Competitive Advantage in Mature Industries. Key success factors in mature industries Strategic Implementation: Structure, Systems, Style Strategies for declining industries. OUTLINE. Competitive Advantage in Retailing : Retailers with the High est and Lowest Valuation Ratios.
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Toys-R-Us 0.6 11.3
J.C. Penny (US) 0.732.3
Federated Dept.Stores (US) 1.1 15.4
J. Sainsbury (UK) 1.129.8
Ito-Yokado (Japan) 1.128.0
Ahold 1.2 78.3
Safeway plc (UK) 1.3 29.8
-Redoute (France) 1.4 32.2
Sears Roebuck (US) 1.441.4
DixonsGroup (UK) 1.4 8.0
Albertson’s (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
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
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
cost advantage -- Low-cost inputs
-- Low overheads
process innovation but considerable
opportunity for strategic innovation
RATE OF INNOVATION
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
TOP - Primary functions are control and
MANAGEMENT strategic decision making
- Two main styles: politician and autocrat
of declining - Lack of technological change
industries - Consolidation (but some new entry as old firms exit)
- Old machines and employees
of capacity Durable assets
depends upon Costs of closure
- Barriers to exitManagement
- Strategies of surviving firms
LEADERSHIP Establish dominant market position -encourage exit of rivals
-buy market share through acquisition
-dispel optimism about the industry’s 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
COMPANY’S COMPETITIVE POSITION
Lacks strength in
remaining demand pockets
--Why does the firm exist?
--The evolution of firms and markets
Vertical Product Geographical
Scope Scope Scope
[A] Single Integrated
In situation [A] the business units are integrated within a single firm.
In situation [B] the business units are independent firms linked by markets.
Are the administrative costs of the integrated firm less than the transaction
costs of markets?
of firms, also the existence of firms.
independent spinners and weavers linked by merchants.
employed builders, plumbers, electricians, painters.
administrative costs of firms.
Note: transaction costs comprise costs of search and contract negotiation and enforcement
1980 – 1995Shrinking size and scope of biggest industrial corporations.
Increasingly Increased no. of managerial Admin.costs of
turbulent decisions. Need for fast firms rise relative
external responses to external to transaction
environment change costs of markets
1995 – 2007Rapid increase in global concentration (steel, aluminium,
oil, beer, banking, cement).
Key drivers: quest for market power and scale economies.
Also, large corporations better at reconciling size with agility
—but doesn’t necessarily require common ownership
-- small numbers of firms
-- transaction-specific investments
-- opportunism and strategic misrepresentation
-- taxes and regulations on market transactions
-- in responding to changes in technology,
customer preferences, etc.
(But, VI may be conducive to system-wide flexibility)
How many firms are available The fewer the companies
to undertake the activities? the more attractive is VI
Is transaction-specific investment If yes, VI more attractive
Does limited information permit VI can limit opportunism
Are taxes or regulation imposed VI can avoid them
Do the different stages have similar Greater the similarity, the
optimal scales of operation? more attractive is VI
Are the two stages strategically Greater the strategic
similar? similarity ---the more attractive is VI
How great the need for entrepreneurship Greater the need, the greater
& continual upgrading of capabilities the disadvantages of VI
How uncertain is market demand? Greater the unpredictability
----the more costly is VI
Are risks compounded byVI increases risk.
linkages between vertical stages
food, drink, oil, etc.
What factors explain why some stages are vertically integrated,
while others are linked by market transactions?
---such relationships may combine benefits of both market transactions and internalization
-- How is risk allocated between the parties?
-- Are the incentives appropriate?
General conclusion:- boundaries between firms and markets becoming increasingly blurred.
Spot sales/ purchases
Low Formalization High
Supplier/ customer partnerships
Informal supplier/ customer relationships
Low Degree of Commitment High