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Competitive Advantage in Mature Industries

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Presentation on theme: "Competitive Advantage in Mature Industries"— Presentation transcript:

1 Competitive Advantage in Mature Industries
OUTLINE Key success factors in mature industries Strategic Implementation: Structure, Systems, Style Strategies for declining industries 22

2 Competitive Advantage in Retailing: U. S
Competitive Advantage in Retailing: U.S. Retailers with the Highest and Lowest Valuation Ratios TOP Valuation Sales Ratio ($,bil.) (US) Intimate Brands (US) Hennes & Mauritz (Swed.) Seven-Eleven Japan Gap (US) Home Depot (US) Best Buy (US) CDW Computer Cntrs. (US) Wal-Mart (US) Kohl’s (US) Dixons Group (UK) Bed, Bath & Beyond ( US) Carrefour (France) Pinault-Printemps -Redoute (France) Castorama Dubois (France) J.C. Penny (US) Federated Dept. Stores (US) J. Sainsbury (UK) Marks & Spencer (UK) Great Universal Stores (UK) Marui (Japan) Jusco (Japan) Sears Roebuck (US) May Department Stores (US) Ito-Yokado (Japan) Albertson’s (US) Tesco (UK) Boots (UK) George Weston (Canada) Metro (Germany) BOTTOM Valuation Sales Ratio ($, bil.) 23

3 Key Success Factors in Mature Industries
Opportunities for sustainable -- limited potential for differentiation competitive advantage are technology stable and well diffused limited ease of entry due to well developed industry infrastructure and powerful distributors -- international competition : domestic cost advantage vulnerable Sources of Economies of scale cost advantage -- Low-cost inputs -- Low overheads Segment and customer -- As general industry environment selection deteriorates, important to locate attractive segments and woo good customers. Sources of differentiation Emphasis on image differentiation and advantage differentiation through complementary services. Sources of innovation Limited opportunity for product and process innovation but considerable opportunity for strategic innovation 25

4 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 - Virgin Atlantic in air travel differentiation - 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. 26

5 Product, Process, and Strategic Innovation over the Life Cycle
RATE OF INNOVATION Process innovation TIME 27

6 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 - Primary functions are control and MANAGEMENT strategic decision making - Two main styles: politician and autocrat 28

7 The Competitive Environment of Declining Industries
Features - Excess capacity of declining - Lack of technological change industries - Consolidation (but some new entry as new firms exit) - Old machines and employees Smooth adjustment - Predictability of decline of capacity Durable assets depends upon Costs of closure - Barriers to exit Management commitment - Strategies of surviving firms { 30

8 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 31

9 Strategy Alternatives for a Declining Industry
COMPANY’S COMPETITIVE POSITION Strengths in Lacks strength in remaining demand remaining demand pockets pocket Favorable LEADERSHIP HARVEST INDUSTRY to or or STRUCTURE decline NICHE DIVEST Unfavorable NICHE DIVEST to or QUICKLY decline HARVEST 32

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