1. Topic 6 Industry Environments
Rationalizing Diversification and Integration
Behavioral Considerations Affecting Strategic Choice

2. Different Industry Environments??
You also may want to evaluate different strategies to build competitive advantages …. given the fact that you may be operating in any one of a number of different industry environments

3. “Typical” Industry Settings
Emerging Industries
Industries Transitioning to Maturity
Mature and Declining Industries
Fragmented Industries
Global Industries

4. Characteristics of Markets in Emerging Industries
Proprietary technology and technological uncertainty
Competitor uncertainty due to inadequate information
High initial cost structure
Few entry barriers***
First-time buyers require initial inducements

5. Strategic Options/Opportunities for Emerging Industries
shape industry’s structure
rapidly improve product quality
establish favorable relations with key suppliers**
acquire a core group of loyal customers
forecast future competitors

6. Characteristics of Maturing Industries
Intense competition for market share
Increased sales to experienced, repeat buyers
New products and new applications harder to come by
Increase in international competition
Declining profitability

7. Strategic Options for Maturing Industries
Prune the product line
Emphasize cost reductions
Focus on selecting loyal buyers
Pursue horizontal integration
Expand internationally

8. Characteristics of already Mature/Declining Industries
Demand grows more slowly than economy, or even declines
Slowing growth is caused by
Technological substitution
Demographic shifts
Shifts in consumer needs

9. Strategic Options for already Mature/Declining Industries
Focus on key market segments offering growth opportunity
Emphasize product innovation and quality improvement
Emphasize production and distribution efficiency
Gradually harvest the business

10. Characteristics of Fragmented Industries
No firm has a significant market share
No firm can significantly influence industry outcomes
Examples
Professional services
Retailing
Wood and metal fabrication
Agricultural products
Funeral industry

11. Strategic Options for Fragmented Industries
Tightly managed decentralization
Standardized, efficient, low-cost facilities at multiple locations
Specialization (Product type, customer type, type of order, geographic areas)
Bare bones/no frills

12. Strategic Options: Pursuing Global Market Coverage …
export products
License foreign firms
foreign-based plants and distribution

13. Questions Related to Diversification and Integration #1
Are there opportunities for sharing infrastructure and capabilities?

14. Critical Elements for Shared Opportunities to Be Meaningful
Shared opportunities must be a significant portion of the value chain of businesses involved
Businesses involved must truly have shared needs or there is no basis for synergy in the first place

15. Questions Related to Diversification and Integration #2
2. Are we capitalizing on our core competencies?

16. Evaluating the Role of Core Competencies
Is each core competency providing a relevant competitive advantage to the intended businesses?
Are businesses in the portfolio related in ways that make the company’s core competence(s) beneficial?
Are our combination of competencies unique or difficult to create?

17. Questions Related to Diversification and Integration #3
Does the company’s business portfolio balance financial resources?
A number of portfolio techniques

18. The BCG Growth-Share Matrix
Cash Generation (Market Share)
High
Low
Market share: Dividing point is usually … only the two-three largest competitors in any market fall into the high market share region
Star
Problem Child
High
Cash Use (Growth Rate)
Low
Cash Cow
Dog
Growth Rate: Dividing point is usually the GNP’s growth rate

19. Behavioral Considerations Affecting Strategic Choice
Role of current strategy
What is the amount of time and resources invested in previous strategies?
How close are new strategies to the old?
How successful were previous strategies?
Degree of firm’s external dependence
How powerful are firm’s owners, customers, competitors, unions, and its government?
How flexible is firm with its environment?

20. Behavioral Considerations Affecting Strategic Choice
Attitudes toward risk
Risk-oriented managers prefer offensive, opportunistic strategies
Risk-averse managers prefer defensive, conservative strategies
Managerial priorities different from stockholder interests
Agency theory suggests managers frequently place their own interests above those of their shareholders

21. Behavioral Considerations Affecting Strategic Choice
Internal political considerations
Major sources of company power are CEO, key subunits, and key departments
Power can affect corporate decisions over analytical considerations
Competitive reaction
Probable impact of competitor response must be considered during strategy design process
Competitor response can alter the success of strategy