1.  Scott DeVore  Ryan White  Mitchell Stack  Heather McMahon  Brittany Thomason  Jacob Western  Cory Gregory

2.  Three stages of an industry  Three industry environments  Special Dimensions of a business unit strategy

3.  iPod (early years) ◦ New Technological ◦ Great timing and marketing ◦ iTunes ◦ First Mover Advantage set the standard ◦ No price competition

4.  iPod ◦ Different size, color, and flavors of appeal ◦ More process innovation “lower price” ◦ Competing companies offer different advantages

5.  Internal Development  Joint ventures, alliances, and acquisitions Scan Disk

6.  What are the structural barriers ◦ Investment required ◦ Access to production ◦ Distribution facilities “3 rd World Countries” ◦ Threat of overcapacity Beer in Turkey

7.  How will incumbent firms react to the intrusion? ◦ Most likely in mature markets Tucker cars ISQS 3344

8. Carefully choosing a balance between differentiation and low cost posture and deciding whether to compete in multiple or single industry segments are critically important issues as maturity sets in and decline threatens.

9. Firms earn attractive profits during the long maturity stage and industry growth when they do the following: ◦ 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 ◦ Stream line production and delivery to cut cost ◦ Gradually “harvest” the business in preparation for a strategic shift to more promising products or industries.

10. Counterbalancing these opportunities, mature and declining industries contain a number of strategic pitfalls that companies should avoid: ◦ 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 ◦ Investing to much for to little return – the so called “cash- trap” ◦ Trading market share for profitability in response to short- term performance pressures ◦ Unwillingness to compete on price ◦ Resistance to industry structural changes or new practice ◦ Placing too much emphasis on new product development compared with improving existing ones ◦ Retaining excess capacity

11. Government restrictions Labor and pension obligations Contractual obligations to other parties Possible exit barriers include:

12. The requirements for success in industry segments change over time. Strategist need to use these changing requirements as a basis for identifying and evaluating a firm’s strengths and weakness. Figure 7-1 (pg 144) shows the four stages of industry evolution and the changes in functional capabilities that often are associated with business success at each stage.

13. Introduction The early development of product market typically entails slow growth in sales, major R&D emphasis, rapid technological change in the product, operating losses, and a need for sufficient resources or slack to support a temporarily unprofitable operation. Success at this emerging stage often is associated with technical skill, with being first in new markets, and with having marketing advantage that creates widespread awareness.

14. Brand recognition Product differentiation Financial resources to support both heavy market expenses and price competition Growth Rapid growth bring new competitors.

15. Maturity As the industry moves through a shakeout phase and into the maturity stage, sales growth continues, but at a decreasing rate.  Increased industry segments  Technological product design slows considerably  Competition becomes more intense  Promotional or pricing advantages and differentiation become key strengths.

16. Decline When the industry moves into the decline stage, strengths center on cost advantages, superior supplier and customer relationships, and financial control. Competitive advantage can exist at this stage if a firm serves gradually shrinking markets that competitors choose to leave.

18.  No single company or small group of firms has a large enough market share to strongly affect the industry structure or outcomes.  Examples of areas in this trait:  Retail sectors  Distribution businesses  Professional services  Small manufacturing

19.  Entry and exit barriers are low  There are few economies of scale or scope  Cost structures make consolidation unattractive  Products or services are highly diverse or need to be customized  Close, local control is essential

20.  Has reshaped a number of industries  Competitive dynamics take place when artificial constraints are lifted and new players enter  Timing of strategic moves is crucial  Deregulated environments tend to undergo considerable change twice: 1)First when the market is opened 2)Then again in about 5 years

21. Airlines Trucking Railroads Banking Telecommunicatio ns Energy

22.  Large number of new entrants rushed in  Industry profitability deteriorated  Once attractive firms become less attractive  Wider quality range of competitors  Two waves of merger and acquisition activity ◦ Consolidating weaker players ◦ Larger players aimed at market dominance  Forced to narrow focus on specific segments/products

23.  Joel Bleeke came up with 4 strategies to help with the coping of deregulations: 1)Broad based distributors – conserve resources 2)Low cost entrants – survive by becoming specialty or niche players 3)Focused segment marketers – target value-added segments from the outset 4)Shared utilities – provide low cost entrants with economies of scale by sharing costs among many companies

24.  Research by Florissen, Maurer, Schmidt, and Vahlenkamp identifies 4 factors that adjust price correctly after deregulation: 1)Competitors’ prices – measure up again the most relevant competitor 2)Switching rates – few will switch unless it new provider offers some exceptional benefit 3)Customer Value – most are concerned with quality and service 4)Cost to serve – true cost of their service

25.  Characteristics: ◦ Intense Rivalry ◦ Based on Introducing a product when least expected then moving on when the competitor tries to recover  Strategies: ◦ Enable the company to gain an advantage over competitors by disrupting the market with quick and innovative change.  Goals: ◦ Neutralize previous competition ◦ Create an unbalanced industry segment

26.  Results: ◦ Short Product Life Cycles ◦ Emergence of New Technologies ◦ Competition from Unexpected Players ◦ Repositioning by Current Players ◦ Major Shifts in Market Boundaries  Examples: ◦ PC’s & Software VS ◦ Telecommunications (Strategy =Bundling Services)

27.  Successful Companies manipulate competitive positions to: ◦ Create a competitive advantage for themselves ◦ Destroy competitive advantage’s of competitors  Require 3 major qualities: 1.Rapid Innovation & Speed 2.Superior Short Term Focus 3.Market Awareness

28. 1. Rapid Innovation & Speed ◦ Gain Temp Advantage ◦ Achieve Short Term Profitability ◦ Shift Strategic Focus before Competition can React  Crucial to Innovate, Manufacture, Market, and Distribute Product QUICKLY. ◦ They will gain market share fast than competitors! ◦ Without speed firms are at a disadvantage because competitors will be able to capitalize on market opportunities first!

29. 2. Superior Short Term Focus  To Succeed firms must be able to manipulate the competition into making long-term commitments.

30. 3. Market Awareness ◦ Understand Consumer Markets ◦ Deliver High-Impact Products ◦ Provide Superior Customer Support  Understanding Customers focus allows firms to:  identify customers needs  uncover new and previous untapped markets  (wins market share)

31. Traditional Concept  Believe long term profitability is achieved through segmented markets and low to moderate competition. Now…  There is another requirement…  Long term sustainable profits are only possible when entry barriers restrict competition.  Must continuously re-create competitive advantage because of hypercompetition.

32.  Consequences of Extreme Competition: ◦ High Rivalry ◦ Shrinking Profits ◦ Shaky dominance ◦ Pressure by smaller, flexible & innovative competitors ◦ Shrinking Industries ◦ Endangered Leaders

33.  6 Actions to counter the aggressive moves of competitors: 1.Retool Strategy & Restore its Importance 2.Manage Transition Economics 3.Fight Aggregation with disaggregation 4.Seek out new demand and new growth 5.Use a portfolio of initiatives to increase speed & flexibility 6.Count on strategic risk

34. 1. Retool Strategy & Restore its Importance ◦ Instead of Ignoring strategy… Adopt a portfolio view in strategic planning to increase responsiveness to opportunities 2. Manage Transition Economics ◦ Develop low-cost positions in order to free funds for innovation. 3. Fight Aggregation with disaggregation ◦ Will get higher profits by creating different value propositions through disaggregation.

35. 4.Seek out new demand and new growth ◦ Should not rely on growth through traditional strategies such as mergers or strategic alliances. Instead focus on customer demand and innovation to grow. 5.Use a portfolio of initiatives to increase speed & flexibility ◦ Use a Resource Based View: Think of assets as resources that enable the company to launch new products, innovate to reduce costs, and compete on price worldwide. ◦ (allows for more innovation & responsiveness)

36. 6.Count on Strategic Risk ◦ There was always be unstable corporate earnings and stock prices = RISK ◦ The 4 most important types of risk are: 1.Value Proposition Risks – warn negative consequences if competitors introduce lower-priced products 2.Cost Curve Risks - warn negative consequences if competitors are able to become the low cost provider 3.Bad-Conduct Risk – warn of negative consequences if a price war occurs 4.Bad-Bet Risk - warn of negative consequences from overly optimistic assumptions

37. The internet has led to speed being a strategic priority. Speed = Quality = Customers

38. Speed – Pace of progress that a company displays in responding to current or anticipated business needs Speed 1.Measured by a firm’s response time in meeting customer expectations 2.Innovating new products 3.Change of strategy 4.Upgrading processes to improve satisfaction and financial returns

39.  Respond to industry challenges to increase their customer responsiveness  Speed Merchants are a hallmark for the progress of their industry ◦ Modify their environments to convert their core competencies into competitive advantages

40.  AAA = fast emergency roadside service  Dell = fast computer assembly  Domino’s = fast pizza delivery  CyberGate = fast internet access

41. 1. Distinct and identifiable sources of pressure that create the demand on a company to accelerate its speed 2. An emphasis on speed places new cost, cultural, and change process requirements on a company 3. Several implementation methods to accelerate a firm’s speed of operations

42.  Customers’ expectations  Competitors who accelerate their own pace  Company itself when it seeks to establish a new competitive advantage  Adjusting priorities of a changing industry

43. 1. Customers – Customers demand responsiveness. There is a new emphasis on getting quality products and services quickly 2. Need for Creating a New Basis for Competitive Advantage – Increasing the speed with which products are innovated, developed, manufactured, and distributed = success of firms in establishing a new competitive advantage

44. 3. Competitive Pressures ◦ Competition mandates an increase in speed 4. Industry Shifts ◦ Speed is especially important to survival in industries characterized by short product life cycles

45.  For speed to be a strategic weapon… ◦ Every aspect of an organization be focused on a fast paced work environment ◦ Executives must foster a ‘fast’ culture

46. 1. Refocusing the Business Mission ◦ The board and officers must plan for the increase in speed throughout the organization 2. Creating a Speed Compatible Culture ◦ Increase speed by nurturing a culture that is conducive to speed and reward those who can increase their speed

47. 3. Upgrading Communication ◦ The increase in speed requires dramatically upgraded methods for clear and timely communication 4. Refocusing Business Process Reengineering ◦ BPR is undertaken to reorganize a company to eliminate barriers that create distance between employees and customers

48. 5. Committing to New Performance Metrics – Set standards to measure the progress of a firm’s change in speed 6. Methods to Speed – Determine where speed exists and where it does not – look to quickly eliminate any ‘speed gaps’ – 3 methods to eliminate speed gaps: 1.Streamlining operations 2.Upgrading technology 3.Forming partnerships

49. 7. Streamline Operations ◦ With a speed enhanced ability to obtain quick feedback from the marketplace and to respond with unparallel speed in making adjustments, successful innovations no longer need to be flawless at introduction 8. Upgrading Technology ◦ Using technology to increase speed allows product information to roll out faster

50.  Connect manufacturers with retailers to enhance information sharing  Streamline and accelerate product distribution  Shortening pipelines, speed products to shelves  Satisfy customers with less costly inventories  Enables companies to learn customers’ buying patterns

51.  Sharing business burdens is a proven way to shorten the time needed to improve market responsiveness  Ex: Ford Motor Company’s partnership with General Motors and DaimlerChrysler ◦ These three major auto manufacturers joined to develop an Internet portal that links their purchasing organizations with 30,000 raw material suppliers. This increased the speed with which the automobile companies respond to customer inquiries at every stage along the supply chain.

52.  Value creation greatly depends on innovation which is a major strategic challenge for most companies.  Clayton Christensen coined the concepts of disruptive and sustaining innovation to describe what he calls the “Innovators’ Dilemma. ◦ Sustaining innovation: innovation that focuses on “better” products. ◦ Disruptive innovation: launching products that may not be as good as the existing products and, therefore, not attractive to current customers, but that are simple, and often more affordable.

53.  How successful companies with established products can keep from being pushed aside by competitors with newer, cheaper products that will, over time, get better and become a serious threat.  An example of Disruptive innovation is the computer hardware industry. The introduction of the minicomputer disrupted the mainframe industry…the personal computer disrupted minicomputer sales…wireless handheld devices such as Blackberries & Palm Pilots disrupted notebook computers.

54.  Best known for Post-it Notes, Scotch Guard, and Scotch Tape, Minnesota, Mining & Manufacturing (3M) has succeeded because its business model is based on a culture that is geared to producing innovative products.  3M employs six mandates that drive their innovation process. Here are a couple of examples: ◦ “15 Percent Rule” states that 3M researchers may devote 15% of their time to any creative idea or project, and management approval is not required. ◦ “Stretch Goals” state that3M’s target is that 40 percent of sales will be from products introduced in the last 4 years, while 10 percent of sales will be from products introduced in the current year.

55.  Although there is no universal model for creating an innovating environment, a look at successful companies reveals certain common characteristics. ◦ 1. Top-level commitment ◦ 2. Long-term focus ◦ 3. Flexible organization structure ◦ 4. Loose and tight planning and control ◦ 5. Appropriate incentives

56.  There is no link between R & D, innovation and financial performance  Two studies found conflicting results ◦ Booz Hamilton’s The Global Innovation 1000 Study- Found no statistical relationship between R&D and measures of financial success. ◦ BCG Innovation 2006 Global Survey- Found that innovation translates into superior long term stock market performance

57.  Research suggests that executives lack confidence in their companies’ ability to use innovation to drive profits. ◦ 67% of firms in a study considered themselves more innovative than competitors, only 7% said they were successful meeting their innovation performance goals  The single biggest growth inhibitor for large companies is mismanagement of the innovation process.

58.  There are six recommendations for improving performance: ◦ Plan Synergy between strategy and innovation ◦ Areas where new opportunities and competitive advantage exist provide a firm’s best chances to profit from innovation ◦ Profits from innovation in business systems can match those from product development

59. ◦ Look outside of the company’s internal environment to increase the likelihood of success and reduce the risks of innovation ◦ Alliances and corporate venture capital programs allow a firm to share the risks associated with exploration investments ◦ Involve customers early and often in the innovation process

60.  Another explanation for the lack of success in innovation is a lack of measurement metrics or the failure to implement them effectively. ◦ In conjunction to the innovation 2006 survey BCG had a group of executives complete another survey on innovation metrics and measurement  Out of 269 respondents, 63% track five or fewer metrics, only 47% said they apply post-launch metrics sporadically and 8% said they don’t apply them at all  Fully half of all companies don’t closely track the efficiency of their innovation process

61.  R&D investments fail to generate successful products for 3 main reasons ◦ Failure to develop truly innovative products ◦ Failure to successfully commercialize innovative products once they are on the market ◦ Failure to market innovative products in a timely manner  Many corporate projects are abandoned in development ◦ Takes 125-150 new initiatives to generate one marketplace success

62.  Stages of an Industry ◦ Emerging Industries ◦ Growth Industries ◦ Mature / Declining Industries  Industry Environments ◦ Fragmented ◦ Deregulated ◦ Hypercompetitive  Special Dimensions ◦ Speed ◦ Innovation