Competitive Advantage in Mature Industries

1
Competitive Advantage in Mature Industries
OUTLINE

• Key success factors in mature industries
• Strategic Implementation Structure, Systems,
  Style
• Strategies for declining industries

2
Competitive Advantage in Retailing Retailers
with the Highest and Lowest Valuation 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
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 Albertsons (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
BOTTOM 15 Valuation Sales
Ratio (, bil.)
3
Key Success Factors in Mature 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 --
  Economies of scale
• cost advantage -- Low-cost inputs
• -- Low overheads
• Segment and customer -- As general industry
  environment selection deteriorates,
  important to locate attractive
  segments and woo good
• customers.
• Sources of differentiation -- Emphasis
  on image differentiation and advantage
  differentiation through complementary
• services.
• Sources of innovation -- Limited
  opportunity for product and
• process innovation but considerable
• opportunity for strategic innovation

4
Sources of Strategic Innovation in Mature
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
• differentiation - Sephora in cosmetics
  retailing

• Who are the strategic innovators?
• New entrants - CNN in news broadcasting
• - Nucor in the U.S. steel industry
• Existing firms on the periphery -Sun Records
  in rock n roll music
• Firms from adjacent industries - Apple in
  consumer electronics
• Why not leading incumbents?
• They are constrained by industry recipes,
  relationships with existing
• customers, investments in resources
  capabilities linked to past
• strategies.

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Product, Process, and Strategic Innovation over
the Life Cycle
Product innovation
Strategic innovation
RATE OF INNOVATION
Process innovation
TIME
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Strategy Implementation in Mature IndustriesThe
Traditional 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 - Primary functions are control and
• MANAGEMENT strategic decision making
• - Two main styles politician and autocrat

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The Competitive Environment of Declining
Industries

• Features - Excess capacity
• of declining - Lack of technological change
• industries - Consolidation (but some new entry
  as new firms exit)
• - Old machines and employees
• Smooth adjustment - Predictability of decline
• of capacity Durable assets
• depends upon Costs of closure
• - Barriers to exit Management
• commitment
• - Strategies of surviving firms

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Strategy Options in Declining Industries

• LEADERSHIP Establish dominant market
  position -encourage exit of rivals
• -buy market share through acquisition
• -acquire capacity
• -demonstrate commitment
• -dispel optimism about the industrys 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

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Strategy Alternatives for a Declining Industry
COMPANYS COMPETITIVE POSITION
Strengths in remaining demand pockets
Lacks strength in remaining demand pockets
LEADERSHIP or NICHE HARVEST or DIVEST
NICHE or HARVEST DIVEST QUICKLY
Favorable to decline
INDUSTRY STRUCTURE
Unfavorable to decline