BUSINESS-LEVEL STRATEGIES AND INDUSTRY ENVIRONMENTS

1
BUSINESS-LEVEL STRATEGIES AND INDUSTRY
ENVIRONMENTS

• BUSINESS 189 (chpt. 6)
• SPRING 2007
• DR. MARK FRUIN

2
NIKES WINNING WAYS

• TRADITIONALLY A LEADER IN TRACK AND BASKETBALL
  SHOES
• TO TAKE ADVANTAGE OF COMPETENCIES IN DESIGN AND
  MARKETING, NIKE ENTERS NEW MARKET SEGMENTS
• CONVERSE
• HURLEY INTERNATIONAL
• COLE HAAN
• THE RESULT SOARING ROIC

3
HOW TO LEAD IN EVOLVING INDUSTRIES

• INDUSTRIES ARE COMPOSED OF SEGMENTS
• SEGMENTS ARE DEFINED AS?
• UNDERSTAND WHATS GOING ON IN THE INDUSTRY AND
  TARGET PRODUCT/ MARKET SEGMENTS ACCORDINGLY

4
SUSTAINING COMP ADVANT IN DIFF INDUSTRY
ENVIRONMENTS

• RECOGNIZE DIFFERENT INDUSTRY ENVIRONMENTS
• FRAGMENTED INDUSTRIES VERSUS
• EMBRYONIC
• GROWTH (EMERGING SHAKEOUT)
• MATURE
• DECLINING

5
FRAGMENTED IND IS NEW

• A LARGE NUMBER OF SMALL AND MED-SIZED COMPANIES
• LOW BARRIERS TO ENTRY
• HARD TO REALIZE ECONOMIES OF SCALE SCOPE
• BETWEEN GENERIC STRATEGIES, WHICH ONE APPLIES???

6
OVERCOMING FRAGMENTATION

• CHAINING STRATEGY (WAL-MART)
• FRANCHISING (CENTURY 21, McD)
• HORIZONTAL MERGER (BUDWEISER)
• CONSOLIDATE W/ NEW TECH
• AMAZON, eBAY, GOOGLE (?)
• HIGH LEVELS OF PERSONAL/PROFESSIONAL SERVICE
• HIGH END HEALTH CLUBS, LAW FIRMS

7
EMBRYONIC/EMERGING/GROWTHINDUSTRIES

• EMBRYONIC INDUSTRY IS WHEN TECHNOLOGY BEGINNING
  TO DEVELOP
• TECH INNOVATION DRIVES INDUSTRY
• WHICH INDUSTRIES EMBRYONIC TODAY?
• EMERGING/GROWTH IND WHEN MARKET DEMAND BEGINS TO
  GROW RAPIDLY
• MARKET DEMAND DRIVES INDUSTRY
• OBVIOUSLY DEMAND GROWTH TAKES TIME

8
E/E/G INDUSTRIES

• SLOW GROWTH AT FIRST BECAUSE
• LIMITED PERFORMANCE/POOR QUALITY
• CUSTOMERS UNFAMILIAR W/ NEW TECH
• LACK COMPLEMENTARY PROD
• PRODUCTION COSTS HIGH
• INDUSTRY GOES FROM EMBRYONIC -gt HIGH GROWTH -
  WHY?
• TECH PROGRESS MAKES PRODUCT EASIER TO USE
  INCREASES THEIR VALUE
• COMPLEMENTARY PRODUCTS APPEAR
• PRODUCT/PROCESS COSTS GO DOWN

9
TECHNOLOGY/S-CURVE HINGES PARTLY ON CUSTOMER
DEMAND

• INNOVATORS (1)
• TECHIES, GEEKS
• EARLY ADOPTERS (5)
• ENGINEERS, ENTREPRENEURS
• EARLY MAJORITY (24)
• PRAGMATISTS
• LATE MAJORITY (45)
• STUCK IN THE MUD BUT NOT LUDDITES
• EXTRA CREDIT WHO ARE LUDDITES?
• LAGGARDS (24)

10
CROSSING THE CHASM

• GORDON MOORE, FORMER CEO OF INTEL ORIGINATOR
  MOORES LAW (WHICH IS?)
• MANY COMPANIES CANNOT TRANSITION FROM EMBRYONIC
  TO GROWTH MARKETS
• THERE MAY BE TWO OR THREE CHASMS
• THEY FAIL TO DEVELOP THE MASS MARKETS NEEDED TO
  GROW PRODUCT
• FAIL ON PROD FEATURES AND/OR CUST CHAR
• APPLE (I) AS FIRM THAT FELL IN THE CHASM?

11
TIPPING POINT

• BIG CHANGES CAN HAPPEN SUDDENLY
• TIPPING PT THEORY FROM EPIDEMIOLOGY
• STATE OF CONTAGIOUSNESS
• GRADUAL, ALMOST IMPERCEPTIBLE CHANGE RAPIDLY
  ACCELERATES AT A CERTAIN POINT
• CRITICAL MASS CAN UNLEASH EPIDEMIC MOVEMENT
  SUDDENLY EVERYONES INFECTED

12
TIPPING PT

• EPIDEMICS ARE A FUNCTION OF
• THE PEOPLE WHO TRANSMIT INFECTION (INFECTIOUS
  AGENTS)
• INFECTIOUS AGENT ITSELF (HOW VIRULENT HOW
  TRANSMITTED?)
• ENVIRONMENT IN WHICH INFECTIOUS AGENT OPERATES
  (HUMAN BEINGS ARE MORE SENSITIVE IN CERTAIN
  ENVIRONMENTS THAN OTHERS CERTAIN ENVIR MORE
  CONDUCIVE)
• SUPPORT FOR IRAQ WAR (ESP. W/ DEMO CONGRESS)
• ATTITUDES TOWARD GLOBAL WARMING
• LIKELIHOOD OF BUYING A PRIUS

13
FACTORS AFFECTING RATE OF ADOPTION

• PRODUCTS RELATIVE ADVANTAGE
• COMPATIBILITY WITH EXISTING NEEDS AND HABITS
• COMPLEXITY OR DEGREE OF DIFFICULTY IN
  UNDERSTANDING/USING
• TRIALABILITY
• OBSERVABILITY
• EXISTENCE OF COMPLEMENTARY PROD

14
FIGURE 6.4 RATES OF DIFFUSION

• WHATS THE DIFFERENCES BETWEEN THE 45 DEGREE
  RATES OF DIFFUSION AND THE NEARLY 90 DEGREE
  RATES?
• WHICH IS MORE IMPORTANT IN DRIVING DIFFUSION -
  FIRMS OR TECHNOLOGIES?
• CAN ANYTHING DIFFUSE MORE RAPIDLY THAN CELL
  PHONES?
• RATE OF DIFFUSION DEPENDS ON?

15
HOW SOON WILL RIVALS APPEAR?

• HOW IMPORTANT ARE COMPLEMENTARY ASSETS HOW MANY
  SOURCES ARE AVAILABLE?
• HEIGHT OF BARRIERS TO IMITATION IN PRODUCTS
  PROCESSES?
• HOW MANY CAPABLE RIVALS?
• GO IT ALONE, LICENSE OR PARTNER?

16
GO IT ALONE, PARTNER OR LICENSE?

• EASE OF IMITATION/REPLICATION (INCLUDES REVERSE
  ENGINEERING)
• EASY/NOT-SO-EASY
• IMPORTANCE OF COMPLEMENTARY ASSETS/RESOURCES/TECHN
  OLOGIES
• IMPORTANT/NOT-SO-IMPORTANT
• NUMBER OF CAPABLE COMPETITORS
• FEW vs MANY
• DOMESTIC vs GLOBAL

17
TIPPING PTS VIRAL MRTNG

• SOME PEOPLE ARE VERY INFLUENTIAL
• LEAD ADOPTERS/LEAD SUPPLIERS
• SOME PEOPLE CAN INFECT/AFFECT MANY OTHERS (ESP.
  IF YOU USE A TECH. WITH SCALE, SCOPE LEVERAGE,
  LIKE INTERNET)
• RECENT EXAMPLES DONALD ROSIE
• ANGELA AND MADONNA
• WHY IS DONALD SQUARING OFF WITH WORLD PRO
  WRESTLING GUY?

18
B-L (PRODUCT/MARKET SEGMENT) STRATEGIES IN MATURE
INDUSTRIES

• B-L STRATEGY ABOUT HOW FIRMS COLLECTIVELY REDUCE
  STRENGTH OF COMPETITION (IN MATURE INDUSTRIES)
• STRATEGIES TO DETER ENTRY
• STRATEGIES TO MANAGE RIVALRY
• STRATEGIES TO CONTROL SUPPLY AND DISTRIBUTION

19
MATURE INDUSTRY STRATGIES

• REMEMBER PRODUCT DIFFERENTIATION ACHIEVED IN 3
  WAYS IN FUNCTIONAL SENSE
• QUALITY, INNOVATION CUSTOMER RESP/SAT
• STRATEGIES TO DETER ENTRY
• PRODUCT PROLIFERATION
• FILL ALL THE NICHES
• PRICE CUTTING
• NEW FIRMS TYPICALLY HAVE HIGHER COSTS
• MAINTAINING EXCESS CAPACITY
• PUT NEW ENTRANTS ON NOTICE THAT YOURE WILLING
  ABLE TO RAMP UP PROD FILL PIPELINE

20
COMPETITIVE ADVANTAGES

• ARE ACHIEVED BY MAKING CHOICES
• PRODUCT FEATURES
• WHICH CUSTOMERS/WHERE
• BASED ON ORGANIZATIONAL CAPABILITIES
• REQUIRE CONTINUED UPGRADING
• INVESTING
• PRACTICING (ORG. LEARNING)
• EVALUATING/ASSESSING/COMPARING CONTRASTING
• MAKING CHOICES/DISCRETION MNGMNT

21
STRATEGIES TO MNG RIVALRY

• PRICE SIGNALING
• CREDIBLE WILLINGNESS TO CUT PRICES
• PRICE LEADERSHIP
• TAKE LEADERSHIP IN SETTING PRICES OR RESPOND
  RAPIDLY WHEN OTHERS DO
• NON-PRICE COMPETITION
• PRODUCT DIFFERENTIATION
• MARKET PENETRATION (E.G., ADVERTISING)
• PRODUCT DEVELOPMENT
• MARKET DEVELOPMENT
• PRODUCT PROLIFERATION

22
STRATEGIES TO CONTROL SUPPLY DISTRIBUTION

• VERTICAL INTEGRATION STRATEGIES
• TO MAKE OR BUY DECISIONS
• COMPLEXITY OF PRODUCTS/PROCESSES
• AFTER MARKET CARE
• VERTICAL DIS-INTEGRATION STRATEGIES
• WHY OUTSOURCE/OFFSHORE
• NOT OUR DISTINCTIVE COMPETENCE
• SOMEONE ELSE CHEAPER, BETTER FASTER
• RESULTS OF OUTSOURCING FOR CAPABILITIES

23
DOMINANT STRATEGY

• A STRATEGY WHERE YOU ARE BETTER OFF, NO MATTER
  WHAT RIVALS DO
• HOWEVER, AS PRISONER DILEMMA (2 PERSON/FIRM GAME)
  SHOWS
• IF NEITHER FIRM CAN TRUST THE OTHER
• BOTH MORE ARE LIKELY TO SUFFER
• IN MANY COP SHOWS, THE KEY ISSUE
• IN MANY COMPETITIVE SITUATIONS, THE KEY ISSUE
• SHOULD I REMOVE REBATES OR NOT?

24
STRATEGY IN DECLINING IND

• ONCE DEMAND STARTS TO FALL, AN INDUSTRY IS IN
  DECLINE
• HOWEVER, ITS TECHNOLGY THAT DRIVES INDUSTRY LIFE
  CYCLE, NOT DEMAND
• INTENSITY OF COMPETITION IN DECLINING INDUSTRIES
  VARIES WITH
• RATE OF DECLINE
• HEIGHT OF EXIT BARRIERS, INCLUDING REPUTATION
  EFFECTS
• AMOUNT OF SUNK COSTS
• IF PRODUCTS ARE DIFFERENTIATED OR NOT

25
MATURE VS. DECLINING INDUSTRIES

• MATURE
• SALES FALL OFF TO 1-2 GROWTH
• REPLACEMENT SALES PREDOMINATE
• OF FIRMS DECLINES
• NO (OR LITTLE) PROPRETAIRY TECHNOLOGY
• DECLINING
• FALLING SALES
• CUSTOMERS DO NOT REPLACE
• FEWER FIRMS YET
• OCCASIONALLY, NEW WRINKLES ON TECHNOLOGY

26
STRATEGIES FOR DECLINING INDUSTRIES

• LEADERSHIP STRATEGY
• BUY OUT RIVALS, PICK UP MKT SHARE
• NICHE STRATEGY
• FIND PROFITABLE SEGMENTS
• HARVEST STRATEGY
• OPTIMIZE CASH FLOW AS EXIT INDUSTRY
• DIVESTMENT STRATEGY
• SELL OUT FAST (BEFORE OTHERS CATCH ON)

27
QUESTIONS

• WHAT ARE THE DANGERS ASSOC WITH BEING LEADER IN
  EMBRYONIC AND GROWTH INDUSTRIES?
• FIRST-TO-MARKET vs FAST FOLLOWER
• TO WHAT EXTENT CAN FIRMS CONTROL INDUSTRY
  PROFITABILITY?
• WHEN, WHERE HOW? (AT WHAT STAGE?)
• ECONOMIES OF SPEED
• WHEN IS THIS LEGAL-ILLEGAL?
• WHAT REQUIRED TO SUSTAIN CONSPIRACY?

28
MORE QUESTIONS

• HOW DO GENERIC COMPETITIVE STRATEGIES
  INTERSECT/INTERACT WITH INDUSTRY LIFE CYCLE?
• GENERIC COMP. STRAT. TOO SIMPLISTIC, AFTER THIS
  CHAPTER!!
• WITH PRODUCT LIFE CYCLE?
• ARE PRODUCT LIFE CYCLE EFFECTS CONSISTENT ACROSS
  ALL THE SEGMENTS OF AN INDUSTRY?
• SAME SORT OF QUESTIONS WITH REGARD TO F-L
  STRATEGIES
• IN OTHER WORDS, INTERACTION EFFECTS