Strategic Management: Value Creation, Sustainability, and Performance, 3e, 2014 Strategy Issues in Industries and Life Cycle Stages Chapter 8

1. Stages of industry life cycle and their impact on business strategy. 2. Implications of competing in fragmented or concentrated industries. 3. Value chain activities appropriate for organizational life cycle stages. 4. Risks of first mover strategy. 5. International strategy considerations. Learning Objectives

Opportunity recognition New knowledge about value creation Growth in demand (and supply) Industries Evolve

Introduction – innovative new companies Growth – increased demand, standardization Maturity – slowed demand, commoditization Decline – substitutes abound Renewal – new customers, new segments  Redefine industry boundaries  Disaggregate bocks of value chain activity  Redefine value  Shift to complements Industry Stages

Competing in Consolidated Industries Usually occurs during Growth and Maturity stages. Usually scale (cost containment) addresses increasing standardization. Focused differentiation can also work  Mobility barriers inhibit large companies  Anti-trust concerns hinder large companies  Large companies blind to niche opportunities  Large companies subject to margin pressure, cannot always divert resources

Usually occurs  When entry barriers are low, or  Where value creation is locally-based (so that consolidation is ineffective) Unbundling or disaggregating value chain activity into new configurations  Redefining how and where value is delivered, i.e change the game  Industry "roll-ups" – creating corporate value while maintaining local presence Competing in Fragmented Industries

Conception – innovation, strategy, finance Commercialization – production, hiring, and organizational issues Growth – scaling up, marketing, culture, pace of change and chaos Maturity – profitability, internal controls Organizational Life Cycles

First Mover Strategy Not always successful

Timing advantages  Set the standard  "Installed base" – creates switching costs  Reputation  Preemption Size advantages  Scale  Experience curve  Scope  Network First Mover Advantages

Expensive to pioneer new domain Technology uncertainty – standard may ultimately be different Demand uncertainty – "Will they buy?" Inertia – reluctance to modify approaches as the industry develops ("sunk cost") First Mover Risks

Growth at 20+ % per year Organizational problems: chaos, paperwork, customer attention, competitive attention "Solutions"  Use vision, mission, principles to unify  Carefully examine value chain activities  What's strategically critical, what's not  Emphasis on internal coordination of activities  Consider restructuring (Chapter 11) Dealing with Fast Growth

Usually needed at the Maturity Stage "Solutions"  Build opportunity recognition capabilities  Reconfigure resources to develop new operational capabilities that can be leveraged  Develop new products / services at "platform" level – a foundation for future variations  Optioned investments in innovation – a portfolio approach  Retool culture and incentives to embrace change Strategic Renewal

Growth into international markets is a strategic choice among alternatives Common motivations  New geographic revenue opportunities  Leverage value chain and resources  Spread risk  Achieve location-based advantages (where value creation is enhance by local presence) International / Global Strategy

Leveraging Value Chain

Four International Strategies Global Transnational Multi-Domestic Centralized Single Country Value added in upstream activities Efficiency through scale & scope Minor country-to-country variations Value added downstream near customer Efficiency through scale & scope is important Variations across countries are meaningful Value added downstream near customer No pressure to be efficient Variations across countries are significant Value added in upstream activities No pressure on efficiency Occurs where markets are protected or government controlled