1. Chapter 6, 7 & 8 BUSINESS-LEVEL STRATEGY AND THE INDUSTRY ENVIRONMENT
STRATEGY AND TECHNOLOGY

2. Industry Environment
Need to continually formulate/implement business-level strategies to sustain competitive advantage over time.
Different environments present different opportunities and threats.
Business model/strategies have to change to meet environment.
Face challenges developing/maintaining a competitive strategy in:
Fragmented Industries • Mature Industries
Embryonic Industries • Declining Industries
Growth Industries
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3. Reasons for Fragmented Industries
“...composed of a large number of small and medium-sized companies.”
Low barriers to entry
Low entry barriers permit constant entry by new companies
Specialized customer needs require small job lots
Diseconomies of scale
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4. Strategies for Fragmented Industries
Chaining– linked outlets to achieve cost leadership
Franchising- rapid growth with proven business concepts, reputation, management skills and economies of scale
Horizontal Merger – acquisition to obtain economies/growth
IT/Internet- develop new business models
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5. Embryonic and Growth Industries
Embryonic- just beginning to develop when technological innovation creates new market or product opportunities.
Growth- first-time demand is expanding rapidly as many new customers enter market.
Companies must understand factors that affect a market’s growth rate – in order to tailor the business model to the changing industry environment.
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6. Market Characteristics: Embryonic/Growth Industries
Reasons for Slow Growth:
Limited performance and poor quality of the first products
Customer unfamiliarity with what the new product can do for them
Poorly developed distribution channels
Lack of complementary products
High production costs
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7. Market Characteristics: Embryonic/Growth Industries
Mass Markets Develop When:
Technological progress makes product easier to use and increases its value to the average customer.
Key complementary products are developed that do the same.
Companies find ways to reduce production costs allowing them to lower prices.
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8. Market Development and Customer Groups
Figure 6.2
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9. Innovators & Early Adopters Are:
Technologically sophisticated and tolerant of engineering imperfections
Typically reached through specialized distribution channels
Relatively few in number and not particularly price-sensitive
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10. Crossing the Chasm Companies must:
Correctly identify needs of first wave of early majority users.
Alter business model in response.
Alter value chain & distribution channels to reach early majority.
Design product to meet needs of early majority so product can be modified, produced, & provided at low cost.
Anticipate moves of competitors.
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11. Stages of Life Cycle Embryonic– share building
Distinctive competencies/competitive advantage
Capital to develop R&D &sales/service competencies
Growth– maintain competitive position
Strengthen business model to survive shakeout
Investment to keep up with growth
Shakeout– competition is strongest
Invest in share-increasing strategy
Weak companies should invest in harvest strategy
Maturity– defend business model
Dominant companies reap ROI
Investment depends on competition & source advantage
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12. Mature Industries
“...dominated by a small number of large companies whose actions are so highly interdependent that success of one company’s strategy depends on the response of its rivals.”
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13. Mature Industries Evolution
Consolidate due to fierce competition in shakeout
Strategy based on established companies collectively reduce strength competition
Interdependent companies protect industry profitability.
Strategies
Deter entry
Product proliferation  Maintain
Price cutting excess capacity
Manage rivalry
Price signaling  Capacity control
Price leadership  Nonprice competition
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14. Strategies for Deterring Entry of Rivals
Strategies for managing rivalry

15. Nonprice Competitive Strategies
Figure 6.8
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16. Toyota’s Product Lineup
Toyota used market development to become a broad differentiator and developed a vehicle for almost every main segment of the car market.
Figure 6.9
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17. Declining Industries
“...one in which market demand has leveled off or is falling and the size of total market starts to shrink. Competition tends to intensify and industry profits tend to fall.”
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18. Strategy Selection in a Declining Industry
Figure 6.11
Determined by:
Severity of the industry decline
Strength relative to pockets of demand
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19. Factors of Intensity of Competition in Declining Industries
Strategies
Leadership – seeks to become dominant player
Niche – focuses on pockets of demand declining more slowly
Harvest – optimizes cash flow
Divestment – sells business to others
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20. High-Technology Industries
“…those in which the underlying scientific knowledge that companies in the industry use is advancing rapidly… (as) are the attributes of the products/services that result from its application are also advancing rapidly.”
Technology is:
Scientific knowledge used in production of goods or services
Accounting for a larger share of economic activity
Revolutionizing the product or production system in industries not thought of as high-tech
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21. Technical Standards and Format Wars
“…standards are a set of technical specifications that producers adhere to when making the product or a component of it.
Format wars
One standard will come to dominate a market.
Many battles in high-tech industries are companies competing to set standard.
Product differentiation and competitive advantage are based on a technical standard.
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22. Technical Standards for Personal Computers
Figure 7.1
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23. Benefits of Standards
Guarantee compatibility between products & compliments
Reduce consumer confusion
Reduce production costs
Reduce risks associated with supplying complementary products
Standards lead to low-cost and differentiation advantages for companies.
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24. 3 Ways Standards Emerge:
Firms lobby government to mandate industry standard- public domain.
Standards often set by cooperation among firms/forums.
Standards often selected by market demand.
Network effects
Positive feedback loop
Lockout
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25. Positive Feedback in VCR Market
Figure 7.2
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26. Winning a Format War
Successful strategies revolve around finding ways to make network effects work in their favor and against their competitors:
Ensure supply of complement- Plus product itself
Killer applications- New products so compelling customers adopt rapidly killing demand for competition
Aggressively price/market- Price product low to increase installed base, price complements high for profits
Cooperate with competitors-Speed up adoption
License format- Reduce incentive for competitors to develop own
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27. First-Mover Advantages
First to develop/pioneer revolutionary products can lead to enduring competitive advantage
5 key Advantages:
Opportunity to exploit network effects and positive feedback loops
Ability to establish significant brand loyalty
Ability to ramp up sales volume early
Ability to create switching costs for customers
Ability to accumulate valuable knowledge
Being first-mover does not guarantee success. Success depends on first-mover strategy pursued.
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28. First-Mover Disadvantages
Pioneering cost- develop technology & distribution channels & educate customer
Prone to mistakes- uncertainties in new market
Risk building wrong resources & capabilities- mass-market may differ from the needs of early adopters
May invest in inferior/obsolete technology- if underlying technology advancing rapidly
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29. Strategies for Profiting from Innovation
Table 7.1
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30. Technological Paradigm Shifts
New technologies emerge that:
Revolutionize structure of industry
Dramatically alter nature of competition
Requires firms adopt new strategies
More likely to occur with:
Natural limits to technology- established technology is mature & approaching natural limit
New disruptive technology- entered marketplace and taking root in niches poorly served by firms using established technology
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31. Global/National Environments
Implications of trend toward globalization:
Industries becoming global in scope- industry boundaries no longer stop at borders.
Shift from national to global markets has intensified competition.
Steady decline in barriers to cross-border trade & investment has opened once protected markets to companies based elsewhere.
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32. Increasing Profitability Through Global Expansion
Expand leveraging products- goods/services developed at home & selling internationally
Economies from global volume- economies of scale
Location economies- economic benefits from performing value creation in optimal location
Leveraging skills of global subsidiaries- applied elsewhere
Must also consider transportation costs, trade barriers, as well as political and economic risks.
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33. Pressures for Cost Reduction & Local Responsiveness
Figure 8.2
Strategy depends on pressures:
Cost Reductions or
Local Responsiveness
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34. Pressures for Cost Reductions
Greatest in industries producing commodity-type products where price is the competitive weapon:
Differentiation on non-price factors difficult
Competitors are based in low-cost location
Consumers are powerful & face low switching costs
Persistent excess capacity
Liberalization of world trade & investment
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35. Pressures for Local Responsiveness
Differences In:
Customer tastes & preferences
Infrastructure & traditional practices
Distribution channels
Host government demands
Dealing with these contradictory pressures is a difficult strategic challenge, primarily because being locally responsive tends to raise costs.
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36. Four Basic Strategies     Figure 8.3
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37. Choosing a Global Strategy
Globalization Standard- Reaping cost reductions from economies of scale & location
Localization- Customizing goods & services to provide good match to tastes & preferences in different national markets
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38. Choosing a Global Strategy
Transnational- business model that simultaneously:
Achieves low costs
Differentiates across markets
Fosters a flow of skills between subsidiaries
International- multinational companies sell products serving universal needs (minimal need to differentiate) & don’t face significant competitors (low cost pressure).
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39. Changes in Strategy over Time
Figure 8.4
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40. Choice of Entry Mode
Exporting- most use to begin expansion but later switch to another mode.
Licensing- licensee buys rights to produce product & puts up most of overseas capital.
Franchising- franchiser sells intangible property & insists franchisee follow rules on doing business.
Joint Ventures- typically a 50/50 venture & favored mode for entering new market
Wholly-Owned Subsidiaries- parent company owns 100% of subsidiary’s stock
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41. Advantages & Disadvantages of Entry Modes
Table 8.1
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42. Choosing An Entry Strategy
Distinctive Competencies & Entry Mode
Technological know-how- wholly-owned subsidiary preferred over licensing & joint ventures to minimize risk of losing control.
Management know-how- franchising, joint ventures, or subsidiaries preferred as risk is low of losing management know-how.
Pressures for Cost Reduction & Entry Mode
Export finished goods from wholly-owned subsidiary
Marketing subsidiaries oversee distribution- tight control over local operations allows company to use profits generated in one market to improve position in other markets.
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43. Global Strategic Alliances
Cooperative agreements between companies… that are actual/potential competitors… range from short-term contractual… to formal joint ventures with equity participation.
Advantages
Facilitate entry
Share fixed costs & associated risks
Bring together complementary skills & assets
Set technological standards for industry
Disadvantages
Give competitors low-cost route to gain technology & market access
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44. Some alliances benefit the company.
Alliance Warning
Some alliances benefit the company.
Beware, alliances can end up giving away technology and market access with very little gained in return.
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