Strategic Management

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Strategic Management
for Slow-moving Industries

• Michael Porter

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• The fundamental basis of above-average
  performance in the long run is sustainable
  competitive advantage. Porter (1985, p. 11)
• This is an untested assumption of strategy (until
  recently)

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HYPERCOMPETITION
Strategic Management for Fast-moving Industries

• Richard DAveni

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Hypercompetition

• Increased Levels of Competition
• Rapid Erosion of Competitive Advantages
• Industry Transformation

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Shorter Cycles and Higher Amplitudes Associated
With Innovations at Sony Corporation
OperatingProfits
Time
1974
1976
1981
Profits from price umbrella
New product introduced Profits falling due
to new entrants, costs of RD on the next
project
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FOUR ARENAS

• Cost/Quality
• Timing/Know-how
• Stronghold Creation/Invasion
• Deep Pockets

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FOUR ARENAS
Perfect Competition
Large Players Global Alliances Balanced
Competition
Smaller Firms Crushed Financially
FOURTH ARENA Deep Pockets
Resource Accumulation to Attack
Destroy Competitors Strongholds
THIRD ARENA Strongholds
SECOND ARENA Timing/Know-how
Incumbents Raise Entry Barriers
Ventures Quickly Imitated or too Risky/Expensive
FIRST ARENA Cost/Quality
Leapfrogging to Untapped Markets
Abundant High Quality/Low Priced Goods
Price/Quality Competition
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PRICE/QUALITY ARENA
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PRICE/QUALITY DYNAMICS
High
Leapfrogged Price/Quality Point
Original Value Line
Price
Move to Value Point
Establish New Value Line
UV1
Low
High
Low
Perceived Quality
10
FAST-FOOD WARS
High
Wendys
Burger King
W2
Price
McDonalds
BK2
Mc2
UV
Low
High
Low
Perceived Quality
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EFFECT ON CONSUMER
First
Original
Price Plus
1994
Change
Year
Price
Inflation
Price
BURGERS
Jack in the Box
Burger King
McDonalds
Hardees
Wendys
FRIES
McDonalds
Hardees
Wendys
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DIAPER WARS
High
Luvs (PG)
Huggies (Kimberley-Clark)
Price
Kimbies (Kimberly-Clark)
Pampers (PG)
Low-Quality (leaky) Unbranded European Two-Piece
Low
High
Low
Perceived Quality
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Pepsi Seizes the Initiative and Coke Responds
Shrinking Cycles of Advantages
1955Coke introduces 12-oz. bottles
Profits
Time
1933 1940 1950 1960 1970
1980
1983 Sugar caffeine-free Pepsi
1984 Pepsi with aspartame
Pepsi introduces a 5-cent, 12-oz bottle (double
the size of Coke)
1964 Pepsi introduces Diet Pepsi
18 years
22 years
less than 1 year
6 wk.
Period of Unique Advantage
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Coke Vs. Pepsi in the Early Years
Both 6.5-Oz Bottles
Price per Ounce
Perceived Quality
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Pepsi Repositions in the 1930s
6.5-oz. Bottle
Price per Ounce
12-oz. Bottle
Perceived Quality
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Pepsi begins the Assault on Coca-Cola by Hitting
Niches within Cokes Position
Price per Ounce
The Youth and Middle-Class Segments
Perceived Quality
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Maneuvering for the High-Quality Position in
theCola Market
Price per Ounce
1st MovePepsi Challenge
2nd MoveCokes Advertising War
Perceived Quality
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New Cokes Failed Attempt to Outmaneuver Pepsi
Price per Ounce
New CokesIntended Position
Classic Coke Pepsi
New CokesActual Position
Perceived Quality
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Low-End Entrants SurviveUntil the Point of
Ultimate Value was Reached
Spiraling Price War
Price per Ounce
Temporary NicheGenerics Royal CrownCola
Ultimate Value Point
Perceived Quality
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A Vision for Disruption
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Four Visions ofHow to Disrupt Markets
Niche Creation
MarketCreation
New
CustomerNeedsServed
Rapid Evolutionary Competition
Revolutionary Competition
Existing
Frequent Incremental Improvements
Radically New Method
Methods/Technologies Used to Serve Customers
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A Series of Disruptions in the Beer Industry
During the Early 1970s
2nd 1970Miller offers niche premium beer -
Champagne of Beer
4th 1973-1974Miller introduces light beer.
New
5th 1974Miller introduces new 7-oz. bottles of
premium beer.
CustomerNeedsServed

• 1st 1970Anheuser-Busch, Pabst, Schlitz, etc.
  are using
• few ads
• regional marketing campaigns
• products for the core/main-stream male beer
  drinker
• building economies of scale in brewing

• 3rd 1971-1973Miller starts new methods of
  selling its premium beer
• national marketing
• heavy advertising
• larger, modern plants

Existing
Incremental Improvements
Radically New Method
Methods/Technologies Used to Serve Customers
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Future Competition
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Current/Future Orientation
Who/What Are
Who/What Will Be
Current Customers
Future Customers
Current Channels
Future Channels
Current Competitors
Future Competitors
Current Advantage
Future Advantage
Current Margins
Future Margins
Current Competencies
Future Competencies
Current Product/Markets
Future Product/Markets
Strategic Plans
Strategic Visions
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Strategic Dynamics in Fast-Moving Environments
TRADITIONAL
FUTURE
Playing by the Rules
Playing with the Rules
Business Unit Competition
Corporate Competition
Structured around Product/Markets
Structured around Competencies
Competition for Market Share
Competition for Opportunity Share
Punctuated Equilibrium
Punctuated Chaos
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Structure inHigh-Velocity Environments
Punctuated Equilibrium
Punctuated Chaos
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STRATEGIC PRIORITIES
Static Priorities
Dynamic Priorities
1. Shareholders 2. Top Managers 3. Workers 4.
Customers
1. Customers 2. Workers 3. Shareholders 4. Top
Managers
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THE
END
THE
END