Strategy-A View from the Top Chapter 7-Business Unit Strategy: Contexts and Special Dimensions

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Strategy-A View from the TopChapter 7-Business
Unit Strategy Contexts and Special Dimensions

• Crystal Hill
• Stephen Lechtenberg
• Anand McGee
• Allison Purtell
• Jason Torres

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Strategy in Emerging Industries

• New Industries present new opportunities
• Technologies are typically immature
• Costs are typically high and unpredictable, entry
  barriers are low, supplier relationships are
  underdeveloped, and distribution channels are
  just emerging
• Timing can be critical in determining strategic
  success-first mover advantage

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Strategic Leadership in Emerging Markets

• Need ability to shape the industry structure
  based on
• Timing
• Method of entry
• Experience in similar situations
• Leadership opportunities ability to control
  product or process development through
• Superior technology
• Quality or customer knowledge
• Ability to leverage existing relationships with
  suppliers/distributors
• Access to a core group of early, loyal customers

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First Mover Advantage

• Have the opportunity to shape customer
  expectations and define the competitive rules of
  the game
• Examples
• Microsoft Windows Operating System
• Starbucks Saturation of the market Selling
  CDs, coffee merchandise, etc. in stores

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Strategy in Growth Industries

• Increased segmentation often accompanies the
  transition to market maturity
• Cost control becomes an important element of
  strategy as unit margins shrink and new products
  and applications are harder to find
• Process innovation important dimension
• Competing companies that enter growth industries
  are labeled followers

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Followers

• Have the opportunity to evaluate
• Alternative technologies
• Delay investment in risky projects of plant
  capacity
• Imitate or surpass superior product or technology
  offerings
• Starbucks Selling coffee in grocery stores

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Internal Development or Acquisition

• Internal development-creating a new business in a
  somewhat unfamiliar competitive environment
• Turn to existing players in
• Joint Ventures
• Alliances
• Acquisitions
• 2 issues analyzed as part of the decision
  process
• What are the structural barriers to entry?
• How will incumbent firms react to intrusion?

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Strategy in Mature and Declining Industries

• Choose a balance between differentiation and low
  cost postures and deciding whether to compete in
  multiple or single industry segments
• Firms earn profits during long maturity stage
  when they
• 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
• Streamline production and delivery to cut costs
• Gradually harvest the business in preparation for
  strategic shift to more promising product or
  industries

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Strategy in Mature and Declining Industries

• Companies should avoid
• An overly optimistic view of the industry or the
  companys position within it
• A lack of strategic clarity shown by a failure to
  choose between a broad-based and a focused
  competitive approach
• Investing too much for too little return
• Trading market share for profitability in
  response to short-term performance pressures
• Unwillingness to compete on price
• Resistance to industry structural changes or new
  practices
• Placing too much emphasis on new product
  development compared with improving existing ones
• Retaining excess capacity
• Take caution in exit decisions

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Industry Evolution and Functional Priorities

• Early Development
• Slow growth in sales
• Research and development emphasis
• Rapid technological change in product
• Emerging State
• Success associated with technological skill and
  being the first in a new market
• Marketing advantage has a widespread awareness
• Rapid growth brings new competitors
• Maturity Stage
• Sales growth continues, but at a decreasing rate
• Technological change in product design slows
• Promotional and pricing advantages key internal
  strengths
• Declining Stage
• Strengths center on cost advantages and superior
  supplier and customer relationships

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Strategy in Fragmented Industries

• Fragmented industries - no company or group has
  enough market share to affect industry structure
  or outcomes.
• To thrive in these markets, segment the market
  based on
• Product, customer, type of order, or geographic
  area
• Combined with no frills posture.

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Strategy in Deregulating Industries

• Artificial constraints are lifted and new players
  are allowed to enter.
• Deregulating environments undergo change twice
  when market is opened and 5 years later.
• Can be good and bad for companies

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Dealing with Challenges in Deregulated Markets

• Four distinct strategic postures
• 1.) Broad based distributors that offer a wide
  range of products
• 2.) Low cost entrants that develop into niche
  players
• 3.) Focus segment marketers that emphasize the
  companys value
• 4.) Shared utilities that focus on market based
  economies of scales available to smaller
  competitors.

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Pricing in Newly Deregulated Industries

• When new competitors enter, the market demands
  reduced prices.
• Results from efficiencies and competitive effects
• Startups are inefficient and shared markets
  reduce efficiencies of scale and scope.

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How to Adjust Prices Correctly

• 1.) Measure up against the most relevant
  competitors.
• 2.) Switch prices but dont allow a price gap
• 3.) Pay attention to valued customers
• 4.) Keep costs high enough to be able to run your
  business

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Strategy in Hypercompetitive Industries

• Characterized by intense rivalry
• Successful strategies often are based on taking
  the competitor by surprise and then moving on as
  the competition tries to recover
• Hypercompetitive Markets
• Rapid innovation and speed
• Superior short-term strategic focus
• Market awareness

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Competitive Reactions Under Extreme Competition

• 6 Actions
• Retool strategy and restore its importance
• Manage transition economics
• Fight aggregation with disaggregation
• Seek out new demand and new growth
• Use a portfolio of initiatives to increase speed
  and flexibility
• Count on strategic risk

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Business Unit Strategy Special Dimensions

• Speed
• Newest and least understood
• Pace of progress that a company displays in
  responding to current or anticipated business
  needs
• Speed Merchants
• Strategy built on rapid pace converting core
  competencies into competitive advantages which
  alter competitive landscapes in their favor

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Pressures to Speed

• Speed is universally popular
• Speed-oriented companies are rewarded with
  loyalty and commitment.
• Suppliers will bear extra costs and
  responsibilities.

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Sources for Increasing Speed

• Customers
• Demand responsiveness
• Need for creating a new basis for competitive
  advantage
• Innovation, development, manufacturing,
  distribution
• Competitive Pressures
• with increasing competition, speed must be
  maximized
• Industry Shifts
• Speed is important in industries with short
  product life cycles

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Requirements of Speed

• Executives must foster a fast culture.
• Actions must be taken on the following issues
• Refocusing the business mission
• Creating a speed-compatible culture
• Upgrading communication
• Refocusing business process reengineering
• Committing to new performance metrics

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Requirements of Speed (cont.)

• Refocusing the business mission
• Board and officers articulate a long-term vision
  for a speed oriented company.
• Creating a speed-compatible culture
• Facilitate speed by nurturing an organizational
  culture that is conductive to speed and adopt and
  evaluation system.
• Upgrading communication
• Upgrading methods for clear and timely
  communication.
• Refocusing business process reengineering
• Reorganize to eliminate barriers that create
  distance between employees and customers.
• Committing to new performance metrics
• Metrics include sales volume, customer
  satisfaction, processing time, cost controls, and
  marketing specifics.

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Methods to Speed

• Internal analysis to determine where speed exists
  and where is does not.
• Eliminate speed gaps.
• Three categories
• Streamlining Operations
• Upgrading Technology
• Forming Partnerships

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Methods to Speed (cont.)

• Streamlining Operations
• Speed-enhanced ability to obtain quick
  post-implementation feedback from the marketplace
• Upgrading Technology
• Use of latest IT to create speed. Goal is to
  connect manufacturers with retailers to enhance
  information sharing.
• Forming Partnerships
• Sharing business burdens is a way to shorten time
  needed to improve market responsiveness.
• Ex Ford, General Motors, and Chrystler

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Creating Value Through Innovation

• Strategy requires Innovation
• Clayton Christensen disruptive and sustaining
  innovation
• Computer hardware industry
• GE

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Fostering Innovation

• 3Ms unparalleled culture
• Top level comittment
• Long term focus
• Flexible organization
• Loose and tight planning and control
• Appropriate incentives

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Performance and Profitability

• Performance
• Booz Allen Hamilton
• Boston Consulting Group
• Profitability
• Unsatisfied with returns
• Mismanagement of the Innovation process
• Measurement Metrics