Transcript Competitive Advantage in Mature Industries

Competitive Advantage in
Mature Industries
OUTLINE
• Key success factors in mature industries
• Strategic Implementation: Structure, Systems,
Style
• Strategies for declining industries
Competitive Advantage in Retailing: U.S. Retailers
with the Highest and Lowest Valuation Ratios
TOP 15
Valuation Sales
Ratio
($,bil.)
Amazon.com (US)
62.6
1.6
Intimate Brands (US)
18.9
3.9
Hennes & Mauritz (Swed.) 18.3
3.1
Seven-Eleven Japan
16.9
16.3
Gap (US)
13.4
11.6
Home Depot (US)
12.4
38.4
Best Buy (US)
11.7
12.5
CDW Computer Cntrs. (US) 10.7
2.6
Wal-Mart (US)
9.9
166.8
Kohl’s (US)
9.4
4.6
Dixons Group (UK)
9.3
4.7
Bed, Bath & Beyond (US)
9.2
1.9
Carrefour (France)
8.7
47.8
Pinault-Printemps
-Redoute (France)
7.9
17.5
Castorama Dubois (France) 7.0
6.8
BOTTOM 15
Valuation Sales
Ratio ($, bil.)
J.C. Penny (US)
0.7
32.5
Federated Dept. Stores (US) 1.2
18.2
J. Sainsbury (UK)
1.3
26.3
Marks & Spencer (UK)
1.5
12.3
Great Universal Stores (UK) 1.7
5.5
Marui (Japan)
1.8
4.8
Jusco (Japan)
1.9
23.4
Sears Roebuck (US)
2.0
41.1
May Department Stores (US) 2.6
13.9
Ito-Yokado (Japan)
2.7
29.9
Albertson’s (US)
2.7
37.5
Tesco (UK)
2.9
28.9
Boots (UK)
2.9
7.5
George Weston (Canada)
3.2
13.9
Metro (Germany)
3.5
43.5
Key Success Factors in Mature Industries
•
Opportunities for sustainable
competitive advantage are
limited
-- limited potential for differentiation
-- technology stable and well diffused
-- ease of entry due to well developed
industry infrastructure and powerful
distributors
-- international competition : domestic
cost advantage vulnerable
•
Sources of
cost advantage
-- Economies of scale
-- Low-cost inputs
-- Low overheads
•
Segment and customer
selection
-- As general industry environment
deteriorates, important to locate
attractive segments and woo good
customers.
•
Sources of differentiation
advantage
-- Emphasis on image differentiation and
differentiation through complementary
services.
•
Sources of innovation
-- Limited opportunity for product and
process innovation but considerable
opportunity for strategic innovation
Sources of Strategic Innovation in Mature Industries
• Reconfiguring the value chain:
- Benetton in knitwear
- Southwest in airlines
- Dell in PCs
- Zara in fashion clothing
• Redefining markets and products- Saturn in autos
- Enron in energy
- Barnes & Noble in book retailing
• Innovative approaches to
differentiation
- Virgin Atlantic in air travel
- Sephora in cosmetics retailing
Who are the strategic innovators?
• Typically new entrants - CNN in news broadcasting
- Nucor in the U.S. steel industry
• Established firms constrained by “industry recipes” and existing
investments in resources and capabilities associated with past strategies.
RATE OF INNOVATION
Product, Process, and Strategic
Innovation over the Life Cycle
Product
innovation
Strategic
innovation
Process
innovation
TIME
Strategy Implementation in Mature
Industries:The Traditional Model
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
individual performance
TOP
MANAGEMENT
- Primary functions are control and
strategic decision making
- Two main styles: politician and autocrat
The Competitive Environment of
Declining Industries
 Features
of declining
industries
 Smooth adjustment
- Excess capacity
- Lack of technological change
- Consolidation (but some new entry
as new firms exit)
- Old machines and employees
- Predictability of decline
of capacity
depends upon
- Barriers to exit
{
Durable assets
Costs of closure
Management
commitment
- Strategies of surviving firms
Strategy Options in Declining
Industries
LEADERSHIP
Establish dominant market position
-encourage exit of rivals
-buy market share through acquisition
-acquire capacity
-demonstrate commitment
-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
Strategy Alternatives for a Declining Industry
COMPANY’S COMPETITIVE POSITION
Strengths in
remaining demand
pockets
Favorable
INDUSTRY
STRUCTURE
LEADERSHIP
Lacks strength in
remaining demand
pocket
HARVEST
to
or
or
decline
NICHE
DIVEST
Unfavorable
to
decline
NICHE
or
HARVEST
DIVEST
QUICKLY