1. Chapter 5: Business strategies in different industry and sectoral contexts Foundations of Strategy
Rebecca Eggerman
Alexander Johnson
Miguel Lopez
Hannah Stephens
Carissa Tarnowski

2. Purpose of this chapter
To help us 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. Introduction and objectives
One of management’s greatest challenges=ensuring enterprise adapts to its environment and it’s changes
Changes in environment are driven by: technology, consumer need, politics, economic growth, and a host of other influences

4. Competition as a strategy?
Creates a dynamic process where firms compete for a competitive advantage, to only see it eroded through imitation and innovation by rivals.

5. Different industries= different patterns
Different industry patterns of change help to predict how industries are likely to evolve over time
Every industry follows a unique development path
Look for common drivers

6. Industry life cycle
Extent to which industries follow a common development pattern, examine the changes in industry structure over the cycle and explore the implications for business strategy.
Starting point in understanding how managers operating in various environments adapt their strategies and anticipate change

7. Life cycle diagram

8. Opening case: The evolution of Personal Computers
Early 1970s- the personal computer (PC) was originated through Intel’s microprocessor
Mid 70’s- pre-assembled machines came on to the market that included a basic operating system and software
Tandy, Commodore, Apple
By 1981-market of about $3000 million with about 150 companies processing microcomputers
Apple~20%, Tandy~15%, Commodore~7%
All used very different strategies

9. IMB vs Apple
Previously neglected PC market and focused on mainframe computers until 1980s
Adopted an open strategy that allowed third-parties to access the technical details so complementary products could be developed
Very little of their PC was exclusive and was very easily copied
Produced as much of his PCs in house as possible
This strategy had long term benefits, but short- term was very costly
Lost its lead position in the market by producing highly differentiated, more expensive products that were incompatible with IBM standard
Developed particular niches in the home, education, and desk-top publishing markets

10. Downturn of the PC
PC evolved as a general machine made versatile by adding new software functions
Created a more complex, less secure, less reliable and less fit-for-use than single purpose devices
The PC has increasingly become only one of many devices adopted by users
Under threat as the platform in which software is written because an array of other devices are growing in popularity and tablet computers are starting to have an impact on low-end laptop sales

11. How technology companies are resurrecting their fortunes
Apple- Created devices such as the iPod, the iPhone, and the iPad
Digital camera manufacturers- developed products that download direct to printers
Game manufacturers- consoles primarily for gaming also connect to internet

12. Product vs. industry life cycles
Product life cycle
Industry life cycle
Introduction
Growth
Maturity
Decline
Introduction
Growth
Maturity
Decline

13. What is the difference? Supply side of the product live cycle
Extent the industry product live cycle by introducing multiple generations of a product

14. Let’s look at the graphs
Industry
Product

15. Let’s take a closer look
Product Life Cycle
Industry Life Cycle

16. Forces Behind Demand Growth Introduction stage Growth stage
Sales are small, and rate of market penetration is low
Growth stage
Market penetration is accelerated
Maturity stage
Market becomes saturated
Declined stage
Challenge Industry

17. The production and diffusion of knowledge
Introduction stage
Technology advances rapidly
Potential consumers know little about the product
Growth stage
The transition phase reflects the emergence of dominant designs and technical standards
Focus away from product innovation towards process innovation

18. Dominant designs and technical standards
Dominant design: a product architecture that defines the look, functionality, and production method for the product and becomes accepted by the industry as a whole
Underwood Model 5
Introduced 1899
Establish the architecture and main features
Moving carriage
Ability to see the characters being typed
Shift function or upper case and a replaceable

19. Dominant designs and technical standards
Technical standard: a technology or specification that is important for compatibility
Dominant design and technical standard are closely related
But dominant design may or may not have a technical standard

20. How general is the life cycle pattern?
It varies greatly from industry to industry
Railroad
Introduction phase extended from the building of the first railroad in 1827
Entered the growth phase in 1870’s
In the 1959s, it started to enter the decline stage
Digital audio player
Introduction phase
2001, entered its growth stage
, entered the maturity stage

21. Introduction Growth Maturity Decline Demand Technology Products
Limited to early adopters: high income
Avant-garde
Rapidly increasing market penetration
Mass market replacement/repeat buying. Customers knowledgeable and price sensitive
obsolescence
Technology
Competing technologies. Rapid product innovation
Standardization around dominant technology. Rapid process innovation
Well-diffused technical knowhow: quest for technological improvements
Little product or process innovation
Products
Poor quality wide variety of features and technologies. Frequent design changes.
Design and quality improve. Emergence of dominant design.
Trend to commoditization Attempts to differentiate by branding, quality, bundling
Commodities the norm: differentiation difficult and unprofitable
Manufacturing
Short production runs. High skilled labor content. Specialized distribution channels
Capacity shortages mass production. Competition for distribution
Emergence of overcapacity. Deskilling of production. Long production runs. Dist. Carry fewer lines
Exports from countries with lowest labor costs.
Trade
Producers and consumers in advanced countries
Exports form advanced countries to rest of world
Production shifts to newly industrializing then developing countries
Exports from countries with lowest labor costs
Competition
Few companies
Entry, mergers and exits
Shakeout. Price competition increases
Price wars, exits
Key success factors
Product innovation. Establishing credible image of firm and product.
Design for manufacture. Access to distribution. Brand building. Fast product development. Process innovation.
Cost efficiency through capital intensity, scale efficiency and low input costs
Low overheads Buyer selection. Signaling commitment. Rationalizing capacity

22. Life cycle strategies: Introduction
De novo –start ups and de alio- diversifying firms.
Basis of entry is innovation
Wide variety of product types and diversity of technology.
Born global companies

23. Growth phase Skill in controlling manufacturing ability is key
Access to distribution
Financial resources
Reduce costs

24. Maturity phase Efficiency is the key to survival Shakeouts
Low wages, low overhead and cost of production
Shakeouts
High rate of firm failure
New niche markets are created
Labor moves to nations where costs are lowest (developing nations)

25. Decline phase Due to excess capacity Lack of technical change
Declining number of competitors
High age of physical and human resources
Aggressive price competition
Balance between capacity and output and nature of demand.
Must capture residual market demand

26. Public Sectors Ownership vested in government Produce public goods
Controlled by politicians
Produce public goods
Ex. Street lighting, flood prevention, national defense
Paid for by taxation
For public benefit
Approved by law
Not required to make profit

27. Non-Profit Sectors Philanthropic goals Overlap of a social enterprise
Seek profit to distribute a limited amount to those that “own capital”
Profit not main goal
Ex. Engaging in fair trade, disadvantaged equality

28. Key differences Private Public Shaped by political considerations
Must account for public constraints
Correct market failure or cut off from market forces
State controlled monopolies, ex. Postal services
Little freedom to change rules
Subject to public scrutiny
Slower market to change
Prioritizing shareholder's interests
Does not have to assess public needs
Price and resource mechanisms absent
Weak customer influence in monopolies
Great flexibility in regulation
No obligation to public satisfaction
High-tech and constantly changing

29. Non-profit Uniqueness
Employment of volunteers
Promote employment based on philanthropic goal interests
Fundraising
Becoming more competitive

30. Oster’s Six Forces Model

31. Stakeholder Analysis
Definition: the process of identifying, understanding and prioritizing the needs of key stakeholders so that the questions of how stakeholders can participate in strategy formulation and how relationships with stakeholders are best managed can be addressed

32. Key Steps Identify the list of potential stakeholders
Rank stakeholders
Identify criteria stakeholders will likely use to judge performance
Decide how the organization is doing from its stakeholders’ perspective
Identify what can be done to satisfy each stakeholder
Identify and record longer term issues with individual stakeholders and stakeholders as a group

33. Power Interest Grids
Definition: array stakeholders in a matrix with stakeholder interest forming one dimension and stakeholder power the other
Stakeholder interest
Political interest
Stakeholder power
Ability to affect the organization’s future
Used to identify which stakeholder interests and power bases should be taken into account
Helps identify what coalitions amongst stakeholders managers may wish to encourage or discourage

34. Power Interest Grids Players Subjects Context Setters Crowd
Both interest and significant power
Subjects
Interest but little power
Context Setters
Power but little direct interest
Crowd
Neither interest nor power

35. SH Power/Interest Grid
Whole Foods Market provides a
retail sales outlet for thousands
of organic and locally- produced
items and was the first food
retailer in the United States to
address animal welfare and
seafood sustainability issues in
the supply chain.
We’ve done this in partnership with
a variety of multi-stakeholder groups
that include customers, vendors and
non-profit and government agencies,
depending on the issue of concern.
We’re very proud of the part we have
played in leading positive change in the
composition of food retailing and global
citizenship for thirty years—and counting.

36. Response to SHs’ Positions

37. Whole Foods Market

38. Scenario Planning Scenario analysis Not forecasting Quantitative
a systematic way of thinking about how the future might unfold that builds on what we know about current trends and signals
Not forecasting
Quantitative
Models events and run simulations to identify likely outcomes
Qualitative
Narratives
Useful in engaging insight and imagination of decision-makers
Similar to productive paranoia

39. An Example with WFM
Check flexibility of strategy in case of major drought
1-5 years
Higher prices with decreased product availability
Create the scenarios that are likely to happen in a major drought
Identify red flags for each drought scenario
Ask “what if” for each scenario to evaluate strategic flexibility

40. Key Steps in Building and Using
Define the purpose of the analysis
Decide on the time horizon
Identify key trends
Identify key uncertainties
Create scenarios and check for internal consistency
Identify indicators that might signal which scenario is unfolding
Assess the strategic implications of each scenario

41. Now that we have completed this chapter you should be able to…
Recognize,
the different stages of industry development and understand the factors that drive the process of industry evolution
the particular challenges that face managers engaged in strategic decision making in public sector and not-for- profit-contexts
Identify the key success factors associated with industries at different stages of their development and the strategies appropriate to different stages in the industry life cycle
Use stakeholder analysis to gain an understanding of political priorities
Use scenarios to explore industry and organizational futures

42. Questions? Comments?