STRATEGY AND ENVIRONMENT FIT

1. STRATEGY AND ENVIRONMENT FIT Matching Strategy to External Environment • International Markets (Chapter 7) • Stage of Industry Life Cycle • Turbulent, High-Velocity Markets • Fragmented Industries Matching Strategy to Internal Environment / Company Situation • Industry Leaders • Runner-Up Firms • Weak Businesses

2. Overview: Matching Strategyto a Company’s Situation • Nature of industry and competitive conditions Most important drivers shaping a firm’s strategic options fall into two categories • Firm’s competitive capabilities, market position, best opportunities

3. Emerging Industry - Characteristics • Formative stage of industry • New and unproven market/No rules of competition • Proprietary technology • No consensus concerning production technologies • Low entry barriers • Strong experience curve effects • Buyers are first-time users • Buyers may delay purchase until technology matures • Building reputation is important • Possible difficulties in securing raw materials • Access to capital critical • Variety of strategies being pursued • Mergers/acquisitions

4. Emerging Industry - Strategy Options • Choose a Competitive Strategy • Other Strategic Actions to Consider • Push to perfect technology, product, and product features • Consider merger/acquisition • Capture first-mover advantages • Acquire or form alliances with other companies • Pursue new customers, new user applications and enter new geographic areas • Make it easy and cheap for first-time buyers to try product • Try to build brand loyalty • Use price cuts to attract additional buyers • Form strategic alliances with suppliers

5. Rapidly Growing Markets • Frequent launches of new competitive moves • Contains survivors • Firms are more established • Less variety of strategies • Strategic groups begin to form • Profits take off • Customers more sophisticated • Entry barriers emerge

6. Rapidly Growing Markets • Strategic Options: • Must try to grow faster than the market • Drive down costs • Pursue rapid product innovation • Gain access to distribution channels and sales outlets • Expand geographic coverage • Expand product line

7. Characteristics of Industry Maturity • Slowing growth in demand = stiffer competition • More sophisticated buyers demand bargains • Greater emphasis on cost and service • Slowdowns in capacity expansion • New product innovation de-emphasized • New process innovation emphasized • International competition increases • Industry profitability falls • Industry consolidation – mergers/acquisitions • Contains survivors • Fewer larger firms

8. Strategies for Maturing Industries • Possible Strategies • Pruning marginal products and models • Improving value chain efficiency • Trimming costs • Increasing sales to present customers • Acquiring rival firms at bargain prices • Expanding internationally • Building new or more flexible capabilities

9. Stagnant or Declining Industries • Demand grows more slowly than economy as whole (or even declines) • Advancing technology gives rise to better-performing substitute products • Customer group shrinks • Changing lifestyles and buyer tastes • Rising costs of complementary products • Competitive pressures intensify--rivals battle for market share • To grow and prosper, firm must take market share from rivals • Industry consolidates to a smaller number of key players via mergers and acquisitions • Limited strategic options

10. Stagnant or Declining Industries • Possible Strategies • 3 Best Strategic Alternatives • Focus on fastest-growing or slowest-decaying market segments • Stress differentiation based on quality improvement and product innovation • Strive to drive costs down and become industry’s low cost leader • End-Game Strategies • Slow-exit • Fast-exit

11. Turbulent, High-Velocity Markets • Rapid technological change • Short product life-cycles • Entry of important new rivals • Lots of competitive maneuvering by rivals • Fast evolving customer requirements and expectations • Swirling market conditions

12. Turbulent, High-Velocity Markets • Possible Strategies • Need to figure out how to deal with change • Invest aggressively in R&D to stay on the leading edge of technological know-how • Keep the companies products and services fresh and exciting enough to stand out in the midst of all the change that is taking place • Develop quick-response capability • Rely on strategic partnerships with outside suppliers and with companies making tie-in products • Initiate fresh actions every few months

13. Competitive Features ofFragmented Industries • Absence of market leaders with large market shares or widespread market recognition • Product/service is delivered locally • Buyer demand is so diverse that many firms are required to satisfy buyer needs • Low entry barriers • Absence of scale economies • Buyers require small amounts of customized or made-to-order products • Limited geographical area can be served

14. Strategic Options for Fragmented Industries • Possible Strategies • Constructing and operating formula facilities • Becoming a low-cost operator • Specializing by product type • Specialization by customer type • Focusing on a limited geographic area

15. Strategies Based on a Company’s Market Position Industry leaders Runner-up firms Weak or crisis-ridden firms

16. Industry leaders • Industry Leaders have: • Strong to powerful market positions • Well-known reputations • Proven strategies • Strategic Options • Stay-on-the-offensive • Fortify-and-defend • Muscle-flexing

17. Runner-up Firms • Types of Runner-up Firms: • Market challengers • Use offensive strategies to gain market share • Focusers • Concentrate on serving a limited portion of market • Perennial runners-up • Lack competitive strength to do more than continue in trailing position

18. Weak Businesses • Strategic Options: • Launch an offensive turnaround strategy (if resource permit) • Employ a fortify-and-defend strategy (to the extent resources permit) • Pursue a fast-exit strategy • Adopt a harvest strategy (a slow-exit type of end-game strategy) • Liquidation