Tailoring Strategy to Fit Specific Industry and Company SituationsStrategic Management

In a turbulent age, the only dependable advantage is reinventing your business model before circumstances force you toGary Hamel and Liisa Valikangas

Matching Strategy toa Companys SituationMost important drivers shaping a firms strategic options fall into two categoriesFirms competitive capabilities, market position, best opportunitiesNature of industry and competitive conditions

Features of an Emerging Industry1.New and unproven market- How it will function?\- How will it grow?- How big it will get?2.Lack of consensus regarding which of several competing technologies will win outTechnological know-how closely guarded- Patents and unique technical expertise may be the source of competitive advantage- Numerous companies may have access to the requisite technology and racing to perfect it in collaboration with each other- Competing technological approaches; uncertainty regarding which approach will win3. Low entry barriers- Larger well known opportunity seeking companies with ample resources and competitive capabilities likely to enter

Features of an Emerging Industry4. Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns5. Experience curve effects may permit cost reductions as volume builds6. First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures7. Possible difficulties in securing raw materials8. Firms struggle to fund R&D, operations and build resource capabilities for rapid growth

Strategy Options for Competing in Emerging IndustriesWin early race for industry leadership by employing a bold, creative strategyPush hard to perfect technology, improve product quality, and develop attractive performance featuresConsider merging with or acquiring another firm toGain added expertisePool resource strengthsWhen technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly Form strategic alliances withCompanies having related technological expertise or Key suppliers

Strategy Options for Competing in Emerging Industries (continued)Pursue new customers and user applicationsEnter new geographical areasMake it easy and cheap for first-time buyers to try productFocus advertising emphasis onIncreasing frequency of use Creating brand loyaltyUse price cuts to attract price-sensitive buyers

Strategic Hurdles for Companiesin Emerging IndustriesRaising capital to finance initial operations untilSales and revenues take offProfits appearCash flows turn positiveDeveloping a strategy to ride the wave of industry growthWhat market segments to pursue?What competitive advantages to go after?Managing the rapid expansion of facilities and sales to position a company to contend for industry leadershipDefending against competitors trying to horn in on the companys success

What Is the Key to Success forCompeting in Rapidly Growing Markets?A company needs a strategy predicated on growing faster than the market average so itCan boost its market share andImprove its competitive standing vis--vis rivals

Strategy Options for Competing in Rapidly Growing MarketsDrive down costs per unit to enable price reductions that attract droves of new customersPursue rapid product innovation toSet a companys product offering apart from rivalsIncorporate attributes to appeal to growing numbers of customersGain access to additional distribution channels and sales outletsExpand a companys geographic coverageExpand product line to add models/styles to appeal to a wider range of buyers

Industry Maturity: The Standout FeaturesSlowing demand breeds stiffer competitionMore sophisticated buyers demand bargainsGreater emphasis on cost and serviceTopping out problem in adding production capacityProduct innovation and new end uses harder to come byInternational competition increasesIndustry profitability fallsMergers and acquisitions reduce number of rivals

Strategy Options for Competingin a Mature Industry1. Prune marginal products and models- maintaining many product versions works against achieving design, parts inventory, & production economies, and- increase inventory, stocking costs for distributors and retailers- prices of slow moving versions may not cover their costs- pruning opens up doors for cost savings - permits concentration on those items whose margins are higher and company has competitive advantage

Strategy Options for Competingin a Mature Industry2.Emphasize innovation in the value chainEfforts to reinvent the industry value chain has four fold pay off- lower costs, - better product or service quality, - capability to turnout multiple or customized product versions- shorter speed to market cycleManufacturers can:- mechanize high cost activities- redesign production lines to increase labor efficiencySuppliers, distributors and manufacturers can: - collaboratively deploy online systems and product coding techniques to streamline activities and achieve cost-savings all along the system

Strategy Options for Competingin a Mature Industry3. Strong focus on cost reduction- pushing suppliers for better prices- implementing tighter supply chain management practices- cutting low value activities out of value chain- economical product design- re-engineering internal processesIncrease sales to present customersPurchase rivals at bargain pricesExpand internationally7.Build new, more flexible competitive capabilities- adding new competencies and capabilities- deepening existing capabilities to make it harder to copy

Strategic Pitfalls in a Maturing IndustryEmploying a ho-hum strategy with no distinctive features thus leaving the firm stuck in the middleBeing slow to mount a defense against stiffening competitive pressures Concentrating on short-term profits rather than strengthening long-term competitiveness Being slow to respond to price-cuttingHaving too much excess capacityOverspending on marketingFailing to aggressively pursue cost reductions

Stagnant or Declining Industries:The Standout FeaturesDemand grows more slowly than economy as whole (or even declines)Advancing technology gives rise to better-performing substitute productsCustomer group shrinksChanging lifestyles and buyer tastesRising costs of complementary productsCompetitive battle ensues among industry members for the available business

Strategy Options for Competingin a Stagnant or Declining IndustryPursue focus strategy aimed at more profitable market segmentsStress differentiation based on quality improvement or product innovationWork diligently to drive costs downCut marginal activities from value chain Use outsourcingRedesign internal processes to exploit e-commerceConsolidate under-utilized production facilitiesAdd more distribution channelsClose low-volume, high-cost distribution outletsPrune marginal products

End-Game Strategiesfor Declining IndustriesAn end-game strategy can take either of two pathsSlow-exit strategy involvingGradual phasing down of operationsGetting the most cash flow from the businessFast-exit strategy involvingDisengaging from an industry during early stages of declineQuick recovery of as much of a companys investment as possible

Features of High-Velocity MarketsRapid-fire technological changeShort product life-cyclesEntry of important new rivalsFrequent launches of new competitive movesRapidly evolving customer expectations

Ways to Cope with Rapid ChangeA company can assume any of the three strategic posturesIt can react to change- respond to rivals new product with a better product- respond to unexpected changes in buyers needs and preferences- shift advertising emphasis to different product attributesReacting is a defensive strategy; it is unlikely to create fresh opportunities, but is nonetheless a necessary component in companys arsenal of options

Ways to cope with Rapid Change2. It can anticipate change- anticipating/looking ahead to analyze what is likely to occur and then preparing and positioning for future- studying buyers behavior, buyers needs, buyers expectations to get insight of market- Anticipating change is fundamentally defensive in that forces outside the enterprise are in driving seat- Anticipating change can open up new opportunities and a better way to manage change than just pure reaction

Ways to Cope with Rapid Change3. It can lead changeEntails initiating the market and competitive forces so that others must respondIt is an offensive strategy aimed at putting the company in the driving seat. It means:- being the first to market a new product or service- being the technological leader- rushing next generation products to market ahead of rivals- having products whose features and attributes shape customer preferences and expectationsCompanys approach to manage should ideally incorporate all three posturesThe best performing companies in high velocity markets consistently seek to lead change with proactive strategies that entail the flexibility to pursue several strategic options, depending on how the market actually evolves

Fig. 8.1: Meeting the Challenge of High-Velocity Change

Strategy Options for Competingin High-Velocity Markets1. Invest aggressively in R&DWhere technology is the primary driver of change translating technological advances into innovative new products is necessaryIt is desirable to focus the R&D efforts to critical areas as it:- avoids stretching the company resources too thin- deepens the firms expertise in mastering the technology- fully captures experience/ learning curve effects- becomes dominant leader in particular technology or product categoryA fast evolving market environment entails many technological areas and product categoriesCompetitors have to employ some type of focus strategy and concentrate on being the leader in a particular product/ technology category

Strategy Options for Competingin High-Velocity Markets2. Keep the companys products and services fresh and exciting to stand out in the midst of change that is taking placeOne risk of rapid change is that products and even companies are lost in the shuffle- keep the firms products and services in the limelight- keep them innovative and well matched to the changes that are occurring in the market place3. Develop quick response capabilities Shift resourcesAdapt competenciesCreate new competitive capabilitiesSpeed new products to market

Strategy Options for Competingin High-Velocity Markets4. Rely on strategic partnership with outside suppliers and companies making tie-in productsIn high velocity industries technology branches off to create many new technologies and product categoriesNo company has the resources and competencies to pursue them all Desirable strategies are:- Specialization to promote necessary technical depth- focus to preserve organizational agility and leverage firms expertiseCompanies build their competitive position by:- strengthening their own internal resource base- partnering with those suppliers making state-of-the-art parts and components by collaborating closely with both the developers of related technologies and makers of the tie-in- product An outsourcing strategy allows the company the flexibility to replace suppliers who: - fall behind on technology or product feature- cease to be competitive on price

Strategy Options for Competingin High-Velocity Markets5. Initiate fresh actions every few months, not just when a competitive response is neededChange is partly triggered by passage of time rather than solely by the occurrence of eventsA company can be proactive by making time based moves- introducing a new, improved product every four months rather than when the market tapers off or a rival introduces next generation model- a company can expand into new geographic market every six months rather than waiting for new market opportunity to present itself- can refresh existing brands every two years rather than waiting until their popularity wanesThe keys to successfully using time pacing as strategic weapons are:- choosing intervals that make sense internally and externally- establishing an internal organizational rhythm for change- choreographing the transitions

Keys to Success in Competingin High Velocity MarketsCutting-edge expertiseSpeed in responding to new developmentsCollaboration with othersAgilityInnovativenessOpportunismResource flexibilityFirst-to-market capabilities

Examples of Fragmented IndustriesBook publishingConstruction & Real EstateAuto repairRestaurant industryPublic accountingWomens dressesPaperboard boxesHotels and MotelsFurniture

Competitive Featuresof a Fragmented IndustryAbsence of market leaders with large market shares or widespread buyer recognitionProduct/service is delivered to neighborhood locations to be convenient to local residentsBuyer demand is so diverse that many firms are required to satisfy buyer needsLow entry barriers

Competitive Featuresof a Fragmented IndustryAbsence of scale economiesMarket for industrys product/service may be globalizing, thus putting many companies across the world in same market arenaExploding 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

Competing in a Fragmented Industry: The Strategy Options1. Construct and operate formula facilitiesThe strategic approach frequently employed in restaurant and retailing industryIt involves constructing standardized outlets in favorable locations and then operating them cost effectively2. Become a low-cost operatorWhen price competition is intense and profit margins are under constant pressure, companies can stress no-frills operations featuring:- low overhead- high productivity/ low-cost labor- lean capital budget- dedicated pursuit of total labor operating efficiency Successful low cost producers in fragmented industry can play price discounting game and earn profits above the industry average

Competing in a Fragmented Industry: The Strategy Options3. Specialize by product typeWhen fragmented industrys products include a range of styles or services- furniture industry- auto repair4. Specialize by customer typeA firm can stake out a market niche by catering to customers:- interested in low prices- unique product attributes- customized features5. Focus on limited geographic areaConcentrating company efforts on a limited territory can produce:- greater operating efficiency- speed delivery and customer service- promote strong brand awareness- permit saturation advertisement

Strategies for Sustaining Rapid Company Growth Horizon 1: Short jump strategic initiatives to fortify and extend the companys position in existing businessThe objective is to capitalize fully on whatever growth potential exists in the companys present business- adding new items to companys present product line- expanding into new geographic areas where company does not have market presence- launching offensive to take market share away from rivals

Strategies for Sustaining Rapid Company Growth2. Horizon 2: Medium-jump strategic initiatives to leverage existing resources and capabilities by entering new business with promising growth potentialBe alert for opportunities to jump into new businesses where:- there is promise of rapid growth- firms experience, intellectual capital, technological know-how will prove valuable in gaining rapid market penetrationHorizon 2 strategy may take a back seat to horizon 1 initiatives as long as there is plenty of untapped growth in companys present businesses.It may move to the front as onset of market maturity dims the companys growth prospects in its present business(es)

Strategies for Sustaining Rapid Company Growth3. Horizon 3: Long jump strategic initiatives to plant the seeds of ventures in businesses that do not yet existEntail pumping funds into:- long-range R&D projects- setting up an internal venture capital fund to invest in promising start-up companies to create industries of future- acquiring a number of small start-up companies experimenting with technologies and product ideas that complement the companys present business

Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth

Risks of PursuingMultiple Strategy HorizonsFirm should not pursue all options to avoid stretching itself too thinPursuit of medium- and long-jump initiatives may cause firm to stray too far from its core competenciesCompetitive advantage may be difficult to achieve in medium- and long-jump businesses that do not mesh well with firms present resource strengthsPayoffs of long-jump initiatives may prove elusive

Strategies Based on a Companys Market PositionIndustry leaders Runner-up firmsWeak or crisis-ridden firms

Industry Leaders:The Defining CharacteristicsStrong to powerful market positionWell-known reputationProven strategyKey strategic concern How to sustain dominant leadership position?

Strategy Options: Industry LeadersStay-on-the-offensive strategyFortify-and-defend strategyMuscle-flexing strategy

Stay-on-the-Offensive StrategiesBe a first-mover, leading industry changeBest defense is a good offenseConcentrate on achieving a competitive advantage and then widening the advantage over timeRelentlessly pursue continuous improvement and innovation, being first to market withTechnological improvementsNew or better productsMore attractive performance featuresCustomer service improvements

Stay-on-the-Offensive Strategy (continued)Aggressively seek out ways toCut operating costsEstablish competitive capabilities rivals cannot matchMake it easier for potential customers to switch their purchases from other firms to the leaders own productsAggressively attack profit sanctuaries of important rivalsLaunch fresh initiatives to expand overall industry demandSpur creation of new families of productsMake product more suitable for consumers in emerging-country marketsDiscover new uses for productAttract new users of productPromote more frequent useGrow faster than industry, taking market share from rivals

Fortify-and-Defend Strategy

Make it harder for new firms to enter and for challengers to gain groundHold on to present market shareStrengthen current market positionProtect competitive advantageObjectives

Fortify-and-Defend Strategy: Strategic OptionsIncrease advertising and R&DProvide higher levels of customer service Introduce more brands to match attributes of rivalsAdd personalized services to boost buyer loyaltyKeep prices reasonable and quality attractiveBuild new capacity ahead of market demandInvest enough to remain cost competitivePatent feasible alternative technologiesSign exclusive contracts with best suppliers and distributors

Muscle-Flexing Strategy

Play competitive hardball with smaller rivals that threaten leaders positionSignal smaller rivals that moves to cut into leaders business will be hard foughtConvince rivals they are better off playing follow-the-leader or just attacking each other rather than the industry leaderObjectives

Muscle-Flexing Strategy:Strategic OptionsBe quick to meet price cuts of rivalsCounter with large-scale promotional campaigns if rivals boost advertisingOffer better deals to rivals major customers Dissuade distributors from carrying rivals productsProvide salespersons with documentation about weaknesses of competing productsMake attractive offers to key executives of rivalsUse arm-twisting tactics to pressure present customers not to use rivals products

Muscle-Flexing Strategy

Running afoul of antitrust lawsAlienating customers with bullying tacticsArousing adverse public opinionRisks

Types of Runner-up FirmsMarket challengersUse offensive strategies to gain market shareFocusersConcentrate on serving a limited portion of marketPerennial runners-upLack competitive strength to do more than continue in trailing position

Obstacles Runner-UpFirms Must OvercomeWhen big size is a competitive asset, firms with small market share face obstacles in trying to strengthen their positions because of havingLess access to economies of scaleDifficulty in gaining customer recognitionInability to afford mass media advertisingDifficulty in funding capital requirements

Strategic Optionsfor Runner-Up FirmsWhen big size provides larger rivals with a cost advantage, runner-up firms have two optionsBuild market shareLower costs and prices to grow sales or Out-differentiate rivals in ways to grow salesWithdraw from market

Offensive Strategies for Runner-Up Firms: Building Market ShareAcquire smaller rivals to expand companys market reach and presenceFind innovative ways to drive down costs to win customers from higher-priced rivalsCraft an attractive differentiation strategyPioneer a leapfrog technological breakthroughBe first-to-market with new or better products and build reputation for product leadershipOutmaneuver slow-to-change market leaders in adapting to evolving market conditions and customer needsForge strategic alliances with key distributors, dealers, or marketers of complementary products

Rule of Offensive StrategyRunner-up firms should avoid attacking a leader head-on with an imitative strategy, regardless of the resources and staying power an underdog may have!

Strategic Approaches for Runner-Up Firms1. Vacant niche strategy2. Specialist strategy3. Superior product strategy4. Distinctive image strategy5. Content follower strategy

Vacant Niche Strategyfor Runner-Up FirmsFocus strategy concentrated on end-use applications market leaders have neglectedCharacteristics of an ideal vacant nicheSufficient size to be profitableGrowth potentialWell-suited to a firms capabilitiesHard for leaders to serve

Specialist Strategy for Runner-Up FirmsStrategy concentrated on being a leader based onSpecific technology Product uniquenessExpertise in Special-purpose productsSpecialized know-howDelivering distinctive customer services

Superior Product Strategyfor Runner-Up FirmsDifferentiation-based focused strategy based onSuperior product quality orUnique product attributesApproachesFine craftsmanshipPrestige qualityFrequent product innovationsClose contact with customers to gain input for better quality product

Distinctive Image Strategyfor Runner-Up FirmsStrategy concentrated on ways to stand out from rivals ApproachesReputation for charging lowest pricePrestige quality at a good priceSuperior customer serviceUnique product attributesNew product introductionsUnusually creative advertising

Content Follower Strategyfor Runner-Up FirmsStrategy involves avoidingTrend-setting moves andAggressive moves to steal customers from leadersApproachesDo not provoke competitive retaliationReact and respondDefense rather than offenseKeep same price as leadersAttempt to maintain market position

Weak Businesses: Strategic OptionsLaunch an offensive turnaround strategy (if resources permit)Employ a fortify-and-defend strategy (to the extent resources permit)Pursue a fast-exit strategyAdopt a harvest strategy (a slow-exit type of end-game strategy)

Achieving a Turnaround: The Strategic OptionsSell off assets to generate cash and/or reduce debt Revise existing strategyLaunch efforts to boost revenuesCut costsCombination of efforts

What Is a Harvest Strategy?Steers middle course between status quo and exiting quicklyInvolves gradually sacrificing market position in return for bigger near-term cash flow/profitObjectivesShort-term - Generate largest feasible cash flowLong-term - Exit market

Types of Harvest OptionsReduce operating expenses to rock-bottomHold reinvestment to minimumPlace little priority on new capital investmentsEmphasize stringent internal cost controlsTrim advertising and promotion expensesDo not replace employees who leaveShave equipment maintenance

When Should a HarvestStrategy Be Considered?Industrys long-term prospects are unattractiveBuilding up business would be too costlyMarket share is increasingly costly to maintainReduced levels of competitive effort will not trigger immediate fall-off in salesFirm can re-deploy freed-up resources in higher opportunity areasBusiness is not a major component of diversified firms portfolio of businesses

Liquidation StrategyWisest strategic option in certain situationsLack of resourcesDim profit prospectsMay serve stockholder interests better than bankruptcyUnpleasant strategic optionHardship of job eliminationsEffects of closing on local community

10 Commandments for Crafting Successful Business Strategies1. Always put top priority on crafting and executing strategic moves that enhance a firms competitive position for the long-term and that serve to establish it as an industry leader.2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.

10 Commandments for Crafting Successful Business Strategies3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability.4. Avoid strategies capable of succeeding only in the best of circumstances.5. Dont underestimate the reactions and the commitment of rival firms.6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength.7. Be judicious in cutting prices without an established cost advantage.

10 Commandments for Crafting Successful Business Strategies 8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes. 9. Endeavor not to get stuck back in the pack with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders.10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing arms race and/or price wars.