Description
structural determinants of competition in decline and causes of decline. It includes sources of exit barriers and strategic alternatives in decline and how choose right strategy for decline.
COMPTITIVE STRATEGY IN DECLINING INDUSTRIES
? Declining industries are those who have experienced
an absolute decline in unit sales over a sustained period
? The number of declining industries have increased
over the period Decline is marked by: ? shrinking margins ? pruning product lines ? falling R&D ? dwindling no. of competitors
Strategies
? Harvest strategy- eliminating investment and
generating maximum cash flows
? Portfolio models- do not invest in unfavorable
markets but pull cash
? Strategies during the decline stage are complex and
vary with industry to industry
Structural determinants of competition in decline
Conditions of Demand – the process by which demand declines have a major influence on competition in declining phase UncertaintyUncertainty perceived by competitors affects the end game competition Believing that demand may revitalize may lead to bitter warfare Believing that demands will keep on decreasing will lead to withdrawal of capacity Influenced by its position in the industry and exit barrier
? ? ? ?
Rate and pattern of decline? A fast decline indicates a bad future
? A slow decline indicates more uncertainty of future decline ? The smoothness of decline also plays a part in uncertainty ? Firms that announce early exit can strongly influence the
rate of decline
Structure of Remaining Demand Pockets
? Remaining pockets of demand decide the profitability of
the remaining competitors
? Profitability in the end game depends on: ? Whether the firms are immune to substitution, have price
insensitive buyers and product differentiation Eg: cigar industry
? Vulnerability of the remaining demand pockets to
substitutes and to powerful suppliers, presence of mobility barriers
Causes of Decline
? Technological substitution? The negative effect is mitigated if there are pockets of
demand in the industry that are immune to substitution
? Demographics? Decline due to shrinkage in size of customer base
? Shifts in needs? Shifts in buyers needs due to sociological reasons
Exit barriers
? Crucial to competition
? Causes firms to compete in declining industries
Sources of exit barriers
? Durable and specialized assets
? Fixed costs of exit
? Hidden costs of exit
Strategic exit barriers
? Interrelatedness among group of businesses of the
corporation, with suppliers
? Access to financial markets may reduce by losing
credibility
? Vertically integrated with other business processes
Information barriers
? Highly integrated with other business processes
? Success may be overshadowed by the failures of
other processes
Managerial or Emotional Barriers
? A blow to pride and the stigma of “hiving up”. ? Severance of an identification with the business
that may be longstanding.
? An external sign of failure which reduces job
mobility.
SITUATIONS IN
? Single business firm
? Diversified companies
Reduced Managerial Barriers
? Technological failure and product substitution are
common
? Product life cycles are short ? High technology firms
Government and social Barriers
? Government’s concern for:
1. Jobs 2. Local Community
? Managements concern
1. employees 2. Local commuinty
Mechanism for asset disposition
If you dispose the asset at low price, it might affect the industry in general, because the new firm might price the product lower.
VOLATILITY OF RIVALRY
Characterized by PRICE WARS. Situations where it is more intense: ?Product is perceived as commodity. ?Fixed costs are high. ?Many firms are locked by exit barriers. ?Firms perceive high strategic importance in maintaining their position ?Firms are uncertain about their relative competitive strengths.
STRATEGIC ALTERNATIVES IN DECLINE
Leadership
• Seek a leadership position in terms of market share
Niche
• Create or defend a strong position in a particular segment
Harvest
• Manage a controlled disinvestment, taking advantage of strengths
Divest Quickly Liquidate the investment as early in the decline phase as possible
1. LEADERSHIP
? AIM: To be either the only firm or one of the few
firms remaining in the industry so that it can harvest easily.
TACTICAL STEPS TO EXECUTE LEADERSIP STRATEGY
1. Aggressive Competitive Actions.
2. Purchasing Market Share.
3. Reduce Exit Barriers for Competitors. 4. Demonstrate a willingness to stay in the industry through public statements. 5. Raise the stakes for competitors to be in the business 6. Demonstrating clearly superior strengths
2. NICHE
? Identify segment that will decay slowly and yield higher
returns ? Ultimately firm switch to a harvest or divest strategy ? Ultimately firm switch to a harvest or divest strategy
3. HARVEST
? Objective is to optimize cash flow from the business
by cutting investment, cutting maintenance of facilities etc.
? Firm try to raise prices (residual strengths) or reap
benefits of past goodwill in continued sales
? Ultimately the business is sold or liquidated
Common Harvest Tactics
Eliminate or curtail new investment
Eroding services in terms of delivery time, speed of repair etc.
Cutting maintenance of facilities
Eliminating small customers
Reducing number of models
Shrinking the number of channels employed
More on Harvest Strategy
? All businesses are not reading harvestable
? Without genuine past strength ? Reduced Sales ? Few option for incremental expense reduction
? Distinction in harvesting tactics
? Actions visible to customers (price increases, lower
advertising) ? Actions not visible (Deferred maintenance, dropping marginal accounts)
? Controlled liquidation is difficult to manage
? Problems of employee morale, supplier & customer
confidence and the motivation of executives
4. QUICK DIVESTMENT
? Selling the business early in decline ? Sometimes desirable to divest before decline or in
the maturity phase
? Problems ?Risk of incorrect forecast ?Effect on image and interrelationships
? Use of private label or selling product lines to
competitors
Choosing a Strategy for Decline
Has Strength for remaining pockets Favorable Industry Structure Lacks Strength for remaining pockets
Leadership or Niche
Harvest or Divest Quickly
Unfavorable Industry Structure
Niche or Harvest
Divest Quickly
Firm strategic needs to remain in business
THANK YOU
doc_103018924.pptx
structural determinants of competition in decline and causes of decline. It includes sources of exit barriers and strategic alternatives in decline and how choose right strategy for decline.
COMPTITIVE STRATEGY IN DECLINING INDUSTRIES
? Declining industries are those who have experienced
an absolute decline in unit sales over a sustained period
? The number of declining industries have increased
over the period Decline is marked by: ? shrinking margins ? pruning product lines ? falling R&D ? dwindling no. of competitors
Strategies
? Harvest strategy- eliminating investment and
generating maximum cash flows
? Portfolio models- do not invest in unfavorable
markets but pull cash
? Strategies during the decline stage are complex and
vary with industry to industry
Structural determinants of competition in decline
Conditions of Demand – the process by which demand declines have a major influence on competition in declining phase UncertaintyUncertainty perceived by competitors affects the end game competition Believing that demand may revitalize may lead to bitter warfare Believing that demands will keep on decreasing will lead to withdrawal of capacity Influenced by its position in the industry and exit barrier
? ? ? ?
Rate and pattern of decline? A fast decline indicates a bad future
? A slow decline indicates more uncertainty of future decline ? The smoothness of decline also plays a part in uncertainty ? Firms that announce early exit can strongly influence the
rate of decline
Structure of Remaining Demand Pockets
? Remaining pockets of demand decide the profitability of
the remaining competitors
? Profitability in the end game depends on: ? Whether the firms are immune to substitution, have price
insensitive buyers and product differentiation Eg: cigar industry
? Vulnerability of the remaining demand pockets to
substitutes and to powerful suppliers, presence of mobility barriers
Causes of Decline
? Technological substitution? The negative effect is mitigated if there are pockets of
demand in the industry that are immune to substitution
? Demographics? Decline due to shrinkage in size of customer base
? Shifts in needs? Shifts in buyers needs due to sociological reasons
Exit barriers
? Crucial to competition
? Causes firms to compete in declining industries
Sources of exit barriers
? Durable and specialized assets
? Fixed costs of exit
? Hidden costs of exit
Strategic exit barriers
? Interrelatedness among group of businesses of the
corporation, with suppliers
? Access to financial markets may reduce by losing
credibility
? Vertically integrated with other business processes
Information barriers
? Highly integrated with other business processes
? Success may be overshadowed by the failures of
other processes
Managerial or Emotional Barriers
? A blow to pride and the stigma of “hiving up”. ? Severance of an identification with the business
that may be longstanding.
? An external sign of failure which reduces job
mobility.
SITUATIONS IN
? Single business firm
? Diversified companies
Reduced Managerial Barriers
? Technological failure and product substitution are
common
? Product life cycles are short ? High technology firms
Government and social Barriers
? Government’s concern for:
1. Jobs 2. Local Community
? Managements concern
1. employees 2. Local commuinty
Mechanism for asset disposition
If you dispose the asset at low price, it might affect the industry in general, because the new firm might price the product lower.
VOLATILITY OF RIVALRY
Characterized by PRICE WARS. Situations where it is more intense: ?Product is perceived as commodity. ?Fixed costs are high. ?Many firms are locked by exit barriers. ?Firms perceive high strategic importance in maintaining their position ?Firms are uncertain about their relative competitive strengths.
STRATEGIC ALTERNATIVES IN DECLINE
Leadership
• Seek a leadership position in terms of market share
Niche
• Create or defend a strong position in a particular segment
Harvest
• Manage a controlled disinvestment, taking advantage of strengths
Divest Quickly Liquidate the investment as early in the decline phase as possible
1. LEADERSHIP
? AIM: To be either the only firm or one of the few
firms remaining in the industry so that it can harvest easily.
TACTICAL STEPS TO EXECUTE LEADERSIP STRATEGY
1. Aggressive Competitive Actions.
2. Purchasing Market Share.
3. Reduce Exit Barriers for Competitors. 4. Demonstrate a willingness to stay in the industry through public statements. 5. Raise the stakes for competitors to be in the business 6. Demonstrating clearly superior strengths
2. NICHE
? Identify segment that will decay slowly and yield higher
returns ? Ultimately firm switch to a harvest or divest strategy ? Ultimately firm switch to a harvest or divest strategy
3. HARVEST
? Objective is to optimize cash flow from the business
by cutting investment, cutting maintenance of facilities etc.
? Firm try to raise prices (residual strengths) or reap
benefits of past goodwill in continued sales
? Ultimately the business is sold or liquidated
Common Harvest Tactics
Eliminate or curtail new investment
Eroding services in terms of delivery time, speed of repair etc.
Cutting maintenance of facilities
Eliminating small customers
Reducing number of models
Shrinking the number of channels employed
More on Harvest Strategy
? All businesses are not reading harvestable
? Without genuine past strength ? Reduced Sales ? Few option for incremental expense reduction
? Distinction in harvesting tactics
? Actions visible to customers (price increases, lower
advertising) ? Actions not visible (Deferred maintenance, dropping marginal accounts)
? Controlled liquidation is difficult to manage
? Problems of employee morale, supplier & customer
confidence and the motivation of executives
4. QUICK DIVESTMENT
? Selling the business early in decline ? Sometimes desirable to divest before decline or in
the maturity phase
? Problems ?Risk of incorrect forecast ?Effect on image and interrelationships
? Use of private label or selling product lines to
competitors
Choosing a Strategy for Decline
Has Strength for remaining pockets Favorable Industry Structure Lacks Strength for remaining pockets
Leadership or Niche
Harvest or Divest Quickly
Unfavorable Industry Structure
Niche or Harvest
Divest Quickly
Firm strategic needs to remain in business
THANK YOU
doc_103018924.pptx