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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

BUSINESS-LEVEL STRATEGIES AND INDUSTRY ENVIRONMENTS

BUSINESS 189 (chpt. 6)

SPRING 2007

DR. MARK FRUIN

nike s winning ways
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
how to lead in evolving industries
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
sustaining comp advant in diff industry environments
SUSTAINING COMP ADVANT IN DIFF INDUSTRY ENVIRONMENTS
  • RECOGNIZE DIFFERENT INDUSTRY ENVIRONMENTS
  • FRAGMENTED INDUSTRIES VERSUS
    • EMBRYONIC
    • GROWTH (EMERGING & SHAKEOUT)
    • MATURE
    • DECLINING
fragmented ind is new
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???
overcoming fragmentation
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
embryonic emerging growth industries
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
e e g industries
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
technology s curve hinges partly on customer demand
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%)
crossing the chasm
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?
tipping point
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
tipping pt
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
factors affecting rate of adoption
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
figure 6 4 rates of diffusion
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?
how soon will rivals appear
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?
go it alone partner or license
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
tipping pts viral mrtng
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?
b l product market segment strategies in mature industries
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
mature industry stratgies
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
competitive advantages
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
strategies to mng rivalry
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
strategies to control supply distribution
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
dominant strategy
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?
strategy in declining ind
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
mature vs declining industries
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
strategies for declining industries
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)
questions
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?
more questions
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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