Scott DeVore Ryan White

Mitchell Stack Heather McMahon Brittany Thomason

Jacob Western Cory Gregory

Three stages of an industry

Three industry environments

Special Dimensions of a business unit strategy

iPod (early years)◦ New Technological◦ Great timing and marketing◦ iTunes◦ First Mover Advantage set the standard◦ No price competition

iPod◦ Different size, color, and flavors of appeal◦ More process innovation “lower price”◦ Competing companies offer different advantages

Internal Development

Joint ventures, alliances, and acquisitions

Scan Disk

What are the structural barriers◦ Investment required◦ Access to production◦ Distribution facilities “3rd World Countries”◦ Threat of overcapacity

Beer in Turkey

How will incumbent firms react to the intrusion?

◦ Most likely in mature markets

Tucker cars ISQS 3344

Carefully choosing a balance between differentiation and low cost posture and deciding whether to compete in multiple or single industry segments are critically important issues as maturity sets in and decline threatens.

Firms earn attractive profits during the long maturity stage and industry growth when they do the following:◦ Concentrate on segments that offer chances for

higher growth or higher return◦ Manage product and process innovation aimed at

further differentiation, cost reduction, or rejuvenating segment growth

◦ Stream line production and delivery to cut cost◦ Gradually “harvest” the business in preparation

for a strategic shift to more promising products or industries.

Counterbalancing these opportunities, mature and declining industries contain a number of strategic pitfalls that companies should avoid:◦ An overly optimistic view of the industry or the

company’s position within it◦ A lack of strategic clarity shown by a failure to choose

between a broad-based and a focused competitive approach

◦ Investing to much for to little return – the so called “cash-trap”

◦ Trading market share for profitability in response to short-term performance pressures

◦ Unwillingness to compete on price◦ Resistance to industry structural changes or new practice◦ Placing too much emphasis on new product development

compared with improving existing ones◦ Retaining excess capacity

The requirements for success in industry segments change over time. Strategist need to use these changing requirements as a basis for identifying and evaluating a firm’s strengths and weakness.

Figure 7-1 (pg 144) shows the four stages of industry evolution and the changes in functional capabilities that often are associated with business success at each stage.

IntroductionThe early development of product market typically

entails slow growth in sales, major R&D emphasis, rapid technological change in the product, operating losses, and a need for sufficient resources or slack to support a temporarily unprofitable operation.

Success at this emerging stage often is associated with technical skill, with being first in new markets, and with having marketing advantage that creates widespread awareness.

Growth

Rapid growth bring new competitors.

Maturity

As the industry moves through a shakeout phase and into the maturity stage, sales growth continues, but at a decreasing rate.

Increased industry segments Technological product design slows

considerably Competition becomes more intense Promotional or pricing advantages and

differentiation become key strengths.

Decline

When the industry moves into the decline stage, strengths center on cost advantages, superior supplier and customer relationships, and financial control.

Competitive advantage can exist at this stage if a firm serves gradually shrinking markets that competitors choose to leave.

No single company or small group of firms has a large enough market share to strongly affect the industry structure or outcomes.

Examples of areas in this trait:

Retail sectors

Distribution businesses

Professional services

Small manufacturing

Entry and exit barriers are low

There are few economies of scale or scope

Cost structures make consolidation unattractive

Products or services are highly diverse or need to be customized

Close, local control is essential

Has reshaped a number of industries

Competitive dynamics take place when artificial constraints are lifted and new players enter

Timing of strategic moves is crucial

Deregulated environments tend to undergo considerable change twice:

1) First when the market is opened2) Then again in about 5 years

• Airlines

• Trucking

• Railroads

• Banking

• Telecommunications

• Energy

Large number of new entrants rushed in

Industry profitability deteriorated

Once attractive firms become less attractive

Wider quality range of competitors

Two waves of merger and acquisition activity ◦ Consolidating weaker players◦ Larger players aimed at market dominance

Forced to narrow focus on specific segments/products

Joel Bleeke came up with 4 strategies to help with the coping of deregulations:

1) Broad based distributors – conserve resources

2) Low cost entrants – survive by becoming specialty or niche players

3) Focused segment marketers – target value-added segments from the outset

4) Shared utilities – provide low cost entrants with economies of scale by sharing costs among many companies

Research by Florissen, Maurer, Schmidt, and Vahlenkamp identifies 4 factors that adjust price correctly after deregulation:

1) Competitors’ prices – measure up again the most relevant competitor

2) Switching rates – few will switch unless it new provider offers some exceptional benefit

3) Customer Value – most are concerned with quality and service

4) Cost to serve – true cost of their service

Characteristics:◦ Intense Rivalry◦ Based on Introducing a product when least

expected then moving on when the competitor tries to recover

Strategies:◦ Enable the company to gain an advantage over

competitors by disrupting the market with quick and innovative change.

Goals:◦ Neutralize previous competition◦ Create an unbalanced industry segment

Results:◦ Short Product Life Cycles◦ Emergence of New Technologies◦ Competition from Unexpected Players◦ Repositioning by Current Players◦ Major Shifts in Market Boundaries

Examples:◦ PC’s & Software VS◦ Telecommunications (Strategy =Bundling

Services)

Successful Companies manipulate competitive positions to:◦ Create a competitive advantage for themselves◦ Destroy competitive advantage’s of competitors

Require 3 major qualities:1.Rapid Innovation & Speed2.Superior Short Term Focus3.Market Awareness

1. Rapid Innovation & Speed◦ Gain Temp Advantage◦ Achieve Short Term Profitability◦ Shift Strategic Focus before Competition can

React Crucial to Innovate, Manufacture, Market,

and Distribute Product QUICKLY.◦ They will gain market share fast than

competitors!◦ Without speed firms are at a disadvantage

because competitors will be able to capitalize on market opportunities first!

2. Superior Short Term Focus

To Succeed firms must be able to manipulate the competition into making long-term commitments.

3. Market Awareness◦ Understand Consumer Markets◦ Deliver High-Impact Products◦ Provide Superior Customer Support

Understanding Customers focus allows firms to:

identify customers needs uncover new and previous untapped markets

(wins market share)

Traditional Concept Believe long term profitability is achieved

through segmented markets and low to moderate competition.

Now… There is another requirement… Long term sustainable profits are only

possible when entry barriers restrict competition.

Must continuously re-create competitive advantage because of hypercompetition.

Consequences of Extreme Competition:◦ High Rivalry◦ Shrinking Profits◦ Shaky dominance◦ Pressure by smaller, flexible & innovative

competitors◦ Shrinking Industries◦ Endangered Leaders

6 Actions to counter the aggressive moves of competitors:

1. Retool Strategy & Restore its Importance2. Manage Transition Economics3. Fight Aggregation with disaggregation4. Seek out new demand and new growth5. Use a portfolio of initiatives to increase speed &

flexibility6. Count on strategic risk

1. Retool Strategy & Restore its Importance

◦ Instead of Ignoring strategy… Adopt a portfolio view in strategic planning to increase responsiveness to opportunities

2. Manage Transition Economics◦ Develop low-cost positions in order to free funds

for innovation.

3. Fight Aggregation with disaggregation◦ Will get higher profits by creating different

value propositions through disaggregation.

4. Seek out new demand and new growth◦ Should not rely on growth through traditional

strategies such as mergers or strategic alliances. Instead focus on customer demand and innovation to grow.

5. Use a portfolio of initiatives to increase speed & flexibility

◦ Use a Resource Based View: Think of assets as resources that enable the company to launch new products, innovate to reduce costs, and compete on price worldwide.

◦ (allows for more innovation & responsiveness)

6. Count on Strategic Risk◦ There was always be unstable corporate

earnings and stock prices = RISK◦ The 4 most important types of risk are:

1. Value Proposition Risks – warn negative consequences if competitors introduce lower-priced products

2. Cost Curve Risks - warn negative consequences if competitors are able to become the low cost provider

3. Bad-Conduct Risk – warn of negative consequences if a price war occurs

4. Bad-Bet Risk - warn of negative consequences from overly optimistic assumptions

• The internet has led to speed being a strategic priority.

Speed = Quality = CustomersSpeed = Quality = Customers

• Speed– Pace of progress that a company displays in

responding to current or anticipated business needs

• Speed1.Measured by a firm’s response time in meeting

customer expectations2.Innovating new products3.Change of strategy4.Upgrading processes to improve satisfaction and

financial returns

Respond to industry challenges to increase their customer responsiveness

Speed Merchants are a hallmark for the progress of their industry◦ Modify their environments to convert their core

competencies into competitive advantages

AAA = fast emergency roadside service

Dell = fast computer assembly

Domino’s = fast pizza delivery

CyberGate = fast internet access

1. Distinct and identifiable sources of pressure that create the demand on a company to accelerate its speed

2. An emphasis on speed places new cost, cultural, and change process requirements on a company

3. Several implementation methods to accelerate a firm’s speed of operations

Customers’ expectations

Competitors who accelerate their own pace

Company itself when it seeks to establish a

new competitive advantage

Adjusting priorities of a changing industry

1. Customers– Customers demand responsiveness. There is a

new emphasis on getting quality products and services quickly

2. Need for Creating a New Basis for Competitive Advantage– Increasing the speed with which products are

innovated, developed, manufactured, and distributed = success of firms in establishing a new competitive advantage

3. Competitive Pressures◦ Competition mandates an increase in speed

4. Industry Shifts◦ Speed is especially important to survival in

industries characterized by short product life cycles

For speed to be a strategic weapon…◦ Every aspect of an organization be focused on a

fast paced work environment◦ Executives must foster a ‘fast’ culture

1. Refocusing the Business Mission◦ The board and officers must plan for the

increase in speed throughout the organization

2. Creating a Speed Compatible Culture◦ Increase speed by nurturing a culture that is

conducive to speed and reward those who can increase their speed

3. Upgrading Communication◦ The increase in speed requires dramatically

upgraded methods for clear and timely communication

4. Refocusing Business Process Reengineering

◦ BPR is undertaken to reorganize a company to eliminate barriers that create distance between employees and customers

5. Committing to New Performance Metrics– Set standards to measure the progress of a

firm’s change in speed

6. Methods to Speed– Determine where speed exists and where it

does not – look to quickly eliminate any ‘speed gaps’

– 3 methods to eliminate speed gaps:1. Streamlining operations2. Upgrading technology3. Forming partnerships

7. Streamline Operations◦ With a speed enhanced ability to obtain quick

feedback from the marketplace and to respond with unparallel speed in making adjustments, successful innovations no longer need to be flawless at introduction

8. Upgrading Technology◦ Using technology to increase speed allows

product information to roll out faster

Connect manufacturers with retailers to enhance information sharing

Streamline and accelerate product distribution

Shortening pipelines, speed products to shelves

Satisfy customers with less costly inventories

Enables companies to learn customers’ buying patterns

Sharing business burdens is a proven way to shorten the time needed to improve market responsiveness

Ex: Ford Motor Company’s partnership with General Motors and DaimlerChrysler◦ These three major auto manufacturers joined to

develop an Internet portal that links their purchasing organizations with 30,000 raw material suppliers. This increased the speed with which the automobile companies respond to customer inquiries at every stage along the supply chain.

Value creation greatly depends on innovation which is a major strategic challenge for most companies.

Clayton Christensen coined the concepts of disruptive and sustaining innovation to describe what he calls the “Innovators’ Dilemma.◦ Sustaining innovation: innovation that focuses on

“better” products.◦ Disruptive innovation: launching products that may not

be as good as the existing products and, therefore, not attractive to current customers, but that are simple, and often more affordable.

How successful companies with established products can keep from being pushed aside by competitors with newer, cheaper products that will, over time, get better and become a serious threat.

An example of Disruptive innovation is the computer hardware industry. The introduction of the minicomputer disrupted the mainframe industry…the personal computer disrupted minicomputer sales…wireless handheld devices such as Blackberries & Palm Pilots disrupted notebook computers.

Best known for Post-it Notes, Scotch Guard, and Scotch Tape, Minnesota, Mining & Manufacturing (3M) has succeeded because its business model is based on a culture that is geared to producing innovative products.

3M employs six mandates that drive their innovation process. Here are a couple of examples:◦ “15 Percent Rule” states that 3M researchers may

devote 15% of their time to any creative idea or project, and management approval is not required.

◦ “Stretch Goals” state that3M’s target is that 40 percent of sales will be from products introduced in the last 4 years, while 10 percent of sales will be from products introduced in the current year.

Although there is no universal model for creating an innovating environment, a look at successful companies reveals certain common characteristics.◦ 1. Top-level commitment◦ 2. Long-term focus◦ 3. Flexible organization structure◦ 4. Loose and tight planning and control◦ 5. Appropriate incentives

There is no link between R & D, innovation and financial performance

Two studies found conflicting results◦ Booz Hamilton’s The Global Innovation 1000

Study- Found no statistical relationship between R&D and measures of financial success.

◦ BCG Innovation 2006 Global Survey- Found that innovation translates into superior long term stock market performance

Research suggests that executives lack confidence in their companies’ ability to use innovation to drive profits.◦ 67% of firms in a study considered themselves

more innovative than competitors, only 7% said they were successful meeting their innovation performance goals

The single biggest growth inhibitor for large companies is mismanagement of the innovation process.

There are six recommendations for improving performance:◦ Plan Synergy between strategy and innovation◦ Areas where new opportunities and competitive

advantage exist provide a firm’s best chances to profit from innovation

◦ Profits from innovation in business systems can match those from product development

◦ Look outside of the company’s internal environment to increase the likelihood of success and reduce the risks of innovation

◦ Alliances and corporate venture capital programs allow a firm to share the risks associated with exploration investments

◦ Involve customers early and often in the innovation process

Another explanation for the lack of success in innovation is a lack of measurement metrics or the failure to implement them effectively. ◦ In conjunction to the innovation 2006 survey BCG

had a group of executives complete another survey on innovation metrics and measurement Out of 269 respondents, 63% track five or fewer

metrics, only 47% said they apply post-launch metrics sporadically and 8% said they don’t apply them at all

Fully half of all companies don’t closely track the efficiency of their innovation process

R&D investments fail to generate successful products for 3 main reasons◦ Failure to develop truly innovative products◦ Failure to successfully commercialize innovative

products once they are on the market◦ Failure to market innovative products in a timely

manner Many corporate projects are abandoned in

development◦ Takes 125-150 new initiatives to generate one

marketplace success

Stages of an Industry◦ Emerging Industries◦ Growth Industries◦ Mature / Declining Industries

Industry Environments◦ Fragmented◦ Deregulated◦ Hypercompetitive

Special Dimensions◦ Speed◦ Innovation