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BUSINESS-LEVEL STRATEGIES AND INDUSTRY ENVIRONMENTS. BUSINESS 189 (chpt. 6) SPRING 2007 DR. MARK FRUIN. NIKE’S WINNING WAYS. TRADITIONALLY A LEADER IN TRACK AND BASKETBALL SHOES TO TAKE ADVANTAGE OF COMPETENCIES IN DESIGN AND MARKETING, NIKE ENTERS NEW MARKET SEGMENTS CONVERSE

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Business level strategies and industry environments l.jpg

BUSINESS-LEVEL STRATEGIES AND INDUSTRY ENVIRONMENTS

BUSINESS 189 (chpt. 6)

SPRING 2007

DR. MARK FRUIN


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NIKE’S WINNING WAYS

  • TRADITIONALLY A LEADER IN TRACK AND BASKETBALL SHOES

  • TO TAKE ADVANTAGE OF COMPETENCIES IN DESIGN AND MARKETING, NIKE ENTERS NEW MARKET SEGMENTS

    • CONVERSE

    • HURLEY INTERNATIONAL

    • COLE HAAN

  • THE RESULT: SOARING ROIC


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HOW TO LEAD IN EVOLVING INDUSTRIES

  • INDUSTRIES ARE COMPOSED OF SEGMENTS

  • SEGMENTS ARE DEFINED AS?

  • UNDERSTAND WHAT’S GOING ON IN THE INDUSTRY AND TARGET PRODUCT/ MARKET SEGMENTS ACCORDINGLY


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SUSTAINING COMP ADVANT IN DIFF INDUSTRY ENVIRONMENTS

  • RECOGNIZE DIFFERENT INDUSTRY ENVIRONMENTS

  • FRAGMENTED INDUSTRIES VERSUS

    • EMBRYONIC

    • GROWTH (EMERGING & SHAKEOUT)

    • MATURE

    • DECLINING


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FRAGMENTED IND IS NEW

  • A LARGE NUMBER OF SMALL AND MED-SIZED COMPANIES

  • LOW BARRIERS TO ENTRY

  • HARD TO REALIZE ECONOMIES OF SCALE & SCOPE

  • BETWEEN GENERIC STRATEGIES, WHICH ONE APPLIES???


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OVERCOMING FRAGMENTATION

  • CHAINING STRATEGY (WAL-MART)

  • FRANCHISING (CENTURY 21, McD)

  • HORIZONTAL MERGER (BUDWEISER)

  • CONSOLIDATE W/ NEW TECH

    • AMAZON, eBAY, GOOGLE (?)

  • HIGH LEVELS OF PERSONAL/PROFESSIONAL SERVICE

    • HIGH END HEALTH CLUBS, LAW FIRMS


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EMBRYONIC/EMERGING/GROWTHINDUSTRIES

  • EMBRYONIC INDUSTRY IS WHEN TECHNOLOGY BEGINNING TO DEVELOP

    • TECH INNOVATION DRIVES INDUSTRY

    • WHICH INDUSTRIES EMBRYONIC TODAY?

  • EMERGING/GROWTH IND WHEN MARKET DEMAND BEGINS TO GROW RAPIDLY

    • MARKET DEMAND DRIVES INDUSTRY

    • OBVIOUSLY DEMAND GROWTH TAKES TIME


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E/E/G INDUSTRIES

  • SLOW GROWTH AT FIRST BECAUSE

    • LIMITED PERFORMANCE/POOR QUALITY

    • CUSTOMERS UNFAMILIAR W/ NEW TECH

    • LACK COMPLEMENTARY PROD

    • PRODUCTION COSTS HIGH

  • INDUSTRY GOES FROM EMBRYONIC -> HIGH GROWTH - WHY?

    • TECH PROGRESS MAKES PRODUCT EASIER TO USE & INCREASES THEIR VALUE

    • COMPLEMENTARY PRODUCTS APPEAR

    • PRODUCT/PROCESS COSTS GO DOWN


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TECHNOLOGY/S-CURVE HINGES PARTLY ON CUSTOMER DEMAND

  • INNOVATORS (1%)

    • TECHIES, GEEKS

  • EARLY ADOPTERS (5%)

    • ENGINEERS, ENTREPRENEURS

  • EARLY MAJORITY (24%)

    • PRAGMATISTS

  • LATE MAJORITY (45%)

    • STUCK IN THE MUD BUT NOT LUDDITES

    • EXTRA CREDIT: WHO ARE LUDDITES?

  • LAGGARDS (24%)


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CROSSING THE CHASM

  • GORDON MOORE, FORMER CEO OF INTEL & ORIGINATOR MOORE’S LAW (WHICH IS?)

    • MANY COMPANIES CANNOT TRANSITION FROM EMBRYONIC TO GROWTH MARKETS

      • THERE MAY BE TWO OR THREE “CHASMS”

    • THEY FAIL TO DEVELOP THE MASS MARKETS NEEDED TO GROW PRODUCT

    • FAIL ON PROD FEATURES AND/OR CUST CHAR

    • APPLE (I) AS FIRM THAT FELL IN THE CHASM?


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TIPPING POINT

  • BIG CHANGES CAN HAPPEN SUDDENLY

  • TIPPING PT THEORY FROM EPIDEMIOLOGY

    • STATE OF CONTAGIOUSNESS

    • GRADUAL, ALMOST IMPERCEPTIBLE CHANGE RAPIDLY ACCELERATES AT A CERTAIN POINT

    • CRITICAL MASS CAN UNLEASH EPIDEMIC MOVEMENT: SUDDENLY EVERYONE’S INFECTED


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TIPPING PT

  • EPIDEMICS ARE A FUNCTION OF:

    • THE PEOPLE WHO TRANSMIT INFECTION (INFECTIOUS AGENTS)

    • INFECTIOUS AGENT ITSELF (HOW VIRULENT; HOW TRANSMITTED?)

    • ENVIRONMENT IN WHICH INFECTIOUS AGENT OPERATES (HUMAN BEINGS ARE MORE SENSITIVE IN CERTAIN ENVIRONMENTS THAN OTHERS; CERTAIN ENVIR MORE CONDUCIVE)

      • SUPPORT FOR IRAQ WAR (ESP. W/ DEMO CONGRESS)

      • ATTITUDES TOWARD GLOBAL WARMING

      • LIKELIHOOD OF BUYING A PRIUS


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FACTORS AFFECTING RATE OF ADOPTION

  • PRODUCT’S RELATIVE ADVANTAGE

  • COMPATIBILITY WITH EXISTING NEEDS AND HABITS

  • COMPLEXITY OR DEGREE OF DIFFICULTY IN UNDERSTANDING/USING

  • TRIALABILITY

  • OBSERVABILITY

  • EXISTENCE OF COMPLEMENTARY PROD


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FIGURE 6.4 RATES OF DIFFUSION

  • WHAT’S THE DIFFERENCES BETWEEN THE 45 DEGREE RATES OF DIFFUSION AND THE NEARLY 90 DEGREE RATES?

  • WHICH IS MORE IMPORTANT IN DRIVING DIFFUSION - FIRMS OR TECHNOLOGIES?

  • CAN ANYTHING DIFFUSE MORE RAPIDLY THAN CELL PHONES?

    • RATE OF DIFFUSION DEPENDS ON?


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HOW SOON WILL RIVALS APPEAR?

  • HOW IMPORTANT ARE COMPLEMENTARY ASSETS & HOW MANY SOURCES ARE AVAILABLE?

  • HEIGHT OF BARRIERS TO IMITATION IN PRODUCTS & PROCESSES?

  • HOW MANY CAPABLE RIVALS?

  • GO IT ALONE, LICENSE OR PARTNER?


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GO IT ALONE, PARTNER OR LICENSE?

  • EASE OF IMITATION/REPLICATION (INCLUDES REVERSE ENGINEERING)

    • EASY/NOT-SO-EASY

  • IMPORTANCE OF COMPLEMENTARY ASSETS/RESOURCES/TECHNOLOGIES

    • IMPORTANT/NOT-SO-IMPORTANT

  • NUMBER OF CAPABLE COMPETITORS

    • FEW vs MANY

    • DOMESTIC vs GLOBAL


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TIPPING PTS & VIRAL MRTNG

  • SOME PEOPLE ARE VERY INFLUENTIAL

  • LEAD ADOPTERS/LEAD SUPPLIERS

  • SOME PEOPLE CAN “INFECT/AFFECT” MANY OTHERS (ESP. IF YOU USE A TECH. WITH SCALE, SCOPE & LEVERAGE, LIKE INTERNET)

    • RECENT EXAMPLES: DONALD & ROSIE

    • ANGELA AND MADONNA

    • WHY IS DONALD SQUARING OFF WITH WORLD PRO WRESTLING GUY?


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B-L (PRODUCT/MARKET SEGMENT) STRATEGIES IN MATURE INDUSTRIES

  • B-L STRATEGY ABOUT HOW FIRMS COLLECTIVELY REDUCE STRENGTH OF COMPETITION (IN MATURE INDUSTRIES)

    • STRATEGIES TO DETER ENTRY

    • STRATEGIES TO MANAGE RIVALRY

    • STRATEGIES TO CONTROL SUPPLY AND DISTRIBUTION


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MATURE INDUSTRY STRATGIES

  • REMEMBER PRODUCT DIFFERENTIATION ACHIEVED IN 3 WAYS IN FUNCTIONAL SENSE

    • QUALITY, INNOVATION & CUSTOMER RESP/SAT

  • STRATEGIES TO DETER ENTRY

    • PRODUCT PROLIFERATION

      • FILL ALL THE NICHES

    • PRICE CUTTING

      • NEW FIRMS TYPICALLY HAVE HIGHER COSTS

    • MAINTAINING EXCESS CAPACITY

      • PUT NEW ENTRANTS ON NOTICE THAT YOU’RE WILLING & ABLE TO RAMP UP PROD & FILL PIPELINE


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COMPETITIVE ADVANTAGES

  • ARE ACHIEVED BY MAKING CHOICES

    • PRODUCT FEATURES

    • WHICH CUSTOMERS/WHERE

    • BASED ON ORGANIZATIONAL CAPABILITIES

  • REQUIRE CONTINUED UPGRADING

    • INVESTING

    • PRACTICING (ORG. LEARNING)

    • EVALUATING/ASSESSING/COMPARING & CONTRASTING

    • MAKING CHOICES/DISCRETION = MNGMNT


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STRATEGIES TO MNG RIVALRY

  • PRICE SIGNALING

    • CREDIBLE WILLINGNESS TO CUT PRICES

  • PRICE LEADERSHIP

    • TAKE LEADERSHIP IN SETTING PRICES OR RESPOND RAPIDLY WHEN OTHERS DO

  • NON-PRICE COMPETITION

    • PRODUCT DIFFERENTIATION

      • MARKET PENETRATION (E.G., ADVERTISING)

      • PRODUCT DEVELOPMENT

      • MARKET DEVELOPMENT

      • PRODUCT PROLIFERATION


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STRATEGIES TO CONTROL SUPPLY & DISTRIBUTION

  • VERTICAL INTEGRATION STRATEGIES

    • TO MAKE OR BUY DECISIONS

    • COMPLEXITY OF PRODUCTS/PROCESSES

    • AFTER MARKET CARE

  • VERTICAL DIS-INTEGRATION STRATEGIES

    • WHY OUTSOURCE/OFFSHORE

      • NOT OUR DISTINCTIVE COMPETENCE

      • SOMEONE ELSE CHEAPER, BETTER & FASTER

      • RESULTS OF OUTSOURCING FOR CAPABILITIES


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DOMINANT STRATEGY

  • A STRATEGY WHERE YOU ARE BETTER OFF, NO MATTER WHAT RIVALS DO

  • HOWEVER, AS PRISONER DILEMMA (2 PERSON/FIRM GAME) SHOWS

    • IF NEITHER FIRM CAN TRUST THE OTHER

    • BOTH MORE ARE LIKELY TO SUFFER

    • IN MANY COP SHOWS, THE KEY ISSUE

    • IN MANY COMPETITIVE SITUATIONS, THE KEY ISSUE

      • SHOULD I REMOVE REBATES OR NOT?


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STRATEGY IN DECLINING IND

  • ONCE DEMAND STARTS TO FALL, AN INDUSTRY IS IN DECLINE

    • HOWEVER, IT’S TECHNOLGY THAT DRIVES INDUSTRY LIFE CYCLE, NOT DEMAND

  • INTENSITY OF COMPETITION IN DECLINING INDUSTRIES VARIES WITH

    • RATE OF DECLINE

    • HEIGHT OF EXIT BARRIERS, INCLUDING REPUTATION EFFECTS

    • AMOUNT OF SUNK COSTS

    • IF PRODUCTS ARE DIFFERENTIATED OR NOT


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MATURE VS. DECLINING INDUSTRIES

  • MATURE

    • SALES FALL OFF TO 1-2% GROWTH

    • REPLACEMENT SALES PREDOMINATE

    • # OF FIRMS DECLINES

    • NO (OR LITTLE) PROPRETAIRY TECHNOLOGY

  • DECLINING

    • FALLING SALES

    • CUSTOMERS DO NOT REPLACE

    • FEWER FIRMS YET

    • OCCASIONALLY, NEW WRINKLES ON TECHNOLOGY


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STRATEGIES FOR DECLINING INDUSTRIES

  • LEADERSHIP STRATEGY

    • BUY OUT RIVALS, PICK UP MKT SHARE

  • NICHE STRATEGY

    • FIND PROFITABLE SEGMENTS

  • HARVEST STRATEGY

    • OPTIMIZE CASH FLOW AS EXIT INDUSTRY

  • DIVESTMENT STRATEGY

    • SELL OUT FAST (BEFORE OTHERS CATCH ON)


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QUESTIONS

  • WHAT ARE THE DANGERS ASSOC WITH BEING LEADER IN EMBRYONIC AND GROWTH INDUSTRIES?

    • FIRST-TO-MARKET vs FAST FOLLOWER

  • TO WHAT EXTENT CAN FIRMS CONTROL INDUSTRY PROFITABILITY?

    • WHEN, WHERE & HOW? (AT WHAT STAGE?)

    • ECONOMIES OF SPEED

    • WHEN IS THIS LEGAL-ILLEGAL?

    • WHAT REQUIRED TO SUSTAIN CONSPIRACY?


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MORE QUESTIONS

  • HOW DO GENERIC COMPETITIVE STRATEGIES INTERSECT/INTERACT WITH INDUSTRY LIFE CYCLE?

    • GENERIC COMP. STRAT. TOO SIMPLISTIC, AFTER THIS CHAPTER!!

  • WITH PRODUCT LIFE CYCLE?

  • ARE PRODUCT LIFE CYCLE EFFECTS CONSISTENT ACROSS ALL THE SEGMENTS OF AN INDUSTRY?

  • SAME SORT OF QUESTIONS WITH REGARD TO F-L STRATEGIES

  • IN OTHER WORDS, INTERACTION EFFECTS


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