purchases each week. Importantly, the customer loyalty cards generate a wealthof information for use in guiding Tesco’s market targeting and positioning strategies.Suppliers like Procter & Gamble, Coca Cola, and Kimberly-Clark have access tothe database which guides them in responding to buyers’ preferences and buying

behaviour. Illustrative of the Tesco emphasis on market sensing, in preparation forentering the U.S. West coast grocery market, fifty senior executives and researchersspent two weeks living with American families in California, to better understandtheir shopping, eating, and leisure behaviour.

Becoming customer centred

The basic logic underlying market orientation is becoming customer centred. Acustomer-centric organisation provides the basis for developing close and profitablerelationships with customers (Shah et al. 2006). Customer centred initiatives are animportant market-based strategic capability. Customer centricity is a process thatseeks to create value for the customer and the enterprise.

The estimates in support of the financial return from customer-centric initiativesare compelling:

By 2007, marketers that devote at least 50 percent of their time to advanced, customer-

centric marketing processes and capabilities will achieve marketing ROI that is at least

30 percent greater than that of their peers, who lack such emphasis

(Marcus and Collins 2003, p.1)

These returns highlight the attractive value of developing customer centeredcapabilities.

There are many hurdles that prevent organisations from becoming customer-centric. Shah et al. (2006) point to four major impediments to implementing

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existing processes, and (4) financial metrics. Achieving a customer-focused culture isessential, whereas many companies have traditional cultures in place that are difficultto change. Moving the organisational structure toward a cross-functional, process-driven enterprise is necessary in placing the customer as the centre of attention.Cross-functional processes are needed to move toward customer-centric capabilities.

Finally, most companies will need to revise their financial metrics to include customerequity rather than the traditional product/brand metrics emphasis.

Shah et al. (2006) propose four major organisational change initiatives whichneed to be followed in becoming customer centric: (1) leadership commitment, (2)organisational realignment, (3) systems and process support, and (4) revised metrics.Top management commitment and support are critical in becoming customer centred.In most business firms, functionally-organised companies will need to move towardcross-functional process-driven enterprises. Achieving this form of organisation islikely to advance in stages. Similarly, cross-functional integrated processes must bedeveloped to focus on value delivery to the customer. Importantly, change avenues

must be accompanied with revised metrics that are customer centred.The change process is continuous and is likely to consume substantial effort overa long time span. Each organisation is unique although the four avenues of changeprovide a framework for action. Becoming customer-centric is a major challenge butthe performance returns are attractive.

IDENTIFYING THE NATURE AND SCOPE OF MARKET CHANGES

Perceptive strategic thinking requires determining the nature and scope of marketchanges. When and where are the changes occurring? What forces are driving thechanges? Indications of fast changing markets are new forms of competition, newbusiness models, and creativity and innovation. Market-based strategic capabilitiesare necessary to identify rapidly changing markets and the implications for a specificfirm and the relevant industry(ies).

New competition

Often, conventional training and practices have pushed strategy researchers andexecutives toward defining a stable “competitive box” around existing businesses -defined by technology, geography, competitors, and the present customer base. Based

on the false security of the competitive box, analytical tools can be successfully applied,research can be carried out, and plans can be made. But such static and artificialprocesses deny the reality that the real threats as well as important opportunities maybe found outside the competitive box shown in Figure 2. With increasing frequency,the future belongs to new types of competition and new business models, which bothdrive market growth and attack the existing customer base of incumbents’ markets.The result is the creation of one or more new customer bases. Understanding fastchanging markets and guiding the strategic initiatives appropriate for these marketsrequires incorporation of new strategic thinking conceptual logic and perspectivesthat break executives’ and researchers’ mind-sets away from the potentially fataltraps of conventional thinking (Sull and Escobari 2004).

It is important to identify and evaluate the challenges occurring in each marketof interest to the organisation. Consideration of opportunities and threats outside

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as scenario planning may provide an enhanced vision of the periphery (Day andSchoemaker 2005). These initiatives should bring into clear focus how the market ofinterest is changing and help to highlight the resulting strategy implications. Market-based capabilities need to be applied to determine the relevant market structure(s)and how each market is expected to change in the future.

New business models

New business models are likely to impact existing firms and industries by offeringbuyers alternative customer value options. A market-driven company may identify anew business model opportunity that appears promising. Alternatively, new businessmodels may emerge that pose potential threats to existing firms. The challenge instrategic thinking by a company is to identify new business model opportunities anddecide whether to pursue them. Those options not of interest to management may,nevertheless, present competitive threats.

Successful management initiatives to respond and shape market change maychallenge existing cultures and processes within companies. Faced with the mission

to find market areas that were entirely new to IBM, and capable of growingprofitable billion-dollar-plus businesses in five to seven years, IBM’s managementd l d “ i b i i i ” (EBO ) (B h i C l

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THE COMPETITIVE BOX

TRADITIONAL

COMPETITORS

New

Business

Models

New

CustomersConventional Value

Propositions

Existing

Customer

Base

New

CustomerBase(s)

New Types

of

Competition

New

Customers

FIGURE 2 Opportunities outside the competitive box


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and White 2000). The challenge was to break away from a culture where the mostprestigious executive assignments were to manage large established businesses, andpursue opportunities where the most talented and experienced executives work onnew ventures rather than focusing on short-term results in current markets. EBOsfrequently cut across IBM’s organisational structure. In the first five years of the

initiative, IBM launched 25 EBOs, with two being closed after the pilot stage, butthe remaining 23 produced annual revenue of $15 billion, and were growing at morethan 40 percent a year. The IBM initiative recognises the need to manage multiplestrategic horizons – where EBO businesses are speculative and visionary and may notpay off for 5 to 10 years or longer.

Critical to the success of initiating successful processes for strategic thinking inchanging markets is a strong commitment and involvement by top management. Topexecutives must recognise and support the possibility that change initiatives may benecessary. The life cycle stage of the industry and the rate of technological changeare important indicators of the need for strategic and organisational change (Lei and

Slocum 2005). Assessment of these change dimensions provides top managementwith a basis for determining the extent that strategy and organisational modificationsare needed.

Challenges to management commitment and vision from realignments may besubstantial. For example, at Kodak radical restructuring and transformation werenecessary to align the business model with a converging, digital marketplace. Dramaticchange to Kodak’s deeply-engrained core business model of film photographyincludes: partnership with Motorola to extend camera-based imaging; partnershipwith Skype to create “digital storytelling” combining live voice with online photo-sharing; large investments in digital commercial print and medical imaging; and,plans for search software, such as facial recognition.

Creativity and innovation

Innovation is critical to growth and performance in the marketplace. Importantly,innovation is a key contributor to rapidly changing markets. Initiatives may result innew goods and services, organisational processes, and business models. Identifyingchanges in markets and competitive space requires monitoring emerging technologiesas well as pursuing innovation opportunities by companies. Successful firms mustdevelop business processes to identify and pursue promising innovation ideas. Thereis substantial research support that creativity and innovation create competitiveadvantage and value for customers (Christensen and Raynor 2003).

Innovations range from radical (and sometimes disruptive) initiatives toincremental improvements in products and processes. Radical innovations have thegreatest impact on market changes. Google is an impressive example of innovation inaction. The firm has developed a powerful innovation culture and processes. Googleis recognised as one of the most innovative companies in the world (ranked No. 2behind Apple by Business Week in 2007).

Disruptive innovations. Disruptive innovations provide simpler and less costlyoptions to the customer value contributed by the products of incumbent firms servingthe market (Christensen, Roth, and Anthony 2004). Conceptual logic underlyingthe disruptive model of innovation is very relevant in predicting industry change

(Christensen and Raynor 2003, Chapter 2). Examples of disruptive innovations andnew business models are illustrated by the impact of Amazon.com on traditionalb k di b k i b Ch l S h b il l i d



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steel mini-mills on integrated mills. Opportunities are created for innovations whenthe products of incumbent firms in the market exceed the value requirements ofbuyers. Disruptive innovations may meet the needs of new segments or entire markets.Digital cameras in cell phones are dramatically expanding the digital photographymarket. A disruptive innovation has the potential to negatively alter a market and

the firms serving the market when there is not a good fit between customer valuerequirements and incumbents’ products.

Discount airlines such as JetBlue, Ryanair, Southwest Airlines and AirAsia havedisrupted the markets of traditional airlines, forcing several major carriers intobankruptcy. However, what is also increasingly clear is that even when disruptiveinnovation is recognised by incumbent firms, simple imitation will rarely provide aneffective response. Faced with disruptive innovation by “no-frills” airlines like easyJetand Ryanair in Europe, conventional full-service airlines responded to the challenges. After an initial period of denial based on the optimistic and incorrect assumption thatEuropeans would not fly on aircraft with no food, the conventional airlines offered

their own “no-frills” services. British Airways launched “Go” and KLM launchedBuzz. Both ventures were ineffective in competing with easyJet and Ryanair, andsucceeded only in cannibalising BA and KLM sales. “Go” and Buzz operated fora short period, and then were sold to easyJet and Ryanair, further increasing theirpassenger capacity. By 2010 the “no-frills” airlines are likely to hold more than a thirdof the European internal flight market. Importantly, “no-frills” operators employ adifferent business model which it is very difficult for full-service flyers to replicate.

Similarly, the dominance of the personal computer (PC) business by the “Big Three”– Microsoft, Intel, and Dell – is changing because the market is developing in waysthat these companies can no longer control. The emphasis by Microsoft on softwareupgrades, by Intel on faster chips and by Dell on supply chain efficiency, is increasingly

seen by users as resulting in bloated software with too many functions, faster butinefficient chips, and poor customer service. In 2006, Microsoft was struggling to geta new version (incremental innovation) of Windows to market and trying to imitateGoogle’s approach to software development. Intel’s strategy has been undermined by AMD’s better designed chips which Intel now has to equal, and Dell is establishingadditional distribution channels to access consumer buyers. Remarkably, others havefound ways to make money from the PC – a computing platform that was consideredsecure in the hands of Microsoft, Intel, and Dell (Walters 2006).

Identifying disruptive innovation threats and developing counter-strategies areimportant initiatives for the incumbents in the market. However, incumbent firms

may not proactively respond to disruptive threats, or may be slow in responding.Failure to respond may threaten the survival of a business. Disruptive innovationsare increasingly likely across various technologies and industries. Analysis of thesechallenges to incumbent firms can often be identified through perceptive marketsensing (Ramaswami, Bharghava, and Srivastava 2004). A major hurdle is complacencyand management’s hesitancy to shift attention outside the competitive box (Figure2). When early signals begin appearing that markets are changing, strategic thinkinginitiatives need to be evaluated and implemented.

Commoditisation threats. When product architectures (designs) becomemodularised (comprised of standardised components) commoditisation occurs,

making it difficult to earn anything more than subsistence returns (Christensen andRaynor 2003). When commoditisation occurs, the opportunity for profits is likelyto move to another stage in the value chain and may lead to business model changes.

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opportunity for profits has shifted to microprocessors and operating system software.Commoditisation was an important driver for IBM’s management in its decision toexit from the PC market, selling the business to China’s leading PC company.

The potential impact of commoditisation in markets underlines the importanceof developing a vision about the market and how it is likely to change in the future,

and determining the business strategy implications. In advance of commoditisation,strategies need to be shaped to counter the effects of profit shifts in the value chain.Strategies to counter commoditisation threats may involve competing at a differentstage in the value chain or moving into a different product category that offersattractive growth and profit opportunities.

Interestingly, Dell Inc. has used the effects of commoditisation to create acompetitive advantage by focusing innovation initiatives on its effective and efficientvalue chain business model. Dell’s market entry strategy is to leverage its value chaincapabilities into markets where commoditisation is underway. Modular productarchitectures enable the use of standardised components and partnering with suppliers

as illustrated by Dell’s move into the printer market. Dell’s competitive edge is lowcosts achieved from its very efficient value chain processes. Nonetheless, the slowingof Dell’s growth in 2005 saw the cost advantage over rivals narrowing, raising thequestion of whether Dell faces threats from new competitors with disruptive businessmodels of their own, particularly in challenging new markets like China. Dell spendsless on research and development than Apple Computer Inc., yet Dell’s revenues arefour times larger (Lee 2006).

UNDERSTANDING FAST CHANGING MARKETS

Once the nature and scope of market changes are determined it is important to gaina depth of understanding of the fast changing markets of interest to the researcherand/or the executive. As conceptualised in the third stage of Figure 1, new marketspace must be defined and analysed. Where customer value requirements have beenaltered due to changes in the market(s) of interest, strategic segmentation analysis isrequired. Finally, customer value requirements must be spelled out for each marketsegment of interest.

Identifying new market space

Kim and Mauborgne (2005) offer compelling conceptual logic into how companies cancreate new market space. These initiatives involve finding and pursuing opportunitiesto offer new value in markets and segments that are not being served. The intent is tofind new opportunities that have customer value requirements which are not beingsatisfied by existing products. As an illustration, unit sales of camera phones areseveral times greater than digital camera sales. By incorporating the camera into thecell phone, customers have access to digital photography at minimal cost, since thecamera is subsidised by the wireless subscription charges. This creates new users ofdigital cameras and new applications by existing users.

Further evidence that “convergence” is back in fashion comes with Sprint’s attackon Apple’s iTunes business, with the 2005 launch of the Sprint Music Store enablingsubscribers to download music to their cellphones (and a copy to their PCs). Newgenerations of cellphones will be capable of downloading movies and television


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database, triggered by the phone user capturing an in-store barcode. Importantly,while the business opportunities in new markets are awesome, finding new marketspace requires changing management’s normal strategic perspective of looking formarket opportunities inside the competitive box as discussed earlier (see Figure 2).

Creating new market space should be a proactive initiative that may be undertaken

by an existing firm or a start-up like Google Inc. Every company should devoteattention to identifying and evaluating new market space opportunities. The extentof corporate effort will depend on size, resources, distinctive capabilities, and theattractiveness of the core business.

By the early 2000s it was apparent that Limited Brands had accomplished a majordiversification from its core women’s retail apparel business into skin-care products,cosmetics, and lingerie. During the decade ending in 2004 Limited’s apparel businessdeclined from 70 percent of total sales to 30 percent while the accessories businessexpanded to 70 percent of the total. Importantly, these major changes in Limited’sbusiness composition were guided by management’s strategic thinking in its changing

markets and the resulting perceptive vision about how Limited Brands’ markets wereexpected to change. Management correctly anticipated the growth slow down inapparel sales and strong competition from discount retailers coupled with attractiveand expanding opportunities in the accessories markets. By 2008 Limited Brands hadspun off or sold most of its apparel business.

Actual and potential challenges to an organisation’s existing market(s) mustbe identified and evaluated. The danger is dismissing a future threat (e.g. digitalphotography) as unlikely to impact the incumbent business when the reality is thatthe threat should be investigated. Out-of-the box strategic thinking is essential andshould not be constrained by loyalty to the core business. Potential market changes,their challenges, and the strategy implications for each market of interest to the

business should be determined. This process must be ongoing rather than initiated asmarket change situations occur, since such reactive initiatives are often too late.

Defining and analysing markets and competitive space are essential to guidingstrategic thinking in changing markets. Too often over-simplified views of marketshave negatively impacted business and marketing strategies. The reality is thatmarkets have been increasingly complex, turbulent, and interrelated. An over-simplified understanding of markets occurs when market boundaries are perceivedto be too narrow in scope and fail to include relevant buyers and competitors. Usingan industry rather than a product-market focus is likely to mask alternative ways ofmeeting buyers’ needs through products available from other industries. Assuming

the stability of the market is also a potential danger. Increasingly, markets are intransition from stable to fast changing (Eisenhardt and Martin 2000). Continuousmarket sensing will provide important change warnings as illustrated by LimitedBrand’s perceptive sensing of unfavourable changes in its apparel markets.

Strategic segmentation analysis

Market segmentation is a critical part of the strategic thinking process in changingmarkets. Application of market-based capabilities is essential in guiding strategic marketsegmentation initiatives. The core focus is on finding and exploiting customer value-driven segmentation opportunities. Segmentation groupings may require changes as

markets grow and move toward maturity, and when disruptive innovations occur.Importantly, while market segmentation is a conventional management concept and

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focus too much on narrow, demographic segments and trivial product extensions,instead of examining what jobs customers need to get done and pursuing innovationinitiatives to meet those needs (Christensen, Cook, and Hall 2005). Segmentationguided by customer value analysis provides the opportunity to re-think and redesignthe business model.

Segments exist when responsiveness differs between groups of buyers concerningreactions to the organisation’s customer value delivery efforts (product, value chain,price, and promotion strategies). Response differences occur when customers’ value(benefits-costs) requirements differ across segments and the segments can be identifiedand accessed by marketing initiatives.

Identifying buyers’ value requirements and placing those which are similar intoeach segment is increasingly difficult to accomplish in complex and dynamic markets.Too often researchers and strategists focus on finding differences concerning buyers’characteristics (e.g. income, age, lifestyle, etc.), but do not relate this information tobuyers’ value requirements. Not surprisingly, the result is often flawed segmentation

logic. Improving value-driven segmentation initiatives is a major challenge in theincreasingly diverse and complex market structures that exist today. Segmentationon an international scale compounds the analysis and decision-making challenges.Nonetheless, guided by sound conceptual logic and the use of well developed marketsensing capabilities, effective segmentation is both feasible and cost-effective.

Customer value requirements

Market segmentation is essential in identifying the customers who offer the mostpromising value and cost opportunities to an organisation. These customers displaystrong buying power and the costs of serving them are acceptable. Valuable customers

may be present in the existing customer base, or in other markets served by disruptiveinnovations. Segmentation efforts to find valuable customers may be guided by howthe goods or services are used, buyers’ needs and preferences, and purchase behaviourand loyalty.

Consider, for example, the success of Whole Foods Market, a U.S. retailer servingbuyers with value preferences for organic and natural foods. Whole Foods enteredthe highly competitive retail grocery market nearly 30 years ago and double digitgrowth rates rapidly advanced the retailer’s sales to an estimated $7.5 billion in2008. An important success factor was management’s decision to target middleincome consumers with value requirements for natural foods.

Developing customer relationships provides important insights into customer valuerequirements. There is a high level of interest in customer relationship management(CRM) by academics and executives around the world, although the success recordfor planning and implementing CRM strategies has been mixed (Payne and Frow2005). Nonetheless, the importance of CRM is widely acknowledged. EffectiveCRM requires a deep understanding of customers’ value requirements matchedwith effective management processes for meeting the requirements. Applying CRM“requires that organizations (a) identify and focus resources on high-value customers, and (b) attract them by capturing and using knowledge about them by maximizing thevalue of their relationship with the organization.” (Ramaswami, Bharghava, Srivastava2004, p. 53). A new research stream is generating important findings concerning

CRM (see, for example, Journal of Marketing Special Issue on Customer RelationshipManagement, October 2005).

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oriented companies. Customer value is achieved by offering benefits that exceed thecosts of the benefits provided. The challenge in delivering superior value is finding thebest match between customer’s value requirement and the organisation’s distinctivecompetencies for meeting value requirements. Customer value delivery results infinding the most promising high-value opportunities and developing effective CRM

processes for delivering value and monitoring results.

STRATEGIES FOR CHANGING MARKETS

The final stage in the conceptual framework for strategic thinking in changing marketsis developing strategies for gaining competitive advantage in fast-changing markets(Figure 1). Strategy development requires forming a strategic vision and selecting andimplementing the market targeting strategy, and positioning strategy for each markettarget. At the centre of the process is understanding markets and competitive space.

Strategic vision

Selecting strategies for fast changing markets begins with the identification andevaluation of potential market changes and the strategy implications. Emerging fromthis process should be a strategic vision for the future. This vision provides the basisfor developing strategic targeting and positioning changes (if required) based on theimplications of the vision (e.g. changes in market boundaries and structure). Targetingand positioning matches customer value opportunities against the firm’s distinctivecore capabilities (new product management, customer relationship management, and/or value chain management) (Hagel and Singer 1999; Srivastava et al. 1998, 1999).

In dynamic markets the thrust of corporate capabilities is centred on these processes.The customer value requirements of segments which correspond best to the firm’scapabilities are selected to become one or more market targets and a positioningstrategy is developed to deliver superior customer value in each target.

Developing a vision about the future concerning markets and competitive space isessential in guiding strategic initiatives. Addressing the questions shown in Figure 3provides the basis for formulating the vision. The importance of this vision capabilityis demonstrated by the perceptive shifts in IBM’s business and marketing strategiesover the last decade, guided by management’s vision about how its markets andcompetitive space were expected to change. These changes in strategic direction

were influenced by management’s belief that commoditisation would negativelyimpact large segments of computer hardware and software businesses. Management’sstrategic vision indicated the need to align IBM’s business design to a different stagein the value chain (business services) to avoid the negative impact of commoditisationon the firm’s market and financial performance.

Market sensing is an essential capability in guiding development of a strategicvision about the future. Information must be acquired about the market(s) ofinterest, shared across functions, assessed as to the present and future implications,and strategic initiatives pursued which are based on management’s expectationsabout the future (Slater and Narver 1994). Strategic vision guides innovation, theorganisation’s product and market scope, segmentation, and market targeting andpositioning strategies.

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Strategy implementation

The implementation challenges for strategy researchers and executives in developingand refining the strategic thinking process are considerable. Strategic thinking inchanging markets is a continuing process rather than ad hoc initiatives. The processbegins with identifying opportunities and threats outside the competitive box. Theframework for strategic thinking in changing markets (Figure 1) highlights importantaction requirements for developing strategies in changing markets. Achieving thepotential benefits requires several initiatives:

• Make the challenge for new vision explicit across and throughout the

organisation.• Challenge the definitions of markets and segments used by consultants and

executives who produce marketing and business plans, and actively pursue“what if” questions about new types of customers and new types of competition.

• Encourage executives to consider the entire value chain and the changing patternof profit pools within it, as a basis for long-term business development andinvestment choices.

• Question the logic and process of market segmentation pursued and determinewhether segmentation is based on traditional demographic classifications orunderstanding of value-seeking differences between customers.

• Identify and pursue efforts to enhance market sensing and learning capabilitiesas a source of competitive advantage and strategic vision.

• Examine the possible need to establish new business models, separate from thecore business, to pursue emerging business initiatives.

An important challenge to implementing strategic changes is determining the extentand structure of organisational design adaptation. Depending on the nature of strategicchange a new type of organisation may be necessary to navigate the competitivelandscape and build competitive advantage (Hitt, Keats, and DeMarie 1998). Inturbulent environments, traditional hierarchy structures constrain implementation;cross-functional process-oriented structures may be essential. Shifting emphasistoward innovation, pro-activeness, and risk taking is necessary in responding to

FIGURE 3 Developing a strategic vision

• At what life-cycle stage is the product-market (new, growth, maturity, decline) and

how fast is the life cycle advancing?

• Are product-market boundaries and composition undergoing transformation?

• How and to what extent is the end-user customer base changing?• Are the scope and structure of competitor space changing due to market and industry

transformation and entry/exit of competitors?

• Are there potential threats from disruptive technologies and/or commoditisation?

• Are the composition and structure of the value chain(s) serving the end-user

market(s) changing?

• Do other influences operating in the product-market have the potential to significantly

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Surprisingly, the progress in organisational design transformation has been slowcompared to strategy initiatives. Exceptions include IBM and Procter and Gamble.Creating separate business units may be necessary for strategy initiatives involvingmajor shifts away from the core business strategies.

IMPLICATIONS AND RESEARCH DIRECTIONS

As evidenced by our development and discussion of the Figure 1 conceptual framework,there is substantial research support for several dimensions of the conceptualisation.However, the contributions are fragmented and, in some instances, incomplete. Ourobjective has been to incorporate relevant concepts, research findings, and otherknowledge in developing an integrated conceptual framework of strategic thinkingin rapidly changing markets. The conceptualisation can be used in research studiesconducted in rapidly changing markets and by executives competing in these

markets.Research findings and conceptual support for the Figure 1 framework differ

across the four dimensions. Market-based Strategic Capabilities appears to be themost well developed portion of the framework. The capabilities have been examinedby researchers and companies, or knowledge exists as to how to do so. Identifyingthe Nature and Scope of Market Changes is best characterised as at the developingstage. Research has been reported on new forms of competition and new businessmodels. Innovation processes have received substantial attention by researchers andexecutives. Clayton Christensen at Harvard Business School has been the primarycontributor to the study of disruptive innovation. More research on this phase ofstrategic thinking is needed.

Processes for Understanding Fast Changing Markets are advancing but moreattention is needed. The need to identify new market space is clearly recognised,although the concepts and capabilities for doing so require additional researchattention. Segmentation analysis is well developed but applying this knowledge infast changing markets needs to be expanded. The attention in recent years given tocustomer relationship management has contributed substantially to understandingcustomer value requirements.

Knowledge about developing Strategies for Changing Markets is limited. Thevalue of strategic vision is recognised but processes for vision development requireexecutive and research attention. Similarly, the need for strategy implementation

is apparent but the challenges of implementation in rapidly changing markets arecomplex. In business practice trial and error approaches have been used.

One factor which has contributed to the difficulty of development of conceptuallogic for strategic thinking in rapidly changing markets is that much of the researchon the dimensions of the Figure 1 framework has been accomplished in differentdisciplines. Market-based strategic capabilities have received extensive attention bymarketing academics. Leadership concerning the nature and scope of market changeshas been provided by researchers in strategic management. Understanding fastchanging markets has been of interest to both marketing and strategic managementscholars. Research interest in strategies for changing markets has not been extensive,

with strategic management scholars the most active in the topic area. Of course,traditional approaches to market targeting and positioning are of continuing interestto marketing scholars and executives

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Progress in developing and testing the conceptual framework will benefit frominvolvement by research teams from the relevant academic disciplines. The nextstage proposed is further development of the Figure 1 framework followed byformulation of research propositions. After additional conceptual study, empiricaltesting should be considered. However, the number of constructs and relationships

will be challenging.

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p. 19.

ABOUT THE AUTHORS AND CORRESPONDENCE

David W. Cravens is Emeritus Professor of Marketing and previously the Eunice and James L. West Chair of American Enterprise Studies, M. J. Neeley School of Business,Texas Christian University. He has published over 150 articles and 30 books. He hastaught and conducted executive seminars in many countries. He is the co-author ofStrategic Marketing , McGraw-Hill/Irwin, 2009, and former editor of the Journal ofthe Academy of Marketing Science. He received the American Marketing AssociationSelling and Sales Management Lifetime Achievement Award in 2002. He was selectedas the 1996 Academy of Marketing Science Outstanding Marketing Educator.

Professor David W. Cravens, M. J. Neeley School of Business, Texas ChristianUniversity, TCU Box 298530, Fort Worth, TX 76129, USA

T +1 817 257 7555 F +1 817 257 7227 E [email protected]

Nigel F. Piercy is Professor in Marketing and Strategic Management, Warwick BusinessSchool, The University of Warwick, UK. He holds a PhD from the University of Wales and a higher doctorate (DLitt) from Heriot-Watt University, Edinburgh. His

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current research interests focus on strategic sales and account management. His workhas been published in many journals including Organizational Dynamics, the Journalof World Business, the British Journal of Management, the Journal of Marketing , andthe Journal of the Academy of Marketing Science.

Corresponding author: Professor Nigel F. Piercy, Warwick Business School, TheUniversity of Warwick, Coventry CV4 7AL, UK

T +44 24 7652 3911 F +44 24 7652 4628 E [email protected]

Artur Baldauf is a Professor of Management and Chair of the ManagementDepartment at the University of Bern, Switzerland. He has also been a VisitingMarketing Professor at Texas Christian University, USA and at Bocconi University,Italy. He researches strategic management and sales force management focusing onsales management control and effectiveness issues. His research has been published in

international and national journals. Artur teaches Strategy and Business Research atthe University of Bern and several other educational institutions. Consulting advicehas been given to clients such as Amway, Coca Cola Amatil, Swisscom, Siemens.

Professor Artur Baldauf, Management Department, University of Bern,Engehaldenstrasse 4, 3012 Bern, Switzerland

T +41 31 631 5331

F +41 31 631 5332 E [email protected]


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36817821. Management Framework Guiding Strategic Thinking

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