To accompany contemprory strategy analysis concepts techiniques application chapter12slides

Competitive
Competitive Advantage
Advantage in
in
Mature
Mature Industries
Industries
OUTLINE
• Key success factors in mature industries
• Strategic Implementation: Structure, Systems,
Style
• Strategies for declining industries


Competitive
CompetitiveAdvantage
Advantage in
in Retailing:
Retailing:Retailers
Retailers with
with
the
the Highest
Highestand
and Lowest
LowestValuation
Valuation Ratios
Ratios

TOP 15

Valuation Sales
Ratio
($,bil.)
Amazon.com (US)
n.a.
3.9
Caremark Rx (US)
18.0
6.8
Expedia
16.6
0.6
Autozone (US)
13.1
5.3
Hennes & Mauritz (Swe.)
10.5
5.9
Next (UK)
10.1
3.6
Bed, Bath & Beyond (US)
8.5
3.7
Woolworth (Australia)
8.0
16.0
Gap (US)
4.1
14.5

TJX (US)
6.9
12.0
Inditex (Spain)
6.8
4.7
Wal-Mart (US)
5.7
244.5
Radio Shack
5.6
4.6
Family Dollar Stores
5.1
4.2
Best Buy (US)
5.0
20.9

BOTTOM 15

Valuation Sales
Ratio ($, bil.)
Toys-R-Us
0.6
11.3
J.C. Penny (US)
0.7
32.3
Federated Dept. Stores (US) 1.1

15.4
J. Sainsbury (UK)
1.1
29.8
Ito-Yokado (Japan)
1.1
28.0
Ahold
1.2
78.3
Safeway plc (UK)
1.3
29.8
Pinault-Printemps
-Redoute (France)
1.4
32.2
Sears Roebuck (US)
1.4
41.4
Dixons Group (UK)
1.4
8.0
Albertson’s (US)
1.5
35.6
May Department Stores (US) 1.7
11.9
Office Depot (US)
1.7

11.4
CVS
1.9
24.2
Kingfisher (UK)
2.0
17.6


Key
Key Success
Success Factors
Factors in
in Mature
Mature Industries
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
cost advantage

-- Economies of scale
-- Low-cost inputs
-- Low overheads

•

Segment and customer
selection

-- As general industry environment
deteriorates, important to locate
attractive segments and woo good
customers.

•

Sources of differentiation
advantage

-- Emphasis on image differentiation and
differentiation through complementary
services.

•

Sources of innovation

-- Limited opportunity for product and
process innovation but considerable
opportunity for strategic innovation


Sources
Sources of
ofStrategic
StrategicInnovation
Innovation in
in Mature
Mature Industries
Industries
• Reconfiguring the value chain:

- Benetton and Zara in clothing
- Southwest & Ryanair in airlines
- Dell in PCs

• Redefining markets and products

- Swatch in watches
- Starbucks in coffee shops
- Barnes & Noble in book retailing

• Innovative approaches to

- Virgin Atlantic in air travel
- Sephora in cosmetics retailing

differentiation

Who are the strategic innovators?
- CNN in news broadcasting
• New entrants

• Existing firms on the periphery
• Firms from adjacent industries

- Nucor in the U.S. steel industry
-Sun Records in rock ‘n roll music
- Prudential Insurance in banking (Egg)

Why not leading incumbents?
• They are constrained by “industry recipes,” relationships with existing
customers, investments in resources & capabilities linked to past
strategies.


RATE OF INNOVATION

Product,
Product, Process,
Process, and
and Strategic
Strategic
Innovation
Innovation over
over the

the Life
Life Cycle
Cycle

Product
innovation

Strategic
innovation

Process
innovation

TIME


Strategy
Strategy Implementation
Implementation in
in Mature
Mature
Industries:The
Industries:The Traditional
Traditional Model
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
MANAGEMENT

- Primary functions are control and
strategic decision making
- Two main styles: politician and autocrat


The
The Competitive
Competitive Environment
Environment of

of
Declining
Declining Industries
Industries
 Features
of declining
industries

 Smooth adjustment

- Excess capacity
- Lack of technological change
- Consolidation (but some new entry
as new firms exit)
- Old machines and employees
- Predictability of decline

of capacity
depends upon
- Barriers to exit

{

Durable assets
Costs of closure
Management
commitment

- Strategies of surviving firms

Strategy
Strategy Options
Options in
in Declining
Declining
Industries
Industries
LEADERSHIP

Establish dominant market position
-encourage exit of rivals
-buy market share through acquisition
-acquire capacity
-demonstrate commitment
-dispel optimism about the industry’s 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

Strategy
Strategy Alternatives
Alternatives for
for aa Declining
Declining Industry
Industry

COMPANY’S COMPETITIVE POSITION
Strengths in
remaining demand
pockets
Favorable

INDUSTRY
STRUCTURE

LEADERSHIP

Lacks strength in
remaining demand
pocket
HARVEST

to

or

or

decline

NICHE

DIVEST

Unfavorable
to
decline

NICHE
or
HARVEST

DIVEST
QUICKLY