Description
market characteristics and features of emerging and growth industries. It also explains the strategy options for competing in emerging industrie
“All men can see these tactics whereby I conquer but what none can see is the strategy out of which victory evolves.” - Sun Tzu
1
“The best strategy for a given firm is
ultimately a unique construction reflecting its particular circumstances.”
Michael E. Porter
2
The Industry Environment
There is the need to continually formulate and implement business-level strategies to sustain competitive advantage over time in different industry environments.
?
Different industry environments present different opportunities and threats.
?
A company’s business model and strategies have to change to meet the environment.
Companies must face the challenges of developing and maintaining a competitive strategy in:
?
?
? ?
Fragmented Industries
Embryonic Industries Growth Industries
•
•
Mature Industries
Declining Industries
3
Fragmented Industries
A fragmented industry is one composed of a large
number of small and medium-sized companies.
?
Reasons for fragmented industries ? Low barriers to entry due to lack of economies of scale ? Low entry barriers permit constant entry by new companies ? Specialized customer needs require small job lots of products - no room for a mass-production ? Diseconomies of scale Strategies ? Chaining – networks of linked outlets to achieve cost leadership ? Franchising – for rapid growth with proven business concepts, reputation, management skills and economies of scale ? Horizontal Merger – acquisition to obtain economies and growth ? IT and Internet – to develop new business models
?
4
Embryonic and Growth Industries
An embryonic industry is one that is just beginning to
develop when technological innovation creates new market or product opportunities. A growth industry is one in which first-time demand is expanding rapidly as many new customers enter the market.
Strategy is determined by market demand
?
Innovators and early adopters have different needs from the early and late majority Company must be prepared to cross the chasm between the early adopters and the later majority
5
?
Market Characteristics: Embryonic and Growth Industries
?
?
Reasons for slow growth in market demand ? 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 Mass markets typically start to develop when: ? Technological progress makes a 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.
6
Market Development and Customer Groups
Both innovators and early adopters enter the market while the industry is in its embryonic state.
7
Market Share of Different Customer Segments
Most market demand and industry profits arise during the early and late majority customer segments.
8
Features of an Emerging Industry
? ? ? ? ? ? ? ? ?
New and unproven market Proprietary technology Lack of consensus regarding which of several competing technologies will win out Low entry barriers Experience curve effects may permit cost reductions as volume builds Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures Possible difficulties in securing raw materials Firms struggle to fund R&D, operations and build resource capabilities for rapid growth
9
Strategy Options for Competing in Emerging Industries
?
Win early race for industry leadership by employing a bold, creative strategy
Push hard to perfect technology, improve product quality, and develop attractive performance features Move quickly when technological uncertainty clears and a dominant technology emerges
?
?
?
Form strategic alliances with
? ?
Key suppliers or Companies having related technological expertise
10
Strategy Options for Competing in Emerging Industries
?
?
Capture potential first-mover advantages
Pursue
? ?
New customers and user applications Entry into new geographical areas
?
Focus advertising emphasis on
? ?
Increasing frequency of use
Creating brand loyalty
?
Use price cuts to attract price-sensitive buyers
11
Features of High-Velocity Markets
? ? ? ? ?
Rapid-fire technological change Short product life-cycles Entry of important new rivals Frequent launches of new competitive moves Rapidly evolving customer expectations
12
Strategy Options for Competing in High-Velocity Markets
?
?
? ? ?
Invest aggressively in R&D Develop quick response capabilities ? Shift resources ? Adapt competencies ? Create new competitive capabilities ? Speed new products to market Use strategic partnerships to develop specialized expertise and capabilities Initiate fresh actions every few months Keep products/services fresh and exciting
13
Keys to Success in Competing in High Velocity Markets
?
? ? ? ? ? ? ?
Cutting-edge expertise
Speed in responding to new developments Collaboration with others Agility Innovativeness Opportunism Resource flexibility First-to-market capabilities
14
Strategic Implications of Market Growth Rates
?
?
Different markets develop at different rates.
Growth rate measures the rate at which the industry’s product spreads in the marketplace. Growth rates for new kinds of products seem to have accelerated over time:
?
? Use of mass media
?
• • •
Low-cost mass production
Factors affecting market growth rates:
? Relative advantage ? Compatibility
Complexity Observability
? Availability of
complementary products
•
Trialability
15
Differences in Diffusion Rates
Different markets develop at different growth rates.
16
Navigating Through the Life Cycle to Maturity
The amount and type of resources and capital needed to pursue company’s business model depends on two crucial factors: 1. Competitive advantage of company’s business model 2. Stage of the industry life cycle
?
a
Embryonic stages – share building strategies
? ?
Development of distinctive competencies and competitive advantage. Requires capital to develop R&D and sales/service competencies.
?
Growth stages – maintain relative competitive position
? ?
Strengthen business model to prepare to survive industry shakeout. Requires investment to keep up with rapid growth of the market.
?
Shakeout stage – increase share during fierce competition
?
?
Invest in share-increasing strategies at expense of weak competitors.
Weak companies should exit the industry during the harvest stage.
?
Maturity stage – hold-and-maintain to defend business model
?
Dominant companies want to reap the reward of prior investments.
?
A company’s investment depends on the level of competition and source of the company’s competitive advantage.
17
Mature Industries
A mature industry is 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.
?
Evolution of mature industries
?
Industry becomes consolidated as a result of the fierce competition during the shakeout stage. Business level strategy is based on how established companies collectively try to reduce strength of competition. Interdependent companies try to protect industry profitability. Deter entry into industry
?
? ?
Strategies
?
? Product proliferation
? Price cutting
?
? Maintaining
excess capacity ? Capacity control
18
Manage industry rivalry ? Price signaling
Industry Maturity: The Standout Features
?
Slowing demand breeds stiffer competition ? More sophisticated buyers demand bargains ? Greater emphasis on cost and service ? “Topping out” problem in adding production capacity ? Product innovation and new end uses harder to come by ? International competition increases ? Industry profitability falls ? Mergers and acquisitions reduce number of industry rivals
19
Strategies for Competing in a Mature Industry
?
? ? ? ? ? ?
Prune marginal products and models
Emphasize innovation in the value chain Strong focus on cost reduction Increase sales to present customers Purchase rivals at bargain prices Expand internationally Build new, more flexible competitive capabilities
20
Strategies for Deterring Entry of Rivals
Filling the Niches: making it difficult for new competitors to break into a new industry & establish a beachhead
Sending a Signal:to potential new entrants contemplating entry that new entry will be met with price cuts
Warning of Retaliation: by increasing output and forcing down prices until market entry would be unprofitable to entrants
21
Strategies for Managing Industry Rivalry
Convey intentions (e.g. Tit-for-Tat) regarding pricing to other companies to allow the industry to choose the most favorable pricing options. Intent is to improve industry profitability.
Informal pricing when one company takes the responsibility for choosing the most favorable industry pricing option. Formal price setting jointly by companies is illegal.
Differentiation by offering products with different features or applying different marketing techniques: • Market development • Market penetration • Product development • Product proliferation
Market Signaling to secure coordination with rivals as a capacity control strategy and to reduce industry investment risks. Collusion on timing of new investments is illegal.
22
Declining Industries: The Standout Features
?
Demand grows more slowly than economy as whole (or even declines) Competitive pressures intensify – rivals battle for market share To grow and prosper, firm must take market share from rivals Industry consolidates to a smaller number of key players via mergers and acquisitions
?
?
?
23
Strategies for Competing in a Declining Industry
? ? ?
Pursue focus strategy aimed at fastest growing market segments Stress differentiation based on quality improvement or product innovation
Work diligently to drive costs down
? ? ? ? ?
Cut marginal activities from value chain Use outsourcing
Redesign internal processes to exploit e-commerce
Consolidate under-utilized production facilities Add more distribution channels
?
?
Close low-volume, high-cost distribution outlets
Prune marginal products
24
Factors for Intensity of Competition in Declining Industries
25
Strategy Selection in a Declining Industry
Choice of strategy is determined by: • Severity of the industry decline • Company strength relative to the remaining pockets of demand
26
10Commandments for Crafting Successful Business Strategies
1. Always put top priority on crafting and executing
strategic moves that enhance a firm’s competitive position for the long-term and that serve to establish it as an industry leader. 2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.
27
10 Commandments for Crafting Successful Business Strategies
3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability. 4. Avoid strategies capable of succeeding only in the best of circumstances. 5. Don’t underestimate the reactions and the commitment of rival firms. 6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength. 7. Be judicious in cutting prices without an established cost advantage.
28
10 Commandments for Crafting Successful Business Strategies
8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes. 9. Endeavor not to get “stuck back in the pack” with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders. 10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing “arms race” and/or price wars.
29
“Whatever you shoot is dead for a while before it starts to stink.
The same goes for strategies.”
- Gary Hamel
30
doc_805221606.pptx
market characteristics and features of emerging and growth industries. It also explains the strategy options for competing in emerging industrie
“All men can see these tactics whereby I conquer but what none can see is the strategy out of which victory evolves.” - Sun Tzu
1
“The best strategy for a given firm is
ultimately a unique construction reflecting its particular circumstances.”
Michael E. Porter
2
The Industry Environment
There is the need to continually formulate and implement business-level strategies to sustain competitive advantage over time in different industry environments.
?
Different industry environments present different opportunities and threats.
?
A company’s business model and strategies have to change to meet the environment.
Companies must face the challenges of developing and maintaining a competitive strategy in:
?
?
? ?
Fragmented Industries
Embryonic Industries Growth Industries
•
•
Mature Industries
Declining Industries
3
Fragmented Industries
A fragmented industry is one composed of a large
number of small and medium-sized companies.
?
Reasons for fragmented industries ? Low barriers to entry due to lack of economies of scale ? Low entry barriers permit constant entry by new companies ? Specialized customer needs require small job lots of products - no room for a mass-production ? Diseconomies of scale Strategies ? Chaining – networks of linked outlets to achieve cost leadership ? Franchising – for rapid growth with proven business concepts, reputation, management skills and economies of scale ? Horizontal Merger – acquisition to obtain economies and growth ? IT and Internet – to develop new business models
?
4
Embryonic and Growth Industries
An embryonic industry is one that is just beginning to
develop when technological innovation creates new market or product opportunities. A growth industry is one in which first-time demand is expanding rapidly as many new customers enter the market.
Strategy is determined by market demand
?
Innovators and early adopters have different needs from the early and late majority Company must be prepared to cross the chasm between the early adopters and the later majority
5
?
Market Characteristics: Embryonic and Growth Industries
?
?
Reasons for slow growth in market demand ? 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 Mass markets typically start to develop when: ? Technological progress makes a 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.
6
Market Development and Customer Groups
Both innovators and early adopters enter the market while the industry is in its embryonic state.
7
Market Share of Different Customer Segments
Most market demand and industry profits arise during the early and late majority customer segments.
8
Features of an Emerging Industry
? ? ? ? ? ? ? ? ?
New and unproven market Proprietary technology Lack of consensus regarding which of several competing technologies will win out Low entry barriers Experience curve effects may permit cost reductions as volume builds Buyers are first-time users and marketing involves inducing initial purchase and overcoming customer concerns First-generation products are expected to be rapidly improved so buyers delay purchase until technology matures Possible difficulties in securing raw materials Firms struggle to fund R&D, operations and build resource capabilities for rapid growth
9
Strategy Options for Competing in Emerging Industries
?
Win early race for industry leadership by employing a bold, creative strategy
Push hard to perfect technology, improve product quality, and develop attractive performance features Move quickly when technological uncertainty clears and a dominant technology emerges
?
?
?
Form strategic alliances with
? ?
Key suppliers or Companies having related technological expertise
10
Strategy Options for Competing in Emerging Industries
?
?
Capture potential first-mover advantages
Pursue
? ?
New customers and user applications Entry into new geographical areas
?
Focus advertising emphasis on
? ?
Increasing frequency of use
Creating brand loyalty
?
Use price cuts to attract price-sensitive buyers
11
Features of High-Velocity Markets
? ? ? ? ?
Rapid-fire technological change Short product life-cycles Entry of important new rivals Frequent launches of new competitive moves Rapidly evolving customer expectations
12
Strategy Options for Competing in High-Velocity Markets
?
?
? ? ?
Invest aggressively in R&D Develop quick response capabilities ? Shift resources ? Adapt competencies ? Create new competitive capabilities ? Speed new products to market Use strategic partnerships to develop specialized expertise and capabilities Initiate fresh actions every few months Keep products/services fresh and exciting
13
Keys to Success in Competing in High Velocity Markets
?
? ? ? ? ? ? ?
Cutting-edge expertise
Speed in responding to new developments Collaboration with others Agility Innovativeness Opportunism Resource flexibility First-to-market capabilities
14
Strategic Implications of Market Growth Rates
?
?
Different markets develop at different rates.
Growth rate measures the rate at which the industry’s product spreads in the marketplace. Growth rates for new kinds of products seem to have accelerated over time:
?
? Use of mass media
?
• • •
Low-cost mass production
Factors affecting market growth rates:
? Relative advantage ? Compatibility
Complexity Observability
? Availability of
complementary products
•
Trialability
15
Differences in Diffusion Rates
Different markets develop at different growth rates.
16
Navigating Through the Life Cycle to Maturity
The amount and type of resources and capital needed to pursue company’s business model depends on two crucial factors: 1. Competitive advantage of company’s business model 2. Stage of the industry life cycle
?
a
Embryonic stages – share building strategies
? ?
Development of distinctive competencies and competitive advantage. Requires capital to develop R&D and sales/service competencies.
?
Growth stages – maintain relative competitive position
? ?
Strengthen business model to prepare to survive industry shakeout. Requires investment to keep up with rapid growth of the market.
?
Shakeout stage – increase share during fierce competition
?
?
Invest in share-increasing strategies at expense of weak competitors.
Weak companies should exit the industry during the harvest stage.
?
Maturity stage – hold-and-maintain to defend business model
?
Dominant companies want to reap the reward of prior investments.
?
A company’s investment depends on the level of competition and source of the company’s competitive advantage.
17
Mature Industries
A mature industry is 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.
?
Evolution of mature industries
?
Industry becomes consolidated as a result of the fierce competition during the shakeout stage. Business level strategy is based on how established companies collectively try to reduce strength of competition. Interdependent companies try to protect industry profitability. Deter entry into industry
?
? ?
Strategies
?
? Product proliferation
? Price cutting
?
? Maintaining
excess capacity ? Capacity control
18
Manage industry rivalry ? Price signaling
Industry Maturity: The Standout Features
?
Slowing demand breeds stiffer competition ? More sophisticated buyers demand bargains ? Greater emphasis on cost and service ? “Topping out” problem in adding production capacity ? Product innovation and new end uses harder to come by ? International competition increases ? Industry profitability falls ? Mergers and acquisitions reduce number of industry rivals
19
Strategies for Competing in a Mature Industry
?
? ? ? ? ? ?
Prune marginal products and models
Emphasize innovation in the value chain Strong focus on cost reduction Increase sales to present customers Purchase rivals at bargain prices Expand internationally Build new, more flexible competitive capabilities
20
Strategies for Deterring Entry of Rivals
Filling the Niches: making it difficult for new competitors to break into a new industry & establish a beachhead
Sending a Signal:to potential new entrants contemplating entry that new entry will be met with price cuts
Warning of Retaliation: by increasing output and forcing down prices until market entry would be unprofitable to entrants
21
Strategies for Managing Industry Rivalry
Convey intentions (e.g. Tit-for-Tat) regarding pricing to other companies to allow the industry to choose the most favorable pricing options. Intent is to improve industry profitability.
Informal pricing when one company takes the responsibility for choosing the most favorable industry pricing option. Formal price setting jointly by companies is illegal.
Differentiation by offering products with different features or applying different marketing techniques: • Market development • Market penetration • Product development • Product proliferation
Market Signaling to secure coordination with rivals as a capacity control strategy and to reduce industry investment risks. Collusion on timing of new investments is illegal.
22
Declining Industries: The Standout Features
?
Demand grows more slowly than economy as whole (or even declines) Competitive pressures intensify – rivals battle for market share To grow and prosper, firm must take market share from rivals Industry consolidates to a smaller number of key players via mergers and acquisitions
?
?
?
23
Strategies for Competing in a Declining Industry
? ? ?
Pursue focus strategy aimed at fastest growing market segments Stress differentiation based on quality improvement or product innovation
Work diligently to drive costs down
? ? ? ? ?
Cut marginal activities from value chain Use outsourcing
Redesign internal processes to exploit e-commerce
Consolidate under-utilized production facilities Add more distribution channels
?
?
Close low-volume, high-cost distribution outlets
Prune marginal products
24
Factors for Intensity of Competition in Declining Industries
25
Strategy Selection in a Declining Industry
Choice of strategy is determined by: • Severity of the industry decline • Company strength relative to the remaining pockets of demand
26
10Commandments for Crafting Successful Business Strategies
1. Always put top priority on crafting and executing
strategic moves that enhance a firm’s competitive position for the long-term and that serve to establish it as an industry leader. 2. Be prompt in adapting and responding to changing market conditions, unmet customer needs and buyer wishes for something better, emerging technological alternatives, and new initiatives of rivals. Responding late or with too little often puts a firm in the precarious position of playing catch-up.
27
10 Commandments for Crafting Successful Business Strategies
3. Invest in creating a sustainable competitive advantage, for it is a most dependable contributor to above-average profitability. 4. Avoid strategies capable of succeeding only in the best of circumstances. 5. Don’t underestimate the reactions and the commitment of rival firms. 6. Consider that attacking competitive weakness is usually more profitable than attacking competitive strength. 7. Be judicious in cutting prices without an established cost advantage.
28
10 Commandments for Crafting Successful Business Strategies
8. Employ bold strategic moves in pursuing differentiation strategies so as to open up very meaningful gaps in quality or service or advertising or other product attributes. 9. Endeavor not to get “stuck back in the pack” with no coherent long-term strategy or distinctive competitive position, and little prospect of climbing into the ranks of the industry leaders. 10. Be aware that aggressive strategic moves to wrest crucial market share away from rivals often provoke aggressive retaliation in the form of a marketing “arms race” and/or price wars.
29
“Whatever you shoot is dead for a while before it starts to stink.
The same goes for strategies.”
- Gary Hamel
30
doc_805221606.pptx