1. Strategy-A View from the Top Chapter 7-Business Unit Strategy: Contexts and Special Dimensions Crystal Hill Stephen Lechtenberg Anand McGee Allison Purtell Jason Torres

2. Strategy in Emerging Industries New Industries present new opportunities New Industries present new opportunities Technologies are typically immature Technologies are typically immature Costs are typically high and unpredictable, entry barriers are low, supplier relationships are underdeveloped, and distribution channels are just emerging Costs are typically high and unpredictable, entry barriers are low, supplier relationships are underdeveloped, and distribution channels are just emerging Timing can be critical in determining strategic success- first mover advantage Timing can be critical in determining strategic success- first mover advantage

3. Strategic Leadership in Emerging Markets Need ability to shape the industry structure based on: Need ability to shape the industry structure based on: Timing Timing Method of entry Method of entry Experience in similar situations Experience in similar situations Leadership opportunities: ability to control product or process development through: Leadership opportunities: ability to control product or process development through: Superior technology Superior technology Quality or customer knowledge Quality or customer knowledge Ability to leverage existing relationships with suppliers/distributors Ability to leverage existing relationships with suppliers/distributors Access to a core group of early, loyal customers Access to a core group of early, loyal customers

4. First Mover Advantage Have the opportunity to shape customer expectations and define the competitive rules of the game Have the opportunity to shape customer expectations and define the competitive rules of the game Examples: Examples: Microsoft: Windows Operating System Microsoft: Windows Operating System Starbucks: Saturation of the market; Selling CD’s, coffee merchandise, etc. in stores Starbucks: Saturation of the market; Selling CD’s, coffee merchandise, etc. in stores

5. Strategy in Growth Industries Increased segmentation often accompanies the transition to market maturity Increased segmentation often accompanies the transition to market maturity Cost control becomes an important element of strategy as unit margins shrink and new products and applications are harder to find Cost control becomes an important element of strategy as unit margins shrink and new products and applications are harder to find Process innovation important dimension Process innovation important dimension Competing companies that enter growth industries are labeled followers Competing companies that enter growth industries are labeled followers

6. Followers Have the opportunity to evaluate: Have the opportunity to evaluate: Alternative technologies Alternative technologies Delay investment in risky projects of plant capacity Delay investment in risky projects of plant capacity Imitate or surpass superior product or technology offerings Imitate or surpass superior product or technology offerings Starbucks: Selling coffee in grocery stores Starbucks: Selling coffee in grocery stores

7. Internal Development or Acquisition Internal development-creating a new business in a somewhat unfamiliar competitive environment Internal development-creating a new business in a somewhat unfamiliar competitive environment Turn to existing players in: Turn to existing players in: Joint Ventures Joint Ventures Alliances Alliances Acquisitions Acquisitions 2 issues analyzed as part of the decision process: 2 issues analyzed as part of the decision process: What are the structural barriers to entry? What are the structural barriers to entry? How will incumbent firms react to intrusion? How will incumbent firms react to intrusion?

8. Strategy in Mature and Declining Industries Choose a balance between differentiation and low cost postures and deciding whether to compete in multiple or single industry segments Choose a balance between differentiation and low cost postures and deciding whether to compete in multiple or single industry segments Firms earn profits during long maturity stage when they: Firms earn profits during long maturity stage when they: Concentrate on segments that offer chances for higher growth or higher return Concentrate on segments that offer chances for higher growth or higher return Manage product and process innovation aimed at further differentiation, cost reduction, or rejuvenating segment growth Manage product and process innovation aimed at further differentiation, cost reduction, or rejuvenating segment growth Streamline production and delivery to cut costs Streamline production and delivery to cut costs Gradually harvest the business in preparation for strategic shift to more promising product or industries Gradually harvest the business in preparation for strategic shift to more promising product or industries

9. Strategy in Mature and Declining Industries Companies should avoid: Companies should avoid: An overly optimistic view of the industry or the company’s position within it An overly optimistic view of the industry or the company’s position within it A lack of strategic clarity shown by a failure to choose between a broad- based and a focused competitive approach A lack of strategic clarity shown by a failure to choose between a broad- based and a focused competitive approach Investing too much for too little return Investing too much for too little return Trading market share for profitability in response to short-term performance pressures Trading market share for profitability in response to short-term performance pressures Unwillingness to compete on price Unwillingness to compete on price Resistance to industry structural changes or new practices Resistance to industry structural changes or new practices Placing too much emphasis on new product development compared with improving existing ones Placing too much emphasis on new product development compared with improving existing ones Retaining excess capacity Retaining excess capacity Take caution in exit decisions Take caution in exit decisions

10. Industry Evolution and Functional Priorities Early Development Early Development Slow growth in sales Slow growth in sales Research and development emphasis Research and development emphasis Rapid technological change in product Rapid technological change in product Emerging State Emerging State Success associated with technological skill and being the first in a new market Success associated with technological skill and being the first in a new market Marketing advantage has a widespread awareness Marketing advantage has a widespread awareness Rapid growth brings new competitors Rapid growth brings new competitors Maturity Stage Maturity Stage Sales growth continues, but at a decreasing rate Sales growth continues, but at a decreasing rate Technological change in product design slows Technological change in product design slows Promotional and pricing advantages key internal strengths Promotional and pricing advantages key internal strengths Declining Stage Declining Stage Strengths center on cost advantages and superior supplier and customer relationships Strengths center on cost advantages and superior supplier and customer relationships

11. Strategy in Fragmented Industries Fragmented industries - no company or group has enough market share to affect industry structure or outcomes. Fragmented industries - no company or group has enough market share to affect industry structure or outcomes. To thrive in these markets, segment the market based on: To thrive in these markets, segment the market based on: Product, customer, type of order, or geographic area Product, customer, type of order, or geographic area Combined with “no frills” posture. Combined with “no frills” posture.

12. Strategy in Deregulating Industries Artificial constraints are lifted and new players are allowed to enter. Artificial constraints are lifted and new players are allowed to enter. Deregulating environments undergo change twice: when market is opened and 5 years later. Deregulating environments undergo change twice: when market is opened and 5 years later. Can be good and bad for companies Can be good and bad for companies

13. Dealing with Challenges in Deregulated Markets Four distinct strategic postures: Four distinct strategic postures: 1.) Broad based distributors that offer a wide range of products 1.) Broad based distributors that offer a wide range of products 2.) Low cost entrants that develop into niche players 2.) Low cost entrants that develop into niche players 3.) Focus segment marketers that emphasize the company’s value 3.) Focus segment marketers that emphasize the company’s value 4.) Shared utilities that focus on market based economies of scales available to smaller competitors. 4.) Shared utilities that focus on market based economies of scales available to smaller competitors.

14. Pricing in Newly Deregulated Industries When new competitors enter, the market demands reduced prices. When new competitors enter, the market demands reduced prices. Results from efficiencies and competitive effects Results from efficiencies and competitive effects Startups are inefficient and shared markets reduce efficiencies of scale and scope. Startups are inefficient and shared markets reduce efficiencies of scale and scope.

15. How to Adjust Prices Correctly 1.) Measure up against the most relevant competitors. 1.) Measure up against the most relevant competitors. 2.) Switch prices but don’t allow a price gap 2.) Switch prices but don’t allow a price gap 3.) Pay attention to valued customers 3.) Pay attention to valued customers 4.) Keep costs high enough to be able to run your business 4.) Keep costs high enough to be able to run your business

16. Strategy in Hypercompetitive Industries Characterized by intense rivalry Characterized by intense rivalry Successful strategies often are based on taking the competitor by surprise and then moving on as the competition tries to recover Successful strategies often are based on taking the competitor by surprise and then moving on as the competition tries to recover Hypercompetitive Markets Hypercompetitive Markets Rapid innovation and speed Rapid innovation and speed Superior short-term strategic focus Superior short-term strategic focus Market awareness Market awareness

17. Competitive Reactions Under Extreme Competition 6 Actions 6 Actions Retool strategy and restore its importance Retool strategy and restore its importance Manage transition economics Manage transition economics Fight aggregation with disaggregation Fight aggregation with disaggregation Seek out new demand and new growth Seek out new demand and new growth Use a portfolio of initiatives to increase speed and flexibility Use a portfolio of initiatives to increase speed and flexibility Count on strategic risk Count on strategic risk

18. Business Unit Strategy: Special Dimensions Speed Speed Newest and least understood Newest and least understood Pace of progress that a company displays in responding to current or anticipated business needs Pace of progress that a company displays in responding to current or anticipated business needs Speed Merchants Speed Merchants Strategy built on rapid pace converting core competencies into competitive advantages which alter competitive landscapes in their favor Strategy built on rapid pace converting core competencies into competitive advantages which alter competitive landscapes in their favor

19. Pressures to Speed Speed is universally popular Speed is universally popular Speed-oriented companies are rewarded with loyalty and commitment. Speed-oriented companies are rewarded with loyalty and commitment. Suppliers will bear extra costs and responsibilities. Suppliers will bear extra costs and responsibilities.

20. Sources for Increasing Speed Customers Customers Demand responsiveness Demand responsiveness Need for creating a new basis for competitive advantage Need for creating a new basis for competitive advantage Innovation, development, manufacturing, distribution Innovation, development, manufacturing, distribution Competitive Pressures Competitive Pressures with increasing competition, speed must be maximized with increasing competition, speed must be maximized Industry Shifts Industry Shifts Speed is important in industries with short product life cycles Speed is important in industries with short product life cycles

21. Requirements of Speed Executives must foster a “fast” culture. Executives must foster a “fast” culture. Actions must be taken on the following issues: Actions must be taken on the following issues: Refocusing the business mission Refocusing the business mission Creating a speed-compatible culture Creating a speed-compatible culture Upgrading communication Upgrading communication Refocusing business process reengineering Refocusing business process reengineering Committing to new performance metrics Committing to new performance metrics

22. Requirements of Speed (cont.) Refocusing the business mission Refocusing the business mission Board and officers articulate a long-term vision for a speed oriented company. Board and officers articulate a long-term vision for a speed oriented company. Creating a speed-compatible culture Creating a speed-compatible culture Facilitate speed by nurturing an organizational culture that is conductive to speed and adopt and evaluation system. Facilitate speed by nurturing an organizational culture that is conductive to speed and adopt and evaluation system. Upgrading communication Upgrading communication Upgrading methods for clear and timely communication. Upgrading methods for clear and timely communication. Refocusing business process reengineering Refocusing business process reengineering Reorganize to eliminate barriers that create distance between employees and customers. Reorganize to eliminate barriers that create distance between employees and customers. Committing to new performance metrics Committing to new performance metrics Metrics include: sales volume, customer satisfaction, processing time, cost controls, and marketing specifics. Metrics include: sales volume, customer satisfaction, processing time, cost controls, and marketing specifics.

23. Methods to Speed Internal analysis to determine where speed exists and where is does not. Internal analysis to determine where speed exists and where is does not. Eliminate “speed gaps”. Eliminate “speed gaps”. Three categories: Three categories: Streamlining Operations Streamlining Operations Upgrading Technology Upgrading Technology Forming Partnerships Forming Partnerships

24. Methods to Speed (cont.) Streamlining Operations Streamlining Operations Speed-enhanced ability to obtain quick post- implementation feedback from the marketplace Speed-enhanced ability to obtain quick post- implementation feedback from the marketplace Upgrading Technology Upgrading Technology Use of latest IT to create speed. Goal is to connect manufacturers with retailers to enhance information sharing. Use of latest IT to create speed. Goal is to connect manufacturers with retailers to enhance information sharing. Forming Partnerships Forming Partnerships Sharing business burdens is a way to shorten time needed to improve market responsiveness. Sharing business burdens is a way to shorten time needed to improve market responsiveness. Ex: Ford, General Motors, and Chrystler Ex: Ford, General Motors, and Chrystler

25. Creating Value Through Innovation Strategy requires Innovation Strategy requires Innovation Clayton Christensen – disruptive and sustaining innovation Clayton Christensen – disruptive and sustaining innovation Computer hardware industry Computer hardware industry GE GE

26. Fostering Innovation 3M’s unparalleled culture: 3M’s unparalleled culture: 1) Top level comittment 2) Long term focus 3) Flexible organization 4) Loose and tight planning and control 5) Appropriate incentives

27. Performance and Profitability Performance Booz Allen Hamilton Booz Allen Hamilton Boston Consulting Group Boston Consulting GroupProfitability Unsatisfied with returns Unsatisfied with returns “Mismanagement of the Innovation process” “Mismanagement of the Innovation process” Measurement Metrics Measurement Metrics