Chapter 8: Tailoring Strategy to Fit Specific Industry and Company Situations

Tailoring Strategy to Fit Specific Industry and Company Situations 8ChapterScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy State University-Florida and Western Region Chapter RoadmapStrategies for Competing in Emerging IndustriesStrategies for Competing in Turbulent, High Velocity MarketsStrategies for Competing in Maturing IndustriesStrategies for Firms in Stagnant or Declining IndustriesStrategies for Competing in Fragmented IndustriesStrategies for Sustaining Rapid Company Growth Strategies for Industry LeadersStrategies for Runner-up FirmsStrategies for Weak and Crisis-Ridden BusinessesTen Commandments for Crafting Successful Business StrategiesMatching Strategy to a Company’s SituationMost important drivers shaping a firm’s strategic options fall into two categoriesFirm’s competitive capabilities, market position, best opportunitiesNature of industry and competitive conditionsFeatures of anEmerging IndustryNew and unproven marketProprietary technologyLack of consensus regarding which ofseveral competing technologies will win outLow entry barriersExperience curve effects may permitcost reductions as volume buildsBuyers are first-time users and marketing involves inducing initial purchase and overcoming customer concernsFirst-generation products are expected to be rapidly improved so buyers delay purchase until technology maturesPossible difficulties in securing raw materialsFirms 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 featuresMove quickly when technological uncertainty clears and a dominant technology emergesForm strategic alliances withKey suppliers orCompanies having related technological expertiseStrategy Options for Competing in Emerging Industries (continued)Capture potential first-mover advantagesPursue New customers and user applicationsEntry into new geographical areasFocus advertising emphasis onIncreasing frequency of use Creating brand loyaltyUse price cuts to attract price-sensitive buyersFeatures of High-Velocity MarketsRapid-fire technological changeShort product life-cyclesEntry of important new rivalsFrequent launches ofnew competitive movesRapidly evolvingcustomer expectationsFig. 8.1: Meeting the Challenge of High-Velocity ChangeStrategy Options for Competingin High-Velocity Markets Invest aggressively in R&DDevelop quick response capabilities Shift resourcesAdapt competenciesCreate new competitive capabilitiesSpeed new products to marketUse strategic partnerships to developspecialized expertise and capabilitiesInitiate fresh actions every few monthsKeep products/services fresh and excitingIndustry Maturity: The Standout FeaturesSlowing demand breeds stiffer competitionMore sophisticated buyers demand bargainsGreater emphasis on cost and service“Topping out” problem in adding production capacityProduct innovation and new end uses harder to come byInternational competition increasesIndustry profitability fallsMergers and acquisitions reduce number of industry rivalsStrategy Options for Competingin a Mature IndustryPrune marginal products and modelsEmphasize innovation in the value chain Strong focus on cost reductionIncrease sales to present customersPurchase rivals at bargain pricesExpand internationallyBuild new, more flexible competitive capabilitiesStrategic Pitfalls ina Maturing IndustryEmploying a ho-hum strategy with no distinctive features thus leaving firm “stuck in the middle” Concentrating on short-term profits rather than strengthening long-term competitiveness Being slow to adapt competencies to changing customer expectationsBeing slow to respond to price-cuttingHaving too much excess capacityOverspending on marketingFailing to pursue cost reductions aggressively Demand grows more slowly thaneconomy as whole (or even declines)Competitive pressures intensify –rivals battle for market shareTo grow and prosper, firm musttake market share from rivalsIndustry consolidates to a smaller numberof key players via mergers and acquisitionsStagnant or Declining Industries:The Standout FeaturesStrategy Options for Competingin a Stagnant or Declining IndustryPursue focus strategy aimed atfastest growing market segmentsStress differentiation based on qualityimprovement 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 productsCompetitive Features ofFragmented IndustriesAbsence of market leaders with large market sharesBuyer demand is so diverse and geographically scatteredthat many firms are required to satisfy buyer needsLow entry barriers Absence of scale economiesBuyers require small amounts ofcustomized or made-to-order productsMarket for industry’s 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 shareFig. 8.2: Three Strategy Horizonsfor Sustaining Rapid GrowthIndustry leaders Runner-up firmsWeak or crisis-ridden firmsStrategies Based on a Company’s Market PositionIndustry Leaders: The Defining CharacteristicsStrong to powerful market positionWell-known reputationProven strategyKey strategic concern – How to sustaindominant leadership positionStrategy Options: Industry LeadersStay-on-the-offensive strategyFortify-and-defend strategyMuscle-flexing strategyTypes of Runner-up FirmsMarket challengersUse offensive strategies to gain market shareFocusersConcentrate on serving alimited portion of marketPerennial runners-upLack competitive strength to domore than continue in trailing positionI’m trying!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 marketOffensive Strategiesfor Runner-Up FirmsBest “mover-and-shaker” offensivesPioneer a leapfrog technological breakthroughGet new/better products into market ahead of rivals and build reputation for product leadershipBe more agile and innovative in adapting to evolving market conditions and customer needsForge attractive strategic alliances with key distributors and/or marketers of similar productsFind innovative ways to dramatically drive down costs to win customers from higher-cost rivalsCraft an attractive differentiation strategyWeak 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 an end-game strategyAchieving a Turnaround: The Strategic OptionsSell off assets to generate cash and/or reduce debt Revise existing strategyLaunch efforts to boost revenuesCut costsCombination of effortsLiquidation StrategyWisest strategic option in certain situationsLack of resourcesDim profit prospectsMay serve stockholder interestsbetter than bankruptcyUnpleasant strategic optionHardship of job eliminationsEffects of closing on local communityWhat Is anEnd-Game Strategy?Steers middle course between status quo and exiting quicklyInvolves gradually sacrificing market positionin return for bigger near-term cash flow/profitObjectivesShort-term - Generate largestfeasible cash flowLong-term - Exit marketWhen Should an End-GameStrategy be Considered?Industry’s 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 resourcesin higher opportunity areasBusiness is not a major component ofdiversified firm’s portfolio of businessesBusiness does not contribute other desiredfeatures to overall business portfolio1. Always put top priority on crafting and executing strategic moves that enhance a firm’s 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. Don’t 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.10 Commandments for Crafting Successful Business Strategies