To accompany contemprory strategy analysis concepts techiniques application chapter12slides

Competitive Competitive Advantage Advantage in in Mature Mature Industries Industries OUTLINE • Key success factors in mature industries • Strategic Implementation: Structure, Systems, Style • Strategies for declining industries Competitive CompetitiveAdvantage Advantage in in Retailing: Retailing:Retailers Retailers with with the the Highest Highestand and Lowest LowestValuation Valuation Ratios Ratios TOP 15 Valuation Sales Ratio ($,bil.) Amazon.com (US) n.a 3.9 Caremark Rx (US) 18.0 6.8 Expedia 16.6 0.6 Autozone (US) 13.1 5.3 Hennes & Mauritz (Swe.) 10.5 5.9 Next (UK) 10.1 3.6 Bed, Bath & Beyond (US) 8.5 3.7 Woolworth (Australia) 8.0 16.0 Gap (US) 4.1 14.5 TJX (US) 6.9 12.0 Inditex (Spain) 6.8 4.7 Wal-Mart (US) 5.7 244.5 Radio Shack 5.6 4.6 Family Dollar Stores 5.1 4.2 Best Buy (US) 5.0 20.9 BOTTOM 15 Valuation Sales Ratio ($, bil.) Toys-R-Us 0.6 11.3 J.C Penny (US) 0.7 32.3 Federated Dept Stores (US) 1.1 15.4 J Sainsbury (UK) 1.1 29.8 Ito-Yokado (Japan) 1.1 28.0 Ahold 1.2 78.3 Safeway plc (UK) 1.3 29.8 Pinault-Printemps -Redoute (France) 1.4 32.2 Sears Roebuck (US) 1.4 41.4 Dixons Group (UK) 1.4 8.0 Albertson’s (US) 1.5 35.6 May Department Stores (US) 1.7 11.9 Office Depot (US) 1.7 11.4 CVS 1.9 24.2 Kingfisher (UK) 2.0 17.6 Key Key Success Success Factors Factors in in Mature Mature Industries Industries • Opportunities for sustainable limited potential for differentiation competitive advantage are technology stable and well diffused limited ease of entry due to well developed industry infrastructure and powerful distributors international competition : domestic cost advantage vulnerable • Sources of cost advantage Economies of scale Low-cost inputs Low overheads • Segment and customer selection As general industry environment deteriorates, important to locate attractive segments and woo good customers • Sources of differentiation advantage Emphasis on image differentiation and differentiation through complementary services • Sources of innovation Limited opportunity for product and process innovation but considerable opportunity for strategic innovation Sources Sources of ofStrategic StrategicInnovation Innovation in in Mature Mature Industries Industries • Reconfiguring the value chain: - Benetton and Zara in clothing - Southwest & Ryanair in airlines - Dell in PCs • Redefining markets and products - Swatch in watches - Starbucks in coffee shops - Barnes & Noble in book retailing • Innovative approaches to - Virgin Atlantic in air travel - Sephora in cosmetics retailing differentiation Who are the strategic innovators? - CNN in news broadcasting • New entrants • Existing firms on the periphery • Firms from adjacent industries - Nucor in the U.S steel industry -Sun Records in rock ‘n roll music - Prudential Insurance in banking (Egg) Why not leading incumbents? • They are constrained by “industry recipes,” relationships with existing customers, investments in resources & capabilities linked to past strategies RATE OF INNOVATION Product, Product, Process, Process, and and Strategic Strategic Innovation Innovation over over the the Life Life Cycle Cycle Product innovation Strategic innovation Process innovation TIME Strategy Strategy Implementation Implementation in in Mature Mature Industries:The Industries:The Traditional Traditional Model Model STRATEGY - Pursuit of cost efficiency through mass production STRUCTURE - Functional departments - Line and staff distinction - Job specialization CONTROLS - Quantitative, short-term performance targets - Hierarchical monitoring and control - Standard, formalized operating procedures, reporting, and management by exception INCENTIVES - Emphasis on financial incentives linked to individual performance TOP MANAGEMENT - Primary functions are control and strategic decision making - Two main styles: politician and autocrat The The Competitive Competitive Environment Environment of of Declining Declining Industries Industries  Features of declining industries  Smooth adjustment - Excess capacity - Lack of technological change - Consolidation (but some new entry as new firms exit) - Old machines and employees - Predictability of decline of capacity depends upon - Barriers to exit { Durable assets Costs of closure Management commitment - Strategies of surviving firms Strategy Strategy Options Options in in Declining Declining Industries Industries LEADERSHIP Establish dominant market position -encourage exit of rivals -buy market share through acquisition -acquire capacity -demonstrate commitment -dispel optimism about the industry’s future -raise the stakes NICHE Identify an attractive segment and dominate it HARVEST Maximize cash flow from existing sources DIVEST Get out while there is still a market for industry assets Strategy Strategy Alternatives Alternatives for for aa Declining Declining Industry Industry COMPANY’S COMPETITIVE POSITION Strengths in remaining demand pockets Favorable INDUSTRY STRUCTURE LEADERSHIP Lacks strength in remaining demand pocket HARVEST to or or decline NICHE DIVEST Unfavorable to decline NICHE or HARVEST DIVEST QUICKLY ... Dollar Stores 5.1 4.2 Best Buy (US) 5.0 20.9 BOTTOM 15 Valuation Sales Ratio ($, bil.) Toys-R-Us 0.6 11.3 J.C Penny (US) 0.7 32.3 Federated Dept Stores (US) 1.1 15.4 J Sainsbury (UK) 1.1 29.8 Ito-Yokado... Albertson’s (US) 1.5 35.6 May Department Stores (US) 1.7 11.9 Office Depot (US) 1.7 11.4 CVS 1.9 24.2 Kingfisher (UK) 2.0 17.6 Key Key Success Success Factors Factors in in Mature Mature Industries... inputs Low overheads • Segment and customer selection As general industry environment deteriorates, important to locate attractive segments and woo good customers • Sources of differentiation