Strategic Fit_Managerial Policy

8/6/2019 Strategic Fit_Managerial Policy

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TAILORING STRATEGY TO FITTAILORING STRATEGY TO FITSPECIFIC INDUSTRY AND COMPANYSPECIFIC INDUSTRY AND COMPANY

SITUATIONSSITUATIONS

MANAGERIAL POLICY


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Most important

driversshaping a

firms strategic

options fall intotwo categories

Firms

competitivecapabilities,

market position,

best

Nature of

industry and

competitive

conditions

Overview: Matching Strategyto a Companys Situation


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Characteristics of an EmergingIndustry

New and unproven market

Low entry barriers

Buyers are first-time users

Marketing involves inducing

initial purchase and overcomingcustomer concerns


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Strategy Options for Competingin Emerging Industries

Win early race for industry leadership byemploying abold, creative strategy

Push hard to perfect technology, improve

product quality, and develop attractiveperformance features

Form strategic alliances with Key suppliers

Companies having related technologicalexpertise


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Capture potential first-moveradvantages Pursue

New customers and user applications

Entry into new geographicalareas

Focus advertising emphasis on

Increasing frequency of use

Creating brand loyalty

Useprice cuts to attract price-sensitive buyers

Strategy Options for Competingin Emerging Industries (continued)


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Characteristics of High VelocityMarkets

Rapid-fire technological change

Short product life-cycles

Rapidly evolving customer expectations

Frequent launches of new competitivemoves

Entry of important new rivals


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Meeting the Challengeof High-Velocity Change

Strategic

Posture

Actions Strategy

Reactingto Change

Respond to unexpectedchanges in buyer needs and

preferences

React and respond asneeded

Defend and protectcompanys position

De

fen

siv

e

Off

en

siv

e

Anticipating

Change

Analyze prospects formarket globalization

Research buyer needs,preferences, and

expectations

Plan ahead for futurechanges

Improve productline

Strengthendistribution

LeadingChange

Pioneer new and bettertechnologies

Introduce innovativeproducts that open new

markets and spur creation ofwhole new industries

Be the agent ofindustry change

Force rivals to follow


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Strategy Options for Competingin High Velocity Markets

Investaggressively in

R&D

Develop quick responsecapabilities Shift resources

Adapt competencies Speed new products to market

Keepproducts/servicesfresh andexciting


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Characteristics of Industry Maturity

Slowing demand breeds stiffer competition

More sophisticated buyers demand bargains

Greater emphasis on cost and service

Industry profitability falls


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Strategy Options for Competingin a Mature Industry

Prune marginal products and models

Emphasize innovation in the value chain

Strong focus on cost reduction

Increase sales to present customers


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Stagnant or Declining Industries:The Standout Features

Demand grows more slowly than economyas whole (or even declines)

To grow and prosper, firm must take marketshare from rivals

Industry consolidates to a smaller number ofkey players via mergers and acquisitions


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Strategy Options for Competingin a Stagnant or Declining Industry

Pursue focus strategyaimed at fastestgrowing market segments

Stress differentiationbased on qualityimprovement or product innovation

Work diligently to drive costs down Cut marginal activities from value chain

Use outsourcing Redesign internal processes to exploit e-

commerce


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The Strategic Mistake

Being overly optimistic about industrysfuture (believingthings will get better)


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Characteristics ofFragmented Industries

Absence of market leaders with large marketshares

Buyer demand is so diverse and geographicallyscattered that many firms are required to

satisfy buyer needs

Low entry barriers

Absence of scale economies

Buyers require small amounts of customized ormade-to-order products


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Examples of Fragmented Industries

Book publishingLandscaping and plant nurseries

Auto repair

Restaurant industry

Public accounting

Womens dresses

Meat packing

Paperboard boxes

Hotels and motels

Furniture


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Competing in a FragmentedIndustry: The Strategy Options

Become a low-costoperator

Specialize byproducttype

Specialize by customertype

Focus on limited geographic area


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Strategies for Sustaining Rapid Growth

Portfolio ofStrategy

Initiatives

Short-jumpinitiatives tofortify and extendcurrentbusinesses

Immediate gainsin revenues andprofits

Medium-jumpinitiatives to

leverage existingresources andcapabilities topursue growth innew businesses

Moderate

revenue andprofit gains now,but foundationlaid for sizablegains over next 2-5 years

Long-jumpinitiatives to sowthe seeds forgrowth inbusinesses of thefuture

Minimal revenuegains now andlikely losses, butpotential forsignificant

contributions torevenues andprofits in 5-10years


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Risks of PursuingMultiple Strategy Horizons

Firm should not pursue all options toavoid stretching itself too thin

Pursuit of medium- and long-jump

initiatives may cause firm to stray too farfrom its core competencies

Payoffs of long-jump initiatives may proveelusive


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Strategies Based on aCompanys Market Position


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Strategies Based on aCompanys Market Position

Industry leaders

Runner-up firms

Weak or crisis-ridden firms


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Characteristics of Industry Leaders

Stronger-than-average to powerfulposition

Well-known reputation

Proven strategies

Strategic concern -- How tosustain dominant leadership

position


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Strategy Options: Industry Leaders

Stay-on-the-offensive strategy

Fortify-and-defend strategy

Muscle-flexing strategy


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Stay-on-the-Offensive Strategies

Be a first-mover, leading industry change Relentlessly pursue continuous

improvement and innovation

Increase advertising and R&D

Provide higher levels of customer service

Fortify-and-Defend: Strategic Options

Convince rivals they are better off playing follow-the-leader or elseattacking each other rather the industry leader

Muscle-Flexing Strategy: Objectives


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Types of Runner-up Firms

Market challengers Use offensive strategies to gain

market share

Focusers

Concentrate on serving a limitedportion of market

Perennial runners-up

Lack competitive strength to do morethan continue in trailing position

Imtrying!


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Strategic Optionsfor Runner-Up Firms

When big size provides larger rivals with acost advantage, runner-up firms have twooptions

Build market share

Lower costs and prices to grow salesor

Out-differentiate rivals in ways to growsales

Withdraw from market


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Competitive Strategies for Runner-Up Firms: Building Market Share

Strategic options for building market share to

overcome cost advantage of larger rivals

Use lower prices to win customers from weak,higher-cost rivals

Merge or acquire rivals to achieve sizeneeded to capture greater scale economies

Investin new cost-saving facilities andequipment, perhaps relocating operations tocountries where costs are lower


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Weak Businesses: Strategic Options

Launch a strategic offensive(if resources permit)

Play aggressive defense(to the extent thatresources permit)

Pursue immediate abandonment

Adopt an end-game strategy

A hi i T d


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Achieving a Turnaround:The Strategic Options

Sell off assets to generate cash and/orreduce debt

Revise existing strategy

Launch efforts to boost revenues

Cut costs

Combination of efforts


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What is an End-Game Strategy?

Steers middle course between statusquo and exiting quickly

Involves graduallysacrificing market

position in return for bigger near-termcash flow/profit

Objectives

Short-term - Generate largest feasiblecash flow

Long-term - Exit market


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Types of End-Game Options

Reduce operating budget to rock-bottom Hold reinvestment to minimum

Emphasize stringent internal cost controls

Place little priority on new capitalinvestments

Trim promotional expenses

Curtail non-essential customer services

Wh Sh ld E d G


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When Should an End-GameStrategy be Considered?

Industrys long-term prospects are unattractive

Building up business would be too costly

Market share is increasingly costly to maintain

Reduced levels of competitive effort will not triggerimmediate fall-off in sales

Firm can re-deploy freed-up resources in higheropportunity areas

Business is not a major component of diversifiedfirms portfolio of businesses

Business does not contribute other desired featuresto overall business portfolio

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Strategic Fit_Managerial Policy

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