Competitive Advantage in Mature Industries

1
Competitive Advantage in Mature Industries
OUTLINE

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

2
Competitive Advantage in Retailing U.S.
Retailers with the Highest and Lowest Valuation
Ratios
TOP 15 Valuation Sales
Ratio (,bil.) Amazon.com (US)
62.6 1.6 Intimate Brands (US)
18.9 3.9 Hennes Mauritz (Swed.)
18.3 3.1 Seven-Eleven Japan
16.9 16.3 Gap (US) 13.4
11.6 Home Depot (US) 12.4
38.4 Best Buy (US) 11.7
12.5 CDW Computer Cntrs. (US) 10.7
2.6 Wal-Mart (US) 9.9 166.8
Kohls (US) 9.4 4.6 Dixons
Group (UK) 9.3 4.7 Bed,
Bath Beyond ( US) 9.2
1.9 Carrefour (France) 8.7
47.8 Pinault-Printemps -Redoute (France)
7.9 17.5 Castorama Dubois (France)
7.0 6.8
J.C. Penny (US) 0.7
32.5 Federated Dept. Stores (US) 1.2
18.2 J. Sainsbury (UK) 1.3
26.3 Marks Spencer (UK) 1.5
12.3 Great Universal Stores (UK) 1.7
5.5 Marui (Japan) 1.8
4.8 Jusco (Japan) 1.9
23.4 Sears Roebuck (US) 2.0
41.1 May Department Stores (US) 2.6
13.9 Ito-Yokado (Japan) 2.7
29.9 Albertsons (US) 2.7
37.5 Tesco (UK) 2.9
28.9 Boots (UK) 2.9
7.5 George Weston (Canada) 3.2
13.9 Metro (Germany) 3.5
43.5
BOTTOM 15 Valuation Sales
Ratio (, bil.)
3
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 selection deteriorates,
  important to locate attractive
  segments and woo good
• 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

4
Sources of Strategic Innovation in Mature
Industries

• Reconfiguring the value chain - Benetton in
  knitwear - Southwest in airlines
• - Dell in PCs
• - Zara in fashion clothing
• Redefining markets and products - Saturn in
  autos - Enron in energy
• - Barnes Noble in book retailing
• Innovative approaches to - Virgin Atlantic in
  air travel
• differentiation - Sephora in cosmetics
  retailing

• Who are the strategic innovators?
• Typically new entrants - CNN in news
  broadcasting
• - Nucor in the U.S. steel industry
• Established firms constrained by industry
  recipes and existing
• investments in resources and capabilities
  associated with past strategies.

5
Product, Process, and Strategic Innovation over
the Life Cycle
Product innovation
Strategic innovation
RATE OF INNOVATION
Process innovation
TIME
6
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

7
The Competitive Environment of 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

8
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

9
Strategy Alternatives for a Declining Industry

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