Tailoring

Strategy to Fit
Specific
Industry and
Company
Situations

McGraw-Hill/Irwin

Copyright 2008 by The McGraw-Hill Companies, Inc. All rig

In a turbulent age, the

only dependable
advantage is reinventing
your business model
before circumstances
force you to.
Gary Hamel and Liisa
Valikangas

Matching Strategy to
a Companys Situation
Most
important
drivers
shaping a
firms strategic
options fall
into two
categories

Nature of
industry and
competitive
conditions
Firms
competitive
capabilities,
market
position, best

Industry
Transformation
Porter & Rivkin, HBSP 7-102000

Industry Transformation
System change occurs in two modes:
Evolution
Revolution

Periods of transformation give companies

latitude to influence future industry
structure
Phases of transformation:
The trigger
Experimentation
Convergence

Industry Transformation
Structural analysis is an important
tool in setting strategy.
New emphasis on:
Substitution
Shaping competition
Addressing uncertainty
Developing a posture

The Leaders
Disadvantage
Coughlin, HBSP, 2-11-2002

The Leaders
(Dis)advantage
Size Advantages
Scale economies
Scope
economies
Network effects
Learning effects

Timing Advantages

Preemption
Reputation effects
Buyer switching
costs
Patents or
institutional
barriers

The Leaders
(Dis)advantage
Pioneering costs
Demand uncertainty
Technology uncertainty
Only the paranoid survive Andy
Grove

Characteristics of an
Emerging Industry
Little historical data for projections
Competing and/or proprietary
technology
Desired product attributes are
unknown
Buyers need a great deal of
information to purchase
Relatively low entry barriers
Experience curve effects

Strategy Options for

Competing
in Emerging Industries

Rapid and continuous innovation

Pursue mergers and acquisitions
Take a first-mover position
Seek new markets: customer; geographic
Reduce adoption costs for the buyer
Shift from building awareness to increasing
frequency of purchase or use
Perform value chain analysis
Reduce price

Strategic Hurdles for

Companies
in Emerging Industries

Raising capital to finance initial operations until

Sales and revenues take off
Profits appear
Cash flows turn positive

Developing a strategy to ride the wave of industry

growth
What 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
leadership
Defending against competitors trying to horn in on the
companys success

Characteristics of Rapidly
Growing Markets
Increase in the number of
competitors
Increase in price sensitivity
Importance of distribution networks
Creation of buyer loyalty

Strategy Options for

Competing
in Rapidly Growing
Markets
Drive down costs
per unit

Pursue rapid product innovation

Gain access to additional distribution
channels and sales outlets
Expand a companys geographic
coverage
Expand product line to add
models/styles to appeal to a wider range
of buyers

Characteristics of a Mature
Industry

Slowing demand breeds stiffer competition

More sophisticated buyers demand bargains
Greater emphasis on cost and service
Topping out problem in adding
production capacity
Product innovation and new
end uses harder to come by
International competition increases
Industry profitability falls
Mergers and acquisitions reduce number of
rivals

Strategy Options for

Competing
in a Mature Industry

Prune marginal products and models

Emphasize innovation in the value chain

Strong focus on cost reduction
Increase sales to present customers
Purchase rivals at bargain prices
Expand internationally
Build new, more flexible competitive
capabilities

Strategic Pitfalls in a
Maturing Industry
Employing a ho-hum strategy with no
distinctive features thus leaving firm stuck in
the middle
Being 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-cutting
Having too much excess capacity
Overspending on marketing
Failing to aggressively pursue cost
reductions

Characteristics of Declining
Industries
Demand grows more slowly than economy
as whole (or even declines)
Advancing technology gives rise to betterperforming substitute products
Customer group shrinks
Changing lifestyles and buyer tastes
Rising costs of complementary products
Competitive battle ensues among industry
members for the available business

Strategy Options for

Competing
in a Stagnant or
Declining
Pursue
focus strategyIndustry
aimed at

fastest growing market segments

Stress differentiation based on quality
improvement or product innovation
Work diligently to drive costs down

Cut marginal activities from value chain

Use outsourcing
Redesign internal processes to exploit ecommerce
Consolidate under-utilized production facilities
Add more distribution channels
Close low-volume, high-cost distribution outlets
Prune marginal products

End-Game Strategies
for Declining Industries
An end-game strategy can take either of two paths
Slow-exit strategy involving
Gradual phasing down of operations
Getting the most cash flow from the business
Fast-exit strategy involving
Disengaging from an industry during early stages of
decline
Quick recovery of as much of a companys
investment as possible

Characteristics of HighVelocity Markets

Rapid-fire technological change
Short product life-cycles
Entry of important new rivals
Frequent launches of
new competitive moves
Rapidly evolving
customer expectations

Strategy Options for

Competing
in High-Velocity Markets

Invest aggressively in R&D

Initiate fresh actions every few months
Develop quick response capabilities

Shift resources
Adapt competencies
Create new competitive capabilities
Speed new products to market

Use strategic partnerships to develop

specialized expertise and capabilities
Keep products/services fresh and
exciting

Keys to Success in
Competing
in High Velocity Markets

Cutting-edge expertise

Speed in responding to new developments

Collaboration with others
Agility
Innovativeness
Opportunism
Resource flexibility
First-to-market capabilities

Characteristics of a
Fragmented Industry
Absence of market leaders
Product/service is delivered to neighborhood
locations
Buyer demand is diverse
Low entry barriers
Absence of scale economies
Market for industrys product/service may be
globalizing
Exploding technologies
Industry is young and crowded with aspiring
contenders

Examples of Fragmented
Industries
Book publishing
Landscaping and plant nurseries
Auto repair
Restaurant industry
Public accounting
Womens dresses
Meat packing
Paperboard boxes
Hotels and motels
Furniture

Competing in a
Fragmented Industry: The
Strategy Options

Construct and operate formula facilities

Become a low-cost operator
Specialize by product type
Specialize by customer type
Focus on limited geographic area

Fig. 8.2: Three Strategy Horizons for Sustaining

Rapid Growth

Strategies Based on a
Companys Market
Position

Industry leaders

Runner-up firms

Weak or crisis-ridden firms

Industry Leaders:
The Defining
Characteristics

Strong to powerful market position

Well-known reputation
Proven strategy

Key strategic concern How to sustain

dominant leadership position

Strategy Options: Industry

Leaders
Stay-on-the-offensive strategy
Fortify-and-defend strategy

Muscle-flexing strategy

Types of Runner-up Firms

Market challengers
Use offensive strategies to gain market share

Focusers
Concentrate on serving a
limited portion of market

Perennial runners-up
Lack competitive strength to do
more than continue in trailing position

Im
trying!

Characteristics of Runner-Up
Firms
When big size is a competitive asset, firms
with small market share face obstacles
in trying to strengthen their positions
Less access to economies of scale
Difficulty in gaining customer recognition
Inability to afford mass media advertising
Difficulty in funding capital requirements

Strategic Options
for Runner-Up Firms
When big size provides larger rivals with a
cost advantage, runner-up firms have
two options
Build market share
Lower costs and prices to grow sales or
Out-differentiate rivals in ways to grow sales

Withdraw from market

Strategic Approaches for

Runner-Up Firms
1. Vacant niche strategy
2. Specialist strategy
3. Superior product strategy
4. Distinctive image strategy
5. Content follower strategy

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

Achieving a Turnaround:
The Strategic Options
Sell off assets to generate cash and/or reduce
debt
Revise existing strategy
Launch efforts to boost revenues
Cut costs
Combination of efforts

What Is a Harvest
Strategy?
Steers middle course between status quo
and exiting quickly
Involves gradually sacrificing market
position
in return for bigger near-term cash flow/profit
Objectives
Short-term - Generate largest
feasible cash flow
Long-term - Exit market

10 Commandments for
Crafting Successful
Business Strategies

1. 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 Strategies

3. 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.

Competition in the
Video Game Console
Industry