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Strategy
A View From
The Top
Prentice Hall
Cornelis A.
de Kluyver
and
John A.
Pearce II
Third Edition
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
4-1
In Every Industry There are
Deeply Held Orthodoxies…
Orthodoxies are the broadly shared beliefs
about what drives success within “the
industry.” These beliefs form the “dominant
industry logic”:
 Who is the customer/end user
 The type of interface/interaction with the
customer/end user
 How benefit is defined and value is delivered
 How product/service functionality is defined
 What form the product/service should take
 How processes are structured and managed
 The “ideal” cost and pricing structure
 … “the way things are done here”
Why Orthodoxies Must Be
Challenged…
“There is no reason anyone would want
a computer in their home.”
- Ken Olson, President,
Chairman and Founder of
Digital Equipment Corp., 1977
Why Orthodoxies Must Be
Challenged…
“640K ought to be enough for anybody.”
- Bill Gates, 1981
Challenging Orthodoxies
Allows You to Redefine the
Boundaries of Competition
Business Practices
Served Markets
Core Platforms
Benefits Sought and
Delivered
Core Competencies
Product Functionality
Price/Performance
Levels
Culture and Values
Challenging Orthodoxies
Also Helps You to Identify Your
Own Weaknesses...
Blindness to new opportunities
Arrogance/elitism
Need for control
Unwillingness to learn
Inability to create benefits through
collaboration
Following the herd
Unwillingness to admit what we don’t know
Little real innovation in strategy over the last
______ years
Homogeneity in Thinking Can
Make Change Difficult...
 Many firms are caught in an “AttractionSelection-Attrition” (ASA) cycle that tend to
promote homogeneity in managerial thinking.
 Organizations can overcome the dangers of
like-minded thinking in at least two ways.
Give greater attention to “contrarian
voices.”
They are most likely to see aspects of changing
industry environments that are ignored by top
managers.
Encourage greater turnover among top
management ranks.
If not, top managers risk becoming more and
more committed to the status quo.
Industry Influences Can Limit
Organizational Change
Industry norms and standards (the socalled “common body of knowledge”) can
blind managers to new opportunities,
technologies, and potential competitors.
Very difficult to formulate and implement
totally new strategy in the face of
pressures to maintain the status quo.
New entrants almost always have
something that is totally different from
industry norms.
Changes in the Industry Environment:
Porter’s Five Forces Model
Potential
Entrants
Threat of new entrants
Bargaining power
Industry
of suppliers
Competitors
Suppliers
Rivalry
Among
Existing
Firms
Threat of substitute
products or services
Substitutes
Buyers
Bargaining power
of buyers
Threat of Entry; Barriers to Entry
Threat: Whether real or not depends
on
 What barriers to entry exist
 How entrenched competitors are likely to react
Barriers to Entry: Factors






Economies of scale
Product differentiation (brand equity)
Capital requirements
Cost advantages of independent size
Access to distribution channels
Government regulations
Powerful Suppliers; Buyers
Suppliers are more powerful when
 There are few dominant companies and they are
concentrated on the industry they serve
 A differentiated product offering makes switching among
suppliers difficult
 There are few substitutes
 Suppliers can integrate forward
 The industry is a small portion of suppliers revenue
base
Buyers have power when
 There are few of them and they buy in large volume
 The product is not differentiated making it easier to
switch
 The buyer’s purchase represents a substantial portion
of sellers revenue
 Buyers can integrate backwards
Substitutes and Complements
Substitute products that deserve
the closest scrutiny are those
that
 Show improvements in price-performance
relative to industry average
 Are produced by industry with deep pockets
Complementary products and
services may play an important
role
 Hardware vs. software
 Distribution capabilities vs. content
Rivalry Among Participants
Rivalry is stronger when
 There are a large number of competitors and
they are of similar size and power
 The industry is growing slowly
 There are high fixed costs or the products/
services are perishable
 There are high exit barriers
Note:The Internet can exacerbate or
mitigate the relative influences of the
different forces
Industry Structures Evolve Over
Time; Sometimes in Complex Ways
From vertical to horizontal structures
Through industry consolidation
As an industry matures
Through technology
 Phase 1: Competition on the basis of ideas, product
concepts, technology choices and building core
competency base;
 Phase 2: Competition focused on building a viable
coalition of partners;
 Phase 3: Battle for market share for end products &
profits
Trajectories of Industry Change
Core activities
Not threatened Threatened
Threatened
Not Threatened
Radical
Change
Creative
Change
(Travel agencies)
(Movie studios)
Intermediating
Change
Progressive
Change
(Museums)
(Trucking)
Product Life Cycle Analysis
Issues:
 What Is the Appropriate Unit of Analysis?
 What is a product? Category? Industry? Industry
segment?
 Strategy should lead to growth instead of growth
leading to strategy
Sales
Introduction
Growth
Competitive
Turbulence
Characteristics & Strategies
Maturity
Decline
Strategic Segmentation
Focuses on finding out which
segment(s) of the industry
have the best prospects for the
long term
Considers long term
defensibility of different
segments
Segmentation, Targeting and
Positioning
1.
Identify
Segmentation
3.
Evaluate Segment
Attractiveness
5.
Identify Possible
Positionings
2.
Develop Segment
Profiles
4.
Select Target
Segment(s)
6.
Select, Develop
Positioning
Segmentation
Targeting
Positioning
Competitive Analysis: Key
Questions
Who Are Our
Competitors?
What are Their
How Have They
Behaved In The Past?
Major Strengths?
How Might They
Behave in the
Future?
How Will This Affect
Us?
Competitor Roles - Leaders,
Challengers, Followers, and
Nichers
Market
Leader
Market
Challenger
Market
Follower
Market
Nicher
40%
30%
20%
10%
Hypothetical Market Structure
Strategic Positioning
Market Leaders
 Focus on expanding total demand
 Defending market share is important
 May not wish to aggressively take more market
share from rivals
Market Challengers
 Concentrate on a single target. Attacking the
leader
Market Followers
 Compete with modest strategic objective
 Often use innovative imitation
 Compete in selective few segments
Market Nichers
 Focus on narrow slice of the market
Strategy
A View From
The Top
Prentice Hall
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted, in
any form or by any means, electronic, mechanical,
photocopying, recording, or otherwise, without the prior
written permission of the publisher. Printed in the United
States of America.
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
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