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  1. 1. Competitive Advantage in Mature Industries <ul><li>Key success factors in mature industries </li></ul><ul><li>Strategic Implementation: Structure, Systems, Style </li></ul><ul><li>Strategies for declining industries </li></ul>OUTLINE
  2. 2. Competitive Advantage in Retailing : Retailers with the High est and Lowest Valuation Ratios T OP 15 Valuation Sales Ratio ($,bil.) ( US ) n.a. 3.9 Caremark Rx (US) 18.0 6.8 Expedia 16.6 0.6 Autozone ( US ) 13.1 5.3 Hennes & Mauritz ( Sw e.) 10.5 5.9 Next (UK) 10.1 3.6 Bed, Bath & Beyond ( US ) 8.5 3.7 Woolworth (Australia) 8.0 16.0 Gap ( US ) 4. 1 14.5 TJX (US) 6.9 12.0 Inditex (Spain) 6.8 4.7 Wal-Mart ( US ) 5.7 244.5 Radio Shack 5.6 4.6 Family Dollar Stores 5.1 4.2 B est Buy ( US ) 5.0 20.9 Toys-R-Us 0.6 11.3 J.C. Penny ( US ) 0.7 32.3 Federated Dep t. S tores ( US ) 1.1 15.4 J. Sainsbury (U K ) 1.1 29.8 Ito-Yokado ( Japan ) 1.1 28.0 Ahold 1.2 78.3 Safeway plc (UK) 1.3 29.8 Pinault-Printemps -Redoute ( France ) 1.4 32.2 Sears Roebuck ( US ) 1.4 41.4 Dixons Group ( UK ) 1.4 8.0 Albertson’s ( US ) 1.5 35.6 May Department Stores ( US ) 1.7 11.9 Office Depot (US) 1.7 11.4 CVS 1.9 24.2 Kingfisher (UK) 2.0 17.6 BOTTOM 15 Valuation Sales Ratio ($, bil . )
  3. 3. Key Success Factors in Mature Industries <ul><li>Opportunities for sustainable -- limited potential for differentiation </li></ul><ul><li>competitive advantage are -- technology stable and well diffused </li></ul><ul><li>limited -- ease of entry due to well developed industry infrastructure and powerful distributors </li></ul><ul><li> -- international competition : domestic cost advantage vulnerable </li></ul><ul><li>Sources of -- Economies of scale </li></ul><ul><li>cost advantage -- Low-cost inputs </li></ul><ul><li> -- Low overheads </li></ul><ul><li>Segment and customer -- As general industry environment selection deteriorates, important to locate attractive segments and woo good </li></ul><ul><li> customers. </li></ul><ul><li>Sources of differentiation -- Emphasis on image differentiation and advantage differentiation through complementary </li></ul><ul><li> services. </li></ul><ul><li>Sources of innovation -- Limited opportunity for product and </li></ul><ul><li> process innovation but considerable </li></ul><ul><li> opportunity for strategic innovation </li></ul>
  4. 4. Sources of Strategic Innovation in Mature Industries <ul><li>Reconfiguring the value chain: - Benetton and Zara in clothing </li></ul><ul><li> - Southwest & Ryanair in airlines </li></ul><ul><ul><li> - Dell in PCs </li></ul></ul><ul><li>Redefining markets and products - Swatch in watches - Starbucks in coffee shops </li></ul><ul><li> - Barnes & Noble in book retailing </li></ul><ul><li>Innovative approaches to - Virgin Atlantic in air travel </li></ul><ul><li>differentiation - Sephora in cosmetics retailing </li></ul><ul><li>Who are the strategic innovators? </li></ul><ul><li>New entrants - CNN in news broadcasting </li></ul><ul><ul><li> - Nucor in the U.S. steel industry </li></ul></ul><ul><li>Existing firms on the periphery -Sun Records in rock ‘n roll music </li></ul><ul><li>Firms from adjacent industries - Apple in consumer electronics </li></ul><ul><li>Why not leading incumbents? </li></ul><ul><li>They are constrained by “industry recipes,” relationships with existing </li></ul><ul><li>customers, investments in resources & capabilities linked to past </li></ul><ul><li>strategies. </li></ul>
  5. 5. Product, Process, and Strategic Innovation over the Life Cycle TIME RATE OF INNOVATION Process innovation Strategic innovation Product innovation
  6. 6. Strategy Implementation in Mature Industries:The Traditional Model <ul><li>STRATEGY - Pursuit of cost efficiency through mass production </li></ul><ul><li>STRUCTURE - Functional departments </li></ul><ul><li>- Line and staff distinction </li></ul><ul><li>- Job specialization </li></ul><ul><li>CONTROLS - Quantitative, short-term performance targets </li></ul><ul><li>- Hierarchical monitoring and control </li></ul><ul><li>- Standard, formalized operating procedures, </li></ul><ul><li> reporting, and management by exception. </li></ul><ul><li>INCENTIVES - Emphasis on financial incentives linked to </li></ul><ul><li> individual performance </li></ul><ul><li>TOP - Primary functions are control and </li></ul><ul><li>MANAGEMENT strategic decision making </li></ul><ul><li>- Two main styles: politician and autocrat </li></ul>
  7. 7. The Competitive Environment of Declining Industries <ul><li>Features - Excess capacity </li></ul><ul><li>of declining - Lack of technological change </li></ul><ul><li>industries - Consolidation (but some new entry as new firms exit) </li></ul><ul><li>- Old machines and employees </li></ul><ul><li>Smooth adjustment - Predictability of decline </li></ul><ul><li>of capacity Durable assets </li></ul><ul><li>depends upon Costs of closure </li></ul><ul><li>- Barriers to exit Management </li></ul><ul><li>commitment </li></ul><ul><li>- Strategies of surviving firms </li></ul>{
  8. 8. Strategy Options in Declining Industries <ul><li>LEADERSHIP Establish dominant market position -encourage exit of rivals </li></ul><ul><li>-buy market share through acquisition </li></ul><ul><li>-acquire capacity </li></ul><ul><li>-demonstrate commitment </li></ul><ul><li>-dispel optimism about the industry’s future </li></ul><ul><li>-raise the stakes </li></ul><ul><li>NICHE Identify an attractive segment and dominate it. </li></ul><ul><li>HARVEST Maximize cash flow from existing sources </li></ul><ul><li>DIVEST Get out while there is still a market for industry assets </li></ul>
  9. 9. Strategy Alternatives for a Declining Industry COMPANY’S COMPETITIVE POSITION Strengths in remaining demand pockets Lacks strength i n remaining demand pockets INDUSTRY STRUCTURE Favorable to decline Unfavorable to decline DIVEST QUICKLY NICHE or HARVEST HARVEST or DIVEST LEADERSHIP or NICHE