Chapter

8
Tailoring Strategy to Fit Specific Industry and Company Situations

8-1

The best strategy for a given firm is ultimately a unique construction reflecting its particular circumstances.
Michael E. Porter

Chapter Roadmap
 Strategies for Competing in Emerging Industries  Strategies for Competing in Turbulent, High Velocity Markets  Strategies for Competing in Maturing Industries  Strategies for Firms in Stagnant or Declining Industries  Strategies for Competing in Fragmented Industries  Strategies for Sustaining Rapid Company Growth  Strategies for Industry Leaders  Strategies for Runner-up Firms  Strategies for Weak and Crisis-Ridden Businesses  Ten Commandments for Crafting Successful Business Strategies
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Matching Strategy to a Companys Situation

Nature of industry and competitive conditions Firms competitive capabilities, market position, best opportunities

Most important drivers shaping a firms strategic options fall into two categories

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Features of an Emerging Industry

 New and unproven market  Proprietary technology  Lack of consensus regarding which of      
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several competing technologies will win out Low entry barriers Experience curve effects may permit cost reductions as volume builds Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures Possible difficulties in securing raw materials Firms struggle to fund R&D, operations and build resource capabilities for rapid growth

Strategy Options for Competing in Emerging Industries

 Win early race for industry leadership by employing a bold,

creative strategy
 Push hard to perfect technology, improve product quality, and

develop attractive performance features

 Move quickly when technological uncertainty clears and a

dominant technology emerges

 Form strategic alliances with

Key suppliers or Companies having related technological expertise

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Strategy Options for Competing in Emerging Industries (continued)

 Capture potential first-mover advantages  Pursue

New customers and user applications Entry into new geographical areas
 Focus advertising emphasis on

Increasing frequency of use Creating brand loyalty

 Use price cuts to attract price-sensitive buyers
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Features of HighHighVelocity Markets

 Rapid-fire technological change  Short product life-cycles  Entry of important new rivals  Frequent launches of

new competitive moves

 Rapidly evolving

customer expectations
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Fig. 8.1: Meeting the Challenge of High-Velocity Change High-

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Strategy Options for Competing in High-Velocity Markets High Invest aggressively in R&D  Develop quick response capabilities

Shift resources Adapt competencies Create new competitive capabilities Speed new products to market
 Use strategic partnerships to develop

specialized expertise and capabilities  Initiate fresh actions every few months  Keep products/services fresh and exciting
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Keys to Success in Competing in High Velocity Markets

 Cutting-edge expertise  Speed in responding to new developments  Collaboration with others  Agility  Innovativeness  Opportunism  Resource flexibility  First-to-market capabilities
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Industry Maturity: The Standout Features

 Slowing demand breeds stiffer competition  More sophisticated buyers demand bargains  Greater emphasis on cost and service  Topping out problem in adding

production capacity  Product innovation and new end uses harder to come by  International competition increases  Industry profitability falls  Mergers and acquisitions reduce number of industry rivals
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Strategy Options for Competing in a Mature Industry

 Prune marginal products and models  Emphasize innovation in the value chain  Strong focus on cost reduction  Increase sales to present customers  Purchase rivals at bargain prices  Expand internationally  Build new, more flexible competitive capabilities
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Strategic Pitfalls in a Maturing Industry

 Employing a ho-hum strategy with no distinctive features thus

leaving firm stuck in the middle

 Concentrating on short-term profits rather than strengthening

long-term competitiveness
 Being slow to adapt competencies to

changing customer expectations

 Being slow to respond to price-cutting  Having too much excess capacity  Overspending on marketing  Failing to pursue cost reductions aggressively
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Stagnant or Declining Industries: The Standout Features

 Demand grows more slowly than

economy as whole (or even declines)

 Competitive pressures intensify

rivals battle for market share

 To grow and prosper, firm must

take market share from rivals

 Industry consolidates to a smaller number

of key players via mergers and acquisitions

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Strategy Options for Competing in a Stagnant or Declining Industry

 Pursue focus strategy aimed at

fastest growing market segments  Stress differentiation based on quality improvement or product innovation  Work diligently to drive costs down
Cut marginal activities from value chain Use outsourcing Redesign internal processes to exploit e-commerce Consolidate under-utilized production facilities Add more distribution channels Close low-volume, high-cost distribution outlets Prune marginal products
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Competing in a Stagnant Industry: The Strategic Mistakes

 Getting embroiled in a profitless battle

for market share with stubborn rivals

 Diverting resources out of

business too quickly

 Being overly optimistic about

industrys future (believing things will get better)

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Competitive Features of Fragmented Industries

 Absence of market leaders with large market shares  Buyer demand is so diverse and geographically scattered      

that many firms are required to satisfy buyer needs Low entry barriers Absence of scale economies Buyers require small amounts of customized or made-to-order products Market for industrys product/service may be globalizing, thus putting many companies across the world in same market arena Exploding technologies force firms to specialize just to keep up in their area of expertise Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market share

8-18

Examples of Fragmented Industries

Book publishing Landscaping and plant nurseries Auto repair Restaurant industry Public accounting Womens dresses Meat packing Paperboard boxes Hotels and motels Furniture
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Competing in a Fragmented Industry: The Strategy Options

 Construct and operate formula facilities  Become a low-cost operator  Specialize by product type  Specialize by customer type  Focus on limited geographic area
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Fig. 8.2: Three Strategy Horizons for Sustaining Rapid Growth

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Risks of Pursuing Multiple Strategy Horizons

 Firm should not pursue all options

to avoid stretching itself too thin

 Pursuit of medium- and long-jump

initiatives may cause firm to stray too far from its core competencies
 Competitive advantage may be difficult to achieve in

medium- and long-jump businesses that do not mesh well with firms present resource strengths
 Payoffs of long-jump initiatives may prove elusive
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Strategies Based on a Companys Market Position

Industry leaders

Runner-up firms

Weak or crisis-ridden firms

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Industry Leaders: The Defining Characteristics

 Strong to powerful market position

 Well-known reputation

 Proven strategy

 Key strategic concern How to sustain

dominant leadership position

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Strategy Options: Industry Leaders

Stay-on-the-offensive strategy Fortify-and-defend strategy

Muscle-flexing strategy
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Stay-on-theStay-on-the-Offensive Strategies
 Be a first-mover, leading industry change  Best defense is a good offense  Relentlessly pursue continuous

improvement and innovation

 Force rivals to scramble to keep up  Launch fresh initiatives to keep rivals off balance  Grow faster than industry, taking market share from rivals
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Fortify-andFortify-and-Defend Strategy
Objectives
 Make it harder for new firms to enter and for challengers to

gain ground

 Hold onto present market share

 Strengthen current market position

 Protect competitive advantage

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Fortify-andFortify-and-Defend Strategy
Strategic Options
 Increase advertising and R&D  Provide higher levels of customer service  Introduce more brands to match attributes of rivals  Add personalized services to boost buyer loyalty  Keep prices reasonable and quality attractive  Build new capacity ahead of market demand  Invest enough to remain cost competitive  Patent feasible alternative technologies  Sign exclusive contracts with best suppliers and

distributors
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MuscleMuscle-Flexing Strategy
Objectives
 Play competitive hardball with smaller

rivals that threaten leaders position

 Signal smaller rivals that moves to cut

into leaders business will be hard fought

 Convince rivals they are better off playing

follow-the-leader or else attacking each other rather the industry leader

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MuscleMuscle-Flexing Strategy
Strategic Options
 Be quick to meet price cuts of rivals  Counter with large-scale promotional campaigns if rivals

boost advertising  Offer better deals to rivals major customers  Dissuade distributors from carrying rivals products  Provide salespersons with documentation about weaknesses of competing products  Make attractive offers to key executives of rivals  Use arm-twisting tactics to pressure present customers not to use rivals products
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MuscleMuscle-Flexing Strategy
Risks
 Running afoul of antitrust laws

 Alienating customers with bullying tactics

 Arousing adverse public opinion

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Types of Runner-up Firms Runner Market challengers Use offensive strategies to gain market share  Focusers Concentrate on serving a limited portion of market  Perennial runners-up Lack competitive strength to do more than continue in trailing position
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Im trying!

Obstacles Runner-Up RunnerFirms Must Overcome

 When big size is a competitive asset, firms

with small market share face obstacles in trying to strengthen their positions
Less access to economies of scale Difficulty in gaining customer recognition Inability to afford mass media advertising Difficulty in funding capital requirements
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Strategic Options for Runner-Up Firms Runner When big size provides larger rivals with a cost advantage,

runner-up firms have two options

Build market share
 Lower costs and prices to grow sales or  Out-differentiate rivals in ways to grow sales

Withdraw from market

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Competitive Strategies for RunnerRunnerUp Firms: Building Market Share

 Strategic options for building market share to overcome cost

advantage of larger rivals

Use lower prices to win customers from weak, higher-cost rivals Merge or acquire rivals to achieve size needed to capture greater scale economies Invest in new cost-saving facilities and equipment, perhaps relocating operations to countries where costs are lower Pursue technological innovations or radical value chain revamping to achieve cost-savings
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Strategic Options for Runner-Up Firms RunnerNot Disadvantaged By Smaller Size

 Where big size does not yield a cost advantage, runner-up

firms have seven options

1. Offensive strategies to build market share 2. Growth-via-acquisition strategy 3. Vacant niche strategy 4. Specialist strategy 5. Superior product strategy 6. Distinctive image strategy 7. Content follower strategy
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Offensive Strategies for Runner-Up Firms Runner Best mover-and-shaker offensives

Pioneer a leapfrog technological breakthrough Get new/better products into market ahead of rivals and build reputation for product leadership Be more agile and innovative in adapting to evolving market conditions and customer needs Forge attractive strategic alliances with key distributors and/or marketers of similar products Find innovative ways to dramatically drive down costs to win customers from higher-cost rivals Craft an attractive differentiation strategy
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Rule of Offensive Strategy

Runner-up firms should avoid attacking a leader head-on with an imitative strategy, regardless of the resources and staying power an underdog may have!
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Growth-viaGrowth-via-Acquisition Strategies for Runner-Up Firms Runner Frequently used strategy of ambitious runner-up firms  To succeed, top managers must have skills to

Assimilate operations of acquired firms, eliminating duplication and overlap, Generate efficiencies and cost savings, and Structure combined resources to create stronger competitive capabilities
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Vacant Niche Strategies for Runner-Up Firms Runner Focus strategy concentrated on end-use applications market

leaders have neglected

 Characteristics of an ideal vacant niche

Sufficient size to be profitable Growth potential Well-suited to a firms capabilities Hard for leaders to serve
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Specialist Strategy for RunnerRunner-Up Firms

 Strategy concentrated on

being a leader based on

Specific technology Product uniqueness Expertise in
 Special-purpose products  Specialized know-how  Delivering distinctive customer services
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Superior Product Strategy for Runner-Up Firms Runner Differentiation-based focused strategy based on

Superior product quality or Unique product attributes

 Approaches

Fine craftsmanship Prestige quality Frequent product innovations Close contact with customers to gain input for better quality product
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Distinctive Image Strategy for Runner-Up Firms Runner Strategy concentrated on ways to

stand out from rivals

 Approaches

Reputation for charging lowest price Prestige quality at a good price Superior customer service Unique product attributes New product introductions Unusually creative advertising
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Content Follower Strategy for Runner-Up Firms Runner Strategy involves avoiding

Trend-setting moves and Aggressive moves to steal customers from leaders

 Approaches

Do not provoke competitive retaliation React and respond Defense rather than offense Keep same price as leaders Attempt to maintain market position
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Weak Businesses: Strategic Options

 Launch an offensive turnaround strategy

(if resources permit)

 Employ a fortify-and-defend strategy

(to the extent resources permit)

 Pursue a fast-exit strategy  Adopt an end-game strategy
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Achieving a Turnaround: The Strategic Options

 Sell off assets to generate cash and/or reduce debt  Revise existing strategy  Launch efforts to boost revenues  Cut costs  Combination of efforts
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Liquidation Strategy
 Wisest strategic option in certain situations

Lack of resources Dim profit prospects May serve stockholder interests better than bankruptcy
 Unpleasant strategic option

Hardship of job eliminations Effects of closing on local community

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What Is an EndEnd-Game Strategy?

 Steers middle course between status quo and exiting

quickly
 Involves gradually sacrificing market position

in return for bigger near-term cash flow/profit

 Objectives

Short-term - Generate largest feasible cash flow Long-term - Exit market

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Types of EndEnd-Game Options

 Reduce operating budget to rock-bottom  Hold reinvestment to minimum  Emphasize stringent internal cost controls  Place little priority on new capital investments  Raise price gradually  Trim promotional expenses  Reduce quality in non-visible ways  Curtail non-essential customer services  Shave equipment maintenance
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When Should an End-Game EndStrategy be Considered?

 Industrys long-term prospects are unattractive  Building up business would be too costly  Market share is increasingly costly to maintain  Reduced levels of competitive effort will not trigger immediate

fall-off in sales  Firm can re-deploy freed-up resources in higher opportunity areas  Business is not a major component of diversified firms portfolio of businesses  Business does not contribute other desired features to overall business portfolio
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10 Commandments for Crafting Successful Business Strategies

1. Always put top priority on crafting and executing strategic moves that enhance a firms competitive position for the long-term and that serve to establish it as an industry leader. 2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.
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10 Commandments for Crafting Successful Business Strategies

3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability. 4. Avoid strategies capable of succeeding only in the best of circumstances. 5. Dont underestimate the reactions and the commitment of rival firms. 6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength. 7. Be judicious in cutting prices without an established cost advantage.
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10 Commandments for Crafting Successful Business Strategies

8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes. 9. Endeavor not to get stuck back in the pack with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders. 10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing arms race and/or price wars.
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