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

Competitive Advantage in Retailing: Retailers with the Highest and Lowest Valuation Ratios TOP 15 Valuation Sales Ratio ($,bil.) Amazon.com (US) n.a. 3.9 Caremark Rx (US) Expedia Autozone (US) Hennes & Mauritz (Swe.) Next (UK) Bed, Bath & Beyond (US) Woolworth (Australia) Gap (US) TJX (US) Inditex (Spain) Wal-Mart (US) Radio Shack Family Dollar Stores Best Buy (US) Toys-R-Us J.C. Penny (US) Federated Dept. Stores (US) J. Sainsbury (UK) Ito-Yokado (Japan) Ahold Safeway plc (UK) Pinault-Printemps -Redoute (France) Sears Roebuck (US) Dixons Group (UK) Albertson’s (US) May Department Stores (US) Office Depot (US) CVS Kingfisher (UK) BOTTOM 15 Valuation Sales Ratio ($, bil.)

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

Sources of Strategic Innovation in Mature Industries Reconfiguring the value chain: - Benetton and Zara in clothing - Southwest & Ryanair in airlines - Dell in PCs Redefining markets and products - Swatch in watches - Starbucks in coffee shops - Barnes & Noble in book retailing Innovative approaches to - Virgin Atlantic in air travel differentiation - Sephora in cosmetics retailing Who are the strategic innovators? New entrants - CNN in news broadcasting - Nucor in the U.S. steel industry Existing firms on the periphery -Sun Records in rock ‘n roll music Firms from adjacent industries - Apple in consumer electronics Why not leading incumbents? They are constrained by “industry recipes,” relationships with existing customers, investments in resources & capabilities linked to past strategies.

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

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

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 {

Strategy Options in Declining Industries LEADERSHIPEstablish 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 NICHEIdentify an attractive segment and dominate it. HARVESTMaximize cash flow from existing sources DIVESTGet out while there is still a market for industry assets

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