Tailoring Strategy to Fit

Specific Industry and

Company Situations
Strategic Management

In a turbulent age, the

only dependable advantage
is reinventing your
business model before
circumstances force you
to
Gary Hamel and Liisa Valikangas

Matching Strategy to
a Companys Situation
Most important
drivers shaping a
firms strategic
options fall into
two categories

Nature of industry
and competitive
conditions

Firms competitive
capabilities,
market position,
best opportunities

Features of an Emerging Industry

1. New and unproven market
- How it will function?\
- How will it grow?
- How big it will get?
2. Lack of consensus regarding which of several competing
technologies will win out
Technological know-how closely guarded
- Patents and unique technical expertise may be the source of
competitive advantage
- Numerous companies may have access to the requisite
technology and racing to perfect it in collaboration with each
other
- Competing technological approaches; uncertainty regarding
which approach will win
3. Low entry barriers
- Larger well known opportunity seeking companies with ample
resources and competitive capabilities likely to enter

Features of an Emerging Industry

4. Buyers are first-time users and marketing
involves inducing initial purchase and
overcoming customer concerns
5. Experience curve effects may permit cost
reductions as volume builds
6. First-generation products are expected to be
rapidly improved so buyers delay purchase until
technology matures
7. Possible difficulties in securing raw materials
8. Firms struggle to fund R&D, operations and
build resource capabilities for rapid growth

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
Consider merging with or acquiring another firm to
Gain added expertise
Pool resource strengths

When technological uncertainty clears and a

dominant technology emerges, try to capture any
first-mover advantages by moving quickly
Form strategic alliances with
Companies having related technological expertise or
Key suppliers

Strategy Options for Competing

in Emerging Industries (continued)
Pursue new customers and user applications
Enter new geographical areas
Make it easy and cheap for first-time buyers to
try product
Focus advertising emphasis on
Increasing frequency of use
Creating brand loyalty

Use price cuts to attract price-sensitive buyers

Strategic Hurdles for Companies

in Emerging Industries
Raising capital to finance initial operations until
Sales and revenues take off
Profits appear
Cash flows turn positive

Developing a strategy to ride the wave of industry

growth
What market segments to pursue?
What competitive advantages to go after?

Managing the rapid expansion of facilities and

sales to position a company to contend for industry
leadership
Defending against competitors trying to horn in on the
companys success

What Is the Key to Success for

Competing in Rapidly Growing Markets?
A company needs a strategy predicated on growing
faster than the market average so it
Can boost its market share and
Improve its competitive standing vis--vis rivals

Strategy Options for Competing

in Rapidly Growing Markets
Drive down costs per unit to enable price reductions that
attract droves of new customers
Pursue rapid product innovation to
Set a companys product offering apart from rivals
Incorporate attributes to appeal to growing numbers of customers

Gain access to additional distribution

channels and sales outlets
Expand a companys geographic coverage
Expand product line to add models/styles to appeal to a
wider range of buyers

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
rivals

Strategy Options for Competing

in a Mature Industry
1. Prune marginal products and models
- maintaining many product versions works against
achieving design, parts inventory, & production
economies, and
- increase inventory, stocking costs for distributors and
retailers
- prices of slow moving versions may not cover their costs
- pruning opens up doors for cost savings
- permits concentration on those items whose margins are
higher and company has competitive advantage

Strategy Options for Competing

in a Mature Industry
2.Emphasize innovation in the value chain
Efforts to reinvent the industry value chain has four fold pay off
- lower costs,
- better product or service quality,
- capability to turnout multiple or customized product versions
- shorter speed to market cycle
Manufacturers can:
- mechanize high cost activities
- redesign production lines to increase labor efficiency
Suppliers, distributors and manufacturers can:
- collaboratively deploy online systems and product coding
techniques to streamline activities and achieve cost-savings all
along the system

Strategy Options for Competing

in a Mature Industry
3. Strong focus on cost reduction
- pushing suppliers for better prices
- implementing tighter supply chain management practices
- cutting low value activities out of value chain
- economical product design
- re-engineering internal processes
4.
Increase sales to present customers
5.
Purchase rivals at bargain prices
6.

Expand internationally

7.

Build new, more flexible competitive capabilities

- adding new competencies and capabilities
- deepening existing capabilities to make it harder to copy

Strategic Pitfalls in a Maturing

Industry
Employing a ho-hum strategy with no distinctive
features thus leaving the firm stuck in the middle
Being slow to mount a defense against stiffening
competitive pressures
Concentrating on short-term profits rather than
strengthening long-term competitiveness
Being slow to respond to price-cutting
Having too much excess capacity
Overspending on marketing
Failing to aggressively pursue cost reductions

Stagnant or Declining Industries:

The Standout Features
Demand grows more slowly than economy as whole
(or even declines)
Advancing technology gives rise to betterperforming substitute products
Customer group shrinks
Changing lifestyles and buyer tastes
Rising costs of complementary products
Competitive battle ensues among industry
members for the available business

Strategy Options for Competing

in a Stagnant or Declining Industry
Pursue focus strategy aimed at
more profitable 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

End-Game Strategies
for Declining Industries
An end-game strategy can take either of two paths
Slow-exit strategy involving
Gradual phasing down of operations
Getting the most cash flow from the business
Fast-exit strategy involving
Disengaging from an industry during early stages of decline
Quick recovery of as much of a companys investment as
possible

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

Ways to Cope with Rapid Change

A company can assume any of the three

strategic postures
1. It can react to change
- respond to rivals new product with a better
product
- respond to unexpected changes in buyers
needs and preferences
- shift advertising emphasis to different product
attributes
Reacting is a defensive strategy; it is unlikely
to create fresh opportunities, but is
nonetheless a necessary component in
companys arsenal of options

Ways to cope with Rapid Change

2. It can anticipate change
- anticipating/looking ahead to analyze what is
likely to occur and then preparing and
positioning for future
- studying buyers behavior, buyers needs,
buyers expectations to get insight of market
- Anticipating change is fundamentally defensive
in that forces outside the enterprise are in driving
seat
- Anticipating change can open up new
opportunities and a better way to manage
change than just pure reaction

Ways to Cope with Rapid Change

3. It can lead change
Entails initiating the market and competitive forces so that
others must respond
It is an offensive strategy aimed at putting the company in
the driving seat. It means:
- being the first to market a new product or service
- being the technological leader
- rushing next generation products to market ahead of
rivals
- having products whose features and attributes shape
customer preferences and expectations
Companys approach to manage should ideally
incorporate all three postures
The best performing companies in high velocity markets
consistently seek to lead change with proactive strategies
that entail the flexibility to pursue several strategic
options, depending on how the market actually evolves

Fig. 8.1: Meeting the Challenge of HighVelocity Change

Strategy Options for Competing

in High-Velocity Markets
1. Invest aggressively in R&D
Where technology is the primary driver of change translating
technological advances into innovative new products is
necessary
It is desirable to focus the R&D efforts to critical areas as it:
- avoids stretching the company resources too thin
- deepens the firms expertise in mastering the technology
- fully captures experience/ learning curve effects
- becomes dominant leader in particular technology or product
category
A fast evolving market environment entails many
technological areas and product categories
Competitors have to employ some type of focus strategy and
concentrate on being the leader in a particular product/
technology category

Strategy Options for Competing

in High-Velocity Markets
2. Keep the companys products and services fresh and
exciting to stand out in the midst of change that is taking
place
One risk of rapid change is that products and even
companies are lost in the shuffle
- keep the firms products and services in the limelight
- keep them innovative and well matched to the changes
that are occurring in the market place
3. Develop quick response capabilities

Shift resources
Adapt competencies
Create new competitive capabilities
Speed new products to market

Strategy Options for Competing

in High-Velocity Markets
4. Rely on strategic partnership with outside suppliers and companies
making tie-in products
In high velocity industries technology branches off to create many new
technologies and product categories
No company has the resources and competencies to pursue them all
Desirable strategies are:
- Specialization to promote necessary technical depth
- focus to preserve organizational agility and leverage firms expertise
Companies build their competitive position by:
- strengthening their own internal resource base
- partnering with those suppliers making state-of-the-art parts and
components by collaborating closely with both the developers of related
technologies and makers of the tie-in- product
An outsourcing strategy allows the company the flexibility to replace
suppliers who:
- fall behind on technology or product feature
- cease to be competitive on price

Strategy Options for Competing

in High-Velocity Markets
5. Initiate fresh actions every few months, not just when a competitive
response is needed
Change is partly triggered by passage of time rather than solely by
the occurrence of events
A company can be proactive by making time based moves
- introducing a new, improved product every four months rather than
when the market tapers off or a rival introduces next generation model
- a company can expand into new geographic market every six
months rather than waiting for new market opportunity to present itself
- can refresh existing brands every two years rather than waiting until
their popularity wanes
The keys to successfully using time pacing as strategic weapons are:
- choosing intervals that make sense internally and externally
- establishing an internal organizational rhythm for change
- choreographing the transitions

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

Examples of Fragmented
Industries
Book publishing
Construction & Real Estate
Auto repair
Restaurant industry
Public accounting
Womens dresses
Paperboard boxes
Hotels and Motels
Furniture

Competitive Features
of a Fragmented Industry
Absence of market leaders with large market
shares or widespread buyer recognition
Product/service is delivered to neighborhood
locations to be convenient to local residents
Buyer demand is so diverse that many firms
are required to satisfy buyer needs
Low entry barriers

Competitive Features
of a Fragmented Industry
Absence of scale economies
Market for industrys product/service may be
globalizing, thus putting many companies across the
world in same market arena
Exploding technologies force firms to specialize just
to keep up in their area of expertise
Industry is young and crowded with aspiring
contenders, with no firm having yet developed
recognition to command a large market share

Competing in a Fragmented Industry:

The Strategy Options
1. Construct and operate formula facilities
The strategic approach frequently employed in restaurant and
retailing industry
It involves constructing standardized outlets in favorable locations
and then operating them cost effectively
2. Become a low-cost operator
When price competition is intense and profit margins are under
constant pressure, companies can stress no-frills operations
featuring:
- low overhead
- high productivity/ low-cost labor
- lean capital budget
- dedicated pursuit of total labor operating efficiency
Successful low cost producers in fragmented industry can play
price discounting game and earn profits above the industry average

Competing in a Fragmented Industry:

The Strategy Options
3. Specialize by product type
When fragmented industrys products include a range of styles or services
- furniture industry
- auto repair
4. Specialize by customer type
A firm can stake out a market niche by catering to customers:
- interested in low prices
- unique product attributes
- customized features
5. Focus on limited geographic area
Concentrating company efforts on a limited territory can produce:
- greater operating efficiency
- speed delivery and customer service
- promote strong brand awareness
- permit saturation advertisement

Strategies for Sustaining Rapid Company

Growth
1. Horizon 1: Short jump strategic initiatives to
fortify and extend the companys position in
existing business
The objective is to capitalize fully on whatever
growth potential exists in the companys
present business
- adding new items to companys present
product line
- expanding into new geographic areas where
company does not have market presence
- launching offensive to take market share
away from rivals

Strategies for Sustaining Rapid Company

Growth
2. Horizon 2: Medium-jump strategic initiatives to
leverage existing resources and capabilities by entering
new business with promising growth potential
Be alert for opportunities to jump into new businesses
where:
- there is promise of rapid growth
- firms experience, intellectual capital, technological
know-how will prove valuable in gaining rapid market
penetration
Horizon 2 strategy may take a back seat to horizon 1
initiatives as long as there is plenty of untapped growth in
companys present businesses.
It may move to the front as onset of market maturity dims
the companys growth prospects in its present
business(es)

Strategies for Sustaining Rapid Company

Growth
3. Horizon 3: Long jump strategic initiatives to
plant the seeds of ventures in businesses that
do not yet exist
Entail pumping funds into:
- long-range R&D projects
- setting up an internal venture capital fund to
invest in promising start-up companies to create
industries of future
- acquiring a number of small start-up
companies experimenting with technologies and
product ideas that complement the companys
present business

Fig. 8.2: Three Strategy Horizons for

Sustaining Rapid Growth

Risks of Pursuing
Multiple Strategy Horizons
Firm should not pursue all options
to avoid stretching itself too thin
Pursuit of medium- and long-jump
initiatives may cause firm to stray
too far from its core competencies
Competitive advantage may be difficult to achieve in
medium- and long-jump businesses that do not mesh
well with firms present resource strengths
Payoffs of long-jump initiatives may prove elusive

Strategies Based on a
Companys Market Position
Industry leaders

Runner-up firms

Weak or crisis-ridden firms

Industry Leaders:
The Defining Characteristics
Strong to powerful market position

Well-known reputation

Proven strategy

Key strategic concern How to sustain

dominant leadership position?

Strategy Options: Industry

Leaders
Stay-on-the-offensive strategy
Fortify-and-defend strategy

Muscle-flexing strategy

Stay-on-the-Offensive Strategies
Be a first-mover, leading industry change
Best defense is a good offense
Concentrate on achieving a competitive advantage
and then widening the advantage over time
Relentlessly pursue continuous improvement
and innovation, being first to market with
Technological improvements
New or better products
More attractive performance features
Customer service improvements

Stay-on-the-Offensive Strategy
(continued)
Aggressively seek out ways to
Cut operating costs
Establish competitive capabilities rivals cannot match
Make it easier for potential customers to switch their purchases
from other firms to the leaders own products
Aggressively attack profit sanctuaries of important rivals
Launch fresh initiatives to expand overall industry demand
Spur creation of new families of products
Make product more suitable for consumers
in emerging-country markets
Discover new uses for product
Attract new users of product
Promote more frequent use
Grow faster than industry, taking market share from rivals

Fortify-and-Defend Strategy
Objectives
Make it harder for new firms to enter and for
challengers to gain ground
Hold on to present market share
Strengthen current market position
Protect competitive advantage

Fortify-and-Defend Strategy:
Strategic Options
Increase advertising and R&D
Provide higher levels of customer service
Introduce more brands to match attributes of rivals
Add personalized services to boost buyer loyalty
Keep prices reasonable and quality attractive
Build new capacity ahead of market demand
Invest enough to remain cost competitive
Patent feasible alternative technologies
Sign exclusive contracts with best suppliers and
distributors

Muscle-Flexing Strategy
Objectives
Play competitive hardball with smaller
rivals that threaten leaders position
Signal smaller rivals that moves to cut
into leaders business will be hard fought
Convince rivals they are better off playing
follow-the-leader or just attacking each
other rather than the industry leader

Muscle-Flexing Strategy:
Strategic Options
Be quick to meet price cuts of rivals
Counter with large-scale promotional campaigns if rivals
boost advertising
Offer better deals to rivals major customers
Dissuade distributors from carrying rivals products
Provide salespersons with documentation about
weaknesses of competing products
Make attractive offers to key executives of rivals
Use arm-twisting tactics to pressure present customers
not to use rivals products

Muscle-Flexing Strategy
Risks

Running afoul of antitrust laws

Alienating customers with bullying tactics

Arousing adverse public opinion

Types of Runner-up Firms

Market challengers
Use offensive strategies to gain market share

Focusers
Concentrate on serving a
limited portion of market

Perennial runners-up
Lack competitive strength to do
more than continue in trailing position

Im
trying!

Obstacles Runner-Up
Firms Must Overcome
When big size is a competitive asset, firms
with small market share face obstacles
in trying to strengthen their positions because of having
Less access to economies of scale
Difficulty in gaining customer recognition
Inability to afford mass media advertising
Difficulty in funding capital requirements

Strategic Options
for Runner-Up Firms
When big size provides larger rivals with a cost
advantage, runner-up firms have two options
Build market share
Lower costs and prices to grow sales or
Out-differentiate rivals in ways to grow sales
Withdraw from market

Offensive Strategies for Runner-Up

Firms: Building Market Share
Acquire smaller rivals to expand companys market reach
and presence
Find innovative ways to drive down costs
to win customers from higher-priced rivals
Craft an attractive differentiation strategy
Pioneer a leapfrog technological breakthrough
Be first-to-market with new or better products and build
reputation for product leadership
Outmaneuver slow-to-change market leaders in adapting
to evolving market conditions and customer needs
Forge strategic alliances with key distributors, dealers, or
marketers of complementary products

Rule of Offensive Strategy

Runner-up firms should avoid
attacking a leader head-on with an
imitative strategy, regardless of
the resources and staying power
an underdog may have!

Strategic Approaches for

Runner-Up Firms
1. Vacant niche strategy
2. Specialist strategy
3. Superior product strategy
4. Distinctive image strategy
5. Content follower strategy

Vacant Niche Strategy

for Runner-Up Firms
Focus strategy concentrated on end-use applications
market leaders have neglected
Characteristics of an ideal vacant niche
Sufficient size to be profitable
Growth potential
Well-suited to a firms capabilities
Hard for leaders to serve

Specialist Strategy for RunnerUp Firms

Strategy concentrated on
being a leader based on
Specific technology
Product uniqueness
Expertise in
Special-purpose products
Specialized know-how
Delivering distinctive customer services

Superior Product Strategy

for Runner-Up Firms
Differentiation-based focused strategy based on
Superior product quality or
Unique product attributes
Approaches
Fine craftsmanship
Prestige quality
Frequent product innovations
Close contact with customers to
gain input for better quality product

Distinctive Image Strategy

for Runner-Up Firms
Strategy concentrated on ways to
stand out from rivals

Approaches
Reputation for charging lowest price
Prestige quality at a good price
Superior customer service
Unique product attributes
New product introductions
Unusually creative advertising

Content Follower Strategy

for Runner-Up Firms
Strategy involves avoiding
Trend-setting moves and
Aggressive moves to steal
customers from leaders
Approaches
Do not provoke competitive retaliation
React and respond
Defense rather than offense
Keep same price as leaders
Attempt to maintain market position

Weak Businesses: Strategic Options

Launch an offensive turnaround strategy
(if resources permit)
Employ a fortify-and-defend strategy
(to the extent resources permit)
Pursue a fast-exit strategy
Adopt a harvest strategy
(a slow-exit type of end-game strategy)

Achieving a Turnaround:
The Strategic Options
Sell off assets to generate cash and/or reduce debt
Revise existing strategy
Launch efforts to boost revenues
Cut costs
Combination of efforts

What Is a Harvest Strategy?

Steers middle course between status quo and exiting
quickly
Involves gradually sacrificing market position
in return for bigger near-term cash flow/profit
Objectives
Short-term - Generate largest
feasible cash flow
Long-term - Exit market

Types of Harvest Options

Reduce operating expenses to rock-bottom
Hold reinvestment to minimum
Place little priority on new capital investments
Emphasize stringent internal cost controls
Trim advertising and promotion expenses
Do not replace employees who leave
Shave equipment maintenance

When Should a Harvest

Strategy 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 trigger
immediate fall-off in sales
Firm can re-deploy freed-up resources
in higher opportunity areas
Business is not a major component of
diversified firms portfolio of businesses

Liquidation Strategy
Wisest strategic option in certain situations
Lack of resources
Dim profit prospects
May serve stockholder interests
better than bankruptcy
Unpleasant strategic option
Hardship of job eliminations
Effects of closing on local community

10 Commandments for Crafting

Successful Business Strategies
1.

Always put top priority on crafting and executing

strategic moves that enhance a firms 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.

10 Commandments for Crafting

Successful Business Strategies
3.
4.
5.
6.
7.

Invest in creating a sustainable competitive advantage,

for it is a most dependable contributor to aboveaverage profitability.
Avoid strategies capable of succeeding only in the best
of circumstances.
Dont underestimate the reactions and the commitment
of rival firms.
Consider that attacking competitive weakness is usually
more profitable than attacking competitive strength.
Be judicious in cutting prices without an established cost
advantage.

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.