Chapter 5 Business Strategies in Different Industry and S ectoral Contexts

1. Chapter 5 Business Strategies in Different Industry and Sectoral Contexts Alex Bregger Mark Englehardt Chase Barlow Daniel Crawford

2. Overview • The Evolution of Personal Computers • The Industry Life Cycle • Strategy at different Stages of the Life Cycle • Strategy in Public Sector and not for profit contexts • Scenario Planning The Purpose of this chapter is to help us to understand how managers adapt their strategies to fit their environments, how they go about predicting change and adapting their strategies to cope with change.

3. The Evolution of Personal Computers • The origins of the PC can be traced back to the 1970s • Early machines were built from kits • Pre assembled machines came to the market around 1975 by companies such as Tandy, Commodore and Apple. • The potential of this new market was soon recognized and new firms started to pile in.

4. The Evolution of Personal Computers • By 1981 the market was estimated at $3000 million and there were 150 companies producing micro computers. • The first movers captured and early lead with apple 20%, Tandy 15%, and Commodore 7%. • The interesting this is that the leaders adopted very different strategies.

5. The Evolution of Personal Computers • The Industry hit a 2nd Phase in the early 1980s with the launch of IBMs PC • IBM purchased key elements of the product from third-party suppliers and adopted an open strategy • The PC was a hit and a bandwagon effect was created.

6. The Evolution of Personal Computers • The IBM PC became the “de facto standard” computer. • But this open strategy allowed for this popular product to be copied by the competition. • Once the clone products were out in the market, consumers began to move away from IBM. • Companies like Microsoft and Intel who owned intellectual property of there products began to see better returns.

7. The Evolution of Personal Computers • While IBM adopted and open strategy , Apple did the opposite. • Steve jobs did this by producing as much as possible “in house” • Manufactured end to end computer systems, including add on equipment suck as disk drives, keyboards, and monitors. Long-term Benefits Costly short-term

8. The Evolution of Personal Computers • Lost lead position by making differentiated, highly expensive products • Held on to a core of loyal customers, and developed niche markets • High profit margins allowed apple to devote more money to research and development. • Research led to the development of iPod, iPhone, and iPad.

9. The Status of the PC today • Growth in “cloud computing” has led to new competitors in the PC market. • Amazon offers rented storage space, streaming movies, and TV shows. • IBM sold its computing business to Chinese Lenovo • Dell, Hewlett-Packard, and Acer are diversifying into new business areas

10. Strategy at different stages of the life cycle

11. The Industry Life Cycle • Introduction: Sales are small, high costs, low quality, customers are risk tolerant. • Growth: accelerating market penetration • Maturity: caused by increasing market saturation, demand is wholly for replacement • Decline: industry becomes challenged by new industries that produce superior substitute products.

12. Introduction • Rapid increase in the number of firms • “de novo” entrants • “de alio” entrants • High gross profits require heavy investments in innovation

13. Growth • Dominant design usually emerges • Market rapidly expands • Significant financial resources are essential

14. Maturity • Growing importance of a strong competitive advantage • Cost efficiency • Number of firms begins to fall • “Shakeout” phases

15. Decline • Can be the result of several factors • Causes key strategic issues such as… • Excess capacity • Lack of technical change and innovation • High average age of human and physical resources • Aggressive price competition

16. Public and Non-Profit Sectors Public Sector • Commonly defined in relation to • Ownership • Funding (all/part of it is from gov’t) • Interests they serve (national/public) • Provide public goods • Flood prevention systems • Street lights • National defense

17. Non-Profit Organizations • Most commonly found in areas of: • Education • Health Care • Social services • Profits are used to fund the goals of the organization

18. Key Differences: Public vs. Private Organizations • Multiple, potentially conflicting goals • Public: competition for resources & fulfilling public needs • Private: shareholders profit • Distinctive constraints & Different levers • Public: must account for public opinion • Private: minimize cost, maximize profit 3) Absence of Market Forces: • Public: not affected by the harsh market conditions of the private sector 4) Monopoly Power • Public: state in control unresponsive to customer needs • Private: Regulations protect consumers from monopoly power

19. Key Differences: Public vs. Private Organizations 5) Less Autonomy & Flexibility: • Public: little freedom to change the rules or exercise personal discretion as compared to the private sector 6) Increased Accountability • Public: subject to higher scrutiny; highly vested in public trust • Private: Accountable mainly to shareholders 7) Less Predictability • Private: subject to a highly fluctuating market with minimal predictable behavior

21. Stakeholder’s Analysis “The process of identifying, understanding, & prioritizing the needs of key stakeholders so that they can participate in strategy formation and the strategic direction of the company”

22. Stakeholder Analysis • Identification of the list of potential stakeholders – usually involves a brainstorming session between informed parties • Ranking Stakeholders according to importance and influence • Identifying the criteria that each stakeholder is likely to use to judge the organization’s performance • Deciding how well the organization is doing from its stakeholders perspective • Identifying what can be done to satisfy each stakeholder • Identifying and recording longer term issues with individual stakeholders and stakeholders as a group

23. Scenario Planning An organization’s ability to adapt to changes is dependent on its capacity to anticipate changes in the environment Hard to predict the future Using Scenario Analysis, a systematic way of thinking about the future Not necessarily a forecasting technique Scenarios are stories that describe how the world might look in the future

24. Constructing Scenarios Herman Kahn, “hypothetical sequences of events for the purpose of focusing attention on causal process and decision points” Construct several distinct, internally consistent narratives 5 to 25 years into the future (Shorter if fast-moving sector) Use to review and test strategic options Quantitative or qualitative (combination of both)

25. Steps in building and using scenarios Defining purpose of analysis Deciding on time horizon Identifying key trends Identifying key uncertainties Creating the scenarios and checking that they are internally consistent Identifying indicator that might signal which scenario in unfolding Assessing the strategic implication of each scenario

26. Scenario Analysis • Value of scenario analysis is not just in the results, but also the process. • Tool to bring together different ideas and insights • Identifying potential opportunities and threats • Generate and evaluate alternative strategies • Encourage innovation and flexible thinking from managers • “Evaluating the likely performance of different strategies under different scenarios can help identify which strategies are most robust and flexible and can ultimately assist in contingency planning”

27. The World Wide Fund for Nature (WWF) • Grown from small group of conservationist, to a global network • Now employs around 5000 across the world • Particular success with ‘charismatic’ species in campaigns • Later, their campaigns were seen as opportunistic and crisis-driven • 1986, changed name to emphasize that its remit was broader than conservation a particular species and their habitats • Expanded mission to reduction of wasteful consumption and pollution

28. Worldwide Fund for Nature • 1990s, problems began to emerge that eventually resulted in the organization reconsidering its structure and governance arrangements • Originally, WWF was structured as network of independent national organizations with central secretariat in Switzerland • WWF International did not have authority to enforce strategy, instead relied on the cooperation of the national bodies • Procedures became more slow and increasingly more bureaucratic as the organization grew in size • In response, restructured WWF to achieve more unified approach