Competitive Advantage in Mature Industries

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Competitive Advantage in Mature Industries
OUTLINE

• Key success factors in mature industries
• Strategic Implementation Structure, Systems,
  Style
• Strategies for declining industries

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Competitive Advantage in a Mature Industry High
Performing Low Performing U.S. Retailers
Av. annual return Sales Av.
annual return Sales to investors
87/97 1997 to investors
87/97 1997 (() (, bill.) ()
(, bill.) TOP TEN BOTTOM TEN Dollar
General 48 2.6 K-Mart 1 32.2 Home Depot
42 24.2 Woolworth 5 6.6 The Gap 37
6.5 Costco 4 21.9 Barnes Noble 37
2.8 Pep Boys 6 2.1 Office Depot 35
6.7 Toys-R-Us 8 11.0 Best Buy 30
7.8 Mercantile Stors 8 3.1 Lowes
30 10.1 Giant Food 9 3.9 Kroger
26 26.6 Service Merchandise 10
3.7 Proffitts 26 3.5 Tandy 11 5.4 TJX
26 7.6 Longs Drug Stores 11 3.0
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Key Success Factors in Mature Industries

• Opportunities for sustainable -- limited
  potential for differentiation
• competitive advantage are -- technology
  stable and well diffused
• limited -- ease of entry due to
  well developed industry infrastructure
  and powerful distributors
• -- international competition
  domestic cost advantage vulnerable
• Sources of --
  Economies of scale
• cost advantage -- Low-cost inputs
• -- Low overheads
• Segment and customer -- As general industry
  environment deteriorates, selection advantage
  important to locate attractive segments
  and link up with successful customers.
• Sources of differentiation -- Emphasis
  on image differentiation and advantage
  differentiation through complementary services.
• Sources of innovation -- Limited
  opportunity for product and process
  innovation but considerable opportunity for
  strategic innovation

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Aspects of Strategic Innovationin Mature
Industries

• Reconfiguring the value chain -
  Benetton in knitwear - Southwest and Virgin
  Atlantic in airlines
• Redefining markets and products -
  Georgio Armani in perfumes - Saturn in
  autos - Arco in gas stations
• The role of new entrants in - Fox in
  network broadcasting challenging
  conventional wisdom - Richarson Sheffield in the
  UK cutlery industry - Nucor in the
  U.S. steel industry
• The problem for established firms -
  Impact of industry recipes strategic innovation
  difficult due to investment in existing
  capabilities and acceptance of
  conventional industry recipes

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Product, Process, and Strategic Innovation over
the Life Cycle
Product innovation
Strategic innovation
RATE OF INNOVATION
Process innovation
TIME
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Strategy Implementation in Mature IndustriesThe
Traditional Model

• STRATEGY - Pursuit of cost efficiency
  through mass production
• STRUCTURE - Functional departments
• - Line and staff distinction
• - Job specialization
• CONTROLS - Quantitative, short-term
  performance targets
• - Hierarchical monitoring and control
• - Standard, formalized operating
  procedures, reporting, and management
  by exception.
• INCENTIVES - Emphasis on financial incentives
  linked to individual performance
• TOP - Primary functions are control and
• MANAGEMENT strategic decision making
• - Two main styles politician and autocrat

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Decline of the Bureaucratic Model

• - Increased environmental turbulence
• - Increased emphasis on innovation
• Major causes - New process technology (FMS,
  CIM, CAD)
• - Alienation and conflict
• - Lessons from Japanese management
• - Decentralization of decision making
• - Less emphasis on economies of large-scale
• Key features production, more emphasis on
  flexibility and
• of change responsiveness
• - Increased horizontal coordination,
  team work, and cross-functional
  collaboration
• - Wider use of profit incentives

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Strategies for Declining Industries

• Features - Excess capacity
• of declining - Lack of technological change
• industries - Consolidation (but some new entry
  as new firms exit)
• - Old machines and employees
• Smooth adjustment - Predictability of decline
• of capacity Durable assets
• depends upon Costs of closure
• - Barriers to exit Management
• commitment
• - Strategies of surviving firms

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Strategy Options in Declining Industries

• LEADERSHIP Establish dominant market
  position -encourage exit of rivals
• -buy market share through acquisition
• -acquire capacity
• -demonstrate commitment
• -dispel optimism about the industrys future
• -raise the stakes
• NICHE Identify an attractive segment and
  dominate it.
• HARVEST Maximize cash flow from existing sources
• DIVEST Get out while there is still a market
  for industry assets

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Selecting a Strategy in a Declining Industry

• COMPANYS
  COMPETITIVE POSITION
• Strengths in remaining Lacks strength
  in demand pockets remaining
  demand pocket
• Favorable
  LEADERSHIP HARVEST
• INDUSTRY to
  or or
• STRUCTURE decline NICHE
  DIVEST
• Unfavorable
  NICHE DIVEST
• to
  or
  QUICKLY
• decline
  HARVEST

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