Chapter .:3 Extenwl a1ll1 Customer Ana.

lysis 49
48 Part Two Strategic Analysis

Tlw ath leti(: shoe illdustl)' segme llts illto the St'liOllS athletes (s mall ill J1umher bllt
in/-luelltd ), the IVcekcl1(1 w,lITiors, and the G1S1WI W(:'<lrers lI sing athleti(: shoes for street
wear_ Hccognizing that the cas11al wearer segment is K() p e rcent of the market and does
IIOt r eally IWl'd pcrformance, st'vcral shoe finlls have employcd a sl-yle-Focllsecl strategy
as all altl'nl,ltiv(' to the p(-'r!i)flllancc stratei--,')f adopted hy snch finns as Nih:_
Mu iliple Segnll'nls ve l'sus a FoclIs Sla-ategy
T\v() disti nct scglllc' l1tal"ioll str'ltq.(i{'s arc possihk' _TIl(-' first [-OC11S(,S Oil a sillgle sl'gmcllt,
w hic h ca ll1 }(' 11111('h sma ll er thall til(-' market as a wboll-_ \Val-Mali , now the Ltrgl'st V_S_
rdail c r, starll'd hy l'ollcl'll tratillg Oil citics wi th popl1latiolls lilld e r 25,()(){) ill c1ewll
~ollth C(' lltral staU's , ,I Sq!;I1ll'lIt to l-ally Ilcglect('d by its competitio11 , til(' large di sco lill t
chaills_ This nlral gcograpllic I()CII S strah't;; was diwctly wspo ll sihlc li)r seve ral sig llifi­
ca ll t SeAs , ill( ,h,dillg al l (:[Tici(~ III- alld l"('spo1lSiv(' war('llOlise sllpply S),sk lll , a low-cost,
III ol"il'at('(1 \\'()I"kl() I-(,(" 1"(,Iati vely illC'XPl'lIsivl' retail space, and a 1( ',111 alld m ('<111 , halld s­
on Inallagcl1l('llt slyle_ V nioll Balik, (;,tiili'r11ia's l'iglltll largest h' lIlk, 111akcs 110
servl' il1dividllals ,lIld tl1lls provides a S(' I'Vic(' opnatioll tailorl'd to IlIlsinl'ss aCCOllllts
that is Ilion' CO llinlitl< 'c l alld CO lllpreh( '11 Sive th,1I1 those or
its ('() Illpetitors_ '
All all( ,rnativ(' til a 1()(,llsillg str<lteg), is to illvolvc 'lI,d tip lc SCgIl1C lltS_ C(' lwr,,1
"Iotors prOl ides tl1<' ci;lSsic ('~ alllpll'_ III tl1(' 1~)2()s til(' fi nll positiollcd the Clwvrold
lill- l)l-ic('-conscio ll s 1)1I),c' rs, tlw Cadillac I()r til<' high ('Ild , <lnd til<-: Oldsll1ohiit- ,
POllli ac , al1(l Bllic\< ror w(,II-ddi, l('d S('gll1<'lltS ill l)('tI-I'('(:'n _A gr'lIl1 i1ated potato com­
p"n), I,,\., developed dilTc rl'llt str<l[-( 'gies 1'01' rC';lchill g f':Ist - f"ood cha in s, hospitals a III I
11IIrsing hOIlH'S, alld schools <llld collq.(l's_
III Illan\ ilHlll str i('s aggn'ssive I-irnls ;lIT Inovillg toward Illlll tip lt,-sCg lll l' lIt
strat('gies_ CaIIIJlIll'11 SOlq) , I-or exal11pit- , Illakes its ll<lcho ch('('s(' SOIIP spicil'r
cllstonH'rs ill T( 'xas alld C;,i1i['o rnia alld olll'r" a Crcole soup ror sOlltlll'r11 mark(-'ls
and a ITd-I)(',ln smq) 1-01' Ili spanic mar-k('ts_ III New York , (;,1Illpl)('11 li st'S prolllO­
tiolls linkillg SWanSOl1 I-!"Or.l'll dillllers with til( ' Nt'w York Ciallh rootbali tc'alll ,
ill th(-' Si('IT,l N('I'ada 1ll( l llIlt<li llS, sk iers arc tr(',lt c d to hot S()l IP sa 'llpl t's_
l)(-'vclopillg 11Illltipl(' strat (,gics is (:()s tl y <llld o[-tc' n nlll st 1)(' jllStil-i(,d by an
(' llh ,lIlC(,d ,lggn'gat(' impa('t.
'1'11('1"(' ca ll Iw impor[",lllt s),\)(' rg i('s I w l"VC(' ll SC'glll<-'llt ollnillgs_ For CX;lIllp k" ill
tll( , alpilH' ski illdllstrv, tl,(, image dcvcloped hy lti g ll -pt-'r!C)l"T1I;111l'e skis is ill1POlt,lllt to
sal( ,s al- th(' rt'lTC 'atiollal-ski .('lld 01 -the illlSill css_ Thll s, ,l 111,llllll~lctll r(-'r that is wc·,lk at
tlw Ilig h c lHI willhavc dimc l,]t)' at the low cnd _COIlVl'rsely, a sllcct'ssflll high -e nd firm
w ill want to exploit !"llat Sllceess by haVing l'lltries ill thc otlwr seglllt'llts_ A kl')' SIIC­
n,ss rador ill the g(->lwral ,l viatio ll indll st ry is a hroad prodnd lin t', ranging from fixc·d­
gear, single-l'ngill t' pistoll aircraft to tnrhoprop plant's , Iwcallse cllstOJllers t(,lld to
trade IIp and will switch to ,1 differ ent finn if tilt' product lint' has major g;lps_
is helpld to list the segme nts and thc~ ll1oti vatioJl priorities or each , a\ shown ill
Figure :3..5 for ,lir travele rs.
Intern et retaiJ e rs have l earn(~d that the re are distinct shopper segme nts, and
('<lch has a v('r), ditlerellt set of' tirivillg motivations. ,I
• Newbie shoppers-need a simple in [e rhlce , as wcll as a lot o/" hand-Ilolding
and reaSSlll"111 Ct'.
• Reluctant shoppers- lIc'Cd i 111(lrInatioll , I'(' ;lSSII 1'<1 n ('(' , and ac"('c'ss to I iv('
cusl-ol1wr suppo rt.
• Frugal shoppers-l1t'(,d to Iw convillct, d that tl1<' pricc is good alld they
dOll't have to sea rc h (·Ist'whcn ' _
• Strategic shoppers-nl'cd ;lCCCSS to th e opiniolls or pcns or eXjlnts , ,Int!
choices in cO llfig llrin g the protillctS tlll'V 1)11),­
• Enthusiastic shoppers-nl'l'd CO llllllllllitv tools to sitare tllcir e~p(, I'i­
cH()rt to l'nc('s , as well as t'llgagillg tools to vit'w tl1<' llH'rC!,;lll<lis(' ant! jlnso llali l'.l' t!
ITeo Inn1(-'11 chi ti 0 n.'_
• Convenience shoppers-(l ll c' largesl ,t;l"Ollp) wallt.' ellici( ' nt '''\li gation,,, lot
of- illl-orinat-ion rrolll Cllst(lIl1ns ant! (-'\pcrts, alIt! sl ljwri()r CIlSt(JIIH'I- se lvin' ,
SO\li(-' )lloti vat iol1 s will he lp to ddin(' st ra tegy A tmck , I()!" exampk, Inight Iw
tI('.,iglled ,lilt! positioll('(1 with respect to power. BeI(»'( ' 111<lkillg sllch .1 strat<-gic ('0 111 ­
1"illl1cnt, it is crllcial to kl10w w he n' powl'r fits in tlw IIHJtivatioll set. Otll<'r Iliotiv<l­
IllIns may not defint' a strategy or dilferentiate a 11i1Si lw<;s , hI 11- n 'plTSl'llt ,I dinl<'nsioll
Ii II' witich <It!(-'<jllak p e d(Jrll1;tnu· 11111St Ilt' ol)tailll'd or tlie hat-tl (' will 1)(' lost. II' till'
1'01'
I"i",(' l11otivatioJl li)r 1)l1),('rs or gOllrJIld froi'.l'll-I()()(1 tiilllH'I-S is t,IS["(' , a vial)le firln
""I.,t Ill' ahle to ck liv er at least acc(~ptahlt, I-astc' _
<I III I
I ) elermjnjng Motjvations
\ ~ I"ig llrt, :3J) SlJggt::sts, COllSllme r 1l1otivatioJl allal ys is sta rts wit h thl' task or itiCl1til)'­
ill,\!, '1lOtivations ["or a give n seg m ent. Althollgh a grollp of nlallagl'rs (',Ill id(,lltil), Illuli-
1<lli()II.', a mort:: vali d list is Il sllally oi>tailwti I», getting Ciistollll'r\ to (lis(,IJss tile
I !I l1dlll't or s(~rvict' in a systematic way- \Vh y is it h eing lIsecV \V!tat is titt' ohj('ct i w'~
\\ -ilat is as.'ocial"ed w il-h a good or bad llse (~xpl'riell(;(-~'~ !-"()r a Illoti v;ttiOfl slich as car
',. Ire-Iv, n"'poll(knl"~ Inight he asked why sa rety is impoltallL Sncil proi)('s might r('s ilit
III IIII' ident-in catioll of more basic motives, such <IS thl' d('silT to [-('c'l Uillil and S(-'CI11T
1111 1\''- tl,a,l ,1I1 '( ioIIS_
,\f" ,t!.IIH'lIt '\ l o li\';llio "

l Id I'.. il Ii ' "'''' 1I"li:,1 .I( - '"-,, It·,- (-Il l) "' I)i",,1 \1-1",<1,11,,\ , (';ISI -Io- u s(' dilvorts , I'rC«'H'lIt-fln'r
CUSTOMER MOTIVATIONS Ilrt >,p ,r; \lll" : 11111 (' (ltld~)lI:d)1 1' ..... " ·\i l·(·
\ ,1(':11 i( 1111 '1S I 't in ' !I -,I "d .Ie' ',( ·111 ·tllIl,,,,

I\I-t(' r i(I('lliiCvillg ('llsl()III('I- \('glll('llI s, III(' 11('\1 , 1( ' 1) is III "1111'.1,1"1 11"-11 IIltiltl:ilitll'\:
\\'11;11 li,'s 1)('I,illrillll'il' 1"II 'r- I':I \ (' ri('(""illliS') ,\,"II1t )\\ ,1"' '' .1 1, .1 1 tlil l, ,1'1 '" " ""-liI-~ II F i ~un' :;,;' ( " I',IIHl l ('1 \ 1,11 1' 11 11-' . f I tll l \ 11 ' 1' ,1\1 '\"1"

50 ParI TWI! Stralegic /\Illl/Y"is
Figure :3.G ell.S/olllel' I"J()li\;ltioll r\ll<lkSis
ClI stollw rs can 1)(' ,I('l"l'ssed with grollp or ill(lilidlial illt( ' lyiews, Crilhll a11(1
I Lill se I' or I Ill' :. . 11'1' () Il<tI itl ' 1<'1111("[iOIl ])1 ']110\ 11 )('11 t (() F I) ) pmgralll ("()llIp <lrl'd tlK' tWt)
appmacl1l's ill <I stl1l 1y 01' roo<l-ca rrvill g d el'ices ..' TI)('v rDlllld tlt al i lltli\'iUllal illter­
vielV,s \1'('1'(' IIlIm' cost -eUt'dil'(' alld tltat the gro ll]) processes did llot ge lll ' rate ( ' II ()lIgh
(' \ ITa illl 'o rll l<lti()11 10 wa rrallt till' add ed eS jlell S(', TIt I'Y also , ',xplored tlte 1lllInl )(' r or
illtnvi('\I's 1J('('(II ,d ttl ga ill a cO lllplde li st o r IlIo['jI 'ati o liS <lIHI ('ollcitlti(,d that twelltl'
to tllirt;: \\ill ('ol '(' r D() to D.'5 pen'('ll l Dr 111(' 1I10liva (-i olls,
Tlt e 1I1111illl'r 01' 1I 10li \'atio ll s ca ll 1)(' ill tlte 11l1l1(Ir<:ds , so t h e 1I('l t task is to c ill s­
tel' tlt(,111 ililo gnll ip s alld slIhgrolills /\ ITili it)' Ckll't,<; d('v('lop('(1 hI' ;1 11 1<lll agni<II te<l lli
<tn : CO IIIIII Ol liy II sed 1':;[cl1 ll'alll 111 ('1111)('1" is gi\'I'll a sd olillotil'e,s 1111 (', 1I'{1s, Oll e
11)('1111 )1: 1' pill S ;1 IIIOtil( ' O il lh(' LilliI' or pil lS it to a \l' all, <llld til(' Iltlwrs ;1( 1<1 Silllii<11"
BUYER nOT BUTTONS
Motil"ItiOIlS ca ll hI' l'atl '~{) I'i ;l.l't! as illl]loitaill or 1l1lililport;IlI( , yd till' t!y"alilics or III(' 111'11'­
kl'l llt;IV ill' I)('ltl'r capl llrl't! by il\I '1I1il)'illg l' lIl'l'l 'll t bllYI'r hot 11I 1((1>lIS, Il ot IlIl('\"lIlS arl'
Il lo1i"llio))s I,d >I lSI , salil'Ilt'I ' ,llltl i'Il [);'d O il II I< Irl<t' ts an' signinc,1I11 alit! groWillg, \ Vllal ;\1'('
11I'y"rs tal ki llg al H>I Il 'r' \ Vhal a1'(' sti 1111 dat i IIg e11;1I1).';I'S ill III I) i IIg decisions and IISI' patti 'rlls'~
III comlllll l: r I'c!<l illi 'od prodlll'ls. 1(11' l'x'lJllpll' , hot 1)1I (('"IS i lH,llIdl':
• 1,')'('s llI)(,ss alltlll<lI', " ', tllll'ss, (:['()('I 'IY slort's h'I\ '" r('spolltll'd IVilll " tI<ld hal'S ,
p,wkagl'd prtTlit I t '~t'l'abl('s , alld dl(lrts to Il pgrad, ' the qllali tl ,II 'cI s" II'diOIl
tJll'ir I'rl'sh p['()(llIcl',
• lil-al/hy ('ati ll ).'; , Low rat is a prillll' dri vl'l', hill' COlll'l' 1'II "bollt SOtlitllll , Sl igar,
;1 1)(1 prol,(:SSI'd roods is ,tl so grmvi ll).'; all d alleltillg prodlld (l ll,'rings ill IIWSt
I()()d I'alt'gmil 's,
• Ltlllli c 1',l tillg, A grtl\\~lIg illtc rl'st in d lltli c fl avors all d I.'ookillg SlIl'll as Asiall ,
\1t, ditclTall("III , "lid ( ;arihh(,HII Clli silll 'S, "'IS it'd to all ('xplo sioli or IllW olfl'r­
illgs , llralll\s IIs1l ally slart ill l'thlli c II l'il!;hhorl[(lods , IIt tl V(' illto ll at1l ra l- rood ,1Ilei
gom illd storl'S, al1(l final'" n·;\('h tl1l-' IIlain slTI' ,llIl 1l1'lrlw /s,
• COll rtlwt ea tin g, Th(' SIl(,CPSS or \Villiaills-SOllolna alll\ sili lil 'lr rdai l('rs rdleds
tIlt' growllt or gO IHlIld cookin g am\ has led to tIl(' intrOllllctioll or" hrtJad('r
array or i ll tl'J'('sting ('ookill,1!; aid s alld dl'l,icI'S,
• 1vlc,tI soilitiolls, TII(' dl'sil'(' 1'01' III1'al so'l lIli oli s has I"d 10 gmill " "I' I""H III..IS
IIt'i IIg blilldll ,rllog<'l IH 'I' as <11111 ,,,1 " lid lo;t 11",1 "I' (,; " 1'1',,,11 1""1',11" '.\ 1, ,,,(\ ,
,.ll",.. ,, 1hI'. 1,011. "('(1", '1'1. sl",..'s ,1.lI l (,(,,1;1 11 1',11 II S,
.~
1,11\1 ' ,,11 1,1 ," ,,1 , 'IIII' ildlll"llI'" ,,11 ,,\1 " <I II, <li"h Ir l'" " " It,d I' .i "" " I "II , "
I I, dll l e·.! 1 111 11 I'Hu l \ d t l, tl lI , III III II I I I ~I IU 11 \ . I II P ' I ll '" ;\ HHlI ,.. III ,
Chapter 3 Exte'r nalltlul Cus/o",('/' ;\//!lil/ s is :; I
cards to tlw pile, di sc ussillg th e decision to do so, Th e process continucs lIntil th e rl '
is a conse nsus th at th e piles r epr ese nt reasonable groupings, Each pil e i s th e n stru c­
tnred into a hi e rarchy w ith th<:~ Ill ore ge neral and strMegic rnoti ves at th e top and th e
1110re sp eCific and tactical at th e bottom,
An ,llte mative i s to ll se clls tomers or groups o f clls tom er s to sort the motives into
[)il es , The cI!St o rn ers are th en as ked to se lect o n(~ card from e,lch pil e that bes t r ep­
resents l'iwir Illoti vl's, \I\1hen a set of c ustom ers or groups go thro ugh til(' exe rci se, th e
jlldgm en ts can be com hi ned using c luste r analysis statistical prognllns , Althoug h
Illanager s gain huy -in <llld learning h y goin g through the process th e n lst'lves, Grif'fin
;I<HI Hauser report that in the twenty appli cation s at one firm , thc manage rs cons id­
I' red custom er-base d approaches b dter rCprt'Sl,ntati o ns thilll th e ir own,
Another task of' c\l s ton)(~ r Illoti vation analys iS is to determin e th e rdati ve impor­
tance of th e nwti val'ioll s, Again , th e managem ent team can address t lli ,s isslle,
Alternati ve ly, cll stonwrs can he askcd to assess th (-' impo rta nce or the moti vation s
dir(-·ctly or perhaps throu g h trade-oFF qll es tiollS , If' all (' n gin e(~ r had to sacririC0
I'('spoll se til1l e or accuracy in an oscill oscope , w h ich wO ldd it be? Or, how w Olild an
;I i dine pass(' ng(' r tr,ld(-' oil con venie nt d epa rture t-inl!:' ,,I!jth pri c(-~ ';> Th e tradt'-oFF 'Illes­
t ion ask s Cll stonwrs to makt, dillic liit jlldgmcnt.s about attribllt(~s , Another approach
is to s('e w hi c h j udgme nts aI'\-' a,s sociated w ith act\lal pllrcha s(-' deci sion s, Slldl an
''1)proac h rt'vl'a lcd that moth ers oFtcll sel(' c(ed silack fi)(ld hased Oil what' " th e c hild
li kes" alld w hat was "jlli cy" ill stc,1l1 of' cl'1<1iiti (-'s they had said w ere inll)ortan t ( nour­
ishillg and (-:asy- to- eal'),
A rOllrth task is to ide n t if)1 til(' 11lotiva tion s that w ill play a rol e i ll d efi llin g th l'
sll'ateg), of til(-' husin es s, Th e se lcctiol l of ll'Iotivatiolls Cl' ntral to strate~'Y wi ll
ti ('lwnd not onl y on c li stolller llloti vation s, hllt' Oil o th e r !'actors as w(,:II , su c h as
(,""lpetitors' strat egies that e m e r ge in th e cO lnp etil'o r anal ys i s, Another raclor is
Ilow fl ~as ihl e and practical th e rcs ult'in g strat(",l.,'Y is I't)!' the bu sin ess, Intl"rnal <Inaly ­
sis wi ll be in vol ve d in makin g th at' dde rlllillati()ll , as w ill an anal ys is or th e strat­
" ,~v's i Illpl e m elltation ,
or
()tla litative Research
(,l llalilati ve rl'st'arc h is a powe rf, d tool in understanding customer lll otiva tion, It can
([ ,,'ol vl' foc ll s-g ro ll[l sessiolls, in-d epth inte rviews , c nston l(-'r cas e studi es , o r o n-si te
" ([ SIO lll e r visits , The concep t is to search [t)r th e r callJlOtivation s t'hat do no t e ill e rge
I'()III st rlll-t-lired lists, For instance, bu ye r s of' sports utili ty vphicles might, re,11I), he
" ' p['( 's,sing I'heir ),01 It it or a youthful attitude, Th e p erception that a product is too
'\I)( 'IISi l '(' IIli ght really r e Hect a fillancing gap, Gdting inside the cu stom er can pro­
I itll ' sl ratl 'g ic illsights that do not e merge any otll er way.
Iv l ()dd iIIg the CI.IStOlll(-T experi e nce from begi n n ing to elllL then analyz i ng each
I, 'p , (';I II ['('Sld l ill ddailed i nsights that C,lll ge nera te re,d c hange, Canadian Pacific
( ,I ') Ilol, '\.s lI'as Ilmfic il 'llt lVii'l l (,OIIV(' ll tio ns and group travel, for example, but w as
IIt ,;[1; ;IIlIIlll,~ 1"lsilll 'S,S Ir;lvI,l, ' r sh ( :ll slolIll'r r('s(';trch indi u lted that th ese c ll st'onl(:' r s
",' [,' ' 11,,1 1I""il ',,I,'d;1S 11 1111'1. 1" , ;[ " '\I-'; lI'l\.S I 1ro,l !/" It I "s th ey w cre hy get tin g oVl' r-thc ­
1 " II[" '.s I)(lll s i l "ltl"S ~ I" Ilml""III '; 1""" ",lIili'"1 , .I ' II" 'ir ililli vidlt ;d 1I1 ·(,ds, ;\llIllo!.s orrl( ,\ ­
d,ilill \\ ill, 1" " 11"1 '1 1.. :1 1ri" tl .'< 1111 '\ " II.Il IIll " lill<t's, 1\'I .. cl..li li g III(' ('\ I)(,I'i" III" ' ''1' 11" ,s,'
11.11"1", ,, 11 '11111 1'.'1 1kill ,! ', I .. " 1" ", 1",,,1 1>1111 1\ 1",1 , lil 'T li ,," :I" I II ;1 1'.'1/ , 1:",,1 :11'\ " IIt'I"

52 Palt Two Strategic Anaiys'is
needed w ith respec.:t to processes, staffing, cllld interac.:tion p<lt terns, As a r es ult of
improving its standards , CP Hoteb e njoyed a Hi% jump in its share of th e Canadian
business travel market
Although a representative cmss section of customers is usu ally sought , sp ecial
attention to SOllle is often merited, Ver y loyal customers are often best able to
articulalt> th e bonds that the finn is capable of establishing, Lost c ustom ers ( tbos e
who have dd(> cted ) are often particularly good at p;raphically communicatin g
prohl e m s w ith the product 0 1' service, New c u stom er s or c ustom e rs who havt·
""cently in(Tl~ased th eir \l sage may su)!;ges t new applications, Those Il sing lTlultiple
vendo rs may have a )!;(Hld pl'rspedive of tlw Finn rt'lative to the co mpetition,
Changing Customer Priorities
It is partic\lbr\y critical to )!;ain illsi ght into changes in customer,s ' prioriti es.' In th e
hi)!;h-tech area, Cilstoillcr priOl'iti es oftl'n evol ve from n ~:t:d ing he lp in selec.:tin)!; and
in stalling til(> right c«(1liplllent to wa llting P(-:r!iJrlllant:<-: to lookin ),'; ['or low cost In the
co[,'[i,l' hllsilless , cI\.stonwr tastl~s alill hahil s have evolved ['rom huy ing coffee at g ro­
(;(" ry stor('s to drinking (;o [lel~ ,It gOlll'nwt caf(:s to hll yin g th ei r own whole-heall
gourlll et CO[llTS, !\s sun!ill g th at c lJsto mer prioriti(-',s arl' not chal1ging can he risky. It
is ('sse lltial to ask w lldl1Cr a signiFi ca nt alld growing s~'gll H'nt has d eveloped priorities
that are dil'kwn t ['rolll the hasic hll sincss l11ode i.
The Customel' as Active Partnel'
C llst()1I1 e r S art' illcn-',Isillgly Iwco ,ning active partners in the l)ll),i llg proC(-' SS, ratiter
than Jlassi v(~ tar).';(! ts of pmd\lct development <llld advertising, Th e tre lld is illu s­
trated hy Cisco's C1Jstomers helping design prodllcts , pati ents taking control of
ilwdical iSSlles , th e control or m edia shifting ,IS audiences !l1ove rrolll tlw VeB to
TiVo (a device that ca l1 preprogram , hows by nam e and even gt,nrcs), and th e
po wer-enhancing access 1'0 ill[(1rl11 ,l tion and fellow cl1stome rs pro vided
s I I I ("P()S(' 11111 nd lI e('ds,
Inte rnc;!' , To harness thi s ch ange , man;lger s shol1ld :
• Encourage active dialogue. Contad w ith cu stom ers mll st now h e con ­
sillered ,I dialoglle or
t: <jII 'll s, The interadiol1 of Schwah w ith its c u s­
tomers (ho th on-I i l1 e and omi ne) shows how active di alogu es can create a
strong re lation ship ,
• i\fobiZize custome1" communities. Th e Intern e!' ['acilitates stronger and
111orl' widespread online cllstom er com1l1uniti(-'s, The challe nge is to or)!;,I­
nize amI create th e contex t ji)r the C0 !l1l1ll111ities so that th ey become an
extenSi()!1 of th e 1)1';111<1 experi e nce and a source o f customer input into th e
product and its use,
• 1'I1anage customer diversity. Particularl y in technology pro<illds thne w ill
IH' a w id(' r,ln gc of sophi sti cat iol1 ,\l IIOll g cllStoln('rs , <l lld llll' c\"dl"lIg(' w ill
II(' II) (i<-:d w illi 1))lIlt ij> I( , 1( 'I'(' ls, Th(' I)IO\'( ' SO I)iti sl i( ':llt-d !':"Ittll \\ 'ill 111'1 1)('
111I )s l :\('1 ill , 11: ))'lll<'rS,
eILa]ller -3 Exie nlOl aJ1d Custo1l1er Analysis 53
• CocreC/ ling personalized experiences. An on-li ne Horist might let CIl S­
tomers d esi)!;n th e lv1ll' and arrangc m ent of flowers and vases , rather tl1an
l11ere ly providing il mellli of choices, Coueating exp (cri enc(-'s go heyond CI1S­
tomizatiol1 in tailoring th e offering to the Iweds or indi viduals,
UNMET NEEDS
I\n Ullllwt need is a (;IlstOl11er n('ed that i s not I)cing met hy til(-' c xi"ting product ofl('\',
ill gS, For example, ski areas havl' a ne('d [I)!' snoll'111<1ki ng cq 1lipm l' nt that can accl's,s
st(,(,p , <ldl'<1 I1c<, d trail s, A major ('xt('l1siOI) of' thl' tc,nporary-s('rvicl's illd1lstl), kls Ill't'll
('\'(,<lll'd h I' finns \'(-'spollding to an 1111111('t 1)('ed [I)]' l'emporill)' lawy ers, hi gh-tech -,Pl'­
c i,tl isb , al1d dOl,tors, EXl'Cllti v(-' Jet Aviatioll was [imn ed to se ll o 'H-'-e igh th il1l'('I'{-,sts il1
siliall jets to MrlTlS thal' n('('lkd their own jet tr;II1Sportation hilt CO ldd 110t jllstily hll),­
illg and mailltai nin g I'heir own fl (-'('t.
U nmd 1I('('d s a\'(-' stra t(,g ically imp(lItalit hecause til(-'), r('pr('scn t opportu lliti es
,I
I'l lI' firms to illlT('as(' their Illarket shar<', lm-',Ik il1to Inarkd, or neal'e and OWll 11 l 'lI'
I I1:1 rk<::ts , Til ey call also 1'l'PI'l',s ('nt thl'('ats to cslal)lislled Firrn,s in that tlwy can he a
1" ler that ('nahl('s cOl njwtitors to di,sl'1ll't an ('stahlisl1('d position, Ariat, [()r (-'\a ,npk,
I) I'OI({' illto til(' nl al'kct 1'01' ('( [,I <'stri,\ll [i)()twl'ar hy providing 11igh-perfill'lllanu, atil­
I('[ic ['ootwear to rid(,rs w llo wer(' 1I0t 11'('11 se rv('d h)' tr"ditiOIl,,1 ridillg hools, I)ri v(-'n
Ill' tlw Iwlid that rid ('r,s ar(' atlll('[ (',s, Aria! d('vl"l()p<-:d a l)I'al1(1 an d prodllct lill(' tklt
was r('spollsi vc to ,III 1111111<'t 11( '('<1,
SOIIH'till1('S CIIStO Il1(TS II)a), not 1)(' alVa\'(" 01' their l\llIl1d lI('ed,s Iw('alls(' til<')' ar('
S() a(,(; lIstolll('d to til<' i lllpli ('it lim ita tiol\.' 0[' ('xistil1 g (',[ lliPlll(' ll t, Tlw bmwr of til('
[."DOs wonkl h<ll'(' lon g(,d I'm a Ilms(' tll at worked hard('I' alld at(' I(',ss, bllt lI'o ldd lIot
11:\\'(' 11wlltion ('d a tradol' ill Ili s or her wish li st, Unll)('[ l1 ('eds [I,at ar(' 110t ohviolls
1l1 "-)! Iw IIIO\'(' dilTicult to id(,lltil)" hilt th('y call also I'cpres(-,Ilt a gre,lter OPl)(lItllllity
1m :111 aggressiv(, hll-sill(,s,s I)(:('al\.s(' tlw1'( ' will iw littll' pn-',ss IIIT Oil es tahli shc(1 finll s 1'0
I", \'( 'sp(Jnsil'(' Th(' h ,v is to slwtcll til<' l<-'clllwlog), or 'lp pl~' Ilew t('Cllll0I ogi('s ill on lc l'
ily th e
l isi ng Customel's to Identjfy Unmet Needs
( :lIs toll1( ' rS arc ,I l)rill\(' SO llrC(' or lll1l11et n( ~ (' d s, Th(' trick i,s l'o <l eCl-'SS tl wll1 , to get
,'ILsl I)JII('r,S to d dect and COl111111111icate 1111111('t lIeeds, The first step is to c()11lJll d
11I .llld i'<'s(,<lrcll IISil1g il1di vidll<ll or group illte l'vi ell's, Tile research USI1<llly starts
\I illl " discI\ssi()l1 of all actllal product-u se eXp(~ ril~l1ce, \Vhat prohle'lls ilaw '
" I I I('I.~('(I'~ What is ['rns!r<ll'il1g abollt it';> How docs it l'O II1P<l1'(-' with otlwr product
" \ll<'r i('I1('('s ) \Vith exp(~ctat ions'? A re there probl e m s w ith tlw total-lise ,sy.,tel1l il1
\l l,i c ll til<' !ll'()(h,l'l' i,s ('Ill l wdde d ? IImv e\l l the product h e improved ? Thi s kil1d or
1"" ':\1(,11 11(,11)('<1 1)011 CO I) i(' lip wi th Spi[(its , ,I lin e of prt:l1lois t(,l1ed , disposahle
,'II ':l llil) M" 11)\1 (,I.s 111:11 "ddrl '55( ,d III<' 11('('d [ill' a tOlwl that IV<lS ,tire,ld,v ll1oist(-' lwd Ivith
" ,'!t-alli ll g ('lIl1 qHlI IIJ( \.
:\ 1),1 111'1 O[( 'II SIIIII II'!" : " ,1111"'111i.l,' 1I1( )I'" ill -d ('p lll ill~ig j, ts nl<lck &. [) I'(' k( 'I' <1('1,(:1­
' 11"'.1 ils IIII(' ,Ji ' (,hl:llllllll i 1III,IIIIII " " IIIIt)ls I II 1 ; )t'1I )i' , ,!~ a 11:11 1<' 1ol'finl ' d" il 1'''II!',SI ,II', ,!,s
54 Purl Tw() Struteg ic Ai/alysis
USER-DEVELOPED PB.ODUCTS
For an intt'nlaJ 'lppli c.:a tion , J BM dcsigJ1vtl and hllilt til!> I1 rst print ed cire llit card ills(>r­
tion machine or a PellticlIlar t)'})e to be' lJsed in c01ll1lwrcia i prodlJ ction.') Art<:,r bllilding
and testing the design in-h ouse, JI'lM S('llt (-'ngi ll("'uing dra\\~ngs of its design to it IOC,11
machine huilder, ~I l ong with an ordE'r rill" eigllt Iinits, TIl(' lllaci1inc lmilder co mpleted
thi s and snlls l~ q'l( 'nt orders <J lld applied to J IHI! JClI- p('rmissioJ1 to Iillild ('ss('nti<J ll)' th ('
sallie lll<lcili lH' lill- salt-! Oil til(-' opel) Il lark('t. 111M agr(-'cd , and as a r('snlt (lie lllachine
huildc"r iJccallle <J major rC)ITt' ill tlw l'Olll[Jol wnt inSt'ltion pqlJiplTl('nt IHlsilwss_
In the earl)' 1.970s , store ()\Vlwrs and salcs pt'rso'1J)(' 1ill sOllthl'rIl CalircJrllia Iwga 'l (0
noticl.' that VOIIllgst(!fS \\TW fixing lip (heir hic\T lcs to look like motorcycl(,s cOlllpl('[('
with ilJli(<Jtion tailpipes and choppn-('_\l)( ' handlei>ars, Sp()rti ll ~ LT'lsh 1)('lln('[-s alld
I ]ond" 11iotorCYc.ic T-shirts, thc ),ollngsters raced rancy 20-inclwrs 0 11 dirt tmeks ,
Ohviollsly onl'o a good t hing, th e lllanllr.lctlln~ )'s (;;lnll' Ollt with a w hoi<-! I}(-'W Iin(' or
IIwtorcross lIlodels_ C'llif-(lrnia lIse rs reFilwd this C()I)Cl'p t illto th(' nlolill taill J,ilw ,
M aJiliractllr('rs were gll ided hy the Calil(Jrllia l'll.st01\)( 'rs to d( 'vclop IIl'W rdilll'III('lIts
illcilldillg til(' 21-sjl('('d gl"lr shirt tllut dOl'sll-t H'<jllirc rl'lllo"illg (111('\ Iiallds I'mlll tll('
hars_ ivIOlllltaill i>ik(~ finlls an! C' lljo)'ing hoonling gm\l'lh ,1\)(1 arc stil l wate llin g their \\,,,, 1
Coast l'lIStOlIi CI-S_
(D IYs) wllo o Wl1ed Inol'(' tklll six POW('i' tools_III 1 ~'\l'CI It-i ,,('S (Jr - Black & I)(:('k(')' 1IIIIIg
(Jilt with pam,lists ill th(,i r hOllies ,\lid S<lW ril-stl"IIHIIJ(lw til(' to[)ls \\In(' IIsl'd <llld tilt'
probll'llls <Lll d i'rli stratio11S lh ,lt arnSl ', OIl<' or ' till! pmhl('n,s ohs('\'v('cl W<lS tklt um lJc.ss
drills r, 1I1 Ollt of'pmv('r lH'r())'(, til(' joh IV,ISdOI1(" TIll' s(JIIIliol1 was a drill wit ll a d<'l<lch­
ailic hattny p;lc k t hat rec harg('d ill all holll', Sawd ll st prohlellls pmlnpll'd ,1 saw ,")(1
s, lI\(kr w ith a hag that acte d as a llIi II iV<lcl II 1111 _To 'lddres.s sa [( ' ty iSSII( 'S , all allhlillatic
hrakillg S),S t(,1ll (AnS ) \v<lS hllilt into tl1(' ,saws,
C ll sto llH'r sllrve}'s can p lay all illlport,\lil roll" as C,1l 1 til(' Ill( )nitorillg of" Cl lst(Jlll('r
complail1ts_ USA/\ , thl-' SIlC('('SSf"l tI Tvxas rillallci ,1I services l"Olnp,IIIY, Illail s S()() ,()O()
qll('stiollllail-('s to CILstollH' rS l've ry Yl-!ar ,\1)(1 in cilldes SOl iI(' 0P('II-cl1d('d cI'Il'StiOIlS
,1hollt prohlvllls and II(,W pmdl,ct idcas_ As a 1-( 'slIlt , lll(' riml has lalll\('I\('<I S('\'l'r,1I
l1lutllal funds, At J-I ewldt-Packanl eac h Cl1 stollll~r cOlll plain t is "ss ignl ,d lo ,ti l
emp loyel" w ho Iwcol11l's its o Wl1n and not ollly makes slire tlut tlw l'll.stOIlH'I' re(;( 'in 's
a response hilt d et er mines ir a ncw product or servic(" is sll)'(t;l'st(·d hy thl' prohl( 'nL
A st l'l1 ctured apprO<lch. [('r illed JlrohlclII rescordl , deve lops a li st of" pot, 'ntial
prohl e ms w ith th e prodlll:t. 11 Th e prohll·ms arC' th e ll prioriti:;,ed h y askillg a )2;1011p
of WO to 20() respond ellt s to rate loach prohlenl .IS to w lw tl wr (1) tIle prollll' 111 is
importal1t , (2) th t, prohh-~ lll occllrs fre(!m:ntly, ami (:3) a prohl(~ m soillt ioll exists_ A
prohl e m score i s ohtainC'd hy conlhinillg the s(' ratings, A dog-rood probl('11i
ITsl'<Irc h stlld ), l'o lllHI that hll ycrs 1(,1t- dog rood sll)(-·II('d had , cost too 11111(,11 . <111( 1W, lS
1101 <I\<li lal l1c' ill (liIT( ' n ' 1I1 si:;,('s [(II' rldf('J'('1I1 dogs , Sllhs('C IIII ' liI",- Ilr()t1,wl., )C 'SPOIl­
si\'C' I() III('SI' ('I'ili('isIIIS l'III('I'g('C!. 1\II<lIlwr ,llllh- 11 ,r! <III 'Iiriill<' III 111,,,111 \ il s ":lllill,\
III IlI'()\ 'ir!" "" JI'I' II ',t;)C)( lIlI_
(.'/){{II/(' J' :; 1';,\1(' 11/ 1//1/1/'/ ( : I/S/I/I/WI , II/I// usis ,),)
1':1 i( \011 IliJlI H.J. ,J 1, 'sl'aJ"( -l w) ,11 tvi lT wllo ,Sllldi('s CI ISlo lIll 'rs as SOI Il'C('S or s('r­
\ II " i II II "va( i()II S, ,s lIggl '_sis 111<It Il 'ad IIse)s pl'O\,idl' a partiu1larly ['l' Jiik-, grOl llld [()) - dis­
II " nill ,L'. 1111111('[ Il('eds and new produ ct concepts_ Lead use rs are lIsers who; 12
• 1'<I('l ' Iweds th at w ill 1)(' general in tht::, marketplace , hut [~K'e th(-,1I1 llIonths or
\ ('a l-S hef())'(-, tlHe' hlllk of' the lllark<:'tplace_ A person who is ve ry into h ea lth
r(lods alld II11tritio1'l w ould he ,I Ic-ad l1 Sl-'r with respect to health f()ods , if we
<lSSI1111(' that there is ,I trend toward h e,dth f()(){1s.
• ;\)(' jlositioned to Ill'ndi t sign ificantly IlV olitaill ing ,I soilition to t hose nlT(is.
I ,ead Ils{'rs of" oITicl-' ,lIltOIlI,ltiol l wO ldd he finll s that t()dav wO ldd h e llefit sig­
Iliri (';lntlv rm1n technological ad v,1I1('(-' nwnt,
lilt' Id{'aJ Expericnce
I'h. , l-()IICl'ptllali:;_,lti ol l of" all idl 'al ('); p<'ri(,lI (,l ' C,1Il also 1l('lplo idelltil)1IlIln1('t lIlTcls _
\ lIldj()r llllhlish('r or directories polled its CllstOI IH'J'S , 'l.~killg cach 1-0 dl"snil)(' its
11!<- ,tI t'\I)('ri( ' II(,(' witll thl' f'i1 -1I1. Til(' llltllii shn r()lIl1d that its vuy larg(' c ii stonwrs
l ilt' lop I ric, tklt w('re g('lIl'rating 4,,)% of" its businl'ss ) W<1 l1tl'd <1 sillgle ('Olltal't point
III 11 '~IlI\'l' prohlc- lIl S_ ('{I stollli :;,ed [lro<lIll'tS , COIls liltatioll Oil II sillg til<' sc)'\' i('( ', and
111'111 ill tr<l cki ll g n 's ilils , III ('o llt rast , sillalll'r (, IIStOIlI( ' I-S W,l nI'l,d ,1 silllpic onlering
I " I)(,C'SS am ll o 1)(' I( ,['t alol}(: , Tll<'s(' rcsp () nsl's [lro vid(,d illSigllts illto illlJlrov ill)2; Sl~r-
iI'" wllilt' (,1Il'tilig costs, 1;\
1/,(, Creative Thinking
I l lill k ill,L( Ollt or - t il(' hm (Ill' .i"St lhmwillg ,1W<1)' th(' hox ) is a k".v ch,III( ' II)2;l' ill dis('O\­
, I i ll!!, 11( ' \\' ollnillgs tklt arc I'('sjlonsi v(' lo 1111111('[ II('c(k Thillkillg (liff('n'llI-ly ('all
"," II ' rate ,1 Ill '\\l orferillg ll"lt (')"(',It('S or c ll<lngcs a call'gory, 11I ' lkilig I-II<' l'x isli ll g CO III-
1,,' III 'II's I(,ss )'(' ll'\',lIIt <IS l-II(' Il l 'W o[lerillg !J('conl(-'s til(' f'r<1I1\(-! 0[' n,kn'II('( ' alld I'll( '
I 1I 1":lnl \VII<1t ('(lIild he bdtn(
l'o J' l ',\ a lllple, Iii ), )'('a rs til(' travd-)2;lIid(, il1(1l1str), W,IS r~lt l l('r lIlature , w ith littl('
I 11'1,\.':.\ ' Tlll' lI ,1 (,Olllpall ), (,<lII(,d HOligh GlIid(,s Ilit Oil til(' Silliplc idea that ;llol- of' :30­
<I HJ \ l\lr-olds lIlight 1)(' illter('slnl gl'ttillg ofT HI(' I1l',lt('11 lrack. So it (Tl'atr,d guid(,s
11 1( '11' sl){'('iric not ollly to their illt('l'l-'StS hil t al so to theil- dl'Still<ltioIlS , so (-h (-'y did not
11,11 1' I c) Illly thi ck g llid(' hooks w hose IlI at('rial was S)O percent IlScl(-'ss_ Thc Ho"gh
( :lli d(,s \\'l,hsill' olkrs g llid ("s to ov(')' 14,()()() dl'Still<lt ioI IS 'llld a host of \'(>lat(:(1 rC[-I-'r­
"I I( 'I'S <l1I(11\('\\'s itl 'IIIS ,mlilnd travc l , pin s <1 trave l insur.1I1Cl ' off eri ng_I '1
( :It',lti\i' thillkill ,t; is a J'Olltl' to big id('as that lead to significant grow th Opportll­
IIII Il'S, I t ('a ll hl' till' diff(']'<:'\l('(' Iwtw(-,(;11 fi'H-'-tl1ning the Folger's Col'flT packa)2;e alld
I 'l ll ll llilioll sd alld cn:'~l tillg th l Starim('ks chain_ Th e c re, lti vc thillking proCl-:SS i s
J
l /d'l,d 1111 111\'('l' pri ll ('ipl{'s that , with disc ip l ilw, any organizatioll al uni t can rdl()w,
I Its l . ,SI'P;tI',tI(' id(,;t li o ll r-ro ln ('\ -,llnatioll, !-tIther thall killing id eas prclllatilre ly-hy
l ' II I\ ill ,c; 1111 ' 111 ill 11I ,t;: i1i \'('s _,!C,i\'c' ,SI'('lllillgly had ideas vnollgh hreathing room to per­
1 1 "11~ II':HI \'CJlII" ,~()'JlI 11111 '\. -'>I'c'cllI( l. <lppmacil t i l(-' prollll'lll f'roll1 differellt lll<:'lital a11(1
I" ,, ' i(':" 1"'I'.SI"'I 'li \ I" " '"lill'Il:!1 ill 1111' 1)('(';111 , ;1 (,<llllpill,L( site' ill lvIaim' , thL-' mind of'
56 Part Two Strategic Anolysis elllIIJiI'I ' :; }':xl l' l"l/ " /"1/I1 (.'I/ -, I u ,,/I ' / : 11/1I11}s i s ,,7

a B ,lrhie doll character, IVhatever. Finally, have a m echanism to hIke the mosl- promis­ 5. (\ hhie Crillin and John It [Lul s'-' I-, -Th(' \ 'oil'" ,,["III(' (; II sIO Ill(' I".-- , \J (II-k(,/ i"-~! .'),·il'l/('( ·,
ing ideas ,md improvE' them until they tllrn into p ot ential winne r s wo r t h tryin g_ Some \ \il lt('l" I>N3. P[1- 1- 27_
f-u rthc r c l"c ati w thin ki ng gui delin es are presented ill Chapter 13_ 6, (;{-'org(-' S_ I)al-, " Cnoatin g a S" pClior C " sl oln (' r-H,' lating Capal ,ilit.",-- SIOIIII
MlI/lOg!' I/I ('1/1 1\l'c i l'1[:, Spring 2()O-3, l)P ' ,)2- H:3_

7. For a '-" II('r discllssion of- clIS tOJ1l('r [)I"iuriti (' s S('(' Ad ria ll .1 - SI\w,J[-;.'.ky, 1'"IIlI'

,II;! .I "Ii, J/f _ I L\fYard Illisi r)('ss School Pr('s" !lostOIl _ I 99().
KEY LEAll.NINGS
S. c:. K_ I'r,rid ad ;11 )(1 \ '(, I')<atr,1I11 Hal n<l,\Vanl\-, " Co-opting ( :lI sto llfl'r CO II I[lct('IlCl', "
II .- ,,-;-,;-r/ /) I/ si ll "'s f{ ('ril'u_; _ .! ,ull larv-F(']lIIIiIIY. :2000, JlP f~)-H ,
• E~tern a l allalys is should ill Hli t' nc(-' stratcg) ' h)' iden tify in g oppOli"lIniti es,
!l, 1': l'i(" '-UII IliPI" .], " I ,( ',lIl USC' IS: II SOl I r('(' of' NlII'(' l I'rfldll('[ C(1 II(" 'pl s,'- :1I11I 1fI!!J'1!wII I
l-hrC;It-s, trends , an d st rategic ull ce rtainti es_ The lIltimate goal is to
S,-i"//("I ', JI Ii; m %, Jl - , )():2
improv e strat-cgic ch oi c(-'s-decisioll s as to IVhel"e aml how to compete _
I(), SIIS;1I1 ( ;,lIlIillli , "1\ .'-i1;lr I., Ilmll ," 1'-01"11/111 '. 1\lIl II II 1I11\\,illl< ' I' I ~) 'n. [lJl. <-I.:) I,.
• Seg lll ('nl <lli o ll (idt 'ntiJ),ing c u stome r grollps that ca ll sllppo rt difkrcnt
II . !':.1':_ I\ orri s, --.'-i('( '" ()lIt I-II(' ( ;' "1""11 ('1'" I'roh l(' III , -, Ii/ pc rlisi,,!! /'.,;(', ivl arcl l ' 7. I I),.),
COlllpl'l"itivc stratcgi(-'s) ca n 1)(' hased on a va riety of c llstonwr characteri s­
pp . ,n--H.
tics, sli ell as i>c lldit-s sOllgl,t, Cll StOll l(T loy alty, and ;lppli ca tion s_
12. I': ri(' "O ll I I ip[l(' I, " I ,('ad U"' I-S_ -­
• C ilstolll('r Ill()ti va tion analy sis ca ll proVide insights into w hat Hssets and I:l. (:"mgl' S 1);t"OP ('il ., p_ ,') 1.

u) llIpdcTlcics are Il('cd ('d to co mpete, as w(' 11 as indi cate pos sihle SeAs_
I-I. ,vi i(""1(' I 1.1' 111< >11, (;O IlIlII(' lIt , I;"sl emll/III/lfj, Jal llla r\', I ~JD,), p_f '')

• Ullnl('t nc( ,d s thal- )"('[1I(>SC llt ollportllni!"ics (or Ihrc ats) call 1)(' ide lltiFicd
hl' p mjedi Ilg t('cll no log ies , hI' acccssi n,e: I('ad IIS( TS , <llld hy s),s t( ' nl at ic
ucati vc thillkillg_

FOR D ISCUSSION
1. \Vh )' do;t st rateg ic 'lIl<t!)'sis'~ \Vhat arc III(-' ()hj('ctives'~ \VIl<lt, in y onl" vi ew,
a n : t il(' 1-lll"c (' key s to Inaking a str-;ll (!gi c allalysis Iwlprld alld ililport' lllt'~ I s
till 'I"(' ,I d()w nside to cOllducting a I"ldl-hlown slTal"c'gic <In ,llysis?
2. COIISidcI' I-h e hllye r " h ot Illittons" d('scrihed ill th t, ill s(-' rL 'vVhat al"(-' th e
il!lpli(\It-iOIl S I()r lll'!ty Cf"()cke r'~ \Vilat !l('1I' h"'iillesS areas might 1><:' COfl ­
si d crl' d, g il'(' 11 ('; Ich ho t hllttoll ':' All swcr I-h e sanl(" qll l'st iofl S for a gro­
c('rv store dl,lifl sltch as Saf-(,lI'ay
:3. \ V!J; lt is ;t ('ll stonWI" hlly iflg at NordsITol!l ? At C ap? ;\!- Old Nal'y"~
4. Pick ,I (,OI11pall)! O J" hranr"iJlm siflcss o n w hi ch to focll s_ \ ,V hat ;lre th l'
InCljor s(,gm(, nts? \Vlwt ;lr(-' th e Cilstoillcr llloti vatiollS by scg rrwllts?
\V!l;l t ar(' tI lt' flllllll'! Il(-'(-!(k~

NOTES
1. Andl"el\' Tililll , "\I 'illlhc Kid s Ilily It·.)", 1311.l i lll'S8 2_IJ. ivl ay 2()(J:3, pp . !:J.'5 - !-:J!-:J_
2. Jllt" l"fl atioflal Data (; 1"0111', " 11 011' to Tal"g('t: A Profit-Ba sed Scg lnt'lltation 0[" tht' PC
11)(lrrsIT\-," N()\'('lnbn 19>):3_
:~ . I';I II-icia S" II "l"s , " I(ccp irrg Ih l' 1) 11; ('I"S YOII ,\l l"cadl-' I IaI'" " / ;/1 1"111111' . '\ lIllllrrlll\ l 'ill tcr
1')I):i . pp _;,h :) ,)
L ~11 · l i ll d ;r ( :lIlld ll'rl. -:\ 111 \11 1'1..-' Nol ,\Ii",'. -- /lI/S;I//'.\,\, :2. 11. I )" ",-"""" 'I, '111 10 .
 Chapter 4 Competitor Analysis 59
C IIA PT EH F O UR
CO l11petito r all<tlysis starts w ith ide ntiCyill g c urren t and p ote llti al COl]lpetitors ,
I hl' re ar e tw o ve ry d iffer ent w ay s of identir)ri n g curre nt co mpetito r s, Th e fi r st exam­
i II('S th e p e rsp edi ve 0 (-' th e ClI stO!ll c r w h o m us t make ch oices among cornpcti to r s,
'I'll i,s approach groups competitors accordi ng to th e d egree th ey co mp et e tor a bll yt~r's

Competitor Analysis 1,lll)i ce, Th e secolld approac h

I ); Is is 0(-' th eir conlp etiti ve strategy
attl~ l11pts to place competitors ill strategic g roup s on th e

A I't l'r competitors arC:' idl'nti fi ed , t he h)Ctl S shi hs to atte mptin g to ullder stand
111\' 111 and lhei r strategi(-:s, Of' parti c nlar i n te rC,st is ,1l1 anal y sis of th e stre ng th s and
\\1'ak l1('SS('S of (-'ach competitor or strateg ic g l'Oup o f' cOl npditors, F i g ure 4,1 SIII11I11;\­
I il l'S " set of ql ws ti()l1S th at c an prO Vide a strucl'ur<~ For cOl11 p d itor allal y si s,

I DENTrFYING COMPETITORS­
I Ildlll'l ' your l 'Olllpdil'Ol'S IIO{' to ill \'l'St ill {'I,osl' l)J'()dllcts, lll<ll'kcts alld s('rv il'('s ",IJ(' I'( : \'011
CUSTOMER-BASED APPROACHES
(' \ [1(:( ' {' to i,l\'l 'si tilt' 11lost l'l,at is lil(' 1'lllld<llll l' lIbd 1'1"(, 01 ' stl'atq .';\', ! II II lost i nsb lnccs, pri IIlal), cOlllpditors are (li li te visihll' an( 1(-:asily id(' nti Finl. Th ns, C oke

- or
/)1'1.1('( ' I/"'lflt.,.,,," ,.fiJI II II It ' I' /lCG I'l li llpetes with Pep si, other col a hrands and pri vate labc ls, ,suc h as President 's Choi ce,

I 'il i1 b nk cOlnpet('s with C;1'<ls(' , BolA , and othe r major hanks , N BC cOin p ett's with ABC ,

TI,(, ,'( , is IH,tl,illg llHJI'(' l'xl,iiar<ltillg tl"lIl to 1)(' sllot at w itl,olll 1'('Sl ill.
I 'li S, ,Ind Fox, And Folgers C()lnpct( 's wi th M ;l\'well I 'l ou se, Th e l'oillpetitor anal ysis 1(11'

- \\'il/,'("I/ (.' /" " d ,il/

I lli s gro l,!) should he dOlle ,,,ritl, depth and in sight. llow(-:vc r, thl' hllSilll',s,s('S dlat (,Olll­

TI l(' hl'st alld Ii,stl'st W'I) ' 10 Il'a rll " spOI'l i" to wa tl,l, " lid illiital l' a ckllllpioll , III [(0 Inos t dir(,ct ly will Oft-C II liSt' the sam e l )ll sincss m()de l ,Ind dIe same assulllptiollS

- }"III/-U II'II /,' I\ il/,f. ,-kil'l' 11)l l\lt Cll sto lnl'J'S, \rVillnill g \\ri tllin this common competiti ve li'<lm ework \'("<jllircs dIJing

," ' Iilar thin gs 1>('/-[(> 1' and f()c llsing O il p ri c(O, Ti, e rcsllit C;\11 Ill' ;\11 e rosioll of pro Fi tahi Ii ty.

\\ 11 0 ARE THE COMPETlTonS?

l'I) )lIpl'l l;~ \VIl\) ar(-' 0 \11' IHOSt ill t(, II S(-' (,Olllpditors? l ,t'ss

• '\ gaill st ",1,(11" do \\'(' II SII <1 111'

T l wf'( ' arc IlllIll Cl'Oll.S w(' ll -doCIIIll l' lll'(,d f'( \ ISOI1S w hy til(' JapalH'sc ;tIlI'OlilOl l ile finn s illtl'lIS<' hilt still s('ri olls (,o llll)(' t itms '~ M akers 0 1' sll\JStitlltc pl'Od ' lct.s'~

\\1('1' (' aille to jle lldratl' ti l(' U,S, nrark('l sII l'C('ss hrlly, ('spec ially dlll'ill g I,ll< ' I Hi Os, On (' " ( :all tl,l'Sl ' Cl IIII[)('ti tors 1)(' groll1'{'d illto stratcgic grollp S Oil tl\(' Ilasis 0 1' tll cir assl'ts, CO III­
illlportalit rl'aSOIl , h()w e vl' r, is that th ey we r e nlilch 1)('11'(' 1' Ihan U, S, Finns at doing lH'lt 'll ('i( 's '"ld /or strat~ 'gi ('s'~
c()mpetitor allalys i,s, l • \\ '110 arc 11,(' [lot(, lltial ('olllpl'titi \'( ' l' lItrallts? \VI,at arc t" l'ir hal'l'il'rs to (' l1tr),) Is till'\'( '

Da vid rrallllJr,s talll , in hi s aCl'Olilit of thl' alltonroilile indll stry, g mpili cali y :1I1 \' thil1 f.( tlr al ('all 1)(' dOIlt' to llisl'ollrage tl ](,I1I '~

dl'scril }(' d I'hl' Japanesl' ('fforts ai' l'olllpditor anal ys is ill th e IH60s, " Th ey call'll' ill
g roll p s, Til ey IIlcaSil rl'd , th ey pholograph t'll , l'11<'y skdcl red , and th (,y tap<' ­ 1:\ ALUATI NC THE COMPETITORS
r ecorded l'vcry thill g th ey cOllld, Th('ir lllll' sl'i o ns w ("re precise , Th ev W (']'(' s1ll'prised " \ \' h'lt 'Il'\' tlwir o\Jjc'cti \ ('s al1d strat(,gi(,s) Tllei r k \-('I COllll llit rn ('llt'~ Th('ir exi t harriers'~
01'

how opell the Aln e ri C,lllS wc rc ,"2 Tlw Japan l's(' similarly shldicd Emop(-',1I1 Inanllfac­ .. Wlr at is tl"'i r cos t s tl'lldllr(,'~ Do tl w), haw a cos t ad valltage or di s'ldva l1t<lgl>'~
tllre rs, (' speci ally tl w ir d esign approac hes, III contrast , acco rdillg to l1alherst,lIll , th e • \Vlr at is tlwir illl ,\g(' alld positiolling sll';\legy?
Am ericans w(, re late in eVt'll r ecogni z in g th e com pl'l'i ti vl' tllre'lt fronl Japan and II('Vt'l' • \\ 'I,icl , a\'(' 1'1", IIIOSt Sl ll 'l'('ss l'nl / lIllsIICl'('ss l'rri co rnjlctitors OV(' r t illl("~ \.vh y'~
did well at anal y/',ing Jap ,lIwse finn s or nnd (Jr standillg tl, <:, n ew stralcgi c i1l1p(-'r ati vcs \\ 'I,al 'I\'(' (I, l' strength s and wcak il l'ss(' s or <';tcll cOln petitor or strat<'f!;iC: f!;roup ',l
c re ated by Ih(' re vi se d co rn pditi ve (Jll vi roll Ill t'llt, \\ ''''11 /1'\ (' rag(' poillh (0111' stra tcgic \\'{,'lkl1(,ss(OS or Cl l.stOI1l('r probl ern s or 1111 1nd I1('C ( 1»
C ompetitor anal ys is i s th e second phase o f' (" xle rnal analys is, A ga in , th e goal l'ollltl l'o ll'lll'litors l'x [>l oit to enter tir e 111ark(' t or I)(;'corne Illore seliollS c:ol1lpditors?
shoilid h c in sig hts that w ill iIlHII t' nc(' I-h(' prodll ct- markt' t ill Vl',S tln (' i1l d ('cis ion or tl,(' • 1':\ al, !;rll ' 1111' ('oll'lw tit'll)'S witlr respl'd to tlw ir assets al1d c:om petencies, Gel1 erMe a C:Olll­
(' Ilort to obtain o r Ina intain an Se A , 'I'll(' ~ Inal ys i s sh ollhl f'O(,II.~ Oil III(' i<iI ' lIii fi ('atioll 1H'li(llI ' SI)'I'II !.!,(I, ~ rirl ,
or I'i'l'l'ats , opp()rl'lIl1iti(',s, or strat(,g ic IIIH 'l 'rlailll'i (' s ('I'( ,; til ,<i 1,\ l ' III\'I }~ iII L', Il l' POi l' lIii;i\
l 'lll l ljwlillll ' III()\ '('S, \\'('; I\;'\('SS('S , or sln ' II,l2;llrs, i!!,11"" 1.1 (,)II I's l il> II SII> ~ llIl<'llIrl ' (:I" "I )l'Ii l or '\II<I"'sis

:is

60 Part Two Stmt egic Analysis
III l1I all Y mar kets lllt' h<lslc hll sin ess IllOlh" 1is e rodillg Iwcallse CllstOllw r prioriti es
ar e c1lan g in g, and indired cOlllp etitors are stratPgi c,ll1y re levanl , Colas are 110 longn
as dOl1lin<lnt in Iwvl'rages, Tt' lt~ visj()n v iewe rs h,lve op tion s olltsid e n elwork program­
mill,~, Ballks ar e no longt'r tIlt' o illy tran s,ll'tioll gallH:' in tow n,
COIISllllWd dilTeH-'lltly, Beca use sOlll e of th e nt'w comp etitors arc small or appear to
hc v e ry diITert"nt, 111(-'Y lila: ' n ot app l'a r Oil till' radar screell , E xpal1llillg til(-' radar
screc n's st'llsiti vity call all ow these h ,y illdll stry dYIl,lllli cs to sur l'a cc:)
• Coke filU ISl 'd Oil l'ep si ,1I1d ignored lor 1IIall\' vear.s th e l ' l lH'rgi llg sllhll1ar­
Iw l's ill walt-'r, icc d tea, an<lil"l lit-ha,seti tirinb , ' 1"1 1(' rl's illt w as a Ini ssed
opporllillity alld the ('Vl'lIlil<llll ('ed to ["lrSll l' ,til l'\ [>(,ll siv(' alld tlilTi c ldt
catch-lip stm l'l'g)"
• \\'hil(' I,ll<' Illajor kkv i,s ioll I1('1 works stnli_;gle agaill st e<lch other, illd (,[>(, II­
dl'lIt Ilclw orks an' l'lll('rgillg; stnJllg C<lhlc lIdw()rks , ,SIICII as ES l' N allti
eN1\) , II<IV(' IlollrislH'd: <lIHI homl' SllOl)J>illg, pay -pn-vil'IV, alld l '\l('ll
N intl'I Hlo, til(' Illtt' rII ('t , alHl Blockhllstn V itl l'O alT CO IIl[w till g I'm tIt(' it-isllre
t illll' 01' vil'w ers,
• 'vVllill ' hallks liJ(" II S Oil COllI l)('t ill g I,allks, tlleir Inark l'l,s Iw\' (' h('ell l'rod('(1 hy
nllll ll ,d rlillds , ill SIJr('rs , hroke rs (ilWhltiillg di sc()lliit hr()kns, slldl as C harles
Scil\\'ah) , alHI l '\'l ' ll soit w an ' (,O lllP,lIlil'S, sll ch as /vli c l'llso l't.
• \;\fll ile I" olgl ' rs , Maxwd l Il o IISt' , ,lilt! (l ll ll'rs CI)lllpdc 1;) 1' SlIpl ' rtllarkd Ililsi ­
Il l'SS IISill,l!; ('l II IpOIl prt l lllOl i o ll S, o lllt'r ri I'll IS, sll c h as Starhll cb , art' SII CCl'('d ­
illg ill sellill g a w r y tii[,krt ' liI killd ()I' colll'l ' ill dilll ' H' llt wavs,
TIll' C() ll lpditivl' ,1I1,t\.vsis in Ill'arl) all casl'S wi ll hl ' lldil ['rolll e;\ll ' ll dillg tIll' pl ' r­
sped i,,(-' hl')'o llli til(' ()hvio ll S direct l'Olll pditors, I) t'\[> li c itly l'Olls idcrill g illtli('( 'Ct
coll'tpl'lilllJ'S, till' stratl 'g il' h()ri '/ ol l is (" I)a ll(ktl , ,\lId tl\(' illl ,ti v sis Ilion' IT,tiis ti l'all y Ill il'­
mrs ", ll at till' CII SIO IlIl'l' ,Sl,(,S , III till' real w() rl d , I'll(' CIl StOIIl('J" i,s Il l 'I't'1' res tric! l'd to a
rinll's dir('ct" eOi llpl'li l()I'S, Ill il illSll '<It1 is al \Vavs [>oi s(,tl to l'O llSi lkr olh e r ()pti OIlS ,
T Ill' l 'II('1'g" h ,lr catl'glJt'\" l 'st,lhlis l ll'ti ill till' Illi d - 1L)SOs hy P()\verJhr, illCll ll\t:S
dirc d CO lnpdit()rs slIl,ll as C1il', 13a lan c(' , ,lIld d ozell s () I' Slll<ll l , Im'allli l'll (' rinlls, Ther('
,\rt~ als() a host of' illtiil'l'ct ('o lllpditor s, lll all)' w i th \(, 1')' silllilar pmcill cts : (" llldy hal'S
( Sllick l 'rs \V,I.S called " th e l' llt' rgY hal''' 1'01' 1l1all)' war s), Im ' ald'as! h <1 I's, di et h ,lrs , g r,l­
nola hal'S, alltlll\(' 11l0rt' ITc ellt ce real hal' C<ltq::orv, Und er stalldillg tIlt' I,losil'illlli ll g
alld IWW prodllct st r<lt cgi l"s or ll\('s(-' illd ircct COTllpdi tOl'S wi ll 1)(' stratl'gil'<1ll;i illlj>o r­
tant to IJl\ s ilwssl~s ill thc e ne rgy hal' C<lkgory
Both dil'cct ant! ind i r ect l'Ollllwtitors C; 11l he l'll rtlll'r c,lll 'gori l',l't\ in t('l' IIl S o r h \l\\'
r t'k' vant t hl'Y art~, as ti etC:'l'Inilll'ti h v similar positiolling, T hlls, c'llltl)i hal'S w ill h l' ll lClJ'('
rcl n 'ant to Balallce thail to PO\\,l'I'Bar I w callSt' or w lwrt, till' ['o rlil e r has positiolll'd
its('if' ( BalalitT Cold i s l '\'l ' ll 1l l<lIl e!'t'll as I)('ing " Iikt' a c,IIl(I \ hal" '). Fill IIII' , allll' rc a­
SOil , ( ;Iil' w ill a clml' r l '() lIlJ ll'litm I() 1'()wl'l' Bar 11 1<111 t() II; ti :IIII'\' ,
!\ kl '\' iSSIII ' w illi I'I'SI)( '(' I II I " lr,lli'gil' ;lIt;ti vsi " ill )..':( ' 11('1':" <111(1 "II ll1ll1'lilo l' :11I :d), ­
sis ill Il :II 'li l 'III: 11' is II ... 1(' \' 1,1:11 \\' lli (' 11 II II' :lIlah , i" i , ('11111 1111'1, ,(1 I , II II 11 11' 1(, \" ,1Ill ' "
11I 1\ illt", \ IllIit ,Ilt , ril ' ll l (II .... ()IIj( · ( d lll 'l' ; 1 .~ ), .\J/(· .~~:;lli(Jl I (. r 1 111 ' .11 11
',I' , \\ 1111" 1(I'",I",I,tI :tIl 1"1,1 " ,II \\I,i,'I, ',II:tI(',! ', i('" :tl" ti l I ' 1"1" , 1 1f)ltil'l ' j" :tll "h " ',,
Chap te r.:J Competitor Allalysis 61
I tl igil l111 ti111at el;i l w ll C:'cessan , For t'xa nlpl c , w h e ll c lir de vC:' l op t~ d Lllna , all t~ ll erg)'
11<11' tksign C:' ti fill' WOIllC-'n , Powe r13ar cOlln l'C:'r c tl w ith Pri,\. Th e lllanager of the Llll1 a
11I 1Sill l'SS lllay IH:'lC d a Cl llllpd iti ve allal y sis of l 'lw rgv I,ars for "'Olne ll , in w lli ch Cdse
C()llt~c is hOllght anti III(' ol'lwr l'lwrgy h ,lrs T1 li gh l' Ill:' cOl lsit!crptl indirect cO l nlwtitors,
( :uslom er Ch oices
I l ll l' approac h 10 itlt'lltif)cillg competitor ~'t-'l's is to look at cO lllpelitors fn)ln the p l-' r­
' I ', 'dive of' c llSI'OIlWrs-w klt cho ices art' Clisto lll t' r s Illakilli!/ A Cisco hov('r cllllid 1)(-'
1'."I't! ",ll al' hr;lIlll wOIlld have hC(-'tl pl lrellilset! had Cis co IlClt Inade tilt' rCIJllin 't! itt'IIl ,
\ IlIl\'(' 1' lilr a ll ll r,s ing h ll lll(' Ilw al ,s('J"vicl' cllidd Iw asked w hat w ou ld 1)(-' Sllhsl'i l-Iltl-'ti
IIII' grdllldatl'c1l)ol'al'o hllti s if' llll'y ililTeasl,t1 ill prict' , A sa mpl l ' or spor ts Cdr hlly e rs
I (1I dtl ll(' ' I.skl't\ w h al- o th n ca rs thl'..\' cOllsidl'n,d alld pl'rilaps ", l lal' ol'lw r shOWrO()IIl S
11i<'\ <ldll ,t1l v visilc 'd ,
I'I'C )ducl-Usc Assoeia Lions
\ IIO lh l' I' appmac h thaI Jll'()vid,'S itls ig ltl s is the a,ssocial'i()11 o f' prot!llctS w ith spec iric­
Ii'" Clliltexts or <lppIi C<llioll S, 1 Perhaps twelll\' or Ihir!.,' produl't II.S('I',S cOldtll ll' askt'd
III icll'lltil\' a list 01 ' 11.s( ' sil'lldl'iOIlS 0 1' ,lPlll i c,ltiolls , F or each 11.';(' (,{) IIIT , t tll l'V w Ol dd
i11 1'11 ll ,lIlH' <I II ti ll' prod ll cl's th <ll' <11'(' clPllrop ri alt' , T h e il I'o r ('ach prodll t'l' tIll')' WOldt!
'.\I'l ltil)' ,IPll ropriatl' IISl ' cO llh 'x l s so that t h l' li st of' ll S(' COlltt' xtS wO ld d he IlIOt'( ' CO III-
1,11'[l" i\lloth c l' gm llp ()r rc spol l ti(,l lts w() ldtill ll'll Ill' <1skec/ to lilah , jllclglllt' III's <lhlJllt
111l\\ appropr idtl' ('al,11 proti l lCI' is li) r each IIS(' ClllltexL TIIl'II protillctS WO ldt! he cl ll.s­
11'lt ,tI h<l.'il'ti Oil 1'11l ' " illlil:irity or tlH'ir 'lllpm1.'riat( ' II S(' elll l tl'\ts, TilliS , if' J>qls i was
1( '!.!,; JI'(Jt.t! as <1]>[lropri<lte liJl' sll ack occ asiol ls, ii' wO ldd (,Olllpl'll' [1rilllmil y wit h pmti­
Iwls si lllilariv p('I'c('i\'('( \. Tilt' sallie a[1p roaci l wi ll w()rk wil' ll all illt!ll stria l Pl'Odllct th<ll
I lIl ,~ ';l11 1)(' II Sl' ti ill "l '\ 'cra l distillct ,lpplic<ltioIlS
Il()lh th l' Cl lstollll'r-cllllil'l ' alltl Pl'Odll ct -ll St' appro<lc ll (,s suggesl' a C() Il Cl' pl'llal
I "" is li,r it\l'lItil)' ill g cOllllld itors tllat C;t ll 1)(' t: lllp loyl 'd by Ill<Lllagns l'ven w lH'il llIar­
1, 'lillg r esea rch is not ,Ivaibhl e, Th l ' COlll'l 'pt of alll'rl lal'i \'l's rro lll w hich CI ISlollll'rS
I ItC Hlsl' alld till' con cq)t or appropri att' lwss to a Ilst' cOlltl'x l ('a ll h e [low ed'i tl too ls ill
I" Ipill,~ [0 Illllll' rstan til'l H' cOIlIJl('titiv (' el lviroll lll l' llt ,
IDENTU'YIN C C0 1HPETITORS-STRATEGIC GROUPS
II II' COlll 'I 'pI or a ,st rategic group pro"i( 1cs a \'('ry tI ifh,rt' n t approach towartlllnd t'l'sl'an ti­
A stntt l~gic grllll P is grou [l or firm s thaI':
Il l~: II Il' l 'I l III pl'li l'i q' stl'lldll rl' () Fall i I1dllSllY. <I
• (h '(' r l il lI( ' pllrSIl(' silll il ar cUlll p t'liti ve stra\('gil~s ( f(lr examp le, the l is e oCth e
,'< 11111' lli , II'illlllil"l vil<llllll'l , III(' salll(' tV1)(-' of COIII lllll IIiC<ll'i 011 strai'l'gies, or
II\(' " IIII\' pl'il '('/ I IIt:ll il\ ' IHlsilillll )
• 11 :1\1 ' , i llli l. (I (,It: II :I( 'it' I I,llI's (.- ,,~ .. sizl ' , :1:..!:i'/l 'S'> i \'( 'II( 'SS)
I I ~j" I II 'd ' ; 111 :", :\h • 11 ,1\ 1' " "Ii!:" :1 ".", 1" ,1I1(1 " " IIII " 'II 'lwi(',, 1, l w ll :lS I l r:lll(l :l.ssllcia l'i () II S, I()g isti c,s
" ,11,,11 ,11> 1\ ",1,, 1,,11 1,1, ', I 'It, 111"""' :11< ,11 :111 , 1t1",, 'I" I 'II I( ' III ),
 ('.)
I
.­ J '(III 1"//1(1 ....; /111/(·.::,1(· \//(f/!J sis
Chapter 4 Compe tito r Analysis 63
11\
I' ()I' (',alllpl(', th('r(' I,av(' I,isll)l'i('alll: 1)('(' 11 Ilm'I ' slr<tlq~ic ,l~:r'lllp., ill 1111' Jll'i Ii lI li I I ", :lll al)'zed incii vidually. Often it is simpl y 110t feasible to consider lhirty co mpetitors,
in<ill stI Y, w hicll is Ih(, suhject ol 'lIl ill,l st"ativc illriu ., tn <llIal\sis ill till' <lppell<li.\ to this II> sa\' I]othin g or hUJldr('ds . Hedllcin g this set t o a small nurnher of strategic groups
hook. One stratE:'gic group consi sts of ve ry large" divl' rsifled , branded COnSlllll('r alld III: II\I'S the analysi s compact, feasible , and 11IOre usabl e. For exampl e, in the w in e
f(loel prodnd compani es . All distrihute throllgh mass m erchandi sers and snpernlar­ 11I1 1I1,lr) , comp etitor anal ysi s hy a firm like Robert MOlldavi mig ht examine thre e
kets, have strong established brands , use adve rti sing <1m) pmmotiolls e ('/(>cl ivcly, and ',ll':Ill'gic groups: jug w ines, prcmillm w ines ($6 to %20), and sll[wr-prE' llliurn wines
enjoy economics or scal e. The major playeTs illclud l' Nestle Hal ston Pdcar(C, D E:'1 " "1'( 0i20). Littl e strategic con I-en I' and in sig ht w ill be lost in most cases, becallse
!vlollt e, and M<lrs .
lirilis i n a strategic grollp w ill lw afTt'd ed hy and react to illdustry t\e'velopill ents ill
A s('co ne! strateg ic group of hig hly foc use d Illtra-preillilllll , sp ccially producers , '. IIIlilar w ays. Thu s, in projectin g 1"lture strategies of competitors , the' COIlC(-~pt or
such as Hill's Pet food (Scie nce Di e t and Presc ription Did) alld tl w l ams C ompallY ,11 .rlcgic gWllps can be' Iwlpflrl .
sells product through veterinary olnces alld specialty pd,lores. Tlwy hav(:' hi stori­ Strategic g rollpillgs ca ll re fill(' the strategic ill vc stln ellt decisioll. Imtead of
cally use d rd(>rral Iwtw orb tu r each pet ow ners co ncl' rr ll'd with health. \Vh ell P&C ,1"I I'I'lllilling in whidl illdll strics to iIl V(-'sl, llll' (kci sion call [()CllS Oil w lrat strateg ic
acquired laills and introdu Ct'd it in to mass l)1erc handi s('J' and SlljK'rrllarl<cts, th e dis ­ " II >lIp w arrants in ve., tnwnl. Thll s, il' w il/llI' 1J( 'l'('ssarv to dcll'rrllinl' th e Cllrrellt prof­
lin c tion hetwce n th e rwo slrategic grollps hlurl'l'd alld lIew conlpclili vp dYlldlnics 11 ,r/ ,i lil'\' alld filtllrc poll'nti,tl proGl'abilily of each slrategic g roup. aile st rateg ic OhjCT ­
w( 'rl' ilitrodll CPll. lams hcca lil e a thl'l'at to estahlished h"unds ill this Sl)dCe and til(' 1)\'1' is to ill vcst ill atiradiv(' strategic grolll).' ill which asse ts alld cOll1rel'(~ n c i es can Ill'
llill 's brands (()Ill1d tireir C() lIlpl~ titi v(-' COlltex t vc ry difk'l'(, llt. ""II, loYl'd to LTc<lI(' slT<ltegic ,lciv<llltagc
TIl(' Ihird strall'gic grOllp, pri vate-Idbel prodllcer.';' is kd hy i)O<lIIII(' I'mdllds, 1Iltilllately, Ihe se lec tioll of a sl'ral'egy alld il's supporting assd's and cOlllpelcll cies
w ho supp li es \Val-Mdrl' and otlw r Inajor rclaikrs. I I dl ()I'II'11 111(',\11 selectillg or ncal'illg a strategic grollp TilliS, a kIlOlv /e(lg(' 01' the
Each strategic gr<lI lp hus Illol)ility harriers thai' inhihit Ill' pre v(-, Ilt 1)lIsill('sscs ', II " lq~i c grolle structllre call 1)(' e\:l'rI'11I (-' ly IIS(' I'I".
('rom nlOving frOll1 OIl( ' strateg ic g mup to alloth e r. For (~xanlph', ('<Ic l, of til(' pet
(()od slTategie groups is protec ted frolll entry I)y harriers. Tire Idtrapr(, lllillill gnlilp I'n~jcding Strategic Groups
has the hrand replltalioll, prodllct , and Inaliliradilrilig kll()\vkdgc I(('c d ed ('or ti)('
I(('allh s (~gnlCnt, ,w ces s to thc inflll c lIl'i<rl vd(·,rinarians alld rl'l'ailcl 's, alld a local I II\' ('ollcept or .,tratl'gi(' gm llp' call also Ill' Il('lprlll ill projectillg ('onlp(,titi vc stral c ­
ClistolllCr hase. Tli(' p,-ival (,-lal)('l lil ; lIl1l('actlrn~rs have low-c ost ll rodllcl'ioll , I()w "11 ' illto the 1·lltm('. A c lassic McKin sey sl'lld\' of tire e(rects 01' dCH'g llLltion Oil hV('
overhead , and cloS(' rel<ilioll ships w illi Ciistuiller.' . It i s pos sihle to h ypas.s or ov('r­ ,11' '''g"Llted illdtlstries (s ilmillari/.l,d in Figllre 4.2) ('orecasts with rClllarkabl(, acc llracy
C(JIII(' the hairi e r ." o(·colnse. i\ private lal w l Illalilifacllli'(,r cOldd create a hralldcd 111.r! , ,,('ces s('I" finn s \ViI/move tow ard on e or tlm'(' strategic groups:)
eSjwciaily i(' Illarkets arc se/ccted to Illinilll ii'e conllicts w ith e\isti ll ,~ cus­
I'll try,
'I'll(' evoilitioll 01' tire hrst g rollp ill volve" three phasl". Dlirillg thl' first pllasc, the
tonwrs. Tire I)Mrier.'; are real , 1100v(,'v(:' r, and a firm cOlilpe lillg auoss strategic ,,,,t/illill alld sillall finlis attl'llIpt- II.'>Ilally IIIl Sllcccssl',rll;! to gain (,llough IlIarl<d
grOilps i s Ilslrally at ,I di sa d vantage .
A Ilrcrnlwr of a slrateg ic g roup ca n hav(" (-'xit as w(,11 ,IS clltry harri e rs . For ('\alll­
c,m,,1' IndustlJ' Ex'lI11ples
pi e, assl'ls Slleil as plant ill v(' stnwnt or a sp cc iali i'.ed lahor ((lI'C(' call rcpr(' v ' nt a Ill('all­
ing flll exit harri er, a.s can th e need to protect a hrcilld's i'('plltal·ion. J . ;~, rliollal distrihlltioll cOlilpam' witl, l)rokerag(' M (' ITdl LVilch
The mohility harri (" r COI1Cl 'pt i s uu c ial)wc<ln se onc \Vay to d (:'V(~lop a sll staillahle l lrillilll' 01 dii'll'I'l' lltiatcd l)('o(i1lds Airlillc s Iklta
compe titi vc adva ntage is to pllrslle a slratq ..,ry dlat is protectec! fr-Olll cornpl'lil'ioll hy :11,,1 "II'phasis Oil attradi,'c Trllckill g COllsolidated FI'ciglltll'<lys
assets anc! COlllpel(;ncies that represent harri e rs to compelil·ors. C Ollsider til(' PC alld \I "i cl 'ipriu ' trade-olE Hailroad s UlirlillgtlJll Norl"IH 'rrr
server 111<lrl<e t. D ell , Gateway, and <I fe w otlwrs /rave Inarkel't'd COlYlplltcrs direct to 1111SilH'SS terillilials L'II'('llt Tccirnologics

cOllslln w rs-firsl by catalogues and te lephon e, and then hy th e Inte rn e t. Tiley d eve l­ I '''''-''os l [ll'rldUCl'r- l l l'tl'll a Il l'\\' Urokcrage Cirarlcs Seh"',l\)

""I Llill 1(,1111" illg dl'l'( 'gillatioll Airlillcs SOlltl,w('st Ail'Ii,l('s

oped a host of ,lssetS and competen cies to sllpport th ei r direct challllcl s, illciudillg all
Trllckillif
,-.. Ovcrrritc

impressive prodl 'ct Sllppoli sys tem . Competitors such CI S IBM al ld I-IP- which haw
Ibilroads Trall sportatiIJl1
used inciirect c hann el s illvol vi ng r etaile rs alld sys teill s firrlls- have 1()Ilnd il vel)' dil~
Bll siness tl'rillillais Oki
hcnlt to shift strategies. Not only is th e development of ,Iss d s and c() lnpH(~ IICil's
'1 '\ Ili'('i :tlh' lil'lll " 'itl, stmll,!.!: I'II,to lll('r Bri)ke ragc Go ld,ll;lIl Sachs
cm tl y allci diFficult, their links with th eir existillg dl<lllilels create sigllificallt harril'l·S.
III"rih ",,,I "lll 'l' i:tli /.I,d "' ,,,,i ,'" Airiilles !\i r \ ViSCOIiSill
1.1I -,~( · lt ' d 1()\\ ';lHI ; 111 ;\((" ;11" 11\ 1' Tr",ling Hyd(-'r Sys tCili S
Us in g the StI'atcgic Group COllcep t I ,1\1 (llll! -r ,!..( I ( 1111) I·;"i II'I)"ris Santa ~' (-'

N,)rlll('r"
'1'1" , (">lWI ' jllll :r/i i'."liI>II ,,r'slr:tl"gic .l~/()IIjlS 1'''" 1', I I<..;illl ':-' <"; 1l'l"ll1ill;ti S T I' I"Cllill
IlldL " II II' 1"" )(," ',' , "1" ""' 1"'1 11,,, :111.1"
-; " 11"" '1' III:III.I,'~t':II",'. N IIII"'I'""" illll'l'II'i," l'I )"I<lilll""" ' III "' , " ' 11 1[" I Ii III " I it: III 1': '" 1'L',un' I ~ S II . dl ·", II' (:1111'1'" I H II 1, 1111 ' 1 11)11 1 I )("( (' L', lrl : dl(1I1
64 Part Two Strategic ,\ l1a llfsis Chapte r 4 C() IJI}Jelil " r /\ ))II /,/-)i,) ();)

share by 11Ierging to co mpete with th t' brgt' Fin 1J~, In tlw st'CoIJd p has(' , ,>;trullg Firll is
make aCYllisitiollS to fiJi in product lim',>; Of market g,lpS, lJuri ll,L'; t his plJasl' , w l lic h
UCCIII'S ahollt three to Five ve al'S le )llowing defegulation , tl lt' major finns tr: to deve lop
hmad prodlld lin es and distlihntioll coverage, III the thinl phase, illtc ri IH 111.>;tr\' nl (' IJ.(­
ers OCC Iir. Strong firms Ilwrgt' with otllt'r s outside t heir indllstlY,
TIl(' ,>; t~c()nd strategic group COllsists oj' low-cost prodlJc('rs ente rin g
af'tcr dert'g illatioll hy pmviding simplv prodlJct lilil's w ith lIlininJai s('l"\'il'( ' to tIle pri cl' ­
S( 'IISil'i v(' scgllwnt Tlw thi rd gmllp illcilltic ,>; thosl' pllr>;ll in~ <I IClc lls strdtegv, witll a
s[ll'ciali /.l'(l s(' r\ ice tmgt'l( ,d toward a '>;lwc i ric CIl ,>;tO IlHT gm "l),
POTENTIAL COMPETITORS
III addit ioll to CIIIT('n t cOllllwh tors , it is illlportant to cO llsi der pot('"lia l Ill aller
l' ntrants, sll c h as rim" tll at Il light (' '' gag(' ill :
1. Alar/H't expa/ls;oll. Per hall,>; til(' Ino.>;t oi>viOIIS sO llr('( ' or po t(' ll t ial co lI l[ll'ti­
IlII'S is rim\.>; o)ln'ltillg in ot h l' I' g(,l)g raplli c rq,:;i ()lI s mill ot lll' r cO lllltri ('s, A
cook i(' Ctllllp<l n)' 111«\' wallt to kt'(,P <l c lose ( ')'l' Oil <I cOlI lpl'lill g rirl ll in itll
adj,l('( 'Jlt St,llt' , ICI I' 1';(,lInpl( "
2. Product ex/,ansioJl. TIll' I('<l ding ,>;ki ri rlll , 1 ~(),>; ,>; i g' l!)L has cxp alld(,d in lo ,>;k i
clothillg, tlilis (" llioitilig a COI IIIIl!111 IJlarh,t, and hit,>; 1II( Ived to l'l 'llllis (', [" i ll­
11l( 'llt, ", llicll takes <I( h 'alltagl' oi k('h 'Iologi cal ,lilt! distrihlltioll ()\'l'I'lap,
:1. B(lcklt'(lrd integ ratiou. (: II.>;tO IIH'I'.>; ,I re ,lI lolll('r pot('lllial S()I II'U' () r C(lIl1­
pl'liiioll , (;( 'l l(' ral M oto r,>; hOllg il t d(l/,(' II S ,,c 111 ,lIlld ;ld IlIT rs 01' C(l lll lllllH ' lltS
tlmi llg its Illl'lllati \'(' )f('ars , t-. 1' LJ or ('all IIS('rS, sll(' h as (;<l lll p l )('11 S(II IP , Ilav('
illtl'grati'dll<l('kwanl , Ill al<irlg lll('il' OWIl cOlli:lill('rs,
4 . Forward illtegratio/l. Slippl ie rs attracted by IIl argill.>; aI'( ' al'l) po t( ' lli ial
CO III[wtitors , /\ppl!' CO lllplll'l ' r, Ii))' ('\<l lnpl (" " [H'lle(1 a c hain (Ii rl'tai l st()n's ,
SI'ppli(Ts , 1H' [i l'vi])g the)' Ilav(' til (: crili ca l i'lgrt'lli eT,b t" SlIct'( ,(,d ill a IIla r­
kd , In ay he attrad('d by til(' ill argills all d cOl ltm l th at U) II W witll illt( 'g rat­
COMPETITOR ANALYSIS­
UNDERSTANDING COMP ETITORS
U Ilderstalldillp: co m petitors and th e ir acti vities call p r OVide sevcrn ll w nelhs F irst,
;111 llJl(l er stalilling or t he ClIITt:' lIt strat egy strengths and w eakness t's of a cO lnpeti ­
IIII' C,ln su ggest opp or tll nities a nd [hlTats that w ill Ilwrit a r ('s p()n se, Second ,
tlll' in dllstrv
i ' l,igh l's into Fu tu r e competito r str ateg ics may ,tl l o\\' t h l' p r edictio n of eme rging
I llreats and opportt ln ities, Thi rd , a d ec ision ,d)(lI lt strat ~' gi c allT r!lahws might e,IS ­
d\ hin ge Oll t ilt' ahjli ty to fOI't'cas t tilt' like ly rt'acl'ioll 01' kt'v co)))pet itors, F illall v,
('IIIllpet ito r anal y siS IlI<ly r es\llt in th e i(lell h Ikdtion 01' so n It' strdt( 'gi e III IC("ltai Iltit'S
Ill at w ill h e wo rth Jn onito rin g c los e ly ove r tin)(' , A stra tlog ie Iin certa inl y lIIight 1)(-',
I'll I' ('x,lI lipl e , " \ V ill COlT1pdi tor A d ecitk to ))IOVC into th t' w('s t erll U,S, )))arkd '~"
As Figlll'l~ 4,:3 in d icaks , (,(lIl lpditor ddions are in llllt' Jlcl'd h v ei g ht (' l l' IIWllt.~,
I' ll(' I'irst of' th es(J r elkcl's I'illall c ial pl~ rrOrlllall e(-', as 11I (',ISllred /I v size , growt ll ,
:(1)(1 prorit ah ility.
.., i".c , Growth, and Profitability
'I Ill' levd :llld growth o r sa l('s :l lld marl<t't share prO Vide indicators o r ti l(' vi tality or a
III )s ill !:ss st l'atq!,y T he InailitTllallCl' ora stro llg Illa rkd posit ion or the ,lc lli ('v(' III (' ll t o r
I' Il' i(1 growth II Sl I:III)' rdl ect s a ,>;tron g COll lpdito r (or str;)tl'gi (' gl'( )lIp ) and a SII (,(,( 'SS ­
1111 >;tratcgy. 111 C()ll tra,>; t , a d cterioratill,i-'; m arket p(lsi l'ion can sign;)1 rinall('i :ti o r orga­
lI i/,llional st rains th:lt Illigll t ai'l l'd til(-' intl'ITst :llid ahi lity or ti l(' hllsiIH ',>;S til pllrSIl('
" ,' I'laill strat q.!;ies, T o providt, a Cl'lI(h-' sal e's ('sti lllat!' 1'01' IlIiSi ll l 'SSI'S t hat <In' h( lri ('d il l
Image and
Positioning
Si ze, Growth,
and Profitability
:; •
Objectives
and Commitment

illg liJlward ,

5 , Tile export oJ assets or competencies. j\ CIl IT( 'llt sillall COIIIP( ,til or wi tll
LTitica l strateg ic w(-'a l((1(-'>;,>;( ',>; call tlln l illto a 11Iajm ("Iltralit ii' it is [l1l1Tli.lsl'd
hya rinll that call wd ll u' or (' Iim illate th ose w('akIl1',,,('S , l'n·dictillg SIIC II
Strengths and

'~ Weaknesses

" /

COMPETITOR
ACTIONS
\
.
Current and Past
Strategies
I))OV('S carl 1)(-' dilTi c lllt, hilt SO Il ll'tilll es an allaly sis ol'co rnpditor slT(,llgtlls
,Illd w(,<lkil('ss('s wi ll Sllggt',>;t' SOIlI(~ possihlc' ,>;y lwrgistic llwr,!..;( 'rs A cO llllldi ­
tor ill all ,lhov(' -a\'(Jrage growth illdustT), that does IIOt have t\w rillanl'i:d or
llla llagnial feSOllrC(JS lin the IOll g halllllli gh t 1)(' a p,lrtic ld all y attrat'li \'(' Exit Barrie rs
Cl ll d itLt l l' fell' IIIl'rg(,L

b. Retaliatory or defell!'>il'c 8tr(ltegies. Fin l ls lilat :In' 111I'I ';Ii(' II"d 11\ ;1 Cost Structure
1)(IIT lliia l or at'lll :d 1110\(' illl() tl l('i l' Illarkl'l IIlighl 1'('I;di :III ' '1'1, 11' ,\1 ;""1\1 11"1
1' ;ls 111 :111(, >;1' \'1' 1':11 IIIOV! ', ( illc l"d illg i lli ll IIII' 1,,1 1' 1'111'1 ' 1':« "' ) i ll 1', 11 1 III I '" i
/1 '(' / il ,>; ,1" llIiILIIiI ,,, 1/\\';(1',, I)", il illll , •• j):,III" 1. :1 th"I"I SI:" "I;I II' IIJo' I '11 ' "1 )(' );1 11 1"
 IUj /11111 III II
') 1101'·' ) 1 \1/1//1(\ ;.\
(:1111/,1"1 I ('f1I1I/)!'lillff IlIff/(/Sis (;7

: 11: II,~"" Il II'I l;I 'I\, I"""11 1I' 1III1Idl, ' r"I" 'IIII""I "" ,' :111" 1111,1/11'" II I'I II", ,II"I':I,~('
,s:d" ,\
Ill')' (' llIpl m ','" ill III(' illdll ~ lrl "()r /11:111 )' 1))I.\il l('\,\"S , Illis 111I'11, ()( 1 i\ 1"11 1"':I.\i l )I(, :111 ( /
11/,11' /11''' I" III<' IIII '! III 'c" 111111, I, il ('('1111;111" /1)(' p:lr( ' III 's Illlig-II'I'111 pial IS, 01' is it
/'( ' Ill a rkal )'" accil rate, 1" 'l i l d ll'l;(I'~" II ,""ll ,1\ ,I ",1",,//1 :11(':1, (II' i" il ('\[wc[( ,( II O SIIPP'-1 cas ll to ('lIl1d othcr
II" :" ') I }. )('s IIII' 111I , ill" '>;" 1'I" ':t/e S\'II('I'g\lI'itli otlic']' opcratiolls Cl Does thl' pare nt have
An'n ~ i'/,e al1d grolVlh l'OIIW,\ [lro(il',ti l ility ;\ pm(itahl(, hIlSill('''\ lI'ill g('ll('l'ally
havc ,ICCl'SS to capital (eJf inv(-'~tlllent
Ilnl (-,s,\ it Ila~
heen desigllated hy the pan'llt to
III l'II)()li(lIl:ti ;t/I;)('IIIII( ' 111 10 til(' Iliisine\\ ullit for al lV re asoll '~ Dl'ep pockets can

1)(' Jllilked, A hllsiness that has lost mOll c), ovcr all extcilded time period or ha~ expc­ " ,11 11 'I i 11)(" II(' ,I('C( 1III P,lI l i ('(/ hy sII orl' :L rl1ls ; ju st Iwc <lll se r eSO \l fces ex ist d oE'S no t mea 11

riellced a reCl'nt ~harp dcereas(' jll pl'Ofitahility lIlay (illd it difFiclIlI to gaill a('c('~s II II' I :)1'(' :11 :lilahlc,
to
(:<Ipital eith er ('xtcrllally or internally,
( '11I"1'(' n t ~Ul d Past Strate gie s of Competitors
Image and Posilioning Slnate gy I II" ('11 111 [ldito r \ (, lIlT( 'Ill' and p as t siratcgies SliOllld h e re vi( 'lI'('d, Til particlilar, past
',ll,I II 'g il 's tklt hal'(' 1~ lilcd sll ol dd bc Iloted, l)('caIIS(' sil ch ("\l )(' ri c ll ces ca ll inhihit til('
A COrll("rstoIW 01' a 11li Sili('sS st r:ltegy ('a ll II(' all :\"sociatillll , sl1cil as he ill g t il<>. , f ""Iwi ilor {'roll I try i llg si III ilar sl'ml'('gics agai 11, A lso, a knowl edge () I' a cOlllpeti tor:s pat­
,stn)) l g(~st trll ck, the most dllrahle ca r, t hl' ~ III:1"est CO II SIIIII(')' e/cctrol1ics ('<[lIip­ 1<- 111 ()II)('W [lmdllcl or Il ell' market II)(IV('S can Ileip anticipate ii'S I'lltlll'(' growth diwc­
IlI l'n t , or th( , IIIO" t e/'fc'dive ci ea li tT. l'vl o rc ofh 'lI , ii' is I IS( .f'1I I 10 III()V(' I w )'o lld c1lss ­ 111 11 1\ , Is III(' slratq!;y Inscd on prodllct-lint' Ilrea(lth , producl' (plality, service,
re lat('d prodllcl atlrill lll (',s 10 illtallg ihl( ,s tklt spall pro<iIICt class , sll ch as qll;t1ih, 1ll',l r il'lllioll 1') '[)< " or hr<llid idc lilification? Ha low-cost strategy is (' lI'1plo)'l-' d , is it hased
illllo" al'io ll , se ll siti v ity to t il(' (' ll virolllll (' IIt, or Inalld P(,),SOII;tiity. Cll<lpt(')' 1:2 Oil 'II I 1'( ")IIOllli('s 01 scaJr-, tli e t'''peri(' IICc Cllrve, 11l<llluLlclilring 1;lci iiti es and ('~ qllipllll'llt ,
slTah 'gic POS il'i Ollillg e ldh(nates,
II ;II'('(',S 10 raw nlalcri,ti ? \Vlial is its cost stnlctll)'e',) I I' a ICJclls st ra tt'h')' is evidellt ,
III Older to dc ve lop positiollillg ;til'(,),ll al'ivl's, it i,\ helpliil til d('/(,),lllill(' tlw illl:lgC , I, '" r ill(' III(' hIiSill( 'sS scope,
a l)(1 hl':llId p('I'solia lil'y Ill' til(' IIlajor COIIIIJC'i'itors, \V('akl!Css('S 01' (,(lIllpC'i'ito)',\ Oil n'le ­
vallt ;)t-iTihllt('S 01' jlersollality ITaits C,lIl r ep r( 'S(' lll all opportlillily to dillc'n ' lltial (' ;) 11(1 (ulIlpelilol' O"ganization and Culture
d ('lc lojl adv'lII ta,l!/', ,'-iIT('II,~tll.\
O(coillpetitol';; Oil ililportalit dillH'llsi()lIs IIla\l 1'('[lI'( ','( ' llt
cil<ll/( ' II,I..;( 'S to (',\(,(,(, d 1'11('111 or 10 olltflallk t h(' III , III ~lIly ('<1,\(' it is illl[l or talli to klloll' " " I1I1'I( dg(' abollt tlil' backgrolllld :llId cx p c ri( ' lIcc or th e COl1lpdito r 's I'op Illanage­
I'll(' UlIllpdiliv(' pmril(,s, II I< III ('<Ill pml'iri(' ill sig ht illl'o I'lltllre actioll s, Arc IIIP II 1<11 Ia).!,c r s drawil Fru ll1 Illarkct­
COlllp('[it()I' illl;(g(' <111(1 [lositiollill g ililc)),)II,llioll (';) 111)(' ri(,dll('('d ill p<lrl' h v stll(h-­ Iii " , ('Ilg;ill('('rillg, or IlIallld; ldlirill g'~ Arc thev hlrgl' ly ('mi ll 'lIlol'l wr illllllstry or
ill g a (il'III 'S pro<ill('t,\, a<i\(Ttisillg, \ Veh sit(" di l(l ,ldioIl S, IlIJl o lh ' ll ('lIstOIlI('l' I'( 's( 'drch " "II P: III \ ,',) C lorox, ICI ], (' \ alllpl<:, has a vl'ry lieal,y l'roct(·), & (;"Illhl e illrllll'l1('(' ill its
is 111'11)1 '111 to ('[1.,111'(' th :tt ;111 al'l'llr<lI( ' l'II IT(' 1l1' pOI-IT:ly,d is ohlai ll( 'd , Th l' UlIl V('lItioli al 1I " llI d).!,(,II)('III , lill).!,e rill g rrolll Il l(-' YI';lrs tliat Procter & C"iIlhk operated Cloro\
appro<l('h is to start lVitll <lllalitati l '(' cilstolll('r n-'S( :drc/I 1'0 (ill(l Ollt II'li<lt a hllSill (''',\ ;til( l /" ,1 ,, ),(, til(' cOllrls orde)'(' cl cliv(·stitllr<',
its iJr,lIl(ls IlWall to c lislollH'rS, \ V ltat an : l'It(, asso('iatioll,s~ II' til(' III lsi 11(',\\ 11'('1'(' a [)('r­ ,\1 1 (lrg<lIli/,atio ll 's Clll t lllT , sllpport('d by its strllC[III'C" syste m s, alld pcopk,
.sO il , Wl l<l! killd 0 1' p e rsO Il lVo ldd it I J('? \V ll at visllal ililagl'ry, hooks , <lllilll<lls , 1'1'('(',\ , or
,1 /1, '11 II:ts a lwrvasive inllll (' IIU' Oil strategy A cost-ori e tlt ed , hig hly StJ 'llctll)'( :d orga­
adi vil'i('S aI'( ' as"ociated w ith tlt e iJllsill(',\S? \Vha t is ii'S ('S,\(, IIU':)
1I I/,:lIi( )1I that relic's Oil tight cO lltmls 10 achievt' objediv(' ,\ awl JllotiV<lt( ' e mploy (' ('S
11 1,1\ kll(' <iilll(,lIlj'Y illtl{)vat ill g 01' shih'ill).!; illtO all aggressiv (", Illarkl'l'ilig-o ri e ll tl'd
Competitor Objectives and Commitment ,II Ii (' ,1..;1', 1\ loose, llat orgalli:t,atioll th at I' l1Iphasi/,('s innov alion al1(1 risk takin ).!; l1Ia),
,ll lI tI :lrk kll(' dillicliity PIlI'S llill g a di sc iplitled prodllc[-rdill('llll' lIt alld cos t-nJdllc­
A kllolVlcdg(' 01' competitor ohjecliv('s provid es tlH" pot('lItial to predict IVI)('tlwr 0 1' 1111 11 IH (),~ ral1l, Jil g('Il(' ral , as C hapt(· r Hi lVilllllah' cl c are r, orgallizal'iotla l e le lll e nts
IIOt ;t cO lllpdito r's pr('sellt perfC)I'IIl ,lIICl' i,\ ,'iati,\ I'actor\' 0 1' str<ltegie ('hallg('s M( ' 111'11 <lS CII IlI))'(' , stnl ct llre , S),ShJlll S, and pcople Iilliit th e ran ge o f strategies t hat
like ly Tile f'illarlcial ohjectil,),s 01' Ilw l)J) si ll ess 1IIIit ca ll illdicate tl)( , cOlTlpetitor's ,111 11 11 11 III' cOll sid('r(,d
IViliinglws,s to illl )'s t ill thai iJlISiIlC.s" ('\1(' 11 il' t hl' l)aY(lIIt is relatil '('ly ICJIlg lI ' l'Ill. 111
p<lrti CIII,II', w hat an' tlte cOlllpditor',\ ohjccti ve,>; lV ith r('sp(-'d to lIlarkd sltan .. sa les ( : U~ t SlnlClUl'e
growth , and I'mfltahilitiJ N OllfJllallcial ohjectives ar c al so Iw lpl'lI/. D())'s til(' CO III ­
1\1 11111 I('d g(' o f' a ('olllpdito)''s cost stnlcl llre, especially wh en the cOl ll pct itor is relying
petito)' lI'a llt to he ,I technologi callearier? Or t o deve lo p a s('l'v ice mgalli:t,atioll Cl Or
I ' Ii :1 IOI\'-('ost str<lt(',l,'Y, ca n provide all indicatioJl of its likely future pricillg strategy
to (-'''pand di strihllti o n ? Snch ohj(-'dives p ro vidc a g ood indic ati o n of th e ('ollllwli ­
tor's poss ibl e futllre strah-'gy ,11 11 1 ii" slalillg IIOW('I' 1'11(' g(1<ll sli o ldd h e to ohtain a feel Cor b oth direct costs and
11" ,, 1 (,,,sis, ",lli('11 lI'ili (1('I('rlllill(' 1))'('ah'veTl I('vels. The f'ollow ill g info rmatioJl can
Th e ohjectives 01' th e CO lilpetitor's pare llt cO lllpanv ( if 011(' ('\ish) :)1( ' :d\o ),(,1 (,_
II 11. 1111 II(' oIJi:lill('(1 :111<1 ";)11 [11'''1i<l( , ili Sigllts illto cost stnlclilres:
vall t , \ V h,)t an-' thl' CII n e nt per(clrlllan('( , 1(,l'els alid (i Ildll( 'i: Ii (dIi' '(I il "\ (I I III (' I)' II( 'III ;.;
IFtlw iJll sin( 'ss uilit is n ot perfcJl'illill,~ as we ll :1,\ III(' 1';)1'('111 , 111( ",', 111" 1I11",It! I", "\('II( 'r!
• '1'111' 11111111,,'1',,1 1' 1111,1,, ' , ',", ,1111 1:1 1 '(II I ,~ " 1",(,:tk( lolI'li o l' din 'l'Il<lho r (vari <lhlc
to illlfll'( lI'(' 01'/'11(' illl'(".;IIII('1I1 IIli,~111 1)(' lI'ill)(II':/II'II , Or(,),lli",II 11111" 111 .1 11"" i, IIII' 1,,,/,,
1,11),,1 ,,,',1 1 ,11111,,1"111' " , / 1'.,1111'/, ' dll ll' 1l: II'I"lli" ,<I ('(lsi )
 ( j,"i
J ',11" 1, I " SI J ~ I I / ',' :1, \ 1",11/ ', 1\
( '/'"1,1"1 f ( 'u IIII JI' l il(JJ , III II/,/-, i " (i!)

• 'I' ll<' n,l:lIi l'I' ('Il.'d,~ 1l1' I':III' III;tlITi;lI, :l l<lllIlI'< ' II : I \( ' ,II " )(II I")(I<'"I~
( :O \IPETITO B ST BI< NCTHS AN D W EA K NESSES
• 'I'll(' ill l'('s llIl< ' lIt ill illl'(: lIt o r: ', pl:1I1I, dll<l ('I I";PIIII' 1i1 (;II,'1l 1; \1' " ('os l )
" ha t An ' th e Ht'levant A~se l s a nd Competencies ?
• S" I( ',~ l(' v(' ls ;11)(111111111)('1' o r [>Iallt~ (011 w llicll til(' ;lIll ll'a l; ll ll () r ri xI' d ('o,~I's
is bawd )
I ', IIII lldit(Jr 'i 11'l ' ll gths and wea kn esses an' h l sed Oil the (-',,;'stel1(:<:' or ahs(-' n Cl of a,'Sets J

," I '(JII Ipl'lI'II Cil's, Thus , all asse t su c h as a we ll- know n n allW or a pril1ll' l ocatio ll cou l ()
Exit BalTiel'S " 1)1('S(' Ilt :l stl'{'ll gth, as cou ld a cO lllpl'tcnc), sll ch as the ahilit)' to devl'lop a strong
1111" II()I iOllal pn )gram, COl1 ve rse ly, the abs(Jn cc o f all as sp t or competency C;Ul leprt'­
I~xit h<lITi(-'rs can he lTucial to a firnl \ ahility to w ithdraw
I'rom a bIl Si ll('S,~ art'a , all d '" II I ;1 W(':tklI('SS,
thll s <li'l' ill dil':ttol's 0 1' COllllll itnlt'nl'. '1'11<'), illCIIl<lC :b
T (J ,1Ilalvl,c (:oll1pdito r stn "ng th s allcl wl'ak n t'ss(Js, it i s tlllls Il eccss; uy to idl-'Iltif)'
IIII' :t,~,'ids alld cOl11lwtellcies that are H'!cl';ult to th e illtl ll.\try, As Fig llr(' 4.4 ,~"11111 1a­
• Sp(,cialize d assch- plant, (' II"ipmellt, or ol'lH'r asS('t~ tll<lt ;Ire <:o,~ tly to tr;1I1S­ II I " " , fi vl' s('['s o r (llJ{-',~tio lis can I w 11l'l p rltl ,
li>rlll to another appli catio n an d t lw r(,/-i )rc kl l'(' littl c' sa lva).!;e I'alll( '
• l' ixl'd ('osts, ,~ llch as lal)or ag l'('C Il1Cllts , IC<lsc's, ;lIId a n ee d to nlaintaill P;lIts l. What bw;ines,~es have been successful over time? ,Wwt a,~set.~ or
li Jl' ('xistin g l'L[lIipnll'nt
competencies lIat;e cont ributed to their ,~ucce,~,~? ll"hat bus'iness e,~
• Ik lation ships to ot/I('r bltSil1<-'sS Illlits in til<' firm l'C'slll tillg rrolll lh (' Firm '" have had chronically IOte performallce? 'VTty? ,,~rhat asset,~ or co m­
illlag(' or li'o l ll sll ared li ll' ilili( 's, d i ,~ITiI)l ltiOll c iJan nl'is, or sa l('s I( )rc( > petencies do they lack?
• CClI(TI1I1H'Jlt ;IIHI ,'ioci;1I b; IITier,~-, l i )(' C'\;lIl1plc, gOI'C'fi1111( ' llts lila)' I"<',l!;Itlatl'
Ih ddilli[-i oll, a,'isl'ts and conlpdc' I1 Cil's that lHOI'i"I' SCAs sholdd all cl't ]>c"r­
Ic)t'tllam'c ' o v( 'r til1)(', Tllll.~, hllSill e,'Sc's tllat dilTl'l ' w i t h res p ect to pcrf'or­
w hdher;[ I': lilroad l'<l 1l e,\ it rrom :I P:ISSc'lIg('r s<-' I'I'ic'c' J'( "~l)() ll sibility. c)t' firllJ.~
l11all('(-' O\,l'r tim e sholdd al.~ o di lkr w itll r espect to th e ir ' l.~,\(,t,~ and
IIlav 1( '(' 1 a S(' II ,'C' of' loy altv to \Vll rk crs, therein iJlllil )iting st rdt('g ic nl Ol'(',~
cOJllP( ' I( ' I'Il'ie,~, Alla lys is or till' ('a ll ,\('S o f' t!ll' pl'rf'OI'lII <1I1 CC II sliall v ,'i " ggcsts
• 1" ' ;[ lIdg(, l'iall ll'iell' ()r ;111 (' Ill O['iO Il ;1I attal'hJlWllt to;[ I )lJ.~ ill('sS or its (' 1I1ploy('(',~ 'ids or ('('leva nt l'olllj l<'I'(' Il('i( 's ;11 1(1 ;lSS('['S , Ty pica llv, the Sl lpe rior jll'ri'o r llll ,(,s
II"tI ;tf'J ('(' ts (,(,Il II (llll ic deci sioll s
"'lVI' d l'vc lo ll<'c1 ,IlH)III <l illtailH 'c/ ];:('V ;lSS('['S ;llltlCI)1lIpl'tC ' I1 Cil'S thal 11<11' (" /)('(' 11
thl' ha 'i i ,~ li )r their p(' r/imll:1I1l'l' COll v(' rs(,l y, IVl'a klll'S,~ ill Sc'v(': ral as ,'c'ts ,III(!
Ass(',~ sing Stn"lI gths and Wealmcsses (,O l1ll)(' tl'lI ci ('" ('(,Ie va llt to t h(' il1d llstry alI<I its ,~t rat(-'gv S1101l1([ v isi 1>I,)' ('on­
IT il)!lt(, to the il1i('rior Pl'rrOl'l1t;II1 C<' () r tl1<-' wl'ak c'olllp!'li tors ()v('r tilll<',
Kllo w ll ''',!.!;(' or" COIIII)( ' titor's slTellgt l " ;lIH I W('<lkll("SS('S provid('s ill sip;hl' I'llat is kl'v to
For ('.\;1l11ple, in till' C T sl'aTl ll c r illdllstry thl' hc's t per/Clrl11('t', C:('lll' ral
:t (il'l ll '" al)ilit)' t() PIII'SIIC' 1'<lrio(J s stralc',l!;ics , It also o lk r s illl) )(JI'I'a lll' inpllt i llio til('
1<:1(~d ri c, has ,~llperior prodnd tc'clill o l(),e;v alld H& J) , ;111 es tahli slwcl sy,~ t(,11 IS
PI'O('('S,'i () r idc ntif)l ing ;IIH! " el ecting slTa lc'gil' altl'l'IIali vl','i, OIl(' appro:lc h is to ati(>IlI pt
capability, :l ,~trollg sal es alld ,\('rvic(' orgaTlil',;ltioll O\.Vi llg , ill part , to its X-I':l)'
to I'xploit a ('Oll1pc"titc)t'\ wea kll ess ill an ;11'1';1 IVI1('rl' 1'1", (inn has all ('Xi still g 01' cl l'l'c1­
prodlll't lilli' , ;1I 1el ;111 ill st all ed 1>:IS(',
Ilping ,'iIT(' lIg tll. Thl' c/ ('sil'('d jl<ltt(,rJl is to devclop <l stra tegv t "a t w ill pit " (mr" stl'l'llgt"
ag:lj ll ,' t <l cO lllpditor:'i 1V('a l<l1(,ss , COl l \'e r,~l' I)', :I kllowle dgc' ()f' " tll c ir" slrellgt h is
illl ]lort,lIlt so it, C;1I 1 ht, h)1)assed o r 11('lI trali/.l'd 2, What are the key Ctlstom.er motiv ations? What is really important to
OI1C' (inn th at clel'l'loped <l st r<lkg,v to llC'lltrali zc <I l'Oll1pL-'litor's strc llglh IV<lS <I
the customer?
S111all "o fh vare finn that lac ked a I'da il cli stTilllltioll c<lp<lhilily or thl' n',~ollrc('s to
C ll sto n1(-'r moti vation s Ii slialiv dri ve Ilily illg c\c-cisioll s and tlnl s can dil'l:ll'l'
w hat assd,'i or (:olllpdl'l1l:icJs potcll tially (:('(-',It(' IlIl':ll1 in g i'n) mlv;1I1Iag(",', In
C'l1,l';<t,l!;C' ill rd<lil <ld vertising, It (;II'gdc,d valll ('-addl'd so lhva r c s),stc m s fiml.'i , w " ic h
,~(')J tota l so lhv<lJ'( ' ami ,'iO t1ldilll('S hardw<lre Sl's t(' IllS to orga lli'/.<ltiolls sli c h as illVl'st­
Il\('nt fi nll s or h ospitals, Thcsc val n t' -<ldded S\ls tCIl1S finns co uld I1l1dCrs talld all d
exploit tll( ' p ower 01' t he prod llct, illte,e:rate ii' illl-o tlwil' syste lll s, and II W it ill qllall­
hly TIl(' compctitor\ sllpc rior acc(','iS to a di stTi!Jlltio ll cl1alll1l"l or 1'(\'i() lln'(',~ to ,'11p­
I , \1'111 an ' SII('('('ss l'1I1 hli siIlCSS('S SII(,(,I'"I'\lI'- Will' ar(' I1I1 SII ('('c'S" I'1i1 hIiSill(,SSl'S 1I11 SII ('('('ss l'lIl ?
port an <l dV('l'ti,~in g eHc)]t w as thll S 11 (' lI tra li 7.ed , \I 'l,al ,11'1' till' 1«'\0' Cl IStO IlI ('l' lll () ti va tioll"~

Th e assessment of a co mpeti tor's stre ll g th s a ll d IV(-'akllesscs starts wi th a ll \I 1"1 1 ; (1'( ' ti ll' L<r~(' (,lis t COil Il)( lll ('lIts';>

i(lell tifka li o n of r elevant aSSt'ts an d COt1lpl'tc Ill'i ('s li Jr till' illdllSl' lY ;1I1e1 thl'lI {'I, d ­ I. \I '!,;,I , 11'1 ' II II' ill llll"IIY IIloililil l ' l>arrins ?
IW[('S tl1< ' COl11j1ctito r on Hl (" hasis of thm:c' "ssc ' t's and CO II'll('t"I(('il'~, " :1' IIllII' I Ill'll ,I , \\'I,i, '11 ('/)11'1)11111 '111 , " I' llII' " .I, ", 1,1t,lill (' il ll ul'al'(' ('olllpditil'(' adva ntagl'?
to thc 'sl' topic s,
l ' i~ II"" ,I '" Id""lill" ',", /" ,1" , ,11 11 \ "" 1, :11111 ( ;(lIIII" 'I(' II(' i('s
 70 I'u/ ( lit 1/ ,'1/ 11111 " II \ 1/1/1 1/',1,
t /1/ 1/ 111 I I ( IIIII /,,'Iil il l \ I/ I/II/ s i s 71

II" , 111';11\' ( '( I" illIlW(iI ill"I!.';lrl, ('II'iIIlII" ' I" l;tll" ',( 1111" ,11 111 1I:"l s 11;11'''''/ 1, I'r;ll/Il/ y \ '(/1111' , \fI;, iii/ 'S
( ;a ll 'lllill ' /I '~ Illllilli s( ' 1l1 ":21 ,IIIlIII' p ;lrl.'; ,;( '1\ i('( ' ;1111 1\ /,, '1 " III ,II,' 1I( ' lld " II;L';
• 1"'I(I"'IIII(j{!,i s fi(,s- ll la l (' t'i, tllla l llllill ,~ '111l 1 lIart'II()I I S ill~
1)( '1' 11 ;1 k('\' ass l ' l Ilt'C;tII S(' il i~ ill l l l (lrLlIll III (' II SI()lllI'rS 1\1 11,/(, 11 ;1'i 1'()(,IISt ,d Oil
I'll(' Ill o lilatioll 1l1't!( 's ig lll'I'S lill' IlsIT-f'ri l ' IH lly t1('sigl l p la lli ll'll!.'i • 01'('/-{/,jlllls - l('all ~ I 'uJ't l lill <'; illJlllts illto ti ll fil ia l protllll-t

;\11 a ll alys is 01' CIIS[-()IIll'r IlI o[-i l'atiolis C<tll also itl <:'lItill' ass l 'ts anti COlllpC­ • OutbOUlld l()gi~tic.~-o rtlcr proccssi ng ,\li d dis lli i> lItlOll
t(-'() c i('S tllat a hIlSill(,S,'i w illll(T tI to dl" li l ,t-' r 1I111('s,'; a strategy C,IIl 11( ' dl'I'i s(-,1 1 • ,\larketillg ami s(lle~-C()nll l llll1il'atio ll , pri c ill g, ;Jilt!
that w ill make t il c ill l i l lill iportalil'. II' tl](' p rilll t' hll)'illg crit(' ri OII lil r ;1 silac k (,ll ,lIll1('1 1I1<111ag(' 1III 'Ilt
is l'I'(-'shl1 (,ss, a hralld IVill h av(-' I'() cI( 'I '(' lop tit(' ,,; kill,; to (It-li l cr that attrihllk,
• Se rric e-i ll stall alion , rt'pair, and p ,lrt,
t\ hll ~ ill ('S,'; that lacks C()lltpd( ' Ill'I' ill all are a illi po italit to th(' Cli stollw r sq.>;­
lIl l' l1t C<tll 1'\ll('ril'II l'l' prohil ' III S ('1 '(' 11 il' it has otll e r SlIhst;llltial SeAs , S('('(mc/(lry Vallie Aclidlieli
• Pr(Jcllre llll''''- [lrtl u ,dlllT S ,In t! inf;)J'Jllati()l1 SI 'stl: l llS
:3, W/wf are the larg e ["(tille-added l){Jrl~ oJ 'he prodllct o r ~e-rv ice?
l V/Wi are the hl1-ge cos t cOlllp(Jtlel/ l,~ ? • 'fec/lIIo[ogy det-eIrJIJllu?lll-ill l[)J'(ll 'ill g 11((' pr()t1lwl ;11111
;\ 11 ;lI lah-si s or tit(' c o st strll d ll J'( ' Il f' atl illdl!.';II )' C, III 1'('l T al w lli c h I'a lll('­ p j'( 1('( 'SSt 's/ sl's tl' Ill S

;t( ld l ,d ';t<lgl ' rt'[1I'I'SI ' lltS til(' la rges l' [lI ' rcI'l ltag(' 01' tol;t1 cmt , Oh taillill ,L!; a • J/1II11U11 resource mallagelll(. u l -llirill g . l raillil \l!; . allt! CO IIl[ l(: ll sat i() ll
c o st atil<lIltagl ' in a kt ,\ valll(' -a ti (I('(1 slag e (',III ('( 'PI'(,Sl' llt a sig nif'i calll SeA • Fir", ;"f"(I.~/r/l c tllre-g(' I lt'ral 1II;\II~lg('lfI('lll. fi l lal ll'( ', a(:co ll illill ,~ ,
w hd l wr t kll' dti valltagl ' is I l-'I'd tI l SllJl Jlo rt a lOll pri c(' Il l' all o tlwr stralt'gy ,!.!;()I'('J'Il ll lCllt rt,latiOll S, a lld 1lll a litl' Ill ,ulag (' IIH'llt
Co sl' adV;llltag l's ill 11l\\' ('j' v, tll l('-a tltl ( 't! ,';t<lg( ',,; Il av l' I(,ss 11'1 I ' I '<I,~I', III I'll('
Ill('t;ll cal l i>lIsilll >,'iS , Irall';[lortal'i()ll cos[-,'; ; lI'(' !'I,lal'i \l(' k Ili gh ; t ll1l S a C0 11I ­ 'I'l l(' Iill('~lr " Oil s ll~':~I 's l ('d III tilt' I'al ll( ' Ch :lill Illal ' Il()t alII ~11 ''i 1)(' til(' IllOSt
p<'i il (l l Ikll C<tll IIl('all' plallts 11('<1 1' Cll Sto l l l('lS or Oil <I CII St OIIl ( 'j"S [lrt ' llI isl 'S II S( -rld r q )J'( 'sc'llt <l ti(Jl I 01' a C(lIllpf'ti lor, ('sJl( 'c i,cl h' ill l i t(' I lli(' r ll ('[- ,; p<In ',
w ill 11 ;111 ' a s i ,~ lIif 'i(,;t ll [- (' (ls i a(h-a lll;t,~("
i\ll otlw(' [ll T SjlC'l'i'i I I' is III ,,;illl]l l ~' a(ltln 'ss lilt' (11(('slioll ",l lat , JI'(' li t( ' S igllil ~
iC<l1I1 al l tl('d-I ',dll (' ('OIII[lOIH'llls 1'( lr ;t C() lll lld il() I', ('OIII[lollCllls tk lt l 'il, ld
I. COl/s itler fl,e: {'(""I)(J//{' H/ii of fhe "ollie c/win. Do (II1YI)t"(){:ilie f he I' illwr l' ll slOIII('I' 1)(,lIdi t,,; () (' ('( ,dll cl'd C()s t ,~ 1,'(11' 1, 1\ ;11, ror ( 'x<l ll lJ l lc, 11(('S( ,
Im l cltlillilo {!,c,,('ra/(~ ("olllpelifit'e alit'{III/age? CO l lljl (l Il(' liI ~ Illiglli' 1)(' I( l lilitl ill o[l('('al'iol!.'; , CIISlolll (,(, SIIPP()I'!' , <lilt! <l lld illll
OIl!' I()(lll() it!I ' ltli l'l- ,';i),';ll i fi(';t11t "t! I(('-a"( II'd (,()ll lllUI II ' lltS is I'it l' 1';LIII I' ('klill , sl'n in's , Tlwl'(' w ill ;11.,,11)(' S()II H' Il l'lw o('k alli<ll lc('S lIlal add " Jil((" sll l,11 ;1,
;t ('OII('( 'PIIl ;t! III()d,,1 d ('I 'C'lo[l('dll\ 1vli c l l,l(' 1 PUI'iTI', ' t\ 11iISill('ss'S valll(' c ha in t hose w ith :\ () I , ,111(1 i I':s('l'ow
(SI 'I ' i" i),';IIJ'{ ' ,+.')) C() lI si,,[s () r tW() lI 'IlC'S 01 ' 1';t!II I '- c J'{'at illg al'i' iv il'i('s alld sl l!lltid
1)(, CO II Sld l ' f'{,d ill assl 's,'i illg a C()I II[ll'iil'Jl', '['h( , ( '()II I[l()1 (('I Il.'i or the v;\ IIi(' (' Ilain
~ Il(' tI(,fill('" a.'i ICl 1l()w .'i:
\ (:heddisl of Sln~ nglh s and \Vcakll(,' ';s(,' s
I l i l l i ' '-l-Ji [1(,() l'id l"\ all ()\I ' n i(''.'.' 1'1J('('Uist ()r I'l l(' ;Irc. 'a~ ill II Ilicll a l'(l l l lpt'i il () I' l'all 11 <1\ 1'
,I I ' '1I,.r II IS allll II (' ak ll('s sc 's '1'1 11' first l'<lII'),';()I'v i,'i illll OI;Jlio lt. O Il( ' of ' III(' slr( ' ll gl l i.'; 01' K~l()
Firm infrastructure
I II I I 1I >1 'at ioll i ~ its ;d l ilit~ tCl ti( '\l'lop illlI Ol <tti v (' pmd ll ('[ ,'i ill SO;I[l,'i , "d(, J'g('llts, ski l ll'<m "
Support {
'11111'1 1' 11 lIo[lJl\ di sk s, Its II I '\\' prod l lds IIslI <l I" 11011'1' a di stillct l e cl lll ologic<l1 at!l-; lI l­
Activi ties

II"" I II <I Ili,gldy 1('Cllllic;t! illdll st('v til(' pI ' rc( 'lli agl' SP('llt Oil I{& J) ;Jlld lit(' (' lllpi1;rsi ,

I Procurement I
111 11,:'; I I I(' I)a~ i ('/appli('d ('Olltillll lli ll C; lIl 1)(' illtli(';llll rs 01 ' t li t' ( 'IIIIIIJi alil'I ' ;Ihi li ly l() ilIIIO­
....
,II I ', 'I I II' ()III JllltS ()i' t l \(' p roCI'SS ill t( ,(, lliS ()I' p rod llct clia r a('[('risl'il's alld jll ' rl '() (,l lI<IIlCI'
,11', til ililil'S , 11/ '11' prodll l'ts, prodlld 11I()difi cat io ll s, ,1I1d p;lll' l li ,\ p)'o \'ilh, Ill()l'( ' ddilliti l 't>
Inbound
Outbound Marketing lit' ,1'i ll n'S o i' 111 1' COIIIP,lirl'\ a1Jilit\ ttl iIlIH)I '<ltl' ,
Operations
logistics
logistics & sales TI lt' S('('OIHI an'a or cO lllp d ito r stn 'llg t h s ;lIld wC;ll, II("SC 'S is 1IIanllf~Il'lllrill),';,
1', ,1I1,([>s III(' 11 1, 110(, <lrt 'a or stH' l lI.!;th oi'T('xas lllstl'l I II WiltS' SI'lll iclllltillcto r <lnd ('( ,ial l ·t!
l'I I',f II!""' ~ li d, 111 '( ' 11 11I:1111 J! ; J('l l lri ll ),'; , 0111' oi' t ilt' kt ,) PO /t' ll l ial SIT(,lIg t iJ ;lJ'(';tS ill 111<11111 ­
-.....----­ I. It IlIIi ll,g il, I '(III 'I'S ,\ 111111'( ','; Il l' 'ili., l;l ill:lhll' ('ost a(h 'allt agl',\ , I s th c n' .L 1l)l ili l1,g a!Joll t the
Primary Activities
I LJl IlI ,' " I' lit(' 111. 111 / III 1 ' 11 1111 111 1'1" III(' (';1 \\' 11I: ill'ri;J! ;'('1 I '~S 11 1(' !('I-('I oi' \(' ll ica l illtl'gra­
Fi~\lI'l' ·L!) '1'1 11 , ,, 1111 ' ( :II;l i ll
'Jl II I (II lilt' 1\'1)(' .,i' \\ '<lI. I, " " /1 1,11 IIllI dl l ', l lJ ll ltlll :t ,'i II ,;I ;lil lllh l(, cos l' ; 1(h ; lIl l<1g( "~ 1;: \('I 'ss
 1'1111 /,1 ,'1 I ("" '1" III", 111/,1" ,, ;\ 7: )

1,\ '\0\ \ 110:\ \/:' II,I,!',"II I"1t1 I', IIII' 1' " JliI , ,II ' ,\. I " Jl tll 'I"lilt ~ ,lilt! III Oli \; ll ill~ " ,l'l 01 ' ), igl l" di s­
\1 \'\ \(.1 ': , II ': '\ I
• ' 1ll llllil .d JlHII /11I'1 II I ... ,'1\ in ' \ 1I111' l lllril ,'
• <.hl;iliI ,' cd 1" 1' . l lId 1I1 1t 1dl" 11I;1";I,~'.r · II )(' 11i 11 ,11,' IJl ISiIIl'S" '11 "' I ,JiIl Il\" ,II " '1 \I 'I I ~~tl l\ Ii" (;1'., SIIII) , l)is lll'\ , ,l ilt! Iltlw r firt ll s t l, at
• "" 1\ I'r"d",'I (,"I'"I)i l,l \ • k ,, ()\\' II · d .~, · (d ' llI l.o..;j lit ..... ....
1,11 , ' "I ,,', 's ,I',dh ,ji l"I ,il i",1 'I'l li' 'Jll.d il\ , el l' plli. 'li llill)\;!II: ( as Jl II 'as ' JI'c'd I»), tlll'll ov(-'r)
• 1:<\ I ) ,,1 1,,1' :t llel'llitlell" 1 1I:t1t;t ,~"lItt' lI l lin" idl' ,lI l il l'llllrt:!111 ;\."l'l' fC JI ullll'rs , ,\n otlwr aspel'l
• C ,illll rt'
• ' Ii 'l' ll llo l",~i"~ I" ,11I, tI \ /", is tit(' 1" ,11111'" , Ti ll' \', dlll's alld lIortll S tl l:lt jll' rt llc 'all ' ,lIl o r~allizat i o ll ca ll
• StI,<,tt'g il' go; '/ s " '1(1 pl,,"s
, Jt I ",i/,l' S,I\III: slra tq ,!;i ('\ alld illhihit otl,,'rs , III [l<lrl icltl ar, S()IIH' or~a lli /.itt i ons, sllch as
• Patelii s
• 1 ~ 'llrl'pr (, ll (' urial thrust
,\1 I ' 1),>,\, 'ss I)( lill all c lltrqwl"lwurialcltlt l ll'< ' t ha t "llows tl ll'1I1 t(l illili ,dl ' 1)('\\ din'diolls
1\L\i\UFACTUIHNC
• Phtlll1il1 g/opI 'rati o" SYS tt'l1l II I< 1111" mg; lIli /,a[iOTl '11 sk ill to i1l1ltl 11'(' thel1l, T iI(' ahility to sC'l " tnl l q!;ic goals and pl allS

• Co" l ... I I'lIetlll'l '

• l' II'.\ il"" procill('tio n 0ll c' I'atioll s
• 1': '1"iIJl III'lit
• Ace,',,, 10 r;l\\ IIl al,'ri"l,
• \ '"rti('al ill l ,.~ r"li o ll
• \\ ork i( )I'('" ;ttl illlll" :ull llf,ol'i \ 'ati (Jl I
• ( :"p;,(' il \'
I I" " I f" di\cl\',
FI'Ii\'liCE-ACCESS TO C ·\!'I f\L
• Lo \'alt\' -I'trll()\'l' r , \1 1" 'PIP';I 'lit si gllific' lllt C() llIpc'tc'llcies, To what ('..\1'1'111' cl ()I " 1111: IlIISi l1('\\ have it vis io,l
• ()',alitv 01' SIT'lt('gic decisiol1 makillg 11111 iiII' \ \'i ll ;lIld l'O ll ljwll 'II l'l' to PIIJ'SIH ' il ?
1'1\1' lin l, ,II'('a is ""'rk('till ~, 01'1"11 l ll(' IIi OS t illljl(lrl,," t Illarkl'l ill L; stn'lI g111, par­
MAHl\:ETlNC III ,,I ,l l " ill th (' I,i g l,-t('ch li('ld , iIl V()h'I:S lit(' prodlll'l' lill l': its qll; t!ily rq) JlI'atioll.
• Prodlld 'I"ality r"jllltati (J 11 II, Ililil " li d th e ll-alJlrt's that tiifTc'J'('lIlialC' it I'nllil o tll c r prot/'I ds , HralJ d illlag(' all d
• I'n )eI, I(' t cl1" r,,('["(' risti l's/di /Ii '1'('1) ti"ti ' )11 " 1" llJllil) ll "'IV(' 11('1'11 1",\, assc'ts ICll' 11Il siTll'ssc 's as d i \'e rs(' as (;' ltO(,;ld,'. ))('11, 'lIHl
• Jha lld 11;1111(' 1'('l'Ogll iti oll I; 1111. 1lI"\l lll'I'i ca, T I ,c ' ahilil \' to d ('\lc ,l ()p a tl'\I( ' (' I I.\ tl) IJl c r {)ri ('l1lali {)1I ca ll Ill' ,ill il lljlll J'­
1)('
• J\J'(wlll, 01' til(' produd 11111 "I J'J 'lIg11!. '\II {)tlll'r slrc'lJg t'h ca ll hasl 'ei ()Il tit(' ahility ,,,,,I willi llglll'SS t() " ein' r­
lilll '-,WSt(,II ISl'''p"hilit),
The SIl C(,(',,,,,, 01' I'neill c' l'l,ie""lls was cill(' ill pa rI t() 1'I 'n l,Il '-s "h iliil' to

• 'I' Il I'ic"I I"lioli

(;, "(1l 1I1( " III 1. 1[,0 SllllC'I'im aei\'('rl'isil1g, (Hilc' I' c' II ' IIII' llls (Jf' t),c ' 1II<IIll'li llg II l i \ , sll('h , IS till' sail'S
• 1' 1'1)111 "P"I'"liIlIi S
• S,'gill('II t; ,tiOIlif'O(, IIS I, '11 '1' ;lIICI s('nil'l' opn:ttioll , Cdll also Ill' somc(',' ()I '\\j>,I,rill al,1I' (,Oll'pditi\'I' ;lliI-,ultagc ',
• I' nlill 111'[ , hlJll [' '!'I II ;IS,'('[S
• J)i slTihlltio" 11111 o l'(: at('rpill:tr's st rt'li gths is I'll(' lj II ali 1'\ ' "I' it,., ei (',Ii('r II C' t wO I-k. Still dll()til('r p,>.o.; si­
• ,\h il il\ [" li S" tI"h l ;l lId "' I"il} fj ,I ; (11(,: ; II ,-.
~r
• I~l'l a il('(' ,'(' I'lti'''I.,llip 1,It , slrc'llgtll , I.larti ('III" rly ill tlw l,igll-tec il fic 'lci. is a 1'llIlllH'l ito r 's al)ility to Slay ('/o.S( '

• l',u" 'I1I \ \\ilii llg lll 'SS [I) fill;(III '"

• 1\,h('I'tisil1g/ prollll)li(>I' , kills
I" il s 1'lI slo ll l( ' r,."
TI ll' filial ar(' a 01' il ,l('l'('st is t il(' (,II Stl ll ll l'\' hasl ', 11 011' S" hSt:lllli ,t1 is t),I' l' l lstl llllt' I'
• S"II 's lin('( ' 1,,, d ' ;lIl d iI()w lova l is if? Il ow arc l'ill' ('Olll ]lc' tit()r's of/<'rill gs (,\'"I" ;l t(,d In' i ts l'II S­
• l:,,sl'<JlII(' r s(' lv ict'ip1'Cl(j, Id SI'l1ll ort r""I, 'rs'~ \\ ha t <11'(' t ill' ('<>S is l''''lt (, lI stIJIIl (' rs IV ili ha \ '(' to ah,orll il' th (,y swilTl l to
1111,1111' 1' Sllpplil'l'C' l':.\tT( ' III (' ly loyal ,11 1(1 "'lll J1Y 1'l lStIJII II' rs "1'1' goi l l,!; 1'(1 1)(' ciil'fi(,ldt 10
CUST Ol\IER BASE ",'IOlrl~I " \V"'ll' arl' I'll(' si '/,(, alHI growt ll P()tl' lItial s 01' III(' sC'gl lll 'lItS SI'IY(,Cl')
• Si/,(' allel IIl) all)
• rYl""/(d sl"m ' l'Iu' CompcliliY<' Strength C.-id
• CJ'()\\'lh 01' S1'gIlH' lItSs(' ,y ('ci
\\ lilt II I(' rt ,II '\';lIlt as.'ids '1I1cl C'll'lljll'lI'Jll'ie" idetltifi(,d , tl,l' ,Il ' \t \ 1','[\ is to Sl',til' ) '(Jllr
Fil!;ul'(' 1,(; ;\'Ial\', is Ill' Sln 'II,g tl ts ,"111 \\ '('a"'I( 's,,,'s 11",1 II li l'llI ,u,dll l(' ," aim CO IlIllC't itoJ's ()r str;lt('gi(' g mllps ()I' ('OIlI [ ll'liloI'SOil I'lll lS(' assds

11,,1 l'IJlllp\'lI 'I\(" i('s, Till ' i't 'slIlt is ll'rll'(,ci <l l 'UlIllll'l il h 'l' sl n' II'. >;ti l ~ f id :tile! ,' I'r\,I 'S I'll
IIJlJlltm i/,(' tilc' pos itioll of' till' cO llljll'litol's w it), I'('sp('d to :tssC'l s ' lIlci COIIIl)('t(, ll l' il'S ,
('apa(' ity (', "1 iII I '1'1 "I.'C, fi,\c ,tl ('osts , 11, 11' it can also lw a SO IIr(;(' O[' sl'rc'll gtiJ if tilt' tll<lrke't is
:\ slt,taillahle COlllpdit i\'l' ,tcha lll<lg(' is " lllI ost <ll wa)s hasl ,d Oil Ita\'illg ;l P()Siti()1l
\'olal il( , or .~
"Tllwill"', .~
,1I1,, 'r ill l' to t kll of' t), (' tal'gC'l cotnpeti tors in Or\(' or 111 01'(' asset o r cO tllpdl ' IIl'I ' "r('a
'I'l l(' l'llird awa is nll ' lIll'C' , 1' 1i (' ahility to gellc'rate o r acquire fUllds ill th e sllOrt as
11,,11 IS n, lc '\',lIl t hoth to 11 )(' iJlcillStl'\' ;lIld to til(' stratl 'g\ c,tnplo\'l'd , T i lliS, illi'orillatioll
\\l ,II <IS 1'1i(' IO llg nil!. COlllp,llI il's wit h d l'ep poclw t,\ ( fillall c ial resources) lwv(;' a ck ci­
"1,, ,,1/ I':Il' ll ('o lllpC'lil o r 's [lositioll w itlt rl's p(' d to "l'kVili lt assC'ts alld C( lIlIpl'tl'T1l' il 's is
'i i\ I ' ac/l-all t;I\2;( ' I,,'Call ,'C' t),c 'v C<lll ll llrslI C' slrategi es Ilol' availahk to sllIaiJC:-'r firllls ,
' 'J'III I,,1 to sl l'akg), dl ,\'(,lop tn c nt alit! C'\,ti ttdti o tl ,
( ;()lIlparC (:1 '11('1',, 1 1\ l o tOis \V ith CIllvsl('r, Ill!' ('x<llllpll' , or Miller alld Budweise r w ith II' a slIlll'rior l)()si ti o ll (l()('s 1I0t (' .\ist w ith H's]ll'd 10 ,h Sl'ts ,11\(1 (,(JllIpct('Ill'i('s
,, 'li ll I ' of' I' ll(' SIII"III' 1' I'C'gio'lal lm'wni c-'s , Operatiolls proVide on e IIl ajor SOlJrcl' of 1'1
1lIll HlIl:lIll ll) tIl(' sl'ratl'gy, it prollahl y w ill h <l\ I' to 1)(' (Tl':t t('d or t il l' st 1'alq,;), lI la) havt'
['III ,ds, W kll i s til(' II<lhln ' 0 [' cas I I fl ow diM i,\ hein g ge llCra teci and wi ll Iw ge nerated
I" I I\' II lmlifi, 'd 01' ah;lIl<ioll('d Slllllctilll('S tll(' rt , si lllp l\ is tlO poillt of di ffl' rc' llu' \\ i th
,~i\'I' 1I
ti l(' k1low ll It ,SC 'S lilr li llltls ? Cash or o tlwr ii cluid assHs pro vide otht'f sources, as
""' 1""'1 It) llll' finll s It'!.!.il rt!l ,d :1' ('o ' " IH'litors , \ ('o 'lIpde tl l,), lh at all cOlll p (' (itc)I's hal'('
dll('s <l pan'lIt rim! Thc ' h,y is thc· allility of' th e busillC:'ss to jmtil)! tIle me of debt or
lill llll l l l(' IIII' h :ts i ~ i'ol'; II , \( :,\, 1'(lIl '\,II J1jlk , 11t!!;111 "iI <'iI' is ill 'lJll,'l' lllt alllUn g airJilll'
"II "il.' "lid lh l' w ill to accc'ss this ~Ollrct',
1I.I,,';( 'JI:c.,'rs 111 11 ii ' ;t ill i,,," :I I I I " 1I"'I\ld 10 II( ' (''1ll al w il l , ('( 'S P( 'c'! III p ilol qllalih ' alld
 7 "rn/ 'I'll '" .\/III/I '::il ' , II/ilii/sis

~ ~ I ~ u~ ~u~ ~~

pl ;lI l(' IllailliellillH 'l ', i[ e<lllll ()[ 1)(' [II(' Ilasi" lin all .')(;,\ (JI (''' "1','1', ir SO ' <lil 'lilll 's call
llll
CIJll l'ililT p iL''''' lIgIT,' {'kit til('.'" an ' stlp erior wil-il respe d 10 <l11[i[ITrori,,1 sl'cllritv, tlwll
all S( :,\ cOllld illdced (' llll'I)!;I'_

~~~~~ ~~~~U
The Luxliry Car Market '0
::I
<I:
A COlllpc'titor stl-ength ,l!;rid is illll strated ill Figure 4_7 {e) r the 11I,\ llry car Illarkl't, The
r ele vant- ass<:'ts alld COJlljl(-'te llcies are lis[-("d Oil th e left, gron[led as t o wheth er they
arc cOJlsidl'red kevs to Sllccess or are of' "ecolldary jlllpOI-t;lIl C(~, The principal CO Ill­

~ lllll u ~

c:

pI'titors arc shown as col llllllliwadings across til(' top , Each cell is ('()(kd as to
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IVll('tlll'r thl' Inalld is ,',tTOllg, ,i1 )OVI' al-ITag(', al'ITage , Iwlo\\' ,IVl'rage, oj' \Veak il l that W
a,-;sl't or COlllj Wk ll('(' ea tegory

UI U~ I· ~ uuu~
Ti'l ' res I d ti Ilg ng llr( ' prov i( II~s a SlIlll Illarv of' the pronle or the stl'l'llgths and wl'ak­ o
>
III'SSI'S of' [I'll ilr'liids T wo ca ll he cO lllpared, sllch as Ford <lIl(l J ,( ',\ 11., or Bj\r(\V and '0
>
/\lIdi , B V!\\.' and Lex lis Iiave ('Ilviahic po"iliollS,

~ I·II~ ~ ~ UI~
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Ilaps 1'0 1' dilkl l' lil prodllds ;\ fil-Ill Illav 1101- COlllpl'l-I' w illi all otlil'r rinlls in I-Ill' ind'l s­
cJ
II -I IHiI (l id> w itll tliose 1: lIga,ged ill " illlilal- "tra l egil'" aile! Ill ill-kl'ts_ For I'xaillpl(', J
('(IIIII Il' [i[il( ' SITI'II,~111 ,grid lilay look ve r y diffl 'l'c llt ICIl- tlil ' s, tic'l), slIillllarkd, with Volvo
lli lv illg 11101-(' ,'[ l'(' lIg[ II, .')i lllil'lI-h', till' hal](lJilig Sld )lllarkl'lma), also in vo lv(' a cO lllpeti ­
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illid II SI 'IIII. 0111' apP,(),wll is l() 11;11'1' S('vI'I'al Illal1agers c n'atl' llwil" O W II grids illde­
[Wlld ('IIII),- Til l ' ,li/'le'l'I'IICI'" call 11~ llallv illJllllilla/'(o <.IilFel'( ' llt asslIlllptiolls ;ln cl illrc)r­ ::l 0

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Illatioli I);[ws_ ;\ I'('('o lll'iliatioll stage call disSl' lllillah ' rcl eva nt ilirilrlilatioll and ---'I-­ "tc
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ie!I ' lllil:1 al](1 sl'l'licillJ'( ' ,, [-rall'gil' IIllcnblilili es_ For example:, dif'i c." I"l'llt opinions ailollt

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llll' '1 l;[l- rqmla t ioll ora COllipHitor lila), " ti III II iatl-' a strategic IIll(;C rtainty that ju s­
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pnklps sll]lportcd hv prl' lirliillal)' starf work_ \Nlwil possihle, ohjectivi-' illlc)fJllatioll cn l ---' ~
1), [sl'cl Oil lal>orato rl' t('sts or Cll.stOIllI-T p en'l'ptioll stlillies should Ill' med, The Ill-'ed ::i
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lill' slicIi illlilrillatioll Ill'COII]( 'S c ie'ar w hc ll rii sagrCl'Il H" nts ari s(' ahout w h e re cOlllpeti­
tors slllJlilcllw,call ,d Oil th e VariOilS din H-'llsioll S,
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S( TII'I" 1>llsilll' "" Till' \\,( ,1>si[I' :" S() I'ilil 1)J'()v il ]I' ildill'lll:ili(1I1 :"II>liI ',,,I ,l l 1III',ilil 'SS :iss('I, "' g rij
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 - Ii /'11/1 '/'/1 ' <1 ... .,' , , 'tl/(';.! if' . \11111 !Isis ( '/,"/, 1", / ( :II '"/ H'lilll ' , \'"'/'I-, i" 77

SI'ppl "'IIC" llc 'cilVilll S( ';U'CIH 'lIgill<'s, ;I( '('( 'S~ 10 <ldicl( ,s ;IIIIll ill ;lIl1'i ;'/ r'r"'" "I)()III II i(' Fe)H DIS(; lJS S IOl\
Ilil sillc'S\ . CC'ncral - ildcl)"rliaticlII sites (s lIel, <IS Ilii si ll( 's." ('ollil , ;lIul \\" ,1 1 sil ('s ICII' 11;"1,,
I , ( :(II"idl 'r III<' 11,11 '\ isio ll indll strv. lcil'lltii ), ti ,l' cOi ll pl't itors to N Be alld
shows , ITadc-' Illagal.ines , challJw l II w lllhns (such as retaik' I·.,,), ;II HI lill alll' ial allalyst.-;
call also pmvide II sl' fill inlclrInatiorl. Ilrg'llIii'.I' tl,I'1I1 ill t( 'I'III S 01 th c ir illtl'llsit.v oi' cO lllpetition. Also organi7,l'
1/ 11'1 11 ill t(TlllS of strategic groups. f\re tlll'rv clilTl:'rell Ct'S in till' two
J.)l'laiJ(~ d illl cJrll lati o n on c(lIllpetitors is gpnl' ralJy availahle from a " arid), 01'
SO llrCl'S . Cornpetil'o rs llsuallv cOllllll ulli cate pxte nsi ve ly w ith tlwir sup pli er s, CIIS­ II J('t hods o r org<l nii'.Ht ion '~
tClInc-' r,,, , and l li strihutors; Sl'l' llrity allaly sts alld stoc kIHlJd e l's; and governnll'llt I (~gjsla­ 2 , I':\,d'lat(' Figure 4.7. \N hat sLirp ri ses <Ire t1 ww ill thl:' figll 1'l" ? \ ,Vhat aw
to r s <llId reg ulators Contact w ith an )' of tlll'sP ca ll provide inlc)J'Jllatioll. rvl o llitori ng liw illlplic<ltiol lS i()r Cadill ac? for f\lH li '?
of trad (' 1I1agazilH'S, trad e shows, ach-ertising, spct'clH's , annllal reports , and th(' like :t I'i ck a compan y or h"<lIl!l/ husilll' sS Oil ",llieh to IClc ll s. \Nilat 11liSill(',ss is it
call Ill' inlcll'1 l1 ati \'(' . T('('lillical II wdiligS and jOl1rllals call l)l"ovid(' illlc)J'Jll<ltio ll ahollt ill '? \ V llO ;lrl' its di wct alld illdil'(-'cl cOlll pctito rs'~ \ V ilich ill I 'Hcll catego ry
t('chll ica l ch'vt,I,lpllC' "I·." alld act i viti es. TlullI ,"allc!s o f datahascs accessihle' hy COill­ are I'll(-' lIlost ('(>Ieva nt COlllpditors'~
p"ter 1I0W lilah , available d C'laikd inl cmllatioll O il most cOlllpanies.
4 , C Ol1 si(kr th(, <l lltolllOhik illdust ry, [d('lItil ), cO lllpditors 1'0 F()rd ,11)(1
J) (' l<JiI (' c! inl cJI'I ll al'i o ll alHlut a cO lnpd itol'\ standing w ith its clistolller." call he
o rgallii'.I' th( ' 111 ill t(-'I'IIIS o r th eir illtl'll sil)' or conll)('hti () 11. ALso organiz(,
ohtaill('d thmllgh lI1<u-kd r esl'arc h. FOI' c'x,lInpk, ("('gll!;u' tciqlhon(' SI Il V(:'YS cO ldd
till '1I1 illto strat('gic grOl'lls . \Vhat , Ii'( ' thl' K SFs /'01' til(-' slrat('g il' gmllll.s'?
plm ide inlc)J'Jn <ltio ll alHllit thl' S\ll'(,('Ss( 'S and vllirwrahiliti l's o r COlllll(' titors' slTate­
I)" lO ll tllillk thai w ill ('iI;lllge ill I·h(' Il l '\1 rivc yl~a rs?
g il'S ]\C'S I)Olld c' "t, could h t , askeel qll estiolls sli c h as th e (,()lIow ill g: \ V hi c h s('ml' is
c losc 'st to yo III' hrllll(" ~ \V hich e!o YO II shop at nlost or'tell'? Are Y()II sat isricd;.l \Vhich
it"s tli(' lo wc 'st price-'S? Bl'st spec ials? Best CII .,tO JlH'r s(>rvic("~ (; IC'<I 11 (-' ., I' s toJ'( 's'~ Bt,st­ 1\1 ( rrES
cl"·!lity III C\\I ;.l Bc'."t-ql1,dily proe!II( 'C'? And so OIL TI,o", chaills that Wl'I'(-' wl'lI po.<;i ­
I . 1);\li d II ,dlll'rst<lIIl , 'f'l l(' j{( ·,J1III illg , N('w York : \Villi.tllll\·lorrmv, I ~JS(i , [I . :3 10
lilll 1l'd ()II val,H', o n SI ' I'\'ic(', o r ()II prolIJld fjlJalitv c'oliid II(-' ic!l,n tifi l'cl , ,mel track illg
\\'(lIllel sl,!)\V w i 1I'tl 1('1' tl, c)' wc'rc' g<lilling or losillg l)ositioTl . Thl' loya lty or ('heir CII S­ :~, II Jicl.
:\. 1'-0 1' it 1'11111' 1' ili s(,lI ss illll or (,X [l<l lldill ~ IllI' r;ld<lr su('ell St ' I ' /\d ri<lll.l. S\.I'wol·i'.k) , \ '11111('
tOlllC ' I' haSl' (a llel IIIIIS tl '(' ir l 'ldllc " 'allility) cOll lel Ill' i lltii catee! ill part hy satishld ioll
.\jigl'll/ioll , 11 ,11 '\<11''' illi Si lic 'ss ,School l' r('S' , Iloslol' , I ~)')() .
s('on ', '11Ielll)(' wi llill g ll l 'SS or' CIi StclII l(')'S to l)atrolli i',I' store s ('V(' II ",11(' 11 Ilwy 11'('('(' 1I0t
th (' IIIClst CC JlII'(' lliC ' 11i Cl i' III(' I('<lst c'xpc 'II.,iv(' . 1. (:"Ol'~l' S. I)">,, AII <lII I ). Sho('ke r, <lll d 1{;'.Ic' lldra K. Sri v<lsl "I ·'I, " ( :,lslo II,, 'r-()ri( 'Iltl'd
:\(lI'I'I " l(' l lI's to 1 ( "'lllil " ill~ I' rodlld ;VI.u-kl'ls ," j ()lInll'! ol ,\llI/ h '/illg +:1, I,';lll 1»7,) ,
[1[1 S -I ~).
s, l ) o ll"ld C. \\'<l it (, III , " 1)(' ,·c,).;"I"ti oll alld 11,(' Il'lliki li g I IIdliSI 1'1 ," lJ lI/d",,/,s ;\I({gll::illC'
KEY LEARNINGS I (i:j, .I .IlIII<lly - I' "IJrll ar\ 1 ~)S2 , [lp. 7(i-!):5.
n, 1\'l i(' II<,cl I ~ . l' ort"L CO lIll Wlili vl' Slmll'!!,lj , Nt'w York : 'I'l l(' 1))'('(' "n'ss, I \-lS() , [l [l .
• COlllpdilurs call II(-' ic!I' nl'ifi('(l hy l'll stolll('r choice ( the se t r'm ill w hi c h 2,0- 2 1. Til l' (,OIW('pt· ol' n it harrins w illiI(' di s(, lI s."" d ,,~;ti ll ill (: II<lj1I" ' " 1:3.
CIJ., tO l1 lt' rS sc,lC'el) m hy Ci ll st('l'i lig them i llto s tratl',l~ic g rollp S, (finns tha t 7, I\rji cl'<l('1 I ~. I'olt('r. (,'olll)}('lil.i(',c' i \c/'AlllloW'. N ('w York : 'I'll(' 1-1'('(' I'r,·ss, I ~J.s::; ,
p11rslll' sillJilal' stl 'atcgi('s allc! ha\,( ' silllilal' assds , cOlllpck nl'i('s , and oth c r ( :il;'pll 'r 2 .
ch al'acteri stic.,, ). TTl either casl' , cOlllpetitor., w ill v ary i n I'e rnl s or how S, Sk,w ll I ) . (:al'l\\'ight ;11)(1 Hicll<lrd \\ '. OliVl'r, " U IlI'II',l!;lill).; l'l ll' V"III(' \\'(' I) ," joll'-"III of'
i llte nsely the)' cO l ilpdC'. 11/l .';i lll '\.\ , .I <lIlIl,lIy - F"I"·II<lrv, 2()()() , liP, 22- 27.
• COlllpetitors shollldlll' <lnaIYi'.C' eI alollg sl'v(-'I·"I dinlCllSioTl s, including tl,cir
sii',I:', gl'Owth ,111e! profil-ahil ity, illlagc" ohjective's , b usiness stral'l'gi("s, orgalli­
zatio ll ,tI Cl'/tl1r(' , cost strl1 ctnre, pxit Ilarriers , ane! st rt' llgth s ,"ld IV{,<llm!:'s'''I's.
• Pott!lltial st rl' ngth s aile! weakncss(-'s ca ll be identified II)' consid erin g th e
c har<lcterisl'i cs or successFul and IIJJ Sl lcces " rul hnsin essps , key c ustfli li er
Inotivatioll , ,lIld vallie-add ed COlllpclll e nts.
• TIl(' cOlnpc-,t iti v(' streng lh g rid , w hi ch array' cOlllpditors or slr;IiI',L':ic
,l!;roll ps Oil ('<I(' 1l 01' til(' l'I,I('v,H1t <1ssc'ts alld l'Cl lllpdc'llI'ic 's, 1"·'II·id" .s ;t ('()III ­
II.wl ."" II II I !;II'\' ()rL'I' sll·.Ii ('gic illlcl1'lll ,liioll
 Chapt er.5 Uark etlS ubmarket Analysis 79
CHAPTER FIVE
('an in clude those idplltiRed in clistomer or co mpetitor anal YS is, hUllh e p erspl't:tiVt'
Il('re i s broader alld oth e rs w ill usu ally Pill er,l';e as 11'1'11.

MarketlSubmarl(et Analysis DIMENSIONS OF A MARKET ANALYSIS

TII P Ilature alld cO Illt'nt of <lll analy sis of <l market and its r('\ (-'I', \I)t prodlld markets
will dqwnd Oil context , hilt lVill often include till' l<>JlolI'in,l'; dinll'Tl sio lls :

• En w rgi11,l'; ,'I lhlll arkds

• Adll,,1 alld potential IlIari<et and SlIhJl1<1lh,t S;Z('
• JV larkd alld sllbillarkd g rowth
• lVlarkd alld slIhm ,lrket profitahility

,\ s t11l ' ('l 'OIlOIlI)', I('d III II", ~ llItOIlIO"i l (' ill(llIstry. rm(' l o a 1\( '11' Ili,!!;h 1('I'cl ill till ' hl'I'lIhl 's, a • DistriiJlltioll s),s t(-' 1l1S
(,Ollll'!." \ or Il('\\' l 'II 'III (' llts ('a lll( ' i lilo ('\;' ll'lIl '(' til tl'all , li' l'Ili till' IIlilrkl'l : ili sta llllH 'llt ",lIillg, • Trellds alld dc'\'('lop "l e lll.o;
til(' 11"< 'cl -Cil I' trad(,-ill , i'l1I ' ('Io,('d hOlk ~lIld IIII' ~ 1 1l1l1l"llIl lld(' 1. ( I lI'oltid "lid illljlrt)\,l'd mads ii'
• Kl 'Y SIICC('SS raclors
I \\'(' 1'(' I'" takl ' il ll" alTll lIlI1 till' ( ' Ill irolllll('111 01 ' 111(' <llllt IIlIOhil(', )
- ,llji',',1 J: .\1""" J1' , C:1'//(,1',,/ \/"(,,,.,
li iglll'l' 5, J provi d('" a "d or qllc's lio llS strlldllr('d al'(lIllId t l ll',O;( ' ciiIlWII S;O Il S l'il;lt
Ik lill'(' Vil li 1)lIild a 1)('[[1' 1' 1I1()l1\('lr, '1 ', il 1II'II's 10 klll lll' il'l l)('I'( ' ; (1'(' '1111' II li('(' Ill il lh('r(', , ':t Il Sl 'r Vl' to sti II Ittiatc ' <I disCli ssiOIi idl' lltirvill,l'; opportlillities, tltre 'a t,s, alld st r,l t('gi('
- . \ /(lIIiIl/( " " H. /114 I" J fila II II I1('ntai[)til~S, E acll dillll' lISiorl lI'illll(' addr('sse d ill lllrll , sl'artill,l'; w itll aSSl'S,'"IC ' llt or
II I,lrk('[ .'ii/,l', The ('hapl'c'r COlicilld('s wit il a disl'lIo;sioll ()r til(' ri ,sks or ,!!/Oll' I' I I 1I l;\I'k('[s ,
Tit " Illns l (,!'ii 'dill' "'aI' I() ('ojl(' lI'iI'll l'I"l n~( ' is 10 Iwljl ('I'('at(' ii,
- I. II ' / "/,,, 'f(
1 '1Il(.·'"ging Submarkets
I 'l li' 1lt;lIla,l';v lI ll' lI t or a rinll il l ,lilY dYll'lIl1ic Ill arkd )'('qllin'" acldn 'ssillg tlic ' e1l<1il c lI,l';l'
111,1 "JlI)OI'tl lllity or 1'(' I('vallce' , a" cle 'ic ril w d ill till" i>o;\('t\ illS('rt ( [l ag(' ,' i l ), III eSSl ' fI(,( ',
II" , " llall(' n,l';c i" to dd('d and lll)(]c' rstanci C'1lH'l'gill,l';Sldllllal'\;(,ts , id l' lltih, tlIlIS( ' tllat ar('
Ilfl :}('livC' to till' finll ,l';ivC'1l il-" " ssds alld l'O lllpdC'Il Ci('", 'liid tlll'll alljlls!' o/'l;'rill,l';s ,wd
Markel' allal:-'sis 11IIild s Oil ClistolllCr alld (,Olllpditor allai."sC's to II lake: ,' Olllc 1>1,1 1111 pOI't/() lios ill cml"r to ill(TCaSl' tileir I'c 'ic vall(;(' to till' CilOSl' lI Sld li llal'kds, TIll'
strat(, g ic j ll dgnl('llts ah()l l l a l1l ;uld (and Sllllllldrk('l) and its d Vllallli cs, On c' or th e " I ' IH ll'tlll lilv i s to ill llll l'Ill'C' tlw,l ' cllw rgill,l'; Sld )lIl arkets so tllat conlpdi tol" IWCO llll '
prinla ry ohjc~ ctil'l ' S or a Illarkl'l ,lI lal),s ;, i s l() dd(' rillill(-' tl)(' ;tttradil'c' nl ',O;S of;1 Inar­ II '" 1'( ,IC'l< lIlt. A I'Clr;C'1V ol'sonlc orth(' IIlallY li)l'c(->s allli C'I'l' lItS 11L'hillll til(' ri s(' ol' l ~tll 0 1'
kd ( or sitillllarh ,t ) to CI llTl'llt alld potential parti c ipallt", ~'Llrkl'l attracti vc'IH'SS, I d ll l1~ll-kd" lVi lll w I w lpl'lIl il) tlte dirRcldt ta sk orlk'kcting ,IIHl l1nd( ' I'staIHli n,l'; til('111.
ti l(' nlarkl't's prorit poh'n lial as IIl c' asllred I»), til l' l o ng-UTilI rl'tllrtl 011 inl'l'stlll l' nt 100;I'st , th(' prol h,ct or St'l'viu' ca n Ill' a(lgllll'lIt"l'd or C'xpallded to in cliidc a II C'IV
acllil' v('d ily its participal)ts , w ill providl' illljlor tal lt illp"t ill tll th( ' prodll(:t-mari<d .i1l 1l(' II Sioll. Satllnl and ],C'XI IS, "(lr example , cilanged tI ll' way CIlsto lllC'rS illte rad etl
in Vl'stlllc~ lIt dl'cis ioll. Til(' fraille' o r rt, li :WllC(, i s all particip,lllts , ()/' cours t', [)a rtic­ ,\ 11 11 (';11' d ('al (' l's ;IIHI , Ii)r SOIl1C' , ere'atecl a suiJlliarkt't th<lt mad(, son IC' oj' th(' othcr
ipatin).!; ill ,III attractiv(' nlarkd \V iii not ,l';uarallt('e SIICCt'S" I'm all cOl1lpetito r s, 1>1 ,11111, I('" s n ' I( 'vallt. Banqlld Tloll ws ty le Bakes sll c(;(,ss l\tily l' lltl"),(,' d thc~ s ll ('lI~ stahl e
\ V lw thvr a Illarkc ,t is approprialt-' Ii)}' a parti c lliar rinn i s ,I r elated I )nt ve r y diller­ 11 11 ':,1 1I1;(1'\;('[ will ' I'( ' IkttyCl'Ocke l.'s I-Talllhlll',l';c l' J-lt'lpcr n-'s id c's with a IllC'at-ill cllldcd
(' lit <[IIC'S t;OIl , dq)( ' IHlill ,l'; not UlliI' Oil thl' market altract i vc 'lll'SS, hilt also Oil h ow th e " " ,tll' :l('\;a,l';(', tit c'n' ll,l' cr('<lI-in,1!; a n t'w slIiJlllarkl't,
firm 's strellgths ,\lid lI'eak n l'ssl's ma tch up a,l';clill st thost' of its cOTnpt'tito)'s, ,'it'(''' lld , lilt' Illarkd call h e iJ}'()kcn into lIidll',' , T Ill' (' I)('rgy har Ill<lrke t crl'atcd
t\ s(' cond ohj('di , l ' 01' m ,lI'kd allah-sis is to IIIHlc' rstand th e d Yll alllics 01' tit(' 111<1 r ­ 1" 1'()WI' rll :lr ltil i lllat( ,l y rra,l'; ln c' rltt·d illto ,) varic,t)' or slIhlllal'iwts . ill t: llIdillg one
kd, Th(' 11('(:'d is to ;(Jc.lltil) ' V I lll'l'L'; iIlg ,, "hlll'lIlds. h,," SIIC(,( 'SS Lldors, ['r( 'lllk Ilm 'ats , ,I, '"''.'11''' I'm 11'111111' 11 ( 1.III1a ), l,i,L'; h prolt'ill ( Balan ce), low c,dori cs (Pri a). and candy
opportlilliti('s, and SIT,It't ',l';ic IIIl('C ' I'lailitil's tll<lt l'<l 11 ),!:lIi ck illl 'IJl'iII:lli()11 ,!'~:II III ' I ' ill,L'; ,11111 1',11 1:1.' 1<' ( 11: tI:I1I('I ' (:olcl l. 100;l l' ll "I'llit'S<, lli"I IC'S 1'l'J1r! 'S('lItS all ,\r( 'll ;\ /ill'which tl )(-' orig­
'"lail',;s , t\ kt ,\, "111'('( ',,, hd()I' is :111 :to;sd 01 ' (,() IIII ll' I( ' IJ('I' l"'li is 11< '1',1",1 III 111:", IIII' 11 0. ,11'1111('1'11;11 ' 11':1, 111111'1,1"1:1111 ,
,<. :, :111 Il " 11 ': 1 fil'lll l'd':1 slr:III 'I':;(' 11'('''''11<', ,, ill;} "( 'I, SII('('(' ,' " 1"11'1 111 Ill.iI 1',111 1I>'II II :lli '/I'1 1 '1'11;1''' , lilt' :!j)I,li l';( ll')l1 """ I'" ':<11 II, ' ('\11.111"( '" "1'0111 ('011 11'" 11( ' 11" 111 s\sl( ' 1I1S 111'
I ll " \\( , 11 ('()lII'I 'il ('" , II"I( ' ,!~I ;h :,1,;1111 1() ('OIl Il" 'i<' \\, " 1111 ,11 1111 1, ,I I II' 11I,lI k,'III 'I 'IIII , 1 111 111\(,\ '-: tdiiti f lll."· ill ( " " ' Ilf 't ' /111 " 1- I' . . 111 Pt~I II ·" . ; Jli(1I1 jill! ) ,\ [ 111111 : 1111'1.\ 1111 ' i l l \(" " " (II
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Si :xl h, a ('IlStO IIll' 1' I r(, 11l1 C,1l1 h(' a dl'i\ 1'1' 01' a su hmal'kct. Thc dual tre lHI, towa rd , \I',l s ill III ;III\' 11I1<11 ' 1'(II '\ I,I')I)('tl Cll lilill'i ('s, Illit a lac k ol'I '\1llds inhihit hll y ing <1I1d g()\'­
\\'('IlIl('SS a ll d ti l(' IISI' o i" he l"bs ;I IHIIl ;t! nml sllppkll H' llh ha\'(-' ,')ul)port('(1 a lit '\\' cat(-'­ , 11 1111 (' 11/ rl'L; lIlalillils IIlakl' pmdll ct iv(' , dTici (, 1I1 op (o lati l1l1s diFfic ul l' it' 11 01' ililpossibk ,
gorv, 11I';dt hy -re l'rcshnl(' llt h e\'l' rages ( I I I\ B), Tlti s arcna 1l0W co ntai n,,) a host oi" SlllJ­ \/.1 11 \ ti()I-( '1l 111 (,(lIlet 'ptS W( ' IT the IWll e fi ciari es of cOll side rahle hyp e, hilI' l'ail eu
c<llvgo r i(',s, SIICIt as (' III "ln('('d II ', IS, I'rt lit drill ks, so),-hased drin ks , an d w, l tv rs, Th l' I " I ' II "" 11,1' grow tll of thei r appl i('at ioll Jl ('ve r lIl<1tcl'iali /,cd,
p il)lllTr and ,s lt/ ) llIarkd leadcr is So lk, w hi ch sl;II'kd ill 19!)() (w ith Sulk Black Tea
:3(; , contai llin ~ g il ls, ' ng, g illk !..'; o , alld g llaran a) an d now has <In ('xl'cn si\'(' lill (' or I'(:'as , "'lIIall Can Be He<lulirul
jlli u's , ,lIld (' Ilng\' dl'i n ks,
111111' lil'lIl S Ita\ '(' ill\,t'sl' llll'llt erikri a I'h"t l)roltihit l'ht' 111 li'o l11 ill v esting ill slll ;111 111 ;lr­
S('v('nth , a I I('\\' [('dll! olll!!;\ " I('h as di spos<lhk I'a/,o rs , Il o t(, hollk C(JIIIJ)!lt('I'S , a 1,1 , " I ()hi/. \l iIiTillll , Frilo-LI) , alld Prod(' I' & C:<l III I>I (" 1'( 11' (',\illl lpk, IwVl' historic,ll1 ),
111 '\\' I'al nic, or 11\ 'hrid ('ars- (:<ln dl'i \ 'l' til(' pI'rc(vtili n or ,I slti )IlI;]l'lw l. /3\' C I'( '<Itill ,~ a 111111" ,'/ I'() 11 ('\\' prodlld s tkll Wil li Ie I ;,!;CIl I'J';ltt' lal'g(' saks k q ,ls withill il few VI 'aI'S, Yet
slti l('a t( 'g()J'\ IIl'tl n il('I'I', ;\s;tili Sllpl,!, 1),\ Iker Illad(' "- irill , tll (' kadillg Iagn hl'n 111 ,11 1(' ra ()I'll li ('l'olilark etillg, 11 Ili Cit of til(' :Idi oll is ill ' Inal! er Ili cll(' S('gIIH' llts, Tr a fil'lll
Inallli. i l'rc ll'\ <l 111 Ifl!' a significant and ,!..';rtlWi llg sq!;llll'nt ill Japan ;\ Illilllll' plave r w itll I ]lids thl'lll , it ca ll lock itSI'II'olit Ol ' lIlIl Cit 01' l'Ill' \'itilli h al1(1 profitahilit y o r a IIiI SiIH',\\
II n d n ,'-;rlr or III(' IIlarkd ill I D,')(i , ,\s alli gIT\\' 10 g,lill 11 1<ll'kt ,t s/';iI'( ' It:adl'l'shi[l ill tlt e 111 ',1 i"llrl I IC rti 101'(' . 111 (lS t Sllltsl,lIltiill hll.,ill('SS al'l';tS WVI'( ' slIt:til at II I(' Oltl SI'l , S0111('­
1,,11 ' IDD()s, ill 1 ; 1I0l~( ' p ilrt Il\' tak i ll'~ , li a rt' 1'1'0 111 Kil'ill I IIIII'S /(lI' 111,11 1\ vcalS , \\!lidillg till' slll al! lII<lrk d (';111 t lil iS 1111 ';111 I'llal':I lil'ln Intl St latc r
Fill ,tll~ , a \\, 111 )11 ' IlI al'lwlC;lIl silllpl \ 11(' ill v(' llled , I' llay Cl'('illt'(1 :111 OIt/i IH' <l ll dioll ' I " 1('11 1111' til(' fil'"t-III() V(' I' ;I (halll'ag(' ol ' lll'Il< ' I'S,
1'<tl t',!..';IlJ'\ Iltat "'IS sp:t wl ll'd 111 :1I1\.' ilil ita tors , \\ '11 0 kl\(' ltad diiTic lllt." IIlatclting h()t-iltll('
"])( ' I :l l i(l IUII )(' r iulllI:lIlt'I' ;llldlhl' n it i('al II I;ISS OI' II SCI" c!' l alllislwd hv I ' !la\',
\lAHKET AND SUBMARKET GRO\VfU
ACTlJAL AND POTENTIAL MAR KET SIZE \1 11' 1' tilt' sizl ' Ill' til(' III ;LI'h,t ill1(1 iI's illl[llHtall1 Sl ti)ll!;ll'kl ' ls Ilil\I ' h(TII l's lillt:ltc d ,
I I.. I'II('IIS tllrll S 1'0 growIl 1 rate ', \\' 11;11 w ill 1)(' 11, (, si'/.I ' Ill' till ' IIlark l'ts slIhlllarkds il l
,\ 11;I,il' 'LII 'lilI!..'; p "il " lill,t ll(' ;lidys i" ol', IIII:II'I\d 01 ' \ lti 111 Iarl\('t i" 1'1, (, tOtiti S:lI(,s I('VI '!.
IIII' rlll ll r l'? I I' a ll ('Is(' l'('lllain s cO ll sl' all!' , ,growlll 11li';I II.' 111 01'(' ,,,tit's ;lIld profit s ('\'('11
Ii' il i" 1'l '; I"o ll ah l" III 1)(' l il '\(' I II:" a ,' I ICI '('SS i'1 ti " t l':tI ('g\' ('all 11(' d (,\'(, lo[l1'l1 I'll g;li ll a 1,'5
1111111 )111' in nt'as i ll,g Illarkt ' l SII ;lr( ' I t C;t ll ;dso II1('all Il's s pri ('(' IHI ' SS III'( ' Wlll'll
1'1 ' 1( '( '111 sll<llI' , il i!' illll',,! I;1 1I1 til bl()II' till' tOl,tilll ,llld si/,(' (\ llIl lIl g tIl(' SIlIII,(,('S tha i'
,[ , 1I !. llld ill Crl'aSI' s I'astl'r l'It;LII slIp [l l y alll i ri rtlls al'(' 111l1' I' li gagt,d ill ('.\J)('ri(' Il (,('
I'al l III' 1" lltf'lti ;lI'I ' I'llillislll ,d fillallCial all ,tiv,,('S 01' lll(' Ii I'll I, ('11"1'0 111 ('1, , ,!.;m( ' I'IIIII ('llt
11111'1' pri c il l,g , <Illtic ipalili g l'lltlll'(' 10wl' I' cllsIs, COI 1\'( ' rSl, I), (11 'clill i l lg S; ti l's cal l
d:lta, alit! Il'adl ' I lId;,.':;IZ ill( 's ;j il t! ;lsstl('i;lli OIIS, 'I'll(' !tihlliatl ' SOIII'C(, is OI'tl ' ll ,I ,'1 ln'(' v o f
1111',11 1 J'( ,d lll'C,d sa l('s all(1 OrlTIl illt'l'('as(' d l) ri cl' lH('S Stll'!' ;IS l'il'lll S stl'lIgglI ' to hol d
Il l'fldlld IIS('I'.' ill \\ I,i (' 11 I,lli' IIsag(, I('\I' ls ; tn' I'mj l 'dl'l] to til(' p Ol"liati o ll ,
r l" Ir " llal'l 's o r a dilllillisililig [l il',
It Ili ay S('(' 1I 1 t il:tI 1'11(' stral'l'gy 0 1 c hoic( ' wo uld thlls Ill' to it! I 'lltil \ ;tIlt! il\'ll it/ 1lI'
Potential i\larket- The Use l' Cap
,1"ill \I 'S t ill declillill g sil'lIalioll s ;11111 10 it/ (' ll til,' ;lIld ill\'('s t ill grow l'll col1tl',\ ts, or
III ad tl iholl I'tl til(' si/,( ' Ill' til(' (,IIITI' I" , 1('11 'vall I' III:trkl't, it is ol't!' 11 Il s('1 1i1 to cOll.,itll'r " lIlI ,,(', tIll' I'('alit\' is Il ot tllat SilllJlk , III pa rli clllal', (h 'l' lillillg llrot/lld ll lil rkl'i s C;tll l'l'Jl­
till' llllt('lltiall l lark d, ;\ 11('\\' II S(' , III 'W II S( ' I' gm llp , o r 111( 11'(' I'rl' lJllI ' llt IIsage ('(l ldd dra­ " '\1' 111 <I I'('al IIp]lorhlllitv 1'11 1' a fir lll , ill l);lIt I)('C; III SI' ('()lllpditors 111 ;1\' 1)(' ('x ihllg :uld
Illati(';]11\- Ci lill lg(' til(' , i /,(' alill [lI'OSPI'('h I,", t ill' 111:l1']((,/' 11 " :ill\ l'Stillg, ills/Tatl Ill' (' lltl' rill ).'; :lIl<1 ill\l'stillg lin gl'mv tlt, TIl(' finll 111:1)' ,lttC lllpt to
1'1 1(' 1'1' is IIlIrt'ali z(' d l)o l( 'lI tia l 1(11' til(' (,( 'I'( 'al 111<11k('[ ill 1 ~ lIl'Opl ' ,11111 allHlllg il1 sti­ 1'1 " '11 111( ' <I pl'ofitillt ll' Sllly i \llr h ) ' 1' ll l'ollragiTi g o tlwrs to I'x it alld hy IWCO IJ'li ll g d Ollli­
hitillllal ('llSt lllll('rS ill tilt' 1i l l il'I,tI Statl's- r ('s!;lIlralits alll i sclJ()ols/ da\'-(,;IIT fi lCili tics,2 11.111/ ill tl,, ' 1l1 0"t \ 'iahll ' s('g ll 1('11 ts, 'I'll<' [lllrSll il o r this Stl'ilt(').';\ ' is cll ll "i d('r('(l ill dda il
/\11 t i ll'sl' SI' g lll(,IlI'" Il a\ 'I' m01l1 /(lI ' til'<llll:tti C g row th , III particillar. 1':llrop('ans hl l." olll) III ( :I1<1 [ltl' r 1.'5,
aho llt :2.'5 tW IT(' llt as 1lllll,It ('('I'e: d ;IS tlll'ir t I ,S, COllllt('I'P, lItS, I I' tl 'C ItIIOlo,l!.Y :tllowe d '1'111' ot l wr hall ' o r 1'1 11' CO II \'(' llt iol l,d WiStlO lll , that grll\\ 'lh CO ll tl'X ts are nl ways
('(' rc als to III' IIs(,d li ll iI'( ' ('oll\t'll i(' lItk <twa) i"roll l lllllll (' 1)\, pl'O\'id ilig slll'll '- st:thl t' Illilk ,11I1.ldi H ', C,lIl also rai l t o hold trill' , Cro\\'th sitll ;lti()]ls ca ll ill\'oh-( ' slIilstilllti ,t1 ri sks,
prodlictS, Ilsag( : (,( lltid Ill'
1'1 Irl' llI'r ('sp;IIHlcd ()I' CO il 1'"(-,, th e h '\' i " Il ot oilly to r CCIJ,!..'; ­ I ".,.;IIISI' or IIII' illiport:ul ct-' 0 1' co rredly ass(' ssing growth ('o nl'('.\ts, <l disl'lI Ss iol1 0['
Iliz(' th e P() tl' llli al , hilt al\o I() 1t:1\ 't' t i ll' \ 'isi()11 alHIl1rogl'alil il l p lacl" ttl ('.\ploit it , ;\ I, os l 1111'''' li"b is 1)I'CS( 'lIt(·d ,It thl' l ' ll (l 01' this cll ;I[lt(' 1'
Ili" stratl 'gi sts Ila\'I' tiiSllli ssl ·tI ill\'I'St lll ('llt 0PPOl'tllllitil's ill illt/II "t l'i( " IH'(" III.'I' 1' 111 '\
lad::I 'd tltl' ills ig llt to SI'I' tilt' a\'ail:thll' polt'liti al allll take ;ll ].. :11I/;tgl ' Ill' ii , IcJt.lltiry in~ I)l'h ing F01'CCS
11 1 111 ;111\ l 'Ollil'\l s, 11](' III11SI i llllllll'(;II" sl'l':ltcgi c lllll'l-'rt:lillt:' ill\oh ('s th e p r e diction
Chost Potential
, 01 II Ii Ill'" S; II<- ", ,\ ", '\ ,I rill I " ',I< ' 1II " 'ISi"" , () rll ' lI all ill \'('s lilll'llt t\ ('ci si oll, cdllh inge
,') IIII II'Iillll" :tIl ;11'1 ' 01 Jil (( Jl IlI SII 1"llil',tI :11111 III , ' 111 " ,,1 ',.. '1'1', 1" til 11 1.11 Iltllt' 1I 1i," 11 1'"111 (1 11h' Iwill .!"..., (" "1 1,, '1 111 11 " I" " 11 1111, I'>1 :II II lill'"
,-. 11 ](' dri \ il""
,-. I'o n'( 's I)('hil ll llll;lr­
" ,111\\ iii \( ',' 111 \ " ,\lII , eI , \ , :t 1,1 '11" ("111 1111 d l.'I ,II'I"1 ,,1 ", /1\ , cI \I I, ,I 1 1<'1 1\. 1I1 11 11,'" 1, '1 ,h 1I : IIII Il"
 .\ I l 'tll/ '/i"" S/IU ' ,'::;I ' \ "u /l/ s;" ('1"1/1/1 '1 .'1 ,1 / " 1 ~ , ' / I\!lI"'j(/! ' kl'l , 1!l ul'I Sis S:-;

i\cltll'l'SSIII ,~ 1111 lsi " I'Y slr;tl l'giC' IIIII 'I'I"i:l illli, 's ,s l:II'I " w illi : 1 ," ill,~ 111I \\' /1 :111/1(' ;III S\VI'I'
u(']lcI Hls, III IIII' casl' 0 1' [>I'oj"(,/,illg sal" s or:t III ;ljlll' 11I ,/lk ,'I , IIII' 1II 'I, tI is 1(1 til'll'l' IIlill l '
w hat f()J'(,:t-'s wi ll dri vI' those saks, For I '>': dlllpic. t il(' s;til',.., o r a 11"11' l 'OIlSIlIlI,'!' l 'it 'C ­
tronics device lIlay Ilt' dl'ivl' ll hy IIlachill " costs. thc cvOllitioll orall illdll " t rv sblll(i.tnl ,
or tlw e ili erge ncc or altl:' l'nati ve tl:'chn ologi(" s, E ach o f th es/' thn'e clri\'l::~ I's w ill provide
the has is le)r key st'c()nu-it'v(:-,l llI ICl'rtainti (-'s,
In th e w illP markl't , th l' impact of' allti-a lcoholllIOVl'T11('llb (such as p,1i\1)]) ). the
ta,\ polic\', the relationship of w illI' to he,dth , alld t he rlltllre d l' mand Ic) r pfl'l11iulli
rcd s mig ht Iw dri ving fC Jrc es, On(' sccolld-I(:-'vl:'i stratl'gic III1 CI'lta illtv l11ig ht th ell fCJCllS
o n thl' li kc ly sti'(" lg th or the allti-aicohollllo\'(' nl l'l1ts,
Fo,'ecasting Gl'owlh
Hi stori cal (bta call pro vi de a II sd'l Il pnspl' /'ti ve d llll hl'lp to separal'(' hope 1'J'()111 redl­
it)', bllt th (':' 11('l'd to Ill' IlSl 'd w il'll ('<Ire, AppaJ'(~ll t tll' lHls ill data slll,h as t host·, shown
ill ~\~ lIrl' .'5,2 ca n 1)(' C<1 IIS('<1 1)1' ralldo lll (hwillatiolls 01' by SIHllt-term I'COIIOlilic co n­
diti o lls , and t il(' IIrgl' to cxtrdpo i:lt(·' " ll olild I)(: r('s istl'd, Fllltll('l'IllOJ'( " till' strall'g ic
illtC'J'('sl' is n ot Oil pro jl'('tioll " of'llistol': hilt ratll('l' O il tlw predictioll o r tlll'lli lig poin ts ,
tilill 'S WII( '11 (' hI' rat l' alld jll,,'klps dirt'cho ll ol ',~row th c l ,a ngl',
SO ll ll'l ilill'S lt ~<Id ill g il ldil'<II'ors of' lI",rl«'t sail'S nl<lV 1ll'l p in fClI'l'c<I,, [-ilig alld prc­
elil'hllg lllr ililig p (lil ltS, l ~x' "IlJlIl's () f' lc'adilig illdicatc)l', ilicilllk :
• J)e m.(){!,rlll)ltic (lata . 'I'll(' 11(lIl1h"1 o f'llir('h s is a Il 'aJ ilig illll il'ator o r t he
cil 'lIl :t1l11 Ifl r l ,dll l'; lti()ll , :tlld til(: 11111111)('1' 01' P"OI) lc r(,ac hin g agl' (i.5 is a lcad­
ill g ilillil'dtor /)1111(' dl ' llI ,lIld If )I' rl'lir('I1Il ' llt 1 ~ lci liti('s
• Sales of related equ ipment. I'<, rsolialcoll ljllltl'r dlld prill tcr s; ti c" p ro vide a
I('ading illdi cat() r ()r ti l(' d l' IlI ,lI1l11(J r Slippli('s <llI ti sl' rl' il'l' Ill'('ds,
Markd " alc,s 1'(}J'('c<ls t." ("' l ll'l' i<ll ly or 11 (' 11' 1I 1<lrb,t" , (':t il Ill' l><Isl'd on tlw ('-, [w ri­
l' II CI' o('ali alogl }(I S illdlls tri l's, Tile t rick is t o id l' lItirl' , I prior 1ll<II' k d w ith SilililM cil <l r­
act('risti c" , Sa il'S of' co lo r tl'll'l'i siol1.'i lIIight I)(' 1''' lwetl'd ('0 hal'/' ,I pattl:' l'I I similar to
sal( 's ol' black-aliti-lVliitc tc' Il'I'isiofls , lill' 1':>' <I I11pIIJ, Sa les Of' ;1IWW t\ VI' of sllack Illig ht
look to till' hi story o r otllC'l' prt 'violl,l\' int l'lld ll (,I'd silack catcgo ril's or o thl'r COIiSll lI ll:' r
A
en
OJ
ill
en
1", ,, I,, c'h "wit <I " ,,(III1C ' cd IIII' C' llI'r:',I' Ildrs or g rallllLI Il<lrs, 'I'll(' Illosl val ll l' w ill 1)('
1,1" :li lll'ci il's('ITr:d ,11I:d"gllll' Pl'lltilll'i (' 1<IssI'" call I", I'X,II11il1l'd alld tli l' d if'k rt~ l lces ill
III, IIroci 1Il'i I-I:I\S 1',-' [l('l'i l 'II I '('\ re ' latl'd t() th ei r c haracteristi cs,
1\;1I'i IIOti S Iill\\l ex ist to provide remarkahl y acc urate h)recasts or sal es patte rns for
" (" ," d(, P rod IletS suc h as applian ccs, call1 eras, and VCB s, T h ey are hased , in part, on
,j ' '''''"lll1IS ilig " ait...s into First pllrch ast's ;llld r eplaceme nt sal es,
Ikted ing Matudty and Decline
( i"" padi cl darl y il llpllrtant sd of t llming points in m ar ke t sal es occli r s w he n tIl(-'
" 111 111 pll<ISI" or
th e product- lift, cycl e c hal1 gl's to a flat maturity phase ami w hen
III<' 11"lt(II'it\' pll ase c han ge" into a d eclill c p h ase, Th ese tramitiollS art~ important
III ' 11l': t! ll rs or th (' health andnat llre of' tlw Ina rket. Ofte n th(~y are accompan il'd hI
1 1 ( " Ii ,~('S ill k l'y S(l ccess f~lctors, Hi storic,tI sales and profit patterns o f' a market can
III II I III ilit-ntil)' t i lt' ol1sd o f' maturit y or d ec lin e, bllt th e ()llow il1 g often a rC' 111 0re
,. 1I ',iI il 'l' indicators:
• Price pressure caused by overcapacity and the lad, of product clif­
I erentiation. 'Nlwn gl'lJwt h slows or ('ven r('Vl' rs(·',o.;, c;lpac i ty deve loped
1IIIlIl'r a Illl)],(' optinlist ic sce na r io h t'CO Illl'" exc(' ss i ve, Fllrtl w l'1ll ol'(", ti ll'
produ ct evo lll\iol1 proCI'S" ol'tt-~ n I'l's ili ts in most com[1l'h tor" Inatc hing
product, impl'Ove m e nts, 1'hll,' , it hcconws nlO I'l' difficult to Illaintaill lI1Can­
in g fld ditTc' IT nti;lti {) il ,
• Buyel' sophistication and knowledge, BIl)'l' r " te nd to I WCO III l' Inor l ~
I;ulliliar and kno w ll'dge;lhlc as a pro(lll et ll1attlrl'S , and thll s t hey Iwco lllt:
less w illin g to pay a [)(,l' llli ll ln pri cc to o htaill the sl'cllrity or an cs tahli " lwd
11 ;1111(' , CCJlllp lltc r hu ye rs ove r th e ye ars ha ve gain ed CO l1l'id (' I1C(-, in their
ability to sek c t co mpu te rs-a s a re su lt, th e vahw or big nal1W" sllch as
I BM has n~ c cd('d ,
• Sllbsl'itule products or technologies. Tl )(' \ctl l'S of' perso nal TV Sl'rvi(,IJs
li ke TiVo pro Vide an indicator 01' the d ec lil1l' ofVClh
• Saturation. 'v"h c n the Ilumbe r or [)otl:'lltial hrst-tilll e bu ye r s d eclin es, lIlar­
kd ,,<II I!S sho llid l1lat1\n~ o r d ecl in e,
• No growth sources , T l w lllarke t is flill y Pl:'l1(·'tra ted ,111(1 there arc; 110 visihle
,so urces o r g rowt h fi'o m new uses or Il sers,
• Cllstomer disinterest. Th e intl~rest or c ustom er s in appli ca tion s, IleW prod­
lid anilOllll CC l1l ents, and so on ('~ ll1 s oil,

\I AH KET AND SUBMARKET PROFITABILITY ANALYSIS

1',"llIlIlI llisi " 1"11(' Illli g sllitli ctl w il y som e indllstri es or rna rk ets are pro f itahle and
,,11 1(' 1', :11'1' 1I0!. 1I: 11 '1' : 1rtl 1,(,(I II Olili si aud bll silless strategy g llru Michael Porter
I ' resent 111 11111' ' 1111 ,li('" Iii, 1III'IIril's :tllli l'i,,"i(I ,~ ~ III IIII' Ilil Si li l'SS s tra tl~g)' prohl e nl or eva lu ating
11i.t.:IIIT ,>,2 S:,(", 1""" '1'11" II ,.. i" I 'I' " IIII( ' ,,1 1: 1111" "I :t Il ill.!" ',ill (II 111 :11'''('/ ,'1 '1'111' (ll'llhl"lll i" to I'stilll,ltt , how
 ,'if; !'til I lit" S IIIII,',:" , 11/11/,/,,'"
(.'1",/,11"' ,'. ,II,,, k' ·I /..... II/I1I1111 !.-I"I IIIII//,/si s ,'"'7
l'I'"lil,">!(' III(' :t\( ' I:I,~(' lil'lIl lI'illl>l', II I, I,olwil, ()I'('()" " ' , 11' :II :c l'il'III \\'ill iI('\( ' lop
1 ,. \i~l i llg ( ; ()Jllpctilol' ,~
a str;tlq,;), tl"ll w ill Inillg ;t!lo\'('-a\c ' rag(' III()/ 'il" 1/' 1111' :1\ ('I''',!.'.(' 1"()I 'i l 1('1'( ,1 is low,
ho\Vever, tIle hiS" of SllCCCTciillg l'ill<lll('i ;clly \V iii 1>1' 11I11('it 1I1I1I '(' ililFi(,ldl IIc;1I1 il' til(' I III' IlJi( 'II.~ il\' "I ' ('( I(IIIIt'lili(111 rmlll (' ~ i s tillg ('()I11pditors will depend on several flC­
average profitability were 11igl1, I"", ilWllldill ,l2:
Porter's appro;1(;11 ca ll b e applied to any indllstry, bllt it also can 1)(' appli <:'d to
H market OJ' sllbmarket \Vithin an indu stry The basi c idea is that the attracti v(-' n ess • 'I'll(' Illilidwr of competitors , th eir si ze, and th E'i r cornmitIl1 E' nt.
of an industry or Illarket as Illeaslired by the IOllg-ternl return on in v(:'stllH:'nt oj' the • Wlwtll('r th ei I' product ofh~ 'in gs and strategies arc similar.
,lVerage fJrlll depends largely on five hlc[ors that influence prol'ltability. s!to w n in
Fig llre 5,:3: • 'I'll(' {'\i"t(' lll'(~ of high fixed costs.
• Thv,i /,(' of exit barricrs,
• The intensity of cOlllpclition ;IIllOllg c\ishng co Illpeti tors ,
'I'lli' rirst qnestion to ask i s, how Illany cOlllpet itors arc alrl' ady ill the market or
• The ('xistI'IlCl' ofpotcntial COlnpdilors \V ho will ellter if'profits arv l1i,gh
III,J k illg plalls to (-'Iller SOOIl? The mon-' compditors that· (-'xist , the Illorc cOlllpdition
• Suhstitlltc products tllat w ill attract cust'oillers if priu~s I)('coille high. t1 t1 ('II., iri('s. An' th e)' l:lI'ge Rrms with slaying powe r alld COllllllitllWllt, or sm all all(/
• The hargainillg pow er 01' (,lls tonlCrs, ,dI IlT:lhl(' olles'~ The second cO llsideratioll is t·hl' amollllt of diffe rent-iatiolL Arc th c
• The hargailling po\Ver 01' s{lpplins. "'(I lj lditors similar, or arc SOIIH:' (or all) illsldar-ed hy POillt-s of Ilniqllencss va l11ed hy
I 11', 1()Ill('r,,:-J The tllird ("actor is the level of ri xed costs. A high fixed-cost- intil!.,try like

Each 1 ~ lctm play , a I'ole ill ex plailling 11'11)' some indll stl'ies are histmically Inor(' prol­ i l,I ('( 'Ollllllllllicatio11 or airlilll's experiellCl'S d e bilitating pri ce prcssllres w hell ov('rca­
itailll' than ()theJ".' . All IllHicrstalldillg or this strllctllre call also SllggCSt w hi ch key SIIC­ I ), )t 'il\ gds large , Fillally, olle shollhl ass('ss the presellce o/"(-'xit Ilarri e rs Sti c h as spc' ­
c('ss I;ldol's al"(' I)(>('('SS,II), to cope w ith th e cOlllpetitive ("orcvs. , ) di/,( ,d assds , IOllg-tenn CO lltr;ld cOlllmitmcnts to Cllstollwrs aIIII distrilliltlJrs, ,tIld
I' 1.1I 1I111.,hip to other parts ora rinn.
()Il(' luajor I;lctor ill the sha i<eo llt o/"both C-COlllllleru' ;llld CO llt-ellt Illt-Vrild rinm
,\ I' I IIC ('xc('ssiv(' 11I1I1l1H'r o/"colllpditors. J3<-caII S(:, the harriers to l,nll), were lo w and
III< ' IJ niT('d pmdllds so silllilar, Inargins w ere in ,'lIrRci(:,llt· (alld orten nOlle xistvnt ),
'!,( Tiall y given thc, sig nificant in v(-' stment ill infrastnlctur(:' <lIld hrand hllilding that
,1.1' II(Td('<i. Civen the hysterical market- growth and the low h;uTie rs t·o entry, the
I' , /I lls sholiid hav(' h ee ll allticipakd ; at one tim e tlwrc werl' a host 01' p<'l-sllpply :tnd
"11I:~, I()re e-COlllllH'rCl' or/<"'rings cO ll)p<'ling Ii)]' a still-elnhry onic lllarkd,

I'oll' ntial Competitors

... INDUSTRY
PROFITABILITY
I 1l,l jlt('I' 4 discllsses identiljing potential co mpe titors tklt Illight have all intlTl'st in
" liI ('lillg an indll"tl)' or market. \VI1l'tlll'l' pot<->ntial (,(Jluret-itors, identiried or IlOt ,
,wll J;Iily do enter dqwllds in large part on the si/,e and natmc or harriers to l'lItry
11111"" :tn allalvsis 01' harri ers to entry' is illlportant ill projec ting lih'l y cOl1lpetitiw
IIllo ' ll,ity and proRtahilil y levels in the ruture,
VariOlls harrier ,s to e ntry incilide required capital investnll'llt ( till' illii'astructllrl'

\ III (,;]/1/(' te/cvisioll alld telecollll1lunication), eeonoilli cs or sl'<lle ( the Sllcces" of

IIII( '11<1'l portals like Yahoo l or AOL is largely based on scale ec:onoJl)ies) , di stribution
11 :llllwls (Flito-Lay and IBM have access to cllstom ers that is not easily dllplic:atcd) ,
11(( I 111'o<!IIl't dilTeren tiatioll ( Apple and Harl ey-Davidson have highly dirh:, rt' nliated
1'1, )(III('ls l!t:lt proted thelll li'olll n ew en trants),

FjgUl'e 5,:3 Portl 'I"" Five-Fadm iVloel(,1 or iV/:II'kd I'mfit;lhilil\' "'"hstilule Pn)(llIds
SO/lin': 'I'll(' l'()I1 <:1'p l or fi ,'(' ';[('11 11"" i:·., di ll' to l\l w i.;u·1 1<. I)()rl('r. S(,( , 111 ;-' I)( ){d, ( ·, fll/I' . IIIIII \ j / 'llIi}lJd
l
• ',/lI)" lilllil' I)I()(IIII'I , ('()IIIjlt'I(' \I 'ill, 1(" , ilil('11Sit,v tklll do the primary cOlllpditors .
I\ i(, \\, )'(Irk : TIH' "1"1 '( ' Pn· ... s, IDS:) ( :II ,lpl('1' I.
I'I\('\ :11(' ,Iill 1(,/( '\:111/ 11t >\\; I" 1 '1'1" ,\ (':111 Ildllll ' lle-(' 11](' proritahilit\ or tl](' 111<1rk('[
 ('1ull"I'I:' j\ltll/..:('I I." fI/ ' "/ II I"/>'(-' ,'Il'II~J'"''

i\-Lu'''els that Ilavl' Kcy Success Factol''s

:111,1 (' :III I... ,( 111:(.1"1 11,(( ,:tI ( JI ' 1"'(01'/"(11, '1'1111" 1,1." ,111 ' ,,1 ,1',', ,11111 lil li" I"il 1" 'I )dll('h i\s'soeialed wilh the PnHluction Stage
('\I'rI I>I '('S ," 11'1 , (III IIII' 1III'I;ti (': 111 1I1:1I'k, ,1. 1<1('('11111111' :,1 :11111 ',I ',I,'lItS :It'(' ,,,I'slilllll'S 1'(1 1' j' .... I"diO\l St:tg('
• Cold Illil1ill )2:, will E' JIl ,lkilig
1111 ' SI,(,III'i!y gilaI'd 1I1;1I1d, 1'>'ll:lil l)t'o\ 'id,'s ;} Ilin';11 II, ,S ill "" 1)lIrli()" ()I ' III(' I"I))'( 'SS­ 1: .1\\ 111 ;l h ' ri;t\ P'-{H'IIrt"'H ' lil
• Ste<:l, raper
d c, li ve ry 11Iarkd or FcdEx and Ul'S, Sllhstitlllcs 11,;11 s!tow :t sll';ldv illlprm'I'III('llt ill 1\ \\\ 111 ;dl'ri<.d proc('ss il! ~
• 1ntcgrated circllits , tires
re lative price/peri(mnance and J-or wbich the Cllstlllll('r'S cost 01' SWitching is minimal l'n llllll'lioll \', d,,'icatin g
• Arp'Ir(~I , instrunH'ntatiol1

are of P,lliicular inte r es t.

\" " 111"'"
• Bottled water, l11l'tal cal1S

1'111 , ic,d di strihlltioll

Customer Power • Brall(lcd cOS ln el ics, liquor

~ i. 1I1,l'lillf.!,
• Softwarc, alitoillohiles
\Vh e n customers have r elati vely 1l10re powe r than sellers , th ey can f()rct' prices dow lI ""1\ 'i (T h':lckup Hamrs, nl t'di cal sYS tClllS
or dC'lnand more se rvices, th e rehy affec tin g profitahility. A Cllstolile r's powe r wi ll he 1'<- 1,llIlolof.!,Y d('vplopn H'lIt •
gn~ater 'when its purchase size is a [,\J'ge pmportiol1 of tb l' seller's hu sin ess, w he n
Val Ill' i\ddcll and K p), SlIl'Ct'SS Factors
alte rn<lti ve suppliers ;tre a vaiLtble , and when th e c ustom e r GtIl integrate backward "' ~, III '(' ".4
and m ,tke all or part of the pmduct. Thlls , tire manufadu)'(' I's [;ICt: powerhd CllS­
tomeI'S in th e ,tlltoll1olJil e finns, The customers of m e tal can nlanul;,durers are Iilrge
IIhl" d , Illit Iwcalls(' tlw raw m ate rial is w id (:'ly ,lv;tiLthle <It CO lll11lOdity prices, it will

packaged-goods manul;tcturc rs w ho have ove r time d e mand e d price and service con­
" "I I II' ;} key Sllccess I'a ctor. Nevertheless , it is ofte ll \lsefnl to look hrst ,It th e high es t

cessions and w ho have e ngage d ill backward integration, Ce real firms btce a snper­
Ih w -addcd st:tg(-'s, especially ii' changes are occ urrillg, For cxampl e, th e cement
lIlarket indllstry that has beco m e strollg i1nd asselii ve in part hecall s(' of its
III ,,11'1 w as ve ry n-:gional w h e n it w as restricte d to rail or trllck transportation , \ IVith
d eve lopin g strengths in inl-(JrInation tec hnology. Sort-drink flrtlls se ll to I;ts t- I()()d
II Ii' til '\ (' IOplllcn t of speCial ize d sit ips , howeve r, w:lter\Jo rn e tr,tn sport<llion costs
resta urant chains ,tnd athl e ti c teams th,tt have strong hargainin g powe r.
.I II 'l 'll('d dr;t In:lti call y, Key Sllccess Ltctors cltanged rr01ll local grOllllcl transpo rtation
I" 1" lItillctioli scale and accCSS to th e specialized shit)s,
Supplier Power
\VIII'1i the sll[>plin indllstry is cOllce ntrated and se lls to a variety of c ll s totlwrs in
divl' rs<> Illarl«'ts, it w ill have re lati ve powe r that can he IIs(~d to inf-iul-'nce prices, IHSTRIBUTION SYSTEMS
Power will ,ti so 1)(' l'nh;lIll'I:d w hen tlw costs to custolllers of' switching suppli('rs arc \11 ;\l d ysis of distribution systems shoilid include tllree typ es of ([Ilestions:
high, Thlls , the highl y concentrated oil indu stry is often pow('1'r,d t'110llgh to illlh'CIlCC
prohts in c ll s tom e r indllstri es that find it ('xpell.Sive to cOllvert i'mlll oil, Umv('\,e r, th e • vVhat are the alte rnati ve di str ihution c hanne/s'?
potenti,tl I()r regl' llt'l'ation wh e rehy illdus tries c an create their o w n l'n('l'g), sllpplics , • \ ,Vh,tt are th e trl'Itl]s'? \Vll<tt channels ,tr(:' growing in ililport:lncc'? \ ,Vh;lt new
p e rh'lp s hy rl'cyc li ng w as t'c , Illay have changed the balance of' power ill sO llle COli t(,xts, lhlllnl'ls ktv(' e merged or Gtre like:l)' to elnt'rge)
• Who h ,ls th e power in th e challlwl , and how is tll 'lt likel y to shift'?
COST STRUCTURE
SOlllt'tinws the cre;ltion of a c h:ul\l e l or distribution Gtn lead to ,t slls t,linable
11(' \\1
An unde rsta nding of th e cost stmdme of a Illarke t l:<tll proVide in sights into presellt s
, ' "I 'I)('titi e "dvant,lge, A dr;\lll ,ttic exa mpl e is th e success that L:egg hosie ry
and f'trtme key success htdors, Th e first step is to co nduct an analYSis of the v,tlu e v s
,, 111I,\ (' d h y its ahility to market hosi e ry in slIpenn,trkets, L:egg SllpP(lIted the idea
c hain prese nted in Figme ,5 .4 to d e te rmin e wh e re va lu e is added to the product (or
"I lI , i Ilg Sllpertllarke ts w i tit ,t comprehensive program that addressed ,t host of iss ues ,
service), As sllggeste d in Figure 5.4, the proportion of' valu e add e d attribute d to one I I,, ' I :q~gs program in volved se lling on consign me nt , pachlgin g tb c bosie ry in ;1 con­
vaill e c h,lin st'tge can hecom e so important that a key success Fador is associ,tted with
I tllI l'l' that Inade it re hltivt'l y dillicult to shoplift, \Isin g ,I space-efficient ve rti c;tl dis­
that s tage, It lll ,t)' h e possi bl e to d evelop control o ve r a resource or technology, as did
1,1.1\ providing;l high-quali ty, low -pri ced product supported h y natio n,tl 'Id vertisin g,
th e OPEC oil c,trtel. More like ly, competitors will aim to h e th e lowes t-cost com­ , lll'rrof1l1ing in-store ii.lI1dions, such ,tS ordering and stocking, Thus , it is use ful to
petitor in a high valu e -adde d stage of' lite v,t lu e chain, Advantages in lowpr va ille­ lIli l
","s id(' r Ilot ollly ex istin g ch,lI111els bllt pote ntial ones,
aclde d st'ages will si Il1pl y k\Ve less leverage, Thus , in th e 1I1 e tai C;tll hi lsi !less ,
:\11 '1I1 'II)sis 01 Ii'" ,I\, or (' llwrg ing lhtnges within dis ttibution chann e ls can b e
transpOJiMion costs are r e htti vely high and a co mpe titor that call locate plants Iwar
1111 1"111,\111 ill IlIldl'lsl:lIltiillL!,:I 111:\11"1 and its key S!lccess factors, Th(~
incre,lsed sale of
customers will h,tve a Significant C()st ad vantage , II II' ill SII 11('1'11 1: 1111'1 S ilL"'" iIllIlI" l, 111111'1 ' ill'l)()r[ ;l llt for wi Il l' lll 'lkers to focll s on pack­
It may not h e possihle to gaill all ,tdvantage :tt hi gh valu e -adde d stages, For
"",III!~ :11111 ;1.!\'I'lli ,sill~"" '1'111' l'I1Ii'I ,I',I'IIi'" III' 1'" I'Olltllll'lT(', til(' growth 0[' cOlwC' niertct'
(:'x mnpl(:', a raw l1late rj,)I, sllch as Hom lor h'lkery firm s, may rep rese llt ,I high \';lIlli'
 ~J() /,,11 / I" " .~III/Il ": 1" \",t! '/ <' 1',
sl()!"I 's ill ,!!;;IS ~ l;lIi()IIS , II II' , ' I<'( 'I " S <>1 ' ";II"g' Jl ~\ dlll llill:lIil ',L', I,I,,,il,, lik,' I\I 's l Il lIv ;(lId
11 0 111(' i)1'l )()I , <11)(111)( , gl'Owlh or SPITi;dIY-I';llalol.!,lIl ' rd ;lilill ,1.!, ill, 1.,1 I'<lh' 11'I '11<l.s t ltal
hal'<' strategic ili lport<(lIl'< ' lo fin liS ;IU(:cted hy l'IWSl' ehalll l"'S,
MARKET TRENDS
Often one of' the IllOSt lIsef'l d eleillents ofexte rll al analvs is CO IIH~S from addres,si llg tht'
Cill e,s ho ll , w hat are th e m;lI'kd trends;> Th e (lu estion has tw o importallt attrihlltes: il
/()Cll St',S Oil chan ge, and i t tl'nds t o identify w hat is ill iportallt, Strategically Il se ful
inSights allllo,s t al lVays resll lt, A discllssion of' m arket trellds call se rve as a II sci 'I I I SIII11 ­
mary oj' cllsto lll e r, competitor, an d Ill;trker all aIy"-'s , It is thlIS heipf'1I1 to idl>i1ti fy
ITt'll d s Ileal' th e end of' 111<1 rkH all ,tiys is,
Til th t' w ill e II larkct, a di stinct trl'lld i,s t il(-' growt h of' l)rl'l1lillll l w i nl's- those
priced aho ve $1.5 a hottle, Dllrillg til(' [ 880.s, th eil' sales balioolH'd f'rO ll1 II llder $400
million to more thall $G billioll, w h('l'eas popular-priced w ill e,s (I'ro II 1 ,~4 to $ 1.5 per
hottle) e njoyed oilly a H1I'I-'e-I ()ld in creasl' , an d sa les o rjll g lV ill('s d eclill ed \ V hilc th('
so rt- drillk IIlarkd ,stagna!'ed ill th e U ilited States , llo ncarl )()lIat('(1 hev(,rag(,s gnw
,sktrpl.", and sakIs ol ' llCrlJ- alld vit<tlllill-f(lI'ti rieti l>('v('l';tgcs l'\ pIOti l 'l l. Not smpri sillg ly,
thl ' Ill ajo r so lt-dl'illk cO llipallics sO llg h t 10 ol)taill a p o,siti o ll ill th esc' lre lldv categories,
Tre nds versus Fads
II is ('I'lIci ,,, to tiistillglli sh 1)('1'11'('( '11 Ire llds tklt w ill dri ve g rowt ll alld I'('lVdrd those
IVI, o d, '",,' lol) tlii'l ('n ' lil iatl'ti strategics , dlltl f;lds tkll w ill o lll,Y I,[s l' IOllg l' lloligh to
attl'ad iIlV('Stllll ' l ll (1Vlli c h is SllhS('I [II< 'IlII), 1111(I('I'('lllp lo)'('tI or lost I<)I'( 've r ), Schw inll ,
t il l' c lass ic 11;(111< ' i ll Ili cycics , proclaillH'd IllOlllltdill hikillg a hd ill 19<')5 , w itll disas­
trolls n 's lili s to its IIlal'k('t positiOIl ;111( /, lti ti lilatc ly, its co rpor;lte II('ultll, '1The Illist;t1.:c n
1)('lie r tklt (:(' rtaill e-C()llI lI lCr(:(' Ill arkds, ,s ll cli ,IS th()s(' f() r cosilict ics ;(11.1 pel sllp p li ('s,
lV(' r(' solid t Wlld s cd ll s('d st rategists to 1I11(krtak(' illitial sl l<tre -Ililildiilg slTatcgi('S tllal
I'V(> llttt aily icd to til(' V( ' lllilr!'s' d('lliisc,
On(' finl l , thl' Lt lldl CroIlP, Sllggcs l's that tlll'< '(' IJ" C,stioll " CUll IlI'lp dHc'ct a r('al
trc lld , as oppo w d to a Ltd ..'
L What is driv ing it? ;\ trcn d lVili have a so lid (lIllld at ioll w ith l egs , Trl' lItls
are nlor (' likl'ly to h e drivcll 1>)' d CllIographic" ( rath e r tha1l pop Cl dtmc ),
1', dll l'S (rath er t h,lll 1;IS hioll ), li kstyk ( rather t h;11I <l li'C 'I1(ly crowd ), Oi' tech­
no logy ( ratit("r th all Illl'dia ),
2, How accessible is it 'i n the mainstream? Will it Ill' cO II,s tr;lincd to a
Ili c lic markd f()r th e f()I'es('('ahle I'lItlll'C '~ \ Vill it r('(l'lire a major changl> ill
ill ,l!;rai ll ed hahits ~ I s til('. ]'(oqllired ill VloStlllt'llt ill tillll' or I'l'SOlirces a h arricr
(p crh<lps I>t'callse the prodllct is pri c<: d too hi gh or is too itard to 11 Sc)?
3, Is it broadly based? Doe" it rill d expnessioll across c'ate,l.!,m il 's ( ) I illd, l.s­
tri es:) Easte rll ilil-i liellces, I()I' (, X;lIl1pll', arc appan' lIt ill I" ,; dlll I'"n ', I()() d ,
fitlll' SS , and d cs igll-a sigll o r a IT('lId ,
( :""/ /1,'1' ,' I ,1/11/ 'I-'I'I /.o.;,,11I1I 11/ 1. ('{ "\,,,i/I/" ;,' !) I
1":11111 l'II[)('()rll lll )st'l'\I" Ill.iI h t! s ;11 1' al Hl ll1 l)i'Ildll('ls , ",hil l' In 'lI l!.s arc al lout wit;lt
"II\ I 'S 1'() II " lIlIll 'r,S 10 hilI' Jl"Ot!IIl'l S, SII(' also sllggt'sts that tren d s (w hich are big ,Ind
/ >11 ':111, lasl i l lg ill l " v(' rag( ' I ll' 1(' 11 year s) cannot he created or d l<lll ged , only observeu (;
SI ill ;! lI otl, ('i' persp ective on hlus com es fi-OJ n Peter Dru ck er, w ho opineu tlwt cI
, 1',' lIgI' is "oll idililig that p eopl e do, w h er ecls a fad is sO llwtl!in g p eople talk abo ut.
I III' ililplication is that a trenu u enl<mds substance and action supported by data ,
,,01 111'i' III<tl1 sim p ly an idea that captures the imaginatio Tl , Drucker also suggest s that
IIII' I, ,:tl leI'S o r today Iw ed to m ove beyonu in novati o ll to b e change agents- th e real
1' 1\ fl iT COIlWS not 1'1'0111 sim p ly d etecting and react in g to tr ends, even whe n th ey an°
11 11 Il ill rrolll cwatin g and driv ing th elll,'
kEY SUCCESS FACTORS
\ " i llll)o rtalit outpllt o r Illarket ana lys is i s th e id (~ ll tifi cati()n ol 'l<t~y S\l CCt'ss ['actor,s
I, " , I r<lt('gi c g rollp s i n the Illa rket, Th ese ar e ass<:'[s and cOlllpetenc ies that provid e
II" I" lsis f()r co nlpdillg succt'ssf'ully There are two typ es, Strategic n ecess iti es d o
,II Ii IIl Tcssari lv pro Vide an ad valll,lgc', I)('ca ll se otli ers have th eill , h il t th eir absenc('
, il l {'I'eai'c a Sllhst,l lIti al w(' akness, Th e st' colld typ e, stratq !;i c strell gth s, <1I'e those
.I I l, il 'll a f'inn excel s, the asset" o r cO ln petc n cit~s th at are supe rior to those or CO lll­
I" I il l)l S alld pro Vide a hase 01 ' ad v,lIltagc, T he set or asse ts <tlld co mpete nc ies d (-' vc l ­
" 111'.1 ill competitor analys is p rovi d es a base set rron l w hi c h key " lI ccess hctors C<t ll
I" , i./ I' lItif'i ed , TIl(' poillts to co nsid e r <II'e w h i ch ar<:' th e most (Titi cal assets ami CO ll t­
/ '11 lI ('ies II OW and , Illore im portant , w hi ch w illl>e most criti c al ill the ['tltun:' ,
" II i., i llipo rtallt lIot onl y to ide lltify KSFs, hilt " Iso to proj l'd them in to th e flltlll'(,
11,, 1 ill parti cular, to i(kntif), Cille rg illg KSFs, Mall)' Rn n ,s h av(~ faltered w i, en KSFs
I 1',III'.;('d aml th e cOlllpetencics <lnd assets o n w hich th ey we rt' re ly ill).!: hec.lIll c less 1'('1­
1\ 1111, F'or c xalliple , I()r illdu strial finn s, technolo!!,y <lnd inllovation telld to I)c most
1111111 1r[ ,lllt tillrill g th e introduct io ll and growth phases , w hereas the roles or sys teills
I 'I" dl ility, Illarketillg, ;lm\ se r vice haeknp h eco lI1 (, 1ll0 W d Olllillant as th e Illarket
III II III'I'S , In co nSll lllt'r prodncts, nlarlw till,e: <l lld dis trih ll t io ll sk ills are crm 'ial dttrillg
, I ... IIllrotill('tioll ,llld growth phases , hil t operations amimallllhtct ming heeollw mort '
, "11'1;" as till" produ ct settl es into th e lllaturity alld d eclin e phas(, s,
HlSKS IN HIGH-GROWTH MARKETS
I I" , ('()II V('lltiOlWl wi sl\Olll that the strategist sh ould seek out ).!:fOw th art'as often (}ver­
' " '''S; I slli>sta lltiai set of associated lisi<s, As sh own ill Figure ,5 ,,5, ther e are th e lisk s that:
• 'I'll(' Illlill h e r and cO lllmitm en t of cOlllpetitors Illay h e greater than th e mar-
kl'l call sllpport.
• ;\ ('olllpdi tm 11 1< 1\ I'll tel' w ith a sllper iol' product o r low-cost adv,m t,l ge,
• 1(,,\, SIl('('('S,S r;lI'lllI's IIli ) ~11I 1,1,;t ll gl' alld th e organ ii',ahon may he tlllahle to aci'lpt.
• TI ' I' IIIIIJI II,I ~\ 1I11,!':l1I , ,1, :11' ,1':1',
 !)~ I J(II/ /'II 'U S/ Jlf lr/: it ' \, /(,1,/-,-/ ",
( '/111/ "" 1 ,' I III I" ', / SIIIIIIIII I'I,I" . III II /i/ sis '):\

~, \"'11' Ili .~ 11 1'(11 "<'1 ''' ', 1 ill ,, 1 :wlll:ti ~ rmv lll ill IIII' ('< " '1), , [agl'., arc S('I'II as ('vi­
RISKS OF <i " I\('I ' ("(II'/il ·llI i ll.1.:, /'i .1.:,11 111:11'/;('[ growt h <lS:1pr(lv(-, II plll'llollH'1l01l .
HIGH-GROWTH ;1. Tlm 'als 10 [11( ' .I.l/I)wl ll rate are Ilot cO\ls ide red or are dise:o llilted , and lit­
MARKETS
III ' <'xi.,ts to 1i<tlll p C\l th <:' ell thllsiasm surrollndin g th e marke t . Th e entlllL­
Si:IS Il I IlIa,v Iw cO lltagious whe ll ve ntllre capitalists and stoe:k analys ts

Competitive Risk
• Overcrowding
• Superior competitive
entry
.
Market Changes
• Changing KSFs
• New technology
• Disappointing growth
'" ,) I
Firm Limitations
• Resource constraints
• Distribution
unavailable
;).
I)('collw ad vocates.
I. I"('IV ini tial harrie rs exist to preve nt finns from e nterin g th e market There
lIl ay I w I)a rri e rs to eventllal sue:cess (s nch as l imi ted r etail sp ace) , h oweve r,
that Il laY not h e evide nt at th e o utset.
po te ntial en trants have low vis ibility, and th e ir inte ntions are
SOliI('
IInknow n o r nIlCl·' rtain. As a result , ti l<:' (plalltity ,md cOlllmitm ent of lhe
• Price instability
cO lllpdito rs ,Ire li kely to be Imde res timated .
JI
Figlll'c .5,5 I\jsk, o j" I [jgll-C rowtll ~vlark('ts
\lIpt.·,·ior Competitive Entry
11 11' ltitinl<llt- ri sk is that a position w illl K' (-'stai>li shl·,d ill ,I hea lthy g rowth lIlarket and

• Tht' Illarkd growth may hlil to IlWe[ expectatioll s. .1' I lIlIlwtitor will I-'lItl.' r late w ith a product that is d e lllollstrai>ly silperior or that has
III " ti J('('('nt cost ad va ntage .
• Pric(' instahility Ina), rCSldt f"rolll overcapaci ty or rrolll retai l('!"s' practi(;(~ 0" Tilli S, t l w Apple Newtoll w as first to lIlarket II;jth a handheld co mputing devi ce,
pricing /1 01- prodllctS low to attract ClIStollH'rs.
I"" i l I':l il('d ill part hecall ,(-' it w as priced 100 higll , hadly desigll etl , alHI too comple x to
• Ikso llrc('s Illight 1)(' illa<icquat(" to IIl aint-ail l a hig ll gmwth rat( '. II ... .. TI ll' clll'ap('r, Iwlter, and silllple r PallnPilot won t!rr:: m arket, ('v(~ n thollg h it ca rn e
• I\d( '(III <lt(' (li.'itrii>lllion In ay not 1)(' ava ilahle. 1.011 '1. Til e SIlCet'SS or late-entry, IOIV-cost prodll cts frolll tlte Far East has occmreti in
"" lIlll ('ss indl lstri(' s. rrom alltoll1o /Jil cs to TV s to VCHs.
Competitive Ove rcmwding
( hang ing Key Success Factors
Per/laps till' lI\ost St' ri OIIS ri sk is tkl t too Ill an)' conlllt'titors w ill Iw attr<l<.:kd hy a
growth sitllation <lnd l 'llter IVith IIlI r(·a l is ti <.: Illa rkl't sllarc t'xlwctatioll s. 1'11(' realil),
\ lirlll may slI cccss fllll y I'~s tahlish a st roll g position dming the ('arly stage's 0 1' I'lIarkct

Inay ht, lh at sa les vol llnl(' is ill SIl[fici clIt to sllpport all CO lll pd ito rs. Ov(~ rc rolVdillg has
,I, 'I (· Ioplll c nt , oill y to lost: g rollnd LIter w he ll key SIl(,Cl:'SS li ldors chan ge. 01K' ,'ort'­

, I I is tha t th e slirvi villg pe r sonal co mplltl.' r nlak er s w ill h e thos(~ ahl e to ach ieve low­

I wc li oI>St'I'V(~d in virtll;!IIy all hy ped Illal-kds , f"mlll railroads to ailll/;lIws, radio sta­
tions and e( lllipn WIll", t(" I( :vis ioll s sds, and p erso llal cOlllput("rs. ,,,,I I)rodllcti o ll throll g h ve lti cal integration or t'xploitation of the ex p le riell(;( ~ Cllrv<::,

II" IS(' ahl e to ohtain e ffic i ent , low -cos t t\i striI1lltion , and thos e abl e to pl'O vide soFt ­

O V(' I'C r<J w dillg was IIeVe r mo re vivi dly appan'nt (in I'c tro sp ed, at leas t ) than ill
th e dot-COllI f"n-n zy. At one point t ll (' r (' wI~re at least l SO o nlinc i>mk('ragt's , l ,OOO
, II ( . le)r t heir ci lsto ill e rs-capah ilities not n ecessar ily critical durin g th e early stages

" I IIl!lrkd ('voilitioll. Mall Y product markets 11<111(" exp eri e nced a shift ove r tim e frolll

trave l-re lilted sites , and thirty h ealth and b ea llty sites tltat we re cO lllpdillg le )r aUen ­
t ion . Dot-COlli bn sin ess-to- bll sin css (132B) exchall ges IVe re creat<~d le) r th l' hll);j llg and
1 111(' 11 , on prodll ct techn ology to a ti)CIlS on process lcchllolo).,'y. A rirm that might h e

"'1,: ti )it- o r achil.'ving product-techn o logy-hased ad valltages may not h ,lvc th e

selling of" good s and selv ices, infe>rll1ation exc hanges, log isti cs st' !-vices, sOll rcing
indllst!)' data alld f()ree:asts , and ,) host of othe r s(-' !v ices. T h e nUlllher of B2B con l­ I ' "'' III ret's , competen cies , and orie ntation/cli lture needed to d evel op th e process-

panies gr ew from under 2.50 to over 1,.500 durin,!'; th e yea r 2000 , th e n fe~ 1l to under
:2.50 agaill in 20().'3. At th e peak, th er e \V(:'n~ estima ted to he more than 140 slIc h
exe: hanges in th e lndllSt ri al Sllppli E' s illtillstry a l one .'~
Th e rc)llow ing conditi ons arc fOllnd in markets in w hich a SlllVlll S of' competi to rs
is likely to he attracted and a slIhs('(l" ent shakeo llt is hi ghly prohahl ('. Thl' sl' ,'adors
w(' re all pn" scnt in til<-' B213 d Ot-CO lli t' xp('ri(" llc(' :
1"' llIlolo!-,'y- i>as(-'d ad va ntages that th e evol ving mark et demands.
( :han ging Technology
I "'I'(,lo pili g firs t-gl~ lIt' ration technology can in vol ve a cO ll1mitm ent to a product line
.111 t! I lrr>d lid iOIl r:ll" i Ii h('s l-ll:l t Illay beco m e ohsolde and to a tee:hnolo).,,), that may not
' .111'1 il(· . /\ s:tl( · slr:llq.;\' i., II) IV:til IIntil it is clp,lr which tecilnol o!-,'Y wi ll domi nate ,uHI

11" '11 :tll( 'IIII)1 [" ill'llrm'I ' il lI"i lll " ('oillflahhic Clltry. VVhen th e prin cipal com petitors
I. 'I'll(' IIli lrkl'i :(11(1 ils .i..'/()wlll r:tI(· II: II(· ll igll I ·i.,i l>il ill ·. ;\ ' " "". ,, 1/ · . lr: iI" .~. i .," ill 11,1\'" ("O llllilill l'" 1111'111 ,,· /1", II I" 11 111., 1 fllOlilis ilig aV('IIIlt'S for th e developme nt of a
("( '/;11( ,(1 linllS :11 (' ('II("( lIl r:lg('(111I ('o llsi(I('r II" , 11 1:111" '1 ' 1' 11' >1 1,1, ,111 11 11 1:11 "1 " 11 '. " , I"il l"I ,I, ' ('lIl1 lj ll' lili l" " ,11:> 111 .1 ",'·1"','1111 11" 1110 1'1' l isill l('. III ('Olltras!" , till' ('ariv entry
li ·. II ·I I,, · ('III1S"'II " 'I"-" S 1I1· lllIlIill.!': 11,, ·il·I>:,,-/- ,. "" .111 "i ll /'''I I' " ," II I, I"" 'I'/i"" . 11.1\ III 11.1\ i",: d l ' l\"i[11 [I ~ ' I" " I , 1" .11 ,, [ 1I II1" ·I'I,,illil .
 11' -'J ;;/' ("": 1" \1/11111''/ ,\\
Disappoilllill)!; i\lad,l'I (;"0\\1111
ivLIII)" siJak c () l ll s alld pric-< ' w, lrs (J( '('III' 11'11('11 111;111"'1 ,~~ I'Il\\III !':til ,
ti ()1lS , SOlll et im (:'s till' markd w as all ilill Sioli 10 Iwg ill w il I" 1\:211 (' \ ('Ilallg('s did 110/
provid e valu e to firm s that already had SYS l'cIllS hllilt wi tl, l'<'ialiollSliips tkl l Wl' W ,
0)) balance, superior to th e B2B exchanges, Th er e w as an abst' nce or a cOln[l(:~ IIing
valu e proposition to o ve rcom e marke tplace in ertia , In other cases , th(' d l' mand
may I>e h ealthy, but th e marke t i s still hostil e b ecaus e comp e titors have buill
capacity to match over·optimi stic expectation s, Or th e d emand might simply tak('
longer to materiali ze becau se th e techn o logy is not r ead)" or because c usto nl<:' rs
are slow to c han ge, D e mand for electronic bankin g , for exa mple , took man y yea rs
longer th an exp ecteel to mate rialize ,
Fo rec astin g cl(~ llland is difficult, esp eci ally w h en l'h e marke t is IH~W, dynamic,
and g lamorized , This difFi c ult), i s graphicall y illu strat ed I», an anal ys is or more than
lIin el'), I(lrcc asts of signilkant lI t'w products, markets , and t(,'elmolog ies thai
appeared in Busill ess Hied: , Fortull e, and th l' 'Val! St reet JOllrnal froill l!:)()O to
H
H.l7g Forecast grow th Elil ell to IJ1atl' riali z(:' in abo u t.5.5 p <:> r ce lll- of Ih e cases cited ,
Ailioll g th e reasons we r e ove rvaluation of' tecllllOlogi t's (e ,g" thn'e. <!im e ll"ional
color TV alld t()otlt · c1,"ca), vacc in es ), COnSIIIl1l' r d e lll<lnd (e ,g" tw o· w ay ca bl e TV,
qlladrapholli c stereo , and d ehydrated foods ) , a I'aillirc to cOll side l' til e cos t harri e r
(e,g" th l' SST and ll10v ing sidewalks) , or political pmhlt>llls (e,g" marille mining),
Th (' liJ I '(~ casts f'm roll ' y ollr-ow n c igdl'e tt es , Sl nall cigars , Scotch w hiskey, and ell
r<Idi os sIIIT( ,red f'ronl "dlifb ill COn Sllll1 l' r )) l'ed s alld pre /(.: r eIl C(Js,
Price Instability
"Vh('11 th e n('atioll of' exce,ss capacity rt'slilts in pri ce p nJss llres , illdll stry proRtahility
ma)' he short-li Vt'd , (-,sp(Jcially in an indusllY, sll ch a,s airlines or st ed , in which Rxed
costs art' hig h alld ecollomi es scalc art' cru cial. H ow(~ver, it i s also po,ssibl(J that
or
sOll1e w ill use a h o t prodlld a,s a loss leadt' r jl1 st to <lttract- c ustolll er How,
CDs, a hot g rowth area in th e late HmOs, fil eled tlw o ve rexpansion oj' r d ail ers
li'onl .5,500 in 1.907 to o ver 7,000 in lD!-J2,IO Th e rdail ers w er e vely pmRtablp, wh ell
th ey sold C D s [i)r ahout .$ 1.5 , However, w hen Best Buy, a hom(~-ekct rollics
decided t o sell CDs I()I' under $10 to attract c ustom er" 1'0 th eir olf· mililloca lion,s , and
wll<~ n C i rc uit C ity f(lllmv("d sl1it, th e result w as a dram ati c e rosion in m argins ami vol.
llnll' and til e ultimate bankruptc), of a substantialnllll'lber of th e major CD rt'taile rs,
A hot grow th area had spawn ed a disaster, not hy a seJf~ inHicted prict' c nt, hut hy
p r i ce in stability li'olll a Firlll that c hose to tr eat the retailin g of C D s a,s nothin g Illor('
th an a p erman ent loss leader,
Resource Constraints
Th e substantial finan c ing requirem ents associated w ith it rapidly g row ing illi silH 'SS
ar e a major constr aint i(ll' smail firm s, Royal C rown 's Diet· Hitt' cola losl ih I('a d(, I"
ship position to C oca-C ola 's Tab and Di e t Pep si ill the mid · H)(-)()~ \I'lli'll il ('IJIII<I II()I
match the ad vertiSing and d is tribution clout of it,s LII',L':( 'I' I'i\ ;d,s
( '/III/'/I'j " ;1/ 1I 1/,,' / / S /I/ IJ /l IIi/" '/ , II/II/~/s is !);,
IlIl.l 1lt'ill,L': !'I " I"il"III1'II ' 11" ' I'II 'lI lh .III ' ill{T( 'a,(,d I '\' lli,L':llI'r Ihall 1'.\ pcdl ,<I prodll l'l
,I, " ,IIlI"III '1I1 ;1111 1 111 ;11'1 ,1'1 I 'ld 1'\ ('Il, I, alld I )~,' pr i('( ' (' I'OS iOII C, lIlS l ,d I)y agg l'l 'ssi \'l' u r
IH'I()I\' ('.\ 1)('('1;1­
.I. '111' 1';11 (' ('( llIl[ lI' lil ll lS ,
'1'111' Il rg;t lli /,;t li o llallll'('SS (Ii'(',S alld prohl e ll1s crl' ilt~' d h)' g rowth can 1)(' evell IllOrt;
. IIIII! Idl III pl'('(lid ,Ind dc,i\ with than fillancial strain s, Many Finns h ave fail ed to sm­
i i ' III(' l';q Ji <l.grow th phase hl'cau s<:' tl wy we re ull ahle to ohtain and train p eople to
/11 11 /1.- II II' (':x p,IIHkd hllsin ess or to adjust th eir SYStc' IlIS and stru c ti l r es,
I )i,,1 rih lllion C onstm ints
\ 1 ", 1(li slrihlltiollch alln (' ls call sllppurt Ollly a small nUlllher o rhr;tlld s, For e;.,ample,
1,\ I (' I"il('i's ar(' willill g I'll pro\'ide shell' space f()r Illore l'han I'( llir or nvc hrands of il
I., '1 I\I '\\ar(' apllli<lIl c~', As a COIl SC(lllC Tl Cl' , SOIlI C cOlllpetitors , t'V(J )) those w ith atl'ra('·
Iii ' 1) 1'Il(lllds alld Il l;trk(' tillg prog r;\Il1 s, w ill Ilot gain adl'«llatl' di striiliiti o n, ,lnd tlwir
III II I d ill g lll'llgral llS w ill hl'COli lC I('s" l' rkdi v(-',
I )i sirilllitiol l limitation s rll c lcd th e shakeout that h egan ill tilt' soi'tw are IlIl si·
I"",', ill tlH " Illi<l·l ~JK()s, More thall 1Z() fhlll S we re Illilkill g I'inall cial " preadslwet
1"I, '~ ralll s , w hereas til(' market and di striililtioll c"'lIIll c l s c(lItid no t SllPPOl't IIlOI'( '
II I . II ; I "'Ill d I'll I,
\ co rollary o r th (' scarcity illld se lecti vity or di striillitors as In ;lI'kd grow th I)('gills
I•• Ill\\' is a IlIark('d illcrease ill distriillitor powc r, Th('ir w illillg ness to II.<;e titis (lowc r
11I1'\ i rad pri c!' ,111<1 proilloti o ll COIICt',-;sioIl S I'mll1 IlIanliractlirers or to drop SIIPl)li( 'rs
I, ,,1 1(' n lH'igit t(, lwd by th ei r OWII p ro bl(,llI s in Il laintainillg lllargin s ill tit c Ltc(' o f'
, ,11" 1111' COl ll p d i tion 1<11' l"iH'ir cll ston lC rs, Mall), o j' titc sa lilC Lldol's th at dr(,w ill all
" \ I'I;(IlIlIl(lallc<' o j' lll allld'a cl'lll'(TS ;Iiso cOlltriilllte to o verc rowdin g ill sllilsc<]II Cllt
,1 1",1, 01 ' a distriiJlltioli chillllll'l. Tit" (' v(,1I11lal sh,lkc()(lt at tlli s I('vel l'all hitv(' (,<]ll all y
" 1IIlIIS rqwrc(l ss ioli s J'or sllppli l' rs,
"-EY LEARNINGS
chain , • The clIl<'rg(" lI c( ' oj' slllll1wrkds call sig nal a r l' ll'van ce prohk' lll.
• Mark('l al!;i\ysi s siloilid asse ss th e attladi v(~ II <:' SS or a Illarket, as w ell as its
SITlleI'lll'( ' and dy nallli cs,
• /\ II sage gap can C,lIl se the Illarket size to he II nd <:' rstated ,
• ~vl a rl«' t grow th (:,111 bt, I()recast hy lookin g at dri ving f( )rces , leading indi·
cato rs, and an alogou s i ndus tri es,
• iVl ar kd profitahility will dep end on Rve F,lctor s- e:xistin g cO lllpetitors ,
slI[lp\i ('r powc r, cll stonwr power, Sllhstihlte prodlietS, and potential
(' II t 1-,111 ts,
• ( :()sl Sll'll<'llIn ' (" Ill 1)(' ;III<1I)"/,('d by looking at th e vaill t' added at t'ach pro­
ti,l('l i( )1I ,I;} ,\ '~ ( "
1",,"IIIt'IIIIIII'I ', • I )j,1 ril lill i(1 1i ,,1, :11111<'1 ,; ;},,(llrl liti S w ill 01'1( ' 11 ani ,('/" w ho Will S,
,I
 !)(i 1'111/ /'11 '11 .\/1 uk::i!' , IIIIIIIISis

CHAPTER SIX
• rvLllk<'l In'llds IV ili a/'l('d Il(lll I (II(' profi!;" li lil." () /,'lr:II" g i,'s :lIl d k( ,), SIIC­
u'ss f;Ic(OI'S ,

• Key success hlctors are (,h e skills and CO ll1pctt' llci es Ilcc(lt 'd !'o ('01 IIll<'t(' ill
a market.

• Growth-market challenges involve til e threat of co mpetitors, Illarlwt

changes, and firm limitations ,
Environmental Analysis and
Strategic lJncertainty
FOR DISCUSSION

~; I
1. \IVilat are the e lil ergillg slI bmarke ts in the fitst f()od indu s!' ry? \Vhat an-'
the alt(crnati ve response's avaiJable to McDonald's, asslIliling that it
w,mts to stay f(Jlcvallt to CllstOJll e rs interested in healthi er eatillg?
2. Identif\, Illarkets ill which actual sales and growt h was less tkul
exp c cted, \Vh y was that the ca se? \VlJat would YOLI say was th e Jllost
important rcasoll that the bottolll k'lI 0111' of' (,he dot-COlli hOOJll ? 'vVhy
did all the 1321-3 sites (: III(-'rge, and why did they collapse so slldd(-,nly? II I' ; 11 '" walelling Ilw <IillosatJrs <Ii(' , itllt W(' dOll 't kilO\\' IVl,at will take their piau',
,/, .,. rhun Jiv. lH IT ('COl/fill/is!
:3. \IVliy W('J'(' SOJll e brallds (like Catorade) ,ll>lc to fight off cOIIl I)(-'titors in 'III
high-growt h Illarlw ts and other (like Palm ) IVl'J'(' not? 1111 '1'" is SOlll('titill,e; ill til(' wind ,
4. Pick a cOllipany or ilrand/l>lISiness Oil w hich (0 f()UIS, 'vViJ,tl' art' th e II I/li m// \/'fll'''''7 }(·fl l'I' . '/'/11' (;1' 11 1.1'''11 or 1'; rroTS

<'lllCrging sllbJllarkcts ? 'vVha(' are I'll(-' tre nds '~ \tVhat arc th e s(rat(-:gic
1"" lrly oits(' lv l'd ["ad is ll'Ot'(' twaclwrolls tklll a [' IIt1I ), traill of' r('a s ()llil\~ ,
ililpli catiolls or the sllhillarlwts alld (Te nds f()f' th e major playns;J / '/ illl I'll!, ''''/- l:r(' l/dl />I'ill',,07)/lI'r

NOTES
1. For Illt lt'(' dclails ill 111l' r('l t:valll'e (,(llll'('pt S('(' David A, Aak('l', "Till' Br,llld Iklevall ce
Challcnge, " Sira/i'gl! rL- BffSilless, Sprillg 2()()4, alld David A, Aai«T, Bralld 1'llrlj(J/io
Sl ra Legl!, Chaptn :3, Nl'IV York The F'r( ' Press , 2()04. I I I I /Ii" dl<l[1tc r, tl w f() CllS dl<lnges fi'olll the market to the e nvironment SlilTOlIIHling
2. Cr('g Stallg(Cr, Clark Nc:why, Todd Andt'(,ws, Hoh \\laIll e1', Pres ley Sttlkcs , and LiS('11 l i lt' IlIa rket. The ill terest i s in ('n vi roll m !::' nt<ll tre nds LInd eve nts that have th e poten­
Strollilwrg. "Tlw Heady to Eat (;('r(:'al Markd," 1IIIplJillislwd paper, 199 1. I I II III a/Ted strategy, eith er lli)'(~ctl y or indirectly. En vironm ental anal ysis should
:3. This sectioll dr'lws Oil Micitael E , POlier, COII/lielili ol' i\lh;Ol/i ogc, New YoJ'ic TIl(' "I ,'ItI i1 v sllc il trends and e vents and esti mate th eir likelihood and i mpact .
Fr(-'t' Prcss, 19<':1.5, cit'lpter 1.
,\ Ithough e nvironlllental anal y si s is on e step remo ve d frolll th e market o r
4. Scott Da vis of' l'n lplH't Brand Stratq..,'Y s llgg(~st('d till' Schwilln cas(", 1I1I1'IS (ry, it is only on e step. \Vh en COl ,ducting e nvi ronlll entaJ analysi s, i I' is V(-~ ry easy
5. Irma Zalldl , " tr ow to S(cpar'lte Trends from Fads," i3 r(I//{/tcGck , Octoil('r 2:3 , 2()()O, pp I" " ,'I h()gg("d dow n in an extensi ve, bro,ld survey of trend s. Howeve r, it is neces­
:30- :3.5.
.. 11\ I() I'('strict th e analYSis to thos e areas r eleva nt enough to hav!::, a signifi cant
6. Faith Popco nl alld Lys Marigold, Clickil/g, Harpt'rCollin s, 1997, pp, 11- 12, 11I' I);)d on strategy.
7. James Daly, "Sagt) AdviC(~-lnt(~rview with Pc(e r D r1l('k<cr," BlI s ili l'ss 2,(), AlIgllSt 22, 1<Il lf i r()llll H:' ntal anal ysi s can be divided lI se fu 1Iy, as shown in Figllre 6.1, into
2000, pp 1:34-144.
11\ " ;11'('as: t('cllllologi cal , gove rn mental , economic , cultural. allll d elll ographi c.
S. C eorge S, Day, AdaJll J. Fein , Cregg Huppcrsberger, "S hakeouts ill Digital Mal-k('(s :
1.. 1t' 11 :1J'('a is discussed and illu strated, Th en , m ethods uf fore cas ting trends and
L(>sso ns Ill]' CB2B Exchangt's," Colifornio M(IJ/(/gGIlJent Revil'u;, \Villtn 2()(l:3 , p
'\I ' ltl s ;11(' [1)'{'s( 'lIt('d,
1:31- 1:'33 ,
.\11"1' d(',(Tihill ,~ (' llviJ'OnIlJ('ll tal <In;tiysis , th e last of the four dimen sions of exter­
9. Stevl'1l P. .'lchllaal's, "Crowth Markd FOJ'('c,l sting I\('visil "d: :1 I ,,,,, ,, 1\:1<''' ,Ii " I ,"I)k
ILII :111 ;Iil-si s, (1)(' cll;ljlll'lllillllllll ((I Ill(' task of" dealing with strategic llnce liainty, a key
F'orward," C(flij; , I'll ill i'IIIIl lIgl' lIl l'lil lie/if ' lI : 2S('I), .'lIIIIIII"'1 11),,)(;

10. Tilll e ll,\,, ·II , "Tllt's(' I" 'i( '('s I\, ': tlh- II,.. , III S:III" ," :1111'11 '.1 I 1' 1'), 1'1 ' lil~) II I.
" 'til ,,,1 ol ' ('\ll'rlt:t1 :lldl" is, 11111 1:)('1 :l11 :Iil-sis :llId ,'ccnario analysis are tools that help to I
/oi )I /IiI// ' "1 11/'" IIt:tI 1111 " "1 '1:1;111, iltlll ',11 :11'''',1, 111111:11'1 :l11;ti vS i\- ,-(11<' ilSS('SSIII('ilt oJ" til<' wlative
11

!17
 ; ,,-, 1'111 I Ttl II .\ 110(, . 1 :11 \ III/I '1 ,\ ;,\ ('/II'J'/"I Ii i':ll lJir()ll1nelltal Anaiy,s'is and Strategic Un certainty 99

"1'1';( :11 N()I ,()(;r I II/'I ' CIIS ' ill ,~ 'fe cl/lw/(}gies
• 'I'll W ll ; d ( '\ l (' lll dl'( ' ('\i \lill ,t!,' I(. '(' llIH 11()g i('" 1I1"trlJ'ill ,~!-' 11 1\ "rl<'11 ,'as\ lo ('o lilpil e a li st oftc-:cilnologi es in the w ings; th e hard part i s sortin g
,," I III<' w illll ('rs ["rolll th e loser s, Th e exp e ri t' nce of th e r etail sec tor may pro vide
• IVI, at tl'clll lol()gic'li d, 'q, l()p""'" ts ()r 1""I)(ls ar(' "i'I ''l"lill,C!; or (" ",I" ,dr", '1
Ih, ' illt/llsl,.\ '- ,101 111 g llid alH'l ', Amoll g the bi g w inn e rs we re til e 1936 in ventioll of tIl l' sh oppin g
GOVERNMENT , II I (",h i('ll ,dIOIVl'd c ustom ers to hllY more and do so more (~asil y) and til t' UPC
• IVk,t l'hang('s in rcgul<ltion art' possi!Jl(e;'> Wh<lt II~IJ thcir illlpact hl'!-' ",111 11( ' 1' (w hich il1lpm ved ch eckou t and prov illl~d a ri c h inFormatioll sOlll"ce) , Amon g
• What ('L\ or otlwr incenti vcs ar(' Iwing d(·v('lopl'd th ,lt might aFkct stnlt(Jg\'-~ III!' IO\"I'S W ('I"( ' Vi(]e o tt'x in H)I-):3 amI inte racti vl' televi sioll i ll 199:3, tw o pren1<ltll w
• What arc till' political ri sks or Ojl("I'aling in a gOVl'J"lltt)enhd juri sdiction '~ l'I\,' '- "111)(,1"S to l'-COlilln e rcc, To those IVl~ can add Tl'd Tlll"l w r 's C heckout C h,lnncl
,,,1,,1 IIl o llito rs p o sition ed hy th e check ont co unter s in grocery storl's) and th e
ECONOMJCS \ 11, ,( ka ,-t ( ~crl'e llS attach t' l/ to shoppin g U lrts th at could hi ghlig ht sp ec ial s and
• l\fila[" arc til<' ('collonlil' prospects and il,f'latiot) OlltlNs f, "' th(' cOllntri('s in \\' hich th e' fi l"lll "-"l dl 's ho Pl)('rs),
op( 'I'a tPs;'> llo\\' will th c)' an' T t stratcgv;.> I{ ,I)" i)mkl' , 'I rdail expert f"nlln Indialla Ulli ve l'sity, (b'e\\' UpOll a vari d)' of
CULTURE I' ", '; II"(,h somces 1'0 d evelop a set of glliddinl's ["or separatillg lVinTl('J"s rrom losl'rs,
\lll lIlIl gh his C( lIltc,,, t is retai l in g, 'Ill)' organi zatioll l'xplorin g ll elV technol ogies call
• lI'k,t ar(, Hw (" IIIT" lIt 01" ('nl(' I'gil';.!: tr(,nd s ill lif" st.vl(,s, !;(silion s, alIt! oti, (' r conl[1ol)('llts ()r 1
Cl "til l"( '? 1\,/1)';'> I Vhat are tlwir ililpli c<l ti()n s"~ 1"' l w [it ["1"<1111 ('on si( k ring (',l("h o f th e gllidt, lilles :

DEMOGHAl)HICS • U S(' tel'llilology to create an illlln(' diatl', tallgihle Ill'ndit Ir)r th e conSU llll' r, Thl~
• 1I'!.:ll d" llIogl'apl,ic IT(' nds will ant'l't til(' IIlarkl'l siz(, or til(' indllstl')'- 01" its s"h"I<"'I,,,ts;'>
I)(-,llcnt, in sll<nt , needs to Ill' percei ved ,IS such, Tk' C hcckolll Cil;Ulll t,1 w as
\1 '/",1 d,'nlol'/aplli c tre"d s rl'pI"<'s" lIt oppOl"t,,,litil's 01" thr('ats'~
(ksigll<'d to hl'lp (,Iltertail ', hilt COIlSilllll'J"S salV it as ' "l illtrllsi v(' ,lIlnoyall ce,

GENEHAL EXTERNAL ANALYStS QUESTIONS • tvlakc thl' techllo logy ('as), to lise, COIlSllllll~ rs J"<:'sist w as tillg til11C allll
IH 'conlill g rru strated , and too orte n I1('W techllologi('s arc PCI"cl' i vcd as doin g
• \I 'llal ",..' II" , sigllifi(""IIII"<',,ds ,(I HI r"t"rc (" "Ills?
,'xactl y th ese thillg,~, l ks (',IJ"ch sl,ow s that it tak('s cll stollw rs ,ll l averagl ' of" 2()
• \\ 'Ilal ll""'al"\ <111<1 OPpo,.t,,"ili,'s do Y"" s(,(, 'e
1030 Illilllitt'S .iIISt to ivarn how lo shop in most tl'xt-hased lliternl'l g r()Ct' ry ­
• 1\,1,,11 aI', ' III(' kl'y '''"('as or IIII, 'cdailll} as to tr('nd s or (' v('nt s l'llat I'a"(' til(' pot('nti,d 10

shopping sYS tl'1l1 S, AOL heal its Inain ri val COIlIP IISt'IV(' in part Ill'CaIlS(' it
illl pa("1 slral<'g)"e l':I'al"ate tl I('s< , stra tl'gi l' "nu 'rtaillli ('s ill t,'rlllS or llwir ill'I"I('t.

was easi(' r to ll se,

SCENAlHOS • L~xl'C Ill"i()n matte rs : protot)1w , test , and r e finl', O,l(' ill -s tO)"(" kiosk hallllo
• IVI'dt strategi(" 11I1("('rlainties arc wmth 1"'illC!; thl' hasis or a s('enario allalysi s? w ay to inrorm ["I"llstr,ltcd CllstOI11l' rs th at it had 1'1111 Ollt or lXlper, A hallk
[' )l(nd Cli stOI11t'l"S IllOIT r(-:ct'pti ve to an interactive vidt',)('ord<-' rt' ncillg Sys tClll
Figlll'e G,I ElI vinHIIIH 'lIt,d II IIalys is
w h('n th e SCWt' IIS wt' rl' placed ill in vitin g IOl',ltioIl S,
• lkcogn i'I,(, that c llstolll er responsc to tccimolof.,,), vari es , Olle hank f"ound
i Illport,lnu' of strateg ic IlI lc(>l"tai nti(~s-is addr(;'ssed fi rst , SCt'llario an ,ilysis-ways 0[" th ~(t ATM cli stOl11 ers rej ect(~d v ideo conferencin g option s h eC<lIl se they ,lct u­
crl'atillg and lI sillg 1ill"IIre su:, narios to Iw lp gt'n e rate and evalllate strategies- !()lIow s, all y did not W,lnt to intt'ract w ith IHiman s, Some retail e rs li se loy alty carll s to
p rovide rl Te ipts and promotion s tailored to in<li viuu al c ustom er s,

DIMENSIONS OF ENVIRONMENTAL ANALYSIS

Pisrll p live and Sustaining Technologies
Technology
I '1 ,\ 'I')!1 Ci,rist(>'l st'n , a H arvard Bilsin ess School professor, d eve loped a th eo») 1ahout
Oll e dimen sion of en vironnlt'llt,d an ,lly si s is technological tre nd s o r techn o logi cal ,Ii" IIpl i\'(' versll s slistainilig innov,ltioll S that explain s th e dy "ami cs or m any inclu s­
events occ llrrillg outside th e mal"i<e t or indll stJ) ' that 11<Ive tlw potential to illlpaci I I II " ,'! Slistaillillg innovations are those tklt help in c umhent Clllnpani es sell h etter
strat egi es, Th ey can J"eprcse llt opportunities 'lilt! th reats to those in a position to cap ­ 1'" ,, 11I('l s [t)!' II lOri ' 1Il<III1 '\' to tlwir ht'st Cllstom c rs, Both Simpl e. incre mental
itali ze, F o r exampl t', th e cabl e TV indllstry, w ith its massi ve ill vestnl(:'llt i,l 1"11(-' w irillg 1I1l 1" 'O\"' III( 'lli S 'Illd IlI" ';lkll'i"< lI lg ll "'ap s ill ll'c ililology can he sll stainin g as long as the
o f"h om es, should b e con U~ rIled w ith th e techJl ology r elat ed to saldlil, ' ,tll, ' rll;!!i "I's, 1, ,, '11 ' is "II illllll" )\'ill !': 1I1 ; 1I ~, ill ,S 1',, 1' III(' 11I's i l',\ istill g ClistOI1lt' r s, SI.1 l'ct'ssful organi 7.a­
E xpress d elive ly servi ces su ch ,IS F edEx have h et' ll aFf(JCl< ,d In' 11( '\\ ' /(11 Ill S " I' ( ''' 'II I " "IS " "", 1011 sll" II"I",-, '" , /:ill. ill ,"'" li \"", ' "111 \I, ills d,'siglH'd to ~I" ll' r, lte 'lml impl t'­
muni cation , vVhile e-llMil can r eplace th e lise 0[" () v(, l"Ilig lll <I" li" ' I \ 1111 " 1111"1 1';ls, '" 111<"111;1 ,'(111111111(111 ' 11,,\\ ,, 1', 11',1:""111\', 1I11111\ ;dioIi S 11"'llIlI's llil ()r w l,ich is ('ollsid"("f'd
e-co m lll(TCE' has provideu a major SOli rc(' of" II< '\-I' I1liSi,l( ' S ,S I', II I"'" II : \ ,I 1" li :"",' 1'(1 111<- 11I1 ,,,,jil.'/'/' ', I "" il, ,1"'/ ill(" ;"'S"III"" (lI '\,'lli"I, I'i, k.., loss " I' \HlS ili(\ II ,
 " ~I' ,"""l IIT/fl ·!: i, \"1"'/-,"\'
. 0' • ., •
1'1 (' III IJi ll'lli I)1.~: llIi/'.:li il)IIS ,\I"( ' 11(,1 :JiW: I\'S III(' fil'si II) "':11'1" " w ill' :1 " " S/; Ii "ill g iIiIlOV;t­
lioll, 11111 Ilwy IIslI:tlly w ill I>('C:lIISC' ()I' lhc 'il' n 'S() III'('C'.' :llId IIloli \': llioli .
Disl'upti v(' ilillova tioll s, in (,O IlIT<l st, app('a llo Clls tOlll(TS \\1 110 arc IIl1altractiv('
to in c umhe nts, usua lly beeallse they are' not in the high -vo lum e, llig h-Ill<lrgilt
" sweet spot" of the market. Instead, th ese inllova tion s take one of two rOlltes into
the marke tplace .:) First, they look toward pote ntial eustoill e rs w ho <Ire Itot cur­
rently hlly in g tfte produet h ecause it is too cO illpl ex or exp ens ive. Exa,nples of this
would include how App le's Macintosh attraeted new llse rs into the computer Illar­
ket, online r e tail stockhroker s e nabl ed day traders to tll rive , <lnd th e Pal ill Pilot
appealed to people wanting a simpl e organi zer as opposed to it handh e ld com­
p"tPL Th(:'se products did not appeal to thl' h est elistolllers of in c ullli>(:' nt firm s.
A s(-'co nd mllte [()r di srllpti ve technologi c s is to t'nter th e mark et at tlw low
elld, f()(;lI si ng on eustolll(:'rs w ho ar(:' " overserved ." As sllstaina hl e innovati on dri­
ves perrOI'llI<lnce IIpw<lrd , t here w ill he a seg nl (:' nt tklt Simply doc's not need tiJ e
extl'a capahilities and would he sa tisri ed w ith ( indeed , wo uld pre f(. r ) a sirnpler,
elwaper product w ith satishuory p c r/(,nll ance . .I<1pall('se ca r COlllp,1I1ies
til e-: U.S. c: lr Illarkct in tlte HJfiOs <Illd tht' copie r III<lrkct in til e 1970s w ith a di s­
I'uplive ilill ovation str ategy \V:d- J\tlart , SO llth w('st Airlincs, <llld D e ll COl npll te rs all
IIsed tllis I'O lil t' <IS w"' !.
Disnlpti v(' inno v<l ti ons an·' ortell till' b;ISis f(lI' attractive g ro w t/I , hnt iIi CU Ill ­
h(,lIt l'iI'lIl S- ('sjl('(: ialiy sl lcCc'ssrlJ 1 olles- rarely partieipatc '. \ V hc'll all organizalion
i.\doill,~ w(' II , there is pr('ss lIr(' to e llh anc( ' sllort-tl'I'Il' growth an d 1I1 arg ill s, w hi ch
(',III I)('s( 1)(' achiev('d tllrol( g ll sll sta illing innovat ion s. \ V lw n til(' hIiSili('S., tum s
dOWI1 W: u'd (llCri,ap.s Il('ca lls (' or a cCllnpctitol"s di sntph vc tec hllol ) , there arc. no
ogy
1'('.sollrl'( 'S av,til ahl( , to SIiPPOlt all illitiati ve to catch lip to tile di srllpl'i ve illnovat ion.
To participatc' ill disl'lIpti v(, illnova tion s, <I finn Ilt'(-'d.s to n'cogllizl' th<lt its
('xi shllg o rgan izatioll is like ly to Ill' a liahility. Thus, a sc 'paratl" orga lli z<l tioll may be
reqllirt·d , o r at ""ast a gro up wi thin th e Cllrre nt orgalliz<ltion thaI' has w ry difft:r­
Cllt people , pl'Oce.sse..s , and el1l tllre . Fllrtlwr, it is important to exp lore di.srllptive
innova tion s bef()re p('rf(JrlllaIlU' tllrns had , resonrces are less availab le , and others
lrave aeil icved a first -llloVt'!' advantage. Finally, top IllallagellK'nt sho liid p alti ei­
pate ill the dl· c isio ll to develop a di sl'llptivf~ inllo vation ; without a high-Iewl COIll­
Illitln ellt, the pllrsliit may h ecom e all l'lldl pss exe rci se ill o irscrvation and
f ~lcl-filldin g.
Impact of New Technologies
Certain ly it ca n be important, even c riti cal, to Illanage th e tran sition to a n ew tech­
nology TIle:' appeara ncE' of a new tc· cJl1l010gy, howevt'r, even a sll c('essflll Olle, dOt,S
not necessarily mean that busin esses hased on th e prior technology w ill slldlknly
hecome unhealthv,
/
A grollp of researchers at Purdue studi ed fiFteen co mpani es ill five indu stries in
w hidl a dralllatie lI ew tech ll olo~'Y had e ll1erged: '~
• Diesel-electri c loco mo ti ves verS Ii S steam
• Tran sistors ver sus VaCUllm tub es
( 1,11,,1, I I, 1,1111111/1111 ' 11/11/ ,\Jl II I!I S;" IIl1d \111I1( ".!..~il' I '/JlTIJllill /!1 10 1
• 11:,111 )lIi III 1)(,11 :. ' "1 '.11 ', I,,, 1111:1 i II IH' 11 -'
• ·'.lwl c': II· IH)I\t ·1 1"1'.,,,, 1111,1('1', li)1 l i )~ .si l-rl ll'l pblils
• 1<I<-l'I ri,. 1': v.( II'S \'( ' lSi I S ,; ll't'l v riV.Ors
I'W () illln('sti llg co nc lu sions e me rged that should give p <l1lS(J to anyone atteillpt­
III ' III IH('did llrc impact or
a dramatic Il ew teelm ology. First, the saJes of the ol d
I I , 11111 )Iogy con ti nll ed f'or a suh stantial period , in part becallse the Finns in vo lve d C011­
1111' " '1 /1 0 ilnprovc it. Safety-razor sales have actually increast~d ROO pereent sin e(:' tb e
" I " 111 ()r
the elect ri c ra7o r. Thll s, a new teehn o logy may not signal th e end of th e
" I"wi ll pl,asc of an existi n),'; technology. tn all cases , fi rms involved w i th th e old tech­
'" ,I, " ~." 11 :1<1 a sllhstantial amollnt of tim e to react to th e new tl~ c hn ol()),';y
S,'('ond , it is r elati vely diflic ldt to predict th t, outCOIlll' of ,I fl ew techllology
11 ,, ' II !'\\' techn o logics stlldi ed te nded to be expe nsive and c rtld e at first
)lIl lwrlllore , tllt'y started by in vad in g slIhm ark ets. Transistors , (i)r c >. all1plc , w(' r('
('nt(~red 111 '. 1 II s('d in h eari ng aids and pock(,t radio s. tn addition , ne\V t(:,chn olog ics tcn d ('d
I" "II'al(' n ew Inarh:ts illstl~ ad o/'silllply encroac hill g Oil ex i still )..'; OI)( ' S. ThwwalV,lv
1', 11111oinl' pens and man y of th t' tran sistor appli ea tioll s op(,lled Ill' cO lll picl t' h lH'IV
, " II L(' I areas.
( ;0\ CI'n,lle nt
I III' ;ldditi o ll o r rClli oval or I ( ~),';i s lah ve or regulato r y constr,lints ca ll post' m ajor
. ' ",I, ' ~i c threats and opportnlliti('s. For example , th e h all o r SOIll(, in ),'; redi t' nts in
I,,,,t! 11rod l1 cts Oi' coslllet ics has draillatic;tlly aITt'ctl,d th(' st r ategi(,s 01' 1l111lH' J'O IIS
1,11 11 '. The illlpad of governmental l'frolts to rc·duc(' piracy ill i lHlllslri('s slll: h as
',,, I I \I :trl~ ( Illor<~ than o lw -rollrth or all so rtw are used is copie d ) , (1)s , ])Vl)s, aud
11 1"\ ic ' vidcos i s o r crll c ial import to those affected . J)cr('glilation ill h:lnkillg,
I II' rg)" and o th (-'I' indllstri es is hav in g (' llOrrnOIlS i lllplicatio ll s I'o i' the I'irili s
11i\ (,"('d. T Ilt! ,1I1 t olllObile indll str-y is allcctcd hy f'll t:I-t'c onolll )' stalHlards ,l nd b y
Jill' 111\ IIry tax o n alltoll1ohiles. The relaxatio n or H:)..';lliatory co n straint s in In (lia and
( 'I ,i lla ca n Jlave enormOll S impli ca ti o n s for )..';lohal Firm s.
III an ill ereasin gly g loi l<tl econo lll Y w ith in terdepende ll c ies ill lll :lIlds and in
I III' s()lJI'c in g of proch,cts an d ser vi e(:'s, possihll~ politica l hot spo ts 11<:'(:'d to h ('
Ill1 ti''l'stood and traeked. In a eias sic study o f' (:'11 vi ron m<:'n tal tr ends amI eve nts that
\\1' ' ' ' liJl'(~cast ill FortI/li e magazin e durin g th(:' unos ,lnd 1940s, predictiollS wcr e
I, ," li d to he re markahl y good in man y areas sllch as synthe ti C vitamin s, ),';en e ti c hreal<­
, 1, 1'1 Highs, the dec lin e of railroads, and th e adven t of TVs , h Oll St'- trailers, an d sllper­
I l i ' ~ ll wavs. I 1()wever, f(lreC<lsting was (:'xtrl' lll ely poor when in ternational events we re
11111 )11-('( 1. " T lms, a mid-19:30s articl e did not consider the possibility or invol ve­ u.s.
IIw lll ill a Enropean w ar. A 194.5 mticle in correctl y forecas t a hu ge growth in trade
'1il ll lilt' Soviet U nion , no t anticipating th e advent of th e cold war. A Middle East sce­
' ''Irio Llil('(llo I'ore('asl IIII' (' lIlI'rgellu ' of Tsrael. In tern ,ltional political developm ents,
,,1,i( .I, (':111 1)(' niliC':d III 1111 111 ill :11 i()II :d fir ills , ar(' still extremely difficlilt to fo r ecast. A
1"II<ir- lti , lr"lq~\' i., <III<' 111.11 j , 1,11 111 (li ll 'r, ili l'<I :tilt! fle xihle , so l·hat a politi cal surprise
,,, 1111(1 11 )(' d" \·:I.'l:lIill.! ',
 , 1 /1 II " filiII'll/II! \ 11f1I,/"j ·! II/H / SII (( (1":';' l '''l'I'l/oillll! 10: 1
( '"", ,( ,I, I,

1<('0110111 i(' ,<;

TIll' t'l, illI ;di t llt t li' ~{" "t ' ,~Ir;"(',l~i{'" w ill II(' :d'I; 't'I('ci 1,\ jl)(I,!~I')('llh 1";liI(, ;tiHII<I III{' 11\ FO HMATIO N 'n :CII I\OLO(;Y
('('()"(IIII\ ', P;II'li( 'lI l:lrk ;ti'(lill illll :l li (l il «IH I ,~(' IH 'r;ti ('('''"(llIli(' I I('; ti I II :I, IIH ':I ,~ lIrl'(1 1)\
1I11(,lllpl"I'II" ' 1I1 ;IIHI ('('()II()llIi(' gmlVlh, 11( '; 1\) illl'('sllll('111 ill:l (';qlil:ti-illi('"siv(' illdll' III 11<':1,-1.1' ('V(' I)' i<ld<lslrv il is II s(,f'ld t() <lsk what [lot(,nti,t1 impact 1It'1V iI1f'OI'lIWtiOI1 Ilx'II'

try IlIigllt 11('(:'<1 to hl' lilnl'ci i"<) co ill c iti (' w itll a strollg ('COIIOI I I." 10 avoid ;t <LIIlt;I,~i llg <I" I"l!;: h"~I · d 011 11('1\' databases will h,IV(' on strategit's, j-lolI' will it n e,lte SeAs and key

' II<'( '('SS / ~Il'l'()rs'~ Apparclll1 ,lnuh1ct'<I'ers such ,IS Ll'vi Str;\IIss, drug wholesal t'rs such as

period of losses, Usual ly it is necessary to lo()k hl')'ollci HI(' ,~(' l l('ral ('(,OIlOIlI.\' l'() till'
health of illdividual industries, In the l~arl)' 20()()s , 1(lr ('xalilp le , higll t('ch was weak<'r
'''' ''('SSO<l, alld n ,tailcrs sHch ,1S the Limited all h<l"c dc\c!opcd sys telils or in ventory

,"nl 1'01 , mdl 'l-in);, alld shipping that r(-'prl's(-,lIt su bstantial seAs, Fec\Fx bas stayed alwac!

and the housing industry stronger than th t' econolllY as it w ilole,

II I {'Cl nlpl'liloI'S hy iI1V('Stillg head ly ill in/Cll"ll1<,tioll tecllllOlo~.I " 11' W,IS th e nrst (-'\prc's~

A rort:C'<ls t of' the relati ve valu ation s oj' ClllTl' ll cies ca n hl' I"('I('vallt 1(11' incillstl'i('s ,/o- li"'I"I' s('r" ic(' to hal'(-' tltL' ahilit)' to track p'll'kages tlmHlgitolit ii's Systl'lllS <lnd the first

with Illultinational cOlilpetitors, Thus, an <In;i1ysis of ["/w halan ce or pay ments and I" lill" its SVS tL"llS with l'llstollwrs C01l1[1111'('1'5, ivlcrrill J.,vnl'h 's c.l~it fvlallagl'IlH'llt

other hlctors alfeclillg ('lll"l"C' II(;), I'a lnat-ion s Illig ht he n('('cled, F()r ('xdlnpl(:', in ll1()sl \ , '{ '( ){ lilt providec\ sl1hstalltial clislollI('r hl'Jlefits,
de vl"'ioped C'o lllltri('S, th l ' alltO!llobi/e indllstry is t 'xtrCl1w ly sens iti v(' i"cl ckl!lges in ('\11'_ I I, sllpc rll ,a rkcl" rdail illg, "snlart canIs, " ca l'ds tllat Clistoilins l)!'('sellt dllrin,!!; l'11 1'l'I<­
rl'ncy v;!IlIatioll
, ," I 10 ['lay /CII' pl/rchasl's, provid(-' a I'c'con l of' all jlllrch;IS('S tltal allow:
• Sl()r('s to huild loya lty by !'('Wardillg Cllllll1l"til'l' p"rchas(' 1'()IIIIlI(',
Culture • l'ro l1)()tiolls to targd ilidividualclistolll('rs based O il tlwir 111'<Ind prt,r('rt'"('I '~ ,lI ld
Iiollsc itoid C",l r<l c;ll' l i~tics ,
C ltltllral tl '('lIds ('all pr('sc llt h oth t!treal's and opportlillitit,s 1(11' a lV icl(' va riety or finll s,
• Tite li se oj' Cl'llts-off COUpOIlS witllOlit tlte l'llsl()l ll('r or stor(' halill)!; to halldll' pi( '('('s
as t ill' r(III()lV ill .~ eX;tlllplcs ililistrate,
01" p"pcr; th e p"rcllaSL' of' a Pl'OlllOt('( l l)l'Odlict C<lll 1)(' discollllt('d ;11 11011 latil'allv,
A dn 'ss d(' ~ig 'ler c'o llcill ('kd a ,stllciy I"II<lt project(,d IVOl1lC'n's Iill ',sty l es, I t ll re­
• TIH' slort' to illelltily 1>l1)'<'I's 01' slmv-llIllVi1lg it('"IS alld pn,dicl lilt: illipact ()Il IIt('
dil'i"ecl tll<lt <I Ill ore v:tr ied li/{>slvl e wo "l<1 pr('v<lil , that n1()I"l' lilll<' wO II]d h l' spellt
Il droppillg all ill 'III ,
sl'orl.'S elioi('c
outsicie thl' hOlllt' , alld that thosl' w lto wo r!; c, d wO ldd 1)(' 1110rc C<lI'('('I' ()rj(,I1l"c~c1,
• Decisiolls as 10 sltl' lI~s Jl'1C(' aliocali(lIl . spl'l'i;tl <li sp l;l)'s , 'lIld sl'm(' layoll t to 1)('
Th(-' se prl'dil'i"iolls h,lci S('V('I';t/ illiplical"iolls 1'('1< "1'<1111' to 1"11<' dress d ('s igll('r's pwd­
rdill('(1 "asl'el Oil detailed illj'Ol"lllalioll "hollt c li slo lIl"," sltopp i»g,
lid lill (-' ;111(1 pri c il1g str;ltl'gil's. F()r ('X;IIIlPIc , a growillg nlilltlwr ;tile! va ri e ty
or ;tcl"ivil"i( 'S w() ldd I(';ttl to a hroa der ran g(, or sly l('s and largl'l' wa rdrohc~s , wi lh

I " 111:l jls SO II l('wh;li' less sp <'1I 1 Oil eac h ga rnl< ' II!". FllltlH'l"IlloIT , C{) II SII IIIC ' rs
""' II':lS(' <I l'ill;ll1ci al <I l1l1 soc i al il1l1qK'IILil'l1c(' wOI tid pro"al)l), I'('( h, c!' the 11111111)('1' or
IIIII ,I\v-lll('- l('acll'r Fas hioll s a1l(] th e Pl'ITl'pti(1I1 tllat c('rtaill o llil 'it s 11'('1'(' n'(l'lircc]
IBM AND THE INTERNET
1,,1 ('('rlaill ()ccasions,
'I'll('r(' is a trl'lId toward triiJil1g , the alTinity to warcl;l s()ci alllilil that is ('('llt('l'('d
j {I I ()Q3, a» IBM (,l"Igi ll<'I' I' wrot(' " r('sea rcil pap(~ r (' lItitlcd "Cd COIHH'dec/" wlli eh Ollt­
11111 111( 1;lIl inte rest 0 1" ad i v i ty ;1I1c! is Ilot hOlllid h y cOllv(,lltiollal soc iallillks , ~ lLtrl ey­
li» ed si x pl111eiplcs or I lIt(,l'IleL-hased COIHIIII'llicat ion that led 10 a total rdC)l 'IIS of I 11M
I ) 1I'icisOII ('ve nts SIlCit as th e <LI I llllal r ,til y i ll Shlrgis , SOllth Dakol a , call attract 111111­
tow,lrcllilc 1Iltnll !.' I' years be/c)re Ivli erosoi't ,Ind oth(-,rs go t lli (' IIH'ss,lge, It has to he 011(-'
or tlte 1l10St inllll(,lltial Cllviro nlll elltal analysl's of' our time, TIl(' principles IVlT(" -thM , 11l 'cl s 0 1' thOilsands 01' parti c ipa nts, The iv/ ,lcilltosh II S('!,S groll p has 1)('('11 a stron g
e- mail wOlild l)('uJII1<' p('rv,lsiv('; e- Illail din'C'tor)' as,~ist<lIlCl: would lw ne( 'deu ; (->-mail 1',1 1'1 III' Appk 's slII"v i val ill a PC world, The 11ll"(' l'Il(,[ I I<IS gl' lll'I'at<:> lI ,I host 01' COllI­
woulcl all ow vntieal ('Ofll1ll1l1licatioll within an org,lIliZ<II"ioll; c- rtl<lil addrl'ssl's would he 11I ,, "ili(',~ alld dl at gmllJls; Ell vi rol1llll'nta l J) (-'kns(' , 1'0 1' (>x alllp](' , has we ll o v er
on all COll1 11l 1lllicatioll ; co mpanies wO lilcl c:real (~ \Veh sites with infcJrlll ati on reposito­ I lll ),UUO 111 (' II1I )('rs alll] play s an inlllll'ntial rok throllg ll inl'ort11atioI1 exchange <lnd
ri (>s; and ('-com m er c(-' would explode, Th t'se inSights see m o bvioll s ill retrospect. but I " ,) ilie;ti actioll, Trill ing has SiglliFi c'lll Cl' for hralld-hlliklillg alld C(1I1111111l1i c ation
they were vi sional)' at thl' tillle,
I"{),~rallls , hoth llosi l"i ve iy and lll'gal"ivl'ly.
In ]994, th c tlll'Il-»clV CEO, LOll Gerstner, bOll ght into the ide,), He "got it"-dur­ I":,itll I'opco l'll h ,l s Iincovered and stu di ed culturallre1lds that, in her jUdglllt'llt,
ing th(., first 8-l:(JlIlIll('1'C(' deJllo, Cers tn er was r eporte d to ask. " Wlwrl' is tlw Bu), but­
1\ ill skql!' th e hltllfe, Her e fforts provid e a prol'ocal"iI'C> vil 'lV or t he I'ilturc cilviroll­
ton ?" A Aliny o f' in itiati ws fc)i1 olVt'd, turning T13M f'ronl a sick flrm on the b,illk of
III ' 'III or 11Iall \, organii',atiolls, Consider, for ('x,un pie, t l w Following trends:!;
l:OIl,lpSe 1"0 a lead!.'r of' th e new l'l'Onomy. Among th e morc visib ll' strategiC' Ill oves wer('
thc plll'ci1ase of' Lohls NOles , th e c:re<ltion of NctC011llllerce, (an o1ltgrowth of till' IBM
• Coc ()o'l ling. ( ;OIlSII II H'rs arc retreating int() salt', cozy " llOnwlike" C" n v iron ­
Sllpp01t /(JI' til e:: 1996 OI)'llipics), <I );l 'l1cral e-hllSil1('ss positioning, and tll(' re»a ming of
th(., sCl'v!'r lin t' to "e-serl'crs, "Ii " II ' ''I .~ 10 ,~lli('It!II" ' IIIS('h-( 'S I'mlll ti l(' II<lrsll rea]iti('s of tl w olltsiclc worl d,
TI,i s Ir('IIt! slIl'l )(III, (11 1 lilli ' ;lIlIl (';lia l"g' lC' sliopp ill g . llOl l1t ' ~l'l'lI rity S\ ' ~ten l s ,
,!~;\n l (· llill g . ;!lHI ~ 111 :, tI 11111111 · .... .
 --.~ . . ,.,, 'I "Inltll,,-,
• F I1I1 /US!l lI d, 1' '''1//"1', ( :(111.\1(1111 '1,' "1:1" , 111,\ 11 ', 1, " \ 1" " " 1/( '11' ,1(ld "lil/lI/hli()!1
1(, ('s(" '1'( ' 1'1 11 111 sl ('('s ,' ;(lItlllIlI,,'dol li Ik' I'liI/ SII,' 1i1'1/" , 111'1 ; '1 1111 ' 111 (' I'I 'S/;III_
1',1111s, ('\()Ii(' ('()SIII ('li('s, ;(d\-'I'II[I/I"( ' 11 ';(\-'( '1, 1;111/;1.\\ dill II(" 111<11 Sllg,~ (',,[ 1'01(,_
pld)'illg , (;III[;ls),-has('(/ ('lll'(,l'lailllll('l l t, ,In(/ (;t11l a"y (',II 'S,
• Pleasure rel'enge. C OIlSlllllt'rs are r l'he l/ing againsl' nIl es to l'lIl' loose ,md
,' ,l\'or f(lrhiddl' ll frnits (f(lr example, indulgc llt ice crei llll s, Cigars, 11larl'illis,
lalilling salOll s, and filrs ),
• Sma/l iHdulgences. Busy, stressed-out, pcople ar e rewardin g th(~ lllSelves
with aff())'(lalJl e JIl,'(uries that w ill pl'Ov ide (Illick gratificatiOJl : f'r(,'sIHCjllt'ezed
ordllgt' juice, chocolate-dipped T!lScall hi,' cotti , c rll s[y hread , and Ilpscale­
f(Jllntain pells For the fill ilileia lly well of( I'll<:' r,1I1g('~
ofpossihilil'i('s might
inclll(le Porscl w Hatwal'e, a mahogally Cris-Craft calloe, or B ange Hover
nig ht-vision hilloC'ldars,
• DOlen-aging. Conslll nc rs s('('k symhols of' yOtltlt , 1'(' neIVal, and rc jll V('llation
to COIIII['(' I'halalll'<> th(' intellsi[y of' I'h(' il' adliit liv('s, The ow r-.5,5 croIVd going
1'0 school alld par[ic ipal'in g ill acl'i v(, sporl's (inl'liidil ig irollillan cOlflpc til'ions
r '1'11 (' 1I1)(;lear f~tmily was on c( ~ t ilt' model ofAnwrican life, N o ll1ore! The propor­
,uld olltdoo ad v(:'nI'll I'(',S) ref'lec[" this trelld, hll[' it really ('xtends to a \Vide age
gnJII[> IVII () f;tvor lli'odllcts, appdrel, m"ti vil'i t" " alld ("n['prl'ailllll (:, llt I'hat cap­
Iii/,(' I'll(' I)(lsl'alg ia of' yolIl'h ,
• Being alil'C>. COIISIIIll<'rs l(ll'lIS Oil the (l"ali1), of' Ij( ~ and the illlportanl't' of'
IV('I/III 'SS ,lakill,~ dl,trg(' of'IIl('ir pers(JlJ;t/ Il('aith ral'her I'haJl d(:' I(~gatin,~
it to
Ill(' /i( 'all II l';II'(' illdllslry. EX<tIllpl",s of' this illcilide thl' tl.~e
of' holisl'il' Illl'dical
apt>/'(I<l("II ('S, V(',l!;('I';II'i,tll Ill'()(iJl('ts dlld r('sbull'ani's, orgallic produ c/'s, w ater Fil­
I('rs, <llId Il( 'altil l'illhs,
• .1)9 lives. (;Olt,SiIIlI( 'I'S ar(' I(ll'('('d to <lSS IIIll(' IIlldtipll' roil'S 10 copt' w ith
I'h('il' illt'r('<tsillgly hll sy li ves, [{('[ailt-'rs s('J'l'ing Jllultiple n(,eds , cl'e r-I~lstl~ r
IVay, to get pr('pdr('d l(lOd, a servic(' [hal' lIl allages your sl'l'olld hOIll(" and
prqlar('s it fill' vis its, lIoiw 1I('III'I'al il.l'I'S, ('~-COIIIIII(-' rc(', and y oga are all
respoll siv(' 1'0 I hi s ['r(, lId ,
D emognlphjcs
J) ('ll}(lgrapitil' trends call hI" a po\V(')'flll ullderlying f()rce in a markel' and i[' call he
predi(tabl e, Amollg the inHllcJltiai demog raph i c variab les are age, illCollle, (!du ca­
tiOIl , and geographic locittion
,~rotlp
Th e older dClllo,l.!;raphiC is of' particldar inter es t , because it is grow ing
hl(" s,~('d
I'<tpidly and i s with Ilot ollly l'eSOllrces hut Ih e tim e to Use th e m , Th e OVt'r-fi.5
POPUlatiOIl ill th(' Unil'ed Sta tes IViJl g row Ii-o/ll :3:3 million in 2000 to 49 llli)Jion in
2020 Th e oVc r-,"I.5 grollp IVill grow hUIll :3 ,fi million to o ver 6,.5 miJiion in th e same
l'i Ill(> l w riod, and its nw mbers wilJ be Illuch mort' likel), to li ve inucp t'nde ntly (p(:'r­
Ildps ill on e of' rou g hly .50,000 assisted-li ving units ), vVom en tend to outli vt, ill en, so
l'1l(~ ir porholl of th e popnlation inc reases sllcu-pl), Over age gronps; withi!) til<' ,"1.5-'\'(',11'­
old gwuP tlwre are only 4l !lien p er 100 \\IOlll en , R ewarch sll ,~g( '~I, /1' :11 ('Id"Ii),
( 'I/fII " I ' (, IIJI i/fJ I111If ' lIlfll . \ l/llly s i .-i 11I1(/ ,"" 'fI/(,/":)(' ( fJlIT/fllilll!! 10:;
'" 111"11 dis" ,lIi ';/j,,r :Ii Il:llill ,l ~ III I'III IOS(' 1'1'11111 Pl'Ild ll ('ls gC'lwlaily gl 'ill('d to
;(1"
I I I III L', ( ' " ~ (' ,~tll( ' III.".
li 'I 'II ' ;{('(' /1,11' '' ,IS II ii' Il,dl)' IloolIl('rs age, The J.:3-to-19-yea r-old population in th e
I ' It II( ," SI al(,s IV i II pl'ilk , t! :) I III illion ill the year 2010 9 Teens mirror th e age in w hich
I l it I IiII', Th('y take I(ll g ranted the con sumer electron ics sp ectrulll , d eal \Vith adult
, ,III" ,\i wi I <I" AIDS and abortion , and have been called th e MTV ge nt' ration Iwcaltse
, " I III' IV ITV-inHn enced culture to which [h ey have been exposed, Reac hing th em can
I" , Ill ' l ldal lie, as r etai ler s sti ch as Old N avy and Express and brands su ch as Clearasil
111,1 I )i( 's('1 Jeans have found ,
1': 1I II 1il..: populations are rising rapidly ,wei support w hole firms aJld industri es, a"
'" 'II ,I.'
af'/<' ct th e strategies of mainlin e companies, Hispanic population s, f(n exal1l­
1'1. , : 11'(' grow ing aholtl' five tim es r~lste r than arc non-Hispanic populations and arC'
,'lI llill g ill in com e as well , Hispani cs will soon h e th e largest minority group, T h('
" ,I'II I-/\l1l(-'ri can populal'ion , c llrrently numhering o ve r 6 IniJlion in th e United Sl'ate" ,
I lI J('r(,<lsing rapidly.
11" 11 (d ' U,S, hou se holds defin(,d as traditional I~ lnlili es ( dial' is , a hll shand , a w ilt" and
I "I, 1IIIder lk ) Was at 4.5% ill J960, :30,2% in If:J.';O, <tnd 2:3,,5% ill 200() , I(J On e of six
1 "" Iili ollal l ~tllli li e s h as tilt' dad staying Iw nw and the mOIll goillg to work, On e impli­
• " i() 11 is I'his d emographic evoilition is an inc reased demand ()r handy ma ll " (~ l'V ices ,
1""ISI' I((lid cl eaning, and meal preparation,
The movemeni' or businesses and popltiatiolls into difl(~ re nt areas of' th e cOlln!'r),
I"" ililplications I'(lr Illall)' se rvice organi l',atioll s, " lIc h as i>mkeragc: homes , rCa I estate
" 'I illlrl'S, and in surance cOlllpani t's, Fll r l'lw nnore, th e reviva l or downl'ow il II rhall
1I I': I~ has had considerable impli cations I(lr retailer" and rcal t'stak (ie' vplopl'rs , just
I I II(' ('arli e r dcve lopnll'nt of suburllia had ,
I >I~A LING WITH STRATEGIC UNCERTAINTY
' d r; tlq.;ic un ce ltai nty, Itn certainty that has strategic illlplications, is a key con struct in
( \1 ('1'11<1 / analysi s, A typi cal external analysis w ill elll er).;l' with dm:e n" of strategi c
1 1 11 I ' { ' ltaintil~ s, To Ill' manageahl e, th ey need to he grouped into logical clusters or
I I II 'III( 'S, It is thell useftd to a" st'ss th(~ i I1lpOtian ce of each clu ster in orde r to set pri­
, lIi I ii 'S with respect 1 '0 in 1,( )]'Ination gathering and analYSis, I mpact analYSi s, descril) ed
III III(' lIext "eelion , is d eSign ed to accomplish that assessment,
SOlll ctilli es th e strategic unce ltainty is represented by a Itlture trend or eve nt
,1 1:11 II<IS ili/wrent unpredictability lnbnnation gathering and additional analysis wi1l
111 ,1 IH' ah le to redu ce th e un certainty. In tilatcase , sce n,lrio <Inaly si s can he employeu,
'\('( 'Il ario ,ul alysis hasicaJly accepts th e un ce rtainty as given and uses it to drivE' a
, II '\i I'il)lioll or tw o or more future sce narios, Strategi es are then deve loped fo r each,
' )111' 1111/( '11 111 (' ('oliitl Ill' a d('('ision to create organi zational and strategic He,\ibiJity so
,1" 11 ,1.' III(' Ililsil((' ,,~ ('(11111' \ / ('I "I IIgl''>; 1'11<-' strategy wil! ad,\pt, Scenario analys is will he
.I "'" il " t! ill III(' lill ,d SI '('III'II 1>i'llli , (,llaplc 'l.
 'lIl, nrfl .....· (ltI'f ' ~: /f \"1'/'/" \ {'j'd} )'" (, , ,,,/lUlllllt'lifol \ II If I 'I ,·is IJlIl! ,\' /'(f( (',~: i (' I 111'1'I/t/ill'!1 10';

"YES, BUT... "
Sorrw trends art' real , bllt have obviolls illiplieali()lls 111<1111I '('d III hI ' '111;difi('d. I,'m 1'.\;(lllp l('
Yf'S , tlte !lumber of Wonl Cll ill tIl e wo rkl rlrU" has lwcn il1 crcasing, 1)//1
Th e increasc' is slow alld long-tc rt1l , with th e tota l propOltiol1 risillg frolll 42% III
19kO to 4,,)% in ] 990 and 47rlr. ill 2000. FllltJwr, on ly a slliall [Wrcconlagc' or th c'se
WOlllen fit the image or till' young 1vf BA .
rc,s, I.ntenwl 'Iccess alltll1sagc <Irc g rowi llg rapidly, hill.
A sig;nincant proportion of th e pO[lIll ation still s('c~s 11 0 lIc'l'd f'l!' til(' lll tc nid. In
filet, th e Forrester rt'search finn (-'stililateel in 2()O() th at 47 PCTCcolit of' the U. S.
population coulcl h(' t<.'nncd t('clin ologv pC'.ssil nists- pc·'o[)le who arco ;1Jn iJi l'al f' nt
or ollhight hostile toward technology. Tbis pC'l"c('ntagc is IIlliCh higher <\l liong
those' olelc'r thall G,') , only 1:3 pl'rCC' llt of VVilOlll lI'('r(' cOIIIH'ctc- d in :2000.
Yes, [woplc can and will pri cc-' shop Oil thl' fntel"lll't , Iml .
A stlldy hy NFO in 2()OO showc' cl t hat oli ly abollt Id/" o r' tIIOS(' 11'1((1 Inad e all 011­
lill l' (llirchast' ill l'Il(' plior six 111<1l11·ll.s lowl\' abollt til(' pri cC'-C()lllpa lisoll sC' lv iccs ,
<IlIell ess tll;lll .1.') pncc'llt Ilscd th('111 C'''( 'II OCC<lSiOlla/iy. Allotlwr stll ely show('d
tklt ~)O L)(> rCl'lIt 01' CD Imyers <lnd HO pCTcc'nl' orbook 11IIyC'rs WC' IT loyal to a Sill­
gll'sitc'.
Y('s . t/1( '1'C' is a .stl"OlIg trc 'ncllo 1i(';iltlIY c'<l till g alld c'xl'rt:isl' . Iml.
'I,-I'() (If til(' liISt('sl-gro\\'illg 'l11cllllO.st sllecc ,ss rlll rdail eOllec'pl's arc Kri spy
KrellIC', IIIe' Inakers o'-'iI111011SI)' illcllllgc"III' dOllglllllll s, 'llid Ill -a llc!-Ollt Bmgc' I's,
a c/tai ll sl 'n·il lg;1 lillli(c 'd 111( '1111 or Ilig/t-rilt hurgl'rs alit! rl'ic's.
IMPACT ANALYSIS-ASSESSING THE IMPACT
OF STRATEGIC UNCERTAINTIES
An illiporblllt o hject ivc-' or ex tl'rn al <In,d)'~is is to I'allk th e strategic 111lC(' ltaillties and
e!ecide how th ey arc I'() Iw Illallagcd over tilllc·. \ Vhich Iln cc' ltailltic's m eri[- intell sivC'
inv("stllwnt i n inlemnatioll gath ,' ring ,\I1e! in -el ep th analys is , allCl wh ich Ill C' rit ollly a
low- key lli o ilitori lig e' ne)rt :)
The prohle m is that elCl/.{'llS or strategi c IIlI l'Crtainties anti 11) <1 11)' s(,colld - Ieve l
st rategic 11I1c(' rt;linti l's an' o rt ell gClwrated. Thc'.s(: strategic IIl Wc' ltaintil's c.:,111 lead to
all ("Il ell ess proccoss o f infclrlll<ltioll gathe rin g and ana ly sis that c.:an ail.s oril rC.sollrc('s
illdeG nitl'ly. t\ puh li shillg c.:ompan y lllay hl' c.:once rnee! aho(l[' cahle TV, lik'sty le pat­
te ms, (-:e!(l cational trends , geographic popltiation shifts , ,\I1e1 printing tC'cilllology Any
one of th ese issue.s i nvo lves a host of Sll hR(~kls and COli Ie! eas ily spm I till itle~s researc h .
For C'xample, cahl e TV might invo lve a variet), of pay-TV COllcCptS, suppli ers , t(><: h­
nologies, and viewC'r reac.:tions. Unless distinct prioritiC's are esta hli slwd , ext('rnal
,malysis c.:a n h ec.:o mc:' d escriptive, ill- I()c Llsed , and inefricient.
Th e ("xt ent to w hi ch a str ategic.: 1l1lcertaiJltv shOlild ht~ mOllit()n 'c1 ,111(1 ;111;til-/.C,e1
d ep e nds Oil its i III pact and i 111 m ediac),­
L TIll" illll,:wl tll.1 ·.II .tI'· f'.1<" 1111("( ' rI<lilil y is n ' lal( ,t! I() :
• TIll' ('\ I"liI 1II II IIidi il illl'"llc's In ' llcls 01' C'Vl' lltS 111;][- will inlpacil 'x isling
11" p()I (' lili<1lll1l>iIIl'SSl 'S
• Tll c' iI IIP()"( ;lllt'C' 01 ' tlw iJl volved husin csses
• 'I'll(' Ilu mber o r involved l)lI si nesses
~ . Tll c ill l i llediac.:y of a str,lt egic uncertainty is r elated to:
• Tlt e' prohability that tbe in volve d trends or eve nts w ill occ.:lIr
• Th e ti nl(' fram e of th e trends or eve nts
• Th(' reaction tim e likely to h e availahle , compared w ith the tim e
rc'clnircd to d evelop and ililpl e lll c~nt appwpri,lk strategy
IlIIpad of a Strategic Uncertainty
I .wl l slrall-gic Illl ccrtainty involves potential trcJlds or cve nts that ("clllld hav(' an
11111 '.1("1011present , proposc::d , <I1l(l cvt:n potential blJsin esse s. For l'xCl mpk , a stra tegic
1(l 1I"1'I"1,lillt)' It l\' a hee l' nnn c.:o llld he based on th e flltlllT prospects of the mic ro­
I II " , ' ry In arket. If" the beer rin n h as lioth CI pmposl'd IlIi c wlll'eWl' I} elltry ane! an
111'I I() rl<'cI hee l' pos i tio nt'd in tlt e sa nl e area, trClld.s in tlu-: mi<:rolm:' wl'IY hc"t' r l1larkc~t
I III del klve a hi glt illlpac.:t (In th c Grill. TIl l' trelld toward Ilat-liral fc}(ICls lil a), prcs(!nt
tll'l lll rllllliti es lill' a spark lin g wa te r prodn c.:t Iii\(' le)r th e sallll" rinn and h e the hasi s of
I I L ilc 'gic Illl u ; rtainty.
TII( ' impact or a st ratcgic Il1IcC:' rtaillty will d c-'pend on tilt' illlportance of t he
Imsill t~!;S to a rinn . SOll1l' husincsses ,[I"(' more importall t thall others. T he
111I1 1,ld('cl
s
111'1" Idance o r e's talllishc.:d 11lIsincssc:'s 111<1)' he indicated by th eir associatecl salc 's, prorit. ,
1>1 1·"'Is. H oweve r, sllch m eas ures Illi ght n cec~d to he sllpple lllC'nted le)i" proposl'd or
".1 1Iwlll Iliisin esses !ClI' wh ich present sale." proRts, or cos ts Ill;lY Il ot n :lk'ct till' tn Il' v;l llIl'
II I ; 1 lirlli. Finally, hecanse ;\n illl(ll"matioll-n ced area m ;l), aJfc c.:t several hll siJl e.s.s('s, li w
Itil 11 d1('1' of in volvedllllsillesscs can also h e relcvan t to ,I strategic.: \I nc.:t: rtai n[y's ilnpac t.
IlIl1 nediac)' of Strategic Uncertainties
1'·. I I ' liI .s (lr trends assoc.:iateu wi th strategic.: un cert<linti es Ili ay havc-: a high im p act hllt
.111" \1 a loll' probahility of occurrence that it i s 110t worth acti vely exp e nding reso urces
I I ~; tlltC'r o r ;lnal y'/.c inCo n 11<1ti ol1 . Similarly, iF occurrc~nce i s far in th e Cnture r elati ve
I I I I lit' stratc gic-J c ci sion horizon , th en it may b e of littl e concern. Thu s, th e harn c~ss-
III I~: "r lidC' <'11<'q..,')' may h e so unlikely or may oc.:cl\r so b r in th e futu r e that it is of no
, 11 1(("1'1'111(1 a IItility.
I"i Iially, th e re is the reac.:tion tim e availahle to a Grin , compare d w ith th e reac tion
111111 ' lik(, I; , to Ill-' needecl . After a tre nd or eve nt cr ys talli zes, a firm n eeds to d evelop
.111 ':]("lioll sl rat C',~\'. Irll lC' ;[I',li lal1l e r eac.:ti ol1 time is inadequate, itliecomes important
I" ;lltli eil):til ' ('II1l'rgillg In ' llel s ;[11( 1 c'l'(' nts hetter so that Cuture reaction strategie s c.:an
I,,· illili:tic 'c\ S"I)III' I·.
 10,'" I'I/d i'll'/)
,')' / J Ufl '/: ;I .\UfI/.'I SI ""
( ' /11 1/" /'1 (0 I' lI lII Il JII1II ' lIlul . \// o !y s i s 1I 11t! S II I/ II ·~!..i ( · l 111 (T/ '(uinl!! 10!)

Managing Slralegic Unccl'lainlics

r' '; l<' lill g III :1 1"'II II J('1 s:d', 'I \ ' pro l l l('1I 1. T l lc'), C;t ll also sll ggcsl ill \'cs tl lIC lit
'"II 'P:II1 \ '

Figure 6,2 sIIggests a categ()ri zatioll of strat( 'gic IIIIC('r(;lillti ('S li )r a g iv(,11 bII SilH'SS,
bo th the immediacy and impact are low, th en a low leve l or Illonitoring Iliay sllHke,
If th e impact is thou g ht to he low hut thE' imm ediacy i s hig h, tlH~ area may merit' mon­
itoring and analysis, If th e jllln)(~diacy i s low and th e impact high, tlJ eli tl)(~ area may
fC(lllire monitoring and analysi s ill more depth , and contin ge nt strategi es may he con­
side red hut not necessarily developed and imple m ented, Wh en both the immediacy
and potential impact of tIl t' und erl ying trends and eve nts ar(~ hig h , th en an in-depth
an alYS is w ill he appropria k. as w ill he th e ci evelopm ent o f rt, ad io]) plans or strat'egi es,
All acti ve task [i)rcc m ay p ro Vide i lliti ati v(.',
SCENARIO ANALYSIS
SU;IJ<IJ'io analysis ca n help deal w ith IIII(:(-' rtainly It- provicies an alternati ve to inves t­
Ir ' I"d "gi('s Ih al (' II :d)I (, 11 11' (lr,<C;:lIli zal io ll 10 capitali ze (1 11 f'lItli re opp or t lllliti es cau sed
I" " lI sl (lIl1<'r Irclld s o r I(T llll o logicall lrca).;t hro ugh s,
111 III(' ,sec()1Il11),p v or :uia1yst's, cil:cis io ll-drive n sce nari os , ,I strategy i s proposed
,'," I I (',sled agai nst several scenarios th at are deve loped , II Th e goal is to challenge th e
'I, :,I(',<c;ics , therehy helping to m ake t he gO/ llo-go decisio n and suggesting w,lys to
II I- ,k(, 111<' ,stralei-,'Y lIlore robu st ill w ith st,lIldin g co mpetitive fo rces , If th e decision is
I" "1111'1' ,1n1<lrkd with a technolo).,'Y strategy , alternate sce ll,Hios could be built around
\ II i:" )Ies sllch ,IS lllal'kd pLIC('; accp ptance of til e techllolo).,'y. competitor response,
" " I III(' ,sti IIl1llalion or c usto m er applications,
111 either cas e, a scc llario analysis w ill ill vol ve three gene ral st ep s: th e c reation o f
'" • 'llarios , relatin g those sce narios to ex istin g or pote ntial strategies. and assessing tl w
1>1'I I);")ilil), of the scenarios (s(:'(> fig ure G,3),

ing i n in ji >rJn ation to redll (:(~ Illlce rtainty tl, at is o[h"11 an exp ellsive and fllti/e process,
IclC'n t i fy Scenarios
By cr eating a small nllll"w r or marketplace or market, cont'("xt, sce narios and assessing
',( 1 d('gic Illlce)tailitics can dri ve sce nario deve lopm C' nt, Th e impad allalysis will idc n­
th e ir likelihood and illlpad, scc nario analy sis can bc a powe r('lll \Vay t'o deal wil'h com­ Iill I II(' strategic 11 II cc ltai lit)! w ith l'll e higlwst priol'il}, ['o r ,l rinll, i\ IlI,!llId~lctllJ't: r Ill' a
plex cI) v ironnl('nls ,
111"( lic<l1 i I 11 agcry dl'vic(" may W<lllt to kllow w ll (, tl w r a tc cllliologic,JI ,ldv,lI1cC will ,llIow
Tll('l'(' an' l w o t.\P CS or sce ll ario analy ses, In l'he rirsl t}1w , sITat('gy-cleveloping II ', III;tc hi l W to II(' m ack' at a slli>stan tially lowe r cost. A '-anll CQllip1l1(,llt IIlallul~lctllre r
sce llarios , til(' ohject is to pro vic!( , in sig hts into rl)tllr(' cO lllpditi ve co ntexts, lil e n ,,' ski area operator may ' )(> li c·" le that tl)(' w(" lth e r-whet hc r a dron ght will continuc ,
II S(' lhes(' illsig hl s h) (' ''ail late ex istin g hll sin t!ss strategies alld stillllllatp the crt~ation 1111 , 'xa lllp' e- i ,s th e m os t i mpo rtan t arc"a or Il Il Ct'i'l<linly. A sc rve r rirlll lIlay w allt to
or I)('W (I 11 <'S , SII('h ,,"aly ses (',III he lp cn"ate conl'illgc nc)' plan s to g il aI'd again st di s­ I ''' )\\ w ll ether a sill gle ,softwan ~ st:!lldard w ill c nw rgt' or I1l ull ipl t~ standard s w i II coex ­
aslTrs-; 1I1 airlill (, adjll sling to a « 'rror ill c idc' nt, fo r exampl e, o r a pharmacellti cal I ' L '1'1 I(' chosen l1n ccrt<li li t)' CO l Jld th(' n sIi nll datt' two o r more SC('llarios,

i\ c(lInpetitor sC!:'Il,uio all alysis can be dli v('11 I», I,ll(-' IIncertainl y surroullding a
• '" l1pd itor'.s st rat(').,'Y For exa mple, could Hw COIII pd i tor aggressi vel y ex lend il s I>r<lnd '~
Immediacy
I h IIligl)t it di vest a prmlllct linc or make a major aC<jui s iholl '~ Perhaps the c01l1pditor

Low High , ••, d( I change its valll(~ proposition , Of beconlt' lliore aggress ive ill its pricillg,I 2
'vVhcn a se t oj' sce narios is hased largcl v Oil a sin g l!:' strat!:'gi c IlncC'rtainty, th e

Monitor and
analyze;
, "''I' II:Jrios th e mselves can I.I sl.l 'llI y h e ellri ch ed hy rc lal'ed eve nts alld l'irCIl1l1 s tall cc ~ s,
1111Is . an illllat-ion -s tillluia tc d recession scena r io WOldt! 1)(:' !:' xp t' clc~ d to gell erat c a
1",-, 1 ()r conditioll s lin l'he applian ce illdu stry, snc h as pric!:' illcreases allCl rd,lil hlil­
High contingent Analyze in-depth; ' 11( '" Similarly, a cOlllpt' I'itor sce llari o call h e cOillprehCll Si v(; , sp ecif)lill g sll c h str<ll­
,
strategies develop strategy , '\ dilil e nsioll s as proclll cl- nl arket in ves tlll(' llt, acclui si ti o n or joint ve ntures ,
.,
considered
1'1 it 'i Ilg, pmi tioni ng , proclll ct, and prolll o ti()ll s,
-0 II i,s sOIll('tinK' s ll seflll to ge nerate-:: sce narios h ased 0]) probab le outcom es : opti­
It!
0.
E IlIi ,1ic . [)("SSillli ,sti c, and Illost likely T h e considerati o n o f ,I p essill)istic scenario is
I
I

Low Monitor Monitor and

analyze

I
. "i,C: 1u ·( · li.:2 ,t. ; I I'; d( ',!. ~i( ( J! Wt'!"!;!i ! tl\ ' ( ;; II( ',t!.lJ ri !'S
\ ,'ig((I'( ' li ,: 1 S ( 'I' II ; II ';II ,,",, 1\ ',",

'1'111': NI':W CYIU-:H 1,1 F F-A I-UT U HI': SCI <NAHIO
S[('\(' Barlldt (,f" SC('lI,lrio J'la(lfling at OgilvvOII(' lookt'd al litc world ol'202() and pro­
jeckd a pervas ive "Internet 2" allOWing anytilillg to lHe' instantly rdl'icv('d , (Tach'd, CIIS­
tOl11ized , and experi enced,I :3 Television sets, pes, and sillarl appliances will be
seamless!y linked, using voice activation more than keyboards, Remote forms of educa­
tion, Inedicalcare, shopping, and visiting " ,i ll he routin e;,
These changes will aFfl'ct both wo rk and lifestyle, Workillg at home will Iwcol1le
commonp lace, with companies moving toward fluid work groups jOined arollnd speCific
tasks, Rich , snst,lined, and often profound Oil-line experiences allowing self~C'xI)I'ession
allli personal growth will he ,lvailable, Brands will be redefined as enablers of custOlller
power (which \,\,i11 c\'olw fWIIl bnyers ,md sel l"r, sharing Iht' salll(-' in1()rJnation),
Consumer bell ,\vior will he modeled not by segments tillt hy individuals or transient
groupings, The aging and handicapped wi ll ('Teale new, interactive cyherskills to COIll­
pensate fi)]' physical limitatio])s, Oillin c " tribes " will ellJCrgc as people create vi rtual
COllllll1 lllities that becoml' a p ,lJt of tht' social blll'ie,
OJ'tCIl Ilsel'ld in testing existing assllmptions and plans, The allra or optimism that
oFten sllrrolJncis a strakgic phm lllay includc> implicit asslllllptioJlS thal- cOlllpditors
wi ll not aggrcssively respolld , tIl(-' market w ill not bell' or co ILlps(', ()I' tl'chllological
prohk' ills wil l not SIIr/ilCl' , Scenario analvsis providc,s a Il ont ilrcalc llillg wa)' to COI1­
sider till' possihility or c"lIIds or even rain Oil the piCllic,
Ol'tc'n , or CO llrsC" sl-,v nal variahles are rele vant to the hltlll,(-, period or intc rest.
Th e CO lllllillatiol1 Ca ll defille a rc-, lativc,ly large Illlmlwr or sccna ri os, For example, a
largc' g r c'l'tillg- card firlll Illight considl'r three varia hl es inlportanl-: thl' sllccess of
sllIall hOlltiqllt' ca rel compa llies, the lilt , of a ccrta in card l-ype, and the Ilatllrl> 01'
liltllre distrihution channels, The co mhin ation ca n res ult in many possible scenal-ios,
E xperience has shown that h vo or t'h ree scenarios <II'e the idt'alnlllllber wit h w hich
to wo rk ; any l1lon ' , and the process ilccollle,~ un Wi eldy and <Illy va lu e is largely lost.
ThIIS , it is ill1pllltant to wdllce the nunliwl' of sCt'llari os hy ident ilyi ng a silla ll set that
idea lly includes those that are plallsible!credible and thost' that reprc sent departures
b'Olll the prt'sent th at are slIlJstantial eno llg h to aJ'f(,ct stralt',L,'Y development.
Relate Scenarios to Strategies
AFter scen,lrios have h Cl,n idelltifi cd, the next step is to relate them to strategy-both
existing strategies and new options, If an existing str<ltet-,,)' is ill place , it can he tes ted
with r espect to each scenario, \ V hich scenario wi ll be the best on(:"~ How had will the
e lll e rges'~ \,Vhat wil l its prospects he with r espect to
strat egy h e if th e wrong scenario
cllstomer acceptance , competitor r eacti o ns, and sal es and profits'? COlild it he modi­
fied to e nh ,lIlce its prospects?
Even if th e scenario analysis is not lllotivated hy a dcsi rc to genemte n ew strat­
egy options, it is always u seFul to consider w hat stmtegies wou ld he optimal JiJ r each
scenario_ A scenario by its nature w ill proVide a perspecti vl' that is diffe rent from the
( 'Ildl " . J {. I 'jI IJ f 'II /l/f'lI/lIl \ /lilly ...,·;.\' I//It/ ....;III/I{·/~i/· l ! 1I1'1'/ Iflinl fJ III
111 ' 1\ ' 11111 . ,\11 \ \ 11:11,'1.',\ II.." I', "llIi'lI:d 1',11';1 giVI ' 11 ';('I'II: II'i() ,;ll1 l1dd IW('IIIII(' a \ 'ialll (,
'1" 10) 1' 1<\1 ' 11 if il i.\ Ill" ""II ~, i"I'I ·I '" sllj)('rillr or ('V(' II f('asiiJle, S()IIl(' ('lellll' lll''; 01' it
11 11 " I II I II' (': II ,l ll ('( '( I.
1'; ,( illla k Scenario P.'ohabiJi lies
I " ' l ;d'l:ll,' altl'l'II,ltive str<lll'gics it is llseful to d('termin e th e scl' nario proldJilities,
1111 1:1," i\ adllall v 011('01' (-'11 vi ron nWlltal f(Jreclsting, except l-hat the total scen ario
1111\ 111':1 i'll'll l'{)11IIJination oj'\everal vilriahles , Experts could he a,sked to assess prob­
dll lllll ''; din 'dk, ;\ lkqH'r lllHkrstandillg w ill ortcn Cllll.:'rgc-', however, ir call sal hll'­
I,.,. 11 11(1,' rkill g cach sc('nario C,ln IJl' dctl'rlllillec\ For c-'"lIllpl e, the CO II,;trllctioll
" I'll[ illl" lll indll,sti\' Illight dcvelop sC('llarios \J,lsc,d Oil tllwe alternati ve \eve l s or COI I­
1 IJI'l i()11 :Il'tivily, TIl('.s(' k v(' ls woul d have se vl' mlclllltrilJllting C<llI SC.S, 011(' w() ldcll w
I I" 1I 1[. ' I('S[ rall', /\llotll(' r cOlllcll w the availahilitv or f1llll1s to the hOll1 elJllildillg s('c­
',01 \\'lli( ,h ill lllrll w(H dd dqwllll on the (' nH-'lgillg Sl'fII et-lIll' 01' financial ill.stitlltion s
'110 1 111:lrk('[s, j\ tllird Cill ISl' Ill ight 1)(' tIl(' level 01' gov(-,I'nilleilt sp(, llding Oil roads ,
, 111'1 '",\" ~ "lid ot-/ll'r areas,
h.EY LEARNINGS
• 1':Il\'il'lllllll('ntal analys i s ()r ch angc's ill tecllllOlogy, c\clnogmplli cs, Cilltllr(-' ,
t-/le l'C()1l0 In \" alld g()Vl 'f1IIIH'lltal actio n,s sh()ldd dd('d and ,lllaly/,c l'llI'­
fl'llt and pot('Ill'ial trl'lIds :ll leil'vl'llts that wi ll Cl'eatc' opportllllities or
tlm 'ats to all orgalli / ,atioll,
• 1IIIpad illlal)'sis ill volves assessillg sys'll' III,Il'ically the ililpact alld illllll('c\i­
acv or til(' tn-'nel s allei l'V(' llts that Illllkrlil' c'<Icll stl'atq.'y lIllCC'l'taillty.
• SU' llari o all :i1 ysis , a vl, lliclc' to np lorc dilTeTellt asslllnptioll.S ahollt til(>
I'lltll)'( ', iill'okcs th(' ('I'eatioll 01' two to threc pLlIIsihl(> SCl'll ilrios , th e
clc ,\C' lopIIJ( 'llt 01' strat".l!;i('s appropriatC' to t->acli, tl\(' assessme n t oj' SCl'­
Il ario proIJ:tlliliti('S, :11)(1 til(' (' valilatioll 01' thl' reslllling strategies across
lll(' SCCllal'lOS,
I ,'()f { DISCUSSION
I , What elid thc-' Iilx machine replacc , il' illl)'thin g? What wi ll replace (or has
J'('placc 'c1 ) t lw lilX 1l1dchine? VVh ell w ill th e Fax Illachine disappear?
2, D l've lop a sC(,llal'io l IaSI'd Oil tlll-' proposition that hy hrid cars wi ll COll­
t-i III J(' to illlprove ,ulll take :30 p e l-cent of th e automoti ve 1I1<lrkct ill a few
)l'<lI'S , 1\ 11<11 \,/,( ' it I·H nll the point of' vi ew oj' an c nergy co mpany like"
SI)(' I,- 1lI' <l (':11' (,()Inpan)' like Mercedes, \Vhilt art' tIlt' top three or tellll'
clillll ' I!., i( JI !.s 111 ( '()llsi d ,'r'~
:;, ,\ 1('('(' 111 il'II'<>I'l:llli 1( ,,'I'llfllllg\ cl,'\c,llJPII)( 'llt is \ Vi-Fi, tlw w i reless
1111 ('1 1)('1 :1('(1'\', (''' 111'('1'' S'lll llIl1l('d I)\' IliI('I'" C('llll'ill() ('hip (which
 _ ........ .. . . . . . '1 IfllT ' :-l f ' \11(11,/-.. ;\

c: II \ I' 'I' I': H S EV E N

,
1',."( ,,..; ('''"'1 " 1(',.,. ; ("(JI" 1"'1<1 II"""
('",11,, ', 111111 ',1 II" , " "" '1" 1>1"( ,,,1 I,:,~
r:li,. ; ('" (' \ IH 'cl :lliol!."; II"'(" lgllolli I I I(' """11 ,,,1, '1,,"1,, ,, 111 ,

a. \Vill tlli,..; ('1t:1I1,t!;<' tii(' IIS(' Or ('('IIIP"I( 'IS;) 11 <11\' 111 :1111' Il('Ol l l(, w ill al'lll­
all," lI~l' cOInpllt(-' rs con lw (' tl'" to tl,(, 111/ (' 111 ('1 ill ('()!'ii '(, I, olls('",; ,lIld
airports:) Think of SOlll e otil t T Similarly Ilypeel pll l ' llo lli e l la, f'rolll
railroads to aiI1)lan es to tel evision to VC Rs, \<\fhat happen (-'d in
Internal Analysis

thos e cast's?

b. \Nhat are th e action alte rnatives for org,lni zations such as Starbuck's
and M cDon ald 's?

4. P ick a CUllipanv Of Iml1ld/ busin e"s on w hidl to f( )C llS, "\l1Iat are the
majO!' tre nds that cOlll e out of all e nv ironm e ntal <lllaly sis ? \Nhat are th e
Illajor a reas of llncertaillty ? How wou ld a major compan y in tht' indus­
tJ )' handl e those b est?
II I 1"",(, 1111'1 dw ('11(: 111 \' alld lie is li S,
5. Focli sing on th c airline indust ry, deve lop a list, of' strategic 1111(:ertainti es
1' 1"/1
and possih le strateg ic actiuns ,

'" " I'oll<... it ili a), Icad 10 sc li', dcstl·lIdioli .

I, " 'I', " '('/11' t'm;!. (/ 1/(/11/1' ().\'''
NOTES
li,l, is las t to kil O\\, if it S\l~ 1I1S ill ",,,tn.
l. 1\;tI'IlIOII(I Illlri{(' , " collrrolltillg th e Chalic ilges Tl,al Fac(' Brieks- alld-Morlar ·/du n l· J,, -upn il
Ston's," 1/(( 1'1'111 '11 IJlIsill l'SS }(f'l ;i n c, .!IIIy-AlIglist I fifi8 , pp, I ()O- l fi7,
2. CL'yl oll M , CI'l'is(("I.'1 'II , :'vlark W. .I0llllsoll , alld Darn 'lI K , Highy, " FOli ll datioll s li,r
(;1'<111'1' 1, ," j\l l'/, Sf(}(/ II !\j(( II f1!!,C /II (' lti /i n ; i c1V, Sprillg 2002, Pi> 22- 3 1.

:3. thid .

4 . AI'II,'/<I CoopeI', 1':<I"'ar<1 1) " III1I Zi/o, K( '1l11dl, l latkl' , Elijah I ti cks, illid Dona ld Toek,
" Strat(,gic Ik spoll s<'s to T ('ciliIOIogil'al Thn'ats," A {'(/( f e l l 11/ (I f /vlc/1/f/ f.!,/' II/,/' 1i 1
{'r on,(,r/ill!!..\'. I 87() , Pl" 54- ()O,
I II ;1l1<lition to ex ternal threat s and Opportllllih('~. " trat('gy d('I'(']opllH'llt lllil st 1)('
1.. , ,'," Oil ti ll' ohi ecti ves , stre llgl'il s, :lnd cilpabiliti e" ora bliSil wss. I"or ('x aillpl (·. C;r;llld
;), Hic!,anl N , Fa I'll 1<'1', " Lookillg !lack ilt Lookillg f'ol'lv;II'(I ," H/l sill uss l-/o r i.:tJ/l .\'. \I , I (whi ch at on e ti n le was in vol ved with holels, dairies, lletting, child car(' , p, d)"
F('ll rllal)" 197:], pp, :21 - 2K,
11,,1 dozen s ()f' oth e r h'l sin e..;ses) d<~cidt:d to n "stn lcllll'c its riml to /cvc··rag(, its
G, Ill M , 1\('<1 J/(Trill!!. , N ov(, lId w r, W8 8, pp, 120- 12K.
',II " II ,t!; ths ill IlHirket illg hrand ed f()()c/ and drink p rod lld, alld 1l1anagi llg wo rld wide
7. Salll Il ill , riO 'l h'lId.\' i ll (j() Mill//l e.\' , N l w York: Joiln Wil<:y & S(lI 'S, 200:3, p. !:)(i.
"1,, 'r;lli ()!I S. f\lll ,r;:on leve raged its stre ngth, in ope ration s rclakd to l'-COll l lll(' rl'( ',
S, Faitl, l'op('()1'11 and I ,.)!s Iv l arigold , C:fickillf.!" " "'lk ' I'Coilin s, 1887. p , 11 - 12.
1l 1l(Il:' rstanding a husin es" ill d epth is th t' g O<l1 or inteJ'llal allal y, i s, A bll s in (~s s
9. Lama Zinn . "Tl:<' lIs ," l3/1silt f'sS \\I(,l'k , April J I , t ~JD4 , pp. 76- K'J . 11I1"llial anal y., is is similar to a (;olllp(~ t i tor an ," ysis, 1)llt it has a g rl'at('r [() eIIS Oil p e r­
10, Silnl 11ill, op, cit.. p. 0:3. 111 1II li lll C(' aSSl'SSlllellt and is ll111c h riclwr and d eep e r, It i s rllOl'( ' dd,lilc(l h('can st: of
11, llngh COllrtlley, " Dl'cisi oll-Dri v(e ll Scell arios f.ill' Assessillg FOllr L evel s o r ,I irr'll()rtalll'l ' to strat egy and hecallS l' lll ll ch more ill[i)l'(l lati()!l i s avai l ahl(' , Th e
Ullcc itaillly." Stml ew/ & J'(',/(f(,I~,1/i7) . Vo l. :31. , N o. 1. 200:3, pp. 14- 1Ji. Ili dIS i.' i" h asl'( l on sp eciR c, c lHrent illi()rmation Oil sale s, proR ts , cos t s, o rgani /,a­
12, Lia m Fal 1<-'."- "Collll'ditor SC(,lIarios," Stra t e!!,l/ (" L('(((1i: rsflijl , Vol. :3 1, N o. 1, 200:3, IllIlI ill s[rlld lll'( " ll'I,lIl agem ellt sty le, alld oth e r [;ld ors.
pp, :3 2-44, !' IS I as st rat t'gy Call b e d eveloped at the l evel or a Illl sin cs", a g rollp o r hll si­
13. St('V!' Ball l('tt, "Tk~ Nlw C:yberlik" " !\lIlcriw n j)I'IIUlf.!,rrtphic.\', D t'ct'lllbt' r, 1888, pp, ( -f.J, " ~( '~, (II' I'll(' rirlll , interna l analys is C,UI al so Iw c onducted at (~ a c h 0[' th e" e l ev(' l s.
III ('()III'S (' , <lll;t! ys e" at dille'rent l eve ls lVili dif['t: r ['Will each oth (-'r in l' lllp hasi s and
"" i/( ''' !. hil t their strlll'lure and thnl st w ill he th t: salli t' . TIll' COlllili o n goal i s to
1,]" ,,1 il \' "rga ll i/,ation;" strell g ths , wl~ a k ness es , cOl)straints , and , nltimate ly, to
<I, ,\( ,IIl I' rl 'SI)( III Si vl' ,slr,II( 'gi (' " , ('illl('r ('s ploi l'ill g Str<' ll g tiJ S or cor w c ting or cOlllpell­
i/ il '.l. ~ Ii", \\'(' iI/"II' SS I" ,

I I :~
 fI I /'111/ I'll '" .\'11111,'''.1" I/Illill-';'
( '/11' 1/1" /' ',. /// 1,,/,//,,1, I //III,/s;s I l;j

f 111 1'1'11 <1 1;(llah 'sis I l('gi ll ~ 11\' 1'\;( lllillili g Ill!' i'il J; II II 'I:d 11"1 ""11/ :11)(" , of';( 11I!.,illl'SS, ' 1' 11 ':11,' l'II:lII,I~I" ill ,s:lI,,,, 111.11 :II'" ":lIISI'III',1 1;lt'li('al adillllS rl'lllllll, osl' l'klll'l'pl'l'.\(' lIl
ils [lroi'iI<lhilil\ ' :lIl(l S:til 'S, 1,ldil'alill((S oi' 11 11~ali";/:\I'ltlr\ ti l' 11,'I"I'ill l':t1illg 11I'I'lllr­ 1,,,,,I:lIIf I'lIl:ti l'II:III ,t:;'" ill II,.. " '/111 ' d l, li ll'n'd III Ih t: c lI sl ll llI l' r, :111(1 it is illlportalit til
Illalll'C nligltt Stilllillat( ' st ral ('!-,,)' Cil<llIg(', III l'(lllll':I.,I , IIII' ('ollcl li sill(( Illal CIIIT(' ll t or
"" ' 1,1" ,III :lll:lh-sis Ill' S: ti l" Il l' ' /' :1('( ' lV il'll all :1I1<i1ys is o r CIi StO IlIl::T sa ti sblc tioll , w hi ch
liltllre perliJrill:lI1Cl' i" accc-'ptaill(" call sllggCSt til(' old adage , " I f' il :I ill 'l hro k(" dOIl 't fi x Id l l ,,' di sl' lI sSI,d sl lllri ll',
it," Of' course , sOllwthillg that is llOt hroken may sti lllw(Jd SOIl1e:' Illailltl' ll<tll CC , ref'lIr­
hi shillg, or vitali za tioll, P(Jr/-ilrlll:llJc(:' analys i s i s especially w leva llt to th e strategic d ec i ­
sio ll of' how Il1l1c h 1'0 ill vt's t ill o r disill ves t f'rom a hu s ill(~SS, "lHlilahili ty
T lw first St'ct-ioll of' this c lupl'e l' cOllsiders financial pedi lrlll :III Ct', as 1I1 ('aS lired hy
I I ", IIllilllate llleaSlll't' of a firm's allility to pJ'() sp e r and ,s urv ive is i ts proRtahility.
sa les, r d llrJl Oil assl'l's , and t h e "haJ'eho lder vallie co n cept'. TIl(' 11(-'\t ,s edion cove rs
\1 11111 11 ,'-',1, hoth growth and profitahility arc d es irahle , t'stahli shing a prioritv het-W(T n
o t\lt'r P(,rriJrTllallC(' dilllt'llSiolls lililwd to 1'111111'(' profitahility, such a,s Cll sto lll(' r sa ti s­
I I " II11lCall IlI'lp g llid ( ~ stratl'g ic d ccis io n makillg,
hlctioll , ]1rfJdlll't {(ll<llitv, hrall(1 a"soc'iatiolls, r elative cos t , ill'W prodll cts, and
eillp loy('(' cdpdhilitv, \ I, os t of' IlWaSl I ),(-'S ail(l rat ios wHcel' pro Fitah il ity, illClll dillgS margi ns, costs , :111(1
1""li l " 1 ) llildjn ~ on t lw assl'ts l' lllploy(' d k'ads to t h " rdll l'll Oil assets (HOA) lll('aSllr(' ,
Another P('I'spI'ct iv(' o n i 1l1 ( 'l'llal ana lys is co nside rs those I lIlSi II I'SS c h aracteristics
III' II l',11 1 Iw d('Compost'd wit h a rO l'lllltl a d <'l'elopt'd hy Ct:rl(:'ral Motors and J),IPOill
th <lt limit or dri Vl' stratl'gy c hoi l'l', T Ill' third sl'ctioll of' tI{i s c hapt('r (";", lIllillc" hVI'
III lilt' ID20s,
iss ll Cs: past alld Cll lTCllt slTatcgy, str<ltcgic proll ll-' Ill s, organ ii',atio lla l t'dpdh ili ti('s and
('(lI l.' b '<lilltS, lill:l1ICi,t\ i'(','Ollrc('" alld CO ll strdillts, ami orgal li i',ati oll: il "t rt' ll gth s <llld
[ll'f)ril's sail'S
WI":I"'I('S"I'S, 'I'll(' fillUl ,,( 'Cti llil di scI !" ,'I's IlilSill('s,s portli l li o dnalys i 'i , w hi c h (' v<l lll <ltl's I\() /\ = - - x
sa il'S dSSt'lS
cac h IIIISill( ',,, hy a,'sl',','iillg its p('I'f'or lll:lll('(' ,111(1 til(' dttLI('[jI '('II CSS or the"~ IIlarl((' t in
wllic h il ('Ilillpl'll'",
TilliS , rclliJ'J1 Oil :t'iS('(',' call /lI' cO II side rt'd as h av ill g 1'11'(1 c:ll!.sal 1;ldor,s, T Il(' first
li lt' profit m argill, \V1'i c h dqX'11(1s Oi l tli e ,'C ,lIill g [lI'i c(' alld cm t strl ldl lre, TII(-' ,'C'C­
1,'INANCIAL PERFOHMANCE­
,,"<1 i, lhl' asSt't t lll'l lOV('r, w hi ch dq)(' nds Oll in v(' ntory control alld assd IItili i',a tioll ,
SALES Al\O PHOFITABILITY
Till' d l'lt' n nillation o l' Iloth tli t' 111l1I1l' ralor alld d Cll o miliator o r Ih l' nOA tt'nllS is
11f " ,IS slTaiglltliw,..va rd <IS Illig ht 1)(' asslllllcd, Sllhstallhal iSS llCS SlllTOlllld ('al'II. slleh
IlI t('I'lial <lllal) ',s i" ol'lc'll "t,I I'ts willi :111 all ,dvsi" OI'Cllrl'('lll' lillallcial" , 111(\ISlin'S of'sa l(,s
,I ! III' distortiolls caIl Sl'" h y d eprec iatioll all(l 1'111' 1; ld tl"lt hook a,s,sets do IIOt r dkd
ali t! Ill'()filallilil'l ', C/I:lIlgl'" i,l l'illll'l' call sigll,d a (' klll gl' ill t i ll' Illarkd v iahility or a
11I 1.11 't,: i/lle a,,,ds , ,SlIt'h as hralld I'(plity, or the Illarl(('t va ltll ' o l l'<tllgi hk assi'ls ,
[lmdlld Iii I(' alld thl ' al li lil'v to pJ'()( h, ('( , cO IIlIH'titi l-l' ly. Fll lt l ll'l'IlIlll'( " I'hey pJ'()vid(' :\11
illdi cal'llr of' I'll(' SlIITI 'SS Il l' 11<1st " ITal'l'gil's alld tilliS call ortl'll help ill (' I 'aluati llg
",11('1'111'1' strategic l 'l, allgl 's arc 111:1'lh 'd , III addilillll , ,sal (:" :llld pmfitah ilil'y at l ('ast \I(,:I'i ul"ing Performance : Shareholdet' Value Analysis
appl'a r to /)(' sp('c ific <l lId 1'<lSi/), 111("I.'sIII'('(1. A, a n'Slilt, it i" II Ot SlII'[ll'isi ll g l'll al' 1'1 I(-'v arl' 1111 ('(IIICl'pt Il l' sharl' holder valll(-'. ,Ill t' norilloli sly illl-ili('lltial (,O IlCl 'PI dllrillg th e P<lst
SIl lI'iill' l\ ' Il s('( 1 as P('riill'lll,1I1CI' I'va ill atio ll too ls,
1,\ ' 1dl'C<ld('s , prov idcs all answl' r to 1'l1i s Ijllt'stillii. Eac h h' ISilll'ss sh( lI tld cal'll all gOA
'I';. ,d Oil a [lo w or prllhts l'lllanating f'mlll all illl'I'SIIII('lIt), t h "t IllI'd,'i Ill' (',\c(,(,ds t lw
Sales a nd Markel Share
"".h or cap ital , w hi ch is tli(-' Wl'ight(,d avcragl' 01 ' thl' cost of' (J'l"ity :lIld cost or d (Jht,
t\ sl'nsit i\ 'I' 11l( 'aSIII'( ' Il l' 1,011' cll sl'OIlH'I'S rl'ga rd a product or sl' r vic(' ca ll 1)(' sal(,s or 111i1 S, ii' th e cost or ('Il'litv is 1(-) pl'l'c('nt and til(' ('ost or deht is I) pert'I'lll', th l' cost Ill'
IlI a r\((' t silart' , 1\ltc r all , if' 1,111' rt 'l<lli l'e va /Il c til a CII StOIlH ' I' chang"s, sa lc" alI(I "~ h a rt' ,II Iii: " wO lll d 1)(-' 1'2 pncent i f' th e :llll01l1lt o l' d eh t \V,IS (Jl jll <t1 to til(-' anl o llnt o f (:'q II i ty;
sliOlt\d hl' aUi.'d('d , althollgh t l ll're Ill dy be, all o('casional d(' lay ('al!.se d hy Illarl",t and " 111(' 1'( ' 1\1(' )'(' oilly one- lilllrlh as Jllllch d ebt as C( tt1ity, l'll e ll ti le co st of capit:d w ou ld
CIJ.,tO III(T ill(Ttia, I lf I ' ~ p ('rc(, llt. IF 1,1)(' r d llrll i s greate r, th e cost of capita l shareholder val u C' w ill
Sal( ,s kl (,ls C,1I1 1)(, stral't'gicall y iIIIP()lt' lIlt'. lillTCaS( 'd s,tI(", call 111(',11 1 I'hal th l' l'IlS­ II I' I ";[SI' , alld if'it i s l ess sh arel lokier v ai ll t' \ViII (l ecrt-',Ise ,
l'OIII('J' haS(' ha,s grOlI'II, !\n l' nl :ll'gcdc lJ.'[-o lll l ,), hase , iI 'IV(' as" IIIll l' that new Cll SI'tJlIH ' I'S SIl II I(' o r th e rolltl'S to in lTt'<ls in g sklre h oJde r va lu e arc <IS l'ollo,vs:
wi ll del'(, lop lovalty. wi ll III( 'an i'tIl' III '(' s, ti ('S and profits, InCl'easl' d shart' ('all pmv i dl'
t ilt' pOl'('llti<ll lo gaill SC/\ S ill ti ll" limll o f' I'CO ll Olllil 'S o f' "ca lc alld 1>'pcri('I ICl' CII I'\'I , • 1 '~<l11i 1ll0rt ' pmHI hy r e d'l ci 'lg costs or i ncreasing rt'v('lH1 C w ith out \i sillg
c i'fi'ds CO Ill '(')'s( ,ly, dl 'l'l'('as,'d S:ti l'S ca ll Il ll'a ll d ('cwasl's ill ClIstlllll('l' hasl's :llld a los" 11101(' c:tpital.
o f' sc all'I'('o ll o llli ('s, • 11I1'1'sl ill Ili,t:;II-I, ' 111I1I Ill'llcl ii ds ( this , of COITrS{" is w h at strategy i s all about),
1\ pmhll'lIl willi I !.si IIg s: dl's 111I ';ISIII'( ' i" tl,:lt il (';III I II' "I'I"I'II',J III , 1,,"1-1 1' 1'111
; 1.,;1

:[('Iillll,', ,>;(11'1, :IS IlI'IlIlIlJiillll ,' 111' :1 1,,';lIIt! alill ih C{lllllll'lillll'S , '1'1 If " , " I', 1f "", ',SS, ",\, I"
• 1\ ('dlll 'I' 11«' (,liS I II i l:t l ,il :d III' ill(')'('a" illg till' d(,ht to "'lui ty ratio or b y huying
1,,11''' sl .)('" III 1'", 1" ". , IIII' "flsi III ' "'I"il\ ',
 I IIi /'111 I 1" 1''' ,';1111 1, ' : :;'' \/I11I ,/s;s ('/111111", ... 111 1" 1II If I . \1I1f 11/s is 117

• US(' Il 'ss ('apiLli . 1I11<if'I' sll;\I( ,IIl>ld,'r \,;(111, ' :111:11"" , lilt' ",'wis ('11'I11()\('(1
are Illl IOllg(' r a 1'('('(' go()d , so [11('1'f' is :111 illl'f'lIl iv,' I" If'dll('f ' il. II'
illlpnlvcd just-ill-tillle opera tioll s ca ll r('d 1Il'l , III(' ill\'('lllor~, it dirl'ctly
affeds shareholuer vallie.
Th e cOJlcept of sllareholder val LI P is theoretically valid. I If a profit stream can he
es tim ated accurately fro III a strategic move, th e analYSis w ill be sound. The prohlem
is that sll(lIt-term profits (know n to affect stock r etllrn and HlilS shal'eho lder wealth )
arc casi('l' to es tilliatc and manipulate than long -k rm profits . In ves tors w ho aSSLlmc
that .,hort-tenll prorits pre'diet longe r-tc l'Ill profits pay lllldli e attention to [-he lill'lll Cr,
as does til(' toplllallagellll'llt of a compall y w ith 1I11nH:'rical targds to Ill eet. The dis­
ciplil H' to invl'st in a strate;..,'}' tha t wi ll sacri fice short-tnlll Fi nan cia l p er/-(lnnan Ce li l r
IOllg- tel'lll pl'Os[leds is Ilot easy to (,Ollll' hy, espeCially if' SOIllC of tlil' future p rosp ects
ane ill till' li)(,(11 01' optiOll.s. Fol' (:'X,II11Plc, the iII V('s tlll ('llt ill Sa[-111'Il hy Ceneral Motors
,l2;av(' it all optioll to l'xpalld that Ilalll( 'pl<lte into otiler ,sedors. Similarly, w lwn Black
& D(·'clw r I)()ugllt theSillall-appli<llll'l-' di visio ll of' CE , it hOll ght ,Ul optiOIl to take tilt'
III lsi 11(",.' into r('latcd arcas.
TIl(' ililp ad of' rcdllc ill,1!; ill Vl'stlll('n t is also 1I0t w ithollt risks. \Alh c lI , lilr ex alllpk\
( ;o('d-Cola sold oil its hottlns to r('dll ce iTln:st lll(,llt alld i Illprove s ha)'('hold (-~ r va lu(' ,
it~ ('(Jlltrol 01 th (' (1IIalit)' of' it.s prodlld 11IiI)' Il av(' Iwe ll rcdll c('( !. Jil g(, ne ral , illv(Ost­
111( ' 111' ('('''Ilctioll ol't(,11 11«,<In .~ ollisollrcillg, \Vith ii's h , d a ll c in ~ ,let hetw('('n Ikxihility
<lilt!I()ss 01' c() lItrol ()\'(' I' ()I)('ratioll~. !\. broadhand cOlnpa ny that o utsollrc('s it., insta l­
latioll.' los('s a dl<III('( ' to illt('I'acl' wit h its Cllstolll('rs.
011(' dall )'!:f ' l or sll <l r('III )I<I('I' \ 'alll(' anal y si.s is that it 1'('dIIC('S th e priority given
to ()[I I('I' stak('h()ld('rs .,,((,/1 as l' llip loye('.s, sllppli (' r.s, and Cll sl'oll, (' rs , ('ac h of' Wh0l11
('(' l)l'( '.S('IIi's assd.s 1''''11 ("III rOl'lli l'h (' ha si~ iill'lollg-i<'l'Ili SIICC('SS . TIl(' radical t!mv ll ­
,si~ing of' SO IIl( ' f'il 'lll s Ila.' ('('slilt('d ill ,~Oi ll g IH'),oll(1 trilllillilig li lt to n~dllcil1g f'lItl lrC
PI'OSP('ds . EV( ' l1 CJ~ ha,s r(' (lil('(,d its ('XlWllditll('('s Oil H& D (as a p crce lll'ag(:~ of'
sa l(~s ) ill p ~ II't to (' Iii 1;111(,(' sll ar e ilold(' r valu(', a lI10 ve that Ilia), yl't prove harmflii.
'1'1 "'S(' ['ii'll'" 1',)(<1,,1 "\.<1 (1'1\ ,)1' 1H' ll('l'ils. I" ir, l , III(' C')II('('[l1 kd 10 \l all(('-('I '('a[­
II'!'. ,li\'('.,1 "' ('111., 1 1';\1 ,1II(1'(,\\'l s,' \\{)<lI" IIO[ h ;I V(' ()lTIII'!'('d. Secon d , l'i rlllS Wt' fl-' ,lblt'
I" I I ,IIISf" ' I' co rp ora ll ' phl)llill g ;tI l" d ('('i,s ioll Iliakill g to tl<:"ct'ntr,tliz(~ d bll sin ess un its
III, :1<1-'(' ~ l ll 1IIIi ls [('l ld('(1 10 li se I'll(' same l ogic, m etri cs , and Illinds et. Third , th e
11I1 ', i lll'SS illvt'stillelll' horizo n tended to he longe r, w ith pro jects wi th Illulti-ye,lr
111 11< ' Jr:lII1( 'S gettillg approved. Fourth, the new r ecognition th at capil',ll had a cos t
" ,,, k d tu gl'l1(' rate bet tl'r strat<:'gic d e cisio ns,
I' I': HFORl\IANCE MEASUREMENT­
BI':YON D PROFITABILITY
II", . o r tl 1(' dil'fic ldti es in str,ltq!;i c Illarket Illali age nwll t is d(~vclopi n g perf'0I'l11,1I1C('
1i 1, llI'atms that COnvillCill gly rcprcsl'nt IOll g-l'ern l prospecl's . Th e tcmrt,l tiOI1 is to
1111 liS Oil shorl'-l'crm profitahility IlwaSl lres <In(] to rcdllce iIl V(ostllll'lIt in nl'w producl'S
1I " I I)ral1(] illl'lgcs that haw.' IOllg- te rm payoffs.
Tile con cep t of' nl'l' prese nt valll (, ('(' pre.se llt's a lon g-t("1'Il1 p rofit S1'('(", 11 11 , hi lt it is
Ilf II ;dw a),s operatiollal. 1t o lh·'n provid(:'s Il l'itlic~ r a critl' rioll 1'01' d ec i.sion Illakil1g 1101'
111'> (' ['111 pc rrOrlllall Cl' 1l)(, 'I.Sl JI'l'. It is SO llH;wklt allalogo us to pJ'('krrilig %() Illillion to
,I Illillioll. The rcal qill'st ioll ill volve.s ddt' rillilling w hi ch st rat egic , dtl' l'Ilati vl~ w ill
'l ' l<' rate $() Illillioll <lnd w hi ch wi ll gl'lwrate $4 Ini llion .
II is 11('l'l'ssa ry to dev('loll l'erl'OJ'lll<lnl'e Ill l'aS llr"" that w ill rdkct IOll g -['(' rm via­
I,ddl ;111(1 Il('alt"- Thl' ro c lls sh(lIi1d 1)(: Oil the as .sets al1(]l'olllpC[l'llcies that 1lll(lcr­
I" . III(' CI IIT("llt and l'l ll'm(' "t rat('g i('s and their SeAs. \,Vhat are thl~ key assets and
" ' 1Iq)('t('llcies 1'01' a 11ilsin('ss dllrin g th e planning hori /'o n ? 'ltVllat str,lkgil' dill w rl­
, " ) II ~ ,\1'( ' most Ullcial : to iJCCOIIl(' Illorc cOll1petiti ve w ith rl ' sped to prodllct o lTer­
III",' , to dcv(, lop new prodllcts, or to I)('co ill c Illore prodllctiv(>'~ Tl)('.s<' ty p<'s or
' l' It '\[i()lls C,lI1 \id p id(' lltil)' lllorlill'ln<lll c(' <Ircas [h at <I 11I1.,i1lCSS .shl)ldd C)( ' lIl1ilH' .
\ II.\\\'(' I'S w ill V,lI)' d('pe ndin g Oil the sitll<ll'ion, hilt , a" "11)!;gl'"t('d 11)' Fi g llr(' 1.1 , tlwy
II il l Oi't( ' 11 ill clude l' ll.stonwr .sat isr<lction/hr~ll1d loyal ty, prodlll:t/scrvi('(" '1"alit)',

Cell (-'I'a I tv/ oto rs agg r(, ssiv(, nIOV(' to rt,dllCc sllpp licr costs l hullagcd .so ille rcl<ttio n­
ships l'hal' w(, re gl' Il( 'ratil l,e; ll'c hllolog'i ca l ad vallc('s alld cos t sav in gs . All l'1l(lrt to
r edll ct:' Co.sts can too easil), CIII' into custoilicr serViCl" and thus c ustoill e r loyalty.
Customer Satisfaction/

1n f'act , s hare hold (~ r va ill e lllallagen1l'nt ha ~ met with vcry Illi xe d n~s llit s.
How('ver, o ne st lldy of' tli(' CX Lll' ri l' I1Cl' o f' 12.5 fi rlll~ rOllnel "illlilarities aillong thm(' l Brand Loyalty

; I~
l~
that had applied shareho ldn vallIe co n ce pts SII Ccl'" rnll y, 2 These compani es:
I ProducVService Quality

• Cave pri(lIi ty to sh;lrl'holder value over other goals, p<llticularly grmvth goa ls.
• Provided illt('nsi vt' trainin g throl.lghollt the org ani:;:ation rl'gardin g share­ I Brand/Firm Associations

h old er vnhlt' and Illade it a practical tool lilr husi n ess managers <It all levels. Relative Cost
Th e philosop hy was not restricted to th e eXl'cutive suite. \

• \,ven:' disciplin ed ill identif)'ing the dri vl'l'S of share\tolde r vall1( '. For ('X:lII1­
pIe, I'(lr a call C'clli'l'r, dri vl'r" cOllkl he til(' 1('l lgth 0[' lillI( ' 10 ;IIIS\\'(' r (';ill.s alld
\. - -
New Product Activity
---
thl' <jllality 0[' (,( '.' IHlIl Sf'.S. Manager/Employee

Capability and Pcrl onnnil

• 1{.o(III('f'" ()\-f'rll(,,«II)\' ;1(1"plillg 11((' ('111'1"'111 '[('f'()<lIII;II.! ', ' ,I ',1"111 """ ;1I1" ,l2; r~ 1i
;II ,!~ ., 11;11'<,11,,1""1' \;( 111 (' ;1l' :Ih-, i, w ill, ' Ir"I( ' .~)(' 1)1 " ",,;<1,", 1;).\,.... , 7,1 1" 1
lfrHlll :III1 ' \ 1. · .1 ·,111 ... . t:I·II( · ( ·!\ll~i
"
I ,(1I1H
M
- II 'rtll Pro filah ilit\ '
. r
 ( ' Ij II I J ( , , I I. I II fl ' I 1/ (II . \ I /1 / I ~ / .,,\ I ,"I

f ' ••• /' I -;; II ~ 1"", Ho,rr-o'1 '/

!" '; ,,,d/ l'ill'l ,l.ss"I'i;dil)" " ,','!:dil 'I' I'Il., I, ,I<"" 1'1<111",,/ ,',
(';q,;d)ilil\ dlld I)(,I'I()\II';III('('
Customel" SatisfactionlBnlOd Loyalty
Perhaps the most important a sset of Illany (inns is the loyall y or tbt' Cust(JIlll'I' has(' ,
M e asures of saJes anclmarke t share are useFul hut potentially inaccurate illdicators
of bow customers really feci about a firm, Such meas ures can re Hec:t market inerti<l
/1111 1 "".I ""'"'',!';''';'''''I)lo\l'''
IlItlll\,di\'I"~
""I, "S III ";il',lIi II I:, :11,,1 ,,,,d, il 'I', ',: 1111" ,, 11, ) 1<'IH'lIsil'I,'? 1""1'111(' ('(,,"il")' ('''tI)
,I I, it ,.,;"wi;\I,'.! \I ill, ",'1111,,111 , " IIS(' r Iype, "I' 'til ;'llillil';lli,," area (s llch as rdcillg)'?
11 ,,1, ,Lss\l('i;lliolls (':til Ill' "1'1' sl,',dq~i(' ;lssd,s !i)r a iJl';lI,,1 or I-inn,
\,S\l('i'lli,,"s ('all 1)(' 1I,,"lil(lI'(,d hy n-:gtdarl ), asking customers in Focus groups to
01, ('1 ill(' Ilwir IISl' experil'nces and to tell wh,lt a hranu or finn means to them, The
, j, " lili(,:lli()l1 of' changes in import<lI1t <lssociations will likely emerge from such
, 11111 Is, Sll'lll'tlll'ed slIrve)," IIsing ,\ rcprese nhlti v<:' sam pi t' of clistomers can prOVide
.'\ ' 'I 1111)1'1' precis(-' tracking inform;ltion, 1

and are noisy, in part, because of competitor <lctions and market Huctuations,
M e asures of cllstomer satisj~lc:tion and hrand loy;l!ty are much more sensitive and
Ikl"tivc Cost
provide diagnos tic valu e ,1S well.
\ , , ill' 1',,1 cost anal ys iS of a product ( m service) and its com pOllcnts , wh ich C,lIl he crit­

Gttidelines for Mewitlring Satisfaction and Loyalty I, ,I 11'111'11 ;I strate'g), is dqwnd t, nt 0]\ achievillg a cost adv;ll1lage or cost parity, \
IIII O) III 'S learing dow n competitors' products and analyzillg th(,ir s),sten),s in detail.
First, prohll:'llls and calISe'S of' dissatisbc:tion that may moti vate CIIStOIilI',),S to chang(,
II " , j:'1 'lI11'SC consultant Ohillill' sllggt'sted that SIl (; 11 an ;1I1,liysis, when cOllpled with
hrands or nrms should he ilknti(il' ll. Sl'COlld , often thl' \l1ost sFnsitil'e alld i"sightf'ul
inforl1lation comes ['mill those IVho have decided to le a ve a Imlild or finn, Tlnls, l"xil
l
I" ,I, 1I'III;lnc(' anal ys iS, can l(~<ld to one oj' the ('our situ;ltions shown in Figllrc /,'2,:1
n
1i' :1 l'O\llpOJll' nt sneh as a car's br'lking systl'nl or a hank's t('lIn opnatio is hoth
inte rviews f(lr Cllslon)t'rs who haH' al)alldolll'd a hrand can Ill' prodnclivc, Third ,
IlI II I" ":\Ill'llsiv(-' llran and inferior to th ,lt or' th e cOlnpditioll , ;\ slrategic prohlclll
there is ,1 hig dint're nce helvvt'e n a hrand or flrm Iwing lih,d and th e ahscnu~ of' dis­
I , ' I"il 'ill).': change Illay (~, ist, All anal ysiS could show, I)(lwt'\' er, that thc cOlllponent is
satisr;ll'tion, The si~e alld intensity or the cllstonwr group tlwt trul y likes a In;wd or
" " II ;1 slll.lil item both in tenus or cost ;lIld Cilstollwr impact tl);lt it shollkl h('
finll sholiid 1)(' known, FOlilih , llle,lSllres sholdd he tracked over tim e and l'Oll'lp;lI'l~d
,,'p ,] II'II II' the cO ll1 jlol1l'J1t is cOillpl-'titivl'ly sllpcriol', how(' v('\', a Co.,t-rcduclioJ1 pro­
with thosl ' 01' ('olllpditors, Helativ\:, comparisons and changl' s an° 1I10st i II1pol'tant.
1' 111 11 Iliay \lot Ill' th e only appropriate slrategy, A valll(' anal ysis , in which the ('oln ­
1I, ,''''ltl ', va llie to thG ('IIStOlIll'!' is 'l"antificd , may sllggest that tIll' poilll or
P.-oduct and Service Quality
" 1" 1i(lIity conic! SllPPOrt a pricl" increase or promotioll campaign, H, Oll the otl)('r
i\ prodllcl' (or SI'IVice) amI its COIl1)lolw nts SIIOldd Iw l'I'itically amI objectively ('O\l1­ I, ill .I, ;1 cOinpollcnt is I('ss e xpensivl' tit,ln thai or Ill(-' ('olnpctitioll , Ililt ini'crior, ,I
pawd bol'h with the conl[wtitioll alld with customer expectations and lIC'c ds, II(lW
good a vaillc is it? Can it wall y d e live~r sllperim pl'rf(JrInance? How dot" it compar('
with cOll1pe titor ol'l('rings? How will it cOlilpare with cOlllpetitor offerings in till' I'lItUl'( '
given cOll1petitive innovations? Olle COlll1l101l f~lilillg of' firms is to avoid IOllgh com­
p,lrisolls with a re alisti c ,lsseSS lllellt of compditors' Cllrn~ llt alld potential offerings, I

l'rodnct and st'rvicl' quality are usually based on several critical di IlwnsiOIlS that Value analysis
i!'l !
Change • Raise prices
call he identihe d and ll1e;lsuJTd o ve r tilll e, FOI' example, all ;llltOll1obill' Inanld~lctllrc r • Design
• Promote
can IlleaSlIre defeds, ability to p e rl(JrI)l to speCifications, dnrahility, ),(~pJ.iralJility, and • Manufacturing/systems

e
Cost reduction
ft'atllres, A bank might he concerned w ith waiting tim e , accm;lcy of' transactions , and Ignore

the (luality of the Cllstomer experience . A computer manufacturer C,lIl e xamine rela­
tive performance specifications and product reliability as ref-Ieded h y repair data. i\
b{lsinl~S s that re quires hdte r marketing of a good prouucl lin e is V(~ ly diH(~ rl: nt f'ro II I
olle that has basic produd dencienci e s,

BrandIFirm Associations
e Value analysis
• De-emphasize
OUR COMPONENT IS

Value analysis
• Emphasize/promote
• Leave it alone
1\

• Upgrade
An often overlooked asse t of a hrand or finn is what cllstom e rs think of it. \ 'Vhat are ils
associations ? vVh<lt is its p e rceive u qualit),? Pe rce iveu quality, sonlt'times vely di[rt'l'('111 Less Expensive
fi'oll1 actual quality, can b e hase d on experience with past products or s(~lvicl-'S and Oil .-I
quality cues, slich as retailer typ es, pricing strategies, packaging, advl' rtising, al,,1 l\lli­
1\,.1"\1\, , (:11',\ 1' , (("i.,I;,,' 1',·,'I'I " '''I;llll'I ,- Str'ltq.!;il' II1'plil"ltiOitS
cal customers, Is a hrand or Firm regarded as expeli in a prodlll'l' ()J' Il '('llIlIllogl ' <)1'('<) I ihu r ... 7.2
 ('/1111 1/"'" /1//1'11/1//. I/ii//'Is ;s 1:21
1,,1," , :/",,11 ".., 1I1I 1'.11i .' " 1'..:'.,·..;/ 11!:1i ,I I,, · .I,. ' ·II'ldl.'·., "01 11,"" Jill :/ ,.:" 1\ ill, .I "osl
" '''''('111'1) :111 ' :lIlcI,·,III> III!' '" 1',-1111 /; 11 il)ll 111;t1<'1, ils 11( '( '(1., ill 1('1'111.' oltvpl'., alld (ILlal­
:lIk:IIJid,L';" 11111 Ildlidlill,L'; dis:lll vdlll:l.L', '· d "111''1':111\ "'I.! '.11i .I,. "11'1"':1" '1., · iL; d"il 'i" .\.;
II I II ' ,II" 1111'1(' !C.:Ij).\ 11,:11 :11 '(' 11111 I(('illg (i"('(I'~ Tilitieill COlllplilers Sllst,lilWd rapid
1)('1'((11'111<111('(' "11(1 pOSi[iOiI i[ as "II ('('Olllllll \, (':11'. ;\11 .d["I'II:llill· i.' 1,1 Iljl,L';I '"d,' [ltis
~, I "\ I II, I,v ,1( ·lill('I', lId\' , 1:,!lillg :111(1 organii'.ing 1(11' the nex t g row th phas e . In contrast,
eOIII[loIICllt. COllversely, il' a l'<IIIIP()lI(,1l1 is 1)(1[1, I( ·ss ('.\I)(·IISil·" :11111 sl'IlI'riol'. a I-'<lhll'
11"" ,1 (lllillll S Illal ""jovnl (·\plo.,i ve growth could not d evel op th e syste m s, people,
analys is may sllggC'St that till' cOlnponent Jw elnpltasi '/'('d, p(·I'ltap.s playillg a 1..:(') role
in positioning and prolllotion strategiC's, " ,,/',11'1('1111',' to copc w itl'l'xpansioll and s\lbsel{Llcntly Lliled,
.\11 olgalli/.atioll should h e ev,t1uated not only on how we ll it ohtains human
SOUTces of Cost Advantage I'.(I' "(·( 'S 1)lIt al.,o on how well it 11111tllres tlle m, A healthy organization will consist of
II I' hI I ( I'lais w ho art' moti vated , challenged , fulfllled, and growing in th eir professions,
Th e mall Y routes to cost ad vantage w ill b e discllssed in Chapter 10, They illclude
I 11 11 ollll('s(' dimensions can h e ohserved and n1easllred by e mployee surveys antl
economies of sc,t/e, th e exp eri e nce curve, product desig n innovations , alld H1<:' use 01'
a no-frills product oifC'rin g , Each pro vides a di(h~rC'nt persp ective to th e con cept of'
'1"11 1) di\('lIssiollS Certainly the attitude ofprodllctiollworkc r s was a key ['a ctor in tIl<:'
compe ting on tll(-! hasis of a cost ad vantag(~ , '1",Jil h ,lIld cost advantage l'hat Japallest: autoillohile hrills enjoyed throllgliout till'
1'" 1 11,1'1 '(' d('l'adcs , 111 service indllstri es s\lch as hanl<ing ,md f;lst I()ods , th e ahilil'y to
Average Costing 'I1·.I. ,ill [l0.sili vl' l'mployee pnf(lrlll ,1I1cc and attitllde is uSllally a key sllccess r;lctOI'.

In average costing, some e lements of l'ixed or s(-!nlivariable costs al'(,' not carcFllll)
allocatC'd bill' instead are ave raged o v(' r total pJ'Oduction, Thus , a plant nla\, con, I )J<:'rERMINANTS OF STRATEGIC OPTIONS
taill ne w machill t' s and olde r i1lachines that din(-!I' in ['Iw alllOlint of slll11'or[
\ ,1' dl,( " , 'Ipproach to internal allalysis is to consider tlw dderminants of' strategic
r eqUired 1(11' th e ir oper,ltioll, II'slipport (')(p e ns(-'s arc ave raged o ver all oulput, the
" II/Io III S. \Vklt characteristics 01' a hllsincss make SOlllC Opl'iOI1S lInk-asihle with(1I1t a
new mac hilles will appear Ie.,., profitable than tll(-'Y are and SOIlIC illappropl'i al<'
deei siolls cOldd 1)(' preCipitated, IlI,tl i ,I ()J'g anii'.atiollalchallg(-"~ \Vhat characteristic will he pi votal in choosing among
II IIl 'gic opti()ns'~ /\gaill, [,1](' ans we rs to th es c <jncstioll,' w ill dep(olld
Average costing call pro vide all opcning ((Ir cOlnlwtitors to (~nl (-' r an otherw ise
Oil the sitllatioll ,
1,"1 :1' 111I[(,tl in F\L;IIr<' 1,:3 , rivl' areas lVar n lilt c!o.'ie scrutin y
secur(' llIarket. For exampl e, the J.
13 , KlIni'. COfllP<llly, a maker of' passhooks (II'
hanks, created a sitllation ill wllieh large-order ClistomCl'S w(-' rc snhsidizing small­
order CliStollH'rs hl'('<III.<;(' of' av(-: rage costing, I TIl(-' cost syste m inflatl,'d thl' costs of'
I'a,' an d Current Strategies
proees.sing Vl:IY Llrge orders and tim,'; provided , III oppOitunity f(ll' competilors to I " 11 11(1('rst,ln<1 th e has(-' s oj' past p eri(lI'Ill,U1 C(; and attempt to sorl Ollt Ill'W options , it
unde rhid KlIn i'. on the very proRtahl c largl~ orders, A prodllct lin t' that is Sllhsidi l'. ing , . IIl1lHlrtant t() hl' able to lilah, an al'Cllrate prorile 01' past and ClllTCllt strategiC'.,.
o th er lin es is v ulnerable , n'~ presentillg an opportllnil-y to competitors and thllS a · ""'Il' lilll('.s a strategy has (-'volved into SOllll'lilillg very dint'rent f'rolll w hat w as
potential threat to a husint!ss,
I . ,11 11 1<'<1, I·,'or ('xampl(,' , a hrill positiolled itsell' as an illilovator and spe llt Iwavily Oil
Hi\ I) to nOlwat its earl y breakthrOllgh inllov,l tion, Howeve r, all honest <Inal),si.s 01' its
New Product Activity
"I"'l'dlions over th e prc viollS two decades indica ted tklt il s Sl1CC(·.<;'<; was Iu.'icd Oil
,".ol l lll'adli r ing strengths and scalc ecollonli es , Other cOilipanies had introd\lccd
Does the 1\&D ope ration gellcrate a stn'aln of' !lew prodll c t cOl1cepts;:J Is the process
('ro ill prodnct concept to n(:'w product intro<lliction well managed? Is thert' a track
record of' successful n('w produ c ts tlwt Iwvl! an(~dt'd tIlt' produd pert-()]'Jnallce pro­

File and Illarh,t position?

BEN CHMARKING
One m easnre of nl, W prodlld innova tion is th e Illllllber of p atents awarded, IBM

w as aw arded mort: U.S, patent., than ,lily other org ani 7,atioll in ,my indllStry throll gh

{ :( lIllp:lring the pcrforJn,mce or a bu sines s component with others i s c,liled b cndllll,lrk­

1I10st of' th e 1990s, Significantly ahead of' Calion and ol'il er H&D-illtt:n" iV(~ Finlls, III
j IIg, 'I'lli' goal is to gcnenlte speCific iJeas 1<11' improvement, ,md ,lIsa to JenJlCstandards
addition , IB 1V[ has a good tra ck re cord ol'gdting its in ve ntions into th e marketplace,
:Ii wllich to aim, Onc t'lrgct may lw competitors: what cost and pcri(ll'Ill ,m CC levels ,Ire
Tim e -to-market, a key point of' conlpdilioll ill th e car industl), with regard to /l ew
III('\' <tchi(,ving, and how? Knowing your deficits with respect to th e co mpetition is th e
models, is another measure ol' stl cccs.sl'lIl illnovatiol1s'-"
li" sl stq) to developing prognll llS to eliminate th elll. Another t,lrget is bes t-pnl<:tice com­
I""I i( 'S, Ti,liS , nl,m), 1)('lIclllll<lrk against Disney in terrns of delil'el'illg consistent seTvice,
ManagerlEmployee Capability and Performance '". I )(· 11 <1 ~ III(' st:.II](l;ml 1(lr lnternet c-cOinm eree operations and clistomer s\lpport.
I ,'H)I', i,lt; ()lIlsi.!, · ()11<''s ()\I'I) il1(lnstry i, often a way to bre,lk away frolll th e st,\tIlS<juo and
1\ Iso k t'y to a firm's long-term prospects are the peopl e who mmt i mple m enl' strate ­ 1111'11'[,\' n, ';I1 ,· 'I ,', ,:,! :I'''' : IIII<1 ~'· .
.~ i, 's , Are the hl1lllan r es ollrces in pLwc to support current and futllre strategics ? J)()
 J ', 1' ,' :11 ,, 1C" ", ol' il' dl , ,1 11[1" 1[< 1'-­ " 'I

il l' .I "il q '\ .1 " ' '', 11 ,, 1 Iii \ \ 1,11 11 1. '/ 11'.1 ', " \\ ·",1, IIli,I',I" I" , " ' II"II,-;ill' Ill' "\ " 11 illll)(I,-;-;i/,I,' .

L Sirniegic Probl ems J/~

~ I It l " :11111,1" , :111 ,',-; I:'/'/i , III"I ",'1111 ','/' '1,('( 1 ('I,l';dlli/,;lIillll \\' ill':l J,;ll'kgl'Clllll<l ori"III('(II()
lIl' II I1 II1 SII '\ ' 111:1\ lid \( ' dil'li"I1II\ illllll " IIII ' ldinL; a <liv('I'.,ill ('alioli stral'cg)1 rC(lllirili g a

r: , , I
Organlzallona
]
c::g
4-"'1
~TRATEGIC
/
h I ,'III I':Ili /,(,<I ol'g<llli 'l,; lIioll :L1111 ;[11 l ' IIII'( ' jll'I'II( 'llri ,tI tlll'llst, lilternal organi l:c1ti on is
f),II'o Il I"I·"d ill 11101'1' <i1'I<lil ill Ch :lpl('r 16, whi ch discLisses strategy implem entation
Capabilities/Constraints - -- CHOICES
Jlil.! I III' ('OIII'I 'pl or [it.
=============
Financial
' ~'I ..~ ­
Capabilities/Constraints j,'jll:tlll'iaJ Hesources and Constraints
l 1I II II:III 'Iy. jllllg llWlltS Il eed to be made about w heth er or Ilot to illves t in a husin ess
Strengths/Weaknesses
11/ \l illllll'aw cash ('min it, A similar d ecision needs to be made ah out tbe aggregate
Figlll'e 7,:3 Iii I 'I 1.\ 11 II 'S,,('S, SllOnl<1 a firm increase its net inves tm ent or dec rease it hy holding /ill­
i)('[nlllin<lni's of' .')1I',,[('gic 0plioll\ <llld Ci,oi ('(','
iii'I :I.ss(,[,\ or n:-'tllming cash to shareholders or d ebt hold ers ? A basic consid eration is
IIII' lil'lll 'S ahility to slippl y in ves tment res ources,
alrllo\t aI/I,ll(> nl<'<lllillgl '1I1 illllO\atiolls ill tli(' indllstrv dllrillg tll<lt period , A I'c('r)glli \ iillallcial allalysis to dete rilline prob'lhle , actllal , and potential sources andu s!:'s
bon that thl' H& j) d'f()rt had /Jee l1 slI('('(:s'/'1I1 ill illlpr()\ 'ilig PI'O<iIlU I<'atlln 's, rcli'lhil "I 1IIIIIIs call help provide an estimate ol'this ahilit)'- A casll How anal ysi s projects til l'
it)', alld ('osl, hilt 1I0t ill dl'v('lopill,g <III\' lecliliological /In 'akthroll,gl,, , \Va,s helprlli i,l , 1'0 1, Illat will he availahl e /-i'OITl op(~ ratiolls and d epreciation and oth (; r assel's, In par­
,'tl'lldllrillg ,tl'alegic optiolls, 1111 1/ :11 ', a growth stmtl'gy, ('ven if it si Inpl)' in volves greater p en et ratioll or th e ex ish IIg
III 1II IIId market , II slially f'('qllires working capital and other asse ts, w hich may exceed
StrategiC I'J'o b lCII1 'i II II' l'llilds availailile frolll 0lw ratioll s, The appc ndi x to this chapter provides a disclls ­
,1 "11 III' how to conduct a cash How anal ysi s,
Allotl'l'I ' n 'Ie valit ,111(1 1)('lpflrl con \ tnld i,s tIl(' stl'dtl'gic prohll ',ll- ll,at is , a prohl
elll III additioll , I'unds Illay he obtained ('itlll'r hy deht or c ljllity Finan cillg, To d ete r­
w ith slTatcgic illlJllicatiolls, For 1',\ alllpl(' , til(' ('\ po,' "re 01' Ford alld it" E\plor('J' hrall<l Ill i l )(, th e d e,'irahility and rt~ a,'ihilily of c itlle r OptiOIl , an analysis or th e halance sh ed
10 til(' ISS II(' 01' Vil'I'StOlll' lir('s di " illtc,l'/atillg ('I'l'at('(l a 11('('d li'r progralliS ,llld li)r the
111.11 1)(' needed, In particillar, th e CIIJTI-' Ilt d ebt structllre and a firm 's ahility to snp­
acti ve 1II;IIlagl 'III I '111 0(' til(' ill vol ve<l /JralHk /\11 ,lIltolllohile hralHI that fillds il 11,1., " I" II I it w ill hI: relevant, TIll:' appendi x also re views SOllie Finan cial ratios that arc h elp­
fit-alld-filli sh <l1 ,ficil with n 's pcd to cOlllpi'litors n 'i/,Iir('s SOlli e ,tral'('gic IIIOVI'S I,,, iII this reg ard ,
illvolvillg prodllct d('sig ll all<l Pl'Odll<:iioll
/\ division 0)' snhsidiary m ay Ileed to consider ho w lllu c h support and in volvl-'­
A str<ltegic pl'O/J11' 1l1 di/kr, I'm II I a \\ICa""I's" li'lhilil.\', w hi c h is tll(, a/J\I 'I )(:(: or
Of' IIlI' lit it can c xpect ["rolll a parent organi / atioll , particlilarl y in rt~gard to its in vest­
,III a, \('t (s llch a, good locatioll) 01' COlllpl'tI 'IICI' ( 1(1 1' I'xalllplc, III 'W-pl'Odll('l illtl'Odllc­ 1I11 ' llt proposal" Thl' sce nario of Illllltipl e' hll sin esses all planning ill VI 'stllwnt, that ,
tioll skill,), A hll,illl'!;S cOPl's OVI'!' tilile with a wI'ak,l('SS lJi' liahility liy adjllstill g ,b'alc­ III I Ill' aggregate, arc 1;11' h eyond a I'inn 's wi!lin gn eS\ and ahility to sllpporl, is all too
gie,<; , Str<lt('gic prolll(,I1'" ill COIlITast , 1]('I'd to II(' addn 'ssl 'd aggl'(',si\(,ly ,lIld COITI'cled ,'I)IIIIIIOll, A reali sti c appraisal or a l'il'ln\ re,ourcc s can make strategy developill ent
1'\'1' 11 i/' the Fi x is <li/ficli/t alld I 'X))( 'II Siv(',
III()J'(' d lel'livl',

Organizational Cap abi Jilies/Cons(I'ai n ls

Ti,e intl ' l'Ilal orgallil:,ltio fl of' a COIllP~III}'-its stnlctllrc, w.sll'm s, p('oplc , ,lIld clll­
tll]'(~-call hI'
<In imp o ltallt SOIII'l'(' of hotll stwIIgtli s and w l'akiJ('"ses, Th l' Hl-'xihle,
('ntrep"C'T1cllriai (Jrgalli " atiollal " trllctllr(' of' 3M , ill wlli('h n(-'\\I hllSill('.'s t('aIll S and
diVisions ar(' conl'ilillal/y Splill olF, is a key to its growth, Th e systellls of' M cDollald 's
otiJl~ r 1~lst-li)od c hains al'(' illipoitallt stn 'ngtll s, The hack,l'/ OllJ'Jd of' Tcxas
and SOIllC
Illstnllllcllts' mallagelll ent, larg ely in eligillctTillg <llId 111'lIl[rI~lcttlrillg, ll<ls b ec'll a
SOlll'ce of strellgth ill its se illicondlictor hliSillt"S(,S, hilt it has h ee ll a w eakn ess in its
COll Slllll i::: r prodllcts e f/(}J't", The prodllcti ve, low-cost cultllr(, at Dalla and \Vhite has
,rllmved i t to pursll e a low -cost .stratel-,,)/
Intern al organi zation C,11l affed the cost and evell till-: It> asibility of sonw strate­
gil'S, There Illllst he a Fit b etw ("(" 11 a strategy and the elc lTl ents of all org, llIization, If'
("'ganizationaJ Strengths and Weaknesses
.\ kcy ,tep ill internal anal ysi s is to identi[)! th e stre ng ths ami we akn esses of an
Il J',!!;anil:atioll that are h ,l sed on its asse ts amI comp et encies, In fact, much of int('~ r­
Iial anal YS is is Illoti vat ed by the need to detect strengths and we aknesses Th e re
or course, man y possible sOlll'ce s of stre ngths and we akn esses, In Cbapter 4,
;ll'l' ,
IIwthod s to ielentif)! sneh sources are prese nted ; in Chapter R, \-ve disC IISS how
;ISSets and compe tencies b ecom e the bases of su stain,lhle c ompetiti ve advantages,
FROM ANALYSIS TO STRATEGY
[n internal analysi s, organizational str engths and weaknesses n eed to he not oilly id ell­
tifi ed , but also related to competitors and th e market. StrategiC market man age ment,

1
I!
 • ;>~ .. '"I." '1';'·'
:1 ,\ ,,,>/, ,,1 ill (:/1.'1 '1 ,,1' I , /':1>; 111111 11I1"I'I',.f:J/, './ , '1"111<'111" 'II", 1... ,1 I', III ,11'/"I 'lIlilll' ;11'1';1.,) ill
",1,i("l, II) ill \ " '" II)I'''i" illl ', 'SI, 111 \'I 'sllll"IIII'I)I"" ,!',II III !',III\\III :1'"" " , " ,,'I':ls 11I'\\' I)l'odlll'l
1I1;(l'k('[s Ill' Pl'llgl'dlliS d(',' iigll('d 10 ("/'('<1(,' 11( '\ \ ' ,\1""11,1.;(1, "1','" ,\, III' I,) 1'\ iSlill,1.; ""('S , '1'1",
,'iI 'COIll! is til(: va"1I' propo,'ii(ioll IJI'/(!I'ed to CIiStOIIII'I", Till' (IiiI'd is (/1(' dl!\'(,llJjlllli 'lll III
assets and COllJpetl~lIcies to provide the has(·'s of' competiti ve advalltagc. Till' i(Hllill i,
th e speCification and implem entation of fimctional arl~a
strategies and ProWdlllS Slich
as product policy. manubcturing stratc,l.,,)', distlibution choices, and so OIL
Tn making strategic d ecisions , inputs frOl1l a vari ety of assessmen('s are r('levalil .
as th e last several chapters have already n lillie d ear, However, th e core of' any strate .
gil' decision should he hased on three tYPl'S of assessm e nts. Tlw first COllc('rn,') or,~ ; 1
nizational stn" ng ths alld lVeaknl~sst's.
TIll' s(:'colld evaluates COIJljWl'itor streng('hs
weakn esses , alld strategil's, because all organi/,atioJls streng th is of' less vallic if' it is
nelltralil.(~d hy a competitor's strength or strat(~g)'- The third assesse,') thl' cOlllpeliti v,'
context, the custollJ e rs and th eir Iweds, the Inarket, and the Illarket t' llvironllwllL
These asseS,')illelits ((lCU,,) Oil <It'terillining how attracti ve tilt" s(' leckd Illarlwt will 1)("
giv(,11 th (' strategy selecl'l!ll.
The goal i,') to devdop a strategy ('hat exploits hllsi Iless-;tre llgths and COlI11'letitm
WC"kfl('SSi ',,) ,uld IIt!utr,ili/,eS hll.')iness weaknesses alI(I (;(Jlllpditor stl'( ' lIgths. The idl';"
is to COlllpl'll' ill a healthy, growillg indllstl), with a strategy 1><1.';( '<1 Oil stl'("lIgths thai
are IIldikelv to 1)(' aC(jllil'(><I or ll('lltralil.l'd I)y cOlllpetitors , FigllJ'(' 7.4 SlIllIllIaril.es
how thesl' tlll'('( ' aSS('SSIlI('II('S I'Ollll>ill(' to inl/II(-'nce StJ.ategy
( :/1111)/") ' - 111/(,"'",/ .- \1/11/'/";., I ~S
( y'" <i" (' isill'l ((I \('/1 II', ',lIdl :11)pli:lIl('" divisi()11 illll s(tali's (1II's(' strall'gic prillci­
I'" ," :) II J:t11 <lPI)li'III1" 's \1 ""':1 jl<lll Ill' (;I'; ~-; legacy "lid lilll\('<1 to its 1<lllip and nlalor­
·'I 'I.l I;IJII ·" 1)J'()<iIll'l lill('s ill (III' IllilJlls 01' retailers and customers. The small -appliance
III ' I, 1',1 r\ ' \I 'as 1I0t proritdhle , how eve r, ill part llecause of overc,lpacity and tlte power
" 111,, , I {'['lil, ,1'. Also , cmt pressm es cOlltrihutecl to a reductioJl in product p e rformance
11 11 1 " ,I i;d )i1it)', Further, CE 's strengths , such as its t echnological supe riority and finan­
II I I '"I)llr('('s , w ere not leveraged in th e small-appliance bllsines s, as any innovation
/I lid" 1)(' copied. Thl]s, CE d eeided that a strateg ic fit uid not exist, and it sold th e
11 1. ,/1 "Jlpliallc(' l)l]silll~sS to Black & Decker.
II l'SINE SS PORTFOLIO ANALYSIS
Il" 'dlll',\,<; portrolio analy sis provides a stl'lll'tllrcd w ay to (-' valnate busincss Iwits on
1>\ " k, ,\. di lllensioJls: the attrac tivl> lleSS of the market in vol ved and the strength (JI'
III" Ii I'll I 's posi tion in that markd. The fl'Sil It is a graphical portrayal or the varioJls
I 'II ',II I('.' S 11Ilit,,) Oil thl'se key dinwllsi(Jns. Thl-! anal),sis and representation n<ltnrally
/, ,,, I III a rcsource alloc<ltion d ecision. \,Vhich businesses Illeri(' in vestment and
, 1'11'11 siJoldd Ill' SpUll ofP Th ese arc very iJasi c strateg ic in v(-!stllll'nt isslles.
'I'll(' rl'SOlll'l'e allocation (lllt'StiOIl is IIslially very t!iHicldt org'lni/,ationall y. In ,1
,j" " 'lllrali/.ed org'lnil.atioll, it is natllral [(lI ' th t, nlanagers of cash-ge nerating iJlIsi ­
". ' \ ,\ 1 ' ,,) to clJntl'Olthe availallll' cash that fllnds in vestm ent opportunities and [()r each

1,1(', i II('SS to he rcqui red or I'ncou raged to fll nd its own gl'Owth. As a reslllt, however,
I i: IS(-gl'lllVillg business with 1~ lIonllOIiS potential hllt low prorit or eve n losse,>; w ill
II III ' IJ 1)(' starved or Ilc(,ded cash. Tlw irony is that hliSill(!sses involving nlatllJ'( ~ prod­
Organizational

Competitor III I; Illav have in[('riol' in vestllll'llt alt(~ l'Ilativ(J ,'i, i>lIt Iwcans(-' c,lsh How is plentiful ,
Strengt!1s and

Weaknesses Strengths and tI "'il ilivestllll'lIts will still he I·unded. The nct dTcct is that availahle eash is ('han­
Weaknesses 111 1, ·,1 to ,Ir/'as or low pot(' ntial and wj('hlwld ['rom tlH' Il\ost aHr;lcti vt! afeas. A iJllsi­
"" " pmt/()Iio analysis helps i()rcc the iSSIl(~ of which hllsin('sscs should recci ve thl'

" -
:1I1 :d)l(' clsl, .
, II

STRATEGIC DECISION
1'1.(' J\l aJ­ket Attractiveness-Business Position Matrix
• Strategic Investment
• Value Proposition I' I ,~ II ('e 7 ..'5 sllOw s thl' illarkd' attracti veness- husiness position Illatrix into which ("<leh
• Assets and CompetenCies 1"I.\illl'sS IInit is to he positiOlWd. The con c'-~ pt is credited to strategy e rrorts of
• Functional Strategies and Programs ( :, '1l('ral E:1( ~ dric plann ers and the COll.'iulting firm McKinscy & Company.
COllsider first nl<lrlwt attracti ven ess , the hori zontal aAis. The hasic question i s,
I II 1\\ ,lttral'ti vl' is th e lll'lrket ['or a competitor ill t erms of the cash How that it wiJl ge n­
"I;1i I' r Scaling a market should start with the Porter five -hlCtor model 0[' industry
,iI I I<ldiveill'ss (Chapter ,5). However, th e other elements of th e Illarket <Inaly"is as
1"\
Market Needs,
Attractiveness, " ' ·1/ :1.\ 1'1,( , ;lIlaly.')es of' cu stom ers , compeli [ors, and th e environ ment of th e busi ness
and Key Success '.IJllllid ;(1.>;1l ('olltrilmte. A set' of nin e Llc('ors are sct forth in the figure as a point of (,
Factors , 1"I);(rilll( '. 'I'll(' adll<ll ('actors w ill depend on w hat i s r elevant 1'01' th e conte xt.
(:()llSi,I('r 11<',\( til(' 11I1.\illl''i,'i-positioli aSS(-!SSnlcnt , ,IS shown on th e ve rtical clxis,
;1
Figure 7.4 StTIlI:l'liring Stratt>gic DC'C'i sjOlls I 'lli' 1'II\ill".\s 1'Il\ili()II , IIIIJlI,IIJ(' 1):ls(,(1 Oil tl1(' illt(Jrn,t\ analy sis of the busi.ness ancl ,
III I ); 11 ( il 'lIl:1l , 1)11 ; 111 I '"d'L,1 ill ll III Il\ : I.'i'il'l,<; '"ld ('olllj J<'terll'ies rel<ttive to thos e of its
 ( :111'1 11, . - IlI/n ·IIIII.\IIIIIII-,is \:?-7
'
I ~(; 1'II, 'f fl/'(} .\f I {/I(';~i(' . \IIII/!Jsis

Market Attract ive noss

T IlE nee CBOWTll-SHARE MATRIX
High !Medium! Low
l'IlI.ll.oli() allah'sis started in th e mid-1960s with the Bee growtb-.sh,ll'c matrix which W,)S
1';1111(" '1 '('(\ "lid used ex tensively hy the Bee conslliting p;roll[l TIll' COncl-'pt w<\s to posi­
1 h 2
High I lil>1I ('<lCll husin('ss withil) ,) firm on the two-dillwnsio ll,d \ll ,ltri x shown in Figure 7.(i. Th",
1It:"h,t-sh,Il'(' diII wllsioJl (actually the ratio 01' , llelre to th ,)t the hlr~('st conl jX'tito r) was
or
I
Business 1. Invest/g row "'.l';"rdcd as pi votal 1ll'C<lIIs(' it reflected cost aelvant,)gcs reslllting fl'OlI) se,)\c ecollomics
1 2 3
Position; 2. Selective investment 11 1.1 Ill<lllld·actliring ex\wriellce. The growth dililensioll IVas considered tlw Iwst single
Medium
Its Ability 3. Harvest/divest
to Compete 11" licatnr oC Ill<)r/(:'[ strcnp;th.
~ The Bee; growlll-sll<llT matri >. is associ<lt(,d with ,) COIOrrll1 cast 01· c;lWr,)ctl'rs re prc­
2 3 3
Low ~ ." .lItillgstraIT";\' n.' cOII»IICndati()lIS. The stars (the high- sh'\lT, high-growth qll,)dr'lllt) ,m'
i) lI portallt to tl\(' CIIITCnt 1)IISill(,sscs 'lild siloil ld rl' .... iv(-' rcsollrcvs if" Ileed('d . Cash cows
I I Jl w l)i\!;ll -shan' , low-;.>:rowtl l <j\l<l(lrant) sholild he till' SOlllT(> or slIilstal.ltial ,)1I10lilltS oi"
I.,)sh tklt C,\I) 1)(' c hanlll-,\cd lo oth('r hliSilwss areas. Dogs (Iow-growll l, low-sh,)I'<' qll<l'\­
Evaluating the Ability Evaluating Market
1.,lIlt ) "re pot('lIti ,d casll traps Iwcallsc tll(')·· l)('rpd)lallv ahsorh e<lsh. Prohlenl cllildrc il
IIM-shar(', Ili)2;h-gro\Yth qll<ldrant~) al'(' ;\sslll»)(,d to hav('. h('avy cash I)('( '(\s 1)('i"oH' th"y
to Compete Attractiveness
Organization Size
Growth Growth 1.,,11 conv(' rt into stms ,")eI ('H'lItllall ), cas ll C()ws.
TIl(' I\ce )2;r<l\Vth -s har(' lll(l(ki W'lS vc ry inlhwnti ,)l ill its (lay. It IIlad(' visihll' tl1 (, iSSli(-'
Share by segment Customer satisfaction levels
')\" ,,\locat i()n across 11iI sil)('sS IIlIits , that SOIll(: I)llsi n('sscs sh( )11\(1 g(:lwralc ..,Ish that SIlP­
Customer loyalty Competition: quantity, types,
p()rts otli('rs. H also illtrodll('('d tile ('\p('ri(,11c(' Cilive int o strall'l':Y alld sllo\\'(,d that,
Margins effectiveness, commitment
1I1I(1(' r SOIlI(' (,()II(liti()lIs , III"rl<d skin' ('ol tld \c"d to c\lWril'I\(,I'-CI\ly( ,- hascd adv,mtag('.
Distribution Price levels
Profitability rI ll' (" p('1'i( 'I)("(, Cll)"\'(' is disC1Isscd ill I\l OH' lid"il ill Cllal)tl'r lll.
Technology skills
Patents Technology
Marketing Governmental regulations Q)
Problem children
iU Stars
Flexibility Sensitivity to economic trends II:
R&D .<:
.". o o
~\
Figul'c 7,5 TIl(' i'vi arkd Attractiv('Il('ss- Bllsi ness P()sitioll 11'1at rix
0 o o
COlllpetitors. E leve n dimellsiolls are slIgg(:'stcd ill tile Figure, hilt all appmpriate s('1 0
will need to he generated I()r each parhu dar co nt ext.
Cash cows Dogs
Applying the Matrix
o o
TIl(-' market attr,lctiveness-business position matrix is a Formal, struct1lred way to
lllatch a firm 's strengths wit h marke t opportunities. One implicatioll is that' w lH'11
C) ('
,-)
· 1
hot'll Firm position and market attnlctiveness are positive, as in the hoxes marked I s0
-'
o
in Figure 7..5, a flnn should probably invest ,1Ild attempt to grow \Vh e n tIle assess­ i\
ment is more negative, as in the boxes marked 3 , howeve r, th e recommcndatioll 10 High 1.0 Low
0.1
wou ld be either harvest or dives t. For the three hoxes marked 2, a selective deci­ Competitive Position (RatiOS of Share to
sion to invest wou Id he made only when there was a specific reason to helieve til(' Share of Largest Competitor)
investment would be profitable.
F i~tlI'c 1,() Til" Crowth-Sh ,\)'(' Matri x
A use ful exercise is to attem pt to preuict wll ether eith er YO llr position or til('
attractiveness of the market will change if it is assumed the ('mrcn t stl·"kgv is I()I­
lowed. A predicted movement to anothn cell (,,In signal til(' III,( ,d I() c()ll.s idl ' r a
change ill strateh'J'.
 ",I1 ~
.. , "" \flU/'r.... /..,
( :/I/'II / r" 11I/.-ml/ l .\III/I'ls ;s I :!.~)

I" sl nI<'l III'; " .!', ,'II" " ' ,! ~i l ·S. li lt' I,d ll>\\;" .: '. :11',· :1 ""111 ,1', 11" , I,,:,," '." :rll" I'II:rI;\I 'S: <llilllIll(>l>ill" III ' ":11'" ,,) :111(1 <I\lI ' l l l)ll 10 id l ' lllil) ' Il lall<l s lhal an ' hi g h or
low Ilil 1';11' 11dilll( 'IIS itlll .
• IHPe st to hold, ;\U I' llIpl 10 sl()p l 'rns;llIl ill I )()sili(lll Ilv ;II VI'sl; II,l!; 1' llIl lIgl l 10
:t I .no/; alI'I II' Ijllol al iOllS t h at l>cgi n C hapters 3 th rO ll~h 7. \iVh ich one do
CI lIll[>I'! II S<ltc /(lI'C l lviro lli lle lll'al ,lIld l 'OII'l)( 'lilivl' /(JI'c('s .
VO II (jll(l tilL' most insigh tl id '~ vVh y'? Un d er w hat circ um stances wou ld its
• Inve,~t to penetrate. Aggn:,ssivc ly att(-' Illp t to IllOve tlie pOSition lip , ('\'1'11 al i Ill pli catio ns not hold '?
the sacri fice o f t~arni ngs.
.1. III ililpicillenting a market att racti ve n ess -hu si ness position m atrix, w hat
• Invest to rebuild. A tte mpt to regai n <I prt-'viou sly h eld position that Was lo.s l Illdri cs arc like ly to h e arplieJ in an)' ind ust lY context'? Pick all indu str),
by <I milking str ategy that, i()r w hatever reason, i s no longer approp r iate. <llld determi ne if speC iali zed m e tri cs wo uld h e need ed .
• Selective investment. Attellipt to st rength e n positio n in SOllll' s(,glllents
<llld Iel' POSitiOl1 wea ke n in oth er segl1lents.

• Low investment. Attemp t to harvest th e bllsin t'ss , draw illg cas h (H i t and
"JOTE S
cutting il1 V(" shlH~l lt to <I Ininilllllrl1 . I . I"o r ,UI (' xCl' II ('!nt w\·il'W or ti w ri sks of shareholder v,dup Wl' All an 1\. Kl"IIII l'dv, Till:

• Divestiture. SI'JI o r li(!l1idatl' th t' llli si ness . or

/': Jlr! Slum ,III ,ldl'l' VIII " " , C uII ilrid).!;t" 1\1 /\ : Pt'I'S('I IS I'lIhli shill).!:, :ZOllO.

~. 1' I,il iPlH' Ilas[ll'sla)!;h , TOlllO Noda, and Fan's HOldns , " I t:-; Not .I" St Ailollt til l'

Nll rrrl ll'rs ," Il lIrnlml /)IJ s ilil'sS /{1'l;iI' IIJ, .I,dy- AII ).!:II St 200 1, pp . 6.'5- 7:3.

:\. KCllichi 0 11111<11', TIll' Mi./lll (~rl ll(' Slm l"l!,isl. New Yo rk: Pcn).!:lIin Books . 1'1,')2, p. Z() .

KEY LEARNINGS I. .1 . 11. KIIII Z CO ll1 pa rr y /\ , Case D-S/7- II S, I~oston: Intncollq,;iatl> Casl' Ckarillg
I l l lIISI ', 1977.

• S<lll's and profitahility <llla l)'s is prov ie!" <In (:-'va llr;ltiOll 01 past strategics and :., I ()M , 1\1'(/ I (!Trill !!" Novc rnl)('r, IDim , pp. 12()- 12i"

an indi cation or l'hc (, IIIT(' llt nlarkd viahility or a prodllct lill c . Ii, Ilolw rt SI<ltl' I', Til(' NI'II; C / '~', Ilolll l'WOllll, IL: Irw in , ID\n, [l. 10l .

• Shar('hold('r v, illl(-' I'old s that till' liow or profit." (' Ill anating rronl all ill V('S t­
11 11' 111 sholdd exclTd t l1l' cost o r capil'al (\\Ihicil i s th e w(' ig il tnl ;(vl'r<lge or
th(' ('os I' or l'ljllity and cost of deht). HOllks to a(' hiev illg ., h a reholdu .\PPE NDIX: PROJECTING CASH FLO'V-SOURCES
va lrlC-s ilch a." dOwll si zm g , 1'(,'dll(' il1g aSSl"ts l' lllp lo)'ed , and OIlI'so ll rC il lg­ \ND USES OF FUNDS
ca ll 1)(' ri sky w h e ll I'h('), 11IHI(,I'(,l lt assl'ts ,IIHI cI )(np(-:[ c nc( 's.
\ pmjec['io n or cas h fl ow dl1ring th e stratl~h')l ho ri l'on is essen tial to ddl'l'l11inl' w h<l t
• j\'rf(Jflna ncl' aSS CSS llwnt sholde! go h eyolld finan cia ls to inci nd (, SII(.: h I ':ISC or cash r esou rces i s aV;lil al>le and w kl t cas h Ileeds wi ll b e reqllired . A t tlic
dil1ll'n sions as Clisto ilie r satiS(;lction/hr;uld loyalty, produ ct/se rv ic(' qll<tlity, tli llsd , a H:,asonahle haselin e assu mpti o n might h e thai' c lirre nt stratl~gil 's and
I m l11d/fi nll associatiolls, re lal·i vl.' cost, ne w prodlld acti vi ly, a nd I l<' llds w ill ('xknd illto th e n ca r fl1tI1l'l~ . It can he hclphd also to project the I'low or
Ilianagerit'1l1p loy ee capdhility an d lwrfi)rlllall ce. 1IIII d s g i vc n h oth op timi stic ,)lId p eSSi misti c SCl~ Jl<lrios, Th c illlP"ct or c h anges in
• Fi ve illl.'ii ll(-'ss c harddl'risti c." limit or (!Ji ve strategic choice: p .lst and CIIITl'll t ' \I;}li'gies and til(-' illtroduction o r new st r;ltegies can th t' n h e d etermin ed .
sITakg)" strategic pmhleill s, orgallization ,J capahili t-ies and cOllstraints, Vi g J1l'(-' 7 A. l shows a simpli fie d halan ce sh eet and the major categori es or
fin ,1I1cial resollrces and COIlSIT,linl's, alld strt'ligth s and weak nesses. 'i'"I I'U-'S and ll ses o f {'11mb. It will provide a context in w hich to di scuss tIlt' princi­

• Bl1silll~sS porti( )lio an,t/y sis provides a strndured wa)' to evalnal'e hll Si­
Id cle illents or a cas h How ,Inal ysi s, As tlH~ sOllrces ,1Ild u ses of funds are prc ­

IWsses on h vo k e)' dimensions: thl~ attracti ve n es s of' tile market involvt'd , SI'l ltl'll , I1 sefltl hal allce -sheet ratios w ill he introdllced . Th ey pro vi d e
SO III I.'

and th e strc ngth o f' the finn 's positi on in that ma r ke t . TIlt' <Inal)'.'i is ,lIld II I/'<lS I]1'('S of th e Fin ,)llCia] h ealth of a Firm in terllls of its assets Hn d d eht structur e .
rep rese n tation l ead natllrally to a reSO l lr ce allocation d eci sion. .\ .'i slll·h , thc), ar e helpflll in lllaki ng judg lll ents co nce rnin g th e d esi rahili ty aml f<:,a­
.' il li lit) or r,lisilig Illon ey through d eht or e(luity finH n cin~.
'I'll(' fi rst item 11 nder th e sourccs and u ses or
I'll nels ill Fi gl1re 7A.l is changes
FOR DISCUSSION 111 111 '1 w orkin g capital. \ V()lling capital i s d e fin ed as c urrent ,IsseI's less c urrent lia­
I>i l ili l 's (gc lH'rally liahi liti es Illlder on e year). Th e c urrent r<lti o is one W;I)' of mea­
1. E xplain sllareh olde r value analy si s. Why might i t help Rn n sr Why Inig llt '\
it resu lt in had deci sion s? S lll ' il1 ,~ III< ' adl 'I)II:I('\' Ill' \\'o lli ll g cap ital:

2. Explain th e market at tractiveness-busi n ess pos iti on nl alli\ . \ \ '1 r; II lo ll ' l'Ilrn 'lIt ;1ssl'ls
shou ld it have in strM egy u c\'e lopIJl cnt? C hoose all illllll'ill\ (\1 " .1, :1.' 1 ' 111 II ' J If r :1I it)
"IIII'I' lI lli"I> il ilil's
 I ; to 1',/1/ FIi ' u ,..... 1111 I (·,!if . ~ II{/ I!J . .·/S (:t," 1'/1 ' 1 111/1 ' 1 11111 . \ 1IIII'Isis I ;\ I

Balan('(' Slu'l'I , D('('('",I)(',· :11 (1\Iill;oll., ) '1'111' Illinl ( ·, iI !,)';' " ·\ I', IIII' is'i lll' (II' rrli,'t' 111I'1I1 ()I ' IOll g-l c'rlll dc 'hl. III r1cl( ' l'lllill­
Currcn t Assets ()O II I", II", ;qJIJr()prial(' d( ,IJI 1, ,\ (,1, II s(' 11i1 ra tios ar(':
ClIITcnt I ,iallilil ii's TO
• Cash , n-'cci vahles , :3 .,,)
• AccollTlts payahlc 20
in v(~ stillents
• (>th er 10 d eht- to-equity ratio = lOll g-tt'J'Ill liabiliti t's
• [,we nl'OIY 2.5 E'll'lil) '

Long-term Liabilities 2.0

Fixed Assets G.O total deu t-to-equity ratio = total li abilities
• Prop ert)', plant, 10.0 Equity equi ty
,lIld (~rl'lipnlr'nt

TO
4()

• l ,c 'ss ilccll ntlr/atc d 4.0 ()r COllrsc , th e hi ghe r th ese r,ltios are, th e large r the in te rt's t- hurde n in a
(jl'p n'cia til HlS
:3. 0
,1 "" 11[111'11 ,lnd th e lower t ht' ability to ohtain lI ew de bt in all emergency. Th e opti­
Total Assets
J 2.0 "" d I, ,\('1 will d e pend on the ahility o[ th e ea rn ings to can y adde d inte resl- (:'xp~~nsl' ,
I}ruin /N f SOIlIn:s {!Il(f (lSI'S o/FllIl(fs I"" poli cy of a Finn toward d e ht and its assoc iate d risk, th e re turn exp ected on
Soun:cs of Funds
Uses of Fund.s
1111 111'(' illlwstlllt'nt, and the de ht-to-e(plity ratio of compe ting firms. Th e use or
IIIII I\.' o\Jl;lin(-'d From d l'ht financ in g w ill h c-! re levant [<lr dete rmining how lIlu ch
o.() ti" I, l lo 1I1Hle rtakc. If'the ['unds ar<~ to he used to hu y a finn , the structure of' thc~
• 1)('lT( '<lS(' ill 11('1 wo rking capital
• I nc n"as (' in n<'l' wo rking capital 10
• Sa l(, or ri w ei assds O() • "mcll ase or ri.w ei assds " '." 'Iltill ~ co mhin e d bala ll ce sheet and Funds How lllu s t Iw considt'rc( 1.
2.'5
• 'SSIIl' IOIl ,t ;-tel'ln li"hilil'ies 20 The fOlllth l'<ltl-!gory show n in Figure 7A .l is chan ges in capital stock, To wlwt

• I\dirc 10ng- t(' 1'II1 liahi lili c's () ,(J

• Se ll c'(pilal sto(·k o.n • 1111)' h,l('k capilal slock 0 .0
I' ,I" II t is it rc,lsihie and d esirable to raise capital throllgh th e sale of stock'~

• Op('ral'ioll s: Il('t iIlC()IIH' 10 • ()P(',Aioll s: IIC 't loss('s ( ;" J)\('rsl'l )" il may Ill' he ne fi c ial to lISe' funds to hu y stock if' the stock is underval­
()O
• I)"pr('ciatioll o .!) 11('1 1 compared with alternal'ive investments.

• /)ivic/crl(ls (1 .0
Total Soun:cs or Funds :3 ..5 Total Uses of Funds "'illall y, tlwre are the som c('s or funds l'rolT1 ope rations, whic h proVid e th e

I ,,(SC ' f'rolll whi ch in vc~st lllent planning wiH h egin . D e prl'c iation ex p e nse is <Idde d

:3 .,,)
Figun: 7 A,I 1\" lall('(' SlwC'i' ,!lId Srlllrc('s ,md Usc·'s o f' Fllileis StatclIl(,lIt II) <I l1d di vidends 1'<1 h l' paid are suhtmcted Crom , nd inco me- D e prlociat'ion is an

"' I)(' nse ite m that does not involve c,lsh out II ow. Thus , d e preciation is actuall y a

',I JlI re(' o f' "llnds. Ohviously, the net inCOll1 e from ope ratioll s will inte r,lct with othc·' r

Tlw most desi mille ,'Mio will d('pe nd, of' (,Oil rs e , Oil th(' lIatlll-e of' a husi IWSS. In
palti clI"lr, Firms w il·h large '1111011lIt.S of ' assets in in ve lltories llIay rt'qllirl~ a higher
"J III'C(-'S . For e' x<lmpk:, in cre asi ng de ht will inc rease interest exp e nse , w hid l w ill

1I ,(lm'l' thlo ['lInds availahle for ['utun~ operations. And , th e ,Ihility to raise stock llIay

raho , Allotlw r ratio that deldl's in ve ntories is called til<! IJllicJ<or ac id-tf'st ratio:
,/"1)('1)(\ on di vide nd p oli cy. Furthermore:-' , in vest'me n t or disin vestm e nt in assets

will all('d d e preciation in Future years.

qllick r,lI'io = -('1I1T('
- - lIt- ass('(s
_ ______less in v('ntor\'
_~ In ('vahlatin g th e htlal1ce shee t , co nsiderable judgm e nt and reservahon nlay
CllITl'nt liahilities
1)(, approp ri ,lte, Th er e may he had debts :Illlong the r e porte d r eceivables, th e
, I, 'pr<'l' ial'ion Inay not re Be ct plant de te ri oraticlll , and assets and liahilities In a), have ,\
As sales ~row, of' course, working capital w ill have:-' to grow also so that it w ill Il J;l rkd valu es that diller suhstantially From th e ir re pode d Dook valu e . InHation \
l'ontiillw to he adeljual-e }()). Slippoli'ing ope rations .
" ITc 'ds cOlltrihll tc to th e inte rpre t,ltion difR c l.lltie s. Thus , it might be appropriate
The second ite m cOl lcerning th e SO urces and uses of hinds in Figure 7A.1 is III illl('rprd or adju st tIlt' ratios and cash How project ion 'Iccordingly.
th e sale or purchasc~ of' fi xed assets. Th e acclll is ition of Fi xed assets might he divided
illto those necessaJy /(Jr maintaining U IiTe nt ope ration leve ls and thosc~ n Ce:-'d e d I<J r
m o re di ,scr('[ionaJY exp e nditures to gen(,nlte grow th .
Again , th e analysis of th e Sources and uses of hinds sllOulJ n~ Hect th e impli­
carions of' any propos('d g row[-h stratq ..,r)'­
 ( ; A S 1< ( : II t\ I. I. I'; N (; •.; S ,,' 0 H ( '//1/1,1, " /111,., /11// ,\111//'1" ;'\ I :U
P A It T I I
I II :lll dilioll 10 Il l(' 111 ".1"1 l 'I:( lId s, (' II:dl( 'lI g('rs rmlll :1 1;\I·i('/\· or slllall <111(1 lal'gl'
li '''1 ,« /\ ':(11 ('1'.1 Sill w: li I '.:.!.O l iI 's 1,\ I)()s ili l lilillg 11\('l llsl, II'('s aro lilld sllch 1;lct(Jrs as age
I , Jl ' I' li S(' lIior~ <llld kid s) :l\l(ll l('a lti l (prodllcts to fit da iry-rree, diahetic , and he,lrt­
A NEW, DYNAMIC INDUSTRY:
111 1 ,'IIIIIS .lid S), to say 11()l'ilillgo/'mllTlt'rolls textures, Havors, si zes, and coa tings, For
THE ENERGY BAR INDUSTRY
I I"I >I,' , l lll ' Jl()pill arity of low-carhohy drate diets has prompted a host of e ntri es ,

In 191)6, POlVc rBar single-handedly creat~d th e e nvrgy hal' Cal-ego ry. p()siti(JI1vd as <III
III , IlI d lll g Alkills Ad vantage, d eve loped b y th e Atk ins o rgan i ;t,ation , Other p ,uticipat­

athldi c ene rgy I(lod , it was distrihuted at hih~ shops and eve nts that lIsllally illVolv('d
running or biking. Th e target seg me nt Was th t, athlete w ho Ilc<:'d(' d an efFiCie nt,
live t'nngy sou rce.
Six y ears late r,se(·' kin g /'(l provide all alt('J'Jlative to t hl' sti c ky, dry natllre or till'
Powc rB ar, a competi tor d eve lopt'd ,m <:' Ill'rgy bar w ith sllpe riO I' tast(.' and tex tllne ,111(1
hranded it t h(:' CliJ' har. Ah(mt th e sa lli e tim(e, anotll(' r competitor illt ro([u ced til( '
Balan(:v hal', w hi c h o Ot- ret! a bl en d 01' prot(-'in , (;It, a[ll l ca rhohy drates hased o n tl",
nll tri tion limlJ ilia assoc iat(,d lVi th the " 'lOIl(' did." Faced w i th these c h,d le ngc rs.
POIve rBar respo nd ed w ith Harves t (a hal' wi til a Illll c il moJ'(' acccss ihle tast·c and tex
tllr(') and l'rotei nPllls (an e n t ry ill tO t·ll(' Ili,gil-proteill slIhcat( 'gol), clos(-" y n,lated 10
that d('(ll1('d hy Balal)(,( ').
I" ' l 'I,lIlds in clll (k ZOll(-~ P(:'rfed, M e t- Hx, C eni So)', EAS , Carb oLitc, Carh Solution s,
11 111 (::lIllJ'a<1(' Cllergy h 'lI-s. M as te r{()(ld s' Snjck ~ rs Marathon- a candy hal' with a
erti'('
I !I. 1.1 "I' l 'il ,lI llill S, milwra ls, and prote in-h as hlllrre d the di visioll l wtwt'ell candy
,,,, I " IJ('rgy hal'S hy s('('k illg to gaill s h aJ'(~ in th e latte r market, One:' cOllcern o r th e
) 111 '1':\ hal' ill(lllstry is th e skc pticislll among som e <jnarte rs ,IS to how <jlJalitati vc ly' (lir­
I,,, II / il.s prudllds are from ca ndy hars in th e fi r st place,
'I'll(' 1110tiv ation For II sing an "" H-'fi-,,), hal' is primaril y to provide a CO ll ve ni (' IlI'
, ""I ).!;I hoost. Th e o ri ginal he rit age of h eing a prodlld to en hancc th e pcrro J'Jllancc
III /"1 ) :I II1I('/'cs e ngagcd in dcmanding ph ys ica l acti viti es ( likc Lance AJ'1ll stron g, a
1'''II , ... lb r (' lIdorser) ('J'<:'atcd c redihility and w lr-exprc"s il'(, IH' lwn ts in I'll(' ca tcgorv\
I JI h \ '('a rs, HCCIiISt' hOll sc /told IW ll etratioll w as stilllllHkr 2() pern"llt , howcvcr, I·he

11 11 1' "' [iJ'JII S w orked to gCllcrali-I.(' " pCr/( )J'J1I'"ICC" to 1)(,' relevalli' to all yon(' w ho nev d s
Tli(' Illalw rs or til C C lir har ohs(-'rve d that lllallY WO nl(-' 11 wcrc ,Ithl dcs ,lilt! Jll<lll\'
/11 lH'rl i lJ'J1l well dllrin g thc d ay )n ract , thc indll st ry drea m i" to get pcople to lalll'1
il)ore W( '(,( ' in vo lved ill fit-II('ss. Th ey rmt/lCr oll'wl\'t'd that tllis hall' or thc p O[)JJlatioll
had IIni «(II(' 1I('C'ds in tenll.s or vitaillin .s alld SlJppl('n w ll ts , ,IIHI th :lt the ('n crgy bar
II I' /'; Ji ('gOl Y "pc r/ ()J'Jnallce Ilutl'iti o n " alld tllink 0" it as c nhancing one \ ability to
, (f ll lpld( ' any task.
illcill ., try had y et to l'ccoglli'I,(' or fill th( ' ln-a classic ('ase Orlllllll<'l' 1I('('d ,s. As a res ldl ,
New prodllds in t he catcg(JlY are goin g in sl'vcra! dircctions, J\ trelld toward
th('y illtrodll('('d Llllla as til<' (i rst nlltritiol1al ( ll ot cne rgy) har lilr WOI11('II , lI sing nwdi;1
lJ1 , l lIlg( 'nt icil lgs , coa tin gs , an d covcri ngs has led SOl ll (' til IlllJlVh toward c,lrJdy hal'S.
<l lId prolllot ioJl.'; tar,t !;d illg acti ve (('I Jlales, Th c bar had a lig ht· ('J'llJl c hy k xl'lIre, ( '<1111( '
1 JliJl' rs ,L!;O th e oppos i t(~ w a)', nsing w lw ic-g l'<lin ingJ'('d i('nts I( JI- prodllcts .solllewhat
il l fla vors lik(' " 1('111011 ;t.cst" and c hai t('a , arrd COIII'aill('d Iwad), t wo dO'I.('1I vitamin s,
I" " III(' miginal C li f' ha l' all d (jlla!w r 's OalllJ('al Sqllan 's I(lr WIl III Cll . Thc IJlalw rs of'
II li ne ral s, aJld nutric ll ts . Th(·, target Illark(,t cOllsisted or tini('-strapp('d WOJll('n w ho
II " , ( :liI' hal' also have introdJl(:('(1 a Mojo lill (, or salty snack hal'S to provide alte rna­
lVall lTd hot h taste alld Jllltril'i()n and w OIlI([ appreciate a har tailor('d to th(-' ir n ce d s.
1111 'S10 swcd-tasting hdl's, Th('re arl' positiollin g Opti()IIS ill vo lvin g nalilral, sll g,II'- I'n :c ,
Both ill reactioll to Lllna's SII CC(>,'.' and to ('xpalld the S('glll t! nl's fi JI' which the cat ­
.111, 1 ol'ganic hars, as wt'li as thosl' c(Jlltaillillg no pJ'('.s('I'vativ(~ s :lJld IHI g(' JI('ti call y
(~g(Jly was r c k'vallt, Pmv('rBar stlldi ed \Vhy W()n WIl did not hl1Y its l)ro<iIJds , w hidl til<'
,dl l'II,d ilJgl'('dic nts.
fll'lll COTlsidl'l't' d to Iw Iliitritioll.';, ('on v(' llient, tasty, alld ahl" to pJ'Ovidc a CJllick pi(l ­
Th l' l' lll'l'gy hal' l'akgo ry has gU il l' JIlninstr(,<llll , lll ovillg I'ronl til(' hi h~ shop s to
Ill( '- IIP in Illid-nlorlling or Illid -a rtCJ'JlOOIl , 01le allS\Vc r was that the ca lori e hit rrolll
11 11' groCt'I)' stores and exploding lro III ju st o v(-' r $ 100 III i II i0 11ill rc vc nlll' ill lSJS)() to all
all)' Illl' llllwr of' th e l'owerl3ar (illllily \Vas Simply too gn-'at. Tn n-'spOllS(-' , till' nnn cn '­

, , 111 II ,1tt' d $ 1 hillion or I n oJ'(~ in 200:3, w ith ('Xp ("cl'l'd rll til 1'(, growth ('xcccding 2() per­
at(,d t il(' allll os t-illlhd gl'llt, Po\Ve rBar-cn dorscd Pria. \J\,Iith oilly tlO calories, Pri" w as

dt'sign(-'<i to J'(~spolld to LUlla w hil e attracting Il ew lI sers illto th e cakg( Jly.

"" Ill [ll'l' y ear. A lo ng tl w wa)', it bcca me larg(" enollg h to attrad th e <lttc ntion o r Inajo r
!', J(' bgcd-good s fi r ms. Tn 20()O , Nt!stl(~ p lJrchased Pow(-'rBar, w hic h has reillained th t,
TIl(' Balance' strategy was to in trodu ce" seri es of pro<ilJcts , all or w hi c h stu ck to

1" :I1I ill g player, with th e C lir hal' (w hich h as r e main c dindq)(-'ndc nt) cmerging as it's
thl' original har's 40/:3 0J:30 nutritioll al f(Jrlllula hut h ad dif(e r("n t tas te and t(:'x tuws,

",, )sl I(JrI11idahlc co m petitor. The Balance l int' of' prodllcts lVas hought hy Kraf't , al so
T hes("spillofE in c illded Balall C(" Pill S, Balan c(-' Outdoor (with 110 c hocolate coa tirrg to
"I :W()() ,
Illelt), l:3alanct' Cold, Balall ct' Sal'isLlction , and the Balan ce -elldors ed Oa" is, a hal'
d e" igllcd lilr WO llwn, Th(~ hig Sl1 CC(:,ss \Vas Balance Co ld, which Was positioned clos(' I': nngy bars can be con side red a part of a larger fi)()(l hal' cat<:'gory whose si 7.t' was

till" (',mdy hal' categOl Y (j nd(x~d, its taglint' was " li ke a candy har ") by containill,L!;
,'sl ill111kd to he we ll ove r $:3 billion in 2002 , n (~ a rly d(Hlhl e that 01' 1991). Tlw m ,lrkd
to
is d iv id('d I'airly eqlJally ilctIVt't'n gr ,lTlo/a h ell'S (position ed as a sn<lck food that is
ingr t' die ll ts like nuts and carame l. SlIc h a hal' probahly ri sked some of B"lallC(-,'S p<.'r­
I...:dlilil'r th~1I1 cnndy IXlrs), Im-!akfas tlcewalls nack bars ( used as a Ilwal rl'placellwnt ),
('('ivvd authellticit)' as being all en e rgy bar, H oweve r, hecall se Balanc(' ('lIt( ' J'('d t il('
(' I\( ' J'g~' hars. 1':II( ' I',g v hal'S have a ['ar low(~ r hou se ho ld penetration tllan tli e other
:",11
cat(-!go IY ii'o lll th e Ji et perspective anywa), and prohahly was nel'c r ('l lJl sidl 'I'('( / ill III('
I""d 1):11' I()rll is. TIll' 1" 11 1IJ:lrkd(' J's " r I()()d h,lrs ,liT K(-,llogg\ ( i\Jlltri -grai n ), Qll aker
('('nter of the ent'rgy hal' wo rl d, th e risk may have hee n ac('('pl:lhl " .
(his , (:('111'1:1 1 i\ lills, :111" Sli", 1':1' / ()f' ('(l1lrSI' . all \> sa l( ,s l's tim ates ill this ,In-~Il a are

1:32
 I IIJ I It,., )
"11 II 11" '1/ ' \ /l1//,;... . ;,\'
('/WI,/"I /11/1 '111111 , \I/ /I/'Is;,>: I :\~

<lilli ('1I 11 (() ,~I'IIt ' I ' a(I' 1)( '('; 111 ,\1' (II' <l1 ' fill ilil ll",!
C()()Pl'I'<lt(' w i(l, s ~ dl 's II 11'<lS Il I'illg SI 'lv i( 'I 'S,
"' "1' ~ , ;11111 1>(,1',11"" \ \:;,! IV!;II'I d cll's 1101 ( '01\1 PFTI NC A(;AI NST 'I'll E IND lJSTHY GIANT:
( 01\1 PET IN C A(;AI NST WAL-MAUT
FOR DISCUSSION \\ Ii ,\ 1:,,'1 i~ (II(' Lllosl SllCC('SS I'III rdaikr eve r. In 2002, at $2Hi hillioll in sales, it IVas hy
/' 11 III(' 1I'(I"/( r S largest retail compally, three tim es the size of' the llLl ll1er-Up, Frallce's
I "lI'fillll, i'v1c- ~ lS IJl'l'S oI'VVal-M,ut'> S UCCl~SS are mi n d-hlowing, Its share of th e u.s. p;ro­
1. Con duct a t horough allalys is or this categOl),:s cu sto Jller s, CO l11pd itor,\
•• I I I lilSi llcss was l\:l p ercent ill 20():3 and cOlild grow to :3.5 pcru'nt ii' il's hV('-Yl'ar
Illarket, and ell v i ro lllllt' llt Croll I th e p e rsp cctive of POIVerl3,lI', \Vh at are
, ,) II II wei g rowt h lliateriali zt's, It IVas the third larges t pharmacy with ;I Hi perce lll' share,
the key stra tegi c cj llestio lls ? \V h at additional illfcmn atioll wOldd yo u ljke
to obtain? HoI\' wOl/ le! YOli olltain i t~
\V l tat an ' the tilfcats alld opportu­
II ,. ,Id :\2 perce nt o j' th c di sposabl e diapers in th e U nit(-,d Staks, :3() perC(;llt of all h air
! '" Il mclllds, 26 percellt 01' toothpast(', 20 pl'l'Cl' ll t 01' pd Ii )Oll, ~lll(l 1:3 p e rcellt o j' IHlllw
niti('s? III particu lar, acldi'('s" I,ll(' rClllo"'illg iss ll('s:
It ,Id. ,s, III 200:3, Furllll/ (: named \ :\fal- Malt tlw lll os l' admircd COlllp:ll lY i ll ;\1l1('rica,
a, How is the Ill:lrkei' " cglllt'iltcd? \Vha t arc l'll e key CllstOlller 1llotiva­ \\':d-Mart w as fi)lllldc d ill A rkallsas 1)\1 Salll \ 'Vait'o n ill HJ62, Six '\T~L rS i:lt(~ 1 it
/
tions all cllllllll c[' Il ecds? \ "'hat are the silllilaritic" and ddh:!r(' IH:es ' 1':ll lIll ,d illto n(,;i ghhorill g St:l tes, all d in t h e 1\:l70s it ventured Ill'YO lHI tit (' SOllt h ,
alllOlig the seglll(,ll ts~ How Ill ight a COlllpan y link <:I1.,tOlllc r lllOtiva­
I

I IIC' llilite it added prodll cl'S sli Cit as j{,IVeiry and f( )( ld , as we ll as pllanll:lc)' :\llc! anto­
tion s to va ll I(; proposition s?
1111.1 11 " l lq>:LItnH'nts, By 2002 , t/ w r c w ere SO lll{, 1,0.50 \Val -1V1Mts all( I o vn 1,000 W al­
h. Jdelltil), the CO l IlpCti tors , \Vho a re tlw 1l1 0"t dir('C t COlllpditors ? \1. 11 1 ,') lIp('l'c(' nt(' rs ill tite U il ited States , In 1\-)1):3 , \ 'Val- I'vJart wen t into the II'I ,o lcsale'
Tlw ill(lirect cornp('('itors? S l lhsti('lIl'c prodllds ? \ VI,at arc til(-' stratc­ , 111 1, Iliisine'ss Hilde r th e S,lI11's CIIII> h':]lH l 1Iall 1('; tlli s COI1('(' pt g rcw to .500 sto n's
gil' g r ol lps?
, 1I1, ill lwo d ('calks, In W!)l , il' hegall its illterllational (j1(('sl hy op (' llill g "lol'(' ill ,I
(" \ \f hat an' ti l(-' In<lrk('t trl' ncls? Til l' growth Sllhlllarkcts? Th e k('y ,(Jc­ \ 1. ,i ('(l , III 2002, \ ,Va l- Iv lart ha(lllcarly 1,200 stores oills idc t il l' Un ited Stal'('" ,Llld II':lS
('('SS r;,ltors ?
II ,. 1";ldi llg retailer in hoth M( ,xico alld Call ada ,
I"o r i t" I'i rsl t hirty y l': lrs, Sa lll \ "'al to ll IVa, tIl(' I l('a rt ;]1111 "O ld 01' \Val - Mart. A ll
d, \ Vllat aI'( ' th (' (' " Vi r Onlll( 'ntai tr('nd" that "'i ll aU(,ct th (' indll.'try?
C ( 'Il c r al(' two or l'h I'( 'I' v iahl(' rlll'lI 1'(-' SC(, ll a rios, ''' '' l lir:l ti()Il:t1 and v i siollary iIl11ILI: I1 C(" 1'1<::: l'I'c,lt(,d stratq!;l es, poli ei('s, :IiHI c llll"ral
\ di ll'S that fll e led till' /'inn 's Sli ccesS , lI e wO llld ,']l(, lld IIIII CII or hi " I'ill l(' v isitil l).':
2. 11 0'" wO lild YC)l 1g,o ahollt {'vaillatillg elnerging suhlllarh'h? \V hat critc, ­ lillI 'S and ll wcl'ing Cli sto lll e rs ami "assoc iat('s" (em ploy('es) , TIl(' v i sits w()lI ld
ri ,1 w Clidd yo u 11.,,' to (' lI ter (-'ad,~
," " , IVS re su lt in cil sto llwr allli Ill e rc handi si ll g ill sights, pats oil til l' hack 1'01' w()rk ­
:3. vVh at illl H)I'atiC)l 1 w Olild Sllpport a II( 'IV (" "tr)'~ l'IolI' ,-d,ollid e lltri {'s h l> "I ~;' :lIHl Sll gg('stiOll S IiI I' ill lpnI V( ' IIl Cllt. ]l e w OIdd Slllllilion 111:ulag('rs Il ack 1'0 til('
IJrallc!('d~ Ca n IJr~lIlds
slit,h as ]Jarv"s (', LlIn :!, i3alan cl' C old, Bal ance 1" ,;" I'I"a r tc r s ill B(" ll toll v ill c , Arkallsas , for S:ll'unlay Illol'llin g II H'cI' ili gS that k,'p t
Sati sf; 'dio ll , ,11)(1 oth('l'.' 1)(' I(;vnag('d?
f I,,' Ii I'lll ['()(:lIs t, d and pro Vided a lwrvasivl' w ork d l, ic, I II' a\.'o (' lIj o v('( l c(' lehral'i II g
4. Will t l, (, (' II (T,t.;,v hal' C:!lcgorv nlorp h illl o (Clod bars , with l' lel1l (~lll's li k(' ', I II ,(,(,SS( 'S, onc(' kc(~pi ll g a l)l"o il lise to do til(' hu la Oil \Vall Str('('t ii' lh (' CO llillall Y
did , tastillg like candy, alld h l'(~akr;Lst r('[1 lau' lllcnt d Ollli nating as tl, c ,,, ' I,in(-'(l all Ii pel'cent pretax pro l'i t. For t'lll pl oy('('S and Cilstol ll{' rs ,dik(' , Sa nl
l 'llC'rgv cldi II itioll rec('des? I l ow call N(",tle\ Pow(~rl3ar h ; ep that ri'Olll \ \ ;"1(1I 1 /I)(/S \>Va l- Mart
happening and "h I/maintai n il s 1l1<LillSt r ea lll/s llp( ' rlll ar/w t post lL re? III 1D()2, \"Ialtoll starte d his Finll wil'll t hn '(' I>:lsic 1)('li e\'s- resp('ct lill' t i l(' illd i-
I i,l lIal clllp lo),Ct" exceptional c il stom er se rvice, and :L stri v in g lill ('xcellen ce' , J II'
5. At w hat ,stag(' is t lw ("ll(-'rgy hal' lllarlCl't relahve to t h e prodllct-lill' cy cle?
\V ha[ strat(~git's
can 1)(' Il sed to extend th (~ lire c:)'ck ~ Do Y OIl see a co n­ 11" 1,'Ioped a h os t of I'u les fo r associates, ) l(~ chall ellge d t lw rn to (~ n g,lg( ' ill "aggl'('ss iv("'
solidation on th e hori ;>;o ll ? IlIls j>il'alil,),-" to he r e,ldy wi th a s mi1 (~ and dssistancc to 'Illl'll.,l'ollll'l's, TIl(' " tel l-lilot
lill I '" (lc'lT(~('d that wh en ever ,Ill associate was I~rjt hin t(:'ll k 'l'I' of a ClIStOllwr, til(' asso­
6. lklati ve l'o t h(' cOll cept or the " hig idea," clo )'011 think th e re is an
,'"il( ' IV:LS to look tlwt cmto nw r in th e l~ye and ask ifhe or sht' needl'd h t'lp, ) li s " Slill ­
opportunity to cl(~velop a produ ct that ca n deli ver th e same nu tril'jonal
,1,1\1'11 I'l d(''' ll wa ll t that :Lily task that could he don e todal ' w()1I1d hl~ llo t p llt ollllnl'il
ele m ents ill a difFerent form ( (-(II' exa m p le, a slH ,dl pill )?
III lIlolTolI'- csp ecially if the task ill volve d Cl lstOln e r "e r\icl', E\l'lllP IiI) l11g hi " I>eli(-'I'
7. D eve lop a p Os itioning map ,lilt! note jf th e re are allY oblrjOlls CUstOlll er III " IIIj>oIV(' rlll e nt, \ \1altol1 in stituted th e Volume Produc ill g H e lll (VP1 ) progranl , ill
n ee ds tha t an~ ell rrl'ntly IlOt h eing Illet,
1\ Ili('11 ;til ,Iss ociak wou ld pick all item , d esign a l1len:h,llldisillg l'f'filrt For it, and lnOI I­
11111' ;llId (,()lllIlllilliC:lt{' tlw n ' slilts,
')Olll"('f '.' Adaptc'd wit l, fil (, p(' l'Iliiss ioll of ' l'Il(' l,'r('I" 1'1"('ss, :I ciil'isi (JlI () f' ,')ill IOIl ,\: \I 'IIi IS/I'1"
I II Ilis 11)<)2, h()ok '\/ (/I /£' ill /\lIl cric(f-a titk' that re Hccts \Val- tvla rt's positioning
I\ (/'''t I'llh l isllill,L: (;1'0 /1 )1 f'r()111 Ii 11/11 I! I'o rl liil io Slml£';!,lj (''''lIlil/ : : /(1-/"( II/It'£' ,
'/ I":il" ,e;i,'s i, l IIII' (';' 1'11 11).')() ' , :ls \1'( , 11 as a cOlllllwnt on th(~ f( l llllde]'\ career -Su ill
I hlli'n'lI/ if/Ii()1I , r ;III 'l glj 1,1'lfTII;!,", fl/II! (.'If/rill/, In, 1 );11 ill /1, 1\ :d"' 1 ( '''1' 1' ''',1" " I 'II()I !/I '
1);I\'i" ,I , !1:ckl'l ,'\lIlig!l!.> 11''' '11'',1. \ \ ;"11111 li " II'" 11 ' 11 kl'\ /':11'1111', /1,,11 II(' li ,11 11'(,1'(' k(,v 1'(1 hi s ,SllCC(JS" , OIW was to apprl'­
"i :II ,' 1'11111 ' :I"'(I('i;II,'s :111, 111 "," "II"II'dllll i'I II ; :1 S('('I)"" il (' 11i IV:lS to sh :lw \'Olll' prorits
 , ,r l l
" 'I 1/(1 ~f~ /I \/11//1/ ".;\

( 'II~/olIlI ' l
( :/11/1 ' /1'1 " IIJ!J'I/Ji,{ I \IJ{//IJ-~ i " I:n
II il/l 111 ('«1 , ;1 Ill ill l /:t C'/ II ), 1\;1.' In I;dl, I fllll ., (' 11 ', 1" 1""1 ,1111 //, ',1"11 III \1 11 ;11 111:1 1
i,., ,', I\illg , /111 0 1111 ' ), il ( ' I1( \\':1 ,., 10 ('\( '('(' d \11111 ' 1'11 " ' 11 11 11'1' 1' \ I" 'I'/ :IIi (II IS ( " '; ilisli l('/iClIl ,I " , ,,i<l 1( 1)(' ili/i 'I'illl , ;1.' III<' ('III II) l;IIIV\ ;lIlli-lIl li()II , III"'-pa." polil'\' has 1)( '('1 1 h) 'Po tlll'­
,!.!;II ' II ;J II/ ('('d " l'l ,;tlly lI iI '; 11I1 S(III1 I 'l lli llg 10 ,');1 111 I\ ';dl lll l! , ,<) 1'" ,'( 11 111/'1' " h elll l' "':IS (0 COli i ",IiIII 11111<1 dowil W; lg('," ill ('('i: liI i\1l(('ril':I alld throllg ho u t loca lwgi oll s, On ave rage,
"0/ yo",· "'1''''''' ''., /"'tt" , 1/",,, ) 0 ' " ' 0'" I" ' Ii Ii 0", '" \"" /1 0" "0 d,,tI /,;" ,.,,., / 0" h,,,; " .' I 1\ ': d ,i'v1;1 1'l s; d('s c le rk ill l O()1 made less [,han $14,000, w hich W,IS h elow the poverty
a II II III he I'-( )IIP ran ki llg ill thl ' ratio of'I '\pens(~s to sa les, III II' lill a lalilil y ofthree, D o/e ns o{, law su i ts related to overtim e pay and sex di scri m i­

\Vhilt-~
Sa il! " 'al to ll of{i'Ted s(Tategi es as w (:' l1 as ch arism a, On c bas il' early strategy Was ' I il llIlI Ilave I)('c n fil ed against the Grill, Sam \ Valton 's valu es of " Made in A meri ca" and
to iJri ll,!!; Ili,w:olln( storcs to c iti es o f rou g hly SO,OOO p eople, th e largc di scoIIIII « ',' 1/('('[ lill· the ini1i vidwt1 " see m to som e a llist<lIlt m e mory.
sto rl'S o/' thl' day We ]'(' fi,l!;hting Icn prim e spots in large c iti es, Wal-i\'L ut had th(, 1\';lI-I\1,lIt al so f ~lces so m e more intangibl e con (;('~ Ill S, B ecause it control s ove r 15
.<e"" II ,' ,. '" H "'po/it"" °
I it" ,/f. Se,',,,,, l. he"" O P
''' m, or 'hp /""" li 0" or it., p" "',
(-~lllpl()Yl'e
I " 'I ('('II t 01' all non-suiJscliph o)) magazine alld video/ DVD sak,s , so Ille Fear t hat th e firm

tll(.~
sto r('s '"ld its Ile:ldI Jllar(-ers site, \Val- LVi a rt had : 111 cos t ad V:lnl'ag(" f'ron l to" \ II ')1I>; :Ill IIIl \Vt~ icon w an d arhi tra rvJ ill HU e ll(;(~ Oil Cli Itu rl:~, \ "'al- ivhllt ('Ieds to stock sOlil e
1'0 I)ollo ll l Third , I)), Sdti llg lip di,<.;[Tibliti OII Cl-'lIt(" rs, \Val - M arl' from OlltS('/ 111. 1~:I/, il ll 'S \Vhile h anning or hiding th e co ve r s o f others (<I nl ';II'I), n,d<pd wom an o n tIll'
ga i il('d " Pl'r: lti o n;d ,lIl ei log ishl' i'ffic il"llci l' s, O VLT l'illi e \ Va l-1Vlan I'('/c' ntlessl,l' iilno­ (J rt~olli l/g Sl o ll t' is accep tahl e, hIlt IlOt on til(' front of G Z(fl lLrJll r alld
op(~ral'ions crl~al('
" '\ ( ' I' Hn l/)ook ), and
\'a tcd i ll wa reh llii sillg , IO,l!;ish l's , il lfcJrll'Iahll 1l 1'('T h no logy, and 1'0 II ,, ' I/~ Oilly vidl'os l'hat llWt'i' {;ull ily.fri endly standard s, A s a reslllt, somc Ill ovi e PI'O­
111 ir'lS
pl 0 1'(' :lIlI
likelmo)'('
1'& (; , s<l ving " , [ ,I pa rt , th i" illllOV:l ti o ll \Vas d o ne in p artll e rship w ith SliP _ , II/( '(' rs hav(' f(Olt compdl c d to creat e a " \Val-M art versio n" or tlll'ir Film s, Filltlwr, \ -\lal­
" ,I rl 's Illarket power is so hi ,!!;h that sO lne pcopl e I(.'ar it has all in ordinat(' iIl IlIlI'IlC(OOil
\ Va l·i'v'1:u,t cO litillll r'd to p ro spe r a rtv r 1!:J!)2 w lwn S:llll \Valtoll pasS('d :!way
I 'Ill( Il l('t tI( 'si gn (fc )r l'xamp k , a parti c illar desig n d i I'ectioll Illay I)c dI'(,llIcd h v \ -\la l- M art
Alth o ll,!!;1 1 his stl'ategic (/ :l i l' allrl COIlI Wet-ioll with ("lIlplo)'ecs and l'lIstOIll (' rs \Va"
,I', 1("l co~ lly {CIl' its c ll stoln l ' !'s), Tn a wide vari(>(y III' p rodlld ,m 'ilS, Illallillildll!'el's C:tll ­
Illissr'r/ , Illdlly 1)1' his i(lr '<ls hw l iJ('CI)(ll<' illSlil'lltioll ,di /,('rl. A,c;e;r(',>;sivr ' IIwrcllallr/isin,!.!; 11111 :tl'/(Jr(l t o devial'( ' {'rolll sp t'c ificatioll s sl'l' hy \ Val- tvLllt ,
h lit.' "'" 1''''''''' ,tI "."0';,,",' ","I ,/ '" I""",,,'"'' W' 'e'" ", "".,.,,""pi<-, 't'"",',,,,,, 1''''' \Val-Marl has plallS to expand dramatically <IS th (' rirst d eca(Jr. or th l' (\vr-~ n(y-I-irst
w"., " """.,
(,1Il'<,.,.tailllll(~lIt
01 t1 " , \I,tI- M, ,,' I"oit Ie. I" '" I,,; tl 0" , II"" " 0" .. ,, " ' gy ,,"", "g "' 111/11)' continll l'S, Th c prim,lI)' vehi c l(' Jf)r this g m w th w ill Ill' \ IV,t1-ivlart slljle r­
" /1 I 'tailtailllllr '1I1 ," illc/lldill,!.!; li l'(' l'OIiUTI hro<lrlcasts ill th e hrJllW " 'Iilns, orte n loc<lted in Illalls w he rr' sit('s are " v;Lilahll' at (li sl'i esscd pric('s , I'acl '
tI, '1" "'""'" I.' . ".« 1".';V< ' I""""'tlo,,,tI e",' " I, '" ",,,I ", h; it it, h,
/0' "/ ,,,~"" 'm il,,,,,
0 0, ,, 1 "" /, '0 " , /, ''' ' ' '.' , /, '\ " 'I' 'l.olli II g iSS IIl-'S, and p rcc ipitall' less IH' ighhorhood opposi tion , Th e ohscssio n
"''I'' ;h ' " '''' I'" til ; "'0 I";"""'-'" /,d 1"""'''',w"I< '" () r Hoy dog ' 1I 1h low pricl"s, costs, and l' l'R c i t' IH.')' w ill 1I0t c hange, 111 filet, slipp licrs have I)(-'( 'n
{()or! (\\'I, id l "'IS SIl IV: I.>;sr'r/ )' lI r ill<l a" t h(, world :" to p -w llillg dog (C)()r/ ), \V llite C lolld ',1 \ (' II a deadlin f' to ;lttac h radio- I'relllwn cy id c ntifi ca(io n tags to all packlgl's and pal­
ti " Sll cS allri ciiap(' rs , il lirit'lll' S,lIll :, C ll oil'e alld (; I'{'<I (' " "h I<' prodll ct lillI'S, 1,'l s ill orde r to l:rr' ak a n cw l(evl',J o f' clTi c iel l cy Th t~ r(-' w ill h l: a cOlltinll etl l' "ljll! :IS is
L ow pri('r'.'i a lI<I cost crlll t:lill lllr 'llt hil\'(' cOIll'iIIlWd to b(, th (' 1()c ll s-SOIIl(' silY til(' 1111 I II(' g rowth or jll'iva l'('· la!Jr·d good s, w hic h \Vl' l'{ ~ I'stillla tl' d to rJ' prCSle llt 20 pnu 'nt

"~g'e.,­
ohS('ss ir lll _ Ot' \V;t/ - \ 'iart 11 1<l ll agc I1I l' lll'. Thr ' l' lI stolll e r p ro mise ' or "Low PriCl"s, "I W :d-Mart 's sales ill 20( n, A prog ram to Ilpgrarl e Salll \; C llih hy adding ph ,lI'Iliacy,
,\Iw".',· tI ,.,,, '" II", '" II, " .. ",," 1/ """"'''gy S" ppl;, '" '" ' ' "0" tl" uo", /y "''' 1 "I ' lieal , o nl'-hollr photo , hl el , and othe r S(' rvil'l:s is IIIHle !' way.
si,,(' ly l' hall('I1,!.!;('r/Io r(' d II l'( ' cost,>; , \;\Ial-Milrt w ill , ('[' d(,I1I <1 /ldill g cost rv dllctioll g oals.
Oil Ol'casioli slimvill,!.!; .'ill pplil T' how ['0 ilclJi('ve tlll'l ll, 0p('T:ltiO/l S ill'l' COlll'inllolisly
1I1:lr/r' 1111 )1'1' cI'fic i(' n[' Til l' r( 'S IlIl'ill,e; l'os t sa vill,!!;.'i , 11'(' paS.'il' ri on to c li stoill er s, as \Val ­
M <li'l' dill 'S /l ot Sllp)lo rt .'i lippli (, I's' prr ' lllilll ll -pril'l:' hr;llld p o lic ies, Tl w firm s pri vate­
FOR DISCUSSION

i tself~ first
'al )(' llillr's aI'( ' 1){ll 'lI S() ll rl' ('d dirr 'dly rrom {CJrr·' ig ll 1;lctori('s, I T(' atilig sig llificant cost
( : J'( Jl' l~l)' stores and gl" nl Tal me rc hand isc s l'()rr~' s Inll sl' l ook fC )I\v ard to Illore ill l'c nse
W"-:III l':lgr 's ,111(1 disrllp hll,!!; pril'v 1l0/Tns i n m<lnv ca tcgo r i('s, \iVa/- M art vit'ws
(,I, all en gcs {'rom \Nal- M art in th e f lltllre , Sil c h Firill s n eed to under stand \ Val-Mart
'''' '' "" e '''''.,1. '"
tI '" e" "0,"""
I" "'"h",;
"g "ge" I , ii" gu" / ;,
SOln e ('stinl :l t('S , \ Va l fvL lIt sav('s ('() IISllln('T >; $20 ' )illi o n a ,Y(Oar,
,m" '0 'e,h"e p" cP.,. fiy " lid II<J\v i t cOlllpl'l'es, \ V hat \Va l- [V[art strakgies It,d to sll ccess? \N hat wus ('Iw rol e

\<\Ial- \ 1<II'/ has significan t dl' IT<lctor s :IS w(-' I/ , Ont' sl'l' o r SllllllllariZed ill arglllll(~nts, II I' Sam \N" l to ll ? \ IVh ,lt is tl)(-' company 's Jjkely f lltll rt' d irection l w yond its sb lted
a I3IfSi li ('ss I V('t-h- ('( lVI 'I' sl'ory Ijll l'sti Ollillg \Vlwth(~r
\Val-Malt is 1'00 powerftll, relate to illlr ' llti o n s '~ \Voliid it m ak e sell st' f or \ Val-Mart to ext('nd its hrand illto staml- aloll t'
grol'l'1')' storI'S (su ch as Safl:w ay) or con venie nce stores (f()I' r~xample, 7-Eleven )?
johs, \\'al-iV1<lI·t has h('l' ll accll Sl'd o f' hasl'ellin,!.!; th e illove o{jo/Js ahroad, as ils fC l !.' on
('osts I(' d th (" l'OIllP,lIlY to hlly over * 12 hillioll in goods !-i'OIlI C hina alon e in 2002, CI SOIll (' Con sider tw o cOlllpe titors, C ostco ,wd \Veg ll'l<lns , who lllu st desi gn a strategy
1''"<:'11 arg ll l' ['hat suppliers, in onl(~r to nll'd \ Va l- Malt's cost t:lrgds, ar t ' f(lrced to Illov(' Ih at wilil carl to Sll ccess in th e \ 'Yal -Mart en vil'Onm eli t.
j o hs to C llin a and ('ls(Ow hl" I'l' , .in :ldd ihon , it is esl'illla ted that fi ll' t'W I)' sll jlr' I'('r ' lltn t"'l1
\Val"~1:lIt Ojll' ns, two sllperlll,u'kH s wi ll d oSt', IVlwll \ Val-Millt W('lll illl " ()k/;dl () IIJ; 1 \Vc gmans
C:ih~ (~x'lInpll' , t ll irt\' SlJpl 'l'Illil rk( ,ts c losed , B (,l':IIISJ' o r till' 11I,~s () 111I(',,1 1.l lsill( ','i-'I '"
(f))' '1'1 1<'('(' :II'! ' ,'ii , ,, - li \'(, \\ '('g lll"'I ' I' o()d Markds in New York , Penli syl V<lllia, and
1I1;1I 1v ('IJ lIlIll llll i[-jl's Ilil V(' n's isl'('ri \Va l-I\'I:II'/' \ c ll/n ', /'\'(') 1 II" , .i"I " 11",1 II ':" \1,111 ;l( /ds 1\/;11 '\' 1:111 <1 \VI ',! ~ l lIil Ii S I,' )".;,/,11\ ' wil " s; dl 's ill ~ (J():3 01'$:3,:3 hill ion (lip!) p er cent fro m
11((' I" iUI ' \I 'i1 r ) ;11 1(1" I ,, 'r:d ll l \.' 1' , lIl l ill ,! ~' :l1 7 ,!l 1)('1'1 '1'111 , II ()w('\ 'I ' I', tl lirtY-ll iJl r' ol'l'Iws('
 138 Part Two Strategic Analysis

~ton:.'s ar e within hventy miles or ,I \ I\lal-Mali Supercenter, an d cxpall~ion plallS ill

Baltimore and Washing to n , D.C., involve more cOlllpetitiOIl w il·h \VaJ-J'vIart.

1. \"'hat are the strt'llgt hs and weaknesse.\ of\Val-M art fmm the perspec:­
li ve o("\Veg lllans ?

2. Are there market wgnWlll's lhat would he attracted to \iVcglllan~, alld

are they Lug, l'nol/gh 1-0 Sll[>POli- ,I v iahl(~ hmillcss ?
:3. \ Vhat
4. \"'Ii 'lt
strat(-'gie.\ shou ld W cg mallS avoilP

stratl~gi l~.\ w ill allow \V(-',u;mall~ 10 thri ve or alleast SIIIViv(' in the

~~~~~~~I-~~~:;:-I~~~~~~~

f~lc:e of\Mal-Mart's strl'ngt hs? How .\ !Joltld \VeglilallS l'xp loit HI(-' \Val­
Mart re.\ l'lltml'llt / ~IU-or?

Costeo

Costco .\ lartl'd ill J !:I,C) .! , jll ~ t a 1('11' Yl', lrS hl'/i)I"(' Sillll 'S Clllh appeared . J[- lwei I( 'we l­ ALTERNATIVE BUSINESS

stores lhall Sam's Cllih (:3 / 2 com p arcd to .5:32) IlIIlillOfe sales ($:34.4 hillion IT ISI IS
,III ('stililated $:32.U I)illioll ) I)('callw tll( ' <l V(' I-age Costco sl-ore gene rates Iwar/)' dOII­ STRATEGIES

hie Iii(' 1'('\'('1 111( ' or <I S,II II\ CIIII>. Vlllike Sa lll ~s Cillb, w hi l' h /i)clls( 'S Oil price,
( ;ostl'O oni'rs IIpscale hralld s like Callaway go lr c llti).\ , Starhl leb COUiT, and
expcll.si ve jewelry, <llid tllll.\ it altrads a dil'li-rent killd 01' slloppeL Sam 's C ittll i.s
al-[-eilipting 1-0 aU.tc/.: Cml-co 11)' add illg I Ipse-a le hrands ;lIId illtegratillg 1l10f'(' closdy
w it l I \Val-Marl ill oni('r 10 al'iliel'(' III Of'(' hlly illg power and logi ,s tical eiTi('il'nci('s,

1. \V!t;tt <Ill' tli" .st r"llgtll.s .lIld w('dk IICS S('.\ or Saill 's ( ;illh rmlll t i l(' p( ' rsp<'l:­
Ii \!(' or Cosll'r)?

2, Arc titcf'(' Illar/wt sCglllCllts tllat wOlild he attraded to Costco, and are
tliey largc l'IlOllgll 10 sllpprllt a vial)i( , iJll.';ill('.s\?
:3. I-low ,, !tolrld CO,\ tl'O n" let- to t-ill' I Vai - Mart t hrcat?

SIIIIU:I'S. \Va/-wlart, Cost('o, alld \VCglll'IIlS cOlllpa ll1' \'1',, 1> site's ill 20():3 ; \\I,d-rvLII'I' <1111111"/

rq)o i't I()r 20()2; Alit/lOll\' lliallco alld vlf(,lldy I:l'I/II('r, " Is \Va/ -Marl Too I'OI\'('f'I'III ;J" !JlISill('\s
1I't-i·k, Octo/H'r 6, 20():3, pp. 100- 110.
 C II APT I': H L': I C II T

Creating Advantage­

Synergy and Vision

versus Opportunism

I, 11 11' is tl,(, an or sceill).'; thill )!;S illvisihl('.

,.olll l/l(1/i SIt 'iji

111'"l'll call S( ' (' th(' tadics wherehy , (:01"1"('1', hilt ",llat 1I01i( ' call S('t' is the strdtq.!;\' Ollt or
1\ Iiii' I, great vidOlY is ('volwd .
.\/1 11 T:.:..-u , c:llilw.","( ' 7I/ilil(fr~/ ·') fr(l{('gi.\ 1

1 )11 11 ' [ IIlanagt' , I('a(l.

'0,./; \\Irk/r, CF

o
', II
lIr atte ntion now shifts frolll :,;trategic analysis to the d ev(·dojlllK'llt or a 111Isinl'ss

:Itq.;)'. \;I,II"lt strategic all e l'llatives sltollid he considered? vVhiclJ Olll' is optimal;)
'1ll('s(' qlle stions will he the IlKIi S of C hapters k throngh 12. On c goal willlw to p1'o­
\ II II' a wide scope or available ,strategic alternatives ill order to increase the likelihood

11,011 Ihe bes t choices will be con si d e re d. Even a poor decision all10ng slipe rior alt(:'r­
lI :di ve s is pre le rabl e to a good decision "" nong inrerior alterncltives.
This chapter Cliscllsses the concept and c l'eation of a sllstaillahle cOl11pditive
:,, /vantage (SeA), the key to a sliccessful strategy. It th e n tl1rns to th e challe nge of
n(',ding and It'w r<lging synergy as one oasis J(.>r a SCA. Fin;llly, two vt' ry din t' re nt "
111 1I[('S to de ve loping winning strategics art' prese nte J: strategic vision and strategi c
!I
1l11jlorllllli.SIll. Chapters y, 10, and 11 disc ll~ s a vari ety of strategic options, inclilding
'I";dilv, I(H'IIS , vailI(', illll()\'<ltiOIl, and he ing global. Chapter 12 th e n introduces strate­
.! ~i (· jl()sili()II- -111l' hC'l ' ()J' III(' i)!"illl 'SS stratl'gy. both inte rnally and e xte rnally. In the 1\

' ·11

......-. ... _. " I(·,,-'" r';·1 """" "",!"
,11 ·, 1" ,, '111'" ,,11/11' /,,,,,L . (:/I:'/'I<', s I :; I I . :1111/ I : , '/"., II·.·. 1" ,'\1 1/,
s' Ttio l1 ('Il\'(' r, (lr,~ ; lIli ·;:; tli(lll : d i.".' II( 's.
THE SUSTAINABLE COMPETITIVE ADVANTAGE
A s clefin ed earlier in t his book, a sustainabl e competiti ve advantage is an ele n lent (III
combinat ion or el enw nts) of th e bu sin ess strategy tb at provides a m eaningfid ,ldvall
tage ove r both existing and fi,tufe competito rs (see Figure R. l) . \Nal-Mart has a ('0.,,1
aclvantage h ecall 5e of' its scale economies, market power and logisti cal e f'fic ie nci( '.\ .
valu e r eputation , and site location asS<:' ts. South wes t Airl ines has a Fun p e r s()!l <dity and
a point-to -point nlodel that proVides I-()r con ve ni c nt , reliahl e, IIn c()llIplica t(-'(l trav(· !.
D ell C ompute rs' e f'fi ci en t di rect-s ales mode l l1lakes c llstOl1li 7.<:> d C()lllp nters easy I"
order and Sl-'rvicc and ge lwrates p e r sonal contact w ith D ell p eopl e
An Se A nee ds to he hotlJ m eaning hd and sllstainahl e. It shou ld IK' sni>st<l llti;d
enough to mak<:> a difl(; r<'n c(' ; a marginal supniOlity in quality. esp ecially w h(, 11
" goocl " quality is good enough fi)r most c usto11l e rs, w ill not ge n c rat<:~ an SeA .
('/'"I"""~ ('" .. " " ', ' ,/1 .. ", " ,:" , "!I ""' ::' I! 1I1It! , 'i s i u l I ' I " 'S Il S ()/ ' {I , I/(lIlIi s lII 1·1:1
,.I'·:tl' ·.! '.i,·,-;. '1'/", lill"/
I I H' Ba ..; is ur ( ;Utll P t'i il iOIl : /\..;.,(,'l s and C ompetencies
I I" ,(\Sl'" ;lllIl ('olll!lt'I I 'IWil 'S oj' ;111 ol'gani ';:,ltioll rcpI'I's(' lIt thl-' 1II0st SLlstain ,lbl e el <::' ­
III> Iii IIIa i>'lsill(,ss sll·al q .';Y, hec;lIl SI:' the se ,Ire Ilsually dil'fi cult to copy or coun tl:'l'.
II" 'I ' "110 poillt ill pllJ'SUill g a (juaJity strate)..,,),, for example , w ithout th e d esi g n and
III 11 111 hi'll Irin g competen c ies n eed ed to d eli ver (l'l,dity products. An yone can try to
.11 1111)lil (' ('( ' 1'1 'al o r dc tergent throu gh snpennarke ts , hllt few have the competencie s
III I, H ,lsi ies, sh ell ' space m ,l1lag(-:nw nt and prontotions or relation ships w ith chain c:-.:ec­
11 11\1'" lltal Ill<lkc prodllct di strihution e f'ficie nt and e FFecti ve. Sintihtrly, a d epartl1ll'nt
IIII' 's Il ('('lni II II I- s('i'\' icl' posi tioni ng sl ratcgy w ill not SlIccl'l'd II nl pss the ri ght people
1 11 11 11111'(' ,t]'(, ill plaCl' alld an ' sllpported. \Vll() ;'ou ar (-' , in other w ords , is as imp()r­
1111
t.ill l .t ~ ",llat VOIl do .
,\ s di scll ss('d ill Chapt(' r 4 . S(Jv('ral (ju t's tiol1s can Iw lp to identily rd cv,ult assels
11 11 I ('(llllpd(,Tl c ies . \ V hat an·' tl K' key Inotiva tiol1 s or th (' Illajm IIlarkt' t sl'gll1l'nls'~
II 11.11 ar(' tl,(, Ltrgl' vait(( '-al hkd compollc n ts ? \Vh ,lt ar(' tl1<' l1Iohilitv harrie rs'~ vVitat
, 1" III"llls or th (' v, tiue chaill can g(~ l1erat(' an adv< lntag e ? \ Vhat assets ,md cOlnpd( :n­
'II " :ii'< ' posses s('d hy slIcC(' SS I'1I1 hIISill ('Ssl'S and Iacki ll g ill III ISll C(;( 'SS rlll hlisilll'SSI'S?

M("anwhi le, sll stainai>il ity ( in t he ahse nce or

an e ffecti ve patent) uw an s that all\
ad vantage need s to IH:' suppo rted and e nhanc(~d o ver time . Th e re needs to he a !nov
illg target f()r conlpd itms . For eX;lIliple, C ill d l (-' maintained ils tec h nolog ical sllpc ri
""al Yo u Offer-The Value Proposition
\11 (.ITel'li, ·(' seA shOidd 1)(' \' isil)l(' to Cli stoili ers alld proVide ()I' ('lIhalll'<' a vah l(' posi­
ority ill r,vms over a lon g tim e p e riod w ith in llovation al'te r innovation makillg
11 11 11. '1'1((' k('v is to lill" all SCA w itll til(' positio llill g ()I' a hn silil'ss. A prmlllct\ rl' lia­
copyin g its conll)('titi v(' ad vantage difR c nlt.
1,, 11 1\ lil a), lIot 1)(' aJlpar('lIt to Cli stolll('rS , IHlt iI' il call II(' Illad(' visihll' tlll'oll gh

An SCA w ill in I)arl- depend on th e I'linct ional strateg ies and prog rams, ho \V YO li
Ii h I,rtisillg or prod uct d('sigll . it C,lll slipport ,I r('liahilit v positiolling st r 'lt( ')..,'}'. tvLlytag

conlpl't('. "V,II - Mart's di s(;()lln l- store, S01lth w(' st 's point-to-point system , and th e Dt,1I
direct-sal( ,s III()(kl all have s e A s based in part on t hei r f'lInctional strategies ,lI1d pro, " . . 111 ( '~<\llIpl(' o r ,I fil'lIl w hos(' I'l'liahility posili o llin g i s snpl.)orll'd h y ad""rt isill g that

grai li s. In t l,('s( ' caSt'S ami oth (, rs, however, an cr-fec ti ve SC A w ill al so in vol V(-· othe r ' " lI lI lIlInicall's til(' SC i\ pmvid(,d 11)' its prodlll,t d('si g ll ,lIld pnrO'-'lIaIl C('

,\ rcplltati()11 1'01' (k l i" l'I'ill g a valll(' pmpositioll Clil 1)(' ,I 111<)('(' inl[lortallt "sscl

asp ect s of th e b'I SilH'sSstrate)..,,),- as sd s ,\lid cOlnpl'le ncies, th e valn(' propositio n . alld ll
t he se lection of ti, l:' product market . iiI. II I Ih(' sllhstalll'(, tit ,lt IlIldnli( 's th at r'1)llt<ltiOiI. 1\ 1)llsill(' ss "' ith sli c h a r('pntatio

, III Ltltl ' r i'or a timl :' ,IIHI th (' IIl,lrkd w ill (' itl 'lT IWVI ' r IWl'olll (' aw are or t il(' w ('akn(' ss

' " " 'ill I'orgi v(' thl' ririli. COll\'l' rs('l y. cOlllpdito rs olh ' lI have a 1I\11ch t'<lsi('r tilll l ' ill

1I 1:li el,ing til(' Ij ll <llity ()1" pnlill'lnallu, 01' a III<lrkd olf('rin g tlwn it con vin c in g CIlS-

The Way You Compete 11I 1I 1('rS that it iIHk(·,d has (l Oll( ' so. EI1l1llring i l1lpn ,ssion s lik(' th ese are \V hy a " is ibil'

/
• Product strategy I ;'\ 11 (' proposition that is ,m',lll in gl'," to c ll stoml'l's is str,l tq!;iu dly v alll 'lhlt' .

• Positioning strategy !\ solid v;dlle proposition can rail d- a key in g redie nt is missin g, Procter &

• Manufacturing strategy
• Distribution strategy, etc. ( .. lIlIhl( '"s Prin g,,"s potato chips had <I host or ,ISSets , sucll as a con sisi"l'nt p r()(lll cl' , 1()lI g "
-
~

"lll' lr lil't " a l' rtl sl lprooi' contain er, alld ll<ltio]1 ,d d ist rihllt ion . Th e prohle ll l was that
I l l('s(' attrii> lI tl' S \Ve rI-' vallH.'<1 Dill y il- the tas te \Vas p e rce ived to he good . As a r es nlt ,
Basis of Competition
• 'Assets and competencies
_ n
I 1'1illgk 's ahilit)' to p ("l ldrate tlw snack nlarke t \Vas limited ror IIIIti1 it n l,llk d(~cades
n
jl , og r< 'ss in I('nns or hoth actllaJ and p er cei ved taste . K i ngsl'orcl C h arcoal Failed ill th e
11:11'1>(''1 ( ' salll'(-' nm rket simpl y l wcall sc tl1('re w as Il O rooi1l fi)l- ,\ thi nl t'nt r ant ill the
What You Offer 11

• Value proposition l'I'I 'lIlillill s('g nwl1t .

-­
Where You Compete
Whe re You C omp ete : T h e Product M arket Served
• Product-market selection .'\,1 illl1 1mLIlii dl'll ' rillill;tlli 1'01' ;111 SC /\ is tl1l' choi ce ofthe target product 111 <[,-](et . i \

• Competitor selection ' 1

~
\\1 ,11 .!, ' [i ' ll'd sll-, ti' ...." SI'l ' I ") II I '" I " :1S'w ls <11 )( 1 ('Ollllwt( 'IICi(' s call fai ll ll'C,lIl Sl' it does

II III " .,),1 ill II II' 111.111"11\1:1" " (1 , >1' \ \: 1\' 10 ('1'1 ';(1" 1I1;lrl-l'll l \;I(' (' V;I\'II' is to 1)(' l'I,I( '\', lllt

F ig lll'e 8.1 ThE' SustainablE' Competitive Advantage

 I II /'1/1"/ FIIIIT . \/ff 'llIflli, HII . .· ;lI f' ,,· ...· Sf/a/j " If ' 1 1:1
f'
(}II'I , /I'I .'; ( ' ,,'llflll " \ ,1, rill/a' :, ': ,1. ;, !/lIf·, . . ~ !I ,,1/,1 \ ;s i u ll I ('/ S II .\ ()I'IJflllllll is lil

to cllSlolll( 'rs, 1\., Ilol('d ill ( :II ;'II"'r !l, il cllI" ., III) ,1'.'"1111,, ,JlI"1 IIII' IlI'sl IIlilli\;111 ill 1/11 '
Ilwrkl'l il'llloSt ol ' v!)lIr 1;!I'g(' 1 ClislolIlI'rS 1111\\' \\':tlll 101,11\ ,'i t l\ ·s .
Th e scope 01' riH' hllsilwss also iIlVok(,.' III(' ici( ' lIlil v 01' cOllllldilors, S(lIll('lillll'S
;\11as~et or comp(~ te n c)' w ill /-(1rI1 1 an SC/\ (Jil l), g ivcll III(' li glli sl'l 01' COIII] w l'itors .
Thus, it is \rita] to assess wheth er a comp etitor or strategic groll[l is w('ak , atl('<{I1:1I(' ,
Of strong with respect to asse ts anJ compe te nci es, Th e goa l is to e ng age in a strat! 'g\'
that will Illatdl lip with competitors' w eak points in rel evant areas,
seAs Versus Key Success Factors
\Vlwt is th e din{>rt~ nl'l-' lX' twee n key Sll ccess Factors ( KSFs ), intro<illcl"d in Chapters :.!.
alld .5, and SeAs? A KSF is an asset or compe ten ce needed to cO l1lpde, An SCA i,\
an asset or competence that is th e hasis 1<)1' a continuing ad vantage , For l~xall1pl c , all
automobil e Firm 11 ('ed s to h;lv(~ adeqllate distri llilhon g ive n is husiness Il lode l ,uld
ohjec ti ve." ,'iO tlistril)lltioll is a KSF, L ews has til ril ed it., dealer netw ork i nto all SeA,
howeve r, l ll'c;lIl s(-' it is capahk~ of d e li vering a sillwrior Cllst01l1(' r expt'ril'n cl' , A K,"W
I() r vallie-pri ced l'conomy cars is th e ah ili ty to contro l costs in order to c reate profil
ma rgin s, TI )'wldai 's ah ility in this regard is Illark( 'dly sllpl'l'i o r to its comp etitors , alld
thll s it l )('coml's all SeA,
To 1)(' ~l w illn e r atpoker rC(l"in' s skill , IIc' rve, al1tillloll("Y In also requires a p lay!'r
III I III' I" <lirll ' I'(' 1I1 IILIII :I," ," I ', 11"11111 IIII' Sd II I<' IlIl o, ill ('SSI'S w() ldd idl ,"t i l'> ' I Ill' S;) IIII ' SC /b ,
111,1 III lilill Ilow 111;111\ ,'i( :/\0, \\'lIl dd II(' iti( ' lll ifi (' (1 lell" (' acll 11iISill('SS 'I'll(' IT SIH)Il SI'o,
, I' "lIdl ,(1 illio calr'gori( '.." 'I'l l(' ('('sidts, sl l nlmari zc d in Fi gllre ,').2, provi l k sOlll e
II """ ., Ii \( ' ills ights illl'o th e SCA con struct.
'I'l l<' widl ' variety of SCAs 1l1(~lltion ed , l'<lch rl'pre.' l 'nting distiner c(llnp(~ titivl'
1 (I'I" ", lc-Ill'.~ , is show n in the fi gllre, or course, th e li st did diffe r
hy indll stry For high ­
I" I, lirll ls, lor l'xample, naille recognition w as less illlpwtant th ,1ll technical sllperi()r­
01\ 1"'IHlli el illno v~ltion , and in stal led cllstom e r hase, Th e l]('xt two l' h i lptl~ rs l liscllss
I ", d seAs in Ill () n~ detail.
\llIs l (l r till' SeAs in F\~II W 1) ,2 rcH ecl assets or cOlllpdencil's, ( ; lIstollH'r hils(',
'1", "11\ rt ' ]1 11 tati oll , a III I good lI1 illlagl ' lllcll t and ell girwl' ri ng st,tll, I()r exalilpl e, art '
\111 , !l iI ' .~ S assl'ts, w h e reas Cl(stoll'l er servi ce and ll'cllllil'al ," Ip c riorit v Ilsl lall y in vo lv('
I " II I COlllpd(' ll cies,
I'1l 1" a sllh.,et or nin e ty-ri ve o f' the bll sin ess es im'ol\'( ,d , a s('cond Ili isiness 1I1;\llagl'r
\ I', Il ltiqwlldl'ntly intnview('d, The resi lit SI I g,~( 'Sts I'h<llill ililagers call itl( ' lltif ~' seAs
liI, a Ili gll deg ree o r w liahili ty Ol'th e nill( ,ty -ri v(' 11iISill( 'SS ('S, s('\'(' nt."-si\ () I'111l' 111 ,1I1­
1[" '1 I);lirs gave an s\Vl'rs that we re cod ed till-' Sail\( ' and nl ost or til(' otlwrs l " ld ollh ,I
~ li l ,I" diJ'[(,rt"IICl' in till' SCA list.
.\lIotl wr findin g is instnldi \, (,- hll.~ill( 'sS was
tlll' «v(' r<lg(' 11I1I1I1)(' r or seA s
pC I'

I . ,-'i , slIggl'stin g t hat it is IISll il ll)' not ,sl illi ci(' llt to hasl' a strat( 'gy on sing1l' SeA ,
to ;[Ilt('- Io pllt lip a c(' rtaill anlOulit of nlolH')' jll .~t ('0 ,~(;(' th(" card s anti engage' ill hl'i
;l

tillg. l\ KSF Call 1)(' ;111 allte in tcrln s or th (' III ark etp lace , C( ' lwl'ating a Slilwrior qllal,
ity C,II' Illay have' IH 'C II all SeA fcn Lexlls or to,/[(-'I'cl' ties and a POillt or ddTert'nl'iatioll
ill thc Illid-1090s, As Jagl"lr, BMW, allti Cadillac improve l'Ill'ir ow n (p,a lit)', thOllgll ,
tht' 'liialit\· di llll 'llSiol1 starts to 1)(' all att rihllt(, alilu xilry cars are ass llllwd to have, all d
111II., a KSF hilt Ilot « hasis fell' all SeA, In stl'ad or w innin g the competitive hand , a
KSF nll'wl)' hll)'S all org;lIli /a tion a seat at th e I'ab l("
In th(' brallding an~na , K eller talks ai>ollt poillts or parity (POPs ) and points or
diIT(T( ' ntiati o n (PO]), ), wh ich providl>additiollal in sight into this distinction, I PODs
al'l' strong, hlvorab l(:' , and Iln iqllC hralld associations h ased on som e attrihute or hell­
cRt assoc iation s, rkea, 1'01' exampl (~ , provides hom e hlrnishings at acc(~ssible pric('s
with ullilJu e' d esigll s and I», haVing Cli stom ers handl e and asselllbk till' prod ll d s, A
POP, in cOIlIT<1St, i s an ass ocial'ion that i s Ilot n(~cess«ril)' uniCjllc to till' brand, POI's
may Iwnl'ct's~,u)' to prese nt a cre dible offering \Vith a ce rtain categOlY, a,~ in the cas!'
of ATMs and con veniell t hours 1'01' a hallk A POP Inight also he d esig ll ed to negate'
a comp c::, ti tor's point of distinction. Snackwell \ fc)r example, seeks to create parity
w ith regard to I'aste, th erl'b), negatin g th e taste POD or its compet itors and le;lding
Cll stoll w rs to haw the ir se lection on Snacl(\\'elJ's POD ( namely, calorie and f;lt CO II­
trol), An SCA is analogoll s to a POD, w hereas a KSF c an he analogolls to ei the r a
POP or a PO]),
"Vhat Business Managers Name as Their SeAs
to,'Lllla,l!;('I'S ()[' 240 di~I' illl't 11iISiIH 'ss('S ill till' s( 'lv iu ' an (I higll-~I ' ('II ilitill ., II 'i(" W ('I'('
"""I'ti 10 IIdlll(' I Ill' S( :i\ S ol ' ll ll'il" 11iI Sill(',~S:? 'I'll(' ol'j! ,l't iv, 's ",, ' 1(' II I i<l"111 ih 1"( " I"('lIllv
"IIII,I(l\'('rI ,' i(: /\ s, 1(1 (',"ilil'lIl 111:11 11 1:(II;(,l!;( ' I".' ('(lI dd :I I'li(,ld:d" 1111 ' 111 I" rI('(''I'llI i ll( '
'," "I , 'I il11(,.>; a bll Si lli-'sS is descrih('d ill t!'rills o r a Sillglc COllllwt('lI cy or as sl'l , implv­
III', I ll at heing a Ij l lalit)'-ori tmtecl lll lsiIl CSS or a s('rv ice- I'o cII S!' d 1)ll s in( 's .~ ('.\[ll ;lills SII C­
, , ": Tlli .' stlll ly indic<lll's , h OW(>vef, that it rna)' 1)(' n c Cl 'ss;u,), til /i;1\ T .,,'v(' ral aso,ds
1111 1('Ollllw lcilc ies ,
"Iralcgic Options-Routes to an SeA
\ ', lI()t(,(1 ill C hapter J , ('\It' n giV(-~ 11 til l' sp('l'ificati (lIl o r a j>1'()(lil('t-lllarh ,t ill\ ('., t llll'lI t
1,1.111 , " 11ilsin('ss strategy w ill shll ill Volv(, cl l(,i(:('s that call Il s! ,rldl y 1)(' COll l'l 'I) llla li / (,d
I ,
,111'/ 1"I)('kd as ,~tratt'gic opt ioll.'i , AI/rol l' g i c O]>ti () 11 is a parti cl dar valil(' pmp()s ition fe)r
,I 1" '{)c!Ill't markH \vith supporting assets alld cOllll)('t('llcies alld I'IHll'liollal <In'<l strate­
, II , ,uHI program s, The valu l' proposi t'ioll ca rl ill\,o lv( ' social. (' lllotioll al and s('l f­
, \I ))'( ' ss i vl~ hl'nefits <IS w e ll as rllndional b c nefits, Most SllI'l'( 'so, rl il slrat('gics ill\'olv('
1111l f(' than (HI C stl'<l tcgic opti on . For example , as noted ill Ch apter 1, Vil'gill At\;lIlti c
\ 11\\'avs COlllhi lll'S <I valn c .~tratq!;y w ith olle hased Oil innova ti oll ;llld c ll stOll (('r illti ­
III :" > Tilli S, a strategic option is a huilding hlock I(lr ;1 hll SiTl ess strategy anc! ,I I>ll si­
111 '.>;\ stra ll·gy can l>l' vi ewed as a set of integ rated strategic opti ons ,
Vigllr(' H,:3 li sts som e or th e str,ltegic opti on s that wi lll w ck;cll ssed in t he cO llling
\ b pl('r.s, Ch,lptcr 9 will introdu ce th e <llwlit)' optioll , as w('11 ;IS oth ("rs w lakd to a
IIIIlc!lld <lt ITihllt(:', product desi gn , produ c t lin e breadth , corp or;lte soci iti rcsp o ll sihil­
iiI 1'1'<111(1 1': llllili<lrity. <lnd CllstOlller inti macy C l w ptn 10 d(' scrilws tilt' valu l', f'ClC I1S
,11 111 illl l()\<l li( )I1 ()ph(lIl s, allli Chapter 11 consid ers th e gloh,t1 opti oll in d l'laiL 0['
'"l1rS(' , (,;(,1 1 opl i(1I1 \\ill Il:l v(' 111:111\' \ 'ari ants dq)('ndill g on th e indllsu y and c()ntext ,
l 'I,i s li . . 1 is 1"11 1'1'11 111 ('11'"/ ,/,'11' , 11111 til(' dcsl'ription s of' th es!' opti ons w ill proVide
II ls i,!';! I I.., illi ll () lll(' r~ : I.S \\, ,11
 ( '111 / /"1"'\ ( '"'dl,,, ': \,/,d"''' ''' S~I''''' ;'' 'I''"'' ,'j" jtl>lI",,·,,·, (II'/ /(/I """ '"''
.. " - ,II ! ,,II-,. HU ',/ Ill ,( '. Ildld ' , · d l 'l

11. ).; 1. I. ,, " .'-.c ' , " i tT ( HII<'" 'Ii,tal

/
Quality
I. I{I 'I" I! ,Ii il)lI 1<)1' I I":tlil \ ': ' ; ~'l I :21 ) 10:)
2, (:"SI'IIII('I' s"t'\,i("';prod,,l'I S'IPI")I'1 ~ :) III I:") 7S
;3, "\<111 1(' I'tTO,l';llilioll/lliglt pmfill' ," 1:2 21 71

,
4, lktail1 good Ill<ll1agl'IIH'llt and 1.7 4"'J 5 (i,5 Being
C!ng-in et' ring starr Global
5, I,ow-cost protillltioll 17 15 21 5:3
6, Fillallci,tI 1'('SOl lrC(-'S JJ 26 14 51
7, CIIStOll1l' I' ori clltation/ [( '(' t1h'lck/ I ,),' :26 8 ~
/
llIarlwl r('''''I I'(,h Innovation
I:l , J'rodlll'l-lilll' hl'('atilh II 23 1:3 47 \,

9, Tl' clilli cal slll)(" 'iority :30 7 8 ~

Product
JO. Imtall .. d hast' oi' s'ltis ii[,ti [' (lSI OIlI(' I'S 18 22 4 ~ r '\ Line
11. Sl'f~III[ ' "1atioll/I(K' IJS 7 2:2 I() 45 Breadth
FocuS
12, l'mtilll'i cll;lradl'ristics/tlill['rt 'lltiati'1I1 12 1.'5 10 :37
13, ClJlllillllill),: pmdlld illllO V'ltioll 12 17 6 ~

14. IvLu'kd Sit 'II'C 12 J (~ U ~

J 5. Si/../ I,)[':tlioll 01' tlisll'ih(llioll
10 II 1:3 :34
1(i. I ",w pric, '/lligl,- \·,tI' ll' olf['ril'!.!;
() 20 () n
17. KII(lwll'ti ),:[' oi' 11I!.silll'SS
2 25 4 :31
1S. l'ioll ccr/"i1rh- "IIII';lIlt ill illtillstrv
11 11 () m
Brand
19. 1':I'[i['i['lll , iI['\ihll ' Pl'OtI(ldi o lt/
4 17 4 ~ Customer
Familiarity
lI!,natioll' i1t1apLlhl .. 10 C(l sIOI I 1('1'.'
Intimacy
20. 1':I'I'I,('[i\·[' ,,,II'S IlII'c[ '
10 8 4 ~
21. ()\['I';dl 11t:11-k!'lillg skills
7 8 7 ~
l : il',I II'e S.:3 Slr<ltl')':il' Options
22. SII<I\'(,d \'isillii/[,,,IIIII'('
5 1:3 4 ~

23 . Stral('git· goa ls
(i --; U ~
24. I'tJlV( 'rl'ld w[' lI-klloWII parl'lI!
7 7 G ~)
rilE ROLE OF SYNERGY
25. I "'C; I!'iOIl
o 10 JO :20
" \l II 'I',L'Y lwtwt'ell hnsilwss IIllits call pro v ide ,In SeA tklt is trill )' sllstaillah le
2(i. I': ITt 'cti\'(' ;Itl\'('rtisillgiilllag( '
.'5 () 6 17
I " 1'<111.';(' it i s hase d on th,~ char~lcteristics
of ;t rir11l that arc pro\) " hl y Ini'1"(' A
27. 1': 111< 'l'pri si 11)':/( 'II In '[1n 'II[ 'II ri;d
:3 3 5 11 I ' '"lpetito lI1i).';ht h ;w(:' to dllplicate the organ i 'l. "tion in ortll>r to tIl e assl:'ls C;lptlln~
2S. (:()od c()ordill alioll
:3 :2 .s 10 r
29. 1': !lgill(,( Tillg n 's{'arch ~\lHI d('\'('loptHt'nt
S :2 o 10 , .1 \'()'llpd(,ncies in v ol ve d.
!\ cow cl e m e nt in the GE strategic v isioll W;\S to achi eve sy n l'rgy acTOSS lllany
:30. SllmH['rlll phlll11illg
:2 ,5 S \'I I,ill('SSCS, :) CE's J;,ck \,yelch c all ed it " intcgratell di ve rsity," Th e co ncept w as that
:31. COOlI tiislTih'llllr n 'latitJll.'
7 es

2 4 l (; I': \l1lSiIl CSS call call on tIl e resources or th e firm a11(l of oth er CE bllsin ess to

:32. ()tlll' I'

(i :20 5 :3l
l'I I';[[l' ad v antage, For ex ampl e , th e SCAs or Cencrcll Electric ill the CT SC;\flller

Tol'al :31.'5 5:38 2il l 1, ]:35

I ,III X-,'~'y-h(\st'd Lli;\gn osti c systelll ) busin ess are in part hase,l on its l ead er sh i p in

l it<' X-r~ly hIlSil1t'SS , ill w hich it has huge in st;ll\ ed b;\Sc and <I large service net­

N lllIIl ll'r oi' hllsill('ss('S (is 11 :3 (i7 2,m

it
l\ v('ra)2:l' 11I1I1l1 H' r oi' seAs 4,():3 4,77 4. 18 4.5S II llk , "lid in part hast'cl Oll th e f act that it operates other husin es ses in v ol vin g t ech­

str;\te~y \lnder Lou Gerstner \Vas to neate syn e r[!,y hy

Figur'e S,2 SlIslain'lhll' ( ;o lllpl'titi vl' I\d valltag"s or :24.') 13l1 silwSSl's tltll"g i, 's Il se d in CT sC;\nn ers,
i\ l'l)l'IIl 'rstonc or till' IBlvl
\ \Ilsllill~ ('(liT 1( '(' IIII()II',L'.i( '~ ;I('I'USS nlOIT product lines,~ Th e inte nt \\I,\S to \evC'mge the

11 11\1 ~i /(', ~( '''Ic , "lid 1(,, 'llIl()lll~i( '~, This \isioll w as (\ L\J' ny from th 'lt of Gerstner's

1 .l't'tll '("'S~tl l' ~' Wll ll IILIIIIH,tll" I,t't'"k 11S

II I IVI IIJl into alltorlUl1l0 hllsin ess units, ,I
 I Pi /'1/11 /1111 '1'
\/1/ " Jlllli'l' Jill .\ illf · \ \ \I"lf, "'4 ' \
SOil)' ('\ lliOih III(' " \III'r)..':." Ill' ils 111:111\ 1"'11<1""1 """II'" 1,\ SI Ill\\(': ISill,'.!, 111t'111
togdll('l ' ill ston 's (, "('11 ;1.\ OIl(' Oil CLi('OIgo :, Ivlldli,!',: 1I1 :\ \" 11111' 1 :111(/ ( ' \ '( ' 11 ('II ';('\'('1',,1
C(~ lel)rity Cnlise "lli lls, TII(' sll ips arc olltfitt('d wi lli SOil\, ('IIII'II:lilllll( ' lIt pmdll('l s
includillg tekvision sets , lIlovie tlH'aters, and SOIl II(I ('qllip"I('III, 'I'll(' I'( 's ldt is all illl('
grated package that has til e clII nllJahve 'i 1l1pact of' r ei Id()rci IIg Son y" role or providi II,!',
high (illality and tech noJogically adva nced en te rtai Il men t.
Sy nergy 1l1l',tlIS that th e w hole is Illore than the slim of its parts, In tllis contexl ,
i t IlleallS that tw o hll sinesses (0 1' two product-Illarkd strategies) operating togerlH'1
w ill 1)(' sllpl'J'ior to the same two bllSillcsst's operating independe nt'ly III term s 01
Prod lilts , positi vI' '''yllt'rg)' IIwans that ofFeri ng a set of prodllc/'s will gellerate a hig hl 'I
r(-'tmll ovcr hill e t hall wOl dd 1)(> possihl<, ir each 01' tht, prodllct'." wc re oH(~red sepa
rat( ,Iy. Sim ilarly, ill 1'( ' 1'1 lIS ()f lIlarkets , operalillg a set of markets withill a hllsin ess w ill
I)(J ," "p(' r io r to opcrating thcln autollomollsly.
A, <I resII It of sy llergy, thl-' combin e( I hllsinesscs \Vi II have one or mort; of th e f()i1owing:
1. III (:I'c;ls('d c ll sto nl(" r va lli(-' ;tlld thlls in(:l'eased , ;dcs,
2. Lower operal'illg costs,
:3. Hl'dllcl'(/ in v('stlll(-'nt.
(:( ' I1('I'aliv the svncrgy w ill 1)(' ('all.S('(1 h \1 ('xp loitillg SOIllC cOlnlnon;dity in th t: two
0pl'rahOlls , SlIl' h ;IS:
• ( ;IIS/'OIIlI'rS and SO IIl('I'iIIl('" Clistoillcr :lpplical'i()n s (potcllt ially creatillg a ,'y s-
tl'IIIS so ilitioll ),
• J\ s"les /(m'l' 01' cll:lllll(,1 ordi,,,trilliition ,
• A 1>(,:lIl(ln;III1<' :ll1d ii's il1l<lgc ,
• Faciliti e" llsC<i I())' 111<111 ld;ldli I'illg , officI'S , 0(' wa rt' holl sillg ,
• H& J) 1'/(lIt,,,
• :>""1,,, and (JjH' ratill g s),st(" I1I.',
• Mar/.::elillg all(llllarkctillg res (-,<II'Ch,
SYllcrgy is not' diUlc l" t to 111Hlt'1'stan(/ l'OIICl'Ptllally, 1)111' it is slippe ry ill rractic(' .
, ,111,lhiliti( 's-l>,IS('d co IIllll' Ii ti 011 SII).;.\.!;<.'Sts thai' the key 11IIildillg hlocks 01' l>lI sin pss
ill part Iwca l1 s(" it cal1 1)(' difficult to predict w lH'th e r syl1ergy w ill act llaJly e mergl',
I l. d"g\' ar(' IIOt pro(hlcts and Inarkds bllt , rath('l', c()IlIpdl' ncics ill l)(l Sil1('sS
Often two I)lI siness('s S(,(-,Ill Idated , alld si/,a[) Ie potl~ntial sy ner,l,'Y seems to exi st IlIll
I ""('(""( ' S , ~ Ili vestllwni' in hllildill g and nl<ln <lging a proccss that olltpcrl(lrIns compe­
is Il eve(' r('ali /,ed , Son1(:'linw, th e p erceived syll er!-,')' is 11)crely a mirage or wis hl'ld
thinkin g, pnhaps created in the haste to pllt togeth er a m erger, At oth er tilllCS, til( '
potcntial syne rgy is real , hut impl e melltatioll prohlems r r event its r eali /,:lt i()II,
Perklps th er e is a cllltural mi,,,m,lt-ch betwee n /' wo organizations, or the incellti v(:'s a('('
ill ade(i llatc, The material Oil implementa tioll in C hapter 16 is directly relevant to 11)('
pmhlelll or predicting w h ether potelltial sVllergy wi ll h(~ re ;di z(-'d,
Mliances
()I":lillill,~ ill sl';llll s,'I(('r'::;V;.\;1 ,!..!:();d ()1 ' ;illi ;III('('S, 1':I;('ill !': ,\ I ( 1), ,,,,11<1 ', , \, ill, ' 1; '\;1('0 , 1(11
('\:11111,1(" II;IS 11('/)\;<1('<1 11 ';II'Ii(' :111<1 ;111<1( ,<1 \:dlll' Ii II ' ' l i' \, I"II '"./ """ ,Ii,I, , l' I<':lIi,,"s lill'
('lu fl"I " ,\ ('/" t/ (lIj " \ ,I 'flil/i/ ' :" . .\I/JI/·I ':~ !I"II" \ 'i,,, j/Jlllf'/' ."\ /I." ('I'/Hllflllli""" II~J
I, IIII II: <ltI < S"t.::;1 11:1.' 11 ,\( ,,1 :III ';II)('I',S 1(1 ,e:;lill ;[('('I',,,S 10 liI'IV ",('I II1()log), ;lIld 10 ('s pillit
I (1 ,'01" ,~I':lJl"i(" 1(,(,1,"(,1/),\',\ ." ,'i"g;II!:ISP;lrill('('('<l w itll j\'J'&-'J' ill COllllllllllic;ltiollS ,
H "
li d 1, lli ill ('hip', Y;IIII;dl:l ill S(II II I( \. .IVC: in g,IIII(' machine'S , and Mi croso f't in solhva rl"
\111:11(('1" ;1(,(, ol't('11 till' h'y to a sll cct'ss hd Intenwl' strategy. Y<lhool , AOL, and
\ 111 1/ 11111,,1\'(' 1lIIIId rl'ils of' major alliances and thousands of smalJ er one s th at CO Ill­
III IJ(' III 1((' lp th (, l1\ rcach their goals of dri ving InterneI' trafTic ,wei offering dilTerenti­
ii, ,I li d 11( ' 10 thei I' visitors, Chapter 11 , Global Strategics , covers th e difficliit process
" I 1'11 11 ill ,~ togl'llwr alliances ;1I1d joillt ventures and making 1'1)(011'1 work ,
( It .. " \.;scls and Competencies
\ III Ill 'S :lS,"('( or c() n lpctl'ncy that is capabl e of hl' ing the COll1petitiv(' hasi s or lll<lrl V
,I II , 1'I"ill('"SI',' is term ed ;t COl'(' asset or cO lllpetp nc), ;!nd e lll h e ,I ,'Yllergistic "d V;lII­
II'" l'r:lII<lI ;ld ;1fIr! fi all 11'1 SII ).;.\.';(' St a tree metaphor, in w hi ch the root s),St(' I11 i,,, til('
" ' " ,lSsd or COllljwtCIlCY, til(' tnlilk amI IIlajor lill1hs ar(' corc prodllCl's , thl' slll: dl('r
1'I.II II'I(('s ,11(' 11IISill(,,'" Ililits, alld the Ic:lv(~s ;! lId H()wl' r" an' ('IHI prodliCts ; YOII Inav
f
11,,1 I "' " )gll i/,(' t'he sl' rl' ngth of a CO lnlwti tor if' ),011 si IIlpIY I()ok ;It its (:1 1( I Pro(h lI:tS and
1 III In ('\:l llliI1l' til c strell gth 01' it,s root syslenl. COl'(' cO lnjw t(' II('(' reprcsellts the CO I1­
,, 1111 dilill or finn-wide' techllolog ies ;11 1( [ sk ill,,, into a cohen'lIt t hrllst, A COl'(' assd ,
11/, 1, :I S a 11ran<l Ilal1l(' or a distrihlltion ci1:t(11)cl , 11I('I'it,s il1\'l'stnl<'lIt ,tlill 1l1,lnagCl1l('nt
111 ,11 '1);1 11 hll sil1('SS Iinits ,
( ;(II I,,, idl'l', l(lI' l' ~alllpl(' , I'h(' core cO lllpdl' lll'il's ()r SOil)' ill nlinial'lIri zation , :3J" 1 in
', II' I ." 1;1j)(' technology, Black &- Deckcr in Slll ;lll nlotors, [IOlld;1ill vchicle IllOtorS <tllIl
I",'\ n traill s, NEe in s('nli condllctors (whi c h tllIdc rlic s its attack on hotll the COlll­
l"d"1 ;tlill C0 11l1111ll1icitioil S l>1I sinesscs) , and Calloll ill precision nl cchalli cs , fine
" I " II s, ;lI ld Illicroelcd roni cs Each 01' tl1<"s(' C()(1)pdl 'l1 eies IInde rli es ;t lal'g(' set or
1111 ,i l(('ss( 'S al1d has the potcntial to lTeai'e n\Orc, Each of tll('se ril'ln.o; in vcsts ill CO I1I­
I " 1" lIl'( ' ill" \'aricly or dillen"llt wa:"s al1(l COl 1i'l'xts , Cae ll wO ldd in " ist Oil k(,l'pill~ its
111 1111:11'\ \I'() rk r('!:Ited t() tl)(-, CO I'l' C() IIIPCli'II C), ill-ho","(', OlltsolJrcin g \voilid risk \v( ',I1,­
I I' III'.~ IIII' assi't , alld ('<lch firm wO l dd riglltrlllly ill sist th ;lt th ('l'l' i,,, 110 oi'II('r fil'lll Illat
"," I,l lllatc h its statl'-o r-tlw-,Irt mlv;tllces ,
( apahil ities-Based Competition
1II IJlII ;111<1 C UI he applied across i>u s il](-' SSl~S can Icad to a sllstainabl e advantage ,
11",('( ' li ll'l ', st l'atc).!:), deVl~l()plll ent IIlllSt identify th e mosl' important prO(;l'SSl'S w ithin
Iiii' ()I',~;1I1 iZ:ltion , sp eci f)1hoyv th ey should be measlln~d , iden ti 1)1 Urger performan ce
I. "I " rl'la t(' performance to <lchi eving supe rior CllstOlll e r valup and compditive
l. h ;III1 ;It.::(" al1(l ;Is,,, ign cross- f'\ln ctional tt'ams to implem ent th em,
()II<' sl\('11 11r()('('ss is 111( ' II(' W product d evelopment <md introduction process ,
I"I I,IIII'S(' :t11l()1I1()I,ii<- firilis liial 1,,11'(' r edll ced the process From five yem s to three
",,, 1" w llil,' 1I1:1"ill,\( il 111111'" lI 's IHIII,i\'I ' to th l' uceds of th e market h ave achi eved ;1
I,I,, ' !' "<!\:llll;lg( ', '\11(1111('1 ' i.. IIII' 11I;IILlgl ' III (' 11i 01' internatiollal operations , considered
,III S( :i\ 1,\ Ii )\' IIII' " I,il ii ', ',III",lIli:lI \ (,I ' (:1';111<1 Mdl'llpolit<l1l. Still another i s th e
 1;.1
Creating Ari P(llIillge: .'i'/I11·'-!!.!! (flld \';s;o" ,.,.,'.\(/.\ (11'IJ", ·flllli.""
150 Part Three Altenwtive Business Strategies Chapter 8

Strategic Vision Sll·alq.:ic OPPOl'lll,,;.'1ll

onler etnd logistics process in re tailillg. By J t~wloping dramatic improve ments in it~ Il n~:lnizatiol1al Characteristics
• F onv<1rtl-I ookill)!; • I.'rt ' >;( ' 11[
order and logistics process throug h distribution c e nte r innovation s, a dedic ate d I', "1 1I 'eliH'
• Trentls affe ctillg • Currcnt thr('ats ,11)(1
trll c king system, a nd comp1lte rized orde ring, \IVaI-M a rt develope d huge c ost and ' .! I.II q !,ic 0 11(;e I'tai Jlties
the futllre opportu I' iti( 's
inve ntory halJdlin g advantage s over its competition.
• Future sce narios • ChangE' scnsors
Developing superior capabilities in key processes involves strategic inve .stmenls I ( II II"(lllllll'lltal Se ll sill)!;
i n people and infrastructure to gain advantage . True proces s improveme nt does not • Fonv<1rtl-looking • Oll-lin<:,
1"I"IIIIatioll SyS tE'11l
o ccur witiJout control and ownership of the palts of the process. Thus , th e virtual cor­ • C01llmitl11ent • F lexihilit)'
, I, " 'II ['Itioll
poratiofl , w hich draw s pieces fi'om man y SOl Irces in re sponse to th e organi zational • Build assets • t\<bptahilil) '
task al hand , is not a good mode l j()r capabiliti es-h,lS(:~ d COillpetitioll . • Veltic,tI integration • Fast re spo llse
• C:h<1rislll atic • Taclical
I , .1I 1'·I·sllip
• Actioll oriellte d
STRATEGIC VISION VERSUS STRATEGIC OPPORTUNISM • Visiollary
• Centralized • ])('ce lltrali/.cd
Itl
There are tw o VCI} dilI(~ r<::, nt approac he s to tlk' d e vclopml; nt o[ S llCl"(-~ S" Jld strate;...;ie s I I lI'l llrC
• FI"id
• 'rOl) -down
and sustainablc cOll1petitive ad vantage s. Each C,\l1 w ork, l)JJt 111<1y require vcry differe nl • l': ntreprl' IIl' lII"i,,1
• Eye orl th t' ]"tli
sy.stem .s , people. and Cllltlire. Strategic I~.si()n takes a long-tl' nll pcrsp('cti ve ; the [(lClIS I" "1 ,1" • Scope ('(',)I,ol11i('s
I \ ~H HIlII\ <': f\d\ ' (lllt;.l~r
• Scaic l'conoll,ics
is Oil husiness strategies that are t'xpectc d to Ill' slIcccss hd ove r a long tim(' period.
• Strong S i ~ll (ds sent • SIIrpri se InOI ('S
Strategic OP]lOltUlli s lll cillphas i/.('s strateg ies that IIl<1ke sellse today. The ilnpli c it hdil,r ' -' ll '. II; l lill ~
to cOI ' Ipditors
is that the best w ay to have th e li)!;ht strate)!;), ill place tOl11orrow is to 11:11'(' it right today.
I-igllJ'(.' SA Orgallizatiollal Difl('l"cllc('s
Stnllegic Vision
To 1ll:1llag(' a .strat('gi c visioll s lI cc('sslilily, :I finll shOilid hav(' [(lIlr dl<lracteristics : "tI(,rlllatioli SyStc111 allll allal ysis dTort is thll s to IllidcrsLIlHI th e lik('l y ['Ilture (>lI vi­
lI'II11)('lIt . Ex perts who have ill sights illto key I"ntllre l' VCllts alld trclids c an Ill' ht:lpl'II1.
1. A clear future strategy w ith a core dri ving idea and ,I spl'cificatioll 01' the . d' 'Ilario <Inalysis, tcc hnologicell Fore casting, ,llIll trend anal ysis shol Jid Iw part of th e
cOl11pl'l'iti v(' aWII<I . f"lInctiollal arca strategi cs, val1il' propoSitioll, alld COIII­ .," ;Ii l's is phctsc 01" s trategy d l'vl'lopnlC'nt .
pditiVl' ,Idvantage that will (I d ille th e ll1J s il1l's.s. The organ i/.ation l1ee ds to he capahle 01" 1m iIdi ng a ssets Ihat lDay not lwvl' i111 nw­
,b ll' p,l/ O[r A top-down , cc ntraliJ'.ed s trllcture w ith ;1 rcward sys tem that SllppOlts
2. Buy-in throughout the organization. Tll('rl' sliollid he a beli e [' ill till'
ill(' lisioll i.s h e lpful , as is a .strong. c hari .slll<ltic le ader w ho can sell the visioll to relc­
COlTectlll'SS or tIl(' strat( ~)!;y, an accepta ncc th 'lt th e vi.sioll is ac hi(' vabl(' alld
w())thwhile . and a re al COll1ll1itnwllt to lIIaking that v is ioll happell. 1. ,Id cOll stitlll'ncies in s id(,~ alld outside the organization.
i\ visio n 0[' b e ill ).!; a syn e rg istic, tcchnolok-,,),-drive n finn has h e lp('d Corllill g
:3. Assets, competencies, and resources to implement tlw s tl'atq..,,), Sll(lllld ,1"1 (.lllp frolll a COIISllllll'r products Firm to a le ader ill sllch art'as a s fiber opti cs alill
ht, ill placc, or a plan to obtain thelll sh(lIlid he IIIHlcr IV,I)'­ Ii i \"ill-nystal displays.'~ Corning's strategy invol ve s in v('s ting 11e 'lvil y in tl'l'hnology,
4. Pat;ience. Tl w rl' shOidd Iw a w illingn ess to stick to thc strakgy ill tlw hce ,.II;Irill g tlw tec hnology al TOSS husiness lInits , and I"onning teclinolog,), ,Ind 111;lrketin).!;
o[' c olnpetiti ve threats or Cilti c ilig opportllllities that wOlild div(,rt ]'('sol1rc (-'s .dli ;lllC(>S. Th e goal is to leve r'lge technological d eve lopml'nts to nl<lximi',cc th e impact
fro 111 t 11l' vi ., ion .
," I II 1( ' ",hok org'llIization.
;\ strateg ic visioJl C,1Tl bike many k)J'Jlls. Jack \Ve 1ch of GE had a visioll of Iwing
A strategi c vision provide's a sell se of Plll1)()se . Satllm's COllllllitnwllt to bl liklin)!; ti l<" Ii rs t or second lar).!;est compe titor ill e ach business area ;md Iw dralll,lti c ally
a w orld-class c ar and wspecting cllstome rs ' intellige nce had th e potential to inspire. , 1" "Igl'l 1CE ,IS ,I res ult . M e rced e s, Tiffany, ,Inc! Nordstro1l1 at on e point were g uid e d
In c ontrast, it is hard to g e t e llergi7:(~ (1 to increase ROI by 2 points or sal t,.s by I () per­ 1,\ .1 I isioll of h e ing the b e st in their fi e ld in term s of deiivc:ring fJllalit y produ cts and
c e nt so skwe holders will b e w ealthi e r. Strategi C vision also provides th e rationale I()!' ,, '1I i('('s Th(' v ision of Sh<l11) is to Sllcceed by Iw in).!; a technologi cal illnov,ltor, t'Spl~ -
investm e nt that may re quire years to achieve a payoff Th e ability of C ostco to stick , I. d k i I\ optoe lectroni c t echnologi es.
to a pri ce-value positio n throu ghollt its ope rations is on e reason it h,ls d evelop('d
efFec tive programs a lld resources. SI nll q~i(' Slllhhonllwss
~/lan ;lging a st-rategic vis ioll rC<[lIin's it c('rtain kill(l (J[ ' org:llli z: llillli ;,,1(1 III ;III;I,!2,( '­
1'1,, ' ri , k ,,1'1\11' s l r;li, · ,~i( I i:;i,,, I I ,,"l ('. ;t.' sllgg('st('d h y Fi g ll re S.5, is that the vision lllay
111('111' .,tvl( " as SI1111111;lri/.('d ill Fi .~l"·<' S .· I. ;\,tr;ltl 'gi(" vi.s i(lll i.s 11;1S,·rI """ 1;" '11"; 11 (1 I')(lk ­
1" . \'; 1,,11\ ;"Irl iI., 1'"1" ,, "1 "1.1\ I,,· /I \\,: ,,1 ,· 1'111 I·.\I'l"("is( · ill str,tll 'gic stllhhorl1l1l'SS. There
illg, l(lll,~-I('I ' II1 Jl(' rs pI 'clil'(' IIII' pl : lllllill.~ II()I·i/.(III " \ II 'IIr1 s illl" III,' 1"111"'1 \\ ',, . Ii I , ' (".
.11" :1 \" ,, 1 (,j 1,,11':dl ', 111 :11 I , }(d,II''''I''III /I li , i,, " \'1 ·",,1 I "·i,, .!2, 1(,: di z,· t1. '1'111"1'(' s Luli1 0111 .
II",,',· 11",,11, ' 11 I' ·:lrs . .J' · I )(' IlIli",!~ Oil liH" IIII'ill" '" i,,\"<01,, ·.1 TI ll" I·..." ,,[ 1111" ·' ''I ' II, " ·lill .:'.
 .-.•• " ' f-Z- ' Y" J('
( 'I II/'// "'.'i (', , ' r/II/I " \ , 1'1(11/((.".1 " \!IJ/{ " ·':~!J (uul \ ·isioll n'I ".\lIs ('/1/101"1110; . .·111 15:)
'

Strnto~1lt:

.J
Stl Ol toqh: " " '1 ,.IIli, 'S I" "01111)<'1,. '"I I"i ..,· ;11,,1 w:IIc11 ll",ir s;ties declillc alld pmfits disapp e ar.
ApprollCh fl l!lk I" " .11 ,1, C;IS(' , il is II" ""iIlCid"II"(' Illal [II(' lIew paradiglll has Iwen dominate d by new
,ti I "'.s ClI'I)\' "Iltries thaI li'le! h("'11 conside red insignificant nich e players by the lead­
11", I 111l11);lIli('s. This Il\OVCn1ellt o['industry profits and firm valile away from an estab­
Focus on
Future

Focus on
Strategic
vision
Strategic
stubbornness
I h· Iw, I wa), ,,/' doi ng business has been term e d "valu e migration " by management
, ,, ,, ,,, dl;IIIl Adrian SIvwotzkv.'J

Il ily
/

.'\re Organizations Stubborn?

/

Strategic Strategic
Present opportunism drift 111 ',. J1 li/.;ltion a i stuhbornness , whiclJ is espeCially pre valent among sllcce ssfnl firm s,

Figure 8.5 Vision Vf'rSlIS 0PPOI-tllllislll

--=- --'-
Implementation Barriers
The picture of' the flItllre llIay he substantially dCClirate, hut thc finn llJay not be ahl,.
to implement the ,strate,l,'Y re'lllin-:d. That was, in p<lIt, the pmhleln with tIl(> clhH'tS 01
CE alld otlwrs to crack the cOIllIHlttT market in the WfiOs and with the <Ittempt of'SOIl\
to Proillot,· its bela \leB f()J'111at as the indllstJy standard in the early days or the veil.
Fau.lty Assu.mptions of the Future
The vision Illight I)" lilldty hecalJse it is hased 011 lilldty aSSlimptiolis abont tile I'l itlin' .
For e xample, tIl(' concept or a oll e-stop financial services firm that drove the vision or
AlneriC<lJl Expr(~s,s , Sears , Merrill Lynch, and others was based , in part , on the erm
Jl eous asslllnptioJl that cnstomers would set: value in a one-stop financial service. II
turned out tl1<lt consumers preft>rred to d eal with specialists. CE\ concept of' lilcton
,\lJtoll1ation WdS similarly limlty, as it discov,~red after SOllie hig losses, Customers
want'ed hardware and solhvarc COll1ponents , not a lil(;tory sysl'em.
A Paradigm Shift
A third prohlem occurs whell there is a paradigm shill. For e xample, changt',s in tech ­
110101-,,)' might calIse tht' lIatlire o/' a l)IJsiness to change . Thlls, COlllpute rs changed
rrom mainFrames to minicolllr)IJte rs , personal compllte rs , pO/table s, workstations,
<lIld ,SCIVe rs. In the semiconductor industJy, the vacl!ull1-t'ube business first gave \-val '
to transistors and theil, ill s("'luence , to se micondllctors , integrated circliits, and
microprocessors. In hoth cases , e ach ne w paradigm brouglit with it a n:~markabl('
change in the cast of' c haraders, It was e xtremely rare I()/" a leaJer in Ollt' paradiglll
to he a leade r in the ne xt. In hlet, it was cOlllmon to see indllstlY leaders 1~ldt' s1l<1l111)'
in th e Lice of the new paradigms,
N e w operating models can also change the paradigm, Starhllcks and others haw
changed th e way coffel' is purchased and ConsUl ned, le aving those selling call1wd co/'­
fee in supe rmarkets to fight in a d eclining, unprofitable se gment. Dell has cll<lIlgec/
the way both indiViduals and organizations buy th e ir compute rs, leaVing thos" s('IIillg
through re tail channels at a disadvantage . NucOJ' changed tht' stee l indl-,stl), hv ('I,'dl,
illg dispersed minim ills that used scrap steel as raw mate rial, le aving 11,( , hi,:,; skl'i
II I', S"I('I'al callses. First, there is the ironic penalty 01' success. Succe ss sholiid t e ml
I" 1" llvid(' resources that can be lIsed to create a ne w-paradigm busin ess. However,
II' I 'I '~ S illstc~ad tends to re inf()rce the old vision and elh)Jts to refin e it by redllcing
11) ./\ ;11)(1 improving service, The result is that operational improvements often mask
1114' 1'/lI)(lall1(;lItal shifts, Kenichi Ohillae li<I.S observed that Japanese firms hav(,: a "win­
11111" Ill' working harder" obsessioll that has not only discouraged c hange , but also
111 .)( I" whoie intliistri,' s Improfitahle,lO For example , Japan e se firms have creakd
, 1)( "1l1011S ov(,rcapacity in shipbllilding, ,llItomobiles, and other i Ildllstrics and havt'
; " ", Igee! ill destrllctive price conlpe titioll ill order to "Will, "
S('cond , and closely relate d , the new paradigm will probably ne'Jllirce a dilTcwnt
II I ~. IIli/.atioll , and , in p ;IJ'ticlllar, a dirk-re nt cldtllre. it is not easy to change a CldtllrC:',
, "1lI'('i<IIIy wh e n an organiDltio\l has slIc('ess/'I.IIIy d e veloped and nllrtllre d that Cliiture
I " SlIit the old vision , According to two 1t',l<lillg organizational thcorist.s , Michael
l' I, I'llIall and Charl,.,s O ' Hcilly, th e strellgth 0(' the e xisting cultllre and the elilHclllt),
,d ,·I,ange were two key re asons that busille ss trallsl()J"Jnatioll at British Airlin e s, IBM,
lilt! Scars occurred onl y al'ter tralllll<ltic rillanci,d losses. I I
Third , wh y participate ill killing th e golden goose? An y ne w- paradigm Sliccess
11,/1 olh::' n directl y cannibalize the old-visioll hllsiness , And there is always the
,,1"11/('(' that the ncw paradigm will not alTi v(~ if th e indllstry le ader does not help .
\I'I()X , I()r c x;unple , had a virtuall11ollopol y on copiers in the 19()()s , and iJe calls(:' oj'
Ih I, 'ase strategy. had a ll10lley Ilow that was dilricl/lt to spend. There were therc­
Itl l" s ignificant nonincenti ves {()r Xerox to in vent a small office copier. This d e layed
IIII/o vation , bllt it also lert rool1l /(If Canon and others to late r change th e photo­
""I)i(T world ['ore" e/'.
The power of a vision is based on the comillitment that accompanie s it, This
,., IJlllllitment, togeth e r with a I()cus on the fllture inste ad or the P;lst , can re sliit in
1"l/sl/ing a hllllt)' vision be yond th e point at whi ch th e probability of success is high,
I I/(' trick is to maintain the cOl11mitm e nt and pati e nce in th e Lice of adverSity, whil e
,Ii til(' sal/Ie timc 1I0t allOWing a fail e d vision to use up resource s on a futil e attempt
,II ;t Illirack reco ve ry
t.., l r ategic Opportunism
, )II:ll('gic opportnl/iSlI1 is ,j,'iv('n hy a [()CllS on th e prese nt, The premise is that th e
l'livir'JlIII/('liI is <;(1 ',,"ll:Illli(' ;1J1C1'II/t:('J'tain that it is not fe asible to aim at a future tar­
.~':"1. tI,d,'s";1 III/ , il/" ss i., .s l,,, .. II/I('lilo /';I \,(' strat(,gic advantages in the pre se nt , it is
IIldik,'''' 10 I,.. sll;tI" ,!':i(',,1I1 \",·, ·",, 1,,1 i,l Ill(' 1·" llm' .
 ",-·.. ,1' ,...·/·-,
( '1'111'/' " .~ (·'t '"/," '· \,// (111/, 1,' 1,", ''''· .'IIlI·I.~y (/1/ ( / \ /"; ;UII f ("ISIIS ()tJI}l JJ"/"IIi.\" /1I I :' );'

\ II. II,·.! ,.I<' "/,/,"i/'"I\l1I /"11 ' id,·, .\ , .". , .,1 .11/ ', 1111 .1'," , ,III, ' I', 1/"" //'" ri sk lit' IIlis',
11I,t.; "III"lgill,~~/"" i ll" 's °il/IIII'/IIIIi/i,'s i., ""cilll "'ci , 1"11111 \ " "1 '/' ,)\ 1'I II'ill:l ill 1 ' / li""I .. 11"'1 , ,·,1"11,,,1 .,( ·, ·"I'S ill "/1" ,, ,',. ,- , ,\\. \1'l lI'l'gi,'s "'111 ;!SS('(S ,,1'(' Iw illg ('I'('a(,<I. Th e 1)('0­
11
(; " 11")'dl Mill , ill c"' ''' '; ti s, dil(l /:il( /);I\,is lv /, 'di ;1 ill " /" "'i: d ill/ " I""/ "()II'llllin IJl d l /i, iJ pl • .11" ( ' III rt ' /lI'I'II"1 1i i; d, sl 'II,,/ i\l' /11 ", '1" op[>or(lIlIiti ('s alld till 'c'a ts, and E,s t to wac:(,
illg ;111 scd , (' IIJ('I',L; ill.L; lIi('11(' S".L;"I( 'lis ;111( 1 "( ,, ,,' Io p II)'dlld" /"i/O)'I'" II) '/l"('i; d( \' 111;11
kC'ts . Tllu s, Pu)'illa Imlllds sli c h dS /)eli-C;](', Kallo ()( lIc' , dlld Cal Chow ,<;c'lIi(1I II 1.1I1"ric:
"
D.-ifL
Formula; Ge neral Mjlls hrands su c h as Trian g les, Oahn ea l Crisp, Sprinkle Spdngl, '\
and Ci nllam on Toast C runc h; and Zin~Davis hrands li ke dlieck, .)///1(', <I II(/ /'( 1/ /1I0l,!('"1 w ith tlw stra('egic opportuni sm model is that , as su ggested by Figllre
strd(',~il
"
i\1aga:::ill(' all are d es ign ed 10 appeal to a ClirrE-nl las Ie or Irend, The ri sk or , Ii 1';(11 (111'11 ill(-o ., (-rategic drift. In vestm ent decisio ns are I)ladc~ illcre m en(-aliy in
sluhbornness is also r edu ced , " 111,, ".,, ' 10 opporhllli(-ics r<lth cr than Jirected by a vision. As a r esu l(-, a Firm can w ake
Strale,gic opportunism al,so l e nd s to gen e ra('e a Vitality and energy Ihat can h" il l ' 11111' 1I10011illg amI Find that it is in a set of' IJlI s in ~,'sses iix which it Jacks th e Iwed ed
h eal('hy, especially \.v lH'n a Ilil SilWSS has dc-'Ce nh-a li /ed H& D and Illarketing IIlli/ ', , >'" I , ,llId cOlllpetellCies and th'lt provid e few syne rg ies.
I ha( gC-!llcratc-! a sln.' alll o f n ew prociuus, Vililhin :3M , /(J)' ex ampl e, ncw hu ., in('.ss(", \1 I('ast tlliTe plwnoJll e na C<lJl tmll strategic 0ppoliunism into strateg ic drift .
a)'(~ conhnlldlly creatl'd <l lld (~va IUalc'd wi th ]'(-'sp eU to Ih e ir prnsJle cLs, HI-> i., I 11.1 ",I J()lt -I ivcd , (-rall si tory force lIlay h c mistake n f()r o n e with enough shl)'i ng
anothl'!' rinn tltal h eli evc's ill de cc' n(Tali ze d e ntrepre ne urial nl<lIugP ln e nt. TII('-,<, I" 0>\" 1' (0 11);11«' a str<lt('gic lIlove \Vo rthwhil e, 1f th e li Jrce-' is so short-lived that a st rat­
dc'ce n(-r,lIi zcd rinn s are o/ipn close to th " Inarl('(' 1 and lec hll o l dnd an' w illill l', i \ d, H's 110(- payo ff or does 1101' eve n have a ch ancc-! to get into place, (-h e r(, SlIlt w ill
to PUI'SII " oppor(-lInih c-'s. ogy
I.,. 1 ' / ra(cgv th at is no(- sllitahl e /·t) r thl' IJU sin css o r (-h c-: en vironnll' llt.
S(TdIC',l';ic opport lllli.' dil n "silils ill (,COIlOlllic.s of scope , with asseis alI(I cOlllpH('1I S"[ '() IHI , oppc)Jiun ities to cn-'ate imnl('cli ,l (e prorit-.s may he ration ali /,ed as st l'<Jt('­
cic's .sUpported hy 1I11llhpic pmdll ct /ill ('S. N ikl', w lli l'h dpp li c's its ilr;lllc/ asset's ;11111 " 111 " ' 11, ill rae(- , th ey ; lJ'( : not, For example. an illstnllll ellta(-ioll nrm might J'('l'['i v('
COJllj>c'lc licic,'s in pn)e!llet design alld Cl lstonwr SC-' Il.sing to a wide variety of product 1/1 11 11 1'('Cj Il(,Sts rrolll SOIlll' of' its custo m er s /-'01' special -pllrposc in st rnilleilts tha(- cOll ld
Iliar/wIs, is a good ('xa Jllple, A kc')' parlor til(' Nik(' s(Tal('gy is [-0 del'elop slrollg (" II III "'I I"" ' i\ '"hl), 1)(' lIs[-,d I)y olh er c li sto lll er" Imt thaI hav(' lin-I e strategic vahle /CII' tI'l'
tiollal ti('s and r('l ah()lls ilips wit h /(l('lI s('d S('glll('II('S throllgh ils prodll CI d('sign all,! Itl lI l ); III), Sllch opportlJllitic s Illig ht resilit in a sizah le illitial order, Imt cOllld di vert
!>ralld IIdl ll(' stJl' II,~ths TIl(' orgalli'l.a(i()IJ i,s ( 'X 11'('111(' I)' Sl'lls i(i l'l' 1'0 C'II (('rgi llg seglll(' I1/\ 11.\ I) 1'( 'SOllru,'s f'ro lll morl' strategic activitic 's,
(s ll l'll dS (J lltd()or il;ls/.;d/)dll ) and ('/1(' Ill'ed /(11' prodll Ct rdillcIIl('llh ;md prodllct inllo Third , c·x j1c·(;tTd sy n e rgies ac ross ex istillg and II m·v 11ii Si lll-'sS areas may 1 ~ liI to
vatiOll, N i k" iJ;ls stralc'gil' /'I(-'xi !>i /i Iy, wll iell l'h;lradc'!'i'!.c's SIIl'u'ssh d slral('gil'd lh, III II .-ria li ;!.c' ()will g (-0 illlplcn)(,lltatioll problem s, pc-' rh aps l wca ll se of clilliJl'(~ c lashc' s or
Opj>o rtlllli.sti cri r llls , I " ''' IIIs(' tl)(' s),lI c' rgi('s we l'l' o lll)' illu sions in I'll(' First place, A drive to c'xploit COl'( '

A s FigllJ'(' f).4 SllggC-'S (s, th(' PI'O('oly pi cdi /),,-,illl' sS dri ve ll hy strall'gic oppor ,,,," (\ o r cO lllpl't'c Tl cics Illig htnot w ork. A.s a n 's ld t , Il CW husincss arcas w ould h e ill
hlllislIl is vc r y dilkwllt rl'OJll a 1>11., ill('SS gll idvd hy a slrdl'c'g ic vis ioll, Th(-'s[Tatcgi(' I" tI'" witllollt til(-' expecl(··c! .s llstainable advantages,
IlIl l't'ftaill(ie,s arc vvr)' di/kll' llt'. \"'kll' (Tl'lIds arc Illost active aile! l'ri ti cd l 1l0W~ VVI!;I[ St l'ategic ch'i/'( no(- onl y creatc's a hllsill ess w ithout Iwet/('d ,I.ssl'ts alld ('olTlpd("n­
is ('/1(' Ulll'Cilt e!ri v illg /ince ill til(' Inark('[ ? \,VI"t(, al'(' Ih(' str;Jt'egic prol)bns LlCill,L; • I. ' hilt il C,lIl also rcs llit in a I ~Ji IIlI'(-' to snpport a cor(' husinl:ss that dol'S havc,' a good
thc' husinl'ss tiJat II cc-,d iIIII'IIcdi,l t(' l'O IT('ction) \Vh ,lt tc 'c hnologic's dre rl'ady to hi' 1',11' "' \ 'ViIIIOllt ;1 vis ion ane! sllpporting COllllllitlTlc:nt , it is te mpting to e!i vc'rt in v('st­
(, Iliplo/c"d? \Vilal dl'(, CIIIT(' IIt stra['egic opportlJlli(-ies and Ihreats ? \ V ha( Me COlli /1 1, ' 111 into sc emingl y sme thillgs (,hat art' illlllWdialf' strat egic opportlilliti es. Thlls ,
pditors doing in tIl(> Illarh·t
IVili ,s oo n Ol'l' lIr)
'lilel j'l Ih(' lail? \Vlt at slral('gy Cklllg(',~ aI'(' occlllTing or II; I/('gic opportllilisill C,lIl he an CXCllse to d elay in vl's (m ellt or div('rt resourcl'S from
"I )J'( ' vi.,ion
Tlw SllppoJ'hllg in/(lrillatioll SYS (l' lll alld analYS is arc also dilrel'(~ nt. T o sllpporl
()II I' (,xample of slratc).,ri c drift is a (-inll that d es ign ed , insta lke! , and se r vil'<"d
stra('('gic Opport lini slll , co mpani es 1IIIIst 1I1onilor c li slonwr." cO lllpC'tilors, <lJld th( ,
, (!S IOII I (' Cjll ipm l' nl Ii»)' stcd Finn s, O ver tilll e, stee l Hrill s h eca m e more know ledge­
Iraclc~ to l ("am or tr('nds, opporlll rliti es, ,111(1 ('ilrea('s a., Ih(~y
appear. In/i)J'Jll atio ll
.101 " anc l h ('gan hlly ing standardil',ed equ ipm ent mainly o n th e ba sis 0(' pri ce,
g a(-Iw rillg alld ,11,,"y sis shOidd he hOlh s(, llsilivc-~
and on-lin t!, Fr(,C] II (' ilt, r egular
I :1;(( III,lll )" tlw Firm t' dged into tltis co mmodity hu s inc~ss to re tain its JIlarket share.
Ill t'(' tings ['0 analvz(' (' il l' 1ll0.s 1 rC-'Cl'llt d l'vc,lopm e llts and lI e w s may l w h e lpfili. TIl('
/1 11' c'( llnpan)' Finally r e,lIi l',cd it w as pursuing a dual strat egy for whic h it w as ill
organi /.a tioll shoilld he Cjllick to lInderstand and ac:( Oil clJallging filJldamen(-ais. ',,, ill ,d, /1' had too mu ch overhead to comp e te with th e r ea l commodity Hnns , and its
TIl e hallmark of ,lIl organil'.ation that emphasi zes s(-ratt'gic OPPO,-tlillislli i., ,.I ,i lil" 10 prov id e Ilpscal e se l,'ice had erod ed to th e point tbat it was now infe rior to
st ralegic fl exibility and the lVilliflg ll es s 10 r l'spond clllid:: ly (-0 s(Tategic Opportllnities '.011111' IIiI'll(' playe rs . Had th e r e heen a str<lt-egic vi sioll , th e Hrlll would not have /,~tll e n
as Ihey (" Ille rgc-', TIl(' org<\ni %a t-ion is adapti ve, w ilh th e ahilily 10 adjll sl its S),s tt ' III S, 111111 -' 11('1. a (-rap,
slrllc:(llrc , p eople , and clillure 10 acco mJl)()(late IWw vc~n(-lIres.
Th t' slrategy is 1\lIollll'r i., a cli s("'''lil(-('J' (-hat did we ll w h en ope nlting a limited product- line in a
dy n;lInic , and <:il<lnge i s th (' norill . New products are h eing explored or introcllJ('( 'd 111('; " 11(;11'"", w itl, :1 11I1I"("lIs l II (('ssag(', Tlw CIlS(-Olll er v alu e lVas d ear and th e 1l<\Ilds­
alld olll er s are de -e mph aSi ze d or dropped , New markets <lr(' ( ' II/, ' )'('t! ""d 1 111 1I1 ;( 1I;1 .! ~" II J(' 1I1 ., 1\·1" \\ ':1 , (,ll'T li v(', // ()\\'(' ver, w lwn th e Arm exp,\llded its geo­
", I:)plli, ' :1/11 11 " " 1(11 11'1 "." / ,, . " 1"" .!~ "ill ,L; ililo gl'l )('('ri('s, th(' m anag('mc nt sys t(,llls we n~
 ,I; /""1 Ji" ,', ' \/1, ', II ffli " , tlff si ll l'SS \ 1, ,II, ~" ,

1
110 lOII,l!;IT ;((1 1" 1 (;11(' ;11 111 IIII' \; dl ll' projl()s ;li (11i ''' 'I'()III(' 111 .'/ 1 :1\ 1\1, 11 , II Ilad dril'il 'd
illio ;1 IliI Silll 'SS fI " Illirilig ass('(s alld l'Ollljll 'II' I{('; I'S il did 11111 11:11( '
Vision Plus 0ppoli:unism
MallY bllSinesses attempt to have the best of' b OI'I, wo rlds hy engaging ill stralc 'gil '
vision and stratl:'gic opportunism at the sall1 (~
tilll e, St rategic 0ppOItllllisln call Sllj'
pleillent SITategic vision hy Illallaging di versificatioll awa\, Frolll tilt' corc hllsin('ss illlil
hy mallaging Ih e rolltt' 1'0 <lChievl'l)l(-'nI' 0(' a finll:s visioll , Thll s, if' \Vcigitt \Val'elIIT.',
v ision is to exploit hrand aSSiJciatiolls by c xtc nding its Ilalll (, to other prodll('( cilll '
gori(>s, st r:lt cg ic Opporhillisill ca ll descrih e the process o f'st'lel'hIlg the l'\tl'l l.<;ioIi S :llld
t l w 01'( 1(-')' ill w hich I'h cy a1'(' p l lr,s lI c d ,
TI l(' cOlllhin:ltioll l';tll and doc's w ork , UOw('ver, thcfI' are o ill'io lt.': ri sks :llId pro l,
le llls , One is thai slTategic visioll r('I Itli ws patic nce alld iII V('S tIlI Clit alld is
1'0 tli(~
e llti c(, lIll'll ts fI'PI 'l'sl:'lltc d hy til(' Illore iltlill c diatc rc lllrtl that is IISII :dly as,so('i
<ltcd w ith strate 'gil' o [1porhllli snl, It- is <iilTiclllt to Illaillt<lill thc p crs istl 'lI ce :111<1 dis('i
plill(' n-'Iju ired hy strate 'gil' v i,s ioll ill allY case, eVe ll w i titOI I t tile di slT;ll'tiOlls "I
altcrllahve stratl 'gil's that havc I )(-'C ll hlessl 'd as p :trt 0(' til(-' (hl'll st 0(' the o rg:1I 1ii',ati()11 ,
TIl(' org:lI I i'l.al'ioll:d prohlclllS arc worse, It is di/fic ldt Ie))' OIl(' org:lIIi zal iOll to IIS('
hoth appmaclll'.s wc ll I)('C: III.o.;e I'hl' sys tl'IIl,o.; , p( >opic, sl'nldlll'(' , <llId ('Idtllre t"<l1' :11'('
best I(n Olll' :Ippro<lch are g(-'IHT;dly not 1\'(' 1/ Sllitl 'd to tlli' othl'l', To lTeal'I' all ol'ga lli
'/.a l'ioll tllat l'XCI' /.S ,tt or ('V(' II t()ll >r:tt('" I)(ll''' is IIOt I'asv,
( :!. III'/I'I .') ( : II ' lI lju g ;\dvlIlltllge: Synel'g y and VisiOJ1 venHS Opportunism 157
I I (I\\' d(l Y( lIl l' ll <l llgl' a vi~io Jl '? Ce rtainly it r(-'(luires a will to c ilan g(:', an 'Ihilit)' 1'0
11111 1 11';(/1' Il;tr; ldig nl shilb an d create' the lI ew visioll v i<l an i ns ig ht/'l; ' ,mu lorward­
1,,,1 I II \~ sl rall'gic anal vsis , and all ability to chall ge th e orgallization and parti clilarly
III " ",1 1/111'1'. 'I'll(' strategic ana lys is phase has alread y h een cover ed, The orgalli7,ationaj
" " 11'1 11.0.; \\' ill 1)(, dis cl ls,<;e el ill C hapter Hi, The next two sectioll s 'wi ll discus s two per­
'I" I I il'( " tllat llmvidc pat hs ("c lt 'vallt to changill,l'; a vision : stra tegic intent and strate­
'I III '\ il, iii 1'1
"llalq~ic Jntent
II 11 11t' 1,u ld l'I,;t/d ad hall' sllgge,o.;tct/ that SOllll' fiml s have slT" teg ic intellt, w hich COll­
I'" , , I ral l'gic v i,s ioll IVit il a sii stain ed OllS('ssillll w ilh w illilill g at all lev(-' I, or the orga­
\'Idl i(-~rahl, ' III lil lll,l :l Tl li'y no t(' t hat this nlOd,,1 (>xp lai lls till' SI ICCl'SS /'1I1 ri s(' to g loiJall ead ('l'" hip
d , " III Jl,lIl iI'S sllch as Ca lloll , KomatSlI , Sa IlI SlIll g (sec hox), : 1I1i I r I (lilt/a, Thlls , Call o ll
\ 1', 11 111 to " h('at XI 'mx," KOlliats l1 to " encircl(' Calerp ill ar," and llollda I() ht'C() 11II' a
, "11 111 1 I'orci, "
\ st l'<l t('gic illtl"ll t to ac hi ('ve a sllc('('ss hti strat egy itas s(,ve ral (' /taradt'ri stics ill
" I"i l i()11 to strategi c v isioll am i <t il Oll s('ss ioll w ith SIl CU'SS, I<' irst , it sholdd rcco,l;lli / ,('
I III' I',SI'I](,(: 01 ' willilillg, Coca-Cold's slTalTgic illtl' llt has ill c ilided t il(' ohj <-,ct i v(' o/'
1"III illg a Coke w i tllin "a rill 's I'cael l" o/'t'very COl l.' "lfll 'r ill till' wO I'ld lH'callS(, di stri­
l" lll tl ll :lIl el ;( CC() lllpall il'd v i" ihility at'(' t ll( ' keys to IV inllill g, NEC dt-'c i(kd i t lH'eded

A DYNAMIC VISION

1\11 :Itt l'adi vl' Str:ltl'g." i,s to ha ve' a riljlJlIlJlic visioll Il iaI' C: UI c it :lIlgl' III ,lIltlCipat ioll IIi'
c r il
(" 1I1 g lg para<iiglll shi('ts , Thi s is a dilTil'ldt goa/. al ld I( 'IV III:ulag('('s :1I1d finlls 11:t1(' SAMSUNG AND MICROWAVE OVENS
h( '('11 db II' 10 pldl it olf Bllt thl' payo ('/' is hllgl', Alld SOIli(' finll s, Sllcil a,s N II(,OI,
C ll drics ScillvaiJ, dnd lvli c ro,solt-. hal '(' slIcc("e<lcd,
III 11)77, S:lIl1SIIJlg d(-'('id l,d to 111,ti((-' ll1ilTOW,l V(-, ov(-' ns (-'VI' Il I'llOligh Illajor estah lished
III Hi(' I SilOs, 1;lcil lg pl'ic(' [lj'( >SS IIJ'("S i'WIl! ('Idly illkg r"h ' d ,SI'(~I ' 1 /'i rll IS pillS ('If; I'Il1l1pI' titors with s l Tll lin~ly IInl watablt~ SeAs we r(' makin g Illill.iolls of (}l'ell.> [WI' year, 14
c ie ilt Japdlll'Sl' brallc/", N lI c()(' dl"v('lo(1('d a st l';)teg)" 0(' prodllCillg joi sl's (I1igll 'r
I ) I(('illg till' ll('xt 1'0111' years, it saw its first two prototyp(,s melt dOWJl , rl' d l'sigJlt ~d its prod ­
l
1I l'l again alit! again , hought tht' last ITI<lgnl'tmn b ctOlY h'on l tlw United States, alld
vall1( ' produ c l s Ils l'd ill cOll st ru cti on ) ill rllral Ininilnill ,o.; that 1'lIlploYI'd

1l00llllliolli zI' d lahol' alld II sl'd slTap stel, 1 :l.S l'aIV 11Ial'I'Tial. FOl'd <1(>(,,,<11> , t his illodd
"I,Ct'il'('d it s Grs t mel("]' li)r 240 ()\'t' ns I'm lll Panallla, 1n 19:-)0, a .I , C. P(,nnp-)' order rt!IJuir­
Illade N \lcor a stl'ategic and /'in an c ial Sllcces,s, By the Illid- I !)S() s, ho w I'V('1', oth(,l's
illg S,lInsll ng to hu ild a IlIIit 25 lll'n;t'nt It'ss expe nsiw th " n l'x istingonl's 1J(-,c(:'ssi tatp-t1 still

had started to copy th e strategy, SlTap stC'(~ 1

lVas no IOllger a:; pll' lIlilid , and alii

:11 lI)tlIl'i' redeSign, III 1983, CE , ull der pressurl> I'rolll.l apa n ('s~' fir))) s, turn ('d to S<llllsUllg
til stlllrcc so mc or its prod nds , Salllsullg's lahor costs of $1.47 co ntrasted sharply ,,~t h
Illilllllll h ad Iliadl> se rio,!.s illroads illto traditional .<; 1'('(' 1 Illarkl'ts, III rl'spoll .s(' 10

t it t~s(' ciJ;1I1 ges , N IH'OI' aga il! rein vc llted tite parildiglll hy f()(;l! sin,l; Oil llat-rollec/ ,

(: I'; 's ,~52, O() , By till' late 1980s, Sa lllslin g W aS h Uilding lI'Iorl'~ than 4 miUion ullit's pCI' ),1",11'
;(lId hat! co rn ered nlore than on(~ -third of' th e U ,S, markl:'t,
Iljl-tIl:lrk('[ prodllds , II Sillg a scrap -stee l sllhstitJltt" and drawillg Oil il'OJi OJ'( ' ill
I ti s ('Il'ar that Samsung had <l stratl'gi(' iJitent to enter tile microwave oven market, / ts
Ilr;t'l, il :111(1 :1 PI'OC("SSill,l; plant ill Trillidad . l :2

gll;il s dllllJlg th e first dccHde we re production alia lllee ting whatevlor customer Ileeds
( :ll;ul l'" Sclll\'ah .s lli/'t( 'd ('rom iJ('ing:l disco llnt hrok e l' f(lr illt/i vidll ," ill Vl's tors 10 II'I' /'( ' r(''I"ir('d to gain sait.:s, FinClllci,d returll was of no co nsC'quc nce, All enonnous
Iwillg itll illll l l\':lli ve ,'II/lpli('r o/' 1l0- load , IlIHr:l1lsactioll -il'(-' II1lltllal lilllli Illlder 1111 ' illVrstllll'lIr was mad(' ill Iksign, lll aIHd',lctllling, and e ll gjne(~ rin g, To Inake it hap[1I"n a
s
,<.;dlll';(h ()III'SII{(I'I'I ' hritlld, I t lias noll' eillisl('d :111 arilly 0(' I('(' -Oltl \ fi ll ;lIlI' i: t/ adl is!')'s b ',~I', ('I))IIPI 'rl 'lit sl,df ('ar('/', illy <l11<ll)rl.cd how com petitors had solved problem s an d what
", ",, ," ,,) 1'1 I11': d 1 1llSlillilioll:dlo g llidl' illl I'stors w llo ;11'(' aI'lT;«('I(''' 1(1/111' ,<.;(, 11\\':11 , illl('s i (' II.,IIIIIII'I'S ('SP("'I, ,d , '1'1 ", linn IV"S vI'ry n'spililsive to Clistollll' r nt'eds even when i t met
{(II 'II/ "llIi(III S, !\ / iITIlSIl/'(', 1('1' 11., Ilrll,!c/I'ssl 'd 1'1'11111 l 'l}(' r; llill ,!~
" " /" 11 1\ I" :'I,/>ii l ';(lill ll \ 1(, \i'/ ,d,I(' l",sl',\ , Ii 1': '1 >il.'/i /.l'l I " " ils (,list " d l', J)lt a ,~(' ,tnd tlte willinglwss of productioll and
/1", 111/ 1'1'111 '1. 11,,1/1 SI'IIII': d, ;11111 :\ /i (TII'()1'I did 1101 ;"';I"e/,," IIII' (, I" 11 ',11 '11 '''11 ,,:tlllt'r "llgi'" 'I Ti ,,", 1"'1 ',<1111 1<'11" 1\,<''''" (i '; 1111111' "l'l'"",, S; lI llslIllg vi rtII aJ/." w illed its ()\'Ioll rcmark­
;(1,11' ,\11('( '( 'ss,
,111",111"11/1 '" i/ \l' illl ;1 III '\\' dilt 'I'litlll , '1'1 11' S(,II \\'; t/, 'Itli'\ II III I,, · I( \ " ,1/", 1 III ( '1,,11 ('1' 1::',
11
 1:,,<; /'11/ / 1'11/ ("(" I//I ' III II /ill ' /lli Si lll 'SS .\/1 ,,/, ':1 ' "

( :1111/'(1 ' " S ( : ( 1'11("(" 1", ""(1/':, ,: \ "111'1 ': :,, (11((1 Vis/"" U', S II -' ()I'IHJI'/IIII;,' "1 I G!)
III d( 'lll lil'(' II", 1('('IIIIIl IIl,!.!;il'" Illdl wlllllt! :dlll ll ' iI I" "'ld,,;1 II,.. "" " I "",l~ I ' III'I' Id'('IlIII
[lIIlill,!.!; <llld tel('('olllllllllli(,<lli(JIIS , Tllal I l('('i1 " ' " il.\ g lli,lill,~ 1111'111" ' " lIilll :dlllll' I'i " k, :I IIIII;II/(' r'·'l' lil< 'II. 1\11 orgdlli / ,<IlilllllllClyals() p ,lIti c ip;lt(' ill hllsi­
Sccond , sirategic illtent involvl',' slTdeililig ~ III
Ilrgalli z:tli()11 lI'il ll a ('I)lIlillllill l' II " III'<IS lI' illl w(':lk 1'1'1111'11';11 Ill'ci('I' lll gaill til(' st rategic ({exihility to d t' al with pos­
t'ff(lI"1 to idt'ntif)l and d evelop IWW SeAs or to imp rove tll{)S( ' 1"'11 c\i ,\ t, Tilli S, il II:C', d,l , ""l l'kl'l Cliclll gCS VOl' (,.\ ;lIl lple , eivl's in vest/ll (-'Ilt ill Sahlnl resulted ill a ve ly
<l dYllamic, fc)!'wanl-Iooking perspec ti ve. \Vllat will our mhalltagt> 1)(' II( 'x t y ear ~ lIld II"dl ', 1 rdlll'll. II ()w( ~ ve r, havin g Saturn (:oldd allow GM SO Ill(:' ve ry ni ce compe titi ve
tw o yt'Hrs arter that ? COllside r Matsu shita , Toshiha , and th e otht:I' Jap<I !)('S(' tel('I '1 'I" I' ;/I S i r gas sllppli es we re curt ail ed hy OPEC or by a wa r.
sio!) nl<lIl1lfadlll'l-:r s. Th<-,y nr,) t n" li ed Oil the advantage of Imv lailor cost. By servilll' ' 111'1 's l i lIe; ill IIl1denl sed assets provides st rat egi c flexihility. An ohviolls eX<llllple
pril'al'<:,- lahel need s, they added eco1lo mi es of sca le. The Il extstep lI'as 1'0 I>IIi/d III lil"aillillg liqllidity (as with Toyota 's ~2() hillion cas h hoard ) so that inwstm e nt
ad vantagl's in (Iuality, re lial,ility, (('atmes , h nlnd nam e, alld di,)triililtion . In COlltl',!.\1 III 1)(' Illlllwl('d sw iftly to opportullity or proi>1<-' lll areas. Maintaining excess capac­
an all,ti),sis or
tlwir strenglhs and
th ey should f(lcll s on a low-cos t Ilicll(~.
lVeakn(~sst's rnight 1"1\,(' led 1'0 tiJ(, cOllc/tl sion tll :11 I "' cii)tl'ihlllioll , organi /a tional staffi ng , or H&D can also Cllh ,l nct' a Finn's ahility
h· 1" ,1('1 qllickl y.
Third, strategiC int(J llt often n:'(lllires real inllovation , ,I \Vi)jillgn( 'ss to do thill.!~" \11 ()J'g,llli zational c liltme that Sllpports Ckll lgl ' w ill cl'(-:atc st rategic H l~x ihility. A
ve l)' dint-rend)' Savin entered tht' U.S. copier Ill<lrke t with a prodllct tllat co/dd 1)(' II I IIIl~I'-(' llhan('ing c ultul'(' starts w ith heine; good at detectillg oppo rtllnil'i ('s ami
sold tiJroll,!!;h dealer,) in stead or leased and lVas .) impl e, low priced , and r('liaill('. AS;I I /. II', I/.) , 1l('l'haps dmw ing on the t','(I'<::rllal ill/'orlllatioll system descrilwd in Chapter
result, Xem,\\ hugc ad vantage in sales and sc n 'i c(' alld its ahility to FiII ,lIIC(, leas('" I, II w ill "Iso ill c l ud t' an CTltr(-'prel 1('11 ria l style . Sllppol'ted hy organi/.atioll<l l strl/e­
e(l"ipllwnt Wp re IWIlIT,liil.ed. r-(oll(hl IliadI' real adva nces ill motor d es ign ill ol.der I" 1111' , :111(1 r(-,w ard s),s tellls , that (, ll ('O l/ rag(',) Ill,1I1age rs 10 exploit oppol'tllllitics w i('h
aU'ack the largc lllOt(l!'cyclv market. ,11 /11 111 oriellted st rategics. There has to IlC SOIllt' ahi lity to tolel'a[(' a " rca dy, iiI'(' ,
All ohws,sion widl w inlling can he (: r('at(-'d ('V(-' n w ithollt <l cOlnpditor. P('/I'I ,1111 IIl<'lItality.
Johnsoll told how hl' U('<lt('<1 a phanto/ll cOlllpditol \IIl w ll rllnnin g Tnl s Joist, a 1l1<lk( '1
of' strll chll',1i (,Ollljloncnts fill' hlli/dillgs, \IIllich had a patent-hdSl'd 1I1011()[loly l.) TIl(' \ \jute of Caution
pkllltOll1 COIlIIH'ti/'<lr d eve loj H'd Imv-cosi' OptiOlls alld g(' lIcrated (T('ati ve O[ll'iOIi S fill
hr('akin,~
,I r:llcgic v ision 1't'<Jl/il't's n'al persist(,llCl ' ill thl' ('ac(' 0(' ('cmphll)!; distractioll s. I t
illl'o I'll(' hl/ si ness. As <I resltlt. TI'lI.) Joist was sti lllidated 1'0 inllova/(' in ""
adjac(,llt Illark('[, " .• , (( '<[llil'es di sc ipliile alld eye-oll-the-hall I·oells. VisiollS that <UT l'xcessi ve ly
" 11:IIIlic arc llO IOllge r visiollS a(' all. There is "vcry rcal ri,s/.: or c lpsi'/.illg \\111<' /1 try ­
SITatcgic illknt pn JVid(-!s a IOllg-te rlll drive' f(lr ad valltag(' that C;tll I}(' ('S,S('lltiall(l
III " III ('atch ('hl' \Vave.
S!lCces,s. I I' providcs <I mode'/ tllat helps hn"ak th e triold , 1ll00'illg a (inll aw ay ('mill Si lll
pl y doing lice S<llll e things a hit hetter <lnd w orking a hit harder thall l'Ilv h(Jfil/ '" 'y(~;[r
it has th e capahility to e/("vatc and
would nol' odlCrwise attain.
(~xtend
an organi'l,ati(JIl, helpillg it reac h levels il

I. ESSONS FROM U.S. BUSINESS BLUNDERS

Strategic .Flexibility

Strategic intent Ilsuall), r(:'pWS(-'llts a cO ln lllitnWllt to attaining all SeA . 11 ()W(JVC1', ill

some dy namic indu stries , an SeA call h e a moving targd that is difflcnlt to attain

proactively IwcClllse tJlI;:! re are too many uncertaillti es to mal<e th e nect'ss<ll), Prt'di('

lioll s about customer needs , teclmolo,!.,,),, COlllpet itive posture, and so OIl. in thos('

contexts , th e an swer is to attain strategic fl ex ihility, so tltat tht' hllsill <:'ss w ill Il(-' r(,ady

w hen a window of Opportll nit)' arises.

StrategiC Hexioility ( th e ahility 10 adjll st oj' d eve lop strategi(~s to respo lld to ('xt('r
nal or internal challges ) ("Ill be achi eved ill a variety of ways , inclllding parhCipa(i"g
in Illllltiple product-Illarh~ts
and technologi es , haVing r esou rce slac k, alld crhltiI I,e; ""
org,lIli zational system and culture that suppOJts change.

ParliCipdtioll in mldtiple prodli ct-IlJarkets (II' tec hll olog ies llH'ali S 111:11 tll(' 1I/'g,1
lIi'/.: lIi()II is ,t/ready "O il t'lw g nllil ld " ill dil'f( ' /'('Ilt anJllas, Thll s, ii ' ;1 :qllll',II'" Illal
dl'IIldll(l w ill "llinl():1 III 'IV pr()(III('I-IILll'kl 'l· or tlldl' d I)('WI' I' II 'dlll,l/",!',1 II ill l'IIIITl!;I',
IIII' Ill'g:IIIi /,a l;1l11 (': 111 .i" SI 1"1),11,,1 ils 1'111'('('111 Pl'Ildlll'i - III:Ir/,(" 1:11111'1 11"111 , 1:11 .' fl'o II I
 IIHI j ·IIII/'1",." 1/1"11) 111/11' /(,,, i ll, ,','. \/',,1<- ,./ , .

( '//1'/'/ (" .'i "1 ' 11/111 ': \ ,1, IIIlfllil,I ': .'. yllt ' I }.!. y flllt! \ 'i.'Oioll "'('/'S I {.'i ()/J/U ) J"!IIIII S IlI

KEY LEARNJNGS
:1. N(I"I 1\.1. Ti ,·/ ,I . " 1\" 1,, 1,,111,," 1.,' Y,,",' ( :""11''''')''' 1'01'/11111 '. Ik""lIliH'r 1:1, I!)~):I, I'P·
III II.')
• To create all SeA . a .~t l ·al·e!-,'y
11(:('ds ['0 he v; d'l('d ",1- III(' II lark('/' <lnd SlIp­ I. 1.lllIis \ '. (;( 'rtlll'r, ./1'.. \ VIIiI .'ilil/\ L\I",JiIll IlIS CIIII ', J)OIlc(:,". New York: Harper
ported by assets and COlllp(:' tence.~
that are not eas ily copie d or nelltral­ IIIISilll 'SS, 2002

izeu by COlilpetil·ors. The most COlllmon SeAs are <jllality repIII'aholl , .•. N"i l (:ro" ,llld Hohl'lt D. H oi', " Sega l" 13"siness Week, F ebnJalY 21 , .1994, pp. G6-71.

custom e r SUpport, and hranu nalile.

(0 . (:. K. I'rahalad ;lIld Gary /-lam el , "Th e Core COll1[lete ncl' o r th e CO '1)o ration ,"

1I111'11/rr/ IJIJ.,iIl I'SS J{eJ)ielc, May-Jun e 1990. pp. 7\)- 91. This hook uses t he phrase

• Synergy is olt'ell sllstainahJe becallse it is based Oil the uni(jlle characte ris _
tics of an organi zation. " "orl ' assds aIHlcoll1pctencies," w hich is al1 '~xtellsioJ1 of the terll1 "cort' co mpeten­

• Strategic opportunisJl) i()cuses on the prese llt and elnl'h;l.~il:es

ClllTe nl

('i("" IIsl'd ill l'rahalad ,tlld 1-Lull l '! 's articIt-.

7. (;('orgl' Stalk, Phi lip Evalls, alld Law rcl1ce E. Shull1lan , " Compdillg 011 C apahilitH?s
opporhlliities and strategic choi ces, w hereas strategic visioll has a

penr(~dive change.~ strat<~gy

'I'll(' Nell' lI,lies 0[ ' C0I1)oratt' Stratl'gy.·' L-fllrl)lml BlIsiness RCl)inc . March-April

long -term and dvoids ill Opporhlnislll

I !JlJ2. pp. 57- CilJ.

can lead to strategic drift. while ,I Vision-base d approach C;lIl lead to

Week. May 1:3 , I~)~)I , pp
.~ trategic stllhhornness. •'1. I\.l'ith II. ILllJ1lllolH ls, " Comin g's Clnss Act :' BII SlIIl'S8

!i~- 7().
• Strategic intent cOllp/es stl'ategic vision with a sushlilled OhS('s.~i()lI. ~I. I\dria ll .I . Slywot~.k)', Vllillr: Migm/ioll , Boston : ]-I,u'I'ard Busin(,ss School ['n 'ss, I\J!)(-i.
Strategic fl ex ihility prOVides a way Ie})' organil:aholls to ex ploit stral' (~gic In. K"Jlichi Ohll1a(', " Coll1panyislll <llld Do More l3etter," Ul/l1!11nl /)//8i'll"S8 /k o il'//; .
°I'Po ltlillitie.~ and mallag(~ strategic p"ob/<-'Ills. Jallll<"y- ['\ ,hrll' tI,)' [lJ/)\). pp . 12,5- 1:32.
II. ~'li ckl<'l I..T"sll1llall ;"ld Charl('s A. (),H c ill y I [I . \villllillg 1i//'I' II gh {IIIIOW/ioll: ;\
FOR DISCUSSION Pml:lil'll l Cllir/c /.(/ Leflr/ill!!, Orgolli~.o/i(/II(Jl Cho ll !!,c 1I1Ir/ /{(' II "wfll. Host'oll: J-lnrvard
[I li sill(,ss .'ie/ ,(lol Press, I lJ97.
1. What is a slistainah /c COJl)P(-'l'itiw advallta.t(e? IdClltil), SeAs {(Jr' 1)(,1/ . I::!. Slywotzky. VIIIIII' Migmt.ioll .
P&C . Tide , alld Citihilnk. 1:1. Cary Ii allwi ,,"d C.K, Prahalad, ".'itr"t(·gi<: lntellt·," /'/lIrVllrr l /311I ill.('18 LkJ)il:fC ,

2. Pick;l prot/lid <:lass alld .~('veral

lIlajol· /Jrillids. \Vhat ;Ire each brand:~ May- Jlllll' I ~)I)\) . PI" (n- 7Ci.
I I. I ra C. M aga~.ill cr 'llHI Mark l'ati llkin , " Fast I leal: [low Korc<I Won tl1l' M,('r()lV<lVl'
poillts orparity and pOillt or dillen' llct'? H(-/ak POPs to KSFs, and Hie
POI) 10 SCAs. \V"r. " //lI r lJllrr/ 13l1lill(,18 /{1·oi,I' IC. Jalll laly- F'l'Iml<")' 1\)1)9 , pp . 1):3- 92

:J, isWhal' syn(~rgy;J ' Vhat ar(:' t!J(, SOllrces or syn("r.l.')'? (;iv(-' (-'X'lillpr(',~. Why
it soise illsiv(:'?
l !l. I'('('r T. Johnson . " Wi ly I Hacc again st Phalltoll1 COll1pl'l itors ," I-IlIrwrr/ /3// 11111'.\.1
il, 'v ii' IV, .'i('ptl'nd)('r- Odo\rcl· WS/) , pp . IOCi- ll 2.
Hi, Tholl1as f\ . Stewart, " Ll'SSOl1S ['rom U.S. 1)1Isincss BlllIHkrs ," Fortfllw, April 2:3, / ~)90 ,
4. What is strategic Vision , <lnd how do(-'s it dille r (rolll strategic 0ppor­ Jl II l 21)- 1:31).
tUllism ? \Nhat ai'(" strat("gic drift· and strategic stubbornness. and why do
Hley OcclIr? Can you naill(~
any exaillplt.,s beside.~ tho.~e
illention ed in
the chapter? Were Cndly strategic d eCiSions the real proble m. or was
there a deep e r organi;-:a/ional Haw? '<\/hat is a dy namic and it vi.~ion , i.~
It-asi h/e? Did Schwah i'(~ally
exhibit dynamic vision?
5_ Compare strategic vision with strategic intent. Illnsttal't' with examples.
6. JIlustrate wi th e,\ a llipies strategiC fl exibility.

NOTES

1. Kevin Lane Kplll' r, SlmLt:gi(' Bmllr/ M III III1.!.I' IJwliI . 2nd l' ditiol1 , Ujl!l('I' S,,(/<1 I, , Hi""r,
f\lpw Jersey: Pre J1til'P-TJaIl , 200.J. pjl. /:3/ - /,'3(i.

2. D<II1<1 A. A;i/'e ,; ·...vl"i1aging Assd's alld Ski ll s: Til" K,'y to a .SII,'I:,,",,/, /, . ( '"'''/','Iilil '''

{\(/ valltag( .... Clili/i wllia M III1I1!.!."I)II' I,/ /{I'['oil ·IC . \\ 'inl< ' " I '),')!), 1'1'. !/I 1/11;

II
 CIIAP"''':H N I F Chapter 9 Strategic Options 163

Ii 1l<1e l'standing th ese strategic OptiOllS will h e lp guide yo u in evaluatin g and

II, \I, I,lping busin ess strategies, To sllcceed, yo u will need to he creative and cast d
\ I' I, · Ilct; ha ving a set of pote ntially viable op tions can help m ake sure that you con­
Strategic Options II " '1 ;tli of th e promising alternatives, In addition, when you have a se nse of th e a vail­
.I .) " choict's , you will he more thorough and realistic in appraising w heth e r a
1""llI lsed strategic option is like ly to succeed, Finally, knowing th e keys to success of
Ii" " lriol1 S options will e nhan ce th e d evdopnwnt of programs to impl e m e nt a bu si­
II ' " \ , tratel-,'y.

,\ 11Ilsinl-'ss ilia), se lect lI1on ~ than ont' s trategic option-choosing to wa lk amI

I I" II g llill at the sa me time , so to speak, It is not an e ithe r/or sitnation , [n fad , most

,q, I " ,'i s l\d strategies will repnose nt all in tegration of seve ral strategic optioJlS, A solid
III li l, ·rstaIHling of each , howeve r, can gllide you not oilly in makin g the decision wh ich

I" Il ll'lll(k 11IIt also in sppcil)ri ng tllcir respec ti ve roles and priorities in the ovendl
El'!'r sillce ;'vlortoll 's ll"t a litt-Ie girl ill a y cllo", slickn alld (/c( ,Iarcd, " \Vlwil it r<lins, it pOllrs.'
110;I(h'crti sillg P('I'SOII \\'(Jlth his or Iwr salt lias kid allY ('X(, II S(' ('0 thillk of a prOdlld as k" 'ill,! ',
, I I il l'l!;),- \Vhich should be dial e d lip? How shollld variolls options inte rac l? Th e way
paritv witll ;1I1)'tl1illg. II", ('oll/hillC can h c a key to s uccess,
- iHo/("(J"1I I\ /(f("/Ju/{ .!..!.rd. j on/(lfl Co:w i\/r'Cr(fll/

r r\,O Il dOIl'( I,av, ' a COIIlpNilivc a(I\-;III(agl ', dOll 't ('0 Il'll('(e. BUSI NESS STRATEGY CHALLENGES
---:ll/rk \\ H,k C/';
II hll'h stratcgic optioll or sd or optiollS should IClfln th e basis fClI' a I lI/siIl!'ss strate,l,'y'?
II
YO (,,111 '( dl'pelld Oil ,1'0 111' ('V('S Wllell \'(lIlr illlaginalioll is (Jilt of' /(ICII S. I" ; II IS W<: I' thi s qll cs tion , (';lei I optioll shoilid Iw c kdlcllgl,d wilh rcsp(' ct to w lwtlwr it
- 1\1f1rk 'Ii uti; ,
" '/l I;l iIlS a i'("d and perce ive d v,tiu(' proposit ion and whethn it is re le va nt, sllstain­
."<1", alit! I<';)sible, T!I e goal orthi s analys is is to identif)! not Oldy tlw potential impad
" I III(' strat('gic option , hllt also its limitations and fe aSibility

'" Thel'e a Real Customer Value Pmposition?

A 1>",;""" "''''eg)" '" dei; "cd ;" (:r "'p'e,

prodlld-Illal'kd iIl V('.stm{,llt decisioll ,
J, ; w, "" n' U "n
the"~
,,",,I J
l'IIslollwr valli e proposition , I'he organi .
I"""'",,, I"
\ , "('('( 'ss ['lIl hllsiness strategy needs to add valu e Ic)/' the c llstonwr, and thi s va/rw
I I ~" 'cis to 1)(' rca l rath e r than mcrel y ass um e d, The Oll(-'-Stop Financial service vis ion ,
IIII' ('\alnpll' , had Ilnll'h Jess vallie to c ll stomers th an \Vas hope d w he n ii' was first tri c(1
zation's asst'/s and COlllpe('C' lIci("s , and filllctional .strategies alld Progl'<lill .S, For a
givell indllstry and orgallizational context, a strategist will have ilill II nwrable ways
III Ill(' ca rl y 19HOs, This exa mple or
synerl-,'Y that never materializell will he told in
(I "'Iller lA, Silllilarly, Bayer tri c d to apply its familiar 1mmd nallle on non-aspirin
to (;Olllpde. Alt(Tli<lti ve marke ls, Sldllllarh,ts , prodllct e xten sions and nC'w prodll('1
arcn;IS C,lll always he considered , A lle w ilde rillg va rid)' of Cllshllller valu(~ propo­
1" ' Hlnl'ts , onl y to Find [hit th e valu e of the Bayer nam e dimini sh e d g reatly outs ide or

sitiolls, (~ ach
wit h its o w n nll<ln ces and SpillS , will l'epn~sent
st ra kgy variallts .
I Ill' ilspiri n category
Valli( ' is nlore like ly to he real if it is dri ve n from the clistomer's p e rspective
Hundred,'i of' conc("ivabl e assets and compe te n c ies can be developed, 1I111'hlrcd ,
t'xploitecl , <lnd com hi ne d , and I'Il e re are pot(ontialJy thousands of
strate gies and progr,lins,
fllllc/'ional viahl(~ I 11 11(' 1' th a n Frolll that of th e IlU siness opera tion, How doe s th e pOint or diffe rentia­
I ~I )I I Aft'ct tIl(-' ellstoll1er's experience of buyi ng and using th e product? Does it senre
I.. /,(,<111(:(, cw;t, add performance , or inc re ast' satisfaction? Th e concep ts of unllwt
Usually, howewcr, husilless strategies cluster around a limited numl lC1' of' strate-­
11I,, ' d~ ,lIIeI Cll stolllCr probl e m s, outlined in Ch ,lpte r :3, are re levant, Does market
gil' ophons-particular vallie proposition s fClr a product Illarket, supported Il)' ass(,[ s
I' 'S( '; I 1'('11 (,Oil fi rill tl1<lt v,due is add e d [i'om the custom e r's p e rsp e ctive?
,wd competellciC:'s and functional stratC:'gies and programs, Co III 111 011 strategic options
include (ll/edity, fClt:us (on a product or market) , valu e, innovation , Cllstolll('r illli"lil('V,
" Th e n~ a Pel'ceived Customer Value Proposition?
or b e ing global. Eadl or these options ne eds to he adapted to a gi\'(' 11 ('0111,,\ I, III II i111
should oife r a clear value proposition to customers and he s"!lpoI'I,'d , '\ :I ' .w ls i111(1 1,'111 '11,,'1', III(' \'; '/II~' I" ()1)("ili()11 IIIII SI 1)(' rc('ogllil'.e d and p e rce ive d <IS worthwhile by
('(l/ l1peten cies and fill1ctional strategies and programs, IIII' (' lIsl ~l/ II"I ' Il, 'l i', l'i" ", :1 \,; ,1111 ' pr( ll)(lsilion is pointless lInl t'ss cu stom ers kllOw
.II"" II il : 1I,(11 )(' li~'\" iI. 1:( 1/ "\:11111,1" :1 1'lIsloln~ ' r III;lV 1)(' 1I11<tW;lI'(' tklt J)'lrg(-'r King
11.1\:1 ('1111\"111"111 .. rri"IIII .", I'''''''''''' 011111:11 ,,-;,,1';11111,,1.\ :1.s1I1H'I 'i(JI · III·;'/;i ll,g S\·., II ' III. TI,i,
Hi:!
 \ /1111 11 " .,

.,. .,.... ,., ,.r,1'f r i 'lt ':,

IIi ,dl ',i:, .,1 ' lilt' (' lIslllll1( ' 1 III ' IHI,.., ('()II'I)('lilol slrt'lIgl!ts , ()I 11I<ll'k('[ d YII ' llIlics 111:11'
(11:1\ (l('I'I!!' !l( ' t'.li1·-, ," ,·!I.",lf)IIH ' I .... 1,:1\\' IHd ILI\t' Ilt"'" "'IH) ,.I'I! II) 1111 ' tldtlt"IILliltlli
\I I ,tI 111:11 :111\ slral('gic SII"II'SS willlw shorl-liv('d,
I"T:tllsI' II", ill""'I,,,li"It \\':l,S Itol 11:1t'k:lgI'" ilt:t 111"""",11.1" :tlHI Ilt'li"I :till" 1\ :1\', 411
1)(,(,:IIIS(, III<' "llrillilil' or S('lyi('(' "':is II()I ('(II"id,'r(,(llo I", 1,,1"\:1111 III' ()1 ' 1':till(',
The per('('iv('ci V,tillt' pmllll'"1 is p:lrlil'lIlark ;[l'IIIt' ",1"'11 III<' ('lIsl()lIler is II til :,1 HAT EGIC OPTIONS
c apahle of'judging thc added val Ill' (>asily. Ctlstolill'rS, 1'01' ('~alllllit' , C:lllilot l'\'alll:ill \ \ \1111' IIII'll' Ml' 'Ill infillite nnllllwr oFhusint'ss strate)..,'Y variants ill ,Ill)' context , cer ­
,lirlille s'If(~ ty or the skill oj' a dentist without inVl'stillg Sigilific<lllt tillll' alld ('!'IIHI \ "" "I I':ll('gic optioliS telld to h e uSl-,d IllOst olkll, In this chapter and tIll-' two th,lt rol­
I nstead the cilstoiller will look for signals, slIch as tJlt' appearanct' of till.' ai rnan III It ", \i ,, ' 01' thl'st~ options-lll1alit y, valllt' , rOCIlS, innovation , and l>eing gloh'll-will h e
the professiollalism oftlw dcntist's I'ront offict', The firm 's task , theil , is to m<lIl'I).';(' I1II 011 ',1 " ,,(,d ill SOIl1l' dct'lii. Each is Frl:'lllll'ntly elllploYl'd , has Inl to perl'orlllancer SIlC­
Signals or clles that j IIlpJ )' added vallie, II ',I'S :Iild is :Issoci:ltl'd with a hOlly of blOwkdge :lllll t',PI'licIICI', Fllrtlw , the
I' Id lillg :lllalysis of tllCSl-' kw will provi lk a \'c('ll'or tlie typl'S of isslWS allll (jlll,:stions
Is the Strategy Relevant to Customers?
I' ',I lI' i:lll'l1 with ,In)' strategic option,
'\ s llapshot or SOIlW or the other stratq.>;ic options th,lt can he co nsidl'rl'd foi­
A Imsilll'ss kls to make what Clistoillcrs wallt to Ilily. TIll' prodllct or sl'I'viu' has I"
l""", 10 \)wv ide :1 glilllpSI' 01' tilt' scop(' of l'hoiu:s ,Ivailahlc to the I>llsilll'SS str:ltl'­

Ill' cOllsiricred r('I<-\'alll' to till' markets in wJliclt the bllsiness choosl~s t() conlpcli'
As noll'd in the discussion of' reh-'v:lllce in Chapt(~r 5, it dOl'S 110 good to Inake II"
L~I I. 'l'h(' Idti Inate goal or de vl'loping hrilli:lllt stratl'gies will 1)(' rl'ached Old y wlll'1l

1,"l li:tllt options al'(' consilkrt'll. Tt dOl'S littll' good to 1)(' all l'spnt :It sl'll'ctillg

I)('st SUV iI'clistollwrs aI'(' illt(,H~ sted ill hyhrid cars, [I' a InlSilll'ss bas a va llll' propll
sit'ioll that is or secoIHl:II)' interl'st toclistoill e rs , the Litter m:ly look el.sl'whl'I'l' l'VI'1i '''ll lIlg IIll'lliocrl' alt('Inatives,
ir till' husilll'sS is l'Xl'('lIting its va ltw propositioll l,flcl'liv('lv, [I' lill' prodllcts arc COli
sid('l'('d passC- or illi( 'r ior, the hliSilll'sS will lack w!c'vance, I'.-u<iuct Attribute
11,1 I"odlld or st'rvicl' :lttril)lltl' is celltral to till' p"rchasl' ,lIId 11SC 01' ,Ill olTering, 011('

Is the Strategy Sustainable? II ,iI('gic optioll is to dOlilillatl' llr l'Vl' ll oW11 tklt atllil>lltl' Volvo has IOllg oWlled

,.. .1'1 '11' 1>'1' d('signillg its cars :lIld positiolling its I>r,llId so tklt it lias e xtrellll'l y stn)llg

TIll' slratq2;y's poinl or dil'il>n' llc(' i'ronl cOllllwtilors IIl'l'ds to 1)(' I\()t ollh' pcrl'l'i v(,d
I I, 'dihility Oil tll:lt dillll'nsioll, Prillgll's oilers hoth ,I prolllll't I()rlll :lIld p:ICk:lgl' th,lt

J)III sllslaill<li)ll', This is olh'n a l'tlligh ch,dlclIg(' , I)('cal/sl' IIiOSt poilil's or difk' rentia
IIl I)\\'s cOllv<.:llil'llt, l'OIlIP,lct stor,lgl' of till' prOlll1d, I kill'/. has C:ltSIIP lhat ponrs

ti()11 :11,(, ('asily copied, One mille to a sl/staillal)k advantagl' is t() OWII all ililportaill
"\"11'1;- 1)('(',IIISl' it i, so tilick :I III 1 licll. SOIl\(' airlilles oIT( ' r 1)llSilH'ss-ciass 1),ISSl'llg('rs

j>mdlld dillll'IISi()ll , I)('rilaps with the aid oi' a 1))'all<l('(1 dil'l(;rclltiator (s lIl'll as tl\('
I\lIlll'('Olllrmt ,I\>le s\cl'ping spact' , III each (':ISl' , til(' attril>llte is n:\('I 'allt to clistonwIS ,

Cadillac Nortll.star l'llgil\(' 01' til(-' eM Oil Star gllitiancl' S)'Sll'III), 1\ SI'C(II111 1'(II(h'
would 1)(' cwatillg a progralll of' conti(1I1011S illV('slllll'llt alld illlpmveillcilt tkll ,lIld lh(' brallds an~ cll':lriy pOSitil)lll'd Oil that "tll'iblltc,

I I' sllch all optioll is to lw viahk over tilll(' , it Ile('ds to hl' protl'd('d :lgaillst cOlll-

cnahles th(' str:ltq,,), to n'nlain allloving tal'gd, always ahead of'cOillpl'litors or jlois(,d
1,, 'lil'()rS, !laVillg \Mte nt protl'ction is Ollt' rOIill' , Dolhy Lahor,ltori('s has u('alTd a
to It'api'rog tl\(-'lI1. Third , a Iliisillcss coold cn"ate p()illts 01' dil'lel'l'lltiatioll that arc
I,,,silio hascd lIlI :111 ever-expanding set of' patellts to Slljl\)ort its sOlilld olTnings,

I)ased Oil 1I1liljlll' assds ,I!Ill ('onlpl'tl~ lIci(-'s or thl' org'lllii'.ation , which an' ildll'H>llt"·
d iI'fiCi Ii t to copv,
ll
ronte is to
\ 1I()tlll'!' havl~ :1 progr,1I11l11atic iIlVl-'s tlllent str:ltegy in order tu In,lillt:lin til('l

I' ,,,I :Ind Pl-'!'cl'ivt'll (-'(lgc, Titus, Volvo has ,Ill iIlV('stllll'nt progr,llll ,lIllI ck:,lr clc'sigl

Ovcrillvl'sl'in('nl ill a vallll-~-add('d acti vity lIlay pay olT ill tlw IOllg rtlTl l)v discour­
aging cOlllpetitors f'n)lll dllplic<lling ,I strategy. For l'xalllpl(', cOlllpl'litors Illight 1)(' 1IIIilosliphy to ('I ISI]i'( ' tltat it can delivl'r 011 its saFety prolnisl',

Another rollt<:' to owning an :Ittrilmll' over tillle is to hrand it alld then acti vely

ddl'fwd rnllll developing a servicl~ hack\lp systclll that is 11\()n~ extensive th,m cllr­
,,«llIag > th:lt hntnd ,md its promise, For ('xample, in lmJ9 , tht' \lVestill 110td Chain
lent clistolllns l'xped, The same logic c<ln apply to a broad prodoct linc, SOliit' l"ic­
Illl'nts of' that lilll' mighl he ll11profitahlt" hilt still might I)e wOlth retaining ii' tlll'v
l
I!'I',lt('(\ the " Ht'ave nly 13ed ," a CIiStOlllt:r design c d maHrt'SS set (h y Simmons) that !I
I H'c:urw :I branded dilTerentiator f()r the l'h:lill. Th e He,lvelll y B e d was nW:lningl'ul in I,
plllg holes that competitors c Oldd liS t' to provide coslollwr valliC',
Iklt it allc\rl'ssecl the fllnc\:lInenl'<ll pllrpose of a hotl~l
roo Ill-to provide a good night's
,I('('p, It also had ,In impact , During the first ye,lr 01' its liFt' , hotel silt's th,lt katllre d
Is the Strategy Feasible? ll
IIi!' \ \ca ('1I1 y Be d hall a 5 perce nt incrt':lst' in custOl1l e r satisi',II'tio , noticeahly
ct
It is Olll' thing to l'l'e att' the perfect strategy with respect to costollll'rS, COlllpetito)'s, v
1111 \)n )\'l ,d perl'('ptiollS or
cle<lnli Ill'SS , room 11ecor, and ll1ailltemlll \ and increased
and the m:lrh,tplacl', It is another to execlltl~ that strategy dTecti ve ly. Thl' str:lt('gv
Illay rC' llllire assets alld c'lpahilities that art' clllrently illadt'(platt' or do not (>xist , :11 It!
()('('1I1>:IIIl'Y, \ 'V l'still itas :ldiVl'ly Ill:III'lgcd the IIeavenl)' Bed hrand, The hed call now
n
1)(' \)lIi't'it:lS('(1. :11111 11)(' ('(III('('pl kls I)('('n l'xtc'ldt'd into th e !-Ieave ly \'hlth , giving
II
programs to deve lop or upgrade thelll Illay tllrn out to be unrealistic, AJJiallU" pal'l­ l'.lI 'I' 1(1\:11 ('11,101111'1' ,111(111)('1' (,(,:ISIl)\ 10 IH'li('\'l' ,lIld to talk ;thout \Vl~stin
to frit:ncls,
lilTS to fill the gclp llIay he difficult to find Of to work w ith, Fllrther, an ohj('l'l i\'('
 _ _ _" r " 'I"I~ '·-' ·i
I'n HIlld I)(' ,~ igll
All OU; 'I'i ll,c; 1':111 :ql IH ':tilll" IH 'I'so ll " :It's llll 'lil" 1"',,,"1111,: ', ',"I I~ lallli : " ,,,, II' ('\ I,, '('ss il '
;IS 11'('11 '" 1" IIW(i o ll ;ri 1>(, ll('lil s, ,J;r,l';II;II'Ir:rs IOIl,t.; 11111', " " '" Illi, ,SII'"II 'g." ;11111 is Sl>III1 'll'h:II
IllIi ll ll l' ;l1l11Jllg ('olllp<'litors (h a( look ;rli (()O si lil i la r, a" ir 1111 '." :til II SI' III(' S:llll, ' Willri
tllIlIW1. v\l f l ot(' ls hm 'l ' ,I IIlI ill"(' look alld 1(,(, 1 (", llich 1'\(, lId s to dll'ir mOlll s) 11,,11
appl'als to h1sltio ll - f(lI wa rd tr al'clt' I's, Tltc tr;llIslll('(,lIt /\llpll' iM al' show('d thaI 1'1"' 11
cOlllputers cOll ld h:l v(' desigll Hair. (Stvl'(' Johs has I WI.' 11 qllO tc:d as saying, " J)('si,c;1I I',
th e so ul o j' a 1'I1<IIl11ladl' c I'eation,") TIl(! Volkswag('n 131'('(-1(' ca ine hal'k w ith :I 111'\\
d t's ign that I'("taill (:' d l'IH-' origillal 13(,(:' tl l' look and its alltlll ' lltic [l('l'sollality.
Pursll ill,l!; a d (:'si,l!;11 option rt'ljllircs th e I'i nn to really Itave a p ass il)l1 t'ell' dl 's ig ll
and to SlippOit ;I ltoln e teJr a creati v(' d es ig ll tealll , Creatillg SII CIt :I l' 1IIt II re and ill("ra
stnlct\ll'c is a k('v to SIICC('SS ("or f-lnns l ik(' Jag llar, vV Holl' !.s, and AppJc , as 11'1' 11 :I.' ,
other desig ll dl'i v('n nl'ms sllch as Di sn(-'y and Halph L alll'l' n , B('ca use achiev ing a
ho nl (:, f-(l!' d csig ll ca ll Iw diHklllt, anoth er mllt(' is to <: l'(>,ltc' an alliallce w ith a des igll
finll , w lti c h allows acct'ss to Iwst-ot'- h rl'l'll d cs ig lH'rs Wit I' ll n(' (' ded , Ontsollrcill,!',
Gil l sll cu'(' d if't ll(' ('inll Inanag(-'s th(' alliallcl" lll'Olwrly and ('s taillishl's (-'X('111Sil '"
oWlll'rship ot' th (' Olltpll!.
Pmd llel Line Breadth
i\ COillpl'l lillg v;IiI I(' proposi(iOIl ('<I ll 1)(' h<ls(' d Oil [lrodil ct- lilll' iJr('adHI. B('st BII)' pl'lJ
vidl's :I OIlI '-StOP SIIO[lpillg l 'x[l( ' I'i(' nce t(lI' (' II'dl'Olli c good s, Iv i ("llll vdriety is OIl(' r('i!­
SOli Iw hilld ti l(' SII('CI'SS o r SlIhl\':ry Sll1l Y, I)('ca ll s(' it lilah ,s a COlllplH(' lillI' or IIOln, '
(' lIt(, ltaillll l('lIt [lJ'()dllds, one' I's (,II " tCJlIl('rS total sys t(,1ll d('sig ll alld a si llg l(' sO llrel ~ t(lI'
IIpg rae!('s alld " c'lv il'l',
E sp('('i ally ill th(' 11IISil1( 'ss -to-hIl Sill('ss sp acl' , IIlan)' finns al'(' tryi ng to 1ll01'( ~ rrolll
hl' illg (,OIllPOlll'llt sllpplins 1'0 h eillg S),S (I>III S SO llitioll pI:1),(-' rs, 0111' reason is that a
,o.;vS tl' 11I.S-iJ;IW d orgalli z<l tioll w ill he l11orl' likely to cOlltrol till' l'1I Sl011H'1' relatioll ship ,
!\llOtlwr is a I\( ~ed to captrJl'l' g r eat( 'r Ifl argill s, I )(,C,Il IS(;' CO lllPOllt' lltS ca ll tend to
Iwc0 1l ll' l 'OnlllllJ(litil's , Sililply iJlI1ldlilig p rod IIl'tS, thou g h, is r;\i'( ,I), ellough , T o d eli ve r
va lli e' to thl' CIIstO llll' I', a Grill Illli St ort("r not only prodllcl' hreadth hilt a svs te ln s ori ­
cnt-alion and ('xpI 'rl iSI-' ,
I'w r, ,I firm ca n Ill' making stridl>s and sti ll he c ritici ;t,(,(1. I ~P ('all lIlake significa nt
Corporate Social Hesponsibility
13P is sc rioll s aiJolit its ll\otto of " 13l'yo1ld Pdrok'Il1lI ," aggn:,ssi vt'ly promoting cO llser­
vatioll and ill ves tin g ill clt'aller e ll e r)..,'Y sourc(:'s, Th e Body Shop huilt lip a follOWing
thJ'()lI g h it's v isihlt, l'ndorse IlH:' 1lt ot' Third \Morld t'co lo[..,'), and oth er C<l llSt'S, \3 en &
Jerry's has supported (;'nvi r01l1lwnta l l'atl scs in (\ CO IOl-t'1I1 w ay that has enhallced til('
co mpany's image, Th t' H01lald McJ)ollald Hou se <llld tlw AV01l Hrt'ast Cancer
CnlSacl t' provide 11lllllistaka hke expressions ot' org<llli za ti onal ",IJues, Th e "HP way"
invoivl,d (\ ('o t)lInitnw nt to emp loyees , e:lI stoll l(e rS, supplie rs, and th c cOlllm unity to
w hi e:h p eople (:ollid rebtc,
CEOs helieve th at eOl1)oratt' socia l re,spoll sihility (CS R) c an [lay off In Oll e sllr­
1'(')'. 1ll0re thall 90 per(;(~ 1lt thollght thM sO(:ially r espon sihle manage ment create's
( .'/'11/'/''1' 'I s/ mft',!.',ir ( 1/" io " s I ()7
11.11,,111,1.1"1' V; till(', I III ;1111111" ,1' ,111.1\ , :;O() tirll!.' .Il1dC;I'd (0 11;\1'(' Ilig h CO llllllillll('llt tD
, ',1: 1' :1.1:r slig ll(ly I I i,c;111'1' sl<l(l 1'1'/111'11 dl1l'illga two ),(',11' p('riod 1)(',l!;illllillg in Ocl'ol)(')'
'11111 ): 1',' rIr:IJl s pro \' idill ,~ ;\ IIIOJ'(' direct nleaslln-'lll t' nt, ,1 UK study co mpared tlw
III 11/,1'1 111:1(,1 ' PI ' lleJl'111aIICC or thn~e energy cOlllpani es, T wo of th ese, BP an d Shell ,
\ "1'" IlI' IT('il,('(1 as l' nvironm entall y friendly w hile th e third, Es" o , had vi sihly t;l kt' n
II". 11i IS i t ioll t1lat n-'I\ t'wahle l' nc rgyw(\s not a viabl (:' so lution and that til(-' K y oto i1lt(~ r­
"rl iIJ II ,r1 accmds on th e ell viroll1llent were Hawt'd , Gret'npe,IC(' sllh,(,I [" 1'ntly attackt' d
I<,so w ilh a high -profill' "S topE sso" ca 1\lpaign , A SUhSl'lllwnt Crl'("nlwace p oll fe )llil d
1/ 1. 11 11)(' proportion or Briti sh gasolin e hll / (-,rs w ho said th ey r('glrlarlv Ils(>d E sso sta­
IIl'lt s dropped hy 7 p('rcellt dllring the ye ar of th e cam p aigl\. :l
Th e re al'(' good I'easons w ily CSH cOirid int-ill l' ll Ct' profitallilitv. M ,ll\y peopl(' 1'1111­
'/.II III ' ntal ly wa nt to have a relati ollship w ith good peopl e w ito c an Iw tru sted , alld titey
1,,' J'('I ' ivl' that CSH prog ram s re Hect <I firm 's V<llllt'S, t\ strong ,\lId v isihl( ' C:SH program
":l it dl 'li ve r se lt~ e x pressive h(-'nI.:'Fits, parti clrl arly for ti lt' cor(' gro llp or ClistollH'rS w ito
II.I\'C' strong te.'C'lillgs aiJollt environnwllt,d iS,Sl les, Certainly, 111;111 )' dri l,('1's ()I ' Tovota ',
1'1illS , th e leadillg gas-electriC hy hrid ca r, achi(' v(' signiFic,lIlt s(' lr-('Xp lrSsil'(' IWller-i ts,
III l ~ lC t , th e glailloroli s CEO or Th e Body Shop Japall dri ves <l Prill s <IS <I St<ll'('III( 'llt
,ri HlI l t ho th Iwrsc lr and hn firm , "\lith Prill s as tir e t1ags ltill or d oz(,IlS ot' (,lI viroll 1Ill'1l ­
1,, 1 progranl s, Toyota has ta1; (:' n th l' k ad e l'shipllositioll w i tll r('sped to CS H, at I('a, t
ill No rth Allll'ri ca and til(' F;lr East. A CSH prog)'alll l'<ln also 1)(' (kkllsi vl' ; ill tkll' il
": 111 Ilclp a firm d eal w itlr an accidl ' nt or c ri l'ici SI 11 11/ activi sts iJas( ,d Oil so('ia l 1'('SllOIl ­
,sih ilit)' iSS ll l'S ,
Ad hoc progr,1I1I S, t'holl gh , arC:' not the w ay to P"I'S II( ' (;S H, Hather, tht' p rog r;lIll s
11l'('(1 to 1)(' lel(,ll sed , nl('allill grlri , cO ll sistellt o v('r till)(' , ;lIle! hopl'i'l rily Ilralldl"d, All
riml S w ill g ive lip s(-'r vi('(' alld , on w r('so llrccs towa rd CSH, Th (' firms that st;ln<l (Jilt ,
"I <: h as Toyota and BP, hOlVl~\'('1', ha ve a r('al (,OllllllitllH'llt - I'V( 'n ,I passioll- alld rillti
\\'ays to ll1<1kc it vi sihl(',
Then' an: c hall(,llgt's ill p"rsllill g a CSH st' ra tc"gy. (1)( ', p('rhaps til(' 111 0St snio"" ,
in vol v('s c )'~' al'ill g u1ll'easolwbl e exp ecta tion s, !fa fiml is vi sihl(' and acti ve' w itl, }'( 'gard
10 CSH , peopll' w ill expl'c(' it to be flaw less, G iVCIl the comple xity or tl l(' iss ues , how­
in ves till c ilts ill r el1!:'wahlc l' II(, rg)' r l'lati vl' to its cOlllpet itors, lelr ('xall1pl e, hilt SOIll,'
1I1;IY corwctl y point out that (,Ill' ill ves tllw nt i s still slrlall r( ,!ati v(' to BP 's size, Ni ke can
Illalw progr('ss ill addreSSing the lahor practkes ofits of'!:·;llo)'{' sllppli ers, hilt still draw
[ire h ecIIIse problems remain , Allothe r chall enge is to ll1ake CSH prog ram s visihk
and r el t'vallt to CII S[Ollle rS , \\lall Y of w holll w ill fi nd a firm's CSH ,1c('i vitil'S too hI'
removC:'d from its otk'ring's <lttrihlltcs and h ene fits ,
Bmnd Familial'ity
Simpk hralld L1llliJi ,lrity (;,\ll c reMe ,I r ea"on to hu y, as we ll as a basis for a Cil stollwr
re lati o ll ship , I ti s r(, lll arkahlt' how IllI1 <: h LIl1liliarity can int-ill ence, Taste tes t's of sllch
p rodllct s as ('o iel S ;\lICII" ':l llld 1>11[(1"1' show th at a re cognized nalll e c<ln atfed evalua­
tiOIl S 1'\'I' 1l iI ' tlll' Slril.l "I'1 It as "" I 'C'I' Jlll1'cltas('d or II w d til(' hrand , Name alV,l l'eness
('a ll sigll;rl 1)!'( 's" I1 (,", "'"l1l1lilllll'lIl , "lid Si ri ,sl: ll\( '('- ;lttrilll1(,S th<ll' (',Ill 1)(> vc r)'
 .un l'u/II'I'/I 'f · \/1 . · /1101;1/· H",,,,,,.\.\ SI I lIlf ..!.!.irs
I'l'Odlld D('sigll
/\11 oi'll'l'ill,l'; call app(',d 10 a P<TSOIl's aestli('til's , providing slliJstantial s<:::lI~exp ressi v('
,lS well as [i IIldiollal Ilt'Jldib , .I agllar h as long pll rSlled this stratt',!;Y ,lIld is " olliewhal
Illlirll w among l 'ol npditors that look all too similar, as if tlll'v all ll s(;' the same w ind
tunnel. \ \1 H otels 11avl' a IlIliquC' lOll/( ' llld k~el (which extends to their room s) thaI
app<,als to l'i ,shion-I(JJ\v<lrd tmvekl'" , The tTdns lll l'ent Apple i,M ac sh owed that (-'ven
comput'ers cOlild ha\'l ' d esign Hair. (Steve Johs li as Iwen qllotcd as say ing, "Design is
the SO li I of a manillad e lTeatio n,') Th(' Volkswagell Beetle C,U1l(' II<1ck w i til a ne\\'
design that I'("taillcd th(' origillal Beetle look and it's ,lIlthl'lltic jl('I'.,onality
PlIrsllilig a dcsigll Opti011 i'('(I"irl's the !'inll to rea lly have a p'lssioll 1'(1), desigll
and to slipport a hrlllll' f"r ,llTl'ativ(' dl'sig ll tea 111 , C)'cati ng sll ch a udtllrc and inFra­
strtl durc is a kev to SIl Cl'(,S" for finns like ./ag Jlar, \V Hote ls, and Apple , as 11'(' 11 as
othl'l' d('sign driven !'irms Sill'/) as Disncy and l\;llph Lallr(' 11. BCl'allw achieving a
h()!lIe 1(l r design C, lIl 1)(' difFiutlt, ano th er rOllte is to creatt~ all ,llli ,llI Cl-' w ith a design
!'inn , ",h icl I allows al'Cl'SS to I wst-o l~h rl'l,d desig,wrs IVl w ll II lT<I(><I, Oll('s()I!rcing
ca ll SII cc( '(' d if ' tll(' finll IIIClllages til(' ,I"iallet' properly ,lIld ('sta hli sl ws exc ln si v('
()\vllCrship of' til(, Olltpllt.
Product Line Breadth
A COlllp(' lIill g va I 11<' PI'OP()Sil'iolicali II(' Ilas('d (III prodlll't-lill(' Ilt'l'adth. Bcst Blly pro­
vi de 's a Olll'-stop shoppillg CSPl'ril' IH '( ' IiiI' cl('dTOllic goods, Ml' nll v, lI'idy is olle rea ­
SO li Ilc itilid til(' SII( 'C( 'SS of SlihlVay SOllY, 1)('(;<lII sl' it 1II<1l\e" <I COllipictc lill t' 01' ho m e
c llt(' rtai llll ll 'lIt pnldllds, olkrs ClIst())II('rs tot,d ,S),st( ' ln dl'sigll alld a si llg lc S(lI Il'Cl' li)r
IlJlg rad( 'S alld SCI'\'icc,
I':s[lccia l/v ill til(' Imsi li l'ss-to- hll si!lcss ,SP<lC<', 111 «11 )' rinllS are tryillg t() I!lOVI ' frolll
hCin g COIII [H)!I('lIt sllppli l' rs to IWillg s),steliis so lut'ioll players, One' wason is that <I
s.vstcllls-hascd orgalli/,atioll will h(' l!lore li kc ly to control till" CIiStOIlI('I' relatioll ship,
AnotillT is <I lI('cd to capt II 1'(-' gn'<ltcr I lIargi li S, IWl'a ll Sl' co mpollellt's ca ll tend to
IWl'oll1 e COli IIlIodi til' S, Si n Iply IlIlntili Ilg pro(" letS , thollgiJ , is rard), (' IIollg h , To d eli ve r
I" (:sn, pcople lVi ll l 'xpect it to 1)(' [hwkss , CiVl'n the c(lInpl exity 01' till' iss u('s , how ­
vall W to I'h(, Cl lst(Jllln, a riml III li S!' o/kr Ilot only pmdll(:t hreadt h hut a systcm s ori ­
I '\'(' r, ,I rirtl1 can he nlak in g stridl:'s ,Ind sti ll Iw c riti c izl,d , BP can Iliake sig l1iHca nt
('Mahon and expt' rti S(',
COrpOl"ate Social Responsibility
BP is st' I'i()IIS ahollt its lI1otto ()f " Beyolld Petroleum ," <iggrt'ssive l)' pnJlllotilig <;onser­
va!'io n and ill Vl'sting i n clea ll l'r en<-: r).,,)' SOllrCl' S, The Body Shop Imilt up a li)lIowi lig
throll,L; h its vis ihlc endorsl' nwnt of Third vVmld eco lo).,,)' and oth er caust's, Ik n &
Jnry's has sllpported eil vironmc iltal callSl'S in a co lo rful IVa)' th,lt has en h,lI1c(' d th('
comp'll1y's ill1<lg(', The nonald McDonald HO!lSe alld the Avon Breast (;a n(l'l
C rttsade providc' lIlimi stak"b le exp ression s of' organizational va ill es, Tht> " Ill' way"
invol ved a cOl11m itl11 ent to e l11ploye('s, custome r s, sllppli e rs, and
w hi ch people co uld relate.
ti l<' ('Ollllllll ilil l' I()
CEOs helieve that cOJl)(Jrat(~ soci,,, r espoJisihility ( :S I\ ) (';111 I " " ,,1'1, III <1111' Si ll ,
l'\', mo re than !:lO percent thoug ht that socia l/v \'(',SI)(IIiS i/,jI' 111;/11:1"."1111'111 l' II'" II 's
\C
C/W1 Jter 9 Strategic Op/iol1s 167
,,1,," ('holder value, I rn another study, :300 Hnns judgcd to liave high cOl11mitn l t' nt to
I :S H hau a slightly hi ghe r stock return du ring ,I two y<,ar period hegin n i ng i /1 Octoher
'I)OO ,'? Perll<lps prOVidin g ,I mort' direct meaSllrenl('lIt, aUK stll dy co mpared the
1I"lrkdpl<lce p eri()J')n an ce of three en er).,'), comp,lnics, Two of th ese , HP alld Slw ll ,
' \I ' i'(' percei ve d as en vimnnlE' ntall)' friendly w h i le the third , \:: sso , had visihly taken
li lt' position th,lt renewahle t'ne rgy was not a viahle SO"ltiOli ,llId that thl' Kyoto inter­
11 :1 1iOl1al accords on the en vi ron 111 ell t w(' I'e ['Iawed, C rt'(-' III)(" l(,(' Sld)S('fjIH' l1th att<ll'k('d
I<sso with a hi gh-proH le " StopEsso" campaign , A suhseqll l'nt (;r('(-' I1 I)('ac(' p oll f'oulld
11/,11 thl' pmportiOlI o f British gasolin e hllyl~r., w ho said tlw)· r('gldarl y II s('(1 Esso st'a­
liol1S dmppeJ hy 7 percent during the )'e<lr of till' c<ullpaig n,:1
There arc go()(l r easons w hy CS H c(lI dd inHtll' nce proritabilil y, Many peopk hlll­
1I.IIIwntally lV<tnt to have a relat ion ship w i t h good pl'opk w ho can be tl'lls[(>d , and tll('i'
1" ' lu'iw that CSH progr,lIns refl ed a rir l11 's v"hl('s, /\ sl'rong ,II Hj v isihlc CSt{ pmgr,1I11
,',III deli ve r self'-l'\pressil'e hendits, particillarly 1'01' tlw co rc grollp ol' c lI sl'onH'rs w ho
1,,"'1' strong reelings "bollt e llvironnwntal is,SIIl'S, Cntainl y, IIlan)' dl'iv(,I's 01' T oyot<l's
I'ri ll s, th(' lead ing gas-el(-x't ri c hyhrid ca r, achicve signifi can t s(' II '- expr('ssi\'c h cndits,
I II I'ad, the glam orou s CEO 0 1' The Body Shop Jap,1I1 dri Vl's a Prill s as a sta tl ' III ('1I 1
,,1 >(lllt bOl'h herself' alld her rinn, \Vitli Prills as th e Ilagshi ll 01' d O'/.('IIS 01' (' lI vim I1l11 ('I1 ­
I,d prograllls , Toyol'a "'lS taken I'he I('ad crs hip POSitiO l1 wil'h r('s]l('('t to CSI{ , <It Ie<lst
III N ortil AIIIt'rica and til(' Far East, A CSH progr'lnl calt also II(' d('I'('nsi v(' ; in I'hat it
1':11 1Il('lp a finl1 deal \Vith an accidcnl' or criticisln hy adi vists has('d Oil social i'l'S[lOIt ­
, i/>i lity iSS ll l'S ,
Ad hoc prograills , tlHJllgh , ,Ire Itotl'he way to [l"rSIl( ' C:Sl\, Hal'/i('r, til(' llm),!:r,lIl1s
to h e 1'0CllS('ll, Illl',"1ing hd , CO It SiS[cllt OVl' r tiIIH'" alld hop(' l'lIl1 v 1ll';tIHlcd, All
1I1 ,( ,d
lillliS wi ll give lip se rvicl:' ,111(1 somc ('(' SOll r et>s tOlv,lrd CSlt '1'1 1(' rin llS tllat sl',IIHI Ollt ,
\11(' 11 ,IS Toyota and BP, hOlVl' vl' r, have a rcaICO/11ll1itll1ellt- ('l'l'n a passion- ,ll HI nile!
\\ " tVS to lIuke it vi sible ,
Th e re ,Irl' chall enges in pmsllin g ,I C:S H strategy, On(" [wr"a[)s till' \lIOSt S('l'ions ,
illl olv('s c(,(>,lting IInreasonahle (~x[)t'ctatiol1s, II' a rirm is vis ihk alH1 "di,,(' with H'gard
i ll\'l'sl' nl l'i1ts in relwwahl(" t'n e r).,')' rebt ive to its cOl11pditors , 1'01' l')(,ltIlpk , llilt SO I1H'
III 't,Y corr ectl), point (lilt I'hat the investm ent is still sl1lall relative to Bl"s size, N ik(' c,ln
Illake progress ill addressin g thl' hthor practict' s of its olTshorl' s"ppli e ,'s, hilt sti ll draw
IiI'(' Ill'callsl' prollklll,S reIII aill, i\lloth e r chalk~ lI ge is to l1I,tl\(' CSH program s visible
,lIld ('(,I('vant to Cll stom e rs , mally of' w hom w ill Find a rirll1\ CSH adi viti(>s too ['ar
11 'IIIIIV(,(ll'rom its o fferin g's <lttrihuks <lnd hener'its,
Brand l'amiliarity
Sill'll ll ' 11 1',11 1" Ll1niliarit)' ca n creMe a reason to huy, ,IS well ,1S a basis for a customer
" ,l:tlillll,llill. It is i'l ' III;lIlahl(, 11011' 1I111 Ch LlIl1ili,1rity can inHlience, Task tests or slich
1,,',,{III('ls:lS 1'"i:tS ;11It! 1H';III1t1 IlItll('r sltmv th at a recogllil',ed II a111 t ' c,ln a[lect t'valu<l­
li!)lls ,'\ '1'11 ii ' IIII' , ,,Li{ ... 1 I" IS 111 '\ '1' 1' 1'1l 1'(' ll as(,d Ill' IISl,d t il(' hl"lIHl. Nal1l e all',Irl'I1l'SS
1':1 " si,':lul 1"" '\1'11"" <'lIlIlI ll ill ll l' 111 :1I1t! "lIls l ;I11('{' ;dlrillll\<'s 11t"1 (':III 1)(' \'( ' 1'1'
 Iii," /'u 'l i l l l l ' I'
\ !//'/I/f/(i, (' HI/sin(' s."; .'.·l rO/I.gies Citaptel' 9 Strategic Options 169

IIII/ '(l//;IIIi, ('1" 11 10 i'Il/', sll i,1i /lIlv('rs of big- ti cket it(:' J)lS ami conSUJlw r buyers 01
dilla/)/C' good" '1'/1(' logic is Ihat ir a lIallle is recognized , the re must be a reason , Th (,
" 'lllc ,lllI sic!c," L'ililipaign has t'arned a signdk'l llt price pre miulll for Inte l by c reating
il percep tion oracl l/anced techn ology, eve n though the aels do not co III III un icate Cl ny­
Ihing ahout the company or the product, This re markahle S\l ccess re presents til('
pure POIVC I' or awan' II (-'SS,
Brand alVal'enl'SS is an asset' th at can be extre me ly durahle and Ihlls sli stainable,
11 can lw vel)' difkllit to dislodge a hrand th at has achi ewd a dOlllinant awaren ess
lel'c i. elistolll(-,],S' ilWilreness or tilE-' Datsun bralld, I())' examp le, \Vas ,IS strong as thaI
o r its SIICU',ssoJ', Niss;lll , I())II' yeilrs aflel' th (' firm changed its 11<1111(::.'1 An awa)'('~ ness
slildy on 1)1c-~nd(' rs OV(~ r tlV('nty years arte r CE Slopp('~d making the produ ct !(lllnd thai
thl' CE hralld lVas the seco nd Inost pre li,' rn>d Im lnd ..; Anoth er study of /illniliarity
asked 1)(lIn(-'nlake l's to lI ailie "s Illilll)' brillids ,IS tll('Y co uld ; tlk." av(' raged IWt~ nty­
c igllt II ,IIII(-'S cilch , The ages or!'lw hrands lIillll ed W(' I'(" sll ll)rising: nHlre thall HS pe r­
I",\( ' tol erated becaus e there was no option , For exa mple, the automobile b uying
"I H' ri e nce was di stasteful before Saturn and Lexus introduced a ve ry diffe rent bu y­
1111' "\pe rie nce whi ch becalJle a basis for a new customer relati onship , intimacy can
,1', 1} ('ome from de light at an unexpected expe ri e nce , sitch as th e massages that come
\ ill, Vi r~in 's first-class seats, the piano in a Nordstro m store, or the Harley- DaVidson
I'''IiII )..'; p,uti es , Or it could llevelop Fro m an ove r-the-top product , such as Krispy
\, " ' Ill(' doughnuts, in-N -Out hamburgers , or Apple's iMac,
Til e highl y loyal. eve n fanatical custome r base sometim es created through an
li d illl <lcy stmte h'Y needs acti ve programs to nurture and support it. H arley-Davidson,
1,,1' (',sam ple , supports its Ilarley Owne rs' C rollps (HOGs) with local and natiollal
,'I ' 'Ills, clothing alld accessories, and a 'We b site with a host of supportin g se rvices ,
" " I"din g a trip plann e r and online ph oto cente r. Virgin con tinually adds new feat llres
""I s(' rvices design ed to Sl lpport its im age of he ing c J'(~ative and willing to ign o re C(ln-
I' 'I<I io n in pu rsuit of' enioyable custo ill er (;'xpe ri e llces,

C(,II t \V(' r(' ov('j' SS-vC'a rs-old , a llc! :36 pe rcent- \Vere OVe r 7.5-yea rs-ol cl fi Thi s list oj' st rategic option s could he ex tended in an y givt:n context. For now. in

Th e f"';(g lllC' lltatioll <111(1ciliitcr ill mass Ill cdia makt' th e lask ol' llIli/ding aWarE'­ 1S
il J{' Idan ce of this ch,lpte r and in th e next two. we will eX l)lore fi ve: OptiOl ill more

ness a lld pn 'sc' n('(' c'('onolilically (' 1'(-' 11 Illore li>rl nic!; ti)l c', Eve ll I(>r bra nds ,s lIch as ,1, 'I;lii: ciuality, vali l(-', innovation, focus, and he in g global.

SOllY, c: I~ , 01' Ford , whi c h "'Ive ;t IlI'oad product and sa les base , ma intainin)..'; visibil ­
ity is a cJIi,ll c' " ge , 'I'l l(' kc~y is 10 IH'COIII(' ski lled ilt op(" "<iting olltsidc th (~ normal
IIl e(/i;1 c llill)Il(' ls by II silig ('v(' nt promolion s, pllhlicily, sa lilplillg, and oth t'J' atten­
tioll-,l~/ill> l)ill,l!; iI»pro;(c hc 's, For CX,lI l1pi<-, c()lI sider th e impact of' S,un sllng\ Olympic TilE QUALITY OPTION
spollsorsllip. I' ll(' Ni k<'i'olVll ,s llolVea,'C' stor('s , alld Swatch hangi ng a HiS -yard-Jong I','r('(' ivcd quality can be the dri ve r o f a bllsim~ss strategy as th e LeXli s case shows,
watel l fro II I sk."slT''l)!'rs ill Fnlldd'llrt all(l Tokyo, All or thesc' fil'llis WC I'(~ abl(-' to 1',, 11 th e Schlitz st(lIY illllst ratt~s how a faillli'e to de live r call he di sastrou s,
ill (' I'C'as( ' tll('il' illI'<lI'(' II (:SS I('I-('b III 1Ie1 I nIOi'l' (,n(-'chl'e ly thall if' tll (,), had re li e d only
Oil Ill ass IIlet/i il iI(il-e rh sill ,l!;,
I '('x us-A Passion for Excellence
Customel' In timacy 1,'IlI' lIlore than a decade, LeX lIS has bl~ell aillong the leade rs Oll a variety of ohi cctilf('
'I"illity indicators, In P'l lti clilar. Lex us in th e U nited States regularly captnrc's th (' top
1\11 fi J'lIl S plan' ;til (' lllpll;lSis Oil I'Iw Cll.sl'Oliler. i\ 1('\\1, IIOI-\I('V<:T, Cl'e<ite all (-'xpt'l'ien ce that
"1" II ill the J,D, Power ratin gs of initial custome r satisfaction , IOllg-krm depe ndah il­
COIIII ('US th e o ni>rillg to th(, l'lIstonH-'r on a llIore iI1l'0Iv('(\ and passionate I('ve l. For
<I ,' and th e most appealing pre miulll lu xury cctr, in 20()2 , in th e first Powt'J' sm vey in
th( ,sc' fiJ'llIS, Cll sto nl('l' inlillla(y is a sllA('gic option, Starbucks' visioll of'a "third place"
( :"J'Jn<ln y, Lex us was again th e top nameplate, placing aheau or the fam ed Genn ,lll
(a ile I' hOillv alld of'fice) when ' peopl(, 1(-c,'1cOlnlilii'ilhlc and S('C llre represe nts iln expe­
l,r;lIl(ls, LeXlI S was also nam ed the fillest luxury sedan in Ame rica by th e AMC I orga­
l'i( 'II l'(' that mall)' Cli stClill('IS vicw as iI high point in their day Som e local hardwa re
lIil.ation, wh ich evaluates cars on 193 dim e nsions in vol Vin g appointm e nts, perf(ll'­
ston's (Teate o('('rings, speci,tli zvd se rvices, alld pt' rso naJ CJ1 stollle r relationships that
'" ;III('e , utility, <m el de fe cts, Th ese successes exe mplify an incre dihle <ju ality
a ll olV thelll to prospt-' r while compc,'ling with "hig hoxes" sllch as H(lIIw Depot or vVaJ­

1H'I' I'o l'JIIallce ove r a long tim e pe lim1.'

Mart. Nonlstrolll has gell('rated a cli stolll er link by offe ring pe rsollalized service and
i\ Illong th e many re,lsons behind the Lexus achi eve ment , seve ral stand out. First,
iI shopp ing ('xp('J'iellc( ' lhilt o ftell dt' lig hls ntthe r thall merely satisries, Sony and 3M
11((' LcxlIS co ncep t was hased on quality from its ince ption, Toyota laun ched Lexus in
hillle Similarly cOln Wdcc! I)y proViding products that gl~nt'rate a "\:\1owl" respO ll sC,
II ((' (';11'1 )' L9KOs as a brand that wo uld take cllltOl11obile design, manuFacturing, and
Fin lls that create intilll<lc,Y lillder.stand Clistolli ers at a d!:'ep leve l. They tl!:'li ver an w lailill)!; to a lIew level. Second , the brand delivered o n the concept , as Lexlls drew
eX[>('li C'lIce Ihal is satis li illg on several levels , goillg I>eyond Jilil etionalbe ll efi ts to Im)­ ' "1 assets <llId competencies developed by Toyota to make cars that w(:'re Ill ore reb­
vide ('ll1otiollal , social, alld sell-~('xpre.ssil'e he nefits, The open -road !:'xperi(-'Il('(' ilssociat<"d ,,/ )1(' alld kid fewe r de fects, Third , a new deale r ne twork offered the pote ntial to
",ith Barley- Davidsoll , IClI' eXilmple, has ililpoitallt SOCi,ll alld s(-'II~(''\ pl'( 'ssil'(, (,IC'III I'IILs , 11I(' ;lk I'rolll ilHlll stry norm s and provide a pleasant bu yin g expe rience, Fourth , th e
Th e reSI til is ,III ill tensely loya lcllslo II i(' I' haS<' I'llat lVi" lal " ,t! )011 I II I<' 1,1'; Ill( I;Ilie/II I<' (', PI'­ IlI"i liollillg or III<' I ,C'\ II S bra\ld (with the classic "rele ntless pursuit of perfection"
I'ic 'ne( ', lIol' jllsl to otll(TS ill th(' "('1111>" hill also ICI tJ,o.sC ' wh() ,s /)(Illici/ ",
1 ; 1~lill(' ) d"lil'c'n,d II,c ' cl" ;'/il\' 11I, 'SS;lgC' ('o ll sistc lltly ove r the years,
'I'll(' kl '." 10 1'1 ''' ''-)' 1III'lI ill,:.!; Oil c'II .\ lclIIIC'I', ;llIcI ;t('I'i( 'I'ill!~ ililill' :1('1 1111 1. 1,1 I", 1.",,,,," '1'1 ... (, I' ;I II"lI g(' 1';)('111)': \ ,(""~ \l IlW is lilill d, 'sl'il(' its SIWCC'SS with a cj1wli t)' miss ion
ill ,L; 1I111 11C'1 III "'I !.' ill II II' 1I1;1r!,('II)/;Il'" l ilie/ i".L~ :111.'11'(' 1,' I" " """1, 1"",", 111.11 "11 , 111111"'" :11111 1l'( ' ~~" l l', " il 1' :ls hil, 'd I" d,'I" I"I ) 11111( ,1, Iwrs,,'l:"il \- ill C'IlIIII':lri s')I 1 10 111\11\\1,
 170 /'1/1/ 'illl'I'I' , 1//1'/ l/oli" 'I ' nll s il/I' SS ,\ /11(/1 ',': 1, ':

(,'/' ,, /,/r ')' II S/m l r'!,,/r ' (i/,/i""" 17 1

/'v1nC( '<ies, , Ja.~llal', alld C adil/;I(' , \.\-'/1( '11 /11<' /;11/1'1' I11':11 I</', ,1',1:1(/'1:11" 1, /osl 'd 1/1< ' ' I":dil )' ,!.';"I I
oV(~ r the years, till' L(':-- IIS 1I 1('Ssagt' hl 'C, IIII(' Il 'ss ('OIl IP' ,IIi II,!.';, I II rl's p'I II SI '. I ,I'.\II S hl,l:1I
edly has tri ed to inject SO IIl(' e lllotional and s('II~('s[>rl'ssiv, '
1II'III'Iih , as d l' lll lIlIs l'I'al('d I"
its Jllol.lifiel.l taglin e, " Th e passionate pursuit orpc r/ i.:ctio n," It II,IS IllIt hl 'I' 1i ,III !'asy la , I,
Schlitz: When Perceived Quality Falters
The stOl), ofSdditz heel' dramatically illl/strates the strategic powe r ofpen:t:ived qllalill
and how fi'<lgile it is, From a strong IltII Ilher hvo position in HJ74 (Ii,1i mil/ion harn'ls 01
" , ·,-f.,nna llt'(' . \\ '1 1,11 ,11'1'11,,- ' llI'I'il il',LlilJlI"''> Il o\\' \\ 1,11 is IIII' lask [In/(II'II IL ,(r,> J) () ,, ~ till'
1.",1 " 11/11,,'1'r "III ).!/"ss II'! ,Ii'!' , ), ",~ IIII' ha ll k i,alld II' Ira Ilsadi!)lIs wi II I spl'l'd ali d ;tl'l'lII'al'l'
( ( 'ull fi ll'm:tlll'c to spct'iliealiolls. D ocs till' prodllCI or scrviC(' per/()J'Ili r(' liab l" and llro­
" II ' 1'lIsI II IIII 'r satis l;lctioll'
' ,'t'a ll,,-cs. I)()C ~ till' airlin e- On(~ r the latest II l0 l'i,' techn ology, dl(-' Illos t COIll'-oltablc scats ,
,,, ,, I I Ill' Ill'st rrl''l" l' nt-I-Iier plan ?
( ,,,1(1111('1' SUppOI-t. DOl-:s tlw firm support th e Clistollw r wilh c'lrill,!.';, C()llIpl'tf'1I11WOplc
11 11 I 1,!Ticil'lIl sy~tI'IIIS ?

b(:'(-'I' allnllaJJy) snppolted by a w ri es of well-regarded "go fi)]' t he g llSto" ad c,lInpaig li,', I ,'nO('('ss qu ali l),. Is tl)(' pml'(~ss or 11(1)'ill,l; all d 11Si ll g till' pmd llct 01' S('ly il.,(, pl('as;IILt,

Schlit7, I(~"
steadily lIntil th e 1l1i<.l-1980s, w hlen it had all hll t disappean"d sa/I 's 01 (I\~th • ,II",,. II Lall rnlstratillg ,!lld uisappoillti ll,!.';;>
o nly 1.8 million harrels), Th(-~
stock IHarker vaillt: fe ll more than a billion dollars, I, \ "~ ll lC tic design, J)ocs tile Iksign add plea""'I' to ill(' l 'x[l(' ri Cl lu' o r bll ying alld lI ~ ill g
The col/aps(" ca ll he ITaced to a decis ioll to redl lc(~ costs by conve rting to a li 'l II" , prod llct or s('('vicl")
fll l:' lItation process t hat too k ()lIr d ays instead of h ve lve, sllhstitlltin,1!; CO nt syrllp fill
barlcy illalt, and Iising a dirr(~rent
f( )a m stahili /,e r, \Nord 0 (' th r:'w cll<lllges got into til<'
I ,L'.'"'(' fl .l C)1I:tlity J)illl('lls ioI IS

11Iark<'tpla('(~ , Tn ("ad" HJ 76, w ll t!n hottk~s

or Ibky, c lolldy -Iookin g Schlitz h('I'1
1llIll'"lpathy or the p!'ople wi th w hom Cllstonl('rs iill'(-' ra c t. '~ A sll c(,l'ss rlli III'g,lIli zat i()IJ
appea red on I'III-! sh"iv es, th e co ndit-ion W,IS eve ntllall), h'aced to til(:' new 1(),1I11 st"hi
I i'/,( 'J'. \,\lorSI' sti II, i II ('a I'ly s1lllllll(' r 0 I' tha l- sa nlt' y ear, a II a III tt(~ pl'l~d
ri x callsed th e 1)( '(' I
,Ilt'( 1 I'm I' IllllSl' dl'li vI'1' cOlls iste ntly Oil tlrose diltl('n sions, J)1,li vI'I'ing Sl'I'vicl' (Iliality,

to go Hat artl'!' a 1'('11' III(jnth,~ Oil till' slwl/'. In I'll(' li dl of 1976, 10 million holt"-~s ,llld 1,"'.\1 '1'('1', ,ti so 111(',lI1S Ill allagin g exp ectations, ll'!'x peda tioll s al'l' t()O Iligll , the s('I'v il'l"
( III 'Iil'IIC(' mig ht l it' II II satis I;I('/'( )I)' (,V(' 11 ifit is <It a higlr leve l. CI'IH ' r,II'ill g('iarit)' <lhollt
ca ll S or Schlitz W(TI' "S('l.'rc tly" r(-'ca lled alld "(, '(ToYI-'d . D espite ,I I'(' tlll'n to its origill:!1
PI'OCI',-, and aggn'ssiv!' ad vertiSing, Schlit" 1l(:\I('I' i'<'co\l(' red , II " ~ l'I'v i (,I' ]1l'OlIl is(', w lWlll'v!'r possihll.' , wi ll tllli s 1)(' IlI'lp/lt! ,
II IT.III S(-' n('gativ(~ (' x[l('ri c ll c('s ;Ire Illore sali('nt th all posil'i vc Olll'S , avoid illg I it !' 11 I

;\ I I" alit)' stl'at('g), Ill('WIS that thl.' brand- w lwHwr it i ,~

IllI' ho te ls, cars , or co III [>11 I
", "l lI' li as inl]>or t<t llt as lTc atillg positil'I ' OI l('S , Th(' c\ wll ('lIg(' is to s!'I.' k po inl's 0 1'
( 'r,~-will hI' pcrcciv('( 1 as Sll])(-: I'ior to otlwr hrands i ll i ts r di.."rl 'Il{:(' sd , Th e point 01'
1(l 1I()\'a11Ce and atl'i' lllpl' to rcdll ce 't lrei r in c id(, llc(' and in tl ' lI sit)'- l;()r , 'sa mpl(' , ill ordn

SII] WI'iority is noililllitl,'d to all att-ribllt" or snv ict' bllt spans HI e
('xc('ptiollal (1'lalit)' aCI'OSS prodllcts and indi vidual attrihllt('s, USllally, slll'h sllperior
ity lVill he a" soc iated wi tll a rric(~ pre lnilJlll ,
Th(' rd(''I'e llcl' s('( ('( mid be prt' mill III offerings, as it W,L, in til(' case or LI.'XII S, hili
sllpl'l'iority can also hI-' d e mon strat ed w ith rl.'slwet- to valli e Tit liS , Targ{'/
Illay he regarded as hig h(' r in (Jllality than ol'her discoullt rda iler s, althollgh no 011( '
wO tlld cO IlI'u sc it with Bloonli ngda le:, or Nordstrolll, It will simply Ill: judged on a
lere nt set ofcritnia, in c /tlllin g easc of parking, w aiting tim e at chec kont, courtesy or
o['( ~rillgs , delivl.~rill,!! III li lah, eVl' n wa itiltg ill l ille at th e ir r!'spective loca tion s h('<II'ahl(" Di sney pro vid!'s
" II I" I'taillnlellt w il'll ii's deligllt l'lIl l'ktl" lctl'l's, alld SChw,li> llrovid('s sto(,k IlI'WS,
III til<' solhvan,' and inl( )I'Illatio ll-pmdllds indu stl)" th e llm dllct~ Il!'ed to WOI'k.IHlt
I" '1I 'I 'ptioIiS of' qllality <I1'e orten dl'i vI'n I»), I'lrre(' IItlwr 1~ldors as 11'1' 11 , Fir"t , tile e ~pni­
o['( ~rings, ' 111'1' sllOllld Ilot I)l' rrllstl'<ltin g: tir e pmduct slloldd hi, ('as), to inst all <ll)(lllsl' , (' \-'( ' 11 1(11'
II" '-~ I ! who ,Ire new to it, SecoJld , I'll(' per/i)l'lnance 0 1' til(' Cli stO Illl'I' sllpport (,l' ntl 'I' is
dj(~ " IIII'd , i\ good SUppOlt exp cric [)u' w ill not only d ecr!'ase IIse r fl'llstratioll hilt ." so hl'lp
',,'at(' ,\ per sonal rel<ttionship hy exlril liti ng COnCl '1'I1 and co mpdl' ncl' , Third , so l hval'(~

II s(' rs do Ilot IVanI' to he le n I>I~hi!l(l. They W<lllt a con tinu o ll s strcalll of novel featurcs
thl' c hecko ut pnsOIl , ,md w heth e r desired ite m s are in stock, In Iltllch th e sa m e lIlall ,

1lI.'1~Cille tt e:, Good News i ,~

th e (Juality option alliong disposa ble hlades,
,lI lIl lIpg rades-Jl o t merely COSllldic c /t;lI; ges , hilt real improvc nll'llts that w ork.!)
OIl(' ITe nd is a grl'<ll'(;r elllp hasis on th e p rocess (' Ilstoill er s (' xlwricnce rat/IeI' thall
Superio rily w ill be d e fin ed hy custom ers, 1n nearly all co n texts , a sing le ovnall

indicator of(jllality ex ists , is relevant to (,ll stoillers, and ill filct drives other, Ill OW SP('­
I Ill' Oll tpll t or th (' exp(:'rie llce, h ecause often I'l l(' o utpllt is Ir al'der to difTe rentialt', A ny
1';( 1'1 o f' tl)(' total c li sto m e r-f~lcillg process lIlay rcceiv(:' a iJlI,t/ity li)eII S, in ci lidilig t it e
cific dim enSion s o(' IW rf(lnnan ce, To unde rstand what drives p er cei ved quality and /0

acti vely III ,Ill age it , however, y ou w ilJ ll eed to dderrnill e th l." IInde rly ing
in any gi ven con text,
diml.'lIsioll~
I 'ii sl 0 II I(' r's ill I'ol'ln aholl-gath eri Ilg, transactio)) , and post-pu rci wsI" I.~X peril:'))ces , On e
" 's liit call 1)(' till.' creation of branded leatllres (s {{ ch as Anld l',on's Olle-Click) or offer­
IIl g ,I si Ilipli (ied , less rruslTahng huying t,xperi e nc(:' (as ])ell d()(~s online , aud
Figttre 9,] Jists sev("ral dim e nSions of (juality th at arc oFte n rl' l('va nt, 01 COIII'SI' ,
Nlllds lmill and lloill e D t'pot do ill th eir stores),
eilch 0(' th ese dim en sions has Inultiplt, compollents ([(If exanlpll ', p( ' ri (l rll l;t nl'l ' IiII' a
1I I1ci(' rst<ln ililig ",/tat d r i ves Ijuality in a g iven segm ent is .1 cliti e,t/ s!'ep ill creati ng
p rinte r \\fill in vol ve attril>utes Sitch as sp ('('d, I'esoilition , <l lId (', ql,wil \'J, 1,'lI rlll('r, III('
I '1": iIil \' Pl'Oi,'/; 1I1 1 <1 1111 1I 1(lliitorilig its efkctiven ess, One r isk i ll f()cLlsi ng Oil sp(:'cific
list itself \\Ii II depe nd on thl.' COlltcXt. Th(' dinl('lI sio n,s of' I llLdil l ill ;1 SI' I'\ il'l ' Il r ,son
cO Ii/'( !x l lVili di('( ,1' I'm II I thoS(' ill ; 1 pl'odlll'l l'III1II'\!.
\I';t l'(' " 11I 1(' II ,~i() II S , l illIl:" I'I 'I , is Ih,, 1 IIIl' r('sidting measu res UIII 1Jt' countelvrod udi ve. For

III ,I ,Sl' lVi('l ' ('0111(',1 '111'11 a" a I'a ll/; , I','slllil 1'; 11 II , III ' II II' ll, ,' 1>."1,, 1" '.( ': 11-"/1 II: L~ ('\: II III IIL' , :I 1'111111 1:1 11\ ' SII II,!':! " III illll1l'1l1l ' thl' qll ality of its pholl e serv ice by lll e,lsllring

SIIl 'I\'III/I;IIIIII :lIi ll' is ":( -'I,d ill I :II ',! ~ I ' I':II ' I
11 11 II "'I"'II 'I' ill'd 1'11 111/ ,, '1, II ,, ' " "'1 '''1\11' '1'' '"-,,
I III' 1" 'I(" 'IIL Il'," III' .,,,11 , :111 '," "11" ""II'r IIII' fi rsl ril lg, UIlI( lrtlln ately, th e p ressu re to
:IIIS "'I' I' I "" LIII)II I L': III ", ,11 " " " II I ', I" 1"'1'11 1111' ,,111'11111 ;llId i llll lali!'1 11 w itll ('alh'rs, anri t-ilti S
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 \/(, /1I1/1l, , . nll';!,,/ I .. !, ,.... " fll, "/1 'I ( :111'1,1 1" .') \ 11"1 1'~:iI' (i"li(",.\' 17:'

• ()II I' ( '011"""" , 11 :1/1 '1 ',1( ' " 1)lill" j,; III (,1'l';\I<';\1I llll('ri llg w,t l, 1'l,;\1 ;\ lId p('r­
Q UALITY AT SIIEH ATON ('I,jvI,<I slIpnioril l ill '[I"dill' 10 I'( , ll'I'('1 1C( ' ('o lllpl'titor,; i ll th (' ('y e.,; or C II S­
(IIIH'I'S ()II ;tlily dill l!'lIS il) II S w ill d epclld 011 th e co ntext hut cou l d in c lude
II t('< 1l11 0" 1\-1'0 d07,('II ]1(,0]11(, <1(,\'(,10[1('<1 ;1 ';1 'Iv ic, , ill'l)"' JI'I" ""III I"' ''~rall l al SII!T;I I'"1 lH'rl'llI'lI);lIIC( ', c( JIII(JI'III;lIlc(' to sp ec ifications , fe atlll'es , c u stomer support,
laheled tlw Shcc: rahlll Cllt'st Sati"f;lctiOll SystcIIl. l :) TIll' S),S["III has ';"V(Ta l .. lcIII('IItS: "lid proccss <jllality.
• Custome-r-satisjactioll goals. Eillplo)'ces are expected to bl' h'iclI<IJy, "eb ,owl • I~( 'sca rch has shown that perceived lluality (hives both Ror and stock retlllll ,
('dgl! a glH'st's prcsence, answer gll t'sts' Ilucstions, and anticipate th eir pro!> II 'II!.'
;mel llccds . StarTp(" ri(ll'Iliancl:' ill these arcas is lll(~asmed, and good cmplo\-'('('s
are rewart/(·'d with p rizes and n:'cogllition.
H H{ DISCUSSION
• l1i-ring. Hesponses to lidcos ofpot(' lltially prohlematic incident,; help p(,rSOllll,' 1
-'<'led stafr who J'('aJly ell Ipathizc witl, p eople . l. COllSitl('r thr('(' or th t' f(l il owin g strategic Opt iOl IS : prodllct att rilJl lte ,
product d es igll , product-lin e breadth , cO l11oratc social respolls ibility,
• T,·(t-ining. t\ sel'i("s of' trainillg programs that incl,,(lt' role .playing ('XC I'l'iws hd"
stalT l'o[l!' w itl, difficlIlt situati ons. hrand li lllliliarity, custOrlll' r iJltilll<lcy, and (l'wlity. For each of' til ese
tlll'('c stw teg ic option." thin k of two Finns not Il'l e n tion('d in ti l<:' hook
• l'1easuremenf. Quart(,rly rcpOI'ts are bas(,d Oil guest (P'l'stiollnairl's that rat(' I"l'­
that hall(' pursued thelll . vVhi ch of' til(' two finn,; has dOll<:-' hetter w ith
tors snch a.' j,(·,d ('011,['"'( and roOIl'l lighting, ,I.'; 11'1,11 as intcr;ldioll'; with elllploy('( ',;.
resp('d' to the fi ve lJllsilWSS s trat ('~')1 chall(-!n ges'~ DisCllss why and how
• Ongoing meetings. Perrorma nce is assessed, pmj,iellls are l'ornx,tC'd, and
impro\'(")Il( 'llt prngr;t1l1S arc dcveloped . that fi rill was ahle to do h e tter.
• Rewards. The l'oP-P('rI'lI'Iliing <llId Illost i ll lpl'Oved hOl'ds cadi qll;u'(er hC(,OIlII'
2. Evah ,at(' th e <[lIality st rategy of' L(' xns wit h respl'l't to th e IJlISill(,Ss ,; trat­
111( 'IIII)<'I'S of' Slll'ratlll)'s "Chairlllal1 's Clul)," cgy c h all e nges . H ow might Lex us add llIore pnsollalit y ;lll(l e motioll to
its hrand'~ Think of role lll o d ('l s tllat I,ave ac hi ev('d a (Jllality replltatioll
;uHI a strollg p (, l',;ollal ity.

III III(' .'i (' lyin' ('(lll l'(',I', the III(lst ililportallt altrillllt'(,'S, sll c h as thc C(Jl IlP('['(' II( '"
:3. Pick a prodllct or se r v ic(, o n<"'rillg. ' ,low w(n dd YOII d c've/op a set or ('1 IS­

of' thosc pl'()\.' it!illg tl,(, s( T v i('C , art' ('xtr(,lll(' ly dillicl"t to <:-~vailiall'-collsid('r, 1',,, tOlllc r slll vey c[,lCstiollS that 1I'00 dd I Il<'aS Iir< , its qualit')' Oil an o ngoi llg

C;";lIl1 pl( " ho\V 11'11 (' t'l'i s is r()r slIrg('OII.'; , lihr<ll'iall s, airlill(, pilots , dellti sts , or hall/(I'I\ has is '~ 11011' wO lllt! YOII atllllinistl'r the .S llIVCY?
C Il Stolll(TS ('op(' hy lookillg at' thosc dilll (' n siolis that an' ('asil y c\'alllat('<1 , slIci, ; 1',

t l w ph ys ical appearalll'C of' P(TS(lIl Il (,1 (lr a h lci lity. TIl<: chairma ll 01 ' OIiC ai rli ll e \\':1',

l[lIotc'd as,;;tyill g , "COrrl '(' sta ill s O il til(-' flip -dowil tTa)'s 1I1( 'all [to til(' P<lSS(' lIg(' lsl
NOTES
t hat IV(' do 0 111' (' Ilgill l' IIlaillt('llaIlC(" wrong."'(; It is th,l.'; u ll cia l to IIlldcr.,;Lllld 11111 I. Sta ll L. 1~' ri ('d"""I, "Corporal!' !\,,"'rica's Social COllscil ' Ill'I '," 10001'/'/IJI(', Jil l)( ' 2,:3, 2.()(n,
o illy w hat CIIStOfll('rS 1)('li l'I'I' is illlportallt w ith r("lll'ct 1'0 qllality, hilt also w hat dl'i p. Sf),
VI'S tl,os('lll'l'('c ptiolls. 2, II'id .. P S4 .

:3. " Essll- ShOl ,,<I 1'1,(, Tiger Ch;lIlgl' I ts Stripes)" nqJ/f1111 iO Il 111 11'111'1, O ctohl'l' 2,()02, p . I (i .

4, David 1\. Aaker, M II II(/gillg J!ra1/(/ fljl/illl ' Nl'1I' York: Fn 'C' I'n"ss , 199 1, p. 57.

KEY LEARNINGS 5, "S hopp('l's Like \Vidc Vari!'lv or II (lIlS('Ware Brands," f)i.w:ol/lIl Siorl' Nt' It'S , Octol w r

24, 191)1), P 4().

• Strat'('gic optioll s- th at i s, particldar va " \(' propoSitiolis f(lr a prodllct 6, L co Boga rt ;Hld C;h;lrlcs Lei1,n ;lIl , "\ V/';lt ~vl;lkl's;1 Ihand N anl(' Faillili ar?" ./Olll'lllli of
ll1arkd w ith sllpporting assets and C()lllpdC IlCi (' s ;\II d f'lIl1dional stral'cgil's MlirK-dill;,!. il( 's('rm'I" F(,h rllar)' 197:3 , pp. 1/-2:2.

and progl'a lll.,;- I<Jrln th(' basis I())' SlIcc(".,;sfid husill('sS stra tegi(c s . 7, I ,( ,~ " ,; W (' 1l sit(~, 20():3.
, {. Valaril' A. Zeithallll , I. .l:'o llard L . B(~ ITy, allll A. ParaSlll'al1lall , "CO llll11l1llic;ltion a"d
• To he Sllccl'sshd , .,tTategic option s sh ou ld contain hoth real and pen;(' i, '('d
valli e proposi l'i ons alld h c rel evant, slistain able , and ['easihl e.
(:o"trol I'roC('SSl'S in til t' Lk livt' ly or
Scrvic(, Q uali ty," ./OUI'IIII/ of M llrkl'lill;,!., April
I ~)I).'), pp . :3.5-4.'); alld A. ParaSIIl'<llllan , Lcollard L. I ~l'r ry, and Valari e A. Zeithallll ,
• Anlong the many possihl e strategic options (;an he hased on a prodlld ,, ( :"ideli lil's for COlltincting ServicI" Qnali ty lksea rch," Murkutill;,!. Resellrch,
attrihu te , PI'O<I 'l (;t design , prodllct lin e bread th, COlroralt' social l'cs]lI)lIsi­ I k(,I ',," )('r 1 ~l9() , pp. :34- 44 .
hility (CS H.), brand f~lIniliarity, cust'olTl er intimacy, (luality, va), 1(' , illlllll'a­ 9, (:r.: l)ral, ;I!;,.1 ;,,"1 ~·I. S . Kl'i';ll;uI , "Th e N t'1I' ~.,rleanillg or QU<llit)' in the Informatioll
tion , r'(leIl S, and h eing g lohaL , I ~I·." II",., ",.,1 HlI s illl'ss I;", iI ' II ' , S"pt(' '''' l('I'- O cto),cr 1999, p . 110.
 ( ; II ,\ I' T .': B T 1< N

10. 1,.1\\1"110< ' 111'1<'1, .f ~ J\ ~ II . r I ,I' \ II', I ,(' . 1r I 1/ I (.' II. rid \
': !III:; .
\\ \\ \ \ ..1111 t !. \" )111 / 11 II II 1,\11 \ ./11 lit ' I j; I

II.
l\olH'rl .I :I('ol'SIJIl '11111 I )'" 'i" ,\. ,\;(1",1', "'1'1" , .')1 1 ·al< ',~i(' I{ol" 01' Prodll'" <,lll,dil\',
.I01l /'iIll/n/ ;\/IIJ'(l'iilli!" <kl"I"'1 I DS7, PI) :ll -'H .
12.
j):lv iti A. Aakn '"HI [{ohert Jacobson, "Th e FiJtallt'i:tI lIdi)I'JII:llioJt (:0111,'111 01
PCI'ce ived Quality," .Io ltntllf of Ma r keli llg ll ese(/rc/" May 1004. Strategic Options: Value,

13.

14.
For a sUnlm,,,y or tota1 lJuality managemC:'nt in the United Staks, sc,' tl,(, spcci;d
iss lle on Ihis suhjec t in California Ma'f/ilgell!('l1./ Ne vinc, Spring 100:3. Focus, and Innovation

A. Parasliraman, Leo nard L. Be rry. and Valwi e A. Zeithand , "Cllidelill('S lill

Conducting Se rvice Quality Researcll ," Mllrketing H.esnm;/I, D ece mhe r lY00, pp
.34-44.
15.
David v\lalke r, "At Sheraton , th e Guest Is Always Hi ght ," Ad Wc('k:~ ;\1llrketill{!, Wed
O ctoher 2:3, I YS0, pp. 20-2 J.
16.
Tom Pdprs and Nancy Allstin, A PIIssio nj'or F,xcelfclIce, N(ew York: Randonl !-lOllS!' ,
19S5, p. 77.

\I )", 1 1I1;lll('rs ill till' 'H '\I' ('('o nolll ), is "ot ('(:tIlITI 011 ;11\'('S I'III( ' III , l"lt rl'llll'll 0 1' illl<lg ill<lli o ll.
I . 1/ 'I IlflJlw/

II I(' lirs l 111,111 gl'ls th (' oyst!'r. [11( ' s(T( Jlld lll;\l1 gets till' sll('ll.
\or/lj 'n- (.'(/"J/ {·;:.i(~

" \ 1'1' IiJlltI\v tilt' crowd.

1:" HI li'l l ,\I. ll(/lw/I

I II lhi s ch apter, We' w ill co nl'ilill t' ddailing strategic Opl'iOIIS that ar(' IVid( ,I), IISClI , tllal'
led to SlI CC(-'SS over a long ht'll(' period, and Il)r lI'I1i cll SO Il](' L'\I)('ri( 'I1('(' alld
11.1 1 ('

lIi\igllt i.s availahle'o Th ese illCllld(-, the vali,,', inllovatioll , ,!lId I()CIIS OptiOIIS. jll ('<Il'l I
, '. 10.;,' , although positioning is il1lpoli<l nt, the strategy need s IlIOn': COllllllitlll('llt , ollgo­
II I,V, ill ve still ellt , and prog nlll'lillati c lll<lna)!t"H.' llt over tiIIH '. Thc cllltm(' ,u"l "dill'S of'
IIII' organi zation nee d to .s upport the str'lkgy Th e sOllndest strakgy h'OIII a 11Iarkct­
1'\; \('(' view w illllll'illlately blltl'r il' the organi zation is IlOt COlllP,ltihk alHI slIpportilc.

TilE VALUE OPTION

So uthwest Airlines
SOlllhw(;st Airlin es was founded in 1971 , with thre e phllWS scr ving tlm"c Tcx as cities, as
" low- rare airlin e whose goal w as to make air tml'd t' m ci t' nt and pleasant. Its aid ~m" s
1\ ('('(' so a,gi';ressi vely low frolll th e start that SOllthwt'st oft(en cOlllpeted as nlilch with

;(lilOIIIObil(' trav(' 1 as w ith oth er airlines. Even as it has grow n, South wes t's point-to­
IlI )ill!', IH)-I'rills appro:]('1t I I: is Illa<i( ' it the consistent prict' leadn ill th e markets it serves .
'1'1](' hr:IIHiIH'I'S(]ldill :"I,,"'s [/1, 0 .sl :lill(] (Td('kjoke s ,11l(1 h os t g'I IlI CS , ilJjeclillg hill into

177
 1', \)
( '/ 111 /,1" f( J
',(/u ll ",it' ()jI';tI/l s : \ '" II/f ' , I ' /wlts, Ifll,! 111 11(11 01;1111

178 Pari Three Alt e rnative Bu siness Strategies

1",[, I T l )('g:111 ih Iii'" l"i",,":11 'li,""~)Il I:II'lllilid ~I I,()()() ill IIlOcic ' lli clolLII's ), 11IIl llll'
\Vh at could hc a h orin)!; tim e allli [illther di stin guishing SO\lth wes t From its cO lllpd ilol " \11 " I', ," ('''l lIiIIIiOll sl v Ill dii ill
1
I \)L~ il (,I>:-; llc 'ss lil all ~:30(1. As ~II'C's IJlt, llll' cie:III<llld ror
Th t, relatioll ship or tbe st<lff to cn stomers and its o utstamling on-time record h ,IS 11('11)('.1
!1I11 1I1," li ll'S C" p, lIlci c'll, allc 'dill g lllc ' work allcil ikstyk ol'th c til1l C',
SOlltllW{'s t w in numerou s c ustom er satishld io ll hon ors over the yem s, IIII' I'~lr
c'l)lIld hl' \,,,Im ' pricc'd l )(-'c;\1lse 0"
the m ass prodll ctio ll th at Ford pi o­
The low - I;\rc-' position often ca n1(:' under attack hv a!l;gress ivt' and sometim es de ':, II" 1, . 1 rvl oci,'I' I\ all Iisecillw sam e chassi s, we rc aln)()st ;111 th e S;lIn e colOI' (black),
l)Crate cO lllpetitors, w ho Fai led beca llse Soulh west had establish ed a sustai nahle C()~ I !II, I "1'1'1' ti l'S igllC,' d to he easy to huild, As ,I r esult , prociuctio n costs declin ed ,Iccorll­
ad va nt'lge suppo rted h y i ts no- Fri ll s operation , South west has n o assi g ned ,seal', IIIL' I,. :111 , )s Jlcrcclltl'\pl' ri c nce Cllr\'<:' ( lholt is , e(l,sts Fell nlllghly J 5 percc llt eve ry tim t'
l)l',lIllltS as llI eal se lv ict' , and w agcs that are he low the indmtry av<:~ rage, Th e compalll 1IIIIIII.IIi \(' procill cl io ll douhled) , Figure 10,1 presenl s tl 1<:' pat tern , Th e (-'xpe ri <:' ncc­
also ,Sh llli S I;ulcv hllhs, rese rvati o n syst e m s, and glob al sc hedu les, Because of its S('I lil l i ' 1,IliTt was creat ed i n part hecause of t llf:' huildin g of the hllgc 1\ivl'r Houge
vice llIodel , SOllth wes t (;(lIi1d t llrl1 aro llnc\ plan es nlore cinic kl )" w hi c h rc,s lllted ill 1,1,,111 ~I
)'('c\llction ill th e propo rti o n 01' In <ln;lg<:' llIc nt stalT ( I'ron l 5 p n(:(-'nt to 2 pl'r­
IIICI I"(' trips alld scalc ' c'cono nli cs, Tli e hll sin ess 11I()(lei and brand p er so nality we r e " 'I I , III " I' all ClllpI O)'l oes) , extcils i ve vCltic-d illtq!;ratlo n , ,lnd th l-' c l"("ation o r inle- th~'
port l'd hy a Cll1tlln' t hat valu cd cost co n tainm ent and cus tOil\ cr sc~ rvicc,
CO lilpet itors sm, ll as De lta alld Am e ri ca n could lI ot cut sc~ rviccs th at their CII',
I II, ,, l'I)II\'c'yor-dri ve n 1I1cch<lni i',(' c\ production proccs,s ,
III ll)(' ca rl y 1920 s, howev('\', co nsll Hll'l'S I wg,1I1 to ),( 'C[I II'St h ('av'i l' r, clos c d-hody
tOl l lcrs (':\jlcckd , nor cOidd tlwy adapl tllCi r slT,lteg ies , w hi c h we rt: hascd OIl ,I
• II ', I h:l l oll(' r ed In OIT CO ll1rort. Tlw IVl oc\c1 T lle-sigll COllld no l' 1)(' c,clapt('d , ,Ind ill
1I IIh/I"( 's('l"vation / ll l('a ls ,>;\/St C'II1, A s a res ult , til(' Ilo-hills stra ll"!-,,)' tllrlwd Southwcst illl" 11) ' , I'- "rd had to slillt dow n opc"ralioll s ror lIea rl y <I ),c'a r to )'('toor. Th e: [()C II S Oil C()~t
al l il ldll stry w illner, ,sc 'paratil lg it rrolll its strug,l!;lillg cOlllpe htors, II
I< dlH' li')1I and (' xp loitin g t he c'''pnie ncl' Cl l r \'c' , it' t l lnl c cl ' lIl l , lilllit ed th e CO I P,III Y's

,,!.tlil " l,) rl'spond to ch all )..':in g tilll!'S ,IIH I l'o lnlll'tilioll. TIIC' sl <lll darcli 'l:(,cI product ,
Ddl C ompu tel' " I, Il si\'( ' v(' rti cal integrati o n , ,\lid sin gle- Illimll"d dcvot illil lo proclilctioll illlprovC­
I k ll wa,s [ClI IIHI('ci ill 19K4 hy rvli cha(' 1 D c,11 Oil a sill lpi c ciirl'd- ll1odc l cOlll'cp t -sc, 11 III' Ills kill (' l e~lr c'xp c ri t'I1Cl'-cltr\'c advan tages, hi lt th(,y ;t1 so t(' II(\c'd to l' n ' atc all o rg<l­

ill .L; ('O IIIJl"l crs hased Oil ill(\ l lstry ,s tamLlnls , ass(' llIhl l'd to o rder, d ircct ly to C II StO IlI( ' I ~, III ' IIj ll ll w hosc' )!;oals ,\l1d thrllst w cre illlilll ,lt ely ill vol ve ci witll pr('servillg th e shih IS
~I l I()w In ic('s , 1 'I'l l(' dilcct salc's Il Hlc\c1 creal"l:d visih le c IT ciihili ty [()r a low -cost vallw 'I"' III(' cx istin g prodlJt'l , Th('l'(' is 11 0 I'rl'l' Illn c h ,
Jlosili oll '1'11('1"( ' alT 11 0 I c:la ilcr or o tllC'r illtc' rllictii ,l ry Illarkllps, as r el<lil c'r,s alld othl' l
r('sI' II c'rs all' c,li l llilialTcL I II aclciitio ll , 11i iSillC,SS CIIStOI1l('l"S IllHkrstallci t hat Dl'II 's cosl \ 11 1 1I' ~ lrl v t:vc ly 11l <lrkd , rnlill "ppli ,ul cc's to l'CO II 0 1n), sc, dalls to to()thp,lste to 1>ook­
,s trll d ll rc' 1)(,lIdil s rmlll Illillilllal ill\'c' lltory ~ lIld w arehollsin g cos ts- Dc 'II tllrn,s i Il V(' 11 j II. I S l o hrokerage' st'\'\ icl'S , thc rc' w ill 1)(' a SCg lll CTlttitclt is Illo ti vatc,d 1>/ price, I~ve ll
tOl'V c'\'c'r\ I()I II cia:'s, Til li S tll('l"(' is logiC h ehinci th e low -cost c1ai III , III 111~I H ' lltllllarkds slICh <IS "I xllry sports sc d ans , SOTlIC' i>rallds 1'01' CX<l lll pk) ( t\cur~l,
]) c'll lias Il c'\>(' r h CTIl til(' (lld y fil'lll ,sl'l lill g cOlnplltns dil"('d , Illi t it "'IS l' ll H'rgl'd ", .II , l; lk (' IlI lt ,I vaill c positioll , \V hdl ll'r it cOlllprisl's ]ll PC' I'l'(, I It o r KO jlc'rcc llt ol ' tll('
<IS sl lpnior Oil kc ')' C'Olll llC )llC' lltS or ll l(' 11II.sill('ss Iliotlei. D c,l1 always Sl'C'IIlS to h c all('ad III "L, 'l , tl1(' pri cl' s('gnll'n t' w ill U S II~lll y 1>l' <I significanl OIH' ,
l
ill t('I'II IS 0 1' c, rric ic' Tl l' il 's ill logislics, distribllhCllI , ami nlallilractlll'ill g , c"speci ,dly art( '1 1,:C:IIIII'in g till' vaill c' Sc:gllH'llt C;UI Ill' ri sk y h l'l', lIl se C'\,(, II 1)(,<lltl )' 11lark! 'ts C III
ck vc' lopin g a vollli llt, acl \'a llt agc' ove r its din ~ct cOlTlpditors that lias res lilt('( 1 in sigllir • I.h .. i lllo sitlwtio l1 s w h e re L))'i cl' grows in inlpor t ancc, I n con sll llll'r el( '('[ rolli cs ,
icallt sca lc' C'CO Il Ollli c',s, Part o r thi s is dil l' to a low-cost c ldtllrt', D c ll Prl'sick nt K cvil! 'i' I,Ii:I II CC'S , ,llld other L) roc\ll ct ;IITlIas, cOlllpdito l's h a\'(' crc 'atc 'cI OV(' IT<ll)<lcit\',
Hollills h<ls notc'cI , " TI1<'n' are SO IlH' organi i',atioll s wh t'n~ pcople' think th cy'rc~ a IH')'(I
ir t ilt'\' iIlV('l lt ;1 Il l'W t iling , Bci llg a h ero <It D e ll l1l e,IIl S savillg nlOll cy"z • I 1 1 II 1--,--,-,-, 1 I I r - fl­
6
TIle' di nT t-,sc ilil lg hll sillcss Ill ode l provides advantages t o D('II 's CllstOIllC'l'S
CJ) 5
I wsi d('s low('r costs, First , hccall se t he COl1lp llt<>.r is asse lllh k d aft er th e onle r is ~
4 ,­
'o"
n'cc i \'c,d, it C;UI 1)(' (; ll sto nli i,c'd to c-'xactly w h at the cli stOl1l er Ileed s and wallts , Sl,co ll<l ,
o 3
:-----".:n----­
, ;09 ,910 ,;;;-____ •
1)(,(,<lIIS C hlli slw d cOlllp u ters do not sit ill ware hou ses o r Oil retail sll('l vt,S , llw l<llI'sl
t('chllologics C,III Ill' 'Ippl il'lll'o cach compllter as th cy hc-!coille ,Ivailah lc, Third , i ll llll'
o CJ)
TI 2
direct 1110(\(-' 1 til(-' CllstO llll'l' illteracts with tIle c() ln p<ln y, thereh y all owin g Del l III C
ra 85% slope
dC' lnonstralT its Clis lom l'1 sc~ rv i Ct, vailles, Roughl y ~)O percent of D eWs c' lllpl (»'('('~ CJ)
::J

have ,SO ln e custoillc r contact, ,IJld th c~ cOl1lpall y has exce ll ed ove r th e ye <ll's in IIl<lk ill )', ,g 1
J J_ l -.I~.LJ .1-
its s;th-~s and sc rvi cc~ S)'Sklll li vt' li p to the "S impl e as D ell" promisl', f- 0,9 l I
I
I

3 4 5 67 89
1 1--
1 - - ' - -- ' ­

0 ,8 10,000 2 J

2
1,000,000

100 ,000
FOl,d a nd th e E XP<" l'ic nce C linle Cumulative Units Produced
Von l il drotillc'('( lll l(' i'v'l"til ' l 'I' ill I \)().'-; , <111( 11 1\ II I(' IIliti 1'):20s il 1"" 1,,,, 1, 1 I :) IIli llillil. 1 ~)l I~ 1 I ~I ' ) ' \ I :\\I ' r: I~(' I ,isl PrilT ill I ~);)i) \) oll,l rs)
I ihl ll'" 10 , 1 1'1 i, '" "l ), I ", I, ,I ' I
II \\':I~ ~ I ":11 ' 111 :d ",:IS 1,, 'li :"", ' ":l SI ' I" " 1", r:III' , :111(1 l( 'III:1lk " I"\ III, " I" 'II ', i\ ,' :: 'I'lli'
 . "....... ~ , . 'If" '/ " ',', -""'If r ,·n , " i, ~

( 'Ilftl'f,' fi} "I fllll l 'I :/, ' ()/J{/fllJ ,\, \ (,1"/, , 1:,wI/s, (/I/d I,III U I o{iull ISI

(''111,ill ,~', ; 1 11('('" I" ('«' :11" '" III:lilll ;lill :1 (' IIII(',,! (11,(',', III 1/,(, 111 ,11 I,d , /'11\\"1 ' I'('I:liI"I '
,"It , I'i {/" I'rod'l('(/,'i('rt';( '('
wil li IllI'il IIII'll 1";11111., :I S ('lIlIllh'lili\( ' 1",,1., :11(' :111,,11" ' 1 1"<i"lIli ;'/ 1'llil/ril"IIIIII '
I(lI'('I', TI,II,'i, ig ll()I'ili g III(' \ ';11111 ' ,S1',l!;II/('1I1 111 :1\ 11111 I", ;111 "I,li,," , II 111;, \ , /)(, III '('I''s S: II \ I I" , (lin'''' ;11111l,();lI'II II) I"w ('()', is'illlpl; '-"IIl()vilig all I'rills ,llld I'xt ra ,'i rJ'()llI a pror1­
to particip;lt(' , l.H'rhajl,s w itl,:t vallll' hr;lIld 01' ;I.'i ;l jlli\ ;II( ' 1:,/ 1(' 1""I'I"il'I', ill IlId('r /" h' I III 'iI 'lyil'l'_ i\!Il ' lId)('rship \\';Jr(,llolIs('S, slIch as Co steo, llolllC D epot, alld Sam's, all
illaintain scale economie,'i, I""I I. I( ,Sr-l tilJg.S \\'ith lilllited all1('llities alld personal servi ce, No-frills airlint's , lega l
As Figllre 10,,2 sllggests, to compete Sllcc(-'ssf'"II v ill the \'al,te ;U'('lla it is 111'('(", , ( ' It'(,' dillies , and di scoullt broke rs f(lilow IllI:' same general principle_
smy to : \ lIo-f'rilis prod1lct, sllch as I-I)'ltndai ;ll ltollloiJiles, will omit ft'atures and lise
IIL iI( ,-",1, alld cOlllpon(Olits that are adeqllatl' but Illay lack the aesthetic appeal of
• have a cost advantage (or at least avoid a co st disadvantage), " "( 1,,'1ilms _ValllC f'lIrnitlirc lin l's that use pressed \Vo()(1 c reate Significant sllstain­
11.11 " ("I advantages_ Japanese cOlnpditors have I'ntere(l s(-'veral estahlished indl1 s­
• ma1« , Sllre th e (ilialit)' p e l'ccption does not (' mde to the point that the oUi'r
ing is con,'iider(,d IInacceptable, alld III" 1II, 'III(lin g COpil' I'S, hy desig ning reliabl e, si mpk prodllcts that l(S" fewt'\' alld
" ,, 11\\- ;J\ailahle (as oppose d to cllstomiz(·d ) p ;lrts_
• e('(-'atl' a cost ('1111'111'(' ill th(' (lI'gani/atioll,
\ Iliaim risk, especially in tlw serv ice s('ctor, i s that competitors \V iII position
1111 111'>< ,hI'S against a l)(l-Frills oFfering hy addillg jllst a I"ew featl\l'l's, Motel (i pio­
III ( It'd IIII' COIlC( 'pt of' (,COIlOln,' lodging ill thl' earl y J9()Os by giving til(' w orld a 4;()
Creating a Cost Advantage (or AVOiding a Cost Disadvantage) "1'/' I nHllll w ith no phonl' or TV ,'i(-'t. Thl' illd'lstry has attracted a host of'colllpditors
;\ltholl,l!;h th('r(' i s a t('IIII(,IIlY to thillk or low CO_'it as a sillgle approach , tllere are ;Idll ' 11 1< '- Illat till)(" IlIall Y promisillg jllSt a bit Jl)O('( ' in terills or creatllrl' CI)lll[i)lts , TIll'
;,1ly 11I;1I1Y dilll(,lISiolls to cost cOlltml and tilll,s llIall), rollt(-'S to a cost I-edllction , 'I'll< 11 ', 111 1 or snch strategil's Gill 1)(' a katllr<' \Va 1'_
,'iIlCC(','iSrllI low-cos t hnll.'i al'(' those that call iJanH','iS 1Illliliplc approac hes, incilidill l'
, '1'('falionli
til(' IIS(, or lIo-{'rilis prod'll_:tsi.scrv il'l-','i, op('mli()lIal cI'fici('IICY, ,'ical<' ec()nolilies, and II,. ,
('x),,'ri('III'(' CIII'i(', I 1I,l milig cost advantage,s can al so 1)(' created thmllgh crTicielll'i es ill o[l('rations ,
11",\ ('an he base d on go Ve rllnlellt slibsidies , pmc(' s,'i ill novation , distrilliition dTi­
( (1 ' 1"'-\ (as in Dell's dirl'd sales mod e l), aCCl~SS to targl't lllarkds ( U SA A in Slirall Cl' i .s

The Value
Option
Imp~s
­) I, ,I il ,'\lle oill y 1-0 military pcrsoll,wl ), olltsourcing cOll1pd(-:nc i('s , and the nlallage­
" " 'I II 01 ' ov(' rh e ad _
To obtain signilkallt operational t'col)()[ni('s, it is lls(' !'til to exanlinl' the vallJe
, I.. ,ill and look f()r inhere ntl y hig h-l'ost cOmpOnl'llt.s that cOlild
)I', I' I('cd hy c hanging lhl' way that the bll Si l)('ss operates_ Th(' b est (-'xaillple is lhe
Ill' elililillat('d or

dl '" ,d l'r IlH,diatiIJIl of' c halll)(>l nWIIl!)('I'S, By se lling din-'ct , Dell and ;\,na/,()nslrip
I.I I'_~( ' cOlnpoll('nl's OIlt of' til(-' vainI' ehail) For instance, in tl)(> ulllv('nlioll ;ti hook­
/,, 1'1' III (Hk l. ahollt :30 p"ITent ol'sold hoob al'l' rl'tll riled , r('pr('s(,lIting" hll g e d('ad
\( 'I,l!;I,t Oil cosl,'i_ III I-Ill' A'1Ja-;:OIl nl()(kl , that proportion is rl'dllc( 'd to:3 pcrc('nt­
III ('1I01-lIlOIiS potential savings, I
;\nothl'r place to filH1 opcrations-basl'd cos t savings i s in till' ini'l'rhlC(' wi th a'illp­
I"",\, III CIiStOIl)(> 1-_ U ni(j1o (a Japailes e Cap-like retailcr) 1illks its S[O\'(' s,li es :Inl1 in vt' lI­
1111\ to its factori('s in China to creak breathlaking l'ITici(,lll'i('.s_ P& C reali/cd that
II'I;(ilcrs werc 11IIying prodlll:ts and shipping th elll across COlli Itry, or Storillg th e))) ror
"" Iliths jlls[ to take ad vantage or short-term price d ca ls , leading to grossly ind'hcient
<l1I11 ' ,'ing and wa rehousing practi ces_ S 1n respo nse, P&C emharked on an ongoing
1), lI lll('rship w ith \Val-Malt to optimi/e th e systl' lll_ One result wa s a contilluous
No-Frills Operations "1 >I (' lIi ,'i llllll'llt sy ste lll [il!' reordering, shipping, and restocking that \Vould Illinillli;:('
Scale Experience
Productsl
Economies ,l lijljlilig alld w areholls(-' costs, inventory. and out-ol~stol'k cOlldi[-jof!s_ Another was a
Services Curve
Effects 1(-\ isi()ll 01' III(' [I 'ad " di,s colilit policy to remove incenti ves to engage in llnprodllctive
1'-, IllIillg Ill' Ilrlllll()li () II ,' , '1', '" \I 'ars al'l('r th c partn (-~ rship progralll began, stockkeeping
Fi~III'e 10,2 TI)(~ Valne Option (111 i'-' \\'1' rl ' dO\\11 2:, 1)( ' ) I( 'III , "d ('S sLilli IIg w as dowil :30 percl'll t, i nvclI tory was down
1:-, Ill'('("'III , :111" IIII' I " '''! ', I':\ 1I1 \\;1\ ('\1';111",,<1 IIl:tll III:tjOI' P&C l'lIsl'ollwrs,
 (,'-; :!
/ '11/ I IIII"" , \ /I"II/olil (' HII S illf· :..;.... ....,'//11/, " I' ,
~v1:ikill),; ()1H'I',iliolls 11101'(' ..I'fi"i('11i (';11' I I, ' <111:111 1, ' 1',, 1,, " '-.lI('I'('ss i'l d ;1i l'I 'Ii,w i" ..
(,D.';h plall ;llId illlJ1II ' III ' "1 il l('('I'III1' lItal illlfll(l\('III1'IIi" (1I"I ' lillll' , '1'111' lil'\'i l is ill /111
ddails , Eacil cOmpOlll'lIt of' opnatilllls IWI·tlS t() 1)(' 1'()II,si<iI ' II '11 <III ()IIIHII'lllIlity, Till
Japanese ril'lllS have long excell ed at n~ lelltll"ssly Iliakillg slll:dl illl[lI " I\,I'll)(~lIts tml';lIt1
improving th e cost positioll, i t is that p ersistellce tha t i" Ileeded, CO lll'illllll1l
im provcment in e ffici ency, as South west and D e ll stri ve for, can cwalt' all o llgo ili l'
competitive advantage,
There is always resistance to change, esp (;'cj all y to major shifts ill procl-:sSCs all.!
perspectives, So a c hange agent js ol'ten need ed, Th e cat,dyst ca n Iw a fll"rson \1·11"
comes in and makes sure that cost reduct ioll is a priority alld that all aspects 01' 1I11
organ i't.atioll an-' invo lved , o r some tilll es it can he ,Ill acquisitioll, A mcrger or acqll'
sition can redllce costs not o illy hy elilTlilliltillg r c dllndancies bill' hI' rClIlIlvillg hal'll
l'r s to c !t ;lngc, The res ult ca ll be a ll111ch lean e r operation th an was ()llCe ill placl: ,
Scale Economies
The sca lI' e fTI'd rl, lk, cts th e natllral (' ITi cil~nc i es as,sociated w ith sizl', Fixl'd cosl·.
slldl d ,S advertising, sa les ('o rct' merlwad , H&D , sta fT wo r k, and hlCi li ty IIpkeep 1':111
Iw spread ove r Ill on: Ililits , FllrtherlllOre , a l<II"gl'r ()peratioll ca ll snpport spec ial
i:t,l'd assds ill1l1 act iviti l's (.s lI ch as market rt" st'a r ch , Icg, d stalT, alld 11I<lllldadllrilll'.
l' ll gi ll l'('r illg o!ll'IA-ioll S) dedical'c d to a I'inll's Iwe(/.-;. D'lring its I'ari), day s, A I I I a '1.11 II
Illailltailll ,d lhal til(' Ci xed costs of' w<ln ' lloll sill g a nd t, ~ cl 'llology wo uld ItI[-illi all' h
('1'1 'all' a Sll.stail l;ti l l(' cos t advalltagl-, 11111' onl)' \V11(-' 1l thc sca le of its opl'I'a l ioll :.
l'I:;l(' hcd hilliolls Il l' do ll ars, Th" I'irm was liltilltatl'ly prove d co r rect,
A ll l' lIlpiri ca l stlldy 01' til(' pcrieJrlnall Ce of' 1()~ ('o od , hevcrage, ,lIld COIlS II111I '1
produl'ts cO ll lpallies of' dif'f't-:n' llt si:t,es dCllloJl.';trates tite phenollll'non 01' SI " tll '
b
ccollom ies Figll n' 10,:3 shows tl w ri Ilallcial Pl' rf()J'Jlla llcl' 01' ,S Ill all ri rill s (49 Fi 1'111:.
wi th sales less than ,~ I hillioll ) vers us " tweelle rs" (4() ri nns w itll sa les IwtwCI ' ll .~.l Ilil
li on alld $7 Il illiol l ) ,\lid large {inlls (20 hnns wi th sa les over $7 billillll ), TIll' p e ricli
m ,lIl l'1~ is ,s iglliricantly hetter fell' t he larger Firms alld wo rse for t he sil ia l k-r riJ'llls,
FlIrther allal ys is, howewr, shows that the sn1<l ll twee ne r,s (sa l (~s II"sS than $2,.5 hillioll l
did sig lliri ca lltly hetter than the large hVl, elwrs, Oll e possihl e reason is that th e cos l
of inl'l'eased cO lllpl exi ty serv ed to COllntl' r sca le ('collomi es fell' till' large tweelll~ rs,
vVh c ll a business is too sillall to Sli ppOlt nee ded assets or opemtiolls, till' r es l"l
call iIe it a severe cOlllpetiti vl" di s,ldvant,lge, The so lu tion Illight be to l)J'llnl' or COli
solidate hllsi ness unils, Sca le ecoll omy e ffects ,I re pilrticlliarly rell'v;ult in hrand mall
agellle nt, w her (;' I~ach hrand Illay seek a shar e" orl iIllit~:d resources , Nest le, Ulliicvl'r,
Small
Tweenet·s
O[ll' ratillg-profit growth rate
IktllrJl 011 assets
(280; ) :3.40/"
7..1 % ~J,() %
ShawholJer rE'tl\l'il ovcr five years ( 1,27r) :3 ,W/,·
Figure 10.:3 Fill<llll'ial 1'1'r/()fllI;Jlll'(' 1)\, l'ir" l Siz(,
( '/" I/'{ ' / III ',1/,11, " ,,' (II'I;III(.\' , " ,d /II ' I :II""s . '"Id 11,,,", ,/ 1; ,, ,, ' .... :1
I't, ' : III ', ti l lS, :1 1111 (II III'I li'''I'' :11 '(' (1"I(' l ill),;, l 'IIIIS()liILllillg, ;11,, 1 jlrillril i:t,illg 11I ;llIds
III liw il Illldilllills ill lIi'1l( ' I' 1(1 III:lk( , SIIJ'(' lkll t i ll' illiport<lltl Ilr;lIIds an' I'llIIv 1'1111(\1 :(\ ,
1
I II rl'i:tilillg , s('all ' I'all 1)(' Ilhla ill cd h y CO lllhillill g hu siness II l1its, YUll1 has illlJ'()­
Ii" 1., 1 dllall,r<llided storl',S imln its stahle of KFC, Pia;1 HIlt, T ,ICO B ell, Long John
i/. 1" \, ;tlld 1\&\ "'- SlIch ciual hrand olltiets c<\)') co mpete wi th McDonald's and
1 ~ 1I,"., ' r Killg ror expens ive sites that re(!uire a large ,lllntlal S;lles volUlne,
II". , :,\'/)(' ri,ence Cu.rve
I I", "' Jl('l'il'llc(-' c m ve, empiricall y ve ri[il~d in tbousand s of studi es, suggests th"t as a
hi III :11'1'1 II IIlllateS experience ill huilding a product, its cos ts in re,li dollars wi ll l1(;'c lil w
"I I Ilredict,lh1e ratt', vVhen til(;' expe riellce curve apl)li t's , the Fi rst mark('\' cntry
il l l.lll1i llg;t 1,lrge Ill;trkd share w ill have a co ntinuing cost adva ntage, Th t' t'xl)eril'llu'
I III \( ' "Ifl'd i s hased on the LId t hat (lver tiIllt' peollie w ill \e,lril to do I-asks fastcr alld
'I" '"' (. Ilicit'lltl y, that tech Il ological procl'ss i IllproV<:-' 1l1l'1l ts wil l OCCI I 1', ,lIll1 th at prod­
II' I \\ ill 1)(' r(,des igned to he silllpler to hllilll.
s,'\('I';11 isslws Il cI,d to h e under sto od ill wo rkin g vvith the t'Xpe ri l'Il ce c lll'"e COII ­
0' 1,1 , I' irst , Illltitipl e prm11lcts w ith overlappillg cxp(~ri enc(: Cilives call CO lllpli c,ltl ' till'
111 1.1 / il III. For I 'xa Illpl,,, w he n se"l'rid prolh Ids shMc a 1'1l1l1POil Cil t. t-it l' assol'i,lted
I 1,,'rit 'll ce c llrve w ill have a sh 'lrpcr slope, Seco nd , th " e"pe ril ' lI lT c tlrv(' is Il ot ,lII to­
1,0011 1t', It lllilSt 1)(' pn l,ldi vely Illilll<lged w ith e ITil'ielll'y-ilnprovI' lllI'll t gIJidS , ,!t ,alityc i r­
I I, .. prod ll cl dcsigll targds , ilnd eljlliplll l'1l1' IIpgrad ill g, FIII'tlw1', ,I 1;ltl' elltry Cil ll
1,11 0'11 ~aill th e S,IIll(' advantag(, as thc IIl OIT cxpl'ril'llced vl' lldors si 'llpl y hy ilcc(-'ssi llg
II ... IIl1lS t n'CI'llt design, Third, i l' th e tl'l'hl lolo)';y or Illarkd c1li1l1ges , till' c'"'p(' ri (:lllT
I'll ' " II lily \)('eC )ll IC oh solete, FOllrth , till' l'xpcrienct:: cllrvc lllod('1 i'llpli l's that cost
11l'l )(II\'I-' 111CIltS, w h at('v('i' tll eir sourcl', should 1>1" t r;l ll siakd illtolow pric('s alld higher
I, " " so that tlw hllsilll'ss C,III ShlY ahl',ld Oil the I 'xpl'ricncc C11 1Y(', L owe r priel 's C,1I1
II p'I~I 'r l)ricl' W,lrs, howeve r, leading I'll redll ceJ Illarg in s,
\ key to st rilt l'),;Y devclllp lli cilt is recoglli zill g w hell til e c\pCril' ll cl' CtII YI' IIH )(1e 1
\1dl ;I( lply. \Vlwil ,III indllstry is III at II 1'1', the l'xl)(' ri l' ll cl' CII)'l'I' h(~COllll'S fla t , ,1 11I\ dOIl ­
"I il l ~ ;\ linll's CllllllIl,,!'i Vl' experil'ncl' t,lkl.,S so long t-hat ti l(' 11lOI\e1 is less IISI, 1'1 11. )1' ti ll'
dil l' addl 'd i s low, I'hl' (-'xpl'ri("llce CIII'Vl' w ill ,t1 so have little illlpact, 11' ;1 pllrchasl'd
I 1'1 Itlatcrial, sllc h as wl w ,lt or sllll'm, is SO percl'nt-or tlll' olTering's cost, tlll'r(' is v(' ry
1111 11 ' role l'orexpl'1'il'lIcl' to play. SOllll' or the In ost St ICCl'SS ('ltl ,Ipplications of th e (,\Pl'­
"
I II'IH'(' cllrve have 1)(,IJll ill cOllti IllIOll s-proc(:'ss nl<lnui'ndurillg co ntexts (SllCIt as sl'lIli­
I 011 II I lI l'lors) or in capil-al-intl'nsi ve h(;';LVY imillstril 's (SlICIt ,IS stel·I),
"(' J'(:c ived Value
( 'r<';dillg a l'J'l'di1>1c v,lllle story- t h e perception that t h t: r e is rea l v,t/ tIl' ill the oJ'l'er­
II I'" ,rl'lj ll in's sllhst;lllce , T be core is a perceived p rice point that will deliver valli e,
La"l.\C
III lilis n'slwd, the way that cll st onll'r s process price illf(lrll1iltion is import,lnt , \ V hal'
9,C-j',1
1,111 '" 1.11'1 11I' II t is 1l 1llSt visihle'~ GrOl'e ry stor es have 10llg leat'Jled tllilt cLlstomers te l)(i
I:) ,'/" I" I){' kIlIlW \I ,dgt':IIIII ' "ho llt a few Cil tl'gories and hmnds, Similarl y, the lll 'ljor hook
(). 2(/~ \
I I O:lills Il;tV "IIISI ' :tlll' lililJll l () IlI'st-s('lIillg hooks , lwcall se those are th (;' olles most
Id,I .1 1 III I t'('I'i\ 'I' ;, 1"11'1 ' ""IIIII.lris))II, Car 11I<lIl IlLlctnrers art' cOll cerned most with

 lIff'f'nlll i ,,' 11"1.,;/1/ ',,",\ ' '' 'lIf, "" 'r
/):1.'1' /" 'in 's :l lld 111111'/1 /" "" /;" ;II'I"',' ,'I)I'i. ,s ;1 11./ ,,/>iI"II:, /" " ,III'" /" 'il 'I'" /;", 1/11' LIII ('f
lVill/)(' /t;mll 'll o ('I) IIIP;II(',
Maliagillgpl 'icc" i" lli('ky, I)('('a ll sl' p,i('(' is OIiI 'II ;11/II;till\ 1'11 1' :tlld ('lIslolll(' rs 111;1\
p e rce ive low pri ce as a sig n,d 1I1I' inferior (l"a/ity /1' 1/1( ' I(l la/il y is jlC'r('('iv('d to III
unacceptably low, th e offe ring w il! be deemed ine/e v""t 10 th(' CII.,tolll c r ',' n(>('d"
Thi s is particularly troublesome for offeJings in ca tegori es w he re j t is eli fficl! II III
judge actual quality (p erfum e Or motor oil, for examp le) ,
On e responsive approach is to make cos t (and thus price) difFere nces as visil,l. ,
awl understandahle as p ossible, D ell's direc t sales model , Southwest:, point-to-poilll
travel and no-hills servicE', Ford's mass production , th e "cale economies 01' Amazoll
and \.Val-Mart, and th e lVareho use feel of lkea, Home D epot, alld Costco arC:' ;111
tran,'parenl' to c ustoill er s, and tllli S red ucE' th e risk of a perceived (llia/ity pmhle n!.
Anoth er approach is to manage the rel eva nce i sstl e h)' positioning th e offerill).',
with resp ect to th e ;Ippmprial'e product catego ry and se t of co mpe til'ors, Acur:l ,
w hic h aspires to he considen~d
alongSide BM\tV and L ex us, need s to Illanage it" prod
u<.:l ca tegol), association s so it is not p erceived as a sIlb-Ill xliry Ca r, Product desigli ,
adve rti sing , and th e retai l exp erience are alllong th e tools availai>le to ACl lra III
accolilplish this goal.
A LOw-Cost Culture
A sIIc('('ss f'lIl low-cost strat(~ I-,'Y is Ii sual/)' lIlultihlcHed and snppOlted hy a cost-Oli ent('d
c llltllr(', PCr(iJrlnall(;(, llleas lirenwnt, rewards , sys tems, struct,lre, top Inanagl'llH-'111
valllCs, and cltitnre arc all fronts w here cost redllc tioll :;I1OlJld he Thl' singl( '
mille/cd I(K' II.S Il (!cded is cOlnparal )le to that re(luired [iJl' total <ill alit)' lllanagcmCll1.
Slic h a cOlllnl itlllelll' is evident at Ddl, South wes t, \tVal - M ;l/t, and oth e r Rnlls that havI'
succeeded \,\tj th a val! If; st rate).,')/
The re are man)' l''(amp les of finn s that dec ided to go into till" low-co,st world alI(I
ri lil t'd bec;tllse th eir CIl/tU 1'(': " IWve r could adapt. Olle larg(-' " upennarket chaill
dec ided to create a discount beverage chain , \V hen th e chain li li!vd to deliver on tIl( '
I" "\('I)'thil1 g <": I.\ e, th ('re is th e ch ance to sharc Kri spy Kl'e llw stori es w illi oth er", Thi s
promise and still be proRtable, an <In alys is that (k~tennin('d
p eople and proce"s( 's
t"(~ 1',,1 1 ,iI ISt any doughnllt s tOI'(~, An(1 it wou ld not have happened withollt th e fil'lll \
were not cO JJlpati hl t' with th e cost structure needed to ill that marke t. A ,, 11('­
s ucce(~d I, " ' li S on the dOllghnllts ,Ind th e store l'xperic ll ce,
c(·ssful disconllt ope ration almost alw ay, requires a new organ i7.a tion \\lit), d ifft' renl
culture, processes , and p eopl e,
FOCUS
Shouldice Hospital
Sbol.lldice Hospital near Toronto o nly does hernia operatioll~, 7 Sin ce its fillindillg ill
194.5, nearl), :300,()()O operations hav(~ b ee ll conducted , w ith a 99 p ercent ,' IIC(T'SS ratc',
M eas ured h)' how often rep eat treatment i s need ed , SholllJice is tE' 1l time, IllC)I'I'
effective than are oth er h ospi tals, Th e surgical procednre u sed is bralld( ,ci as til('
Sho uldice Techniqu e,
Th E' exp eri ence of th e doctors and staff are appealing , bill' ,SII ;Ii'(' iI' I' SII()lIldi( 'I '
set tin g and its r ecove lY prog ram, L ocated on a COllntry ('" I;ill ', II)., 11I )" I)il;" 1,;1.\ ;,
( '/u" ,I. . /11 '1/111( "",1(' ('I,tillll s: \ (t/l/f' . " 'U/ ' II S, IIlId IIIJ/ U I 'IIIIUII IS;-;
dll)" " ~ ;1I1",i ;IIII'" :11 1t! h"ilill<" 1;l illll( ,t! III 11( '( ' (/ ' or i'I '('OI'('rilig 11( ' I'l li a pali(,lIl s,
1,1 11,' 111, lV; dk III w ;III' I, ' I'\', III " ;iI , :11111 1'\'(' 11 (0 ;IIHI rrOll 1III(' opc ratin g rO() III , I)('C;l ll Sl'
,I I "" ', i, ,~()(Jd Il w rap), 1(,,' llI'rlli ;I." Th ere is thll S no need to d eli ver f()od t o rooms ,
, I" /1;1\'1' IV lw( 'IeI"lir 1', ll' ili(i('s, Th e lell gth or a hospital visi t at ShOl ddi ce i s around
11.1 1 II,.. 11 0 1'111 l'ls(:wll('l'(' , No ge neral all esth esia is lldillini stered , becausE' loull an es­
III I I i\ s; di' r and c heaper fi)J- h ernia operations,
1',\ ('()lIn'ntratillg on one narrow segm ent of th e m edical market , Silouldice has
j, 1,1"I)('d a hospi ta l thdt is proficient, in exp en sive, and capab le of deli ve ring an
" I, I()ldiliarv Icw l or pati ent satisf~lcti(ln, Ex-patie nts are so pleased that th e
"'))Id . li e',: Il osp ital anllilal rellnion att racts some 1,.500 " alullllli,"
hi i.,p) K reOle
I II 1)1 K n'lIl(' w as a w hol esale se li c I' or dOllghnuts IllItil at o ll e pl ant, a manager Cllt
, 111 111' illto a w all ill o rd e r to se ll product to pas s (~ rs -by w l lo we r(~ att racicd hy til(-'
\/' >111:1, TI lt' finn soon startl'll openin g stores , and qu ick ly the rt'lail iJllsin(-:ss
I" , ,111 1( ' nol' only profitahl e hut a Illarketing ve hic le, Krispy Krcllle (c, dkd tlw
1,11 " . ',I hrancl in i\ nwri ca hy a Fortllne w riter) is growing at 2.5 percent per ye ar an d
1." "1 '(' 11 it., "tock Cjuadnlplc during a railin g stock lll ,trkl'l'. K Eve n IIlO rt' impress ive,
IIII' Ill'llclilct is doug hn'lts at a tilll e w he n healt hy eahng is gett in g all th e pn~ss,
I'l l(' Krispv Kre lllC-' r etail (:xp(>rienct', like that of Starbucks, d e nn cs the brand and
Iii . I, /1)(' loyalty of' th e core Cllstollll'r grollP , It S/';lIt" w ith the dou ghlluts, w hic h arc
stress(~d, 1" " i;I' w h ell the), are hoI'. Mall), custom ers are f'anah cs, ra vill g ahollt the taste and
1'1' II II!, IVa), out or their way to find a Kri spy KrC:'ln c location , \tVIH'1l a new sto re opens,
I" " 1) /" lill t' lip to get th e warm , glazed dOllgh!lIIt.~, Bllt th e t~xpt'J'i e n ce, lik(· that or
' .I Id lIICk\ , gOt'S beyond th e prodnl't, Th ere is th e " hot light" that sig nals !l ew dOllg h­
'" I" ar(' comil1g ont , th e in c redihle aroma in th e stOI'(-!, and th e tlll'atrical hene fit of
\ "lI'llillg the c10ll ghnut prodllction lin e (a visihl e d e illon st ratioll or freshnt'ss ), 011 top
( :a-;l ml Motor Oil
';!'-Iml Motor Oil is ,t ve l)' successful hrand in th e shadow o r competitors such as
I,)II:I/;('I' State, Pl'n ili',oil , Shell , Mobi/. an d pri vate-label b rands from power r etail ers,
1'111 ' I'(' an~ tw o ke),s to Castrol 's strategy. First, i t 1()CllS(:'S 0 11 male car own e rs w ho
, 11;l lI g(' th eir own oil. Castrol has no distribllti on in st'lv ice station s, hut that is not a
11. ,j)i litv I( l r its chos en segment, The brand p er sonality and cOlllllluni c,lti on efforts
11"" ci hv Castrol to match its Inacho , indep endent c ustOJller proRJ e ,Ire Vt' ly diff(~ re nt
I " 1111 tllC)s(' needed by th e lllajor playe rs in order to rt'a(,h a broader market. Seco nd ,
( :; I,11Cl1 ('I lgag('s in ,t very dynamic product and package policy, cre<lting ni ch e offe r ­
III~' ,11 1(1 k('( 'pillg w/';Iil( ' rs o rrhal ance,
\ r()('II.' " Ir:tll 'gl ('''"I 'I'lill ':lII ', 1111 (II\( ' p olrt or th e market o r product li ne <In(1 can
"II"'I ',~I ' ill \'irlll; "" ;111\ :111 '11;1 ( :" II'ili 1(1(' ili (,lothl's anci Portm ,lll H o tels foc lls on th e
 11/1/11 11 1' 1'
\/I I 'l lI lIli l (' lil/ sill, ";" \I I' fll " :i, 's
( 'l ul / 'I " 1 I (} ,S I U II , " U ()/II;/{,, -': \ '" 1", ,, h,( '" ,\, II "Ii /"''' 1/ (( I;/{ " 'S7

IIp,,(': d( , S(',!.!;III (' I" : /(1 1' (''''' "1 1'''', 1'111'111 1: 111 \I ill I li l l "I) g ll ('s h <I t th e dirp ort in a Hon, 11,,1 1II'I(\ iti ,' \':til l<' :11 1.1 .["''':11' 1 I', '() II, II J(' Il:ls(' i>II Sil J('SS, III <;11<' 11 sillr:Jti(III S, IIJ('
Il ow'e, ' \,1 ill<i IIS[ I'i ,d <ii " II'il)III Il I' 111 ;1\ 1; )('11 , <I II l :r l ,~"-\' () I I III I(' 11 ,,( '1'., or evell a sing:/,
III IH)\\ " I'I( ) IlIail<i di)( I'()(, II ,' 11\' I'('s isl i llg Ilrodllcl ('xp a)( SiOII Ili a)" P,I), oil.
liSe I', A d OI'hill,!.'; ,,[-o re Illig l lt ol'f(.I' h )lTicl 1:i" I,i () II S 1; )I ' I)llI s-\ i/ (,<I [('('II g irls, A nnstroll.l' I II<' [l()l( 'l lti al 0 1' ('II!t:III (' illg :11 1 SC /'\ h y using a l(lC Ii S stratt'i-,,), Illu st 1)(:' b ,tl ancl, d
Huhl wr has p tTf<>nI ll'd we ll over- I'l l<-' ),eal', I,.', /(I(' II" i llg () II /'( 'pl"( "' III( 'III' l'in's, Voyag!', 1,\ IIii' 1',,(,( llral it natmall y lil)(i ts tIll' pote nti al hu si ness , As a r es ult, p ro[ihlhl e sa les
M C Ill akes tw o -piece goll' citll>s th aI' Cd ll Ilt' t"k( '1l ()II :I i rpl 'III( ',<'; 1;) 1' \\Il lO travl'/ ,~Il lf( 'rs tI ' , I 1)(' IIli ssed , I<'u rtl w rrnore, th e foc use d Imsin ess w ill o rte n have to co mpete w itlt
Hegio nal hee l'S sli ch :IS L Oire Sta r ill Texas f( lcliS Oil a Iillli[-ed geog r:lplri c ared, a[[O\\ I",, " 'I
('() ll<p,llli es t hat w ill enjoy scale economi es, Thu s, it is c ru cial for th e foc lls to
illg th e li se o f region al III I III o r and di alects alld l ocal prolJlOI'iOIlS,
I" , I" sciv tie d to a stra te).,,); w ith m eanin [!;rul SCAs, lJecatl se of th e nppenl o f ,1 larger
Focus " tratcgies COll celltl'ate n~sources, pro vide a lVay [(l compc te wlH'1I l'II-oI )«"S alld t h e p erce ived need to in CJ'!:'ase sc,lle, i t can take discipline to sti ck to a
resollrct's arc limited , and add credihility to d positiollin g strateg) (see F ig ure lOA )
1111 I I ' . .; 1l'atcgy.
Concentrating Resources and Enel-gy
( olll pcl ing with Limited ResoUt'ces
Becall se a ( lCIi S sl'rat-C).,')' hy i h lIat(II'(" te llds to avoid strategy di/lltioll or distractioll \ I ''''iille ss th ,lt simply lacks tlr !:' resOllrct:s to cOlllpete in a h road product IIl:lrkd

it is Illo r(' li kelv to I('ad to a Sll.,ta in ahl (, adva lltag (-', \ \lII('Il i Ilt(: 1'1 1<1 1 ili vestITl (-, Il[-s, pro 1111 1\ 1 rOC ll Sill ord er to ge nc r ak t ir e ilnpact nee ded to cornpde efTec[iveiy. Sllch a lil ll ­

g ralll s, alld c lIltllr!:' /r al'(-' all IlC(, 1I dircded towa rd a sillg l( , (' 11<1 alld 1'11 (, 1'( ' i" hlly-in 01 ' II ,tl i() 11 C:II1 OCCllf, f( )r exalllpl(-~ , w h e n all ,lutoillohil e o r 'lirpLtrr e m anufacture' r facl's

Hi e par!' of' cl'(' r\'o Jl c i ll til l' o rga lli :t,a ti o ll , t/r(: r(-,Sl dt w ill Iw as,,('(-s, CO IIIP( 't(, ll c i(,s, an d II ' ," \' [)rodll cl d evelopme nt alld tool cost s, or a con surner products nrlll C,1I11l0 t

f'lIll d io ll :ti strateg ies th at Ill atch 1I1:ll'kd Il e('ds, III IilOS t cas('s, l'X P,lII " iOIl o f' the prod
,11'11 d to support rIllllti p k bralld s,
uct lill e or 1l 1:lrk<:'t res ull's ill CO lilprollli s('s alld a dillited ahili tv to de li ve r Oil tit e hllsi t\ rO CIi S strategy p rovides th e po te n t i,d ['0 h ypass cOlllpd itors' assets alld CO Jl1­
II ('SS 1I10 de /. II- is 110 acc idellt t /r ,lI' specia li'/,e d rd aib's SIl CIr <IS Tir e Lill1ited , i" k l w ics, F o r eX :llllpl e, ill p ,lcl«lged - food s indtl stri es (s ti ch as ('el'('al ), th e ahility to
\Villi'"II.~-SOIiO II r: I , Tovs " H" Us, alld \fidori a:\ See l'(,'t /';1 \'(' IW(,II II I I1Cl, 1I1 0 re Sll ccess­ , ,I.rl dish Imlnd ll alllCS alld di stribu te l>mllded products is a key SIl CCCSS h d m,
rid t /r all d('P<II'1'II1<'llt sto rcs <l lId (It/H ' I'S t/ ldt ;11'(' spredd thill , 0,11' r('aS() 1I is tl i(' strat( '­ II , ,\\,('\ e r, nr ll lS call al so do w ell h y 1(ICll sin g on pri vate- Llh el manufact ure, in w hi c h
,!!;ic :lIld operdtioll dl ad"' "l tages o r ('ilCIl Sill,l!;,
, 00',1 'COllI rol con sid eration s d o rn i natc, Th ese n r m s in sula te th e Ill sel ves f'roln the
P rodll d (ile ll s call resldl ill [-(-c lrllical sl'I w riol 'ily. III IIlost /)lI sill('"S("" t li(' key peo­ ," '.1' )1' Il l<llllli'ad l!l'c rs, w lro wo uld cOlllproJl1i se t he ir ow n hr'lI ILls hy prodll c in g p r i­
pl (' /r" v(' (" p( T Ii \(' o r illt(' I'( 's t ill <I lilililT d prodlld <I 1'('11 a , Tll os(' w l, o : 11'< ; Ill(' dri ving
\ <i" hl)('l s,
!il ru " Iw /rilld a !;Islrill il (irll l , ( II' ill.<.;t:lll ce, Ilia), he ill t(' rest ed pl'ill la l'dv ill WO IIIl'Il 'S /rig /r \ It ho ll gll the L)ayoll o r a SIIl ,lll ni ch e rnay 1)(' k~ss th an that o f :l brge, grow in g
!ilS lr io ll , i\ U1 II SIIIIIC'r (,f ectrolli cs (il'lll IndV I)(' (Jlllld('d a lill 1'1111 hy SOIlI('Oll e w ho is 111:11 kl'[ , tIl l' cOlllpdi tion may ()Ih' n :I\so 1)(' k ss int(" lI st', Th e m ,qority -I'all acy COllccpt
ve l)' illt( 'I'('sl'<-<I ill alldio <{ lIalily \ -\111('11 I II(' prodll ds o! 'a ri nll c<lptllr( ' tir e i ill ag ill:tl'i(ln ,LII{'s that ,Ipprai sals o r large, attr,lctive segm ents oVl~ rl ()ok or Il linill1ize th e lik(" lihood
o r-u's key p( 'ople , I'l l<' prodll cts telld to Il( ' (''\cil'ing , iJill Ova l'i ve, alld hig ll <{lIalit)'- A s the ,It,ll 1II<II1 y cOlllpd itors w illlw attracte d to the sq~nw llt r(' sldtill g i n des tru c ti v(' ove r­
ProdJllt lill( ' hroad( 'll s, hOl"('"" 1', th e pr(l dJl ci's t('lld to hI' IIH'- too prod lids, w hi c h do ', 'P: ll:ity. f\ II 1O 1'( ' m o(ks t produ ct -Ill arket scope inv(}l vill),!; slll ,lller Il larkd po te ll tial
11 1. 1\' thll s he a pr(J Ii." r; lhl (-~ ch oi ct',

"illppfll-ting a Strategic Position

\ ['''(' li S st ratq..;y illay al so provide a pos itionin[!; tool. Th e associat io n o f a hll Sill !:'Ss
,\ ,1 I, a Ilarrow p ro<ill ct Jill e, segm en t , or geographi c area eml serve to provide :l lI se ­
li d i<l (, lI ti tY. For ex,llll p le , Neim 'ln Marcli s cOinpetes o nly in tb e ve l)' high -pri ced
,' 111 1 01' its imllistry and th er e fore a1'p e,ll s to ,) v!:'r y narrow s!:'[!;m e nt. A ny eFfort to
, 'li lipdt' ill :l hro,lder p r odu ct market , even it' fe,lsihl e, w oul d ri sk chill agin g th e
" " llI siH' inl a)-,:c it has d evelop ed For i ts ex istin g st o res, The Raymond Co rp o ration is
1I<Il", n Fo r its lilll i ted product lint' of li rt t ru c ks suitabl e fo r navigal'in g th e narrow

'1 ';1('( 'S ill w ardlOl1 ses,

/\ 1'0('1 IS str,lte)!,,' C,IIl t ranslate i nto a v,llue propositio n for c ust om er s th at SlippOltS
,I ", Sl l :ll ('gie I)(ls il iOlli Il g, I"irst , <l focused hrm w ill h ave lllore c redihility thall a firm
liLt! 1I1 <1 " "S <I w i(I (' <11 1': 1\' (,J' jll()dll ds, ,IS d e Jlloll strated hy Shouldice H ospital in he r­
Fig.JI'l' 10,,1 ;\ '," )('/(' ,'-i l r;r l "g\' II i" 'il li g" li, 's , \V i ll i, «li s ~(I I« I II);1 iii ('{)Ilk ill g, and til e In -N-O u t ch ain in ITJ<lkirr g ham ­
I "«' ! ~" I ' II \ '1I 1i :Ir< ' ",, :tI l.' i ,d " I"'I,'.! il l II II' I)('s[ , ,\'0 11 w ill [!;O to a fi rm th at speCiali zes
 ('//fI/'( ,' / t() ~\II'flf · . . :il· ()/lliolj.,>'· \ "llIf " [ ,'(}l /1."", (/"t! IIII/ o/"If /io" I S~)
III "'''//',1'' ,I /1.1" '>1"" /'" 11" , /",,"11'\ '" ,'''''''''''/ 1/" , /"""//" '''''' '11 1/11' /,)\:" 11,\1'1' ,111.1

1/" , /":11"/ \Iill 1"IId I" /'" ,'~I'I ':III'" \1/" '11 1/,,' /":11"/ I', 1""11"'11. '1'/" ,
I" <11 111>111 i,\ \'i , iltll' II> 1,,,,,11111,..1'\ ill IIII' I'llI'II I Id' h"ll, illlprm'l,d pr()dllds alld II('W
,'-;I'I)IIIdi('I' 1/0' I)il;" I)<llil 'lI l.\ :/11(/1111' I):/"\i,,,, "I' /\li '\I>I
"" I", ,,11,:11 dl,rilll' 1':III' ,L~I>i'il '"
I'dPI'( '1I wil/'OIII " IC)CI/.\ ,\1 ri II ('g) ', k"I'II'" l'II,\II>lI",/" II '(JIII" " "I
l li l,' , (J Ill ' I,j' /' &(:'s l'i,l.(1J1 I)illillll-t/olla,'llI'ands, has heen the IlCnt'ilcial), or hUIl­
INNOVATION
Sony
Sony is Ol}t' of tlw slTongt'st "r"nds not only in Japan , bllt throrrghollt I'll(' wo rld , /"
th e U'lited Statt's , tlll' Harris Poll each year si nce] 98.5 hw; ask(>d pcople to 11:1111'
w hat t/ll')' be/i(:'ve ,Ire th e top three prod'let or sc rv ict, IJral1ds, /n 2()()2, SOil;.' was II"
IIiOSt o(tell-named brand (11' the t hird year in a !'Ow; during the SCV(' II v eal's or 1I11'iI
SUrCllll:'llt, Sony has I1('V(> r placed/o wcr thall third,i)
One reason behind SOIl)''s brand strength is its disciplincd (i)('II' on iniiollalilill
,IS it str'ives co ntinllously to ddiver aSlollishing t(oc/lJlology SOli)' Illarketing ('X(,ClJli, I
T. Scott Edwards has llOted thdt tl)(-' SOil)' "va ili c proposition is ill 1l00'atioil , Pdrl "I
innoval'ion is constantly providing CO Il.\lIlll(' rs with 1l('WS, Prilnardv W(' do that \\'i ll,
n('w prodllctx " I(I Son y France once had a taglin e, "II'yoll call dre"lll it, W('
it," t!Jat I.'<ljltlll'cd til(' illiloval'iv(' spirit 01' tlw ol'gallization,
<lIlIOn,~ Japall('s(~ fi"llls, the SOllY CO I-poral'c h,'alld is supportcd I"
Hath('/' IlIlil)l l(-'
I)I'stTon,~ prodll('!' hrands, So or t/1('s(-' hr,mds , slicil as \Valkillall , II ;lIldyca lll
a host III I'
P('I'.~ollal ('l lleltai llllwilt rohot) , haH' IH>lped ddill( ' a Pl'()d'l('( cat('go/\
'lIld I\ibo (a
thaI' is ,lssocial('d with SOllY Olhers, sllc h as Trillitl'Oli and \V(',l!;a ( t('I('visioll) , Xp/o, I
( 1I1011il(' 1' 1I1('I'hlillnH'IIt) , Playsl,lIioll (g:lIll('S), CUI' (halldll('ld )'1)1\ ), C;v l )('r-s hot (dig
ilal Calilerd ), alld VI\IO (llotci)()ok COIllIl"I(' r ), repreS('liI' sigll ilicallt 1'('levalil pl'()(h'<"l
advances that ,11'(' OWll('d hv the Sony hralHl. For (-'\,lInpl(' , ill 2()():3 \'AIO h('C,lIl1l'
(alollg wilh Pow('rBook) OIl( ' or tlw st roll ,L';t'st hrands ill 1'11(' pOltahl(' ('()llIp"I('1' SP,I('(',
despite beillg a lali ' elltl'Y in palt IWCdIIS(' ()r
its dram atic d('sign,ll
The SI'PP(lIt /'Ilat t ll('s(' hr'lIlds n-'l'(" ived l'rOIll and delivered hI th(' ,'-;011;; bl'all(I hiLs
hcell dOCIIllll'lltl"d hI' ti'l' J)(,1l1s1l adv('rtisillg ageTlCy TIl(' ag(>llcy ask('d it salllpl(' o(
J,lpallCSI' ill 20()() alH)lIt the l,,,(tonl to w hi c h t hey agn-'ed wi 1'1 I two stat(,Ill('lils: 'Th"
1('IIJlif)"" 11'
I" ,I , " I' ill '1liII V(' 11)(' Ill'~ si nc(' iI was Ii r~t ill troduced in 1941), tvlall y of these have Iwen
11 " , 1" \ i,il,I" [I) til(' COl lSllllwr Ihrollgh the branding of sll ch variants as Tide Liquid ,
! 1./, 1\ il" 1\1('<11''', Tide li E (f(lr lise with high-d'ficieilc), washers), and Tide Hapid
1\1 11 111 1'/';dls, '1'''1 : I'es lilt is a hrand that leads its c,ltegor)" presents ongoing energ), to
\1 ' 1I -,1 11I11I ' rS , and is a 1lloving targe t 1-0 its competitors,
1"' I ':'/dlll'ollgh ill1l0vatiol1.S ('mill I'h e P&C re search labs have con triblltt'd to the
'II dlll il 111' IllaliV 11(>11' product cat-egorics and suiJcategories, It all st,lIted wit h I vo ry
'1'1 ,IIHI 'i;", P 111'(' , it f-/oats ") ill 1<'\1) I , Sin ce thell t"('1'(' lliis IW(>II Pert (collliJillillg
/' ,11 11 111 )11 alld cOlidil'ioIK' r ), Cr(,st I'liloride t-oothpast(' , Pringles ( a ncw l(lI'Ill of' potato
, l lIll I'alllp(']'s disposahle dia[)(:'l's, and nlorc recently Dryc l (a hOlllc dry clcanill),!:
1'" ,, 11i,'I ), F('iJr(':!'c (a 1~liJric spmy aile! with lIni([lw order elilllillatili g (l"alit'il's) , ,1I1([
' II d 11'1 (; 1 sweep s),s te III to captll re d liSt ),
'I'll(' finn's tt"chnology sll ccess is ha~('d in part Oil three c h araderistics,l'l ~'i rst , a
,I, ' I) lilicinstanding of' conSll ln e l'S driv(,s thl-: r('search, P&C prol( 'ssiollals rolitilll'ly
call nl;l", ' I" li d dill'S with L'lllilil's to I(" lrn ilho lll- thl'ir hahits and 11 ('('(k SI'('olld, research on
I, " Ii/ll llogi('s is I(,v(,raged across Illidtipic produd arl,nas, Ad vances ill perf'llIlws alld
ror
(11 1111' Illallagl'llli'nt, ('xaillpl(>, call 1)(-' applied to prodllcts I'angillg from Tide ,
I' , I II (':!'I" alld Downey to Pantt'lw alld Ciorgio 01' lkv(' rl;; I [ills , P&C's hahy ('are,
I, II/i ll ill(' l'ygi(,IJ(' , "lid tisslle/low('1 hllsillcsses an' all has( ,<1 Oil ad va Tl c(,s rebkd to
d "dl/'I wIll SITlldlll'(,s a1l(1 Inatnials, Third, thl' ability to Iii II< COIlSIIIll('r Ileeds wit h
I, ,'I 'I/()I{)gy is a key P&C skill. Th(' orgallii',atioll dol'S Ilot gellcrate «"CllllOl0i-,'Y hap­
I,,J/;!I'dl) ', and 1'll('11 loo k 1(11' ,111 appli cal'ion,
111111)\ atioll ilia\, I}(' the most lI'i(kl), Ils('d husilless str;ltcgy optilH!. It is kll'l\ to lind a
lil'lli tllat do('~ 1101' IV,lllt to I)(~ tril ly creati vc in wa),s that 1'011('1, the (,lIstolll('r,
/11 III 1\' ;Jti Oil is a SOligh I' -a I't<, I' ,lhi Ii t)' becallSl' it go(,s to t h e h ea rt (J I' th I' 01'1(. I'i Ilg- how
".I II IIIe pro<1l1d and its deli vel)' to custollll'rs h(' improved so thai' the vaillc pro[losi­

contriiJlltl>,~
I " Iii :IIHl point of' dii'l(>rl'lItiatioll are cnlw nced?
hralld toward SOlly's image," alld " I wOlild choose it IwcallSl' it\ a SO llY."
1,'01' Illost firllls , ilillovation nH-:ans inCrellll'ntal illlprovellll-'nt. They ofh->.r Ihl'
The sl lhlmlllds PlayStalioll , fLlllclycalll , VAIO , and \Valk,na,l deillollsirated a slro llg
',,1111(' prodllct or servic(-', hilt add eleml'nts throllgh c reati ve e ngineering sllpporkd
two-way How or illll,wll{;(>, SUppo rtin g the SOllY illiage while thi' corporatl' bralld
1,\ illl'('stlll(-,lltS, P&C 's nl<ljor hrands (slll'b as Tide , I\ l1npers , Bounty, amI Cres t) have
h e lpcd Illake 1'111" suhhl'and 1I10rt' attractiv(" For odIeI' sllhbrallds, I)(IW(,l'e r, Hll' illHIl­
,"I S('(' II ('oll tillllOli Simprove m ent o ve r the years , but th e h,ISic function of each prod­
t'IlCI:' was lieither always "y, n,nei'ri c nor stro ng, Aibo cOlllrilllltcd to the SOllY hralld
111'1 rClllaillS Ih(' same, and customers regard t-Iw improve ments as incre mental. SOlll e
bill reli ed less O il tlw SOllY CO lllli-'Ction (II' its OWIl \Vortl!. Trillitroll all(] Cli(' , ill COII ­
li n lls, 11I)II'('v(',r, occasionally (Jilgage in disl'llptivl:' innovation (a cO)Jcept introduced ill
tl'ast, drew Oil the SOllY hrand strength hilt were relatively low Oil helping to SUjlporl

lI~l'd
( ;I 'ill)tl'l' () ) hy creating new products that deilne lle w product categories or sUhC,lie­
th l' Son v brawl. SOllY Lif c>, ,lll illslIrallc(' hl'ilild in tlte JapaIJ('s(' Inallet that docs
",I)ries , Hoth P&C ,Inc! SOllY have hee n able to do t hi s sevcr,d timcs, an accolllplish­
lIot Ilt I'Iw Son)' ililage or identity, W<lS perceived as disC0I111I"Cli-'d I'r olll 1'/](-' SOllY iJralld
1I1I'lit that sds th e m apart frolll most companies,
ill that it Il(JitiJt'r Iwlp(Od nor helll.:,fjtlod ('min th t' C(lJVorate lll'<lnd lI<lille,
\\ 'hil(' Illilily rirills stri ve I()r inllovation , Jlot all achieve it, Success requires a true
Procter & Gamble 1'lllIlIllitll1('llt to illl1(I\'illion that sll rvives pre ssures for short- terlll resu lts, This COIll ­
IlIilllll'lll 11111\[ 1)(' w(,11 lII;l1lilg('<1 so that Ih(-' right people are given the right environ ­
I'&C cOl1siders itself an inl1ovatioJ) COlllpall)'. Spe lldillg more tl,all 4 percent 01 ils 1111'111 , 1'111'1111' 1', IIII' 111\~:lIli/:dilill IIIIISI IH' ('0 11 Ipdl' ilt at tllrnillg innovatioll (wh ether it
,\;!I(,S on R&D, it has over 8,000 scientists working in tw('lltv-two n~s(~,lrch cl"n«'1'~ 1'111111',1"'1)'11 I{('\: I) , 111 :II'I,,'lil, ,! ': 1111' 1'1 I.sl Il II 1( ' 1', or w h('rl'l'('r) inlo ('ollllllcrci,11 prodllets
,1111111111,1 1)( , \\'illill,!', Iii I:JI", "1, :1111"',, :11111 Ill' \ITIIII,~,
 -'f nll" "1
( '/", I,(, ' III \ 11"(t " ~/{' ('I,t;IIJl s: \"11111/" ' ..111'11 .... tlllt! /11/1/1/ "!IUII I ell
Till' \1"'"";1111'" ,d """'t', """IIIe'III" ,', I', " II ,' " /",III"e! 111,1111 II ,,,,,,; ,'i 'I' 111111
'1\\'" "I,II<' ,'I"\(' "lirlll ,\ ill III<' ( :,>llill~ li~1
"I ",! ',I""II" "," ',,1 ""'"I'""i,',, 111:illlr"~IIt'" ,I
hv illllIIV"l il',~'
\\1"1'1' p',s", ',I/,.\' SII'Ollg"IIIIp, 'lil, ",', '\'"'111 1'"11,,1 " "\\' III1'IIII)(/.' (1 1",1" I HES II: AHC II ON 1':AHI .\' MAllKET LEADEHS
Prodll(,/,ioll ill !'II(' 1~lc(' Or<l,~,l!;r,'ssi\'(",\"
pric'c 'ci 1(lrc' i ,~ 1I
,\1I1 1Idi ,'I's , killdH'I'h'_( :1:1'" 'old"
olf ii's Inil!., and decided to COlllpctC c/ir('C'lh' w illi I'cd: i'l hr;lllIlc'd /);1/>"1' prot/III 'I" 1'\ II IIIIIIS 'Jill 1/';1111'11(' III<lrk"[ piollcC'rs ol'tl'n do not survivt'-i're(llwntly IJCC<lllSt' th ey
inllovating hellind hrands like Hllggies , J)(-'[ll'llds, ,lIld /(1(,(, 111 ',\ I.; , III, " "" "I'['()/'(' tile tc>c hn olo)2;Y \Vas in place, or became they got blown ,1way by larger
' I'lIl pl'l ilmsll In ('()l ltrast, Colder ancl Tellis found that e,u'l) market leaders (th 'lt is ,
Innovation and the Value Proposition III "" whi ch ;/SSlllllC lllal'kct leadership during th e early prod\Jl,t growtl. phase ) had ;/
I" illilll,,1 1~lilllJ'(' rate, ,III ave ragc lIlarket sII,lrt' almost tllrce(" times that of IIlark('[ pio­
Innovation provides value to c ustom e rs along sevcral dinwnsioll s, A.n ill('l'C'IIII' III.,j "", 'IS, "lid a Iligh raho of market Icoaclers hip l ) The alidlOrs noted that Sll('ClosS i'lil carly
inno va!'ioJ) llsual'y e nhan ces the valu e propOSition hy proviclil lg a Ii ('W or ilrJ jll'()\ ,;J " " ,,'/;I'I le,ld('rs tClI(kcllo share tile- following characterist ics:
attrihute o r Feature, Th e confidence in purchasillg til( ' prodlJd or sl'rvice , as \\,11 • Ii I/v isioning the j',lass l'fa'rket, \Vhilc piollc(,rs sll ch as ;\11I1lC'X i'l vidco

as tlle satisFactio)] in lIsing it, will thus Iw e nhance d, The vailic to the ('IIStOIlI", lI'corders or C hll x in disposahl<> diap(,rs cl1al'ged higll priu's, lhe c,"-I} market

goes beyond the

lI
spc~cil'ic
bpllefits , however, hecause an org, lni '/'<l tion pCJ r('civ,'d " i<-adccrs (Son), and Matsllshita in "ideo n-~('o rd p l's, or 1'&(; ill diapPI's) priced

inn ovative is II S <l Uy seen to have other c/csirah/(' c haraderi s(i('s that ca'l anI" I the ir oHi"rings at a 1l1ass market level, Ti mex in \Vatches, Kodak in rilm, Cillcttc

purchase and loya lty An inno vative finn , i(Jr example, is o licn SCt,)) as ha ving ('1'1' " j'l sa /'ct)' raY,o rs, Ford in Cllltollwi>ilcs , ,uHI I;cggs ill W OIllCI''s hosil'l} all IIsed ,I

ihility in its prodll ct arcna , w hich trdnsLltcs inlo t""s t an d conl'icll' lI('e, In S(II11' visioll of the ,nass m"rh,t to /'11('1 their sm'cess,

co nte
the xts , there
i1l1l0vato r, an' evell p res tige <11)(1 s('I1~(:'xpressivc
hC"lellts in hei llg ,'('C'II ,,', • Managerial Persistence, The tcclm ological ad va nces of I'<lrly markf'l leaders

ol'tcn took ye"rs or in v('stlllC llt. 1'&(; nceded ,1 decade or research to create the

,\I1('('cssl't d !'.II11lwrs entr", and the Japanese (i I'IIIS sp('nt twicc as IOll g dcveloping

Firms slich <IS Son)' t"'lt crl'al't, 'I (:'w catego ric-'" or ,'illhcategoric-'s (as opposc'd I"
in(Tl'Ill('ntal i'llprovlc'nwllts ) are likely to gl~ l lt'rate
additiollal hcnefits First, th(' P' "
11.(' video fl'l'ordc r.

('eptio ll of' Iwi ng i'lllO\'a hve is likely 10 he s tronger, Seco nd , to the C';';/'C'lIt that d 11('\\ • Financial Commitm ent. TIlt' wi llillg,lc'ss and ahility ('0 illvest is a ullcial f'lctor
I ,
jJrodllc( l'dt(',~())yOJ' S l <i Jcategc lIy is define d , thl' inllovatioll has til(' potential to a ('('('/
",liCll tlw payoff is in til(' /'IItll)'(", POI' ('.\alllp 't" \Vlwn HI1('ill ,~() ld Brcw('J'Y intl'O­

dllcl'd Cah linge r's light hcer, it had a proillisillg St<ll-t, hilt fin anc ial downt urns in

w hdlwr COl llpetito l' IJrallds will be consi dered re levallt', SOli)' dCIllO'I.\(rdt('d II,i "
othl'" scdors call\cd IIH' Fil'i'li to withdraw H'SOlll'CCS li'onl H'l' brand, III co nlT;lst,

C'dpahility IJ)' dl'rin i' lg the \Va l/<l I!,Ul space, Third , sllch inn ovation s 1..',111 g< 'lwra!c lirSI
Philip MOlTis invested sllhstaillially in /o,'iillc'r Lite IfJI riv,' yc'ars in orcin to

nlOver positiollS, g iving tile Finl! a pe rcepti cHI o r allth entic ity ,lIld the ]l0wc,di d aSS(1 achieve, and retain a domillant position,

ciatiolls dial' aCCCJlllpall)' it. The first-lIJovc r aJva ntage is worth ('xp lorillg ('l Irtlwr,
• n elentless Inllovation, It is clear lhat long-te rlll I('ad (~ rship r('qlli"l'S c()lItinl'­

The First-Mover Advantage OilS illiloval ioll Cillelte leanwd its lesson ill till' carly U)GOs whe ll til(' U,K, rim I

Wilkinso)) Sword illtmdllccd a siaillic'ss stccl razor blade tl,atlastc'" tlll'l '(, tilill'S

IOllger thall Cilll'itc\ carllllll steel hlade , CilicHc, "I'tcr <'xp('ric' lIcing;J sl'<lrp

As noted ill the pwc(,d illg paragraph, inllova tioll Ca n create a Ilrst-Inover aclv,IIlLIg,' ,

H1arkcl' sh,)I'(-' drop, return ed 1'0 ils illn()V,l ti ve iJeritage ,"1(1 d(,' vl,lopc.od a ')(,\v

Co IlJpehtors \Vi /I hc pJayi Ilg catch-up tech Ilologica l/y I I' they ('opy the i11 llovaticJII ,

they risk being le ft behind again as adv,!Ilcelllellts ('ollhnl/I', III the IlIc~alltilllc,
th,'

scries or produc.ts,

inllovator Call create Cll stomer loyal ty based on several f~lctor,s,

One of these is sill, ­

• As,~et Leveraging, Early 'liarkel Iead,')'s orl"11 also hold dOlJ)illant posi tiolls in a

re lated C<lt('gOl)', allo\\~ng tlll'n l 1'0 ('xploit Ihe ir distrillillioll clout '"Ie1 a pmVC' r[III

pie lilmi lia rity; if' the First lllover\ Prodllct or service is sa tis!;Icl'OI)', th ere Illay h e 110

hralld name to achieve shared eco nomies, ])icJt Pepsi ,mel Coi<c'! \ Tab, f(lI' (':xarn­

illcentive to tty something clil'lc"rel!t, Altern ative ly, a cUstolller may ha ve /kel! <"ilticc'd
pic> , w<o re ah1(~ to us(' distribution and branding ad vanh1ges to 1"11<(' ove r th e did

or rt'ljuired to lIlakt' a Jong-term cOlllmitmt'1ll to thc-' prodll('t or servi ce, It 1'11('11

(,Old IIlarket i'nJil l (1,(' piull cl'r, Royal Crown Co b.

!leco lltes not ,imt risky, bill' expt'nsive and incon vellient to c li ange,
• Follower Advantages, SClllI(, Finn s eleliberat(-,Iy (,lIgage ill /(,llower slratc gi(~s

To captllJ'(' a first-mover advan tage, it is impOJtant to hit th e market Hl's[ ,lIld in oreler to ach ic.w(' reelll c(Od n&l) investillent, to make SIIW oj' th e prodllcl''s

in ves t to build position, \Vllil e high initial prices lIlay Iw all a ttractive way to l'ap tJlJ'( ' <lccE'pta ne(', <l nel to /c;u-n 'lhu ut how cli stom ers huy ,1nd lise th e prodllct, The

margin and recOver developm e nt costs, a low-price strategy Illay se rvt' to hllild shan' 'lcJllowcr (';111 make sme tlHe' timing is ri ght, Rec;tll , for e:'wlnplc , how Apple's

I I
and thus con stru ct a more daunting harrier to f(Jllowers , Followe rs will h,)vt' th -' bl'lI ­ Newtoll FDA was pH>lllaturc and struggled , whewas later competitors /(Jl.Ind a

cRt of seeing the innovation, hut wi ll o lten need to create a significantly he tter cO('(t ' l ­ ,'(,ady market,

ing to have a cha nce of chslodging the first mover alllong its lIse r hasE', [vlaking Iltal
()';er base as large as possible nlaxilllizes tllt' chalJe ngt',
 I~n
( JI ll ;0/1 .'0: , '(f/Ilt' , / ..01'11 ...... (1I1t( J" IIUI'ill if/II
( 'II/I I,I, ' I I II ," (III/f 'i
l
)!
I~L) 1 '(/1 (rl'l/'( ' \l1( ' llIlIli, f' J:II . . · ;lIf ' .... :.....1...,/111(" : ',11',

KEY L.EAR N lNGS
• A value positioll nceds to Ill:' C()1111I1I111ic<1lt'<i (,r/iTlil(,I ), ;111(1 sIIPpoll('<i I"
a cost advantage, wh ic h can he hast'd Oil <1 Ilo-Irills olk"i'lg, OI)( ' I'dli(lIl.'
scale eco nomies, and/or tIl<:' expe riellc", curve,
• A focus strate,s.,'Y avoids dilnting or distracting li'Olll the illlpknl('llt,lli(111 l,j
I. 'I'i"",il, \ ~ 1. S;lSt'l" I, 1' :li,i, 'k \\' IloliSioll , Josl""1 I .. \ \'1' i:_':1 II , alld J,di:ul <I U. I'"rk ,
",\11"1/,011' 1 ':\ lr;l('iilli~\ ,,I'l(' I'm II 1 IIII' \f:till(, (;"'Iill," Slml"gll (/111/ /llls;III'SS, l; irst
(,lIl:III, 'I ' :2(1(10 , pp, \H - I1):"
:>. 1vl <II .. l'i,,1 i'o drawil ill part rrom Lawrellce D , Millig<lIl , " Keeping It Simple, The
I:,volillioll o I' Cllstomer-l3usill E'SS Deve lopln e nt at Pro<.:te r & C <unhle," remarks made
:11 iI)(' All1ericall lvlarketing Association Doctoral Sy mposiuJll , Cincinnnti , Jul y 1897.
(i . sw,uldlc r Pacl'" & Co. , " Does Si:1.e Re all y Matte r';>", RGs(;llrch Note , Vol. lO, issu e 3,
Il)l){

strategy, provides a way to compe te w ht' n resources are Jilllitl'd , C<tll COil 7, Wilkull II Davidow 'lild 1:31'0 Ut,11 , "Se rvi<.:(:' Companies : Focus or Falte r," Harvard

tribute to a positioning strateh'Y, reduces competitive press mcs, and l'ill) HI/silins Ike,inc, Jlll y-A li gust l()1)9. pp . 77-1)5.
co nn ect with c llsto me rs. FollOWing a !-<JeliS strategy r"'<jllires discil)liIH' I" S, I\n<i v Sc rw('I'. "The H ole Story," Forl.lm r:, Jul y 7 , 200:3,
avoid expa ndin g th e on(~ ring. !1. 1IIIIllphrey Taylor, "Sony Hdain s Numbt~r
One Position in Th e Harri s Poll Annual
• Inno va ti o n can generate a v,tiu (' proposition , (' nhallc(' cre dihility, he pr('~, ' llt-sl Brand' Survey I'or Third Y(~ar in ;]1\011'. " Unrris Poll , July 2002,
tigiolls, a nd c reate a first-Illover advant'lge. K(.:nllclh Ikill , "Whell is r~llough Ellollgh';>", Bralld Week, Dec(' lnbc r 2, 20()2, p, 27,
lIl.
According to research conducted hy Teehle l in 200:3.
II ,
p I'& C 'vVeh site , 20():) , Innovatio )} sectioll.
FOR DISCUSSION Jim Collins, Good to Creal , New York: I-larpl'rH llsin ess, 20(n , cklptcr 2,
1:1.
1. Compare the va lu e stratq!;ies of' Dell and SO llth west. I10w al'(' tilvy Silll Pdt'r N (;oldl'J' 'Ind Ccrard .I, Tellis, "l'ionec r At!v<llltagc : Marketing Logi c or
II. M arkdin g Leg('nd?" .lUll nwl of MU'I"kcl.ing ]ks(;un:h, May 1l)9:3, pp. 15f)-17() ,
il a r? How dre tlw), din<crellt~ vYhat arc til(-' hw;('s li)r tile va luc proposi
lion in each case'~ vVhy has th ,,~ advantage lwcn sll staillable? Ccrard J. T(,llis and Pdt', r N. Colder, " First to M'lrket , Firsl to V;lil? l\ e <&1 Calls('s or

2, Dev('lop exp; lllsion options li)r Shouldice Hospital amllol' Krispy Kwnl('.
I ri . [~ndlll'i'lg
Market Leaders hip ," Slo(lll M(lI/ul!,l' I/l(ml I\r' (, ;CU;, Wint('\' Im)fi , pp, fi,s- 7,s.

:3. (lave SllOuldic(· Hospital and Krispy Krc/ll(' g(>nc rakd first-lllO V('r <ld V; 1I1
tages? (Jo\V'~ \ ·Vhat is to stop Kaiser or ])llllkill ' ])Ollills , wspcctiV(·'l y, rr()lll
li)liowing tltem? \Vhy l,aVl'Il 't the latter finn s do ne so? \VIH're do you S(,('
thl' COIIIP('[ itio ll fi)r Sllol ddic(' and Krispy K re nw CO III ini-!; I'roll1?
4. Compare and cOlltrast tlw inllo va tion stJ'<ltegil's 01' SOllY ,llld P&C .
vVhi ch has engagcd in disrllptive innovation (introdllccd in ChapIn () )'~
\Vili c h is hetter descri h e d as havi ng slistai nin g inllovatiolls ? Sony priLl('s
itse ll' on bein g tcchnoloh'Y driven « limost ignorin g the Cll sto nlt'r ), w hil c
P&C is c ll sto m cr drive n. What is ti ll' dinl' r(' n l:(: '~ Who is right?

NOTES
1. SOil Ices: Dell Annllal Ih"pOlts , 2()()O, 20()] , 2002; D ell Onlill(" l'lI)S CaSt> Sq()-O.')S,
Matchin g \)('11. I-IllS Cast' 9-799-15k, Alldy S(~ nver, "Dell Docs DOlIJillatiol', "
FortllllC, ]ann<uy 21 , '2()02, p, 7l ; Flrad Stoml , "I)e\l's New Toy," ;V"((;SI (; (,I'i.,
Now lllhc r Jk, 2002; an d an intt'rvielV with D("II\ Clullal Brand Tea III , '\[11il '200T
Tllanks to Scott H e lbing, C lohal Blawl tv"lJIgcr o j' Dell , fi)I h(:'lpflll CUilllll('llts
2. Andrew Palk, "\Vh<lt Yon Don 't Know Abu nt Ddl. " Bnsillcss '1Ir:ck . 1\'''''(' 1111 )(' ( :l.
'20():3, p. 7().
:3. \Villiam]. Ahernathy a nd Ke nneth \Vayne , " Limits 0[' the L(~arn in g e" 11'<' ," 1/ 11 ""(11'1/
/3l1sillCSS RCGinC' . Sept("rnlwr-Odober J974 , pp. ]O()- J 19, Fi g llll' 10 ,1 , II'I,i (' l, is IIs('d
with pel'lllission. is sOlll'cnl rmlll this ;u·ticlt,.
 ( I" I /01 " I I I /,, / "I I " II II (I
I I" ,

CHAPTER ELEVEN
1
,, ',t. lillabl e com peti ti ve advan t ages (SC As ), 1'lv('s llll( '1I1 ,, 1;,1 , 'I" I 1111 111 I 1&1
I , I ",spo11d to t re nds ,mel developments em erging thmllgll" " I I I " \\ 1" j, I Ii , i, I ! ~ 'i!" lIn

I IoIl 'l H'titors that M e similarly stru ctured, Pl<lnts can be local I,d 10 V,II " I " ,, ',H I I! i ll ,'o\

I I'" II':"enh)11<1ssing
IV tnKle barriers,
Global Strategies
if a glob,)l strategy is not approp ri<lte for a husiness, 1l1,lkillg II I(' 1,\ 1"
11 ,'\
II <:Ii\',is gl oh al may still b e u se fu]' A knowl edge of competitors, markets, am I 1)( 'l Ids
I, "" I ()ther count ri es m,), h elp a bu siness id~ntify impOItant oppOltuni ties, thre,lls ,
11 11" strategic II11cert<lin ties, A gl obal ex tern al analysis is more difficult, of course,

I" , ':tIl S(' 01'the differe nt cul tures, politic,\l risks, ,md economic syste m s involver].
r\ gloh ,d strate~')( requirt' s addressin g <I se t of issues th at include the f<>Jlowin g'

l. Sh()l il d th e finn hecome glob al by enterin g new countries'~

2. 'vVlr at c()l llltri es sh ollkl he entered , and in w h,\t seque ncE''?
i\;lost 111<1IIa~(" I'S arc 1l( 'a rsi~llt(,d , 10;1'('11 tllOligll tociay's cOIllPetitiv(' lalldscape O[h-II strddws :3. To w ll<lt exten t sh ollid prod1\cts and serv ice olferin gs b e standardi zed
to a ~ I o h~ li hOI'i/'oll, they S('t' hest what they kllow hest: tlw l'lI stoll wrs g( 'o~rap lli ca ll y l 'los('sl across cOlln tries ?
to hOIll(" 4. To wh at extt'll t shou ld th e 1l1'<\lld 1I ,lm e and 1l1al-kding act ivities (su ch as
- KI'I/it-l /i OIIl//(fI'
hr,'lld pos itioll , advertising, <Ind pri cil lg) he standardize d across countries'?
;\ jlowl',-I'lii 1(1l'C(' driv(,s the worl d towal"d a conV(' r~ill g l'O llllll ollal itv, an d ti'<lt [()I'U' is t('('I, ­ 5, J l ow sholilll th e hralld he managed gl ohally'~

IHllo!-,'y ", "I'l l(' I"t'sl lit is a 11(,11' l'Oll llll (' I'('ial Iraiitv- the ('Ill(-'l"gt' II (,(~ of' gloj"d 1ll<lrkds 1(11" st<l ll (j, To w hat cxknt shollkl st rategic alliances he lIsed to c nter IH:'W countri es?

(hmli/,('d ('OIlSII IlH-'r proritlct, O il a pr('viollSly IIlIilllagiJ1ed scall' 0 [' Illagtlitllri (',
1,n;;11
\~aclr o r th ese issues w ill h e explored in
I'

- 'J'!WOr/Ol'l'
tmn, The n ext sect ion , in w hi ch th l' i11ot i­
IVl y V('lItlll'l'S an' IIot ill OIl(' j,OttOIII tJ'lISt('(1, J10r to pLIC<', \; JI i() lls ror global strategies arc presen ted , will h e Idlowed hy di scll ssio ll S or how to
hr~\l1d
( JI ll'
or
- lIIilli(/l1I S/lfIk"'IW(II " ', Till' " !t 'I'/-Ilfillf \'1'11 i('f , ',l 'II 'ct wh ich co ulltri es to enter, stan<brdi)',at ion versus cll stom iz,ltiol1 , global
Lllall,lget1l ent , ,11)(1 th e lise or alliances in deve lopin g gloh,,1 strat egi es

MOTIVATIONS UNDERLYING GLOBAL STRATEGIES

M all Y rirnls rind it lwcessa ry to deve lop global strategics ill
ti ve ly. 1\ gloh al st rategy i s different from a mu ltidom esti c o r Illultinati onal s trat<~gy, ill
wh ich sepa rate strategies are developed ror diffel'ellt COllntries and inlplcment('d
an tolloJllou sly. Thu s, a retail er migh t devel op diffe rent store groups, in several C01 II I­
t ri( ,s, that are not linked amI that op t' r<lt(~ <lutonoJllOl,sly A Illll l tidolllC StiC operMio ll
is Il s",tlly hes t m ,lnaged as a po rti(llio or imlep enJent husin t'sses, \,\lith sep,lra l('
in v(~s tm ~' nt <Iec isions made f<n' each coun try.
A g lohal str ate):.,'Y, ill contrast, represents a world wide pe rspective in w hi ch til('
ill tcrrebtions hips b etwee n country marke ts an~ drawll on to crea te sym"rgi('s ,
eco nom ies o f scale, strategic flexihility, and opportu nities to leverage insi ghts , pro­
g rai ns, and production eco nom ies,
A gloha l st ratt'gy cal1 result in st rategic mlv<llIL\ge or neutralization of a COll1Jl<'l i
tor's advantage, F o r example , prod\lcts or marke tin g programs developed ill ()Il(' nl <lr­
kd Illight Iw IIS( ,<I in allotlwL Or a cost ad v<lll t ag<-' nla\-' resu lt I'mlll s(': d, ' I'('Ollllll li ('\
'f('IH')';\lI,( 1 11 ,\ II I(' h"'lui 1<11 1I1<1I'k<'l Ill' 'rro ll l <I('('('SS I() l()w-( 'o\1 h l l(>I ' 1>1 ''':lI,'ri;iI ,s ,
~
,\ gloh,d st rategy C,ln res ult I'rom sel'e rallli o tivatiolls in additi o n to simply w,l llting to
ord(~ r to compete (' 1'1(-('­ iJl\('s t ill ,Ittracti ve roreign markets, Th e diagram of these nloti vatio ns ShOWI I in
i'i gJll'c 11 ,1 p rovides a SU1l1m ary of th e scop e and character o f glob al strategies,
Ohtaining Scale Economies
S('al(' econ o mi es can occur ('rom produet stam];lrdi zat i on, The Ford worl d-ceu
I'(lllu'pt , ror (:!x,)1l1p l e, <Illows produ ct design, tooling, p ,lrts produ ction , and proci­
r!
Iwl testing to h e spre,ld over a iTluch l arger sales hase, St anJarl li zation of th e
t!('\'(' lopn lt'llt and exeeuti on of a marketin g program can ,\\ so b e an impo rt ant
'I 1I1 1( ' ( ' of scal e economi es, Con sider Coul-Cola , w h ich since th e 19S0s h as
1' 11 1jllo)'<,d a 111 ,\I'ke ting stnltegy-the nraml nam e, concent rate for illul a, posi ti on­
ut
IIIg, ,llId ad v(' rli sill g thcnw-tlHlt has h een '.lirtwll ly th e same th rougl, o tb e
I\'llr ld , o ld \ IIII' :lrliri (' i;t1 SW('(' t c ncr alld p <\Chlging diller ,ICroSS countries,
S(', ri l' .'('''"''IIIjl '~ (':111 als() Oc('tlr rrol ll sta lldardi/,alio ll of marketinp;, operati ons ,
:II,tilll;Jlllli:I"II"j" !', I" 'I',!'Y;'III ,S 1\I':llId , 11,;11 sl ",J'I' ;Jdv( ' I 'lis il'~ kve ll w hc ll it is adi llslcd
1'(1I 11)( ,,,1 """ I,,. 'I', I '1" " ,,, 111 11' 1"'II( I, [(' ljl jll :IIIt! (, 1
'1':lIi\'I' (,llll!'1 ()\'l ' r II IIIllil ll(, I'olllllri( '.s

()I)('I '; ilill ,~ ill 1':ll"illlL\ ('I>IIII1I'il',\ 1': 11111 '<11 1 II) l 'IIIJ:IIJ( 'I,( III('\ il,ilill '.: " 1\1, 11 ,I', "" , ,,,,,, !~ I 'IJI

I !I I
 196 Part Three Alternative Business Strategies Chapter 11 GLohal Strategies 197

Create
Global IND ICATORS THAT STRATEGIES SHOULD BE GLOBAL

• Major competitors in important lllarkpts are not dOlllestic and haw a lwcsell ce
in Sf've ral cOllntries.
• Staudardi'I.,\tion of SOOle clemellts or the produ ct or IIIMketing stmt('g) provides
Obtain
Access opportuni ti cs {(n' scale ccoliOinies.
Scale
National • Cos ts ('an Iw 1'('(lllcl'd and dIeclivt' III"SS incn~ascd hy locating va lli e adde d activi­
Economies

ti es in eli fTer('1l t c(l utllTips.

• Th e re is a pot('ntial If) lise Ihe volu me and pronls from OIl( ' Ill arkl't to suhs id iw
gaining a positioJl in '1Ilotlwl.
Access • Tr'ldl~ harrins inhibil access to wOliiJwhik' 111<1l'kcts .
Stralegic Cross­
Subsidize • A glohal Jl<lJIl C C;ln hc aJl adva ntage and Ihe nall\ e is avail<lblc worldw id e,
Markets
Dodge • A brand position and its slIpporting ativt'liisillg will wo rk across cOlllltri('s alld ,
Trade
Barriers
has not het'n pl' e<: lIlptl' IL
• Local markets do JlOll'cqllire l)rodllcls or se rvice For which a local operati oJ)
il
i
would have all ad vantage.
FigUl-e 11.1 Clol d S trale).!:.' ivlotivatiolls

alHI thlIS a larger sa les base. A I1l'1n si lililarly I )('n(~rits w hen fi xed cos ts ill volv illg IT
and prodllction kcililolop;ies call Iw distrihllted o ve r cOlllltries .
\c-{'css to National Investment Incentives
Desir-able Global Br-and Associations \11()lll('r way to o btain :l e<M <Id\allt<lgl ~ i.'i to <lcces.'i 11 ;ltioll al illVI'stllWllt in ce ntives
Bralld naill es linked to global strategies ca ll have lI scl'lIl associations. For CIl stonH'r.' 11,,1i ('olllltri es ilse to achieve ('('0\10Illic ol).il·cti v(~s [-()r target indllstries or depressed
and cOllllx'li luI'S, a glohal pn 's(" llce all tOlllaticall y S.I' Ill hoi i/.es stre llgth , staying IH IW(' r, 11 " <1\. Unlike otllel' IIIC<lI1S 10 achie ve challges ill traJe, sllch ,IS t,lriff> <lnd quotas,
alld the ahility to gC llcrall" cOinpetitivl~ products. Sll c h an illlagt' call he particldarl) 111 ('(' II!'i ves arc Ilili Ch less visiblc alld objectionahl e to tradillg partners. Till!." th e "II
important to hu)'crs of' c .\ lwllsive inclll.';trial prodllct.'i or co nSUlller dllrahles "m:It as I \ Iii isll gov(-' rtllllCnt Itas oJ'i<'red J<lll<ln c.sl " car Illallil r<lctllJ'(~ rs a cash hOllllS to locale a
cars or comp"ters h('cause it call lessell con ce J'll thatl'lw prodllctS lIlay h e IIlireliahk 1)1:<111 ill the Unit(~d Kingdom. The-governm ents lri'lrcland , Bra/.iI, ami <I host orotlH'r
or r cndered ohsoletc hy techllolog ica l adva llces. Jap,lIwsl' Fil'llis sllch as Yamall<l , " Cllliltries of[(~ r cash , tax hreilks, land , and huilding., to entiu' cO lilpanies to localt' Fac­
Sony, Canoll , alld flonda 0lwratc ill markets in w hich tccliliology alld product <{llal, l(lI il'S th ere.
ity arc ililportant, and th ey have 1 )t'll dit(~d from a g lohal hmnd associatioll.
( :m ss-Subsidization
Access to Low-Cosl Labor or Mater-jals
\ .~ I()llal presencE:' a llows <I RI'I\1 Illcross-Sllbsidil.(-', to lise th e resourc(-'s <lu:llillulated
Allother moti vat ion [()J' a global st rategy is the cost reductioTl that re.' 1dts I'r(J11i Cli ()II(' part of the wo rld to fight a competi tive battle in anoth e r. I Consider th e [()lIow­
access to th e r eSOllrces of man)' cOlllltries . Suhstalltial cost diH(~re n ces call aris(' III.!~: ()II(' firm Ii ses the cash Ho\\'gt'llerated in its hOllle mari<t-:t to attack a d o m es tica lly ­
with r espect to raw materials , n&D talent , asse mbly labor, and CO IllPOIl Cl lt slipph ' "11<'111<'<1 compe titor. For example, in the early l!:J70s, lVlich elin used its Europea n
Thlls , a compnte r lllanuhlctu rer may purchase cO IllPonents ('rom SOllth KOJ'('~l ,llid I" 11 (J(' profit hase to attack CO(((kl'ar's U.S . market. Tlw dd('msi ve cOlllpditor (i.e. ,
C hina , ohtain raw materials £'rOin South Am e r ica, and a"semhl e in Mexico alld ('i \ '(, I :'H)(h-("II') can r edllce priccs or ill('l'C'<ISI ' advertising in the Unit(:'d St<lles to counte r,
otllt'r cOlllltries throughollt th e wo rld in order to r educe lahor and IrallsporLl1 i011 11111 11\' <I()ill)!; .'iO, it w ill -,dl'lifi('(' IlI<U'giIIS in its largest markets. An <Iltenta ti ve is to
costs. Access to lo w -cost Jailor and materials call he ,III SCA, 1"'I)( '('i :dh ' w ll('ll il is .11 1:1(''' III(' ; l l.·J~J'('SS(\1' ill ils IICIII H'lII:lr"( ' I , whnc it has tb e 1llost to lose . Tblls , Coodyear
accompanied hy thl' skill <111<1 fll'.\ ihililv t() ('klll)!;l ' WIIl' 11 011(' .' III'I,h i.s 1111'< ': 11('11('(1 " ,llli( '" III(' li .I '.11I I() 1<111111 " ' 1"1" 11 :1(1" ld in iVlich c lin's profit !rase.
OJ' a 111()\,<, ;ltlr:(('li\(' :til l' rll:lli vl' ('IIII'.J',\.!;I'S . 'I'IJ(' ('I'() S · . ·. (II,· .III,/: cI(II" ""'1<"' 1)11":1(1.,10 [-w o .'i tral'egic cOII.'ii(k'l'ations: 2
 196 Part Three Alternative Busin ess Strat egies Chapter 11 Global Strategies 197

Create
Global INDI CATORS THAT STRATEGIES SHOULD BE GLOBAL
Associations
• 'v1;1,ior competitors in impoliant Illdrkf' ts are not dOl11 e)sti c and h,lV(~ a preSCllce

ill st'veral cOlilltries.

• Standardization of SOIllC cl("lllt'nts of tIlt' product or marketing strat(:g), provides

Obtain Access C'pportllnitit's Illr scale ecollomics.

Scale National
Economies • (:osts ca n 1)(' n,dllcc(l and cf'ii"cti ve llt"ss incrcast" d hy 1()(,'lti ng vall 1(:' added activi­

Incentives
ti c's in different COllntri('s,

• 'l'll('rc is a potcnti,tI to usc tlw volulllc and p ro Fits h'olll one lllarlw t to suhsidiz()

g'lining a po sition ill another.

Access • Trdt!,-, h'lrriers inhihit acecss to w()lillwhil c Illarkcts,

Strategic Cross­
Markets Subsidize • .'\ global name can 1)(:' an adv,lIltagc anu tlie nalll C is available wor ldw i(lc ,
Dodge • A hrand position <lilt! its sllpporting advC'rti sing wi ll work across COlliltrics all (1

Trade
has lIo t been pre(-' Illpte,(l.

Barriers
• I,()cal lIl<lrkds do not r C'fl.lirc prodllds or Sl'lvicc Jilr which a loca l Opcl'<Itio»

\\'oliid have all adv'lntagc .

Figul'c 11.1 (;I obal Strategy tvioti vati llil s

alld thlls a large r sail's base, A (inn similarly henefih when fixed cosh invol v in,g II
;Ind pmdllC'Iion I'('chnologics can he distriilutt'd ()v(~r cOllnlrics. II
\ 11'('"'' 10 N ational Investment Incentives
Desi."able Global B."and Associations
,,,' II 11<'1' way to ohtaill a cost ad va lltagc is to acu'ss 11,lliolial iIlV('StIlI Cllt in ce ntives
Brand nan1('S linked to global stratl'gies ca n h,lv(' II.'icf"1I1 clssociations. FOl' CllstOIlIl 'I '. I I"" c''' llIlIrics IIS(' 10 ac hi('ve eco nomic ohjecti ves 1'01' targd ill(lil stri('s or deprl'ssed
ami cO ll1petitors, a g lohal prl'sence ,lIltolnatically sy mholizes stI"Cngth, staying P()\\I'I "" ,I l Jltiik(, oth e r IIwan s to ,\Chi CH' CIUllgt'S ill tradc, sllCh as tari['f s alld '1ltotas,
and th e 'Ihility to gellerate cOlnpetiti vt: produds, Snch an image can Iw particII!;1I h il l, c' ,lIi \I' .s aI'(' lilllCh less visihle and ohjeciiollahk to trading paltn (' rs. Thll s, tlw
ilnportant to hllye rS of" ('x[wilsi v(' indllstrial prodllds or conSlII1Wr dllrahl es slldl ,I', tllll l,,11 ,~Il\(' rt1I1I ('nt has ofFered Japan ese car mallllLldllH'rs a cas h Ilonlls toloca l-e a
cars or conlpllt(·:rs Ik>l'<lIlSC it can IeSS('1I concerti that the pr()(llicts lI1ay be 1IIII'( ' Iiaidc I" 11 11 ill III(' Ullilcd Killgdom. Th e gOVCrTlll1l.' lIts of' Ire land , Brazil, ,111(1 a Ilost ofotlwr
or rt'll(lercd ohsolete hy tcc hnological advance.s, Japanese firms .su ch as Yalilall.l , , ,, 'I IIli I 'S oll( ' I' cash , tax hreaks , hnt! , and hll ildiilgs to e ntice CO lil pal li es to loca t(~ rac­
Sony, Canon, and Honda opcrate in markets in w hich technology and prodllc:l qll:tI l "II I 'S II II' I'{ '.
il')' arc important, ,lIld they have Iwn e Gkd f"rom a glohal hrand assoc iatioll .
( l o s.'i-Suhsidization
Access to Low-Cost Labor or Materials
\ ",lc,! " tll l l'l'S('"('(' allows a Grm to (Toss-sl.lhsidi7.(', to lIse the r esources accllllllllatc d
Anotlwr liIotivation fill' ,I g lobal strategy is the cost redu c tion that res ilits 1'1'0111 111 1111( ' p;111 ollhe wo rld to Gght a compe titive hattle ill another. I Con sider th e {()llo\\,­
ac ce,s ,s to the I'(~so urc es of man)' countries. Suhstalltial cost difTcrell c( 's call ,Iii,,, III" ()II(' linll II S('S tl1l' cas h How g('lwrated ill its home market to attack a dOllwsh ca lly ­
with rcsp ecl to ra w materials , H&]) tal e nt , assemhly lahor, ant! CO lll[lOIl (' lIt SlII'III\
Thu s, a cOlliputer manubl<.:!'urer may purchase COllipOlients frolll SOllth K()r('a ;IIl.l
'"I' llIc ,t! ('()lIlpditoL For example, ill thl' early WiOs, i'vjichelin IIsed its E uropeall l:
II" c" c' 1IIIl/ii h:ls(' /'(1 at la(l Co()(lyear's U .S market. Tltt-: d td'e nsi ve competitor (i,e.,
C hina , ohtain raw m,lte rials from South America , <Ind assemhle in Nkxico :lIId I'i\ I ' , '"'' l\c ':lr ) (';111 n ,dll('(' 11Ii( 'l's 01' ill(T('<IS(' ad vertisin g ill the Ullited States to counter,
o th e r cOlllltries throughout the world in ord(,r to rt,dIICl' lailor ;JIHIIl';JILSP()II;tlillll 1'111 1,\ (I"ill,l!, so, il w ill s: luili( 'l ' 1It;1I',g iIi S ill its large'st markets. An alternati ve is to
costs. i\eces,s 10 100v -c()sllahol' ;\IId 1I1<11l'riais C<lll 1)(, <III S( >\ , l'sllI'('iall\ \\,lll'lI il 11, 111 .11'1, III<' " ,t.:,,l.!, lc'ssllr ill ils l"lIl1c' 111: l lk"" 11'11(' 1'(' il "'IS tl)(' I1IOSt to lose. Thu s, Coody ear
<lCColllp <l llied h y th(' skill <lilt! Ilnillililv 10 ('I UHl!;t , \\'111'11 l lll<' SIlI'I>I\ is IllIl.:tlc'll(,d 1II I<'d til<' li ,g lll III I<III'''I H' 1<> 1,,11 :t dc ,,,t ill j\,li( ,llI'lill 's plofill las('.
or a 1I101'! ' alll';I('/i \ 'l ' all('I'II:11 iVI' l'lll<'rgl's.
'1'111' C'rllS:; slIl, sidl /: lll cllc C'lllll'c'liI Ic '."l s I() IWll st l·:tI('g i,' l 'IIIISidlT;tlioIlS: 2
 198 Part Three Alternative nu.siness S"l1'a tegies
• To inf1uell ce all exi sting or potential Foreigll co mpetito r, it i s u se ful to maill "
tain a presence in its countJ y. Th e presen ce sh ould be large e ll ough to lTlak< ,
th e threa t of rd ali ati o n lll eaningfu l. If th e share: is o nly 2 p e rce nt or so, th('
competi tor may b e w illing to ig no re it,
• A hOIl l(> market may he vuln erahl e even if' a fir m apparently co ntrol., it wi tll
a Llr,L;l' m arket sh aw , i\ high lllarkH shan', esp ecially if' it i s ll scd to SllppOit
high prices alld pmfits , can altract j()reig n firm s that reali z(~ th t, dom (' sti c
fi nn has linl e j'r('ed om f()r retali ati o ll , A m ajor reaso n fiJi' tl w ( 1<-~ mise o r tIl('
U ,S , CO nSllll]( ;r c1e ctnlllics indll., try w as t hat U ,S, fi rms 1V("r(' plac(' d at a slIil,
stantial disad vantag<:, cOlllpar('d w il'h g lobal co m pe titor., that h<ld th l' Opti011
to c m ss -suhsidi zl' ,
Dodge Trade Barrie ....,
Strategic locatioll Or CO lllpOn(-, lIt alld as,, (' lllhly plants C,lIl he lp gai ll acc'!:'ss to markets 1)\
p enetratin g trade harri ers all(ll-()s terill g goodWill , PCllgcol', iill' exampk , has plallts ill
lW!:'llty -six cOlllltri cs Fmlll Arg!:'lltillil to Zilllhabw!:" Local"illg final-asse mhly plant., ill ;l
ho.st cOlliltry is a good lVay to achieve I;lvorahle trad e lrea tll w llt and good w ill , b ec,1I1s,'
it pmvid(-'s a v isi hi!' Pl'{'s!' llc(-' alld g (-'1H Tates savi Il gS in tra ll.' pOltation and sto rag e" or th, '
nn , t1 l)rodl lct, Tilli S, C ale rpill ar o[lerat('" aSS<' llIl )ly plallts in (',ICit or iI's lIlajor Illarkets,
inclHdin,L; I~ Hrop l', Japall , Brazil , al1(1 I\llstl 'alia , in palt to hypa" trad e harri('I'S, 1\11
i nl [lOltall t ell' nl(' II t or 1'11(' Toyota sl'rategy is tOSOlll'('(: a , ig n i ricilllt portioll of i h car cosl
ill th e Ullil!'d States alld E llrope to d c ll!'d sentill l(; nt agaillSt I(H'!' igll dOlllination ,
Access to Sh-ategica])y lmpo.-tant Mad<ets
SOllll' Inarkds il re stral'(~g i ca lly illlportant 1>(;'('aIIS(' o r th eir Inaricd size' or potcntial or
h('c aus(" or their ra w Illaterial ,\ LIppi )" lahor cost stnldure, or l'cchll oloi,'y. It call 1)('
illlportant to hav(' il pr(, sC ll(,(~ in I'll('s(' Il larkl'ts l'vc n ir sl lch a pwse llct ' i " II Ot prol'­
itahle, Becau sc of it" size, th e U, S, markH is criti cal to t host' indll st rics i n w hic h sca le
el'ollolni (~ s arc impo rtant , sllch as ,lI ltonlObil c s or COl lSllllle r I'lc,ctroni cs,
SOlll etillws a cOllll t ry is illlportant hecall se it i s tl w locll s of' new tre nds ,1IId
del'!:' lopnwllts in all ill(lll stry A Ihlll ill the Llshion indllstry ma), hen efit rrom a
presen ce ill COlilltries thaI' have historically Iccllh c way in fashion , Or a hi gh-l!'c ll
Firm nla), w ant to h avl' operatiollS in a c ountly that is in th e f() re i'rollt o f I'he re l('­
vant h el d , F o r exampl e, all el ectroni cs fhlll w ith oll t a Sili con Vall ey p rese nce w ill
find it di f fi cnl t to keep ahreast of' t ec hnol ogy d evel opm en ts and cO lllpe titor stral'('­
gi !:'s, SOll1 e tim es ad l'(luate illf(lrlllatioll c an he ohtain ed by obse rv!:'rs, hut those w illi
design anc! lll aTm Lecturin g g roups on location w ill t end to ba ve a Ill o n , inti Ill al, '
know l ed g!:, or trends ,111<1 eve llts,
WHAT COUNTRY TO ENTER?
Oll ce <I firm hds decided to h ecollw g lohal , d cc idin g IVII;II ('OIIIIlI Y 01 ' ,'()lli ll ril ',s 10
(,11te r- allcl in w hat s(''III( 'II('I ' -is a ki '\ ' (, II :til( ' ll g(' , 1'~II I " rill ,~ ;1 11\' 111 '\1 111 ;11'''''' (':II I III'
ri sky al lli tak!' a\v;I \ r('SClI II'! '(', 111:1 1 ('''Iti ll I II' Il sl ',1 I" 111 ;ti", , 1,:11" " 1" 111 \( ',11 11( '111.,
Chapter 11 Global Strategies 199
,,1"1 'Wher e , A freq ucntly u n fo rescc n con W (lll(::lI C<c of glo ha I expansi on is tklt
11I';[lthy ma rket s, esp eciall y th e hom e market, are pllt at risk by this di ve rsi on o f
" '\l lll rCes , It is thll s important to select marke ts for which tilt' li kelih ood o f Sll CC('SS
lI'i l l he high and the res ource d r ,lin min i mi 7.ed ,
tvl arket selecti on starts wi th several basi c d im en sions:
• I s the market attracti v<:' in te rm s of si 7.l' and growth '~ Are thnl' ra vorabl e
m arket t re nds'? F o r mall)' co mpalli("s, C hin a and lndi a o rten ,lppear ,ltl'rac­
tivl' Iwca l\s(' 0 1' tll('ir she.l· r Silk' alld grow th pot!:'lltial.
• How ililT IlSl' is tlw cOll1pe:l"ition ? A re o th l ' r Firms we ll (' Il t r(' nc hed w ith a !
loyal 1()lIow in g , ;lnd arc l'Iwy cOlnlnitt('d to d('[(.ndill g tlwir po,'i itioll ') T esco , a
;1
major rc tail er in th e Ullit(-,d Kingdolll , 1()llm1 that C,(P,lI1 Sioll to Fran ce was
unattract iv(-' hel'an se or t hl' es tahli shed cO lnlw titi o ll , w h('l'('as eastel'll
ElII'opean co ulltries had Illll Ch less IClrI ni d ahl e competiti on, As a resl dt,
lliin ga ry was the fi rst cOllntry ill cOlltill e ntal EllI'op<-' th at Tcsco elltel'{ 'd ,:'
• Clil the fil'lll <1(1<1 valll e to til(' lI1ark('["') \lVili til(' prodlld ,'i and hll.,illCSS I[lod('1
prov id e a p oint 01' dilT('I'e ntiatioll that repres e nts a rel el'allt l 'll., tonl('r 1)(' 11 (' ­
Fit'? T csco lias d eve loped an Int<'l'Ild- hased hOIl1 (, d eli very -,\,S I'(' lll IC lI' g ro('e ry
n :tail('rs tklt adds vaill e ill l11a ll), lI1arkd s, illl,llIdill g th e Ul lited Sl at('s, 1
• Call th(' f-i nll impll'lncllt ih hll silless model ill t he l'Olln t ry, or do ope l'<lti or lai
or l'ldtllral harriers exist ? [low 1( 'asil)1c is all y adaptatioll dlat is reqllired'? : III
lvlarks & Spen ce r, a U,K, rdailn SP,lllllillg I( )od , clothill g, ill1<1 g(' IH'r,ti ll 1(' r­ I"
!
chall(li,'i(', attempted to (~xport its o lkrings alld th e look alld 1('('1 oi' its storI'S to
th e C Olltin !:' nt , (111)' to filld tklt tllCSt' ol fc rin gs had littl e ,lpp('al to ElIruP( ',Il IS,
• Call a u it icalm ass he ac hi t'w d ? It is llsllall), I'at,d to (' llt(' r cOlllltri('s l<ll' kill g
'I·
the sale" pot("lltiall](.;<'(kd to Sllpport til(" nwrlw tillg a11(1 distrilliitioll elfort
ll('eded iClI' SII CU 'SS,
11
Under standi ng the 1C1Ilr typ es o r distall ce hl'llVcl'n a rinn ,Ind th l ' target CO l l n t ry
" ;[11 I )(~ hl'lprld i ll Illakin g th es(' jlld gllll'llts , p arti cldarl), th e las t Iwo:' G eog raphi C dis ­
1;111('(' in cludes no t only the ph y si cal distance hut whdher the w i s a conllnOIl h(mlcr,
.'i ,'a o r ri v!c' r acct'ss, or a dilTcrenl' clima te , Adlllini strati v(' di stance ill vol v('s govel'll- ,r
111(' ll t poli ci es , as 11'(,1\ ,IS poss ihk restrictions Oil trad e, m OIl(' t,llY w eakn ess , or po li t i ­ : 11
,'al hostili ty. Cllltlll'al di ~ ta ll ce re Fers to di ssi mi lar 1an ~lla~es , d l lll ic il'ies , H'li ~i on s , alld
,\ ()('ial norm s, Eco llomic di s tan c(~ IIle<lns di s[l,lri t ics in COnS llllll'r i ncom es , 11 ,lt ional
i ld'r,lstl'llctllrc, ,Ind th e co sts o l' natural and hlllllilil reSOllrccs,
Th ew l1lllltipl e fo r m s of di stall ce , pdrti c llhtrly cultmal and admilli,trati ve di.,­
1;11 1('( '. h('lp explaill why firm s attracted to C hin a's enormou s p otcntidl an' fin d ing it
.J il'li('ltit to ('llt(' r Slll'c('ss liti ly, In on e sllrvey, more th an halfo r tl 1t' rinns admitted that
Ill!'ir hll Sill('ss jln IClI'Ill <l II('( ' ill C h i lla had Iw e ll " w orSl' than p Ltllllt'd ,"r; Cllll'urally, the
1 : 1I 1 ,~ II:l,~( ' jll'"III"III , III!' il'Il)(lrl:lll(', ' ()r[l( ' r\OIl ,t1 COlllll'ctioll S, and COn Sllll1 <:' r pre fe r -
II
1' 11" ", 1( 11110111" " 11 1111111 Il r:lll l ls ;lil ;111"( '1 III<' SII(,(,('SS ()I ' I'o r('i,t2;11 ('ntrants into China ,
1\<illlilli " II ':lli \( ' 1<:1 111<' 1', ', 11, ,1, :I ' , IIl:lIl, '1 ; 1('( ,(" ,' l'! 'slri (' li () ll s, Ili ,~ 1 1 1;[ \ (", . :11 1< 1(' II SI()III( 'I'
<illli , 's :11.\" ilti,il ,ll " 111 " 11 11 1' li'll" , ,I', <i'll ", " (II 'rllltli lll l (", lli"I , (':1111)(' ,i,!.!,llifi " ;lltI ),
200 ]'(l.Tt Tlnee Altemati uc BtiSilleS8 Strategies
A strategy of ellterin g countries seqllelltially has se ve ral aclvalltages. It reuuces
th t' initial ('OI1l111itllwnt , alJows tlw proUllct and marketing program to b e improved
bas(~ d Oil c xp pri<"l1 ce ill preceding COlin tries, and provides for th e grad ua l c reatio n of
a n "gi()llal pn'sc ll C(-'. Other h lctors , however, argue that g lohal expan sion sholild 1)('
done Oil as w idc a front as p()ssihh~. F irst , ccono1l1 ics of scale , a k ey ele ment of suc­
ce .~srll l glohal .stratc"gics , w ill 1)(' more quickly reali/.cd alld willlH:' a l1lore significa nl
f·ador. Second, the ahility of cOlllpetitors to copy prodllcts and hrand positioTl s-a
V(' IV real tlll 'cat in 11l0st indu slries-will ]w illhi hitn ll wcause a first-Illove r advantagc
will OCC llr ill Illorc Illarkcts . Third , standanlil'.ati ()l l , a topi c to which W (" now tllm, is
ilion' 1('Llsihl(,.
STANDARDIZATION VERSUS CUSTOMIZATION7
St;JI)da nliz('d Ilrands gaill('d widcspr<'ad nedcm'c as a st rategy hccause or Ted
J,cI'iH 's c las.s ic lWn JJarvanl nl lsincss l\cvicw articl(,', " Th e Cl ohalization 01'
Mdrkds ," w lli ch gave tlll'('( ' n 'asoll.S why it wOllld succ(-'cd s First , the roru-'s 01' CO Ill­
1llllllicatioll , ITanSp(lI'!' ,111( 1 travd W ('I'(' hl'('aki llg down thl' insldatioll of Illarkt'ts , lead­
ing to a 11(11IHlg('Il('i ty 0[ ' COllS llnl('r taste s alld wa llts, Secoll(l , the ('Conoillics or
Silllp[i c itv dlld .stall(lanlil.atioll-('sl)('('ially w ith resped 1'0 prodllc-ts ~111(1 CO Jlllllllllica­
tioll - r< 'pn 's( ' III('(1 cOlll [lellill g (,olll[l<'liti v(' ad vantagcs against those who hl'ld o n to
l()(' ;lii/.('(l s IT;tt<',!~i('s . Third, Cll st(lIlI e l'S wOlliel sacririce pre!'er('nc('s ill order to ohtai ll
Iligll ({,Ia [itl' at [OWI'I' priu's . Th(, arlil'k prol'ided an academic 1I11d('rpi llllillg to til('
log ical ]1l'('lIli .s(' tl lat st,llidanli /,atioll sho ldd lw th e goal or a gloi>alhlJsi ll (-'ss.
I'rill,i.!;i('.s , \'i'<[ , ~r/'\ : SOTlV, DoV(' , V()( Ld(lIl( ', 13P, Delk('rs , Ni ke , rVIcJ.)onald's,
P,lIltCI1( ', l)i SI\( 'V, and l Htvl an' th e (' II VV O!' IlIauy hl'and hllihkrs h('calJ s( ~ th<.'y Se('lll
to [laV(' gClIl' rat( 'd glol>al h ll SilH'sses with a high dcgwe o!'silnilarily in terills ofh ra ll d ,
pw;itio ll , advCTti sing strategy, persoTiality, pro(lll(,t, packagillg, ami loo k and /'cef
Prillg l( ,s, I'o r ('s;lIllpl(" stands I(n' " !'IIf1," a soc ial s('[ti llg , rrcshll es.s, less g reas illcss,
r('s('alaliility, ;111<1 ['/1(' w hole-chip llrodlld ('v('l)"vlw re in th e wo rl d, FlIItller, tl1<'
l'rill g [('s packag(' , sYlllho[s , and a<.lverl'ising are almost the salTl t' gloha[ly. Disney's
In,lTld 01' llugical !';lllli[ y ellt('rtaillll wnt is illlp1t; lll c llt('d hy th<.'lll e parks , Jllovi es, ,uld
charact(' rs tlwt ar(' rem<lrkal)ly COll Sistcllt ac ross cOll lltii es .
These ''sLl11danli '/.c d '' brallds are oft(~ 11 Ilot as identical worldw ide as on e Illighl
aSSIlIlH' . ]'vlcDollahb has disparate lllC'ntls , ad veltisillg, amI retail architectllres ill var­
ion s coulltri('s l)ringles II.S( 'S diH(-'wnt flavors ill diiTe rent cOlllltri es, and adverti sill ,!!;
ex(' clitiollS arc t,lilored to l ocal cu lture. H einekt:n is th e pn~ lllilim hee l' to enjoy IVilll
fri <"llds e\!e rvwhcre - except at hOlll e in the NetherLt nus, IVhne it is Illore or a lIJ;lill
stream helT. Visa eve n has h ad di fl(,'r<-'nt logos ill sOllle cOlin tries (sllch a.S Argentill ;!),
and Co l«' has a SIVCl'l(-T prodnct ill areas like soutlwril Emope. H("ganll css oJ' IIJ('.s('
va riati ons , hOlVel'(T, brands tll<lt h ave moved toward th(-~ global (,II( [ o J' til(' [ocal g l()ll:II
spednllll deillonstrate sOl11 e real adl'antages .
A shl1l(lan li l',(,cI brand call aeilic'''( ' sigiliri !'<lll t ('('(III() llli ('s oJ"!':II(,. ICor C'\:lllljlll' ,
Wh(,ll IB I'- I d('cicl (, (1 to ('v ·h<lll ,"·(' - . S(llll (' 11)1'('(' dO/( '11 :l(h'(' I'li,ill!' I ' :l!"I
, ... 'lwi , 's ICJI' IIII!' ill
111'([('1' III ('1'( '; 11(';1 .sill ,l!,I(, ,!!;IIlII<l 1 ( '; 111111 :' l i ,~ 11 (1'1('1 1 il' il ll( " 'd, ,d , (lIllI' :((I: q11 ilil ': /'1'''111 1I1<l1
""I 1'1 111.11 ", 'I l. "1)(' 11111Iil"li"ll I" IS I" :w l,ir'I" ,· l'Ii' ·II'III'II" ', '1'111' 1>1 I, .. I ""I"I"llill l;
Chapter 11 Glohal Stmtegies 201
packaging, a Web site, a proillotion , or a spo nsorship will also h e nlon" cost -e ffective
w hen spread over Illultiple countri es. Economi es of scal e across countries can he crit­
ic,d ( )r spon ~o l'Sllips with gl ob al re.1ev<lnce, such as the Workl Cup or the OIYlllpics.
Perhaps Jllore important thollgh , is th e enhanced eFfedive ncss that result s from
1H'lter reso urces. W hen IBM replaced its roster of agencies w ith Ogi lv)' & Mather, it
ill1nl ediatcly b ecam e the proverbi ,tl elephant that can sit wherever it wants. As the
IllOSt important O&M client, it gets the b est agency tal ent from top to h ottom. As a
I'('su ll', the chan ces of a well-execllted breakollt campaign are markedly imp r()\l(-'d.
Cross-market e.xposlIr(:' pr()(hlCeS fmtl wr cf-Tic ienci <.; s. IVl ed ia spillovc r, wlww it
('\ isl's, all ows I'he standardi zed brand to h uy ad verti sing more e ffi c ie ntly Cilstonwrs
w ho tra vel can gel' exposed to th e brand in different cOl lntli es , again making th e calll­
1';lign lVork harder. Such exposure is parti c l11arly im porta nt ror travel-relal'l 'd products
,11('h as credit card s, ai dines , and hote ls.
A stamlardil',('<1 brand is also inh e re ntl y casil,r to m anage. Thc fundam ental chal­
Il 'nge of brand lIlanagem l 'nt is to d eve lop a cl(,<.I r, w<., II-arti cl11ateci i>rand ide ntity
I ",kll yo u w ant your hrand to stan d ror) an d to fi ll(l lVays to make that identity a dri ­
1('1' o r all brand-huild ing acti vities. The ahse nce of Illllll'ipk strategies makes thi s task
Il ',ss rorillidahk w ith a global hrand . In addition , simpk r organi zati o llal systems and
~l nl c!' lIrl'S can be l' mployed. Visa 's " world w ide acc(,pta nce" positioTi i s 11i1iCh easier to
l))anage than doze ll s or cOUllt ry-slwcific strategies .
The key 10,1 sl'<lndardi z('d hrand i.s to rind <l positioll th at w ill lVork in all IIl arkds.
S[)I'irt' , I'(lr c x,ulIp k has th e sa lli e position g lohally- hon est, 110 h),1)(', rcrrt's hing
1;lst('. lr is hased on til(-' oh servation that kids eve ryw hcrv arc 1'<.,<1 lip w ith h)1)(:' alld
('Illpty prollli .s<.~ ,s and ready to I'rn st their own ill stinl'ts. The Sprit<-, ad v(, lti sin).!; t,lglill(-,
(" Image is nothing. Thirst i s eve rything. Ohey yo m thirst.") resonates arollnd the
w orld. III olle scenc from a Sprit(" ad , kids arc di sc ll ssing w hy tlwir haskdhall l!ero
1\'Ililid drink Sp rite. Arter his fri end s spec ld ,lk ahout its ahility I'(l make players jump
i i'
IIig lw r and p erfilrln oth er ath letic feats , one concl udes, ,, [ I)(-'aru C rallt Hill d ri n ks it
WII CII he get.s thirs ty. " !
Severa l gen eric positiolls seelll to trave l well . Olle is h ei ng th e " Iwst ," the upscale
II
"lloice. High-end pWmi ll1l1 brand s such as M(' rced es , Montblan c, Heill ekeTl, and
Tilr' ln y 's call cross geographic l )(lU ndari es becallse the sclr-expressive b ene fits
Ill l()l ved apply ill nlost cllltu res. Another is the conntr)' position. For eX'lmple, th e
'American " position or hrands sllch as Coke, Levi 's, Baskill -Hohbins, KFC , and
II arl ey-Da vidson wi ll work everywhere ("vith dw possilll e exception 0 (' the United
Slates ). A pllre1), functional b ene fit slleh as Pamper s' dry, happy baby can also he Ilsed
ill lilidtipl e markets. N ot all brands th 'lt are hi gh -c nd or Aillerican or have a stro ll g
1'1I 1Il'tiolial Iwnent, h owever, can h e gl oba l.
.Sta ntiardi /.ation can come frolll a centralized decision to create a global prOUllct,
( :'IIJ(IIl , 1(11' exaillpl e, dewloped a copier th at had a COlTllllOn uesign through out th e
\l'orl( I il l (l rd( 'r to nla'\ i m in ' procilldion economies. U nfortun ately, th e copi er cou ld not ,
,I
IIW 11 )(' .sl' lIHi:ml p'l(H'r sil',(' ill lap;ul , r('slliting in substalltial cll stomer i n convenience ,
T[lI' lisk il" II'I'('1I1 i ll :1 Indl gl()[d ,SI ;l ll(l an li /.a!'illll Ilhj('('tiv(' is that rhe res liit w ill be a
('IIIIII" 'I" lli s(', 1\ /11 '1 )(111<' 1:llld 1I1:l1""li l l l',I" '(I~I''' 11i 111<11 :dl l l().S[ fi l s Ill OSt' marlw ts Ill ay Jlot
I", ('\:1<'111 l'i .I',111 :111\11111'1" ',11<'1, ,111" ,,"1 I.S :1 I'('('il ll' I;,, ' Llilllrt' (II' III(,dill(,l'il y.

202 Part Three Aitelllative Bltsiness Strategies

Another strategy is to ide ntify a lewl cOllntly, a COUlltly w hose market is a t t LI('
ti ve beca llse it is large or g rowing or because th e brand has a natural advantage tiwr(.
A product is tailore d to maximize its chances oFsuccess in th at country, the ll expo rlt -d
to other markets (p e rhaps with minor mo difi cation or re fin e nw nts) . A firm m ay h",·, .
Chapter 11

;tirline travel. In Germany, howeve r, w h e re Volkswage n h e ld th e dominant

p osition, the Galm,y becam e tb e "clever ,\Iternative."
• Different brand images. Honda means quality and re liability in th e United

Glohal Strategies 203

i
States , w he re it has a legacy of achieveme nt hased on th e J.D. Powers rat­

several lead countri es, eac h with its own prodll ct. Th e result is a stable of g lo],;11
hrands, with each hrand based in its own hom e cO lln try Nissa n has long taken Ih i·,
in gs, In Japa n , howeve r, w h ere quality is much les s of a difle rentiator,

Hond a is a car- race participant wi th a youthfltl , energe ti c p e rsonality

~
rI
approach , developing a corporate Heet car [()r th e Uni ted Kingdo111, f()r example, ;111, I
• Preempted positions. A supe rior positioJl [(n' a chocolate har is to OWII

then offering it to oth e r co untries. Lycra, a :3.5-year-okl ingredient brand frolll

associations with milk and th e image o f a g lass of milk h e ing poured into a

DllPont, has lead coun t ri es I'or l~al'h oftlw product\; sevt~ral applications all uLllll" r lilt·
har. Th e prohk>m is that difFe re nt hrands havt' pree mp ted this position in

g lohal tagline "Nothin g moves like Lyc ra. " Thll s, the Bra7.ilian hrand manager is ; I ~'" ,
difll' rl' lIt markets (I(Jr exampl e, Cadb lllY in till' Unite d Ki ngdo ln , ;tnd Milka

th e g lohal le.1(1 [( ll- sw ill1 s llits , th e Frenell hrand man age r do es the sallll' [()r fa slli"l,
in Cermany).

and so on.
• Different customer motivation<;. In Finland, a[:ter rinding that lIser.s were

Global Leadership Not Standardized Brands apprehensi ve aho llt perceived Illachine co mplexity, Ca lion h t'C<IIIW the

copier that l' rTlpow(' re d th e u se r, m a kin g him or he r th e ho.'s. In Ce nnany

Th e [;lct is that a global hrand is not always op t imal o r cve)) f'l 'as ible. Yet, ;Ittracr(' d 1'1 ;\11<1 Hal y, however, Inme traditiollal a ttrihutc-orien ted m essages did helter.

thc apparent SIICC(-'.ss 0[: other hrands, Illany rirlils are te nlptl'd to glohali/.l' th e ir (III I'
• Name.<; and .<;ymbols may 110t be av ailable or appropriate everywhere.

brand. Too o[ten th e !lnde. dying reason is reall y exec llti ve t~go and a perceptioll 111,1i
Till' Ford tmek n:lI11(-: Fi c ra means " ll g ly old wo mall " in sO ln e Span ish­

g lo lJaii /,alion is til(' c ho ice o f' sllccc.'.sft d bll s ill ess kaders.
.'peaking COllntries. Prock I' & Cam hlc :s Pert PillS ll ('('d ('d to he so ld as

S ll Ch d ec is ion s arc o [h-'Il implem e nted by a s impl (-, ed ict- tllat onl y g loh a l I""
I\ejoy in Japan, Hejoil'e in mil c h o f' th e Far East, and Vidal Sas.'oo ll in thl'

g ram s ,liT to 1)(' II SCCi. Tlw con so lidation o f' all ad ve rti sill g illto olle agency al1(1 II"
Ullited Kingdolll hecame the Pert Plus 11,IIIlC had IW(, ll p!'('clnptl'd.

d evt' lopnwnt of' a g lobal ad ve rti s ing tlwnw are typically CO rllt'rs ton l"S of' th e (,11,,11
Evc II whell ha ving a s ta nd ard i/.ed brand is d cs irabi e , though , a blilld ShUll] h 'iI,
i\ g lol>al hu s in ess s lrategy is ofl'l'n misdirected. The priori ty s honkl he dcvd­
low,lrd that goal call 1)(' the wro ng COllrSl' and ev(-' n n-'s llit ill sig llificant hralld <I"",
" I,i ll).!; Ilon-sta nd a nli /'l'd br'lllds (a ltlto<l).!:h sl1 c b hrands mi g ht resll lt) hilt standarcl­
agl~, There arc thn' e l'ea.,O II S.
11", 1 11!'<l nd lU(lr/urshi!" s troll g hrand s in a ll marke ts. Effecti ve , proactive glol>al
First , ecollomi cs o f' scall' and scope may not adllally exist. Thc pr<JIIlisl' (If' III' .,1 1.,
I'1. 1IIll II IClil age lII e lll shOldd utili /.c tlt e p eopl e, sys te ms , c ult<l w , a nd s tructllre of' an
spillover has IOllg 1)( 'l' ll ( ~xaKt.;c rated , and creating locali /.ed conlllllillication ca ll .'''!' J'
I)'.:':;llli /,~lholl to allocatl' hrand-hllilding reSOllrces g lobally, create g lohal sYllerg i(" s,
lilll es he Jcss costly a nd more (~ ['fl" ctivc than adapl'ill g " imported" l'xcclltion s. I ~ III'II" I
.1I1l1 (I('\·c lop a global hrand .,trategy that ,vi II coordinatl' ,md leverage I,he strategies
eVl'1I an exce lle nt g loi>a l age ncy or olher COllllnllnical'ion partner may IIOt Iw ,tid, I"
" ' iIlIli \'id llal co untries.
cxcenre exceptionally IVdl in a ll co ulltli(>s.
Sccond, the i>rand team may not he ahle to lind a stratel-,,)' to SlIP[>Olt a ,! ,:I"I"d
hralld , even a<;Sllming one exists. It mi g ht lack th e people, the illf(JI'In a lioll , till" " ( ; I,OBAL BRAND MANAGEMENT
ativity, or tlK' exec uti o n,\1 skills amI theref(lre (' lId lip .,dtlin g [(11 ,I IIl('di,,, I,
\ , I lid\' o j' sO lll e IIfty g lohal [hm s, co nducted b y David Aaker and Erich
approach. Finding ,\ su p erior strategy in on l' CO lllltl)' is challenging ('I1(1l1gb II ill" ", I
/1);,(llilllslllaler and ex tend e d h y th e D e ntsu ad vertising agency, concitl ded that an
imposing a constrain t IhIt the stratq..,'Y be us e d throughont the world,
,·11''1'1;1(' g lohal bJ'and managemen l' sys te m need s to address h)Or e hallen ges­
Third , a standa rdi /'e d hrand simply Illay not h e optimal or [<'>'l.,ihlc 11'11<'11 II""
,I"\(,I()l li llg ;I l'o mmllnication SystC l1l to Llcilitate th e sh a rin ).!:o Fi m ig hts and e xp e ri­
are fllndam e n tal dil,fe re nces across markets. Consid<:' r the [(lllowillg C()IIIl 's ls w ill '" ,
,'11<'1'.', ('I'(';ttillg a global hrand planning sys tem, f())'Jll an o rga ni za tional s tructure
g lobal brand wOllld make little se nse:
11 ,. 11 wi lll·('.s i.st the "I ,11ll diffe r e nt" syndrome, and finding lVays to ,Ichieve hrillian ce
III 11I;ul<l-11IIil(ling (see Figure 1l.2)D
• Different market share po,<;itions. Fo rd 's E nrop(',111 illlro<illdi()l1 111' :1 II ' ,

van , the CaJa;o,,')I, into the United Kingd()m and (;(,I'III;tIl\' II'; IS ;tll('(' I"d h \ d
market s hare p().~ itioll in (';\cll cOllntry /\s III(' 11111111)('1'-'1111' (': lIll1 :1I111 ill II"
Ullited Kingdo111 witll a sllpnim ([";llil\, illl ;lg(', 1''iIl'(I''"I.~ I'' 111"\11.11111 ii i'
Cala\y'.' ;t]lp(';tlIH'\()lI<i ,()('(.',,!, 1I1(JIlIS 10 IIII' ('( )I'I)()I;II(' 111.11 k('1 .c.;" 111,·1 11\
C:tI:l \\· ll('l·;11l1(' 1111"""" \;)1' ": 11111 il.' Illllllli,II'."', I I :)', "111111';)11·,11" li,,1 ,I,
Clohal Ihand Communication System
\ " I"' ." ('O lilill'l' ('()llll11llllication system that shaws in Sig hts, m ethods, and best prac­
11l" 's I.' IIII' 11 )( ), 1 IJ; IS ic ;Llld 110111111'( '; 11'(-)) ing (' 1(, lIl('lIt o j' glohal IlI'<lI1cll nanag(' l1l('nt. J\ CI1.S­
1"111 ''1' ill.,i,:,:I" 11,,11 111:1\ Ill' 0 1" 11 )11 .\ ill 0 1)( ' ('Olllll!'\, IIlig lll Ill' 1I1()!'" SlIilll( , ;lIl<I <iiiTi('lIlllo
204 Part Three Alternatiue Business Strategies Chapler 11 C/o/)(Ii Strategies 205

Il.sO be a glohal hralld tealll, \vvith crosS-l'Clllntrv repn'scl1tatillll that call pIav cither a
1'';I,icrship or sllpporting role,
\Vlwthcr the glolJal Imlll 0 d is represcntcd hy d pl-'rSOIl or a tCdlll, the peoplc
ill\ ()Ived need tlll'ce key ingrcd-' i cllts j()r success, or at least access to these illgn~diellts,
"II(' first is an in-c!(-:pth kn()\vlt:-,,=~dg,~ of' the local markets, including trends, cOll1pditor

Global Brand Organizational

Communication Entity to Create
System Management Cross-Country
Synergy
D YSFUNCTIONAL G L OBAL BltAND MANAC EME NT SlYLE S

\-\llwll tlw cpntr,tiizcd hralld )!;I TOllP lacks 01\(-' or IllOrt' 01' tite titrec SIICl'l°" illgr(-,lliellts,
System to Create
tllC' hr,md 1l1dnaf(l'llleI1t proe("s;\ is at risk 01' ICtilillf( illto OIl(' 01 the felllOlvillg lllolic'ls:
Brand-Building
• Uninformed dictator 17uwdel. In ll,is Illodel, a ]llTSOll witll mgalli/atiollal
Brilliance

power (SOllll'tilllCS til(' ( _ ;EO) Il('col1H'S a C011I'l'rt to hrallci POIVCI' 'liltl st<lIllbrd­
i/al'ioll, Thi,s r(-'honl hr<ll-'ld Ch'lIllpioll, 1'lllVlo\,(or, lacks I<1<II'Lel <lIllI/or prodillt
kllolVledge alld, llIostill1nplwt'llltly. palil'lll'l', As a resllil, 1)(' 01' sill' is pl'Olie l'o
Fi)!;U1T 11.2 1,:neTli\l' CI()h,d Ikllld 1\i;III<lf((,IIH'lll
lliakc arhitr'lI)' dl'cisiollsc; \\'itll<ll,t''l's(''lrcl, ()r <lllalysis, I"Thaps, I'or l',sanlple, a
hasty dcci,illil is 1I1<ldc Ico CIl<lllf(C a 1>r«ll(llIdllll' or positillil :d'ter all dC'l'lisiti()lI,
aCCl'S,S ill ,1llotlll'l' For 1I1(),St COIllP'lllil'S, ,I lTll.SS-COll11trv \\'Stl'l1l illCllle!l'S ,I pcrson or or IVlwllcVl'l' a Inallci apIa) (" u',s illcOIl.si.slTlll dlTO.s.s 11I<lrkl'ls, II' slIc:i] a d('C'isioll
dalll<lge.s til(' iJrdnd (or l ~~' \('l1 ii' it is IIOt '1lpporlcd lI'illrill tit(' ()I'gdlli/dlioll), til('
slllallll'alli tlldt i(ictlliri('s 'tllli e!iSS('1I1illall's l'xp(eril'IICl'S, Sllppll'llll'lItCe! hv glohailiwet­
dbilitv dlltl willinglless of-lf l'lllpl()'lTs to slll'Port till' hrdl](1 ,gOil'f( iClI"''',mlc'lIl hc
illgS ",1]('1"(' ill\'O!\'l,e! Ill<llla,gns can l"(cha11ge l"(pcril'11Cl'S (hoth l'ofl11ally ane! inl(Jr­
directed a.s \1'('11.
11tally), I I 1tr,lIH'ts olh'lI pbv an adi\'(' roll' ill till' PI'OCCSS, with til(' pri11cipal chall,'ngcs
• Brand bureaucracy nu odel. The hrand f(rtlilp ill tlli.s IIIOcil'IL1Cks alk(lllall'
Iwillg how to l'llcollra,gl' pCOpll' to expl'('ss thl'ir l':>'pnil'l1cl'S a11d pwvc11tillg inl(Jrlna­
Illarkd knowll'llo,(-' ('->
anel i~ S Sl'rio(]Slv
.'
deficiellt in Clilthmitv
.,
all(l/()r rt'.sOIlrCl'.s, TIl('
tillli ovcrl()'lll, rvl()hil (,10W l':\\llll) ae!drl'sS('e! till's(' ciJallc:nges hy having l'ach intranet
te,ml Iwconws little I1101--e thdll d IOf(o cop charged wilh 11l<lkIllg slIre that the
,SP011SOI'Ce! hy a ,Sl'llim' nl<1I1agl"I' aile! e!in'l'tee! hy a lc,llicr/I;lcililator wh() pl'Ovie!cs till' visu,ti prewJlt'ltioll is connect <llld pnitap.s sClldillg (JIlt Iemlls to II(' rill,'ci ill 1)1
Ill'CCSSal} l'llngy, id('as, ,tile! cOlltillllit;" tl](' llll.siTll'SS UI(its, Tlli.s '"lodd C<tll lV(Jrk iC)]' a while , 1'.splTi,dll II'hel) llll: visll,d
pre.scn tatioll is clcddv Cl =, JIli"ISl'd across 11I'lrkds, Ilut OV('I' ti lIll" tl", tl'dlll i.s ()I'tcl)
Global Brand Planning System ignmed as others I'l'cogllni/,(' 'ils Ltd oi' illlllll'IICI',

Fv('r), COII11lrv Ill<lna,gcr IWl,ds to lis(' lh" Sdnw vocahillary and planlling tcnlpiatc'
whe11 lll,\(,lopillg str'ltcgil's, \Vitl](lllt lhis COllllllollality, thl-~re is !ittl(e cha11ce or creat­
ing s)fllng\' alTOSS COlllltril'S, The pLlIlIli11g tClllplatl' (sllch as the OllC d(evcloped ill
this hook, ill ApP('llllix /\) SllOldd ilwillcic s(lIlH' hasic cleillents of strategic analysis,
s,'lf'-analysis, a hllsinl'ss stl'ategy, tachc,d pLlllS, ane! gOdls a11d I11CaSllfl'IllCllt,
Organization al Bnm d P lann ing Structure
The goal or 'lchil~\'i11gsigniRcant glolJal sVllcrgies is 11Slldik illhll)ltecl hy local IlIaSl's
llsllallv sllpp()rted In a well-('stahiishcli dl'cl'ntrali/,ee! stmcrllr(' ane! cllltllrt', COlllllry
lll'lIlagl~rs ()1'tc-'11 lwlieve tllat c011text is uniquc, so CO\l.SlIlllt'r illSights ,mel I)('st prdl'
ticc,s lrolll otlwr 1II,I rkt'ls do not applv They 1'111'111('1' Iwlicve that othcrs laek lilt' h<l('k
groune! to Illl(lcr,stall(l tIl(' sllhtl(~ ways in whicll thl'ir country e!illns I'rolll ollH'r"
To havc all) hopc ol'crcating S\llngy '\ll(ll"'('J'dgillg pro,l!/;IIII\ III '1l'1,il'\l' II I< I J'kc 'I
,1lC(,CS,S ill the hCl' (II' SIICIt hi;Is('\, Sllll](,llll(' (II \(111 It' ,grIllllI IIl,(,(I., lel 1)(' ill ,'I"II,~" ()I
• All hat, no cattle mode=d. This expressioll COIII('S I:mlll til(' old \V(',st Jlupld'lI'i'/('d
hy c()whO\' 1lll)\il'S II'll('rl'~ p,'opl,' lVitl'll() rc-S()III'CC'S (cdtll,,' taiL IJif( 'lIlllw('ar
"hif(" hats) wllil" others \vvitii tlloll.sand.s ol'heaci olcattlc talk .soldl, Illlllllcll til('
sanll' Wd)" mallagl"IIIl'llt ,<Y-;ollll'tillil', dl'citles tklt III'all(1.s ,ur ililporl"Ult, hilt "lil., to
pmvidc til(' Immll tl'alll \' •.Iith l"1Ollgh alltl(orih' alHl/m rt'S(JIII'CC.s, As a I'l'.sllll,
n:f(anlkss 01' how c<lJldhlo(, the pcople an' m 11(11V Illllcll Illarkel ,uld pmduct
k11oIVledf(l' the)' liell'!' , thl 'iJralid tc'alnC'CUII1()t iIlIllle'lIl'C' 'Ult()]I01IIOIIS llllSillcss
(Illits , hin: outside h'-;Uld l'X[)(:rts, or wally do dll\c[I'illg ol'sif(lIiricllIU" 1\.s a ]'('sult,
the orgallizatioll gets Irtl.<y-;IT<lkci or SlISPlcctS thal top 1I1'lTldgl:lllCllt is only ,givillg iiI'
SC'lvicp to the b"'llllk TilT is Illodel is all too COllllllOll ill J<lpdlleSe rirms,
• Anarchy model. JII lll(' andrciJy mOlIe'I, the organi/atioJl lias ,u]l'\tn~lllcly
lkcCllIT,Iiizl'ci stnlcllll'(', - with little f(llidallCe or cross-collntrv COllllllllllicati()II,
M'II'kl'l tllllll'rslalidillg , I:: il'()dll(,t knowle,lgl:, alld stratef(ic tall"llt arc sprinkled
IIl1l'VI'It!1 lllmll,\~I""1i ll,,-, m,g'lI(i/,'ltion, SOllle hllsinl~ss ullits willclo weelJ, but the
ori~;(IIi/,Ii I "" ;IS ,I " 1,,,1(, \ ~, I'illll(' lI11derleveraged, 'llld IlIOSt cOllJltrics \I,ill be vnl­
Il('l:1! )! j ' l ll 1111 1] "II)I'rl'()I'I] t 1:11[('(',

lilt' gl()h"lln'IIl(i.;\ ,gll>iI,,111I';llIlllIl<lIl<l,~l'I'S('IY('S II,is I'()I" ill ,ellll< Iii III"" 'J11t'1( IIli,l\ltI
206 Part Three Altenwtive Bllsiness Stmtegies
dYI1<lmics, segm entation, and c ustomer motivations. The secon d is an understan ding
o/" th e product or service , its underlying tcchn oios,)', ,md bow the oHe ling might 1)('
ex tended. The third is real authority and r esources, as w ell as the ability to p,lrti cipal'('
i ll the developiliellt of cOllntl),-sp ec ifi c business strategies.
The glob,d brand man age r o r tea m can in('lu ence country stl'<1tegies in a varietv
of ways. T he b est approach in a partic ular case will depe nd on th e maturity of tite
glob al o[lemtioll and th e ex tent to w hich the dccentrali ze d c\llture is ing rain ed. AI
o ne ex t)'(:, mc is th e Cl'ntrali zed co mm cll1d-and-control Illode l, w h ere ext<-~ rnal anal ys is
and stnltegy are ce ntrali/ed and th e cOllntr), nwngc rs are simply imple lll en te rs. AI
the othe r is th e anarchy Illod el , one of Five dys filllctioJlal 1llodels descril)(:-' d in HI('
ins!.:' rt . III h dw('ell an' till.:' servi ce pro viuer, cO ll sul ta nt, an(l faci litato r mod el s.
Serv-ice provider model. The ce lltral br,\il d grou p w ill h(~ a partner and se rvi('('
provider. It will se lect and manage th e sing le ad ve rtising ag<:! ncy, For l'xam ple, hut til('
objecti ves for tIl e CO llllll lllli cal'io]) w ill I)e initiated fmlll th e CO llntr), and be joinlh
d <:~ te rm int' d . TIl(' Cl' ntrali/,(:' d g rollp w ill co ntrol some or th e hrand -huilding hlldg('I ,
p(' ritap,,-; in cilldin g sponsorships and corporate adve rt ising .
Consultative model. The central Imlnd g rollp \cams ahout th e markets , CO lli
pl'ti tors, and Cll stolllCrs and de ve lops in Sights and hralHI options. It wO\l ld th en Ilwd
wil·ll th e hllsil l('"s 1ll lits, provid e in sights, and make sllgges tions as to w hat hran d slTal
egy should he con sid( 'rcd an d what hrand-hllilding program s aI'(' likely to he e lh,ctivl '
Facilitator model. Th e c(, ntral g rollp I wconl(:s a fac ilitator in helping thl' Ililsi
n ess lin it.-; wo rk w ithin a defi ned brand manageme nt process to d('velop SO IIIHI strall­
)!;i(:'s and wO ldd haw less respon sibility r'o r kn owin g th e markets alld lIlaking st rat(' !.!;1
sll ggestion s. Ll'ast threatcnillg , this Ill odel is II s11 ally th e b es t choi ce w hen introlill( '
in g g lohall>rand m ,lnagl' lllc nt into an organi zation .
DeJivel;ng Brilliance in Brand Strategy Implementation
C lohal hran d lealie rsllip, espccially in these days of m edia c llitter, reqllircs ilnpl, '
men tati on hrilliancc- " good enollgh " is not good (~ nollgh. Th e dile mma is I lOW I"
achiew hrilliance ill \ocalillarkets w hi le still gai) ling syn e rgy and lever age as a gloll;t\
organi /,;ltion . H ere an-' som e gllideli n('s :
• Co n sid(~r w hat brand -huildin )!; paths to fdlo \\! for cx,lInpl e, at\verti"i ng \1( ' 1'­
Sli S spon sorship, re ta il presencc, or promotions . T h e genill s mav not 1)(' ill
execution p e r sc hut ill th e sel ect ion of th e ve hi c l<-~s.
• Get the h es t and lTiost motivated peopl <:' to work on the hrand . SOliII'
agency-client tension can he h el phtl in thi s reg,lrd ; Alldi , I()I' ill stall c(' , 11.'<"
multipl e agencies .
• D evelop multiple options, In ge neral , th e more at tl.'l1lpl"s YOII lilah, al I l lil
li,m ce, th e high er th e prohal)ili ty that it wiJll w rC<lcll('(\ . I' roc l n &: (: ;llltld"
find s exceptio llal ideas b)' (-:lllpolVl'rin),!; its ('olilitry hr'II)(III ';IIIIS 10 <1 ('1 '(, 1\'11
hreakthroll),!;it 1>r<IIHI- llil illiillg pmg l';!II IS, ""111'1 10 11<' i" li llll)(1 (,, ,(('II ;IS 1'; )(11 " '11 '
Pro-V 's " 11 ;lir so 11I';t\III \' il sllil\(" "), il i" 1',,11 1,<1 0 111 I" 1111111 I 1'1 " ' "Illli l'.
• ~' I ('; I S III'" II ", ('( 'sl lll ,' . (\1 ('; ..\1 11'(' 11 11'111 tll'I \I' " ,·\,·,,1 1"1«,,' ,1111 1., 1,,1 ,,I ,, tlllI ':III.!
1111':" 111" ' 11 1('111 ':\ ';1" 111 I', i'1111I1 :III,..III: .lI" , ·\" , ,11 "1"','
Chapter 11 Glohal Stmtegies 207
STRATEGIC ALLIANCES
SI rategi c a.lli anct'S play an important rol e in gl o hal strategi es b ecam e it i s C() llllTlOI1
IiI I' a flr m t o lack a key success facto r for a market. It m ,)y h e distrihuti o ll , a brand
11 ;1111(', a sales o rga niza tion , t echnology, H&D capahility, or manufacturing cap ahil­
il\ , To re m edy thi s d efi Cie ncy inte rn ally Il l ig ht re(jllire excess i ve hm e and mon ey.
\\111' 11 th e un ce rt ainties of' operatin g in other co untri es are con side red, a strategic
;tlli<l lll'(' is a natllral all'efll ativt, f() r w dll cing in ves tillent and tlt e accom pan y in g
'1I ll" \ ihilily and ri sk.
1"01' exa mple, IBM , w hi c h has I'elati vdy few alliances in th e United States , has
1":1 111 ('(1 lip w ith ,ill St ai>ollt eve l'y one possihl e in Japa n. IO It has links w ith Hi coh in
dl \ lri i> ll tio n of low -e nd compll te rs, with N ippo n Stt'e l in system s integration , with
1,' l lJi i3allk in f'inan c ial systt' ln s Illariw ting, lVith OMHON in in ll>grakd COr1lpllte r
il
,I
111 ;llllti';lctllring, and w ith NTT in vahl e-ad d ed n etwo rks . Th e r e is eve n a boo k in
j' '1 I;II IC's(' e ntitl ed IJ3 M\ Alliance Stml t:{.!. lj ill .Ja)iall. As a res ult, IBM is co n side red
" 111 ;ljor in sid (' 1' ill t hl' Japan ese m arkl'l, and it co mpetes across I'll(' hoard i n all seg­
IIlI 'llIs and application s.
.') 1rat cgic allian ce is tllll s i>eco nting a key pa l't o f global compctitio ll. K(' nic hi
() IIIII;I(', a Japan ese Ilianagenw n t g unl , has sai d th<lt:
(:Io l,a li /,'ltio ll Il l<llld atcs alli ,III {,{'s, lII akl's tll l' lll ahso lllt(' ly I'ssl' ntial hI strat( 'gy
111f1'oll ti clrtahlc , pl'rklps- i> lIt tllat 's the IV:l)' it is, Like it or lIot , tl l(' , iIlHdtal\( 'oI ISdevt'l­
,'I'" 1"11 ts that go Iln.l ('l' Ill(' n:1I1\( ' or glnl d i/,atioll Iliake allia IIC(,S- ('lltCIlt<-- - 1\( '('(,SS<I ry.I I
\ strategic all ian c(~ is a co llahoration levc rag ill g til t' slT<:' ng th s o f' two or I\l o rc
"1", 111 i·/.a l ion s to ach icv(' strat egic goals . Th ere i s a lon g-te nll co 111 111 itllH'nt
1I1\ () 11(,d I t i s not simpl y a ta c ti ca l d ev ice to pro v ide a si1ort -ll'nll f'i x f()r a
I '1,, 1>I('III- tO outsolJrce a component /'(1 1' w hi c h ,I tl'mpol'ary m,\ll\d'acturin g prob­
1" 111 11 ;1<'; ,'il lrfacl' d , [()r eX<llnpl l'. F llrth c n norc , it impli es th at t he parti c ipatin g orga­
:1
III ,II i'l ii s w ill contrillJl l<: and adapt n(T d ed assds 0 1' CO l1lpell' n c ies to th e
,I
, ," !. "lI )I·,lIioll and th at thesl' assds or cO Jl)peten c i('s w ill h (-' maintain ed ov(~ r time,
I I... I " .' Itil's of tile collaboration sho uld h ave strateg ic va lll t' and co n t rihllt c to a , ,
\ 11 1>11 ' \'(' Illilr(' that ca n w ith stan d compditivl' atta ck and e n v iro nn)(~ ntalchan ge .
.'\ , I r;ltegic allian ce pro vi d es th e potential /()r acco mpli shing a stratl'gi c oi>.jccti vt'
" ' 1.1 " " -SII (, 11 as ohtaining di striblltion in ltalY--<lllickly, ill(' xp l-:' nsi ve ly, and with a
II 1. 11 111 ' 1.' I lig lt prospect f()1' SUCCl'SS. Thi s is possi bl e b ecause th e in vol vt'd hn ns can
1 "1 1I 1,i lll ' ('.\ isl'illg assds and co mpete nCies in stead o Fh 'lvin g to crcal'(:' nt'w asse t s an d
' '' " lllI'I''II('i('s illtcl'll,lllr
I OI'lIlS or Slnltegic Alliances II
\ I ,.d ,'.~i,· ;t1liallc( 'can bike many fOl'lll S, from a loose in form,) 1 agr ee m ent to a ()l'­
1'1 ,1 1" illl \'1'111111'( '. Til l' most i n r(lnnal arran gement might b e simpl v t rv ing to w() rk
1"" , 1111 '1 ' h,' lIill ,~ (>I II' p mli ll ds IIlro ll gh vOllr chann e l, f()r example ) ;l.IId ; t1I ()lI' ill ,~ SIS­
1'"1 , :11111 ( 1I ' ,!~: llli /.; ili lllla l lill'lll S i ll "Il\('rgl' ,1.<'; the alliance d eve lop ", '1'1 11' 111111 '(' illl'II I'­
III d I I,.. ,11 '1:111 :':" 1111 ' 111 , 111(' h , I" 1 il , ·:tll II<' il llllll' III (' III (' <I ;11 )( 1 til(' 11 11'''' Il , ·\i l>l,· il "i ll
I " \ ', ("II.1i li'"I ", :11111 111''' 1.1 " ,·1' ,111 "." III<' :tili;IIII'" (';111 I... ;Itljll:-;I ,·.I '1'111'1" "1,1"11 1 ,,
 I III' ," n'r' -",,.,-nnrll j" l T1t'l l1// \"'"J ..... f' ufl '!! ;"',
" ~II; ilk "II'llIlIilll"'"I , \\'ill, 1"'1 (,,01 1';11 ('i,'" ;11,,1 ('1)(11,",1",,',,1 1111'1<' 11(;(\ 1)(' ;( 11)11
11'1'(,1 OJ',,II';II('gil' ill (JlOo[;I IIl'" ;11,, 1 d 11''''111;lIillll II) 1,;«," ;III';I\, Ill ' II) Ili'I'",l~;lgI' \\'111'11
dilli Clilli(' s ,Hi '!' ,
A f(Jrillaljoillt 1'(" lItllr(' ill vo lv ill g c(]l litl <Llld <l c()lllprclll'lI"i\'(' I" g ;" d()( 'III II1 'III , 1)11
the other hand, has I'ery dilfert~ nt ris ks, \VI lt'n (''1l1ity,harin,~ is illl,()",<,d. I Ii ('1'1 , i,'i
ofte n \\'orry abollt con tro l, retur n on investme nt, <lIld acllil'ving a 1;lir l)(-'rccIllag(' 01
the ventllre, A major co nce rn is whet her suc h a p e rman e nt arrangcm e nt willlH' l'll"i
table in th e hce of Llnt;(~ lt'linty aho ut t he re lative co ntribllti o ns of' I'h e p<ll'tncr, ;11111
th e e ve ntu a l SIlCCl'SS of the <:>ndeavor, Also, one or Illore of the firms invol ved Ilia\,
telld to drag th e ir h e e ls and the ve ntllre Iliay lose a wi ndow of opportllnity. Anotlll'l
cO ll ce rn i" that c<.l"ity positions an d th e accompanying Iillli ts on eac h p;1Itn(-'r's CO il
trihll tioll call re-sllit in a Jack of nct'ded He xihility as conditi o ns change, FUltlwJ'l110r(',
the palti l:'s invo lved may rely exces, ivel y on legal doc lllllcnts to preserve the Iwaltll
o f' ti lt' a llian ce ,
Motivations for Strategic Alliances
Strategic a lliant;l's can 1)(-' motivated by a (h-:sirl:' to achieve some oj' the IlC ndits or a
g lobal stratq..,)' , as outlilled in F igllre 1 J ,1. For t;xampJe , a,trat e gic alliall('c ca n :
• Generate scale economies. The hxed iJl vest ment that Toyota Ina(k, ill
d ('s ig nin g a car and its prodllctioJl syste m " was spread over mo re IInits
l)(-'callse of' ,I joint vt'ntur(' with Ctvl in Ca lifil rni a,
• Gain access to ,'1tmtegic markets. The Japanese Fin II JVC provided VeB
d t'sig n <ll)(llnaIlIlLICllII'ing capa bility hilt needed a relation s hip with
Thompson to oiJtain help in accessing the f'ragnwnt< -d ElII'opcan marke t.
• Overcome trade barri er,~. Inland Steel and Nippon St(;(~ ljoill tly hllilt an
advanced cold-"tl'l,1 Illill ill JIIdian a, N ippo ll s upplied the tccilllOl o,l,'Y, capital ,
and access 1'0 Jap,lI wsl:' auto plants ill th l:' Unite d States, III rett lrll , it gain e d
loca l know kdgt, ;lIld, mow illlpOltallt, tlw ab ility to get arollnd impoli (plotas ,
Perhap,' more com m on ly, a strategic alliance 1ll <1)' he n ceded to co nlpen sate for
tlw aiJsen ce of or weakness ill a Il eeded ,lssd or cOlllpetency, Thus, a strategic
alliance can:
• Fill Ollt a product line to serve market niches. Ford , Ceneral Mo tors,
and Ch rysler h ave, tiJl- example, r l:'li ed Oil allia nces to provide key COlllpO­
nl:'nts o r its prodllct lill e, Ford's long-tim l:' r(,l ationship w ith Mazda has
rt'stiltl:'d in mall )' Ford models , as w e ll as ,1(;CeSS to some Far East markets,
\ Nh e n wLtzda decided not to build a miniva n , Forc1 tmn ed to Nissan fi)r
help, O ne firlll si mply cannot provide the breadth of models lleed e c1 in a
nHljor ma rke t sllch as the U nited States,
• Gain access to a needed technology. W hil e JVC gained access to the
Europl:',11l market , its European partne r acce ssed a co mpe titive VCE source,
(/",/ ,(. " / ( ( ,; /"/,,,{ ,~(, ,'(" /:" ',,, 2 0!l
• Uw (',I,(,('SS ca/la,c; ty. 'I'll<' (: \1 / 1< lI'oi;tllli III 1'(' 111111'1' 11S( ,d :III iell( , (;1\1 Il""1i
ill ( :;tl i11)11 Ii;1.
• (;0;11 acceijij 10 low-cost manufacturing capabilities . G E sonrenl its
llli('l'o\V<\I'(' OVl'ns From Sa lllsllll g in SOitth Ko rea,
• ;\ccesij a name or customer relationship. NGK h ou g ht an illterest in a
(: 1 ~" lh,idi ,lrv w h ose product lin e had heco1lle ohsolete in ordl~ r to a(T C'"S
th l' CE name ,1I1d reputation in th e U,S, electrical e(p lipnlt'lit Illarket, A
US, injectio n 111oldl:'r joined w ith Mitsui ill order lo Iw lp a(Tl"SS .I <lP<lII ('S l"
1ll <1I1llLlCtlirillg ope ratioJls in the Unitcd States that prl'll'ITe d to (10 1)(lsilll'.<;S
with Japall(-'se sllppli ers, 1\
• n educethe investment req uired. III SOIIl(-' ca,, ('s, a fiml's CO lltrihllti o ll 1'0 a I
joint ve ntllr(' C<lll lw tec hnology, with no fin<llicial rCSOllrCl" I'l'fjllirl'd , II
The Key: Maintaining Strategic Value for Collabol'alot's
'\ III<ljor prohll'lll wi th ,'trat<',l~i c alliances oCC1Irs whenth(' r('lativl' C() lllrillllti oll 01' tl)('
["trtll(;rs lwcoTl1es IInhalan cl~d OVl-'r time ,lIld Olll' paltll('r 110 IOllgl' I' has allY pl'l)pri­
,'I al-Y assets and cOl llpde ll cics to co ntrilillte , Thi" has hap P(, 'll'd ill 111 <111." or tlll' part­
Ii('rs hips in volving U,S, all d .I a l1<lI ll'SC firms ill COI I.'IIlIl('r l'l e ctronics, I(('avy machinc".v,
1)( lIVcr-ge lieration e<j'lipn1l'n t, ractory l'<[lIipnl(-'llt, alld o lTi cl' ('C fIlipnH 'li t. 12
The resu lt, w h en the U,S, t;llJllpany has l WCO I11(' d(-:-"kilkd o r 11ilIIowl'd (lilt ,lIld Ill)
1()ll gcr p,lItic il)atl's rldl y ill ti l(-' ve ntlll'c , can 1)(' trac('d ill part to til(-' Illotivatioll of 'tlw
1';II't ncrs, Japanese finn, ar(' Illoti vated to 1(',\1'11 ski ll s; tlll'v filld it (,Ilil larrassi llg to l<tck
;0 [echnolo;..,'Y alld th"y work to correet ddieil"ncil's, U,S, finll.' ar(' 1I1oli val'< ,d III IIlakl'
111(111(:'), by ollisourcing e lc"lIlCnl's or the valli!' c haill ill orlil'r to 1'('( 111('(' costs, Tlwv "lart
11\' olltsollrcing as,'l~lll h[ y al ld mol'l' o n to COlnpO Il<' llts , t(l va ll ll' -adlkd C(llnpOIll'11I's, [0
1)J'()(lllct design , allli finall y to core technologi("" Tlw U,S part))l'r is tl)(,11 !vrt w itl'j'1st
111( ' distrihlltioll f'lInetio)), wlwrea" l'll l' Jap<u ll'Sl' firlll rl'taills the key i>lISill Css "ll'ln(,lIts,
,, " c h as prod lIet rdi II I:'1lll'lIt, d e sigll , allll prod Il ctioll,
I'Lum:l, Dol'" and Praldad stlJdil'd fifh'l'n st rategic alli alll'< 's ,1I111 o['li ' J'('d<;ll,t!;gl's­
tion s as to how <I finll lIlight protect its assets <l1l(1l'o,npl't( ' nl'il's I'rolll ils a lliall l'l" part­
11<' 1', J:l One approach is to st metllrl' 11j(" si tllal'i on so that learning LIke, l)lm'(' alld
acces" to Illi ss ing co mlwtt:ll cic" alld assl'ts OCCIIlS CO Ill[lan" ror l'xalllp k , Ill(' joillt
Toyota/eM Illallld'actming fitci lity, whew (;]'\11 is ill\ ol v('d in t he III <Ill II i'<leturillg
process and its rdill('llll'lIts , to Chrys ler's l"['[illt to s('11 a Iv lilslIbislli car dl' ,ig'll'd and
IIlallttl;lctm c d in Japan , III the latter caSl' , tVli ts llhi shi I' V('lI tll<lll y d('wlop('d its OWII
lIalll e and dealer network and now se ll" its car dirl,etly. \VIi('11 the IIl otilation For all
alliance is to avoi d in vest m ent alld ach i e'vl~ attraeti\'(~ "llOrt-ilcl'ln rdltJ'lls illsl'l'acl of' to
develop assel's ;llld competen ci es , the alliclTlcl' "'ill br('ak (I own,
Anoth e r ;Ipproach is to protl:'ct ;tssds li'OIIl a partner by ('olltrollill g aCCl'SS, Man \'
J ap<llH:'se firllls have" coordinatl:'d in fimn ation transf(,'r. S uch a position av oids IITICO­
ordinated , inapLlropri,lte illformatioll How, Other finn s pllt clear con dition s OTl :lcn'"
II'
to a part of the prml llct line or a part o f th e design, Mo torol a , fiJI' e xalllp il', releas e's i;
its mic roc hip te chnology to its partner, Toshiha, only as Toshih,\ delil'('I's Oil its

~ IU /'11'-' ,/ H r. :f \//1 ' 1 JIIIU'I ' nll',illl u , ', 1"-" IIl.' !:i"·,J
IlI'Ollli,,'I" ill(,I" ':I ';" i\l,illlr"i:t, 1)('11<'11';111(111 ill I Ill' ,1;'I';lI«,,\ (' 111 ;11", ,1 ," ;1,11 (11111'1', 1' 1)
ililpro\'ill,~ III(' ;lSs<'is ill\·'()II('(I"o 111;11 IIII' I';IIIIII'I 'S t\"IH'II<i"II"" ,'(lId i'li 11',"; , ()I"IIIII ,
the pro!>leln of proteUillg ass('[,,,; is 1111),,1 </illi('1111 11'111'11 [III' ;tsW[ ";111 1)(' ,")(1,,"'"01
cated hy a draw ing. His sOlncwilal easier WII('II a (,'lIllpl, ', S\'S["1I1 i~ illl 'ollni
for ex;ullple, tlw asset is mallilfactliring ('xc('lIell('('.
TIlt' prohlem of prott:ction is (edu ce d suh stantially ",11<'11 [III' IWI) p;II'IIj('I',"; I" III
cOlllplemclltary ass(-'ts into th e alliance that arc c() re COI111H'1('II('ic" ()I' (';1(,11 allll l l "
the haSl's ofotlll'r hllsilless areas. Thus, the danger that one will w illiel i,s I()\\', ( :Iil", ,
IntenJatiollallilrllwd a joint velltllrt' h etwee n Baxt(-' r (a Il('ulth-care gi;IIi1) ;JIIII i\ ,",II,
( the food and nlltritioll prodllcts nnn ) and reali/,ed 1Il0l'C than ~4 ()() Illillioll ill '",1,
jll.st thn '(~ years later. l3ax ter was stmng in till' parent(-'rals 1)ll.sill('\\. w hich illl'llI,I,.J
prodlll'l'S that deli ven-~ d nlltriboll i Iltravc nollSly or throllgh a catl I('ter. ;111(1 it 11;1( I "'I"
ricll c(' with nll'dicallnarkcls, lIlainly in th e United States. Nesl'l(~ had a stmllg 1,;11 I
grolllHI in hasic I1Iltrition , a growing illtercs t in adliit nlltrition pmdllds. a,I 1"' 11'
It&D capahility, alld a )11'('s('n(:( ' ill world markets. N('ithel finl1 was lik('ly 10 ,S1',' II
core ,strcngths dissipated in till' cont('"t of' the joilll' ve l1tlll'('.
Making Strategic Alliances Work
1'~I '('n il' all alliall('(' is stl'at('gically SOIIlHI , a host 01' op(,rational prohlclll.s call al'i'" ,
OIl(' stlld" of' tltirtv-,sev('11 joint v('l1lim's IIIlCOVe1'('<1 a varidy of' lllaliagenWll1 pn,j,
1(' ll1s. 11 III OIl(-' cas<" the partllers dilf(' r<'d ill terlll,s of' Lll'ioritic,s For sltort-tcrlll 1'1'1'.'" ',
II)JIg-tnlll ohjecti ves, III allothcr, a British fil'lll could not IIll(krstall(l a U.S. parllll 'I'
oilSl's,siol1 w illt 111111Ji)('rs ,lIld allal },sis. III still allotll('r, a s(,llsitive <I('ci"ioll aholll IIII'
location 01' a ncw p\;lIlt I)(,C<l III( ' political.
\Vitlt slr,ltcgic allial1('l's , at least two sl'ts of'IHlsilwss sy,tenls , lwoPk-, cllltllres, <III.!
stJ'lldlll'l 's 11('('d to 1)(' J'('l'olleil('(1. [11 addil'ioll , tIl(' cultme aJl(ll'llI'irOlllllent of ('<11'1,
cOlllltry 1I111St 1)(' u)llsidei'(,d. Tlw Japan(','il' , lin ('\ampk , tl'lId to lI.Se a consellSllS
Ill1ildillg decisioll LlroccSS l·klt reli(" Oil slilall grollp acli vi [')! lilr 11111Ch of' its l'lle rgy; tl,i~,
appmaclt is very dif'li ' i'('llt I'ru lll that of' Illallage l's ill I'll(' United Statl~S alld EllroPI'
FlII'tll('rll1or(-" the illter('sts of e,wh p,lrtncr may 1I0t always seelil to be ill step. Mall\
otherwisc WCIl-l'ol1('('ivcd alliallces havt'hiled Iwca llse tilt' P,lItllt'l'S simply had sty l(',
alld ohj('cliv('s that wc re f'1 II Hlalll(-' II ttl Iy illcompatihle.
'1'11('1'(' arc \( 'v('I'al key s to ma1<illg a collahoratiOIl work. Perlwp,s th e lIlost il11por
bllt is that it l>e well planl1l'd to provid(' ongoillg nllltlial hClwfit. ]>arl11('I's should mak<'
SIII'I' they have real ;[,s,sds ;IlId cOlllpdclICi('s that cOlllhille to provide strategic advall ­
tagt'o Th es(' assels alld cOillpetellci('s shonkl COl1tillllt' to he rt'l t'vant to th(, vt'nture alld
to 1)(' Illaintaill('d hy the partll ers over time, If th e re is a signiFi cant ollgoing strategic
motiv,ltiou r(,i Ill 'o rc(~d h v sncccss, problelll s art' more likely to he III <lllage'ihle.
\V1wn a joillt vClllilre is (~s tahlisl1('d as a sep,lrate org'l1li;r,~ltion , research has
shown that l'Il(' challces of success w ill he en h'lIIced if:
• Tlw joint V(~ llture is allowcd to evolve with its 011'11 cultllre and vallws-
(C'd sting cultnres of th e partn ers will probably not work even if' tltey arc COlll­
pab!>l(" w ith each oth er.
, ""f"" " '-" / "!' I - ' 1 ' 111' . :·" " ,
• [I,.. 1,, :""1","""'''[ ,111111")\\"1',11111'11" '1' 1'1'1,,11 [I" , I",,, 1,,,>111"1" I.S Il;":"I("'(1.
• \",, 1111" ,·ll;lIll)li(JlI,s :11" "" 1111;11'11 [11( ':11'1'\ 11((' Il;t11 <llIrillg dil'li( 'ldl lilll( 's.
\\ 11",,"1 IlI'III,I,' ('IIl1l1l1ill<',111) 1I1 ; lkill,~ III<' \'('lilllI'(' II«PP( 'II , it willilol klPl)(,11
II III,' • )"1"11)(111, ;II'! ' "1'lclop('lllo !'I 'solle L1roIJlcillS ,uld to allow change over tinw.
I Ii" 1I1111'; "islic 10 e~p('d CllIy strakgy, organi/,ation , or impl e mentation to
",is[ will")lIl I'v(ll ving aml changing. I\lrtners and the organization thlls
III 'I'd 10 1)(' Hesiil'" enollgh to allow change to occor.
\ " " " j('( 'S :I re a wi despJ'l',l( I P,lIt of husi 11 e ss stnrteg)' (the top 500 global husi­
I' " ILI\( ' :111 <\I'cr'If..':C ofsi"h! mal'or
" 'J . ,11lianc('s each) hut need to hc activelv , m,ma"ed.
h
11111 ', 1111'.1' III ,\ I III 1(' 2()() cOIvorations lilllnd that I·he most s1Iccess I'll I al addillg vaille
11(1, ,(1,, 1, "IIi:IIIU'S ('mployl-'d staff who coo rdinated ,ill alli' ITlC(-'-re!.ttcd activil-y withill
I I" '" ,'! lIli/.alion. I.) This function wou ld draw Oll prior t~x p('ri(-'Jll'('s to provi de gllid­
II" , [" [I,, )s(' creatinf.', ,!lId nwnaging new alliances. Lotlls , for (' \ ample , has "thirty ­
It ' 1111, 's "I' tl1llmh" to m ,1I1ag(~ :tilianccs From c reation to tcnnin'ltion. The (lcdicated
,Jill 11\1'1' ,l;tll wOldd also increasc exte rnal visihility ( an alliance ;!llnOlll1ct' IIJelit has
I" , )) )" 11111<1 to inf'llwll cl~ stock price) , coordinat e internal stallillg alld Illan<l"CIII('lll 'lr
,dll 11\1" 's, ;lIld help idelllil)1the need 10 c hange or t(' nnill ,ll'l' all' ;llli;!llCl::'. h
I\EY LEARNINGS
• A gloh;tI stmll'gy cO llside rs ,mel cx ploi ts illtl' rdqWII(knci es 1)(-'lw('(' 11 opn­
alions in di f'krcn t COli iltries.
• Ailiong tile moti vations dl'i ving glollali/,atioll are ohtaillifl'o' scale
('Cono'lllies , ;tcc('ssinf.', low-cost " 'LboI' or Illatc rials , takillg ,~Iv;tlll;tgc or
Ilatiollal i 11Cl'llti ves to crOSS -Sll bsi(li z(:, dodgi II g t rack harrier,s , al'('('ssillg
strakgi c mal'h,ts , alld (Te,ltillg gloh'il as,sociatiollS.
• A hmnd with extellsivc COllllllOl1alities across countries call pote ntially yield
('collollli(:'s oi' ,scalc , e nhanc( ,d elk'clivellc," h( 'C,1I1SC of hdter rCSO llr('('"
involved , cross- IlJarket e" [10sllre , ,!lId more effective hralld m;ul<.lgclIl(,l1t.
• Th e ,selection of a cOllntlY to ,,' nter shollle! in vol ve ,III analysis or tlK' attrac­
tiveness of' th e market and the ahility of the rinn to sllcc('~d in lhat market.
• A standardi zed IJrand is Ilot alw,lys optimal. ECollollli es of' scalc Illay not
exist, th e di,scovelY of a glolJal strat eh,)' (eve n assuming it ('xists) lila), Iw
difficult, or th e cOlltex t (for example, differe nt market share positi()ns or
hntnd illwges) may make such a hnmd impracti c'll.
• Glohal hr,md management needs to inclmle a glohal bralld COlllllHlnica­
bon system , a glohal hrand planning system, a glohal llianagt'lll ent struc­
ture, ;mel a systelll to enC(Hlrage exce llell ce in hrand building. TIlt' braml
the
group can operate under ,I cO Jl)lllan(l-and-control , service pJ'Ovide r, con­
sultative, or Facilitator sty le.
 Chapte,' 11 Global Strategies 213
:.! I :! " 1111 'J'ft /'('e Alt ernati ve iJl/ .) i,II C').\ Strat egies
9. D avid A, Aaker, "The Lure or Glob,l] Branding," ( \\~th Erich JO,lchilllstha] l' l ).
• St ra tegi(' ;tlli ;! II('( " (1()llg- lnlll ('() ILd '()I '; lli(JlI I('\,('rag ing tb e strength s of
L-i1ll'lxlTd Busin ess Revi elV. Nove mber-December 1Y9 0,
two () r 111 () i't ' ()1! ~; 'lli /,; ili () ,I.' I() ;((' I, i( 'H' ,<; t rategic goals) can enabl e an orga­
10. K enichi OhlJlae, "Th e Global L ogic of Strategic Alliances ," HlWVllrd Busin ess
nizali llil III "' ('!"l'IlIII( ';[ I;(l'/; ul ' a key Sl lccess LlC tor, sitch as distribllti o n or
RI'vie((;, March- Ap lil 1989, pp , 143-1.54 ,
II la lll d;((' lmi Ilg t'>'PI'liisl',
11 . Ihid,
• 1\ h 'y to t ite lo ng- te rlll success of str ategi.c alliances is t hat each partn e r
12. lJavid L(~ i and John W, Siocuill , Jr., " Global Strategy, Competence- Building and
(:olltriiJll ks asse ts and co mpete nc ies over time al1<1 ob ta ills strategic
Stl"<ltegic Al liancE'S."" Ca lifornia M IIIIIIgellwlI1 Huview , Fall 1902, pp , ,<; 1- 07
;I( 11-; 11 I tages,
13. ( ;'lry Hanwl , Yves L Doz. <lnd C. K. Pr'lh 'llad . "C o ll ai>orat(~ w ith YO!.II'
COlllpl"'t itOl's-all (l \ \lin ," J-/arwrd Bll siltc'"s l k v iC: lc, J<lnuary-Fei>rllary 10'<;0, JlP '

FOR DISCUSSION 1:3:3- 1:39,

14. ,I, Peter Killillg, "lI mv to Make' a C;loi>a l Joint V('nt,"'I' \"'ork," Harvard Hl/ sillcSS
1. Pick a prod 11 ct or st'l-vice t hat is offe red in a limited 11111nher or coun ­ HC: l'inc, Mardi- April 199("i, Pi>' '(S- gf-)
tri es, Assess tit e advantag(-,s of expa nding to a nlOr(' g lohal presC:'nce, 15. JdTrey 1'1. 1)),("" l'raslJ ,,"t Kale, and t-[arilir Si ngh. " Il ow to M ake Strategic ;\lklll e('S
2. For a p artic11lar p rod ll ct o r ,sl' rv icC:' , how wou ld YOli ('I'<llmlte t be CO UIl­ "Vork, "" M IT S/oll lt M IiI/II-gcmwlll H.C:l'ic((;, SU '" lIln 'ZOOI . PJl ' :37-4:3,
tri e,s that \\Io 11l d rt 'l)('l',s(' nt tht' h c,st prosp ects? Be sp eci Gc, \-Vha t in[()r­
nl atio l\ wOllld y o u n eed , and h ow w0 11ld to ohta in it? Prioriti 'l.e th e
critl'1'ia that w011 ld h(' II sc l'l ri in d cc idill g w hich l'( lllntries to en te r,
:3. \Vl wt i.s t h(' ad vantage 0 [' <I g lol >al h rand team'? What arl' tlt e pmhlc m s
of l1 sillg a t('a nl to d ('viS<' alld rllli th e g lohal strategy ? vVIH' n sholiid a
[ca lli kad , <(lId ",he n sho ldd it take o n a sllpporting !'Ok? \i\foli id )'01lr
' l11 sw<, r dilll' r I'()r HI' l'(-' r,S II S P&C? Wll y'~
4. For a riml slwli as Ballk or A Il ll' r ica, P&C, or Ford , how would yo u go
ah()l1t l'I'('atil lg hlockh 11sk r hrallcl -hllilding programs- [()r l'xampk ,
SI)()ll.so r sltips, proillo ti orls , or ad vc r t isi llg "( 11 m-\! wO\ll d Y0l! leve rage
thos(' p rogra lll s"
5. Select a c() mpanv, 11 ow wO l1l d YO Il "dv ise it to nlHI all all iall ce p <l lilWr to
gaill di ,s tril)lltiol1 illto C h illa) \V liat ad vi ce wO ld(1 Y()lI give regardillg the
lllallage ll ll'l1t 01 ' tltat a lli a ll ('(,'~

NOTES
1. Cary Il al1l(' 1 ~ lTId CK, I'I'aha la<l , " 1)0 YO II Ika ll)' llav(' a C:loj,al S ITall'~'y'~" II lImllu l
nll\illess Jl(:l-iel.(;. JI r1) - Aliglist I Yk.5 , pp I ,'3L)- J4,<;,
2. Thid ,
3. Victori'l Crif'R llt , "\VCleO IIl(' to YOl lr Clocal SIIIX'rsto("(\" .'ilratc'gl/+ /3l1Sill uss. Vol. 2(i.
2()02, P (J5,
4. Ihid ,
5. l'ankaj C llI' lllawat , ""D istancC' Still tvl ant' rs," f-l llrtJltrll Bll sin ess Hevimc', Sepl C>lllhc' l
'ZOO!, [>p, 1:3'7- 14'(,
6. CllI' lll a\Vat , op, ci t. , p, 144,
7. Thl' Ill atnial ill tlli s s('c!"io n (klw, I'mlll ( :ltaptc' r 10 or ti l(' hook Hl"llilr/ L('(I( lCTshil' 1>\
I)a\i d A, {\ ak('l" '1I1d 1':ri('1t ,1oa(,I,ill "l kd (' r (N('\\' York: "1'1((' I,' I'('C' I'l<'ss),
S. TI,c ,,,,I,,1"I' I ,,'\ ill , 'Ti ll ' (:I" I><tIi/,;lIi,,,, "I' 1\;1",ll'ls ,"" 11111'1'1/1 '" Ji ll si lll",\ /! ('v il' l c'
ilh v .l illi" I!),'-n , 1'1' '):2 11 ):'"
 Chapter 12 Strategic Positioning 215
CHAPTER TWELVE

• D efined relative to competitors and to the market. Because the hll sin ess

does no t ex ist in a vaellUlll , it Illllst not on ly dec ide what its scope shou ld be

hut have a point of' diffe re ntiation h om its e011lpe tition, If a d es ired strategic

positi on of innova ti o n has been adopted by cOlnpetitors, the business nHI.'it

Strategic Positioning
ercate a spin Oil innovation that is ownabl e alld dil"fcrentiated-for exa mpl e,

innovation th at provi de s cllstOJller ben dit (rather t han merely strete hi ng

teelmologi cal bOllndari(~ s).

• Logically andlor emotional resonant with cu stomers and relevant to

the market. A st rategic l)()sition that is liked and adm ired ean f~lil if it ccaSl-'S

to he nwaningh d.

T H E ROLE OF THE STRATEGIC POSITION

YOII do not 11l('J"(, ly w allt to 1)(, cOllsiderl' d .illst til(' he st of the ilest. )'011 W,ll it to he considered 'I'll(' II(Td to articulate a str,ltegic posi tioll introd ll ee s diseip lin e and clarity into t·hl' II ;:
the ones w ho do what YO Il do .
[In I)'
, llatl'gv I'onnillati o n process. The ultimate strategy is uSltall y Jllore precise <1n(l dah­
- /erry Careill. 'fill' Cmle/ill f)1' 1/( / \1
r 'I ;ll(' as <1 I'('sldt. 1'IH" stmtcgi c positioll has oth('r, 111 0 1'(' expli cit, roles to playas Pigllrc

Y[)l l ca nllot lilah, a hllSilll' SS caSl' th; lt ),0 11 silollid he \VI 10 YU ll 'rc not. 1:2. 1 indic'ltes.
- ./1'(1' 13ec.os. I IIII IC-Oll One role is to dri ve a ill I gllide strategic initiati ves throllgilollt the org'lI li/.ation,
['mlll operation s to pmdw·t offeri ng to H&D projl'ct se l('c;t io ll. The ove rall tlll'II St
Tile SClTd o r sll ccess is cO ll stall cy or P III-Po.s('
- JiI' lIjf llllill f) hm"'i

The Face Resonate

Differentiate
of the with
from
Business Customers
Competitors
Strategy

S trategie positioll, the f~IC('

of th e bllsillt'ss str<ltq...')', speeifics how the bllsinl's.s ---
aspires to he perceived (by its e li stO llle rs , employees, and pmtll(:rs) relative 10 ils

~
co mpetitor.s and marke r. Stnltegic in itiatives and cOl1ll1lllni cat ion prograliis are dri ­
ve n 1»), strategic POSiti OIl , and it is the gll idill g beacon f()r organizational e llitme and
va lli es. Fo r all of these reasons, it is e nlcial to get th e strategie pos iti o n right. In par­
tic lI! a r, as suggested by Fig ure j 2. 1, a strateg ie positio n should he:

• Strategic. It shou ld refleet a lo ng-term eff()rt 1'0 gain adva ntage in th e mar­
ket o ver compe titors , ,md it should not be ch,tnged until the strategy itself is
changed. In eontrast, an ildvertisi ng eamp,lign and a tagline relled a eOI1l­
mllnications ohj e<.:tive, which is taerieal and may ehange within the life of a 11'
business strategy.
• The face of the business strategy. Unlike an illl<lge , whidl re Heets
assoeiatioll s h e ld by elistulll e rs, the strategie positi on is ullde r the eO Tltml (ll'
('111'1'('111 II I

th e finn. Ineleecl, th e strategic position is too important to he le ft in th e Express the

Drive and Guide Drive the
hanels of e llstome rs, who lack knowledge o f the lnlsi ness stratl',!...,'V going 1;)1­ Values and
StfFIteglc Communication
Culture of the
ward. Pos iti olling sho liid rdkct bllSin(>ss strategy. lill tl : dlvos Program
Organization

I ' i l ~" n' I ,} , I ' 'I I i il l I'll I 'II ~ III! II ,·,

:.!o l I
216 Palt Three Alternative Business Strategies
capture d hy th e stnltcgic position ~ h oulcl imply ce rt,lin initia ti ves anel program s, FOI
exampl e, give n that we want to b e an e -IHisiness finn , w hat tools aml program s w ill
custom e r s ex p e ct Crom us? Initi atives aml programs that do n ot advance th e strall '
gic positio n should he dial n l dowll or killed,
A secon d role is to dri ve the COlll lllllllication program, A strategic position I'Ilal
truly diffl~ re ntiates the produ ct alld reso nates with c ll stome rs will provide no t 0111\
pun c h and effectiveness to ex tl~ rn a l communi ca tion , bllt con sistency o ve r tilll! '
b ecause of' its long-te rm p e rsp ective ,
A third rol e is to s llpport th l~ l~xpress ion of the organi/,iltion 's vailies and cu ltllrl '
to e mployees and bu siness partlll~rs, Such illtenwl CO lllllllllli cation is as vital to Sill'
cess as reachin g Ollt to Clls toml~ rs, Lynn Upshaw, a Sail Fra nc isco COlllmllni cal iol1
consultant, suggests asking e lllplo),l'es allli husint'ss partn c rs l\vo questions:
• Do YO II know what th e hllsi nes,<; sblilds {()r'~
• Do yo u care?
Unl ess th e answers to th l'se ijllcsti o ns are yes , that is, l' mployer's alld IlllSi lll',s,s
partne rs llnde rstand and Iw li ew in th e husiness strat(,gy, tlw stralt'gy is lInlih~ l y lo
fulfill il s potential. Too man )' bu sin esses dril't aimlessl y withollt dire ctioll, appl'arill ,l.(
to stand h)r nothing in particlliar. Lacking an organizational Sl' nse 01' SOld ,lIld a so 1111l1
stratl~gi c position, they always seelll to be sill)llting "on sak, " nttaciled to som e d ea l,
or engaging in prollliscliOUS cilalllwlexpansion,
Th e strategic position l()r a busin ess is analogoll s to th e core idl-'I ltity (and re lated
aspira tion a l assoc iations ) ['or a hra nd, as lil,scrihed in til e hooks Buildillg Stro llg
Br(JI/(/.~ and J3rmu/ Lellders/lip. I Tn some cases th e two concepts are ide ntical , bill' ill
others a stra tegic position can he h road e r as it applies to a lm siness slTatl-:gy ratiler
than a bra nd strategy,
S trategic position can dramati cally allect til(-: prosP(~cts 01' a hllsirwss, ,IS d e lllOII ­
str<itt'd hy till' exp e riences of Virg in AtLultic Airlines, IBM , (llld C harks Sch wab,
Virgin Atlantic Airlines
In 1970, Richard Branson and a lew fli e nds f(HJIlded Virgin as a smallmail-ordt'r record
compa ny in London, En gland, By th e mid-19HOs, this Illodest heginning had led to a
chain of record shops and th e larges t inde p e nde nt mllSic labl'l in th e U nited Kingdoili .
with artists as dive rse and impOitant as Phil Collins, the Sex Pistols, Boy Georgl~, ami
th e Rollin g Ston es, The 1\:J90s sa\-v th e rdail bllSilll'SS grow to incl ude over 100 Virgill
" lllegastores" spli nkled around the wo rld, Man)', sllch as th e Tinlt's Square: store , llI adl'
a significant bran d statement with th e ir signage, size, allli interior de sign,
I,
In February 19H4, Br,mson, who f()LlJId air travel borin g ,In d l.InpleaS<lllt, d ec id e d
to stmt Virgi n Atlantic Airlines to make Hying 11111 and enjoyable fo r all classes, not jllsl
first-clas s passenge rs, Def)ring the odds (and vigo rou s atte mpts by British Airwavs til
crush it ), Virgin h as prospe re d , By th e e nd of th e u)!)Os, it had h (,l'O IIIl ' lll(' 111111")(,1
t\vo airlin e in most oftir(, markets ;) lId I'Oliks it S(' IVI'S. No l ollh: 11,;11 , il " III,,\,',llllI'
sall)(, ('OIISIIIIIl ' r ;IW; In ' III'SS :11111 rl'p"l :tlioll : 1\ 111111 '11 Iar~~" r ild"III ,III"11.11 ":IITil'I'.S
Chapter 12 Strategic Positiollillg 217
1I((lliding se rvi ce-oriented airlin es such as Singapore Airlines, w hic h is ('oll';i,sll ' lllI y
1,111 '<1 hi gh wit h respect to tmst, in nova tio n , and service, Virgin Atlantic 's SIII ,(,I'SS is
11111' in part to its strategic p ositioning along several di me nsions: service lpJality, vallie
1111 lIlon ey, b e ing th e unde rdog, a nd ;m e d f-,I), personality.
/>'.\'/ raordinary Service Quality
'1'11(' 1'(' are t h ou sallds of mom e nts of truth in the airlin e bu siness wh e n the custom e r
1" IH'ri(mces se rvice quality (or l-he Jack of it) firsthand, In this context Virgin has p e l'­
1'I l lllcd extraordinarily, !lot only d e li vering on the basics hilt o ftc n dazzling with Olig­
11 1.11 "\Vow"-type experiences. Virgin p io n ce re d sleeper S(-;,ltS in 19Hfi (Briti sh Ainv<lys
I,d lmw d nine years later w ith th e c rad le seat), limo selv ice at e ac h en d of th e Hight (o r
1II IIlorcyc ie service f()l' those H)ri ng light,), in-Hig ht massages, child sa fety seats, in lli­
\ idll<d TVs li) r bu sin ess class passengers , drive-through c heck-in a t the ailvort , and
IIt'll' c lasst's positioned above the norm a l se rvice levels of coac h and business class, It
, oI krs fi rs t- class passengcrs a new tai lor-made suit to h e re ady al- their destination ,
11!.ISS('llrS or b e auty therapists , and a I'a c ility to shower, take a Jac ll i',i'.i , and even I1<1P,
',du.e for Money
\ II ,gi n Atlantic's Upper Class is pri ced at the hllsiness-cl ass leve l hllt cl[ui vale nt to
1I I: II1 V oth er a irlin es' first- c lass serviCl-: , Mid C lass is offere d a t filii-rare econo my
I" i( 'cs , a nd m ost Virgin Economy ti cke ts are available at a di scount, \tVhile this lowe r
[I
I,ril'(' point olTe rs a clear conSlJnwr adva ntagc, howeve r, Virgi n does not elllphasi 7.e
IIll' pri ce positioll in its promotion, Cheapn l'ss }!Cr.lie is llot t he m ess age at Virgin,
,.lte Unclenlog
I
\ilgin's bu sin ess Illodel is straightl(Jr\Nard , The company tyr icall y e nte rs markets and
illcillstri es th at have large, establishe d players (s llch as Brili sh Air'ways, Coca-Cola ,
1,1'\'i Stratlss , B ritish Hail , and Slllil'lloff) that can be portra)'l~d as h e ing so mewhat
I " Illplac(-:nt , bllreaucratic , and unrespoll sive to cllstomer need s , In contrast, Virgin
I)I I 'sl'nls itsel f as th e unde rdog w ho cares, inllova tes, alld d e li ve rs an at t racti ve, via b le I
:dll'rnati ve to c ustom e rs, \ Vhen British Airvvays attempted to preve nt Virgin ('rom II
!
":dillin g rolltes, Virgin painted British Ai rways as a bully standing in tlw \Va)' of an
",lI"I H'st youngster w ho offered b e tter valu e and service, Virgin , personified hy
111;lllson , is th e lllOd e rn-day Hobin H ood , the fi'iend or tlw littl e guy.
I'll £' Virgin Personality
I'lli' Virg i II brand has a strong, p e rlwps e d gy pe r sonality largely le Hectin g its Ham­
I,I )\a nt service innovations ,Ind dI e valu es and action s of Richard Branson, Virgin as
:I III Tso n \Vou lei h e p e rceived as SOll1 e one who :
• l,lllll1'l s l-III' I'llies
Il
• II:IS:I ,St' II SI' 1II'IIIIIIIIlI" that can 1)(' olltrageolls at tilll es
• I.s :111111101""1,,.:,: lIillillg III all:((,1; IIII' ('sLd)lisllllll'lli
• I" "111111 " II III ,,1 '\ ,1 \ " tllIl 'S:I ,gll"d .1"1, :1111 111:1\ Ili ,!.!,iI sl:l llIl:lI'Il ,
218 P(l1t Th,-ee Altematil/e Business Strategies
Interesti n~l)', this p t' r,onality Sp<lIl ,~ several unrelated charaderi stics: rule­
hreaker, fu n-lovin g, feisty, allll cOlllpet(" nt. M an y businesses wo uld like to do the
same but feel that they 'Jlust choose between such p ersonality extremes. Th e key i s
not only th e person ality of Branson himself hut al so th e fad that Virgin has delivered
on each face t of this personality.
Virgin i s a r emarkabl e ex ample 01· how the 'i~ht stratc:'gic position can allow a husi­
ness to strt'tch hlr ht'),(lIld w hat would he cons idered its acceptabl e scope o["operations.
Bath er than re strid itse lf to records and elltertainlllt'nt, Virgin has used its strategic
position to ex tend from reco rd stores to airlilH~s , colas , condolll s, amI doz.t'ns of other
categories. Tlw Virgin Cronp compri st,s sO llle lOO compan ies in 22 COlllltries, incilld­
in g a di scollnt airline (Virgin E xpress), rina llcial services (Virgin Direct), a cosmetics
retailchaill alld diwct sait's operatioll (Virgin Vi(' ), s('v('ral mcdia cO llllxlIlies (Vir).!;in
H.adio, Virgin TV), a rail se rvi ce (Virgin Hail ), soft drinks and otller I)('w rages (Vi rgin
Cola, Virgin ElIl'l"i-,'Y, Vir).!;in Vodka), a lint' of" casualclothillg (Virgin Clothin).!;, Virgin
J<:'ans), a I)(,W record Ialwl (V2 n ecortls ) and ('WII a hridal stOI"(-' (Virgin Bridd. In each
business, I-li e strategic position w orks to provide dil"ll' n'lltiatioll and ad vallt<l).!;e.
III I ~K: t, til(' decisioll to ext( 'IHl Vil·gill, a hllsiness th l' ll associated with rock lllliSic
illlli YOlltll , to ,HI airline cOlild have hl'CIl llll' a kg(-'ll (bry llIlinder if" it had I;lik'd.
I-[()\-Vl've r, I)(-,C,III S(-, th(' ai rl i Ill' wa.' slllTl'ss rnl and was ahle to del iVl' r va lne with 'lil ality,
l-lair, ,H id inllovalioll , th(' ma.'; ter Vir).!;in Imlild deve loped ,,-,sociation s tllat wc rt' flot
J"l' stlict<Jd to a sin gle typl ' or prodlll't. Tlw t'len w nts 0[" the Vir).!;ill strategic positioll­
extraonlin,ll) ! servilT' 'illalil)!, vallie I(lr IIlOIlI.'Y, till' IIlHicrdog p('rsollality, lllliqll eness­
w ork over a larg(, set or prodncts and S('lvices. It has I Wcollle a lilt's ty le hrant! w ith an
attitlld" whost' p()\-\'('r hll relationship with Cilstoill ers is not ., oldy hasl,t! on fnllcliollal
hl'lIdih w ithin a particlilar prodllct catego ry
Virgin 's Sllccess has h eef[ dri ve n ill part hy plIre visihility, la rge ly has(-,d on pllh­
licit)' perso llally gen(,rated hy Hi c har<l Brallson. l-kali/'.in ).!; that Virgill AtiailtiC could
IlOt compde with British Ai"va)" ill ad vertising (' xpl' lllliturl's, 1](' II sed pllhlicity
st lilltS to cr calc awa rl~ IH'.'" alld deve lop associations. Vihl 'lI th t' first Virgin AtLlntic
Airlines Hight took olT ill I ~k4 w ith h·it' nds , c('k llriti es, and report(.; rs on hoard ,
Bransoll appeared ill tIll' cockpit wea rin g a vintagl-' \ Ivorld \t\far I lea tlwr I-li ght hellll et.
Th e on-hoard vidco (a pre-recorded tape of" coursv) showed the '· pilots'·- Brall so n
and two hUll O US c ri ckel phtYt' rs- gr ccti ng tltc passl-'ngers from th l' cockp it. ~
Branson's puhli city t' f"[(lrts h,lve not h y all y lll(:',lll, l ll'l'n linlited to Virgin Atlantic.
For th e lanncllill g ol·Virgill Bridl', a compan y that arranges we ddings , h (-' sllOwe d lip
in a wed dillg dress. At th e Hmfi opening ol ·Virgin :, first U.S . nwgastoJ"(' ill Nl~W York's
Till1es S'lll<lrt' , Branson (a ballooni st holdin g sev(.;ral wo rld records ) IVas low("red on a
hu ge silver b,l l! from 100 f"eet ahove the store. Th ese an d oth c:' r stunts have tmn ed
into w indJi tlls of f ree pllhli city lilr Virgin , Il elping t he hrand ill all contex ts.
Branson has flllly mastered hi s role. Bv employing British hllilim and th e P()PII ­
lar love of floutin g the sys te nl , h e has endeared hims(,lf to Cll nSl lnwrs. By neVI' I· d('vi­
atin g from the core hrand v,tllle s of quality, v, Lln l' lill· II l()ll('\'. IWill,\!; lhl' Ilndl'n lo,\!; ,"HI
hav illg an ed).."y lwrso llalitv. II(' li as ga ill('d Ilwil· loy, "I :;.' ,111(1 ("()ldit!I 'IIl'( '. 1'\ i<iI 'II("I' of"
this high 1('\'(' 1 of" tl"llst ill Iklll.'OIl ,llId \ 'irg ill "IH 1IIIIl I. \\'IH 'II I~I \(; I("d ill :lskl ,tI I ,:?()()
Ill 'I'III( , w ll o 111I'\" 111(lll.g ill \\'11I1111 Ill ' III II,S I flll"lil ·il 'd III If'lIl ill· III!" "1"1 '11
Chapter 12 Strategic Positioning 219
( :0ll1l11andlnl'nts , Branson came jn I·o urtb , after r,1[otiJ er Teresa , th e rope, and th e
h chbishop of C,lnterhUl),- vVlw n a Briti sh daily newspaper took a poll Oil w ho would
I II ' nlost 'l"aJifiell t o IH-~co rnl' th e next lll (l ),or of London , Bran so n won hya land slide.
Th e challcn).!;t' I·i)r a husiness thaI is huilt on a track record 01· SliCCess and I·unc­
I iO llal inn ovation like VirgiJl's is hlrmidable. Th e nex t battle could always he its
Wate rloo and Virgin Illay irH.ll·l'.c! meet this hlte w ith its Virgin H.ail hllSiness. With
1]('ady :30 million a11l1l1al trips, til(-' rail llll siness is hi g hly visihle, and the ability to
d"li v(-T Iliglt-<[lIality lwriilrll1anCe is not entirely ill Virgin 's control. fasscnge rs w hose
1" lwctations IVl'n-~ hased on Vir).!;ill Atlantic Airways were di sappointed \vith m ediocre
s(' rv il't-, an d Iatl' or ("(111 1:1,1(-' <1 trains . In retm spect, sll ch a ri sky ventllre would have
I)('(' n hetter otlllnder another nam l' to pmvill e so m e JTl easure of protec ti on to tb e
\ 'irgin hrand.
The criti cal iSSIl(-' for Virgin , th e n, will he to Illanag(-! tbe busin ess as its con sum ers
I 'LlId Branson ) a).!;e and as it n1l1shrooll1s into all ever-broader range or vt' iltnres . Can
' ·i rgill Il lailltaill its strate gic positioll across all ol"its prodllct catego ri es and Iioid onto
il'i cllergd ic pl'rsoll alit)' over tilll e? A cl ear strate).!;ic position , and heing able to
ililpicnwnt it, will 1)(' tlw key to lll eding that chall enge.
IB M
Slrategic po., itionin).!; (or the bek thereol) Ila.' I)(~t' ll an important eleme nt or IBM 's
i"fl rtllll<'S ovn the years. J n tlw 1950s, it chan ,l2;ed I·rom h eing a pUllch ca rd proces sing
111I\iness to hein g a conlp"tn In 'llllll"actnwr. In the 19fiOs, [Btv[ evo lved ["rolll a pll\"­
I·f'vor of" hard w are into a finn that dl di vcred sys te m s solntions reliahly and co nl[W­
If 'lltly. Th l' adage that no (lne ever got r-ired for bll ying Imvl rl' l-lected thl-: in<;rl'dihle
I· f I" it)' sllpporting lh at position . All ,"ltit-r ust settle ill ent reljlliring th e compan y to II'
"' paratl' its se rvicc rrom its hardwa re syste lll s unde rcut a cl" ntral part of th e IBM
, I ra!" q!:ic posi tion , however, aIII I led to <l diHiclllt pl~ri(ld .
III th e middll' 10 lat(-' HmOs, I J) j'vI lost its w ay. Its SYStelllS cOl1S ldting busin ess
II:Ld atrophied, c lolll~s had Illllkrcllt its PC position , and Mic rosllf·t (among others )
11. 1(1 grasped th e le,ld l'rs hip rol e in sof"tw are. IBM lac ked a visihl e stral egi c position ,
,llld it was ill crisis as a r t' sldt.
WIll'n Lou Gerstn er took ove r as CEO in th c sp rin g of J 893, Olle of his first ini­
I i,tl il"('s w as to create a SIT,ltegic position.:3 A scries of I·()CDS groups anlOng exec uti Ves
il l Illanagcnwnt of inf(lflnatioll syste m s (t-/IIS ) revealt'd that IBM was Iwrcei ve d as
Sil lart, illnovati ve , a technological leallcr, and a produce r ofhigh-ljlwlity erluiplllent.
\! (·1·1'rtlwkss , th ese sam e executive s would not huy IB M products. Th ey were very
f·lliotional in claiming that IB tvl had b etrayed their lrust and suppo rt , di sappoillt­
i".g IIII' w hok cOlllp"te r fi eld h y hecoming too ,IITogant and turnin~ away fro111 CI IS­
Ill ll Jl'rs. FIII·tll( ' I· rl's(-'arch i"l-'vealed that NIlS executi ves we re lookin ~ for systems
" rililioIIS , I·o r l·il·II IS Ilia!" cOlild in tl'gr ,lt(' Conlp"ter tec hllolo~)' ano appl y it to th eir
1'II,illl'S ~ I"I,I,I I·I II .' willl:t sysll'll l.' jll'r'p,'l"l ivl' ;[Ild scope (as opposed to a CO lllpO­
IlI"liI 11I·if ·liI :ci iflll I.
(: 1' 1", 111' ·1 1",,1· '. ,·If·f :11 .' If'IIS 1(1 ("h: III ,L~I' IIII' 111 1\1 (" ,rilll l·I' . Ill',gi lillill).!, w ilh ,I 111"0­
." .1:1111 Ifl 11.11' · 1"1' Ifl.f ". I"'"!" I "Wlllflill .!': l,illlsl,II·) 1:111, Ifl (·lIslflllll'r,' flll :1 J"( · .!~lIl : II · II:I.,i.,.

 220 Part Three Alternative Business Strategies
H e stopped illternal consideralion o rhreakill g up tIle cOlllp~m y, makin g clear that th('
IBM hrand and the synergy or th e organization wOllld h e a strategi c point or ad van­
tage. G erstner also identi fi ed the most prom ising initiative s ill prodllcts and ope ra­
tions and made sure they w ere FUlided. All or th ese actions estahlished a n('w stra tegic
position that maintai ned IBM 's image as the global tc:cluw{ogy I('ar/er wh i Ie relllo\'i ng
th e appearance of b eing alooF and Illlcaring.
An advertising campaign d eveloped I)y Ogilv)' & tvIather sy mholica lly drov(,
hom e this m essage. On e ad showed two Czech nuns walking down a road, say in g ( ill
Eng li sh sllhtitl (:.s) things lih', "1 can 't w ait to gl'l' Illy hand.s on OS/2." The taglin(',
"Solutions for a Small Plan et," expressed tl1(-: nH':s sagt' of g l(,])al leadership in a so ft,
Ilnderstated way and it retllrn ed IBM to its roots as a CIlstollwr- and solutions­
oriented firm. This .strategic position was credited w ith helping to hrillg IBM hack
('rolll the hri il k of' dt'.strtldion.
Only a f'('w years later, though , IBM liK('d a rel(-' vallce prohleill. The Intel'llct had
progre.ssed f'rom hui'.i'. to rt'ality, and IBM W; IS s('c n as les.s COllll('d(-:d to this Ilew
world thall Cisco , Sllll, and other.s, ill part h('callse of its prodllct legacy and size'. III
rt'spon se, <III ,lIlgln (-, lltt'd all(lre[clCll.sed strategic position ar<>IIIHI til(' <,-hllsin('ss COIl­
{'<-'ilt was (h,vl:loped to signallBM's rck:vallCe to thc I II tern et ~I!-);<-' alI(I to rqm:s('nt its
~t rategicall'y illlport<llil' .service i>lIsin('ss ori(-' lll('d toward l'I'(-'atill~ sYSh'lll.S ,so lillions.
From tIll' introdllctioll orthc C-hll.'iill<'sS lalwl ill late ImKi, IBM Idtilllal('h! spellt OWl'
$5 hillion cOlllmlinical' in~ the conc('pt' A ho.st 01' prodllds alld pro~nllll.S ( iIl C lildill~ a
s('I'ie,s of .'(''' sllhbr,lil(k sllch as <'-s( ' rv<' r.s) pro vided sllhst<!II('(' <!IHIl'I'('dihility 1'01' th('
Ilt'W po,s itioll.
As noted ill Chapter l , ill 2()():3 Sam Pallllis,lIlO 1)('('all1(' IBM'.s cr·:o and Cl'('­
at(,d a n('w hliSill(,ss strategy ,111(1 'Il'coillpallyillg positioll hased on th(' "o n-dcllIan<l "
e-hllsincss concept. Oll-dcmand illealiS that 111ll1.S('d COlllpllt( ' r cap;lcity cO ldd 1)('
acu'ss('d by those with a Ilt'ed [c)r it tlmJllgh a 11I,lIIag(-'d IIdwOI'k grid. A.~aiil , th('
I B I"! organizatioll w as Il]()h ilii',('d Froll! top to bottolll in ord(~r to d('li ve r Oil this IWW
promi se , with a host or oll-d eilland pm<!lIl'ls alI(I se r vice.s.
Prodlll,ts have had a large roll' in th <,s trate~ic position orIB I"! ov(:r time. In th('
lllid-l!:)()()s (when COlllplltl"r.s Ill eant UNIVAC, not IBM ), th e COlllP,lIl), (c))'gcd its
dOlllin<lIlU: with th t:, :3()() , <l hugely sliccessrllllllainFralil e COlliputcr that sl't til(' Stall­
dard f(n' years w ith a How orupgra(!<-:s and rdilwnwnts. The J()() w as tIl<' 111('.ssag(·' and
substa nce behilld the strat(:gic position or cOlllpliter leac\ ('rship.
Threl' snwll COJlSllllWr prodllcts also played instrumental mi t's in shaping til<'
113M strategic posit ion, even though each had only a minor portioll or tll<' cOlllpan)' S
sales. The first, in the earl y 19kOs, was tb e original PC, which legitillli/.ed the IHTSO II,d
cOlllputer world and IBM 's place ill it. This hrt~akthrollgh rci nf()rced th e cO llipanv'.s
l ead er as a dominant leader in th e fi eld that could also he nilllble alld inllo\'~ ltiv('.
The st'cond was th e PCjr, a strategically .s ollnd id(Ja whose (' \l'C lltiOll ('(lst IIHvl
1I10st of the luste r earn ed by th e PC. Tht' inte nt was to create ;1 II()III(' ('olnllill( ' I'
rt'hitecl to the PC many Cllstolll(-'rS IJs(: d at wo rk , IlIJl the prodllcl kl<l <II) illad( '(IILil,'
keyboard , no hard driv(', alld cO lild It o l 1)(' hook('d <lp 10 ;t prilil('r 1< \'(' 11 WOI·,('. IIII'
illtrodlll,tory ad (,~ullpai,l!;11 (wi lh a IIIIIIIOI" )(IS ( :II;II·li" (:lldplill (,11 ;1";11'1"1' ) 1"";(111 " II,, ·
Chapter 12 Strategic Positioning 221
Ii K al point or ridicul e. The peir tllllS rev ive d th e hureaucratic, out-or-touch per­
,'t'ptions of til e I BM bran d whil e dialing down the rel evant, can-do l,lenwnts.
The third product, th e IBtvI ThinkP,l(I, ft' atured a striking design , innovative f'ea­
IIII'('s (indndillg the red TrackPoint) , light weight, and solid p e r/()I']llanCe, As it
I H'Cll I I(' a high-elld leader in a very vi sihle space, tracking stud ies showed custom e rs'
;lllitude toward IBM going up significantly, th e company's only significant upward
1I1()\'cm('nt ill a five-year tilil e period.
(:ha rles Schwab
(:llarl es Schwab has rein ve nted itself' several times sin ce its illception in 197.5.
1'' ' ,("IlIS('' it e;"\t(-'lld(' d rather than ch'lIlged its strategic positioll ill each case, however,
il 111'\'('1' had to IIl1dergo the dif'A clilt rep()si tionill~ task that illvolves IlIIdoing past rnis­
1,lk('s or ()\I(' rcolllill~ thl' re.slllts or a failed program or policy.
In 187,,), shortly al't<'r Schwah was ICHIIHle<! , transaction cOlnlllission.s Wt'J'(' dere~­
Id"ted hy tIl(' SEC , and til(-' firm h ecallle, a PlirC disw//I/( hrokc l~ Sllch companies
\ \( '1'(' tIl(-' <llt('l'Ilativl' to a I'ldl s(,rvice bmlwr ii' YOIl did 1I0t Ileed or wa nt to pay [ClI­
:lIivic(' (which at worst invol ved a con I-Iict 01' illlrl'('st, sinc(' th!' hroke r henefitl'd frolll
ill('r('asing til(' II II IllI)(-'r of' transactions, alld at best wa.s not wo rth the .slJhstalllial cost ,
, illu' tlw stock l'('('olnlll('IH!ations given we re littl(' I w tt(' r thall I'alldolll se lect ion).
As its cO lllpditors Illl'r~cd , Schwah refilwd its st rategic po.s ition. It pr<'sentl'd
i I s(' II' as til(: he.s t 0 I' the d is(:( Hln t h ro kc: rs, hased 0 nits .'i tat('-of'-l'iw-art co III pll tel' s)'s­
11'111 , reliahl(' ('\('c lition , oillstanding s(,rvic(" alld exce ll(' nt rl'portin~ tool s. The
"Olll l)('titol's by Il<-'('t'ssity resor(cd to sholltillg price_ rarely a h ealth), IOllg-te rm
1'1
,I rat('~i c position .
In H)~)2, Sch wah Il s('d its OlleSOllrcc and ('rec IHA aCCOlillts as vellicks to
1)('('ollH' all as.sd gatlwrer, a destillation IClI' portldios in ;tddition to hcillg a disc(Hlllt
I )m k(' r. OneSoll rc(' allowl'd Schwah Clistolll<'rS to choose I'rolll a w ide va ridy of
1I11111lal f'lInd s (aidcd hy a cOlllpreh e n.siv(' illlcl1'Ination system ) with no trallsactioll It'e,
1I ' llloving the lI eed to s(-'arch ['or alld allalyi',(". optiolls f'rolll 1l111ltiple f-irllls, Increased
' 11[l[lort Ic)!' Illlltll<ll lilild hll ),tTs-sli ch ,lS tlw Schwah St,kct List, w hich lists top
1I11111lai hllld picks-has helped to en hall ce Scll\vah 's strategic position ove r tilll e.
Sch w ab 's illitial l'xpeliments with compllter-bas ed tran sactioll , hO'vvever, created
" ()IIf'llsion, f'nlstration , and resentill ent among clistoill ers who had had exp eri ences or
\\('1 '<: left h ehind. Nevertheless , in ]!-J97 Scll\v,lh made a cOlllmitlll ent to th e Internet
:111(1 COlllpllter trading, ri sking lllll c h of the cOlll lllission in come tll at came Ii-olll tele­
IliIlHI( ' orders. As olle of th e rirst III tc r/let sCCllrities cO/llpanic.\' , Schwah o[Ter<~d a n ew
<lill('r'(,lIti:lting se rvi ce that f'urther solidified its positioll as a leader in computer­
II;( S('<I SVSt( ~ IIIS.
As il' (' llt('I'S tIl<' n('w cent II r)" Sch w ab Ile xt addt'd anoth er dirn c n.s ion to its
"I ; il( '~i (' »o, ili(lIl , lkll ,,1 ' ;llflli/W// IIWIW;!,( ' I: Mall), Schwab cllstomers arc relativt' ly
\\(,;(Ilh\ :11111 \\"; 1111 111111'1' :I(ki('( ' 1·II;ln tIl(' lirlll II;IS hi slori c dly gi v('n. Schwah wanted
I() :(('("HIIIII<)(I:(I, ' II"·,,, ,·li'· lli s, hili II sill ,l!; ;111 ;q)pr();tcll lkil did 1101 hack ;tway "rolll
iI .s iCllI t ', "'11111,,, ,111"" 111,,1 1'11 11 '('Iyi ('" Ilr()k( ,!'s <11'(' 1IIIII"( ','ss;l!'ilv (·'IH'I,si\'(' . TilliS,
222 Pm1: Three Alternative Business Strategies
Schwab responde d with a numbe r of cost-e Ffecti ve hnllldcd services lIsing compuler
aided system s.
These ra nge from 400 independent Schwab In ves tment Advisors, offerin,1.;
fee-based services (i n vitati o n-only Sigllature Service advisors provide higher lev­
e ls of' ad vice) to "portfolio consultation" analyses in Schwab bran c h es filr a fixed
c harge. in addition , Schwab oFfers its cLlstonwrs hr,lllded so ftware products sl lell
as th e "Se ll Analyze r, " an o nlin e tool to eva illat(~ th e cost h,lses of the portf'olio alld
the "Portfdio Tracer," wh icll allows b enc h Inarki ng agai nst indext's.
The expans ion of Schwab's strategic position was not plann(,d at the outset , hili
ind eed evolve d over tillle. Each step Ivas itsdf a prodllct of' an (:'vol ulioJlary proc(:'ss
th e compan y offere d Illutllal fund services he filre OneSourcc , computer tradillg
b e fore its cO Tlllllitm e nt to tile intern e t, allli financial advice (t hrollgh a net wo rk of
affiliated advisors) hefilr(:' providing full -sca le mon ey ll1anagelll t~ n\' . Thes(' initial
dimension s or th e strategi C position wen-' llOt elilninall'd or even dialed dow II bllt
rath('r al1gnlCnte d , so I·hat the husilwss lwcam t' richer and dCl'pe r ill>;tcad oj' dil'­
f·(~re nt. In .';)1Ort , Sch wah ilnprov('d while renwining tru c to it s he ritage.
The Sc hwab strategic positioll is really base d on til ree hrands. ,ill st as the Cap
op(' ratl's not oilly its own stores but Banana Hepllblic f·il r its high-end Cllstonll'rs and
Old Navy lilr th e va luc end. While Scllwab is thc Hagship brand , it ha.' added sco jle
by buying U.S. Trust (a rirl1l whos(~ Hagship orfice on Park AVellll( ' ill lviallhaltall is
co mpl ete with wood pall c l and goid-rinlllwd china) and C y ll('l'coIV (a finll that spe­
ciali zes in day-trading). These two acqui sition s he lp Sch wah to sllall the market with­
out undlll y st re tching its ll<lill Csa lw brand. I
STRATEGIC POSITION OPTIONS
Th e re are as man)' strategic positionin g ave nues as there are pr()(illets, Illarkds, and
bllsilwss strat(~ gies. Succcssful positions call he based OIl the co trlpditi v(-' strat(',g),
options dis cllssed in the preceding three chapte rs:
• The quality player with a defined product space. For e xample, (;ill('[t('\
Good New>; is th e bes t or disposable raJ.ors , Saks Fifth AWlll le aspires to ll('
the hest premilllll store , alld Accen ture hope s to he perceived as th e hes t
manageme nt consulting firm with an e xpanding scope of acti vities . To 1)('
success Ful with this stn ltegic positioll, a rirlll must both d e li ver on I'll<'
promise of' be ing th e be st and manage the categOlY ddillitioll that dictales
the pe rcei ved set of cO lllpeti tors .
• The value option. HYl.lndai, B1lC.lge t rental cars, Knlart, ,uld 1' 1,();\lU 'OIII ;11'('
all positi oned primarily as value playe rs. Sllccess in a vaille posili()11 ~I ' II( '[; d'"
re(luires a cost advantage, and again, it is importallt to ('an'f'ldl" 111;111:1,1.;(' Ill('
perce ived competitive se t. BIl(lgd , liJr ('x;llllpl(' , is ()Idl ;1 I';dlll' Wlll ' ll (,() III ­
p,lred ag,linst th(' It'adillg l'I'Il\;d finlls . :111(1 l(111;11'1 .,illlil:llil IlIlll'iill ', I; til[('
aliiollg a w('ll-ddilll'<! s!'\ ()I' 1·IIIIIIH'lilflI'S . \\ '111'11 I (: l'I' flll(' 1 ;<llf ' IIII)lf'tilf)
Chaptel" 12 Stmtegic Positioning 223
upscal e its offerings, it walked ,I hlle lin e h e tween e nhancin g valu e and
changi ng its co mpetiti ve se t.
• The innovator. HP, 3M, Sony, GE, Shisheillo, a nd Virgin Atlantic all pre ­
sent them selves as innovators. C re,ltin g this p e rception a lllong custom e rs is
easi(,'st w h c n it is based on product or selvicc i nllovatio ns, as Sony aml
Virgin h,lve shown. Perce ived innova tion can also be driven, howe ve r, by
indicators of' lead e rship a nd energy. inte l has hllilt a rcputation For lwing
innovative by being so visible every\vh er<:,. Ami Virgin enhanced its innova­
tive illlag<:' w ith puhli city stunts (o l'ten h y Hichard Branson , its CEO) that
created enorlllOUS energy.
• A narrow product focus. The es, ence of Lels-go-Il y-a-kite , Aalllco, and
Fnrari ca rs is th e ir narrow pro(lilct oflcrillg As sl lc h, they ,1I'e imbu e d
w ith credibility that they know their product well. The challenge is to 1)(-'
dis c iplim~d ahollt llOt expa nding the prodllct scope ill a way that would
dilii te this C!edihilitv.
/
• A target segment focus. An on-Ii li t' busin('ss with fi)clIS is Cold Violin ,
which provides products and services fill' the retired generation (whom it
conceptllali zcs as Inod('rtl-day heroes) . !\ nutlwr is Bolt, ,Ill olliine hrand
l(lCllsing Oil 15 to II) year-olds that is diflen ~ lltiated in large pari hy il s
relentless reliall c(' Oil CO llllllllllity. BIlSill <'Ss 2. 0 has becollle olle of' the lead ­
ing Ill'W ecollolllY lllagazin(:,s hy lilcII.,illg Oil " transl'orllll'rs" -illnov,lti vc peo­
ple with tlw power and dollar., to inHIl(-'nce till' direction or hliSill (:,ss.
Positiolling with respect to a targcot scg lnc llt ca ll help t' nsme that the org,lni­
I.atioll keeps its eye on th e hall by h'eping t he prodnct experi e nce rt~Spoll­
sivc and relevant to that segillent.
• Being global. Citignllip is a global financial institntion. Visa is a global
credit can l. Toyota is a global ca r cOlllpany. Be ing global provides ftlnctional
ill'lWrits in Ihal YOll ca ll access the sel'v ices of' Citigroup or Visa anywlll'rl' . It
also provid e s the pn~stigl' and assurance of' knowing that the Finn has the
business capabiliti e s to compete succt's.<.Jl111 y in other COllntri es. Awarclwss
that Toyota is strong in the Unite d States , fill' exampl e, helps the finn in
El1ropc , where cus tollle rs Illight otherwise see it as a 1ll00Ies t playe r.
There arc, or COllrse, a host of addition,11 dilllensions Oil which to base a strate­
j ~ i(' position as suggested by Figure 12.2. Som e, but not 'Ill, are hased on a str<lte gic
"Ill iOIl. The filllow ing have proven theil' ability to dri ve success:
• product category
• pm(III(1 attrihlltes ami f'llndional henefits
• hn ';jtlll, oll)I'f)IIII('\ lille
• f)1":!lli
", /.:di"",fl ild;III',-.' il)II '.'
• (·IIlf,[I»II.,1 ',,·11 '·' I'{{ ··· ·,I\I' 11I'1[('fil.'
224 Part Three Alternative Business Strategies Chap tel- 12 Strategic Positioning 225

Strategic Positions Firms 111;(I11mo tl1 study of global bra nd s, relevance W<lS o ne o f fo ur key d i m ensions identified
Th e bes t Acc(' ll ture, Saks i ,d oll,t'; with differentiation , es teem , and k now ledge ), A lthough diffe renti ati o n got top
Vallie H yun cL1i, (-'Loan Ilil ling in th e ,stlllly's r eslIlts, relevance lIl ay h e as p ower fu l in d y nami c ll1ar ke ts. A fter
rIlil ovator H p, :3M , Sony ,Ii I, if' a busi ness loses r el evance, di fferent iatio n m <ly no t matter,
Product (()CII S The ahility 0 1' a fi rm to maintain releva nce valies alo ng a sp ectnIJIl , as show n in
Lets-go-H y-n-ki k, Cas trol
l ' I,~ llre 12,:3, A t on e ex trem e are treml n egl ectors-finns tlwt lIli ss or mi sinte l1Jret
Targd segm eJlt Ce rher, Cold Violill
Product (" Itl-'go ri(-'s 1lI' llds , or are so I()cused on a p,lrtic lllar busin ess model that th ey ignore them . Su ch
Catmatic, Oracl e
Prod\lct att rihlltes Vo 11'0, C res t III'I II S ar e o rten ch aracteri ze d as hav in,t'; inadequate strategic an alysis capahility, orga­
Prodll ct Ii 11 (> scope Il i/ :t l'i ollaJ inHex ihility, an tVo r a we,l k hrand porl'f(llio stratei-,')/; th ey eve ntually wake
/\ 11 1,1'1.011 , Bart H'S & No bl e
o rgal1 i'/,aliollal in lillJgihks "I ) ill Sill-pri se to find that th ei r produ<:ls are no lo nger r<~ l eva nt. At th e o th er ( ~ Ild o f
Ill', Kaiser Ilospihd
Emotional h('lll'fi ts MTV I'Ldllllark
ii II' " lw dnll ll ar t' trend dri ve rs , t he Rrlll S w ho actu ally propel the trends that de fi ll e
S clr~('x p rt'ss i vc hel1di ts C l\) M (' I'ct'des
III, ' call'golY- III th e middl e art' trclltl re,'i [1o l1dc rs, w ho track closel y th e tre nds and
Expl-'rit'11C(' III ' 1'I'OIIIl'ion or ca tego ri es , makill g sllrc th at th eir p rodu cts stay c urrent ,
N ikc, Nordstro ln
( : O Tl tl"III po 1',1ry
\ 'i I'gin A tlanti c Ai r1 i ncs, ) 13M , and Schwab all have heen trc ild dri ve rs, V i rg i n has
I "a ll(' Bly ant, O[1rall
i'c rsollalitv , 1O '.II( ,d II('W slIhcat(-'gol'i(-'s hy introdll c illg and ow ning new se rv ict's such as massag(~
Il arley-DavidsoJl , T ilLtny
C;IHJlpl 'tilms Ill in's il l first class. J 13M w as ahle to d(-: hlll:" a category w ith its e-hllsin ess and on­
Visa, '\\-i s
d" III;llld ('-hIl Sill css se rvices, sllpported hy (:n o nnou s brand-hllilding resources.
Figu,'c 12,2 Strategic Positiolls ... 11\l a),'s Oll eSOlll'ce defin ed a new suhc,l l'ego ry of' broke rage firms .
T n 'lId rt'sp (lIIdt 'rs- til ose Rrms that call recogni /.l' trellds, ('valu ate th em acclI­
( tll, h, '1Illithen il np k~ ll\ e llt a WS POl\ s(~-('an sust ain ,'i uccess in d)'llami c nurke ts , SOll1e
• exp(·'ri enct' 11 11i()11 i>rallds, sll ch a,s Tonllny IlilRger, have Iwt' ll nilllhk~ in stayi llg ahreast of' 1 ~IS hioll
• Iwi llg contemporary II ' ' I)( k Harhi e h as ch allgcd with th e ti m es , always ket'pin g lip w ith f'rcsh cO llcepts: <In
I .II II II;lIll ill J 9().5, a surgeon i n 197:3, a prcs i dt~ lltial calld idate i n 1~!-)2 , tile vi deo " Barh i('
• hrand p (>rsonality
III 'I Ill' '\J lltc r,lcker " i ll 200!, alld Barhi e cOllture in 2()04 , L,L, B ean 's p os iti on h as
• COl np<-'l i to r positioll , " 1,, ,,1 I'ml ll hlilltillg, fishing, and campi ng t o a h roade r olltdoors image th at is n~ l e -
,"I itl llikers, 1Il01liltaili hikers, cross-country ski t' rs, and w ater-spOlts enthusiasts, th e
A s tll ey arc discllssed and illu strated , it willlwconw clear th<lt 111,(11 ), of' th('se dillll'll 110',111 ()I' ils InarketplaCl-:, Adaptillg quickl y to the di gital ag(~ , Fuji Filill hecamc a leader
sion,s arc illterrelated, A 1)11 rely o lw -dinlt' nsiollal strategy positioll i s rarc. "I II ih Sl lper CCD high-quality image se nsor f(lr digital cameras (the IOllit h genc ra­
11 " 11IIf' w llicl l was inlTotiu ccd ill 200,]) and products such ,lS dig ital photo prillters,
Product Category Ilt- ill g a Sllcce ss f'lll tre nd rt' spollller, ho wever, is no t easy. A s su ggest ed in
Th e choice of a produ ct category to w hi ch a hu siness w ill ,Issoci, lte itselr ca ll 11:11, I l 'If ,I,' r :5 , it can he diflic ldt to identi fy and evalll <l tt" t relld s well e nough to sepa ­
ellormo us stratcgic as well ,IS tactical impli ca tion s, Sch we ppes p osi tio lwd il s 10 11 il ' II' I II" 1111' 111 rmll) lI1e r<~ fa d s, It i s also diffi c ult to responu to e ill e rg in g sllhcatego ri es,
E urope ,IS an adult soft dri n k , and the popldarity o f new -age adult drill b h<ls (', II'I'i, " I " I" " i:1I 1I- ii' l'ill')' st art sll) all and if' th e exis tin g husin t'ss an d ], rand are es tahlish ed.
I ""',1 <1 , ,1', lor 1 ':\ ' lIllpl (~ , the diffi c ulty that M cD o ll ald 's, Burger K i ng, KFC , and th e
it to a do minant p os ition , In th e U ,S" h owev(~r, Sch weppes ( p(~ rh ap s \\'alllin~ II) ;I\( 01' I
01 11, I 1';1\ 1 lood giant s havl~ had in respondin g to th e h ealthy eating trend , Th ey
th t' Coke/Pepsi ju gge rn aut) p ositio ned its ently as a m ixed dl'inl< , w lli('h l'(' II 'gall '.! d
I I' .illlilly Iio l ,~ood at prod llc[ d evelopm ent ,\TId del ivery ill tlwt ar en,1 h eca u se it
to h eing a minor player w lw n the market chan ged , En tTh')' hal'S )) " l'alll(' a I'ig 1111'.1
I 110.1 ill Ilwil' I )N I\ ; the), l ac ked the p eopl e and culture to h e successful. F urth e r,
n ess by creatill g a category distinct from candy \Vasa Crisphl'ead v:\ jl' "I<iI'11 ii , 111110
111, 1, 111:111<1 , II:I \'(' IH'COIIl C <L liahility as the !'inns at tempt to chan ge p erceptio ns
ket l)y positioning its elF as ,\J1 ,tlternati ve to bread rather than b eing ill a l 'all'g()IY 11'111,
1 ,, 1 ,1 111 " III'.! 11V(' I' <i, '('a<l( 's ,
ri ce cakes and Ry- Krisp,

Maintaining Relevance
"I 1
As suggest ed in C hapter .') , th e r(' l('vall(,(, cOII('( 'lll (':t Il he lp w il lt I IIl' <iilli l 'lIll I!I "I, 1>1 Trend
~
Trend Trend I
managing all evolvillg categor\' w i lli l ' lll('rg ilig :t l l<i n'('('<iin~ "d )(',Ii ( ,t:,l lIi , 's , 1:, ,1, '1 ,1111 '
is, ill ('SS(' I1(,(" Ill' il lg p(' n " 'i\I ,t1 :1., :Is,<;{)('i:t II ,t1 \\ 'illl I II(' Il rodll('l ,':d" I'Ilr\ i l l \I 'lli " ll II"
Nogloclors ~ Responders
• •- Drivers 1:'1

(, 1t<; loll l(' r i, illl( 'I'I '" II '11. 1111111 , 111:1 11 , 1;\ ,,,,,'1 \ ';dll ;II'II ', II II ' III,,, I' 1O'1 , J! \'''II I ~ ' (\ 1: ltllI " !1111 11 11 . t - I :.! .:t .~'; I ; l\i " .\ '. H"I" \ ;11 1I
 226 Part Three Alternatir;e Business Strategies
Product Attributes/Functional Benefits
\ IVhen a hu siness is hlessed with a strong, sllstain ahk product attribu te or fllncti on al
benefit tlLlt is valu ed hy the market, that element shollid he a promin ent part till'
strd tegic position. Cres t 's stron g associati on with cavity control , ill p,ui cre atl~d Iry all
t'ndorse ment b y the A m erican D ental Associ ation, di n~ct l)' d rove a leading IIlark<'i
positi on in toothpaste th at hove red aroun d 40 pe rce nt for ye ars. Only wh en C olgall'
ca me up w ith a broader position dri ve n iry its Co lgate Total prmillct, w hi ch combin ed
d ecay prev(-'ntion with w hitelling, was Cn~sfs leadership Rn ally c hall e ll gcd.
In sOll1 e prodllct classes, diH(~r(,lIt Irrands will tar,~d diff(~ rl' nt "lwn ('RI' scgme nls '
<1 1)(1 Ire posi tioned accordingly. for ex,lI)]pl e, Vol vo has stressed duralrility, sho w ill).!,
cOlllm ercial s o l' ''c rash tc'sts " and l'l-,l ling how long its ca rs last . Jagllar ha.s (,'llpllasi'I.1'< 1
its disti nctiv(' styling. BM\,V, in contras t , tal ks of lwrfonl lan cl', handling , an d ell ,!.!;i
fleering e f'fici l' ncy, w ith till" tag lill t' " the nll'imal l' dri ving nl <lchi nl'. " M e rced(,s
st ress es cOlllf()(i ,lIld Il1 xllry. Eac h 01' these autolllakl-: rs has se lect('d a dil'/(:rc lti
atl' r ihllte/b (·:ndit Oil w hi ch to has(' its strat-('gic p osition.
A ttril)Jlt(~/I)(-,I)(Jit positionil'g is powc rhd Iwcau s(' it o lll:n providl's a r(:,\.son to 11I1\
and thlls wsollatl's w itll Cllstonwrs . Finding an atlrilHltv that i s illlportali t to a mai() 1
seglll t' nt that is not already occllpied Iry <I co mpetitor, howeve r, is o lh:ll a challcen,!.!;I ',
0])(' soliitioll is hl identil)! an 1IIlllld cllstOJ))er probll 'J)) , as disc ll sscd i ll C hap ter :l,
Brands 01' paper towc !.s had (~ I ll phas i /.('d airsoril(,lll'Y IInt ii Viva di sc()\,(,]'(,d cll sl'o nl('r.s
wer<' irritated wi th towels that di sintcgrdted w lwlI wet. It in trodllccd d illOn' dllrahll '
l'ow(' l, wi l'h d l"J))ol1Strdtions sllppoltillg tlw c lailll that Viva "kcl'ps Oil wOI-killg.-'
Breadth of Product Line
A Irroad prodllct o [krill ~ sigllals Sllh.sl'alll'(', acccpta nce , leadlTship, ~\Ild o[ten th e COli
v('nienee (lone -stop shoppin g. F'or ('x al))pl(~, the sl'rategic position tkll' elrov(-' AI1l<\l.oll\
ope ration s and marketillg was IWVl'l' "boil I' selling books, even at thl' Irl'gilll iing. ( It wa.\
no accident thdt tll(-: company was IlO( call ed irooks .co lI!. ) Hat-h l-'r, the firln positiolll 'd
itsd f as del ivt' ri Ilg a sllpelior shoppingll )IJ vi ng experi ence hilsl'd on the" Earth \ n igg( 's l
Seiection"-an alTay of ch oices so w ide tlldt cllstomers wO ldd have no waSOll to 1001,
anywh ere else. T his position allows A mazon to enter a variety o r prodnct Illal-kl'l s
although it also p"tS presslll'e on th e co mpany to dclivl'J' ill each Ven l)( '.
Breadth al so wo rks well as a dimen sion [ell' othe r finns , sllch as C lwvroll'i' , \Val
Mmi, allll Black & D ecker. As noted abo ve , Il o\Ve v(~ r, produ ct alld/ o r market I()(, IIS is
th e key to co nlpetiti ve stn-'ngth tilr most brands. EspeC ially in the oll-lille w orld.
hu sin esses mu st res ist e normous pressures to add fil1l ctions and s(',gml'l l ts t hat apll"" '"
to offer marginallTve nll e ilt almost no cost.
\ Vhy';J 0)) the Ollt' h and , prodllct expansion exploi ts assets sl ldl a.s hlilll (1 ('II"ill
and di stribution , cr eates sy ne rgies for the clIStollw r and th l' /'inll, <llId (': 111 <11 ,\(· 1"1'
associ,lti o il S of accep t ance anel leadersl l ip. 011 till' otll('r, a poorl " Ilall<lI (,d ('\ P,III
sio n can d egrade t he brand <ISS l't , ('I"(', iI (' illdli c i('llci l'.s, ,111(1 "il 'I' 11 11I '('(I"ci
l,(,SO llrCI'S. SO Il)('tiJ))( 'S 1·111' wo r.sl "<1111;1).':1' it :ql l)(,IIS 1"11(' 11 II I<' i'ilill glll ',S l"tll \I': 1\
skppillg awav 1'1'0111 a I()(, II .\ "II sll'"I I 'g\" 11111 IIIlI :I('IIi" \ · ill ,! .~ 11 '1l1'111\1,I,il l' 11I 1':lciIL
Chapter 12 Strategic Positioning 227
()r~anizational Intangibles
( :Illllp,mies love to m ake produc t claims. They often engage in shouting matches
or dl (' lnpting to convince cll sto mers that th ei r offering is superi or in some key dim ell­
''' "I: Baye r is faster acting, and Texas Instrum ents has a blste r chi p. Lean Cuisin e has
1,,\\,('1' calories. Volvo has a longer lite. Bran On p has more Rber th an other cereals. A
," I \ ('r h as more capacity. A plane has rnore range ,
There are severa l prohlem s w ith such specm'lnship. First , a positioJl bas ed upon
,I Ji I ll' at trillu k is vuln e rable to an innovation that gi ves your com petitor more speed ,
III< 11'(' fi Ire 1', or greater ra nge. In the w ords of Hegis McKenna, the SilicOll Valley mar­
L,·lill).!; guru , " Y01I can al ways gE't outspeced. "
Spcon d, wl w n firms sta rt a specifica tion shoutin g match, they all eve ntuall y
1' 1" (' n edillility. After a whil e, nolrody h elieves that any asp irin is Illore e lTel'tive or
1,1 , 1<' 1' acting th an anot hl~ r. Th e re have h een so many corrflicting claims that all o f
1111' 111 arc discounted .
Third, p eople do not always make d(~c isions based IIpon a particular specification ,
111\ \li ly They may I<-~el that small di flcrenccs ill so me att ribute are not irnportant, or
oIl1l lll v lack th e motivati on or ahility to process inf<rnnati on at sudl a detail ed l(:'vel.
In co ntrast to attrihtlte positioning, intangihle Factors c an difFc rt'ntiate a husi­
", 'SS Illor(:' e ffecti ve ly and in a mO lT (:, 'Idurin g fi lshion . Organi/.a!"ioJ)al attrihutes ,
,111"11 as he ing gloh ,d (Visa) , inn ovative (:3 M ), ([uality dri vlm (Cadillac), clJ.',tomer
,I, iV( 'II (N ordstrom ) , or cO ll ccme d abollt the environment (Toyota) , ar e ll sll<llly
I, 'I I.!.!;(' I' lasting and nlOre n~ sistant- to compe titive claim s than prodllct-attrihute asso­
, Iii i( l ll S. N ot onl y are th ey hard e r to copy (hecause th ey are h ased on th e peopl e,
i ,ill 111'( ', va llit's , an d prog ram s of tIl e entire organization ), it is difTicnlt for a co m­
1" '1ilm to deillon strate th at it has o ve rcoille a p ercei veu int<ulgibl e gap. it is eas ier
I" sl«IW tklt a comp e titor's printer is faste r, felr example , than to show that its orga­
IIlt" ilioll is more inll ovative.
i\ laboratory stlld y of came ras dc~ lllon strate d th e power o f' all intangihl t~ attrihute,
I '1I.SI(lll l('rS W(-'I'(-' ShOWl l two calil e ra brands, one of w hic h was position ed as bein g
1111) 1" I,'('ilnically sophisti ca ted , an d t lk oth er as easier to llse. Detail ed specifications
" I ",1('1I hr,lll(l, which we re al so prov id ed , d ea rl y showed that th e eas ier-to-u se brand
" ' I,I('( Il ad Sliperior tt:c hnol ogy as well. \Vh en su hjects were sh own hoth brands
I, ''',' '111('1', ti l(' I'asy-to-m e hrand W.IS rated snperio r on tec hn o logy by 94 p ercent 01' the
1I I'I,'('l s. Il owever, two days Ll ter (when th e sp ecifications wer e not fr esh in th eir
'" !l Ici s) Illdy :3() percc nt o r respond ents felt that it had th e b es t techn olol-,'Y Using
1",IIII(Ji()g\ as dll abstract attrihute dominated the actu<\l specifica tions .
Jo.. Ilutiulla1 ;111(1 Self-Expressive Benefits
\ ,«d ll('1 \\ 'a\' 10 IIII )v(, I)('\'()lId attrillllt('/i'llildion al claim s i s to create a p osition hased
"II ""I()li o ll;)1 or SI,II '- I'\ pr( 'ssi\'(' I Wll('fils.
1<III1 I /i(lul// /lr'uc:/i/s 1'( , 1.11 (' 10 III(' "I)ilil \' o r III(' ollc'rillg to Ill akt, the Cl lsto m e r fee l
,"I III'II Iillg 1111I'ill g III(' 11111',.1""" II I II."" "\ llI 'l·i('II( 'I'. Till ' slr(lll gc's ( id (' lltiti l's o/'ten
1111' 11111. , "IIlIdio l"" IWllI'li ", '1'111 1' . " 1111\('1 Ill ' II SI 'I' ( ' :111 1" '1,1:
 228 Pll1t Three Alternative Business Strategies
• safe in a Volvo
• exhilarated in a BMW
• energize d while watching MTV
• important when at Tiffan/"
• healthy when drinking Evian
• wa rm wben hu ying or reading a Hallma rk card
• strong and rugged whe n dri ving a Ford Explore r
Snickcrs is an example or a brand that extende d its association li'o lll just another
candy bar to a reward at the e nd of the day. Similarly, th e "Miller Time" campaign was
IIscd to associate Milk'r's High Life heel' with a we l1-d(~scrv(:'d hreak aftcr a day orhanl
wo rk, T hlls, the position of a produ ct class (with all its associations of calories, sliga r, and
alcohol) is replaC('d with till' e1l1otional heneflt of a reward f()f a job we ll done, which is
linl(ed to positive fe:elings an d people,
E motionallw nefits are all al)(llit the "1 It,d __" statel11e nt: I feel (-:nergi;r.ed, I feel
warm,l k'el elegant. To sec if' an eillotional henefit call play a role in dil'[(~ rentiatill g <1
hrand, ITy th e " I f(:el" qllestion w ith CIJstom e rs, If'the hard-core loya li sts consistently
conle lip w ith a p,lIticlllar emotiollal IWI1t::fit. th e n it s llmild bc consid e r(Jd as P,lIt or th('
strategic position,
Selrl::tpn:ssivc h('lt~fils reflect the ahility of' th e pllrchase alHl lise or an oflering
1'0 provide <1 ve hi c le hy wh ic h a person can expn'ss hiln or IlCrse ll', To ilili stratv, a per­
son might express a S(~If'-concept or h eing:
• adventurons or daring hy owning Rosignol powd (, r sk is
• cool by !Jnying hlsitions ['rom Gap
• sophisticated hy llsing Halph Lamcn
• SIICCCSSflll, ill cOlltrol , and a leade r hy dri villg a I3M\-\!
• fi"'gal and 11nprHentious by shopping at Kmart
• co mpl~tellt hy !lsillg Mi croso h OfRuc
• a nUl'tnring Illoti1 er by pre paring Qllahcr Oats hot cereal in th e morning
Sdl'-expn~ss ivl' benefits are all about the "I am _ _ " statc m e nt: 1 am successrlil,
1 am young, 1 am a great athl e tt', To see if a seIF- expressiv(~ ben efit can playa role ill
dilrert~ ntiatin g a lmllld, try th e "I am" que.sholl with loyal custom e rs and Sl'(, if' allY
cOll sist(J nt sl'lf~e\pressi ve bendits e merge,
The Experience
Till, experience of Ilsin g the brand cOll ld inclilde ("Inotional or s(, lr-('\ \Jl'('ssi \'(' Ii('ll('
fits w ithout any F11nctional adv<lllta,e:(' , Iliit w l1('11 all npcr iclI(,( ' (,Oll d,ill('.' I)(l lh , il i.,
llsllallv hroader and Illor(' l'('w,II'dill,e:, TIll' (:'\ IH'ri(:,,('( ' al N() ldsll'(1I11 illl'lll(l(";1 I,(),I "I'
r;lI'l()rs (sll('11 ;IS III(' 1II<'I'('ILllldis(', III<' allll,iall('(' , ;lIld II II' ."' 1\ i,"' ) II"" ('()IIII)ill(' Ii)
Chapter 12 Strategic Positioning 229
I)TOvide a pleasant, satisfying time. Th e experience of llsing Nike co mbin es Func­
l ional , emotional, and se [f~ exp ressive be ne fits to provide a depth of connection that
compe titor brands lack.
In additioll to th e breadth of its offering, Amazon is also position e d w ith respt:ct
to the exp e rience it d e live rs, Its promise is to c reate a world-class shopping experi ­
( 'flCe th at is hoth efficie nt clnc! enjoyable, Th e fast and easy selection, ollt'-click order­
ing, special-occas ion reminders, safe-sbopping gllarantee, and reliable de li ve ries lie
I)(-:hind the exp e ri e nce Amazon creates, Tlw Amazon experience abo provides e lllO­
lio nal h e nefits by offering th e excitem e nt of' tilt' discovery of a hook, C D, or gil'l' that
i., illst right (as ~~n hanced by its personalized hook recornnw ndation ), The Amazo n
Ili ve r, representing the IJltill1al'e in discove ry an d adventurc , provid(-:s an aspirational
"'daphor, One of the cha llenges 1'01' the Amazon hrand is to make sure this emo tiol1al
;IS [Wct is not slIhnw rgl'd hy the fun ctional ben efits the site pl'Ovides,
Being Contemporal-y
7'v losl' es tablished bl1sinesses 1;ICl~ the prohkm 01' relllaining or Iwcomillg conl(' lnpor,uy.
'\ IJilsiness wi th a long hnitage is giV<' n credit I()r heing re liahl e , s<1I(" a i'rie lld, and eve n
1llllovativc.: ii' that is palt 01' ils tradition, lloweve r, as noted (:arlier, it also ca n Ill' pcr­
(('ived as ''y01l1' 1;lther:\ (or eve n gr<lndfittlwr\ ) hrand," The c ktlkngc is to haV(' ('1H'rh,)',
\ ilality, and rel evance in today's markdplact'-to 1)(' p,ut or the conkmporary sce n(',
'I'll(' answer I1sl1ally e ntails hrcaking Ollt ol' lhe l'11nctiona l-lwmJit trap,
Lant' BrY,lnt, a relailvr to phls-si;r.cd wo nlen, d(' vl,loped a dowdy, apo1ogel'ic
i'l,age that was holding it hack, To hreak out, it d(~ve l opcd a new, conte mporary
slrakgi c position, It spwad the nwssage w ith new, eve n sexy f~lshions ; a Lam' Bryant
i;!sllion show in New York; revitali;r,ed sto n-'s; and a new spoke.'persoll , rapper/actress
(.)II('(~n Latif;lh , in ads , Oil its \Ve h site , and in a voter-registrati on program, Jl'Oni c,dl y,
I ,: 1111' Bryant's sister company, Victori a's Secret, had to repositi o ll itself' prcvio"slv
I roll I ,Ill edh'Y (Fred e rick 's eJi' Hollywood ) hrand to a Illon~ maillstrC<ln l onl', alheit al
lilt' edge of the mainstream market'.
Bn md Personality
,", wit h human heings , ,I business with a personality te nds to Iw Illore Illl' lnorahl e and
1)('ller liked than one that is hland, nothillp: more than the sum of its altlilmtt's, And like
1)( 'Ollie, hrands can have a ,,<lIiety of personalities, sllch w; heing prot(Jssiollal and CO lll­
1)( 'I( ' lIt (eN Nand iVIcKinsey), upscale and sop histicated (Jaguar and Tiffany's), ITlI st­
\I mll,y ;[Ild genlline (Hallmark and John D eere) , exciting and daling (Porschc and
1\" IIl'II()l1 ), or active and tOllgh (Levi's amI Nike), CeJtai,tiy, Virgin is a brand whos t'
',II;II('gi(' position incll1(lcs a strong p(~ rsonaJity.
Ilarl ('v- I):I\'idS(lll has a~t rong personality rellcccting a macho , Amf'rica-Iovin g,
1I, ,(,t!II 'II-.,(,(,ki" g IH 'rso " wh" is willing to 1)I'('a1.: Oll t or confining soci,t1 norm s, The
1'\I,,'ri('II('(' 0 1 ridill ),:. <I I LIII ('\ (III' ('V('II III(' ~I.,,()e i a l' ioll t haI (,OIIH'.' frolll w(-'aring
I [;111,·\· I h\ id ,,," ,·1, Ii I)ill" 1" ,llls ,()I II(' 1(('()l lle' III ('~pl('.'.~ ~ I Il:II'1 o[llwir \H'r.\of,ality,
or
"lli( '1 1 1'('., "11 ., III lIiI' ·II·., · 1,,\,111 ., 1\1')1(' 111:111 >:'() ,IIII1) ()lllll' s" IH '() pl(, 11('1()lIg 10 () III '
230 Part Three Alternative Busin ess Stmtegies Chapter 12 Strategic Positioning 2:31

the gOO chapters of the Harl ey Owners Grollp ( HO G) , Twic e a YC<Ir, beli evers l'\tr,lordinary, a wide range' of interests ), In aclditioll, the position is 'llIgm(~ nted
from ,1 11 over th e country gath e r [or a honding experience, Harley is much 1110re differently for po te ntial huyers of tht' service and the l1Iemlwrs w ho do th e work,
than a motorcycle; it is an exp e rience, an attitmle, a lifestyl e, a vehicle to express To cli ents, Li<juid\'Vit nlt'allS fresh ideas ali(llev~'ragc ( using t'x isting organizational
"who I <1m," Ilmet'sses as opposed to olltsolln:ing), To Ill t' mlwrs, it oIlers the stimulatioll of
Joie d e Vivre is a San Francisco riml whose boutique hotels are each inspired by Iwillg challenged h y dil'Tt'rt'llt prohlell1S alld tlw rewardillg reeling 01' heillg paid
a theme that reflects a p ersonality. The "Holling Stone" Phoenix hotel attracts rocl<­ 1';ls"d OTi YOllr results rather th an \,ollr resum e,
and-roll and otlwr e ntertainm ent p ersonaliti es I\,jth its irreve rent sense o[ cool an d
f'unky, a<iventllr(lI1S decor. Th e " New Yorker" Hex hotel is clever an d sophisticated , Cap turing the Essence of the Sh-ategic Positio n
with a lit'erary se nsihility. Th e" HJ20s hlXIIJ) ' liner" Commodore Hotel , w ith its Titanic
Ca[(~, looks <uld feels like a palty straight out of'The Creat Gatshy. The " movie palacc"
'1'1](' strakgic pOSition, as in the case o/,Virgill Atlalltic /\iJ\\'ays, oitell requires thre('
Hotel BijOll has <I miniature movie th eater in th e lohhy, accompanied hy dramatic I" six dimensiolls to Iw t'xplTsscd , Th e re are tilll es . h()\\'l:-'\(' r, w hel1 a singl(' concl'p­
Hollywood portraits, 111,d l)hrasl~ ca ll wprese llt th" ('ssellet' of' the stTat('gil' positioll alld the organi/,ation,
1,'1>1' n<lmplc, cOllsid t'r til(' f()llowillg esse lice statl'llwlltS:

CompetitOl' Position • Cisco-The nc[work is till' ,soilition

Lettillg th" cOlilpelitor 1)(' the allchor 01' th e strategic positioTi can he efTective, esr('­ • BAHV-Thc IJitill1at( ' driving JlI<1clline
ciall)' wll('11 tlw cOlllpetitor already has <In estahlislll'd position, Visa, f()r example , lias • Lexu,~-Thl' ll<1ssioll ,ltc pnrsllit 01' pcri('dioll (l( lJ'Illcrl), til(' reiclltless plIl'sllit
continllally and slll'ccssf'ldly [(lllght f(lr 1I1,lrket share by ofFerillg hotIt fllilctional and of' pcrf'('ction)
sc lf~"xprcssi vc 1ll'lJents that arc sllpl'J'ior to tllos C ofTert'd hy MasterCard, The stratl"
• Banana Repuhlic-C:aSllaIIIIXIIIY
gic positioll, Ilow('ver, is agaillst Ailicricall Express, a less f(lJ'IlIidahl e cOJllpetitm
whose IIps c all'~ associatiolls Visa wOlild like to share, On(-' way this positiollillg is • American Express-Do Ilion '
illlpl eJ1Jelltcd is hy lIoting prt'stigiolls Visa-sponsored venll('S that do not <lcu'pl • London Business School-Tran sf()]'Jllillg f'IlI'lm'S
;\1Ilt'ricall E xpress,
The classic cO Jllpetitor positioll waS staked Ollt hy Avis w hi ch \Vas hc\\,jng trouble dii/ All l'SSl'IIl'( ' statcllWl1t IIcl,ds to CO llllllllllicat( ' tli(' strategic positioll hoth insidc <111(1
I<:- rentiati ng i ts('if' from tw o other Illajor J'(~ ntalcar agencies ( Ilertz dll( 1N atiolla1 ) and S('I'­ > 1IIIside th(' organizatioll. Tlms, it is not nccl'ss<lrily a taglill(', w hicll is til'siglwd to COIII­
("I-al lesser pldyers sllch as Budget. \ ,\ li th Ill'ltZ capi talizing Oil hei ng the leading ri n II 1I' IIIIieatc to Cllstonwrs, It can 1)(-' IIll(krstatcd (" It- simpl)' works ))('ttl'r") or aspiratioll,,1
A\,js hrillialltly steppetl/()J\vard w ith the slogan , " \Vl"re Nllllllwr 2, we try harder, " I\}' , TIll' passiOllatl' pllrsllit or p erf ('dion"), III eit'her cas(', a SIICCl'SSrul statclllent sl]()IIIt1
jlroclaillling itself the logical alternative to 1-1t'lt:.'., Avis de rtl y positioned Nation,u , JIll I > .. 'I) I I I 1'(' t h (' 1'(' 1), SOl Ii 0 f' the organ izatiol I, i nspi r(' thow i111pi e II 1('1 JI'i I Ig th(' strakg}, I'l'S­

others as also-rallS, Flntlll'r, it pl'O~d('d a point of' llifi('rentiation alollg a dim ensioll »1 ,;ill ' \Vi til CI J.SI'Ollwrs, and di i'I-<"ITlltiate tl w company rrO]]1 its COil Ipditors,
(cH()]t, pillS till' spirit of' an underdog) that resonatcd \Vith custom ers,

I) EVELOPING AND SELECTING A STRATEGIC POSITION

Multiple Strategic Positions
Ari>itr,lril y insisting that a stnltegic position shoulu apply to ,Ill products or Illarkf'i
seglil ents can h e self-defeating, Hatlier, consideration should he given to adaptillg lilt'
position to each contt~xt, A shared strat egic position that is augm ented with additio]];d
dim en sions in each market \~11 ensllre that a consisl'e nt message is received , w itllolil
the ullI1l'cessa ry limitations of' a "on e size rits all " philosophy.
For exam ple, Honda is associated with youth ~lI1d J'<Icing in Japan while Iwili l ',
morl: family oriented in the United States, hilt hoth positillllS s!J;tJ'(, a !'l)('II,S ')]1
qllality and motor expertise, Liqllid \Vit is ,Ill Iiltcnl('t l'il' lli tll,J! 11J()\'ities 111;11"/'1
ing and commllnicatioll comp<lllies w ith 11<lIII('S. l 'lglilll ·s. ~Ill ('llP\', ;111(1 ,~I]I'lrill:1
marke ting within a sitort tilll(' fl',lllll' , I)y tajlpill g "rl'('I;III( 'I' 1;!1, 'III , Is "lr"I'ill,l" i"
positioned as C(llItl'III])(lr;II'\' ( ]'( '; ti lil'(c' , ill III<' kllll\v , dlill "I)llIilllll,"~h 1"I"I:llil I,
<;llhsl'<llili;11 {; I ~ ()Iitl "ll~;llli/.;llioll 1/1 ;11 will Iw ;1 1'1) 111111 ) , ;1 1111 """"llll il' ( illll 'lllill '
II, ,II siloilid a husin('ss sl'll'ct tilt' positioll(s) tltat will dri ve its strateg)" hotli intemally
11](1 l'\[l'rllall), ,1I1d cl'l'atl' cOlilpellilig and slistaiIJahl( ' cO Jllpetiti ve advalltages? As
" 1 ) ',l"I'~il'tI ill Figl liT 12,1 , tlt e process parallcls tilt' dillH'IISiol1s that shOidd gnick'
,I I ,JI"i.!;ie dlTisiollS (set f()r['h in Chapl'l'!' 7), Tlw stJ'(lt(Jgie po,sitioll shoilid resonatl'
'I ,Ii, l'll.sI()III(']'S, ddf( ' J'l-'ntia!'e tht' rinn Frolll its competitors , alld refllJd and 1)(' Sllp­
1",, 11 '1 111\ tl](' ()I'crall hllSint'ss strate)!;),- It tlwrel 'orc fdlmvs that a posiholl nced s to
Ill' " ' I]IIIIIII(,d 1)\, <lllalys('s of til(' organii',ation's Ciistollwrs an d cOlnpditors, as wcll as
II' I)I\'II SI ]'('1 IgIIIS , ill i I'i<lt-i\('s . <Ill( I stTatl'gil's,
• Iksol/a/r' wilh III(' 1111'.[:('/ 1// (/1'/,('/. lJllilll<lll'll IIIl' IlIarh :t dictat('s SIlCC(,SS ,
;lIltlll'II' II", slr;JlI ':,',Jc ' 1,,,sil"'11 'W"II<; III lTl';ill';1 II()ilil ,ltliIT(,I'l'l1('l' j'It,)t
]'C 'SIIIt.ill'S II ill, "'1 '.1"'''' '1\ \,,""'i,ili,)]I.' 1/>:11 l'\'(';ill' "IIIIlli l >ll ;ti ()r ,\(, II '- l'\ III'l'\sil ('
l"'I" ,li" 1';11' ,1,1,1 l ,tI'I' l,r'\ III "III\{, 11'11:11 1II,J<'lil';d ]"';ISlllI,S I" 11111 ,I 1II'IHIIIl'I,
232 Pari Thre e Alternatit;c Busin ess Strategies
Cer tainlv the act of open i ng a Tifhtny's packa~e is lllore inl ense t h an open­
ing a Macy's package , and tIlt' w('arer o f a Tiffan y's bracelet will uSllally
f(O(JI Illore special t h an if the sa me In<lce le t h ad been purc: hased at a
departillent stor<~.
• Differ entiate from competitors. Diffe'rentiatiol1 is o fh' n trw key to w in­
ning. As not('d earl ier, the Brand Asset Vaillator dabl frOI1\ Youn g &
Hnhicalll sho\Vcd difl<-'H-'ntiatiol1 to he th e sin gle most illlpOltant predictor o f
hrand stn' llgth. Th e sa l11e 1"('s('arc:11 pro vid(,d evidence to sllppOJi the notio l1
th ,lt IIp-,ITl d comill g hrands lead with difkrentiation, and htding hrands losl'
cli fr(' rcntiatioll RI·St".
• Reflect the cu.lture, strategy , anel capabilities of the busines,'i, Don 't try
to 1)(' .so mething YOll are 11 0t. Crcating a positi o n that is diffcl"(-'llt than w hat
th e In<ln d de li l 'crs is IIOt (lill y w astefid , hilt strakgic:a lly da maging- i t will
IInd('l'llli l1<' til(' has ic ('({Ility of' til(-' hrand- hy nlaking c llsto nl<'rs skeptic:,t\
ahOl lt f'l ltlllT Ciail IIS.
J)J'Oof l'oinls and Stnltegic Imperatives
1\ Ilil sil]('.s.s II('C'cI .s to dcli \, ('I' Oil it.s pron li s('. This goal in volves pl'()of points and ofh'n
st rategic illl[lc'rativ c's as \Veil.
Pr(}of I)oillis an' pmgranls , illitiati v('s , and assd's already in plac(' that p rov ide
stll).stanc<' to I'll(' .s trategi c poSitiOII , IlI'lpin g to CO llllllllniGltc what it IIl Call.S. For L.L.
Ika 11 '.s [los i lion aro 111]( I 0 II t·t1oo r (' lit 1111 si a.s ts , p mo l' poi 11 ts i 11C: III dc ti lt' I) ralld 's h cri tag('
01' IlIl[c1ool' ad il 'iti c's , ,\ Il ags h ip store gc<u'ecl [0 t i ll' olltd oors , "IH I [II<' ('x pertis(' all cl
[>)'() I'('.ssi 0 II al i Sill 0 I' till' (' liS to III ('I' COil tact stall. N OJ'( Istro III has a l' llstO nl(' r SIJ r vic:(-' pos,i­
lioll Slll)pI)rtc'cl hy [h(' 1<>I lolV illg proor poillt.s:
• i\n ('\isti llg l'('plltatioll fi)r l'xcep ti o lial c ll .stolllc r se r vice'
• I ts policy of' d('di Glti lig s('I'v icc per"oIIlH.'lto individilalclistolllers ratlwr thall
a prod ne[ area
• A IITII-kIlO \v 1l al1d ('I'cdihll' r<-'1l11'n jlolicy
• A cOllllw llsatioll progralll that makes po.sitive Cl l.stollH'r ('xp(' ricll C:cs a prio,ity
• The cjl,ality or tIl<' staff and the Nordstmm hirillg progralll
• A ll (' II IPI)WC-'J'I1 lent polic:) that permits innovative I'CSPOI1 S('S to CIlS(Oli lcr C:OIlC:(>I'I1.S
;\ g;\P hctwt!enwhat the brand now delivers , eV(,1l giVI' 11 til(' pmol' po ints, alld til('
pmmi.sc ililplil'd by the strategic POSitiOll sholtid Icad to stl', lt('gic ill l[w rativ('s ;\
slroi<'gic iIl11 }(T(f/i-CC: is all illvest ment in all ass('[ m l)mgr;ull tll al is c's.scMi,, 1 iI ' till'
pm llli se to Cll St'Olll('l'S is to 1)(' (/1,livercd . \ \' lla [ org'llIi/.,lIiollal assl'i.S ;11)( 1 COlllpl'i( 'II ­
c:ies are im plied hy the strat( 'gic positioll ~ \\'1);11 illl' C'S t IIl<'liI~ a rl ' 1ll'l ,ti l· eI ill orcil ' r to
(-:stahlish ,my of thosc' assl 't·s ;11)(1 ('O lllpC'i I' ll('i l's 11 ,,1i eI() Ilid ,til(,;lIk ('\ i.sl ·"
11 ';1 regioll;d I)allk ;lsl)ir,'s I() .!"lill·I·;r l'I'/; III IHIS hil ) lIilll 1·II.sll)lIll·rs 1,,1' ill.sl:lIl I·I'.
111'1) .st l'atl'gic illlll<'I',lIill' S IlIi ,,:11I Ill' 1I1 'I,I I,·t!. I"il·.sl "1 'II SIIIlIII'1 ,1,,1,,1':1'." 1111 ".111 III 'I' .! II)
Chapter 12 Strategic Positioning 2:):)
IH' neared so that each C:lI stOJller c:o ntact p er son has C\c:cess to all of a givell ClI Slolll1 'r'.s
,1('(,Ol1nts. Sec:ond, a program to improve tlte intce rpersonal skill s of these e lllplo},c'I's
1111 l'llldi llg both train ing and m easurem en t ) Illight be needed.
KEY LEARNINGS
• A strategi c: pos ition specifies h ow t·ll e husiness is to he p erceived re lati l'('
to its competitors ,uld m arket h y custo m er s, employees, and part ll ers. It
shollld difh-:relltiale th e C0I11P,1I 1Y From its cOln[lehto rs, and resonate witll
custom e rs, It should also dri ll(' strategic: illiti atives and th c clliture alld
valucs of the orgal1i/.at-ioll , as \Veil as CO ll1ll1uni ca ti o n programs.
• Vi rg in Atlanti c Ail,vays is po.sitiOlwd w it h respect to (>x traordinary
se rviCe; I{ll ality, va lli e f()r mon ey, heing the IIIHlen log , and a desire to
Hallnt tbe rill es.
• 113M 's strategic: positioll evo lvc d over the years as its market dunged. A
part icnl arly defining nl OIIH:'nt w as in th e Illid - HJYOs, when Gt'rstnn
arrived with th e e-h ll silWSS position.
• Sc: h wah has expanded its strategic posil'ioll OWl' till l<-' rrom heing a di s­
COl lnt hroke:r to Iwco n'le as as set accl llnidator, an <, -I'racler, and rinally it
money 1l1,u1agl'r.
• A mon g t he st rategic pos iti on .s described in th e p r eceding IINO eh aptns
arc be illg the qllality p layer, tilt' fi)eus hll sin(>ss , the vall 11-' optio n , the
inn ovator, and th e glohal playe r.
• Ot lll' r optiolls incimle positionillg \Vith res pt'ct to prodtlct category, prod­
li d ,\ttrihu ks, hreadth of' offerin g , orgalli/.atiollal intangihle.s,
e m ot ional/sl·'1 f-exprcssi ve b c nefits , experience, h e i Ilg CO llte11l porary,
brand p e rsonality, and b ei ng distinct hunl c:ompctitors.
• In coping w ith dynam ic c nvirollnwnts, tre nd drive rs lTeat(" new cate­
gori es, tre nd respond e r s adapt to emerging snh catt'go ri e.s, and trcnd
n egl ectors ig nore th(-'l11.
• A strategic: positioJl needs to r e Hect t he cn lturl-' and st rategy of tbe hu si­
ness , to di fle rentiate it ['rom i ts c:ompe titors, and to r('s(mate with the tar­
gd market. Proof points ,\Ild strategic: initiatives are needed to m ,t\w .S lll'( '
that th e hrand deliVt'rs 0 11 the asp iratiollal prom ise.
FO H J)ISCUSSIO~
I. 11 1)11' is \ ·il".i ll '\11:111111' !\il·lill< 's 11ilSiti'1I1('eI'~ 1\1'(' till' tiillH'II Si'l IIS, P;llli l'lI
1.11'" 11)(' 111, ,1, '1" .,11 1\ ,, "<1 Ili!',ll s" I'I.'i( ·(', il l('ollsi.s II'1I1 lI' ilh its III 'l'.SiIIl: dil \'""
II' "". 1,11 ". 1. 11 (. <1 I, ((1,11 ,·, 1" 11 11" II,IS III!' IHl.s il illi lilll'.I)(,I ·1I l ,rllll .t,.lrI III
234 Part Three Alternative Business Strategies
life'? "V kit are the proof points'? \Vhy don't Illore brands emulate
Virgin's brand-building programs'?
2. Tr,lce the positio n s of IBM thro ug h the years. How has the firm
evolved'? How would YO Il advise IBM to implement the lIew on-de mand
position'? \Vhat are the key~ to s uccess? Why was the logic behind PCjr?
\ !Vhy did it LliP \ ,V lwt was th e IOllg-te rm impact on IBI\/l's image'?
3. Charles Schwab has reposition e d itse lf rivt' times, Identif)! e a c h reposi­
tiolling. III each case, \Vas th e exiting illlage a liahility \Vith resp ect to the
Il ew pos ition ,)
4. Pick C)tlt thrC·l' hrands fi'om a parti clllar industry How are th ey posi­
tiolwcl '? \N hich is the hest in y Ol1l" view'? Does that hrand's positioning
providc·' an)' (,Jllotional or sdf-express ive he ne fits'? HOI-\! wOllld YO li ev,l l­
lIate ('ac h hralld 's pos itioning s tra tegy ? /-I )1)o tllesize proof points and
,s trateg ic iJllperati ves (ill' eac h brand .
5. flo w wO ldd YOI I adapt to tIlt' hea lthy ea tillg tJ"('nd if you we re McDonald:,
or f)llrgt:r Killg'~ \-Vhat are tlw optiolls'? Di .sclls.S the pmhipills in imple ­
1lH-'llting each option. \-low 11'01 tid )lO ll clea l Ivith those prohle'ns '~
6. Considc'T til(' JOil' de Yivre hote l co nce pt, Think of tlll'nw.s stililulated
h y magazillc,:s or Illovies , alld dis c l!.s.s how )lOll wOllld clc.sign a hote l
arollile/each concc"pt. For ('ach l'he rn e , c hoose fiv(' words that reHcct
that th e ille.
NOTES
1. TII(, l"O IIlpld(' Inand itl(')ltitv ;tiso ill('I'ld('s till' (·'xftonded itll'IItity (as piratiollal associ·
<lliolls tllat are less illljlortalit to cII stll ln (' rs tflan til e ('ore icklliity) and th e hnilid
('ss('n('(' (a sillgl(' thol,ght thal (,<ll)llll't'S nlll('11 oj" tlw !>rand identity). [II addition , till'
hr;llld id(,lltitv l!lodel sllggests th,ti thc ' hrand idelltity sholdd en·ate a I',duc proposi­
tioll in vo lving l'llndioIIClI, ('Iuotional , and/or s('lI~expressive 1)(-,ll('fits ,uld SlippOI·t a
I>ral)(1 CliStOlliC r )"clatiollship. For "l o re illlc)J"Jllatioll, S('(' David A. Aakn, H/lildill!!,
Slr(l ll!!, Hrullds, New York: TIl(' Fr('t' Pn'ss , lY86, ;Illd David A. Aah' r ,l nd Ericl)
,loaeitiliistitaf l' r, Hraud Lnu/('/"s/ti» , New York: Thl' Fwe Prcss , 1999.
2. I'anka D(· llo),c,ll c and Jc', u,-C1 a"d(, LlIT("c1H' , Virgin Athllltic Ailway.s, CIS(' p'lhlic;l.
ti()n l NSEA D , .59.5·0'2:3·1.
:3. LOllis V. Cerstncr, Jr. , IV/w SIIYs Elip /lIIl1l s CI/lI·t DIII/(:u :~ New York: lLlrpn
l3)lSiIIC'ss,2()()2.
4. John Co rham, "Charles Schwa!> : V(,I'sion 4, 0," For/Je,l. January H, lO()] , Pl)' HH- lJ().
CASE CHALLENGES FOR PART III
"Il rategic Repositioning: the Quality Option
IIOBART CORPORATION
\\ hill' Hohart Corpo ration , a Inanlll~lcturt'r of C~(ll1iplllelit I()]' th e [()()d se rvice
I I'estauran ts ,Ule! institutions) amI re tail (g roce l), alld conveniellce storcs ) sectors I()r
illmc than a century, had deve/oped a solid re pl ltatioll for hi g h C{lIality and (··xtre nwly
1'('liahl e products, il' wasn"t Ileces.saril y s('cn as an industry leader. It had nedentials ,
Ilowt've r. In additioll to heillg the largest Grm in te rills of sales, it also had hload cov­
(' rage 0[" the industry and its prodllct catego li cs and a J"l'spl'cted st'lvi('(" netwo rk , wit h
,( )III(' 200 locations amI over 1,1()() selviet: va iLS. The hcttl'r competitors exce lle d in a
1J<llticlilar produd category (rel"rigeration , 1'01 in .s l·allcc) or were well bIOII'll in one of'
II I(' inclil st ry sectors bllt lacked llohart's breadth 0[' on(:rillgs.
lIoilalt was CO II CC rll l'cl with less cxp (' ns il'(, cO lllpding product.s that we)"(·' Illadc
f)1'C' rscas. Most clistoincrs wcrc cOlltiluling to !lily flobart prodllcts , hilt till-' titn"a l
Wd.S gro",illg. Further, il was hard to ucatl" ad vc"lti s ilig ,lIld trade sholl' materia l that
Il oltlcl hre'ak (lIlt 01" tIlt' chitter. Br('akthrollgh prod'lcts tllat wO ltld attract attc-Iltioll
\I nc·' not eas il y gcnerated.
In rl·~.spo ll se to these COllcern.S , J lolldrt sO llg ht to ('stahli.sh a dilh· re llt c li sto in c r­
I'<ll'illg hrand that wOltld he the "'thollght leade r·' ill the illchlstry, not just the pmdlld
1(';lder. It w<Jllted to he known I'or th e hest quality, ··pllls 1110J"('." Thl" dri vill g id ca was
I" olfer .solutions to everyday issucs its c ll sto nwrs I"accd in thcir 11lIsill l'SSl's- tllings
Ilk l' rinding, training, and retaining good workt~rs; kec"ping I()od .sak; providillg l' nl"ic­
ill,!.!; <lilling exp e ri e nces ; e/iminatillg cos!.s ; re ducillg shrinkagc; and t'llllallcing saJll(-:­
siore sa les g row th. The firtll sys tl"llaticall y marshaled a kn()wlc~dge base ill order to
:rc ldress th ese problems.
This dri v ing idea or sol ving eve ryday conce rn s I(ed to a powerrul hraml-hllilding
1)J"()g ram aro llnd the tagline , ·'Sollnd E<,{uiplilellt , SOllnd Advicc·~.'· A ke y clement was
;1 l'llstollH,'r m,lg,I/ille called ··Sage: SeasoJlcd Ad vice ror th e Food 1mbrstr)'
1'J()i·c'.ssiollal " (also availahle via the Internet at Sage Online). Sagt' ·s in-dept h , ohjcc­
Iil I' ITC ';lt ll)('~ nt of Cllstollwr prohl e ms and iss ul'S made it reel mow like a II ewss land
1"11)li(,:l lioll ['klll a corporate promotional tool. At ind\lstr)' trade shows, the Hohart
('''"11''"1,' ' hooth hac! an "Idea C e lltc l'·· where people cOlrld approach indll st l)l experts
li ll ." "IIIe! :ldvict' ahout the pmbl en ls thcy rac(·d in their businesses. In te rnally, the
1"; ld( ·r, lliplllc 'ssage IVas reinf()rced at dep,lltnwnt and cOlupally-wick m eHings and
IIi I" " ,!.!;Ii i IIt('rrlal Iwwsldters.
Ilol l: lrl ;t/SO oni'ln] IIs(' flJl co nte nt ahollt key iss u('s on its w(:' hsitc , hoh;lltcorp.com.
\ i., iI"r.' ('(url(llilllll);q)('rs , cjllcstioll-and-allswcr .sessiollS \\·i tlr indllstry ('XP("I'tS, I>rieFing
111I('IIlllI"llIs , :11111 1)1111'1 ' III:dni;t/ IIpd ;ti ('( 1 011 ; 1 \\,1'I'k" has is. TIll' l)r;lIld li l'('d 0[1 the \V('I>
,11111 ill ,,1111'1' 1>1:1('1 '\ ,I', \\( ,11 1II:lliks I" II\(' ,s ll·al( ·g i(' 1)1;(("('111( '111 or 11,,1);11'1 ('0 11[( ' 111 Oil
2:t:i
236 Flirt Three Alterllative Business Strategies
m<U1Y other sites frequent(,d hy p cople in thc indllstlY Select elements of this \;Y(:~ b con
tent wert':' con vl'ltcd to printed pieces and dissem inated broadly.
llohart shared Inore sOllnd advicc throllgb speeches at key industlY shows,
(~Vl:-' nts like the HOIII(-~ [\/l eal J-\epL1Cl'l1wllt Summit, and articles for trade magazines
(fill' e).;ampl(', " Cold \Var: Smart Hefrigemtion Arms Res taurateurs Against Food
])onw Ilin esscs " in Hotel lli({g({;:i ll c). The goal of public relations hecame id ea place­
n1(:'III·, rathn than product placl' lllcnt. Hohart also changed its approach to ncw
prodll(t l'('leases to emphasi /.t, how each prodllct he lps the Ciistonwr d eal with h}
hll siness issll('s For instance , rather than l' lllphasi/.e specific (-'e atllres lilw til<'
r('('('ssed IHlZ'l:lcs on the Ilohart TlIrl)()\Vash, the firm cornmllnicated how eas), il
made the task or S(T lllllling pots and pailS , therehy creating h<lppier rcstamant and
fiHld service ell I Jllovees
Prillt advertising, ()fH.T the prin w hrand-hllilding tool , playe d a lesse r hilt still
ililportalit role, filClISillg Oil key CllstOll1er iss ues. For installce , Ollt' ad showed a sigll
at a iJathroolll sillk I'<'adillg, " Ell1plovees 1\'lll st \Vasll [lands Ikl(lrc Hdllming 10
\Vork. " The t( 'x t 111)(lel'lwatli til(' pictll n ' asked , "Need a more co mprehensi v(,
apIll'odcli lo f(l()(l sa l( , t)'·~· ' alld tl)(,11 d cscrilwd tlie soilltiolls r eCl lmll1ellded hy I Toharl .
FOR DISCUSSION
L Wh y do clwrs Ilu)' Iloharr IiII' tli e ir bkl1('lls'~
2, \Vllat was tlie stralegic positioll be ror< ' til(' "Solid Eq llipllH '11l, SOllnd
Ad vice" progralll'~ Ilmv did it chang("~
:3, \VI1 ~ lt slrategic OptiOI1S did 1Jollar! PIII'SIH' ?
4, 'I'll(' I)( '\\' prog ralll soaked lip r<'SOllfces , th e n 'l l)! recillcing the en(lli to
COllllllllllicate Ill'W prod'lcl ililloValillll S. \Vas thaI a wi st' dt'cision'~ \"'hich
approach is like ly to (Teate lwtte r SllppOlt toward a <jll<llity position·?
5, I 1ow COl dd cOlnpdilors positioll themsel ves agai list llobali's strategic posi ­
tiOll '~ Wllat crileria \Vould ill' Iisefid ill developing this strat(~gic position?
SOlin!': ;\ (\;Ij,tcd with till' l)(,rl1li ssi()11 or the' FI·C'I' PITSS , a di vision of· SilllOIi & Scllllstl'I'
Adilit I'IJilli,lli'l).'; CroliP /·1'0111 13}'(/1/c/ Lnll/('rsiliji , hI' Da\·id A. ;\<11«,1' and l~ri('11
Jo;tchililsthalcT Copy ri ght ID 20()O h\· t) a\ id 1\. / \;[kl'l' ;\IId '~ ri c ll Joachilll sthalcL 1\11
I·ights rcscr\cd.
Chapter 12 Strategic Posit iOlling 2.'37
De veloping and countering SCA~, and the perils of ,~uccess
XE ROX: THE EARLY DAYS
\\'h en Cb es te r Carlson illvented xe rography in the lDJ Os , he att(' ll1ptl:'d to market his
idea to a host of Mnlls , indll(ling Kodak and C ene ral Electric. All viewed the rather
nlldt' invention as 111111ecessary in th e bce or: carholl pape r and the coated-paper
( opiers or the day. Filially, in the I ~),S()s , a small finn took the g<lIllllle. The r<~s llit was
IIIC Xerox Y14 , introdllced in HJSY, w hic h tnd), revoilitiolli /.ed tlie COpVill).!: illdll st rv.
I II(' Mrst plain-paper copier, it was eaw 10 lise alld operated at s('ven copies p(-,r
Il lilllltl:'. TIi(:' Y14 was respol1sihl e f·o r the II 11 III i>c r of copies Illade in,·he Unit<,d StatTs
i 'I<T('asing rrom 20 million to ~) . .s hillion in onl y I·ell y ears.
The Xerox hll sin ess strategy tliro"gh the I D70s in volwd s('veral pillars First, the
IIlac-hilles were leascd aI' ~D,'5 per nlonth , illclmlillg 2,OO() rrec copies [lcr Illol1lil to
lil'lllS who mistakenly [(,It that their IIS(' wO ldd 11('1'(' 1' exceed that len' I. Sl'C(lIld , all
,·, Iell sivc direc l· sales alld servic(-' o[leratioll was d( 've loped to Illarkcl th e 914 ,111(1
IIl me exp e nsivl' mociels , all or which we re relati ve ly cO lllpl(·,).; alld Iwcded illf(JrIlH'd
\:til 's [l('ople alld respollsi v(-' se r vice. Third , tlie H& I) filcllsed Oil tl)(' higll l'lld of' the
111:llld-, w hcre tile h es t margillS wcw. TIH' low clI(l was virtllally c('(kd to til('
l :ql,lIl('S('; first w ith coate d-paper Illachilles alld later witll il1('\jl( ' lIsi \'e plaill-pajl vr
1"·lldllcts. FOllrth , il1terllatiollal grow tli was hased Oil a joiilt V(' lltlm ' w ith FIIji.
'1'11(' fifi·II pillar, a major strategic thrust f·or Xerox ill til(' 1970s, was Ill(' " Ofri ce 01
lilt' Flltllre." This COllu 'pt rc(:oglli !.ed that tll(' copi ('r w as oilly ()Il(' ill.\trIlIlI('111 of·
I ,l lin' pr()(llldivity alld hll si l1ess COll1lllllllicatiol1 , <lIld Xerox w allted to hl' a I('ader in
11((' hroadvl' playing Meld . Clearly, til(' key to th e stl'ategy was a C()lll[llltcr c<lp;lilility.
Til fill that gapillg hol(" Xe rox ill ID()D plll'c iJasn l Sci('lltific Dala SYStclll.\, a finll that
1,l re;ded Ihe sc ielltiFi c C0Il1111llllity, alld challged its Ilaille 10 X(· ro.\ Data Svsleilis jl
1\ 1)S). ])cspil·(' pOllring ill\(!StllWllt illto XDS, tlie finn 's pnld'lds li)1' Ille hllSilWSS
, I.da-procc:ssill g market nel'(:r had all)' sllccess ill tllC ofTice , X ('I'().; 's telTilol y. Filltll('r,
III(' X(, rox organi/.atioll had too mallY lay('l's of· hllH ';lll c racy ill too II!;tll l' loca tiolls to
, I (('Ilil rage the integration oC compllt(~r alld copi(:' 1' prodlldS. III 1D7.'5 , afh or si x ve ars
" r I()ss(' s, Xt'rox closed XDS , jll(Iging tllat th e co mputer Illaillf'rall1t' II1<lrkt' t w as Ilot
/' :1 11 ()C its core bllSili t'ss aCter all.
( :o m pctitors: Savin, Canon, IBM, and Kodak
';,,\ ill 11':1.' a si llall company oiJsessed w ith p;llticipating ill the copier Ill<lrkd alld frlls­
I 1:11 1,11 hv til(' palent choi<t'i1old of Xerox. Finall y, with the hdp of all All st raiian in vell­
1,,1' <111<1 ,I cOllSortilll1l or firlns frOl1l til{' Uilited States, CCrlll<1Il Y, ami Japall , Savill
d, ,\ ,· I()(l< ,d a li(jlli(I-'·ol1er approach th aI· avoided Xerm pM(·' lltS. Its lneakthrough
!II
IWC ·: 111I" III<' Savill 7;)() , Illallllr<ldlln'd hv Hicoh ill Japan amI inlTodllced ill 197.5 at '1\
., I !)I)D , I( ,\s Ill<lIl 11((' (,I((,11l ;ulllId IC ':1.'(' pric(' of<l XC' HlX Illachille . Til stead ola din~c t
·.. 111·' /·111·('1· , S,,\ill , (lId 1111·11I1 .!~ h .[( ,,,I,·rs wll<l wIlldd COIlt<ld Xero).; ('11Slollwr.\ w ith ;lll
.IIll:wli\r ;dl<-rll :lli\l· \llwll Ilwll '·" lill·:wls ("pi' ·I, d , 1)/ ,,,11'1· sC'I·\i('I ' w as f('asilll('
I>lT:lIl."· 1111· 111.wllilw \1: 1·, 1,·1 :111\ ,·1\ ',)II ;dl :lIld (1·li:d,I(· ; ,1((' S;l\ ill 7')1) <I\T lag/,d Ii,()()()

238 Part Three Alternative Business Strategies
copies b etween fai lures . It m ade twenty cop ies per min ute, th e first in l ess than five
seconds, a p ace hl r super ior to X erox e ffo r ts at the l ow end . By lY77, Savin p laced
more copiers i n th e Un ited States thall Xerox. M ean while, R icoh captu red th e top
ma rket share in Jap an, as meas ured in units.
Cano n also avoided the Xerox patents by deve lop ing an alternative technolo!,'Y
that lVas l ice nsed to other Jap anese firms. Hath er th an using j oint ven t u res, Cano ll
(k' l i l w ra tt~ ly dccided t o market its cop i (~rs throug hout t he world Hilder its own n ame,
('V(,ll tiJ o ll gh t hat wOllld m ean relatively slow market pl'netra tion in a fa st-moving
indll stry. III th e lo ng rlln , keepin g co nt ro l o f the hrand and op erati o ns h ecame a
str<' ngth. Can()!1 strll ggled i n t Ilt' United State., Ilntil197H, wh en its N P -HO comhin ed
w ith an aggress ive ad ve r tisillg campai gn, sll cceeded in the mid-vo hlll1 c market. B)
1979, C U1 0 Il b ecam(' a leader aln ollg the Japanese copi e r firm s. In 1i::JS2 , it intro­
duced its Per,o lJal Copi er, w hi ch so ld [c)r 11mb· $ J ,O()() and had a $fi,5 di spo.<;ahl t, car­
tridge. T h e slow("I' copy in g speed was IInimportant to th e target Cllstun H'rs, w ho
wa lltcd a sill all , in cx pc n sive, wony- l'rC'c rn; l(.: hi ne fc)r th e l)(lIne o r o Hic('. III l YH5, with
Savill [~Iding , Canon I)('ca ll)(, the w orld k ';lder ill low -c ild lll aC llill cS and th e seco nd
o v(,rall COIllP;1I1Y Iw h i nd X( ·' w x.
113M attc mpted throll g h th (' 1970s to pa rti c ipate ill tll(, c()pi n m ;tr kct with a
seri c.' 01' p rodllcts. 1t was gC lw rally Illl.'IICCl'Ss !'"I , de.' pitc its 1~lIllOII S 1) ;1111(' alld a
large sales [CIrce, in part I)('ca ll s(: it w a.' t echn o log ica ll y h('hind alld its prodlll'l s
W (-'I'(' Ililre li ahlc .
Kodak cn te red tI l(-' Illarkd ill 197,5 w ith i ts Ektap r illt I()O, a plain-pape r copi er
th at S( HIll Iwcaillc th e ill< lll stry standard ICli' re li ability in tI l(' Illid-\,olllm (;' Illarlw l. Th('
fi r lTl t h(' n develop ed a s(' ri (,s o f' hi gh-e lld machi nl's that w ere hy ma lly I)) l'aS llres tl w
h l's t ill t il<' i ndll stry. Ko(b k 1Tl00'(>d slowly, h ()\v('ve 1', ma ki ng Sll re th e p r o dllcls w(-' 1'('
reliah le, care l'llll ), hllil(lillg a stron g se rvice and Illarkct illg organi zatio ll , ;11 )( 1 avoiding
hililclin).': capaci ty too <{I l ic kl y. Kod ak was still able to lTl ove i nto fC)lIrth phcc ill copi(, r
s,tl cs hy 1 ~) g5 l )t'ca l1 s(' o f its techn ology, reputation , and )'( !SOII ITt'S-;llld llt'c<l lls('
Xc ro\ w as not sllccess ['ld in devel opillg co mparahle prodllcts . A Xe ro x cx<'cllti v('
opined that i f' IBM , with its size and sl lpe ri or n1 arlcctin g skill s, h ad the K odak
ni ac hill l' i t wOllld have" aggress ively captured mar ket share at th l' middJ e aml higll
('nds, an cl Xe rox w Oldd have I we n scvcrely dam aged .
Problems at Xe rox
Alter Tll any years o r d ra m atic Sl1ccess , Xerox I'aced si gnificant threats in 18g0 . 'I'l l<'
fi nn m anaged to ho ld o nto its dom i nance in Il w diulll - and h igh-sp eed mac hines, sli[1
con trollin g 60 pe rce nt oFth c m ar ket fC )]- lllachil l(:'s over $40,000 in 18,'H. Pl~ rtCJrll l aIlC('
at tI le l ower end w as mu ch w orse , howcver, and as a result X erox's sh are or LJ,'),
copier revelllles declilled dram at ically, from 8fi p ercen t in 1970 to 46 p t'r c<:'llt ill Il)!";O,
Betwecn 1976 and 19.')2, Xerox\, hare of w orld wi de cop ie r revenu es droppe d ['ro lll
H2 pe rcent to 4 1 p erce nt. W hy? IIow did thi s h appell'~
On (' prol>l( ' lll W; IS tI l(' <lc,'cl()pll)( 'nt o r all Ilnll'ield " I))II'('a ll ('l'; l('\ III I Diiii , ;11 1
(',( '(' llti "I ' ['f'()11 1 Fo rd w;)s IlI'IJlI ,c>;irl il l t() ('()llIml ;111 III l< li s('iplil l<' d ()1',1':: ll li'/.:ill () 11 1[1;11 \\ :1'.
"\ l l: III (lill ,c>;; 1I : 11111I1I1 J:I IJ:I ,l~ I ': d ) I I' 1':11 ('. '1'1 11' 1'(' \ 1111 IV: IS; 1(li l 'i.\ il)ll:d ',11' ''' ')11 '' 11 1:d I( II, k"11
Chapter 12 Strategic Positioning 239
100 much like all au to Arm , with a pai n fully co mpl ex an d slow process of ge tling a
p roduct [i'o m design to lTl anuhlcturing to marke ti ng. T h roughou t thi s marathon, th e
produ ct wo uld be subj ected to a sys tem (adopted fro m NASA) of st aged p r ogram
Illan age lilent, whi ch entailed constant revi.ew and critic ism .
In p mt becau se of this organi zational paralysis, X erox was no t able to r espo nd to
I [I(' Kodak threat ;It tb e high end o f th e market , Xerox had lo ng prided itself on i ts
'; 11[)(:' r ior techn olo.l,'Y, hnt it actually lagged he hind in prodll ct devc lop ment. In l'h e
W70s, i t onl y introdll c(~d three co mpletely new macl lill t's, only on e o f w hi ch was a
sll cct"ss- and that one cost mo re th aI' ~ :3()O m illion to dcV('lop. F o r X(,j'(),\ to have
.c>;rown as il' did during thi s decad e w as more a tribu te to its sal es li )rcl' thall t o th c
I[ilality 01' its p rodllcts .
Oll(' of Xerox's major prohl(~ m s in tl lt' l. Yi (l,<; w as its focll s Oil Illaking th e largest ,
1:lsl'('s t, alld Fan cies l' In;lchin t's. It paiJ bu' less att c ntion to rc li ab ili ty, and tllCre fi Hl' it
\\'as Ilot prepal'C'd 1'0 COll lpcte wil'h Illachin cs m a( h-~ hy K odak . Ibt lll' r l'h all bc in g Ie" lll
: lIldt r im , il' l ll'cani c bl oate d and bikd t(} ~Cd te low-cos t o lltsollrcing oppo rhlniti('s.
\ \llcn In achin es like l'he S;lvin 7.'50 we n~ intTodllced , Xc rox cOldd not COI ll[w te ill
I'ilhn pri ce o r qllality.
!ll
D es pite its larc>;c sta fl, Xe rox WdS wed k i ll c l lS tollwr <1Il d market research , eVl'n as
il tran sitioll l'd I'rol;l b eing a virl'llal nl o llOpoly to a parti cipan t in a co mpl'lili vc 1I1 ar­
kd . III particldar, Xe rox gave no tholl ght to tll c i'aclthat its Cll sto l nc rs mi ght be will­
il l.C>; to t radl' speed Ic)r pri ce and reli ab ility, o r t hat tl w), Ini gh t prere r to have IllorC
.slI lal lc' r, slowe r machin l's r ather than a k w large, [ ~ls te r Olll'S.
X('rox USA ig nored th e Japa nese threat, allow illg tl lO.'e finns to gel' a IClo thold;t[
III(! low end or th e Illarkcl that th ey exploited by Illovin g lip . OI l(> rati o nale was that
III(' carl y Japal wst' mac-hillcS we re o [' I()w <[Ilality an d pl'ice d 1'00 high ; the Savill 7S0
I\';IS d shock. A wcojJ.£.1 rati o nale was tha t the marg ills at l'h c hig he r l' nd wcre 1l1ilCh
Illo rc attractive th all th ose at the low end. Xerox U SA , however, I;lil (,c! to recognize
I ll at th e Japalwsc finn s wO llld lIse th(,ir advan tage hlrth c r down to clil ll h the Illarket
I..d<ler. T I'Ile n .' w as also ;1 stron g " no t· in w~nte d herc" syndrollll'. Aftci' i lltl'Odlici ng its
'2:2()() model i ll Japan ill HJ7:3, F uji Xe rox offered to export it to the United States, lmt
\I' I,()), U SA re ru sed , llilahle to h el icve th at a Japan ese p rod uct wO ldd b e lip to Xerox
\ i,')1\ standards, I t w as n ot ulitil 1878 thal' Xe rox U SA finall y acce pted a FlIji Xerox
'11 ;)chinc Ii)]' th e Am erica n market.
FOR DISCUSSION
1. Jdl'nti[ ), and ("v;lluate Xe l'Ox's str al'eg-:-' in th e J 9fiOs. W h at entlY harriers
did X('I,()\ ('I'('ate in that decade?
2 , 1<lI'llIi[\ ;1 11<1 ('I: dl l; lI e 11)(' strategies o['S avin , Ca no ll , IB M, ;llld K odak.
11m\' (II<[ (·:«' 11 1l\1' 1'1'() III (' }\1' rt)"S (' lltr" I "IITi(' rs''' Kodak did IIO t ag).':n ' s­
, ill· 11 ill l , " ,1 Iwllllill i l.\ (" lllil ll ll<'lri :11 ;llil ll l ' \\'11('11 i l 11('1<1;) si g lli fi('a ll l
I'T III I"I " ... ,. 11,·,1 .. " \\ '11 1"
240 Part Three Alternative BltsineS8 Strat egies

3. 'vV hy did Xerox lose positio n in the 1970s'? H ow co uld that happe n ?

How could a large sllccess ful , ad mired co mpany be so cl ue less";:>

4. \Vh at we re the stre ngth s <lnd w(-~ akn esses of Xerox in th e 19f30s'? \iVhat

wew its strategic im pe rativ(:'s';:>

5. Xerox bad a re,earch think tank in Palo Alto that esse ntially developed

what becam e th e Apple compu te r. vVh(:' n th e Xe rox orgalli7.'lt io n was

no t illterestt'd , Steve Jo hs a nd ot hers acccssc([ th e l'()l1 cept and sta rteel

PART
Apple. Why do yotl think Stic h a hi 11 lllle r happe n <.' d ·~
FOU R
Source: Drawn in Il,Llt from John llill kirk and C ary Jacobsoll , X('m :r: ; \U /I'ri (:{/ I/ S(// lIl/ m i ,

New Yo rk: Macllli ll al l, I!:JI)(-j, pp . .'55-57.

GROWTH ST RA T EGIES
 I'!
CHAPTER THIRTEEN

Growth Strategies:

Penetration, Product-Market

Expansion, Vertical

Integration, and the Big Idea

\J arlwti I I).!: ,IWllld [()CIIS Oil Illdrkct ucatioll, I]()t Illal"i«'t sliclrill).!:,
-/kgi.\' IHcf«(,-JlII({

Iksldts an' ).!:aillcd hy ('\ploitill).!: Opportlillitics, IIOt hy solvi I I).!: prohl('IIIS,

-1)('{rT I )rllr{('r

(lldv till' par,lllOid sllrvive,

- : I"rlrell: Crln;e, ,F)!'}I/('/' c: I';(), II/lei

M any firills have focllsed on improving perronnance by downsi'!,ing, n~stntctl1r­

illg, redeploying assets, and rc,lIucing costs, Most have, or will soon, comc to the
I)oint 01' diminishing returns; there is a limit to how much YOli can improvc prollts
willi efficiency programs, Only ,so many people and offices can he e1iminuted,
1"llltlwr, d()\vnsi,!jng can eventually he debilitating to the organization, r.,;!llScle
Iw('lIed to create and support growth opportunities is lost along with the fat,
1':lIlplov('e,s and partners will lose lnotivatioll when tlwy see that prodl\ctivity inno­
\ :li iOI1S willc()st them role's and johs,
l,
'1'1 \(' re is 11111 S ,Ill i llcn'asi llg reali'!,ation that the road to i lllproved pnCormance
11I1!.sl illl'<lk" :11"'111'\1'(,(1 c'lllJ)I!;[sis Oil gJ'()wIII CJ'()wtll Ilot Oldy pmvicies the potenti,11
[()r ('ldl:lllc,("llm,Jil:lllililv, 1"11 il als(] illimcill("'S I'ilalih I() all orgalli'l.aliclllll\ prmid­
ill!~ "II:dl"lIl ',('" :111<1 I'C'\\':llIk II is Sillll,11 1111)],,1'''11 dllllslilllllLtlillg 10 (']'c';llc' gr()\\111
111:111 III illll' l lIli' 1,,",III,'lilill III CI'IIII!.sr/ill,!':' \ 1"'1],,\\,,<1 [(]('IIS 'Ill ,l'/()\\II, ,1,](,,\ IlIlI

~) U
244 Part FOllr Growth Strategies Chapter].J Growth Strategies 245

Ill eall tila! operational elTic iency is ignored , only that it i s not dominant. Both an' Present Products New Products
needed k>r a successful long-term strategy.
Ach ic-ving profitahle growth in vo lves so me fundalllcntal s of sound strategic m<lll­ I. Growth in existing II. Product development
product markets • Line extensions
agemenl, such as th e fCJ1lowing:

• Increase market share • Expand the

• Increase product usage product scope
• Excel at the hase hu sin ess. Crowth options ))lay he tC~lllpting, but they can ' Increase the • Develop a new-
Present frequency used
also distract fronl the co re bllsiness , w hich has growth potential and ulti­ generation product
Markets
, Increase the • Develop new products
mately fllllds growth in otlwr growth directions.
• \Vithdr,lw j"(-,sollrces ["rom al"<:'as tha! lack flltur<:' growth prosp<:'cls, or do not
fit sl-rategically wi th thc firm . Hcso llnx's to hlild growth can not he squan­
quantity used
, Revitalize the brand
. Find new application
for current users
for the same market
\
dered on f"lltil e attempts to turn around prohlem husin ess areas.
• Devclop skills in strategic analysis, ('spccially th e ahility to detect e merging III. Market development V, Diversification involving \
trends and suhcategori es. New
• Expand geographically new products and
new markets
\
• Deve lop optiollS li>r rlltlln ' o[h:'rillgs. Crowth optio))s can Iw created inter­
Markets
• Target new segments
• Related
\
nally I>)' 11l1l1e rslanding and applying creative thillking rn ethm\s. Thc:y also • Unrelated
call 1)(' sOllrccd (='xt(,rllally throllgh a network or partllers tklt can suppl y
prodllcts (or <lSS('[S and conll)('\('n c ies) that will I"llt'l or ('nable growth.
• Dev(,lop and leverage con' assets and conll)('tcllcies. Growth awnas wi ll IV. Vertical integration strategies
Vertical • Forward integration
w(jlli rc thl's(', alld Slleu 'ss prohahil ities go IIp w hcn they ,Irc al ready in place. Integration • Backward integration

Fig lll"( ' 1:3. J shows a way to ., lTllctlll"e altcrllative growth st rategies hased, in parl,
Oil the prodnd-Illarkd matrix introdlll'('(l in Ch''11ler 2. The first set or growth SlTall'­
gil'S ill vo lves exislill g prodnct nlarkC'ls. The next two cOllcern product dcvelopllll'lIl F ig ul"e L:3, L AII'('I"llativI' Crowth Stratq .(i('s
and Inarkd d('v('loplllcnt. TIll' rOllrth concerTIs vertical integration stml'egies , and til('
firth , diV('rsiFicalioll stl',lt('gies , which w illhc cov('n~ d in Chapter ]:3. The di stinctions
het\Veen SOllll' of these categori es illay hc hhlrrc,d , hilt the strllctur(' is still helpful ill 11,1 ' ,Issds alld co III pdl' II CC'S that I('ad to t hi s r('sult·, t hOI 1gh, 0 [ten in vo l,,( 'S 11)( JI"(' IlC'a "Y
gCllcrating strategic options. lil'ling thai 1designing a pri cl' prOiliotioll.
Anoti)('r l'xpcllSive ,\Ild ri sky apllroach is lo pllrSlll' increased markct share hy
1'1 )("lIsing Oil cO lllpetilors and their cns l·Ollll'l"S. Tlw worst -c,IS(' s(;(:' nario or this stral"cgy
GRO'VTH IN EXISTING PRODUCT MARKETS
1I";IS playe d out in the long-distance tekphoTl(, hattles , w h('r(' p('ople were r('ward ed
E xist ing prodnct Inar1wts are o['tc~n attractive growth avellues. An (-;stablished finn lias [Ill' Il('ing disloyal. In cOlll"!"ast, increasing the loyall")' of" cxisti!lg Cll.,tonwrs is !lot olliv

a bHS (~ Oil which to 11IIild ,mel l1Hlnlt'lltUiTl that can lw exploited. FUltherll1orc , til(' 1IIIIC h coasier hilt also ll1on~ r ewdnlillg. \;\Ih('ll exis tillg Clistoillcrs ,ll"C Inade to r('('llike
finn Ilia)' 11<I v(~ experience, knowledge, and resources (in cluding human resourc('.,) II illl)('rS, ))(~W Ciistoillers-alld a nl,lrkct share gain-Will usually ["ollow.
alr(,ady in place. Crowth can he achiewd ill existing product markets by incr eas ing
share through c(lptming sales held by co mpetitors. Alternatively, product llsagl ' Im.Teasing Product Usage
among existing customers call he increased.
\ II ('Ill pts to inuease market share will ve ly likely affect co mpd itors directly and
I I <l'I"<'[cJre precipita te cO ll1pditor respon ses. The <llternative of atteillptillg to inuease
InCl"easing Market Share
'I.' ;)gl' ,1I110ll,g Cllrrcilt cu stolllers is u Slldlly Jess thre<ltening to competitors.
Perhaps the most ohviolls IVdy to grow is to improve market share. A progr,1Il1 1>;\,( ,<1 \VI)('II <i1'1('lopillg programs to increase usage, it is use ful to hegin by asking SOllle
on tactical actio))s (s uch as adv(,ltising, prolllotion, or price reductiolls) can he ('\1)('11 illll<i;IIIII'III ;i1 '1'I<'sli()IIS ;)1}(lIlt th(' IlSC,)" alld tile COllslllnption systelll in w hi c h tll(,
siv(' ,md Ililprofitahl(', I I()\\'C' \'e 1', ITSilitill,l2; ill tr;lII sitol"), skI!"(' gaills I'rllill ;lliraclill ;.!: 1111l<i11("1 is ",,11,, ·,111,·(1. \\"111 iSII 'l 11)(' pmdllcl III s('rvi("I' II sed Inore ? \Vh"t al"(' th e 1><11'­
pric('-S( ' 11 Sil'iv(' CII.,tlllll('I·S. Fil"lliS (';) 11 ,I2;('I)('I";ll(' a 11101"<' 1)('1"111,11)( '111 ., 11:11'" .i~:li ll 1)1' <i(,lil III'" II) illl")", ·,,·,,·,1 II"''"~' \\ '111l ; )1"( ' llll' li ,[', 11I IISI ' rs, ;111(1 1',111111('.1' 1)(" illllll('II(·('<I lo II SI'
"I'illg ,()Iid 1:11111' ;1111111\("11"111 (")"1':lIill,l', I'IISI,"I\("I" -;;ll is[';l<"lillll :111111"1 .1111 I )"\('lllllill)~ III,,,'I'"!' \\ '11:11 :11",,11 III<" 11<".1\\ "';"I\'~
246 Part Four Growth Strategies Chapter 13 Growth Strategies 247

Creater Ii sage ca n b e precipitated ill tw o ways, by in creasill g either th e fre­

CREATIVE THINKING METHODS
I 111('ncy of li se o r th e q uantity used. In either case, there Me several approach es that
{'dll h e effective as F igure 13.2 suggests.
I II
N ot ,Iii growth strategies are oliviollS. III hid, the ohviollS o nes arc likely to oe marginal i n '.,
terill s of likely success and impal't, so i t is IIse[lIl to look for hreakthrough ideas. Methods "rodcie Remindel" Communications
and concepts of creati ve thin king, as described in books hy Euw<u·d de BOliO alld ot-lwr;;, I'() r som e li se con texts , awarene" s, or recall of a hrand , is the driving [·orce. Peopl e i"
call he 1p in thi s process. Among tbe guidelines suggested most often are the fo]Jowillg: \\ ho know about a b ra nd and its use may not t h in k to US(' it on particular occasion s iI
• ])urslle creative thinkin g in groups , as IlIllltiple perspectives and hackf!;rollnds 1\ Il h o lit H:' nlinde rs.
ca n stiillulate llseful altE' rn ,ltiws. Ikllli Tlde r COllI III IIni cation nlay Iw Il ecessary. A n e-m ail progralll to r emind H.ed
• Begin witll warJll-up exerci sE'S that break Jo\vn inhibitions. To Inakc \vlJillisy 1-: lI\d ope c ll stonwrs ahout <In IIpco llling birthday may e nsllre Hwt th cy huy a pre.,(- nt .
accep table , j()r example, ask individuals to id(-'ntif)' what animal expresses t heir ", .\ (' r al brands , i Ilc lmlin g .1 0'11-0, have condll cted adve rti sing caillpaig ns ai Ill ed at get­
personality and to imitate the sOll nd r)'Jade by that animal. To stretch Illinds , ask I II I,~ th ei r prodlld Ollt 0[' th e cllpbomd and onto t he tahl e. It i s not c nollg h f( JI' p<,o­
so meone to stmt a story bas ed Oil two rando m words (e.g. , hlu(' and soil) , then 1.1, · to have r(,cipes iF they never get arollll(l to II sing th e m .
ask the group to crea te a position for a brand based on th'lt stOJyl
t\olltin e Illaintellance hlllctiollS Sllell as (knta l c lwcl<llps or car IlIhri ca tion arc
• Focus Oil a particular task, slIch as how to exploit ,UI assd (a brand milli e, [()r {·.I.., il ., l'ol'gottC II ,1Ild reminders can Illalw a difT<:'I'(' nc( ' . So nw car dealers p rov ide frt'('
exalTlph~) , or a co mpetenc(' (s lleh as til e ability to d(esign co lorrlll plastic itCIllS ).
llli ('li;lIlges in orde r to provide a strong lillk to their Cll,to llwrs wllO willlw acce"., in g
• Develop options without judging tlwlll. Discipline in avoi ding evaluation w hile Ilw ir Ili ai ntl' lIalll'C alld rep,lir hminess.
f!;(' il crating alternatives i s a key to cre,ltiv(e tbillkin g.
• E ngage in lateral thinking to cJwlIgc th e perspective of th e pwhklli. C lw Ji cllgc I")si lion fO'l" Regular or Frequent Use
an obvious assumption (" ' Vhat i r we had two teleph ones in a bootll ?") , or sillll)ly
I 'rl)vid(' a reasoll 1(1 1' lI10re rreqllcnl- lise. On VVell .,it(-'.', \Vhat w orks is to havc inl()l'­
pick a random word or object (sliell as tiger, or the Hockefcll er (;('I ltcr) to stilll­
lI"il i()1l tll at is rreq llc lltly Ilpdated . Peopl e go to M y Yahoo to sec the latest h eadlin ('s
lllat(~ ,I ne\V linc or tllOll f!;ht.
'>I 1('<l m how t he ir stocks , liT doing , as often as ('V(' I)' kw Illinutes w hc ll importalll'
• Evallwtc the options based on pot(' Tlti ,d iJllP,lcl without rcgard to Il ow Il.'asi bl c
I lli' lg,> , tn ' h allpelling. Other ill Cc llti ves mig ht in c lud(' a Il ew cartoon each day at a
they are.
I{'{'II \Vch .,ile, or a I w'>t-pracliccs hlllklill b oa rd at a I>rand co nsldtin g sile.
• Engage ill a s(-'('()n d stage 01' creatiw thinking aimed at imprm; ng th e SII (,CPSS
'I'll(' illlag(" 0 1: a product call chan ge I'rom that of occasional to rreqll enlll Sa,1!;(' 1>)'
cklil ces of an attractive option· possihly Oill' with high potential illlpact drat
,I I{ 'I)( ls ili oni ll g ca mpaign. For ('x,uupic , the advert ising c'lInpaig ns li)f' C liniqll c\
s(~e lil S too cxpc llsiv(, or too difficul t to imp lemellt.
1\\ i('(' -,l-day" Ilioi stmizcr and "threc glasses or Illil k pc r day" both repn'.,('nt c Uilrl's
• Evaluate dw Hn al ch oices not jllst ration ally C''vVllilt do th e b ets sa/~" ) hilt elllO­
1" ('Ilange till' p('rceptioll 01' the prodllcts in vo lvcd. TIl<' llSC 01' programs "I lc h a.' th e
tionally ("vVhat clops yo ur gut say?'').
l; i )()k - ()['- t l \( ' - ~' I()lIth C hill , CD cillbs, l)VJ) c lull." and ['lower-ol'-thC-lllonth or li'll it­
• Create an ,ICtiOIl plan to go f()J'\.va rd .
,,j 111I'-lIlon til d e li vc ry can liJnl inl'rt'!ilwllt p ll rc h ase rs illtO ollce-a-nlontlwrs.

,\ llIke tile Use Eas'ieT

'<J ill g w hy l' ll sto nll' r s do \l ot li se a p rodu c t· o r s(' rvi ct' lllore oft('lI c all lead to
"I 'llm;l('II( " tit;lt IlI ab , til l' prodn ct cas i er to li se. For t'x,lIuplc , a Di xi(' -c up or
He<.IVY users are usually th e most rruitl'ul target. It i., ofte n <::',ls ie l' to gd a hold('1
of two seaSO Il football tick ets to buy four or si x than it is to get an occasional attl'lId",· '>ll'a l t' gy Examples
of g,llllCS to buy lwo. It- i s h elp h d to lool( at th e extra-heavy user sllhsl'glll l' lIl' -SI)('
1'11,1 iIi(' 1'(' IIJilltl l T COllllllllllic,ltillilS S(-,Ild (' -Ill,lil alJOll t upco llling hirthday
cia! tre,ltllle nt migh t solidify and expand usage by a substall tial ,UllOlllli·. Cll lISi<i"1
I', ,',II il III 11)1' 1'1'1'I I I ({'II t I IS(' Chccking stocks on Yahoo!
Sch w ab's Gold Signature Services, the sp ecial dinner parti es and COllli ('r S(' ly i"I '
,--. IIttl"
"' I"oIl l ()ll f '( II ' I', '1"1 ,,'-; (' Flos.,ing al't er illcals
off er ed b y Chase Manhatt,\I1 to its higges t accoullts . o r th e first-class t l'('<ltIlJ('II1 [11'11
\ I,d,,· l iS< ' ";1';"(' Mi cmw<\vl' al)lc containcrs
vided to high rollers by Las Vegas casinos.
~ 'I,~\ i ( I (' iIW('llIi\(' '-; 1' 1'1 'I i' (['I 11 -11\ ('\' Illiles
Li,,-ht
h
users should not he i (gl lOred, I)('ca ll ,,(' tlww Ill ay he a W; \y to Illllo(' k tlwil
~. I II 1 1, It ,( , IIIHl t ·, jr;dd( · C·(I Il ..; t ' I I" c· (W (· .... ( :( '11111' sll 'I IIIP')() 1i)1' 1'1'("11 I{'I It I IS('
pot<'llti,d. vVho <lIT I'll<' li g h t Il s('rs and w hy dOII 't tltey liS,' lI)(lIl '? Il i ll si t! " ( ;oll"" i\! ,w ,.\\.. I\ITII{,
1:, '\ d :d; o' II II' I" :111,[
lIol<'d 111;tl j)('opl" ill llll'ir ";Irk IWI' IIii,'s Wl'I'(' li,~11I ('ul·li·(· 11 ,\('1 '; , 1 '\ l l ll)iiilll~;1 , \\1"' 1
1' 11111 I H '\\ :ll'p l l1': IIItIlI " .I ' ·11 ( I " d.I' Is
I{)(>I11 ill Illi.'> .'>" .~II(('IIi . IIII' '·(lIlI[I<lIl\· .'> II(·('{'.s,.'>I·IIII\ illil·I)(III,'('(IIi:I \III,·, I ,·, lll· {" ,'1 (('11 .\',
\:lllill:1 11111 :11111 ,'-;\\iss {, II ,wII I:II I' :IiIII{)I"I. 1I",lI ' t· I : L ~ lli l l i ,I II II IC, I I'h l \~. III I, 1,11 " ", 1' 1111 1' 11'11\ 1.111"' 1"
248 Part Four Growth Strategies C/llff,ln n (:)'()(/ 'II, sl"fI/('gil's :!'·I~)

paper-towel dispemer eneourages usc by rc du ci ng thc u:;agc dh)rt. Packages th:1I New Applications for Existing Product Users
can be placed directly in a microwave make usage m ore con ven ie nt. A r ese rvntioll
'1'11(' detecti on amI exploitation of (\ new fun ctional use for a hrand Utll rcjll vl' lI a ll' a
service can help those who must select a hote l or s imilar selvice. Frozen wank',
1>!lSillcss that h ,ls h el"n cO ll sidewd a has-been for years. A elassic example is Je ll-O ,
an d Stove Top stuffing are examples of product m odificatio n s th ,lt in c re as e d COI J
' I Ilich heg,lIl stri ctly as a dessert 111'O<1ll <.:t hut found major so urees of new sal es ill
surnption by making usage more convenient.
:lllpli<.:atiolls such a,s .1 <-'11-0 salads. Another classic StOlY is that of Arm & Hamm e r
I,a killg soda, whi e h saw a nllu al sales grow ten fold h y persuading p eople to use its
Provide Incentives
]l l'lldlllt as a refrigerator d eod ori:r,e r. An initial 14-lllonth advertiSing eampaign
Ince ntives ean be provide d to increase co nsumption fr eqll e ncy. Promotions sueh :1',
Il()I ,stcel the lise of' Arm & lIamll 1l:'r as a clcollori/.e r frolll 1 to.57 percent. TIlt: hrand
douhle mileage trips offered by airlines with frequent-B ye r plan s can ine]"(-:ase llsagl'
II I)Se<jllcntl), was ('xtcnd ed into oth('r (koclori /,e r products, dcntifrices , <11l(llallllllry
A Elst-li)()d restallrant might offer a large drink at a di sco untC'd price i/' it is p\II"eha.sl,d
, I,le rgcnt. A ellcmieal proct'SS lI sl~ d in oil rickls to separate waste from oil [(lUnd a
,vi th a m e al. A ehaJlenge is to stru cture th e in centive so that II sagl~ is inereased willi
111'\\ applieatioll will-'n it \Va,s appli c d to water plants to e liminate unwanted oil.
out neating a vehide for d e bilitating pri ce eo mpetition . Price incentives, sll ch as tv\ l)
'\I l'w II.S('S C,1I1 h es t l w id e ntifie d by co nllilcting market research to delel'lllin e
lil!' the priec of one, ean be e ffective, bllt they also may stimulate priec retaliatioll
l', adly how e ll stO I11 l'rS use a b ra nd . From thc set of Ilses that emerge, several ean he
'1 ,lntell to plIrsllf'. For I'xampk\ Iis e rs 0[' ex te rnal analgesics were ash,d to keep a
Reduce Undesirable Consequences of Frequent Use
d u rv of' th e ir Ils0'.5.'2 ASlIrprising Rndillg was that ahout olll,-third of BenCay's Il.sage
Sometimes there are good reaso n,; wh y a eustomer is inhihited from us in g a prod
,1 1]( 1 11 lore thall o nc- hal f o r its Volllille \\I, IS li)r mthritis relid' illstead O['lllllsde acl1l'.s.
lIct more f·rcIl'lently. If sueh reasons ea n h e addresse d , usage may incrcase. Fm
\ se parate Illarkding .st rategy was d c>velope d I'or this use, and the hralld callghl a
example, SOllie people might h e Ii eve that frequent hair was hin g may not h e heallh ) .
1\;1\'1' or grow th .
A product that is desigm,d to he gentle e n()u g h fi)r dail y ust' might alleviate lhi ~
t\ lIotl w r tac he is to lo()k al' the application.s o/' co mpeting products. The widc­
worry and thereby slinlldak incre ase d usage. A low-ea lori e, low-sodilllll , or low -r;d
"Im 'ad IIS('> or rai sin s prompted O c('a n Spray to ereatc dried cranlwrrics , which call
version of a rood pmd\1ct may sharply incre,lse the market. The brand that hecollll 's
1)(' lil lilid ill cook ies and in u:~ rea l ~ ll e h as Mlle.sli w ith a " madc; with real Oecall Spray
ass()(:iated with a pmduct change will he ill the hC,st position to c<l l)itali/,e on til<'
n; llIl H' rri ('s " s('al on the p ackage. They m e also b e ing so ld as a snack [i)(ld call e d
increased market.
( k l',111 Sp ray C rai ~ in s.
S()metil11l'S a large payoff will ITSltlt Ii)!' a finn that can provide applica tion s not
Revitalize the Brand "I IITI ' llt ly in ge lwral ll SC. TillI S, surveys of c urre llt applications Illay be inadclluate.
Especially fi)r a leading brand , it is e asy to b l'CO IlI C stalc over tiJll t' . Custonwr,s 111<1)' l,'il lll.S sllcl1 as CI"lwra l Mills Ilav(-' spollsored rceipc contests , one ohjective or whic h
p e rce ive it to he or exce ll e nt Ijuality, hut something their parents (or worse, grallll­ ' I.I ~ hl'I ' ll to n eatl' new l1.SCS fi )]' a Pl'Odllct by di seovl~ l'in g a lWW " reeipe dassie. " For a
pare nts) would lm)'- The c ha ll e nge is to ]"(·:vitali7.c the bralld , to introducc SOllll' I)mcille!, SllC11 as st ick -on lah e ls , th ,lt ca ll h e llSI~d in man y way~ , it Illight he worth w hile
e lltT)..,,),, vitality, and hm:2: into it . 1n C h apte r 1.5 , approaches to revitalization involv­ III COII(1ilct 1()1'mal1>rain storming sess ions or other c re ati ve e xncise.\.
in g new prodnds , n ew marlw ts, and new appli cation s are cli scllsse d. However, rcvi­
tali zatioll ean ocenr often b y s imply acting yOllng again within the sallll'
prodllct- marke t-application spac(·'. PHODueT DEVELOPMENT FOR THE EXISTING MARKET
Ahercromhi e and Fitch was a r etail e r w h e re an E ng li s h ge ntlenlcln might go
\, l'( ' ll(' ct('d in Figure l :3.], prod11lt d evl~lopnwllt C,\ll oceur in a v<lriety of ways, ,md
to get llis huntin g doth es, until o ne of' th e most re markabl e transFormation.s ill
il is Il('lprlll to distingllish ,llllong them. They illdllcll' the addition of product Fea­
retail history made it a trendy place for YO lln g adults to sh op. The storc.s ( inclllll­
lilli'S, the llevelop ill e nt of new-ge n eration prolluets, and the de velopm en t of new
ing the walls) were ent ire ly redeSig ne d , you ng sa lespeople we re e mployed , trellli v
I' J'I lcilll'l.S ,'or an exi"ti ng lll 'lrke t.
clothes were displayed in an in teresting way, an d e nerge ti c co nte mpor<lry 1llu s ic
set a llew, vibrant tOII(:' . LO I1(] oll ', OllC(:, -.stul1)1 SelFridge's hro ke ont or a stag nalll
I ,in<" l~ xtensjons
sales patt(~rn hy a similar infu s ion of e nergy that involved fashio n shows allli
celebrity visits. ()II(' Ivl'(' 01' Il rotilld dev('lopllwllt is tht' addition of It'alures to a firm's ellrre nt prod­
The best finns contilll.lOllSlv inj ect excite lil e nt and n ews into th eir opnali()l)s lid . 'I'll(' ri).',11l I(': tilll'(' ('; 111 cl r, II1 1< Itically l'II 'I1l,l~:C' the competitive dynamic.s. For instan ce,
with specific programs. Disneyland, 1'0 1' example, adds and Ilpdatt-.s riti l'.' so o f'lt' II 111 ;11 ( :I' ll('r;ti tvlilk ~I'I)l:lil 1>l 1'111)()]; I(l ll g lillll' call',~ol'\ leatil'r IJalllloll wilh CO-Clll-t, tite
it i.s worth going tw ic(' a Y(';l r ,iII.St t() ,sc'(' w hat i.s Ill'\\'. Virgill 11:1.' :) ('lllli illlll )I" lIow "I \ Il,:'.llri il)" IltI'I' IILII !-ltl·. , 11 '( 1) III' Tlli s " IIISI' IIII' SI'()()II" )o,~llrl l'I,dl'iiIWd III(' (,:ll('.~() I ·\'
IlIiI,licil ), .sllllll .s IILil b'('[l CllS ll ,III('I',S WIl II<iI ' I'ill g \\'11:11 IIII'\' will II " 11<'11 1',,1 II)i , i"I[ )(O )I, ,,d '," " ll(O' ld '1'1' Ilt:lilll :lil' 1):ti:III I'I', YI )I)i:lil 'dl()\vI,d Illi, SIII'I'I'5\ lI'ill, IIII'
250 Part FOllr Growth Strategies
adult fla vors of Yopl ait Expresse. An automobile Finn cOldd add a transmission o r sun­
roof option that would im p rove its pene tration 0[' an e xistin g marke t. For some candy
firms , the cr eation of nove l packages provides a key to sales. Adding product features
involv(~s al mmt total common ality o f marketing, openltions, and manage me nt. I3ecau.'(,
additional fe atures represent sllc h visi ble growth oppOltunities and are accomplished
relatively easily, they can be ve ry e nticing. They still absorh reso urces, howeve r, and
should he resiste d if the prospective H.OI is IIn satisfactory.
Prodllct modi fications call also occllr wlwil 11igh-tech or industrial rinn s arc
asked hy a cllstom c r to prodllce ,I special-purpose versioll of a prodllct. Stich d eve l­
opnwnt work can lead to .,uhstantial salcs and l've n to nel\! prodll cts , hill' tile attrac­
tion 0[: a visihk c llstolner Iwe d can lw overly e nticing. If this type or activity is
IK']"tnitte d to pree lllpt 1110rc amhitiolls developm e nt programs , th e long-te rm l1l'altll
of" an organi / atioll can sllfft,1".
Developing New-Generation Products
Crowth ca ll also Ill' ohtailwd in an ex isting marlwt hy creating ncw-,l!;<'IK'ration prod ­
lids. F e dE x, fi)r example, is IIndl' r allack ['rom co mpanies that are developing supply
chain 111,11 lage lt I(-'Ilt .';ystelllS design c d to ciiltlillate milc h ortlw II1Ipredidahility in tll<'ir
process (a nd tilll.'; the Iwed (i)r ovt'rtligllt shipnt('nts). In rl','ponse , Fe dE, has hOllghl
Kinko's and devl'lo]l('d it lt1anagenll,nt .,;y.,t(,ln tllat ('all provide a cOl11pallY with in[·i)r­
IIlatioll e xchanges tllat sllpp[allt a cOlnpany\ inefficicnt stream 0[' [;IX('S and pholle
calls. The conc('pt is to make FedEx till' S),St( ' lIl rather than a co mpolll' nt or it.
Yallt<lha n' vitali /.e d a lkclilling piano 11I,lrkd hy dl'Vl'lopillg titl' Di skla vier, whosc
e lt'ctronic co ntrol sys tl'ln allowed a pe rii>rlnancc to Iw rcconlcd alld stored ill 111('111­
ory, tllllS crea till g a lllodem v(' rsioll 01' thl' old pi<lyl' r pial1O. The technology cO lild 1)('
lIsl'd hy a stod(,llt, a profi.'ssional playe r, or ;1 COlllPO,,('1', in additioll to thos t' who
wankel the rc('lillg 0[' ha ving a great piani st play in their hom(~.
\iVhile the olltsidl't' has Ilothiog to lose and llluch to gain froln ptlrslling an inno­
vation that will disrtlpt tlt l' ,narkdplace , the estahlished mariwt parti cipa lll Elc(~s the
" inclll11lK'll fs cllrse," two [i)l'cl's tltat illhihit innovation. First, evell if the ncw tecll­
nology is SIlCl'('SSrll[, orten the bes t re.'lIlt is that a s ig niricant in vt's tnH-'llt will 1)('
re([l1ired jllsl- to maintain the sam e I (~vc l or sales and prorits. AlHllhc nt'w kchnolo)!,y
con [d prcsent problem.,; th;lt add tim e and (-'xpeme ,lIld redllc(' clistOl11er al'c(~ p­
t<lnce - iwnIlY,\I1 attracti ve incentive. Second , the e,isting market particip;1I1ts need
to fi)CllS on improvin g costs, quality, and se rvice [i)r tile e xis tin g ofk:ring, which leaves
little tilne and efii)lt to explore a totally new technology.
Althollglt Il l'\\' techllologics, stich as satellite TV c hamwl." C;\I1 disrupt ;111 (,,;tal)­
lished hnsin css , th ey can also create proritahle growth opportllnities. E xisting lilarkl'l
participants should be aware of tlwi I' hiases against det ecti ng and exploiti Il g Sllcil
opportunities. If' the hiases are visihle , til(-' c hance s that the\, will inhihit th(' org,lIli­
zation ['rom participating in a nl'W t<'cl1ll0logy wi l[ h(' I-cdllc('d .
Expand the P."oducl Scope
1'\i.';[ill,L~ ('11 \ 111111( ' 1'\ Illi,!',[1I [I(' .'(·I'\'I,d ('111'1[1('1 [' I ' [,rO,I(["llill!', 1[11' II'''' ",,,01, ·, 1. T[I'IS ,
II,',I":II[ 1) ('[lI'ill ,!', ill IIII' III:III.!',' · lilli'" ['11\;111 "', :1 1';111' 11 11," ,[01 ,I,,,,, ,, I" [li ' ;1' IIII'
Chapter 13 Growth Strategies 251
breakfast business. In s te ad of selling only hasketballs , it mi ght considcr making
haskets ,m el cOllrts. CE's .lack \Velch has sHid that dominant com panies in slow­
growin g businesses in partic ular should re d e fine their marke ts , looking for a
hroade r scope that will have more opportunitie s,
The manage r (lnd originator of Microso rt Office, Jefh-ey Raikes, was inspired by
Welch's conce pt . As a res lllt, he d ecide d to develop produ c ts not just fi)l- orriCl:~ work­
('rs bllt fin an yone who uses infi>nnation , including pilots , nurs e s, [~Ictor)' worke rs ,
,Ind l'fllck dri ve rs.:] Toward that end , Microso['t has resea rch ed c ustomer needs and
tested innovations in prototyp ical workplaces of' th e filhm-'.
Sly\Votsky allli \Vise make ,I silniJar sllgges tion in their hook How 1'0 Grow \t\llwn
Markel's Don 't ,'·1 Tl1t')' rt'col1llnend ide ntifyillg ,Ind serving the cllstomer IW(-:<iS that
1' l11anate ['mnl till' lise of' existing prodllcts. Cardinal [Iealti> , [i)r ('xampl e, tnoved
I)l'yond di.';tribtllin g drll gs to pharmac ies to m,"wging th e di spellSing of drtlgs allli
I'('lat<-'d record-keeping ii)l- hospitals, as we [1 as neating Ill e dical-snpply kits [i)r Sttr­
g(,O II S. Clarke Amnican Checks w(~ nt from c heck printing to l1lallag ing Cl1stom e r
Iclations fi)r I"\llks, including rtll1ning call cente rs and helping hanks co m(' lip with
incenti ves to increase cu stomer rete ntion. John Dce re, the e<[lIipnwnt ll"lllld~\cl(lrer,
dccided to ofTl'I' a ()11('-~tOp shop [i)r ialllls(;aping,
New Products for Existing Markets
;\ cla."sic growth pattern i." to ('xp loit a markding or distrihution strength by adding
c(),npatihk prodllets that share Cll stollwrs ",it·h hut arc dilTen~ nI' f'ronl exis ting prod­
lids. Synl't'gy is IIS11<I1Iy obtained at least ill part by the cOlllmollality ill distrihlltion ,
IIlarlwling, all(1 hralld-lI<lnw recog nilioll alld idclltitY. Lvnox, a maker of' Fin e c hilla,
(' \[>loitl'd its traditiotlal , high-qllality image ami its distrihlltiotl ,,,),,,t('nl hyexpanding
ill to tlw an'as o['jewelry and giHwarl' 11&1\ Block added I('ga l servic(-'s to its cktin o[
iIH'OllH' ta\ services , hopillg 10 gain sy ne rgy by .,haring ollie<' .'pace and opl'ratioll';. !\
ski hoot Illallllf"adllr('l' added skis and tll('n ski c lo t·hing.
I,( 'v(' raging hralld e<jnil y into other prodlll't catl'gol'ic.,; is a rotlt(, to prodllcl'
(',l('nsion that will 1)(' e xplore d in Cllaptcr 14. E'GIIllpieS or thi .' wOlild in c [ude
1)111';\('(,11\ ])(lralw<l m llashlights , Cerher hab y clothes , StarlHlcks ict' Cr(~ a111 , Pil'rrl'
Ca rdin wallds, Bt~ nihar1<l frozen entr~ es , Oracle Dis c(}v(-~ rl'r, ;md Arm & Halllfll e r
(I v(' n c le aner, which capi tali/cs on Artn & I-tun mer's 9, p ercen t name n~cog ni Iion.
I':,lc h h;ls strong nam e identifkation and associations tll"t can dri ve Sllccess in thl'
IWI\' category. !Vlanagers l1llls1- make sure that th e ex tension fits the hrand, that it
1)1'()\ ides hl'lpflll aswciatiol1s , and that it does Ilot lL1ll1age or dilut e as~oci(ltions of
III(' hrand .
i\ ratioldc fi)r product additions is to achieve synergie s. SOllletimes , 1101.\1('\cr,
,I 1I( ' l'gics ,liT silllpl)' illllSory. A packaged (i)()cl rinn had little in common w ith a fast­
III(){[ 1·(,., 1:1111':1111 l'ilain tllat it acquired , ev(-' n thollgh both in vo lve d f()()d. More often ,
SlIW l'gl ' (',i\I\ . [lit! ii' [)(,lIdil is 11]()(le';t alld dews not o ve rconw th(~ cos ts and proh­
["III.' :l.s"".i,oI",1 ,, ;111 l[lI' 11('\\' ;trl 'a. T[t(' (,['Ioli 10 ('Olllhill!' Ullitcd ;\irliIH'.', \,V('still
II,lil'[ :111t! 1\1 ",Il II', .",,[ 11"11 '1. 1111( 1'1111' Ol'g:llli 'f.: lliOlI IV:lS ,til(ll·I('(1. ill p :II'1 [we:III.'" lit('
[I(Ii"llli :ti ",1 11"' 1'," "" ",1 " ,"",11;11.1'::1"(11111111)11 i'<' .Si'I'I:lli()11 ,,'\ 1"111 :tll([ ('1'(,\ ., .Si' [[ill,t.;,
11:1,[ ', ld, ', I.IIlI, .,[ lilll' [' ' Iii i ll ,I ,"" 1""['[ " "1 \ :1I1l[ 1\1 I,' 11''[ " dil l'" 1'1 1[1(' \I," ,I, 111 :11-1."1.
252 Part Four Growlh Stnltegies
There is signif'icallt I'isk to any new product ve nture, espl::' Cially with r espect 10
Cilstolll c r acceptance , Clairo) fail ed with Sm ,t11 Mir;lde hair conditioner, whiell
could 1)(' used through seve ral shampoos, ill part hecause cu stom e rs cOldd not 1)('
convinced that th e product would not hllild up on their hair if it were not waslJ('d
ofl with each usc, Eve n th e use of an establi shed hrand cannot gllarantee SIICCt'SS,
Th e conce pt of a colorl ess cola , Cry stal Pe psi, did IlOt achieve acceptance, Ric<:' -,I"
Eoni 's Savory Classics did not ht th e COllSllmer's IIOtiOll of th c role of' Hicl'-a-Holli
ill the kitchen, Th e Arm & Hammer name also spawll l'd two f~lihlrl' s, it spril\
llndl~ rarm deodorant , [(ll" which tlw Ann & ilamm e r nallw lllay hav e h;ld IIII'
wrong connotations , and a spnly disilll(x'tant ,
Prodllet-linl' expansion will Iw hased on many I;\etors, or l'OllrSe , hilt will OCt('11
i Il volve cOllsidl'ration or the [( )llowi ng (\ lll'stiOIlS:
• Will customers benefit from a .~ystem,~ capability or se'r vice conve­ \1<- 1)oll<dd 's, CE , llHvI , all(l Visa havc sllcccsshdly l " porl"ed titeir operations to other
nience made possible by (f broad product line? TIl(-' incilision 01' a sol'!'­ 1'()(Jlilri('s, ,tV\(),st ortll('sc cOlnp<lnies alld IlIall), oth('rs arc cOlllllillg on cOlintril·S SII(,II as
W;IIT lilw and prinl"ns w ith a lilll.' OI'Cl)Jllpllte r,s provides the POI'l'lltial of'
of[('ring a Illorl' cOlllpl('[(-: systl' III , How('v('r, Cll.stollwrs may walll IIOt only
,syst(,IIlS design IlIlt also sy.stCill,S sllpl'ort,
• Do potential manufacturing, marketing, or distribution cost efficien­
cie8 exi8t from, an expanded product line? To the (-"tel It thai tll(,1'(' ;1)'('
,s hared l'()sts , th e CXPl'I'il'IIU' ami scale ('1'f('<:Is Oil costs w illl)( ~ 1' llh,lIll"ed , 'I'll(' " \"1 ', this ('xpansion is hest illlplclllcnkd hy conflectillg, thnlligh an alliallcc or
<jllestioll is whether, ('\,(,11 witll this co,st ad vantage, the proposccl pl"Odlld­
lillc c'pallsioll will have a satis[;\('[ory HOI. So wll('l1 Scll\v inll 11'(,111
CXl'l"cis(' hicycles , Ii)!' ('xampl e, it c()ltld draw IIP()11 prodlld desigll, IllaII1IL\('­
turing, alld di ,s tril)J)tiOIl d'ficicncie,s, Avoll icvcTagc'd its home s;d('s org<lni z<I­
lion by o[kring ciotllillg and 1IIItril"ionai ,s nppkllwills and vitaillills ;I.S we ll a,s
cosilletics and j ewl"lry.
• Can a,~8ets or competencies be applied to a product-line expansion?
Thl' most prolllincnt asset i,s ortell tlte brand name itS l, 1L Tlw Sch w illil
hrand lIam e in hicy cles has givell it-s Johnny G, Spillncr bike an ('dge witll ii'S
elldors(:' ment, III tlt t' lIext chapter, hrand l~xte ll.siollS will 1)(; treatcd in Inol'( '
ddail. Do not ;lIltolllatically aSSllm e, thongll , that assets awl COlllpl'lell(,I 's
can w ork in 11(:'IV contexts, Th t' lIlark(,ting and distrihlltion COllllwtcllCl 'S 01 '
Gatoralie, lill' instance, arc not g'larantl'l'd to work w ith Sllappl('- ill I'ad,
trying to fi)lTC; the Ga!"ora(k, sy stelll OlltO Silapple W<l, onl' rl'aSOII (;lInollg
se ve ral) tltat tlw Snappl e aCljllisitioll hy Catoralie '.s par(,lIt Fil"lll , ()llakn. wa s
a r;\ilurl:' ,
• Does a finn have the needed competencie8 and resources in R&D,
manufacturing, (lnd marketing to add the variOlls products proposed?
SOlll e times an apparently sililple lin(' l 'x tl'IISioll , sm'h as addill ,g w ood SLlillS
to a lin(:' ofpailll"s, call ill\ 'oll'(' a totalh II( '\\, 111<1111I1;WIIII 'illg ,{li)l"!, I'a\\' IIlal(',
rials t('('llllolo.gv, or IIlarkl'lilig "ITol'l ;l1l1llll1l,s 111;11"' II"! Iii II", ""I,,<I )ilili,'s (,f'
III(' fi 1'111.
Chapter 13 Growth Strategies 253
I\1AH KET DEVELOPMENT USING EXISTING PRODUCTS
\ log ical avellu e of g rowth is to d evelop new mark e ts hy duplicating tb e businl'ss
ol)''I"alion , perhaps with lIIinor adaptive changes, \Nith m,11"ket expan sion, the same
('\l'l'I'ti ,s(' <lnd technology and sOllletilllcs eve ll the same plant and ope rCllion s ['acil­
iI\ '<III 1)(' used, Thus , th er e is pote lltial for synergy and r eslIlting reductiolls in
111\ ('sl"lIlCnt and operati ng costs, Of COllrSl::', market d evelopment is based on the
1\I('lI lis(' I"hat the hllsincss is ope rating slIcu'sshdly. Th~~ rt: is IlO poinl" in exporting
I'<li III I"<' 01' Illcdiocrity,
E:\panding Geognlphically
(.I 'og rapl,ic ('xpall sion Illay illvolve c hanging ['rolll ,I I'l'giollal operatioll to a Ilational
" I )1 'I'alioll, Iw)ving illto ,1I10liwr regioll , OJ' ('xpalldillg to another cOlllltry. KFC ,
( :11 i I la , Ilidia , ami HlISsia to lilel fllllch or I"hei I' growth ill the cOllli ng decades, They real­
i/,(' Illal" ,\lIC(,CS,S \V iII involv(' ,signincallt illv('stnl('lIt ill logi,sti cs, distrihlltion illrrastrtlC­
[III"( 'S, alld organization lllliiding and adaptation,
~/Ioviflg I'rolll local to rcgional to national is allothl::'I' option , Sallluel i\daln s alld
()llwr Illicrohr('weri c s It;1\-'C generated growth hy g(,ographic expan sion, Orlell , how­
IllI'rg('r, to a partllc')" that alr('adv has I"he capahility 1"0 Illarkd lI\ore broadl y.
illto
E\.panding into New Market Segments
,\ lil'lll can ,dso grow by reachin g illto IIt'W Illarkd segillcllts , Tlwrt' arc a varidy or
II;I\'S to dd;I\( ' targ(' I' sl'gllll'lltS ;lIld 1"1 Il'r('I()rc grow tll di reclions:
• Usage. The nOIllIS("r call hc all attractive target. An andio e1cctrollics firtll
cOlild targl'l thosc' w ho dllll 't 011'11 all alldio systeln,
• D'istribution channel. A ril"lIl can reach I\('W seg lllc' llts hy opening lip a sec­
olllior third c hannc l or distrihlltion, A retailspoltillg goods store COl tid lIlar­
kd to sc hools via a direct sales [()rct>, A direct Inari«:'ter slIch as Avon cOllld
illtrodlll'(, its pmdllcts into dc· pmilll ellt- stores IllIdt- 1" another brandll<lilW,
• Age. Johllson & Johnson 's hahy shampoo w as I<lngnishing Ill1til the compan y
looh'd toward adliits w ho w ash tlwir hair frclJll e ntly.
• Attribute preference. An in strllm entation firm lIlight extend its line to
i\l('llIch~ Illore precise t'lpliplTl Pnt to se rve a segill e nt thnt re(luires
great(,r ac cllra cy
• App/icatio'll-defined market. Alllcli C<ln Airlilll's oH't'rc·d a door-to-door, sallle­
rla\ 1);IC ' b ~ '!' <i,'li\"' I"\ ,s ('nic(' ill conjnndioll w ith a shipping service, Next.l et. A
"lI sIIIIIII'IIII:II"' " :III ,"'( h' ()II a \V('I) sill' ,;\ COllri('r piCks it lip, and deli vers it to
:111 ,'\III {"(> ',1I1 11",,1" :11111 "II()IIII'I' "()lIri( ' I'111l'1I rI('livl'-l's it I'() II\(' I"('('ipi('nt,
252 Part FOt/r Growth Strategies Chapter 1:3 Growth Strategies 253

There is ~ignifil',lI\t risk to any new product ve nture, especiall y with n's[)(TI I" l\IARKET DEVELOPMENT USING EXISTING PRODUCTS
customer acceptance, Clairol failed with Small lVlirade hair conditioner, wld.. l!
could bt' ust'd through seve ral shampoos , in part h ec<t ust' customers could nol I" \ I()gical avenue of growth i s to d evelop new markets b y duplicating the husin ess
convinced that th e product would not hniJd up o n their hair if it were nol w;I"III ,.1 "I)('I'ati o n, perhaps with min o r adaptiv(~ challges, \-Vith lIlark et expansion , the same
off with each nse, Even th e lise of an establi shed hrand cannot gllarant<:'t' SU('CI",', "\I)('rtist' ami technology and so metimes even the same plant and op erations Faci/­ III
ii,' call he used, ThLls, there is potential f(Jr sym'rgy and resulting reductions in
The con cept ora colorless cola , Crystal Pepsi, did not achieve acceptance, [{icI' ,I I,
BOlli's Sa,'ory Classics did not rit the consumer's notion or the role of Hicc-a-I{1II11 ",,('stnl('nt and operating costs, or CO llrse, market de ve lopment is haseJ OJ! th e
in the kitdl e n, The Arm & lIanllll t'l' name also spawn ed !lvo failnres, a Spl,1I 1)II 'IIlis(' that th e iJllsilless is operating sllccesshdly Th e re is no [)oint ill exporting
1 11 1111'(' or 11wdio('J'ity.
IInderarlll deodorant , h)r whi c h the Arm & Hammer lIame may Ilave 11<,,1 1111
wJ'()ng connotatiolls , and a spray di " inlt,l'tallt.
Prodnd-line <:'xpansion will hI:' hased on many hlnors, of COllrsc, iJllt will Onl'lI I': \pa ndin g Geographically
invol ve conside ration of the I(lliowing (l"(' stions: (:"()grapllic (';(pallsion may in volve c hanging I'ronl a regiOilal operation to a Ilational
" pnalioll , Illoving illto anoth e r regio ll , or ('xp,lIHling to another cOllntry. KFC ,
• Will customer.<; benefit from a sy.<;tems capability or service conve­ \I ('!)onald\, (:E , 1BM , and Visa have SIICCl'SSl'lllIy t'x[)(Jrl('d thei I' operatillns 10 other
nience made po.<;sible by a broad product line? Th e incillsion or slIll ,l
,. IIIlllrie, Most oi' these cOinpanics alld llIall\' olll('rs are cO(IIII'illg on countries sll('h <IS
ware line <.111.1 print(' rs with a lin" of COlnpni'l'rs provides till' potential or ( :11 ilia, Illdid, and Hlissia 1'0 1'1 tel 1II1ICh or thei I' g)'()wtiJ ill Ihe COli Iillg decad('s, TI Jl')' real ­
off<'ring a Inore cOlnplde sys tem, l-low('ve r, c llstonl e rs Illay wa nt not onl,' I/.i ' Illat sllccess will invol v(' si g nificant illv('s tnl('nt in logistics, distrii>lItion inrlaslTl1C­
s),sleills d('sigll hut al so systcnls sllpport. II)J( '," , and organi/',ation bllilding and adaptation,
• Do potential mant~factu"'illg,marketing , or cli.<;tribution cost efficieH­ ivloving rrolll local to legional to natioll<ll is alloth(-,I option, Samuel Ada"ls and
cies exist from all expanded product line? To Ihe ('\t(,IIt tllat there art' 'illl<' r lIlicroi>r('werics have g('n('l'ated growth hy geographic expan sion, On(-,II, how ­
shar('d costs , tlw ('xpcri('lIce aud scal" clrccts Oil costs lV illl)(' ('II I"llll'ed , TI" " \'1'1', this ('''p, \Ilsioll is best impl c nlcnt<:,d hy connectillg, throllgh an alliallce or
f{"(','tioll is IVhdh('r, ('veil witll this cost ad valltage , til(' proposc d prodlll'l­ "" 'I'ger, to a partner that alredd.\' has I'll(' capahilily to Illarkd Illore broadly.
lille ('xpallsioll wili hav(-' a s;ltis[;ldory nor. So w h(,11 ScillVili1i W('IIt illto
cX(' rcise hicyc les. ',ll' ('X,lIllpl(' , it cOlild draw "POll pro(itwt design , 111<111"1';)(' I :'p: mding into New Market Segments
tllrillg, and dislTii>lItion eHici('m:ies, Avoll leve raged its 110111(' sales orgalli/;t
\ linll call also grow hy reaching illto nC' w market segllll'nts, There an,' ;( va ridy of
tioll hy o ['J< ' riIIg clothing and Iliitritionai sllppic'IIwnts "lid viblllliliS "" w(,11 :! ' ,
,I ,ll " III defin(' tar,~('t scgllwnts and tlH'rei'()J'(' growth din~ctiolls:
cos llletics and j ewc lry.

• Can assets or competencies be applied to a product-line expansion? • Usage. The IlOliliser C\l1 h(~ all attr,lctivc target , An alHlio eicctronics firill

TIl<:' IIl(lSt prominent asset is oftell th(' hmlld naille itsd r. Th(' SChlVilill cOI"d targl'l l'hosc w ho dOIl 't own an ,lIIdio sys te III ,

hrand lIame in hicycles has gilit'll its Johnn), C, Spillner hike ,III ('dg(' willi ii',
• Distribution channel. A finn Cel li reach Ill'W s(-'gnll'llts hy opening "l' a scc­

endorseillent. III tlw lIext chapter, l>nllld extellsiolls lVill he treat('d ill III0J'( '
OIld or third chanllel 01' distribution, A retail sporting goods slore cOllld mar­

d etail. Do not elutoll1atic,lliy aSSllllle , though , that assl'ts alld CO lllP('[( 'II(,( ',,,
ket to schools via a din-;ct sales i(lrCe, A direct IIlarkder sllch as Avon COlli.!

call work ill n('1I' COli te xts, The marketing alld di st rihlltion cOlllpd(,IIC(,S oJ'
i)ilTOdlicc ils products inlo d ep,lrtmcnt stores under another hrand name,

Catomde, I'(lr installce, are lIot gllaranteed to work with Sliappl('- i II 1';(('1 ,
trying to f(>rce til<:' Gatoradc syst(-~ II\ onto Snapple IVas 011(' i'(';\SOli (aliiolig • /.\ge. JOhll SO Ii & Johnson 's hahy shampoo was lallgui shing Ilntil the cOll1pany

several) that th e Sn,lppie aC(l'lisitioll h y Cator,ld('\ parl'lIt nl'lll , (jllakn. was I()oked toward adl"ts who w"sh th e ir hair frc( plently.

a hlilme, • At.tribute preference. All instrLlmentation finn Illight exte nd its lill e to

• Does a firm have the needed competencies and re.<;ources ill R&D, ill(,I"d(, 1l1()1'(' prec ise e(lllil'm ent to se rve <I segment that require s

manufacturing, and marketing to add the various products propos('(/? gn'<lI('I' ,lcCllr;t('Y

Sometimes , \II appan~ i\tly silllpl(' lill( ' cxtcllsioll, sll('ll as addillg \\'0011 si:lill" • ,\pl'lication-c1efined market. Ame11C:<Ul Airlilles offered a c\oor-to-door, sa me­

to a lilw oi'paillts, call illloll'(,;t tOlally ", ,11' IIlalllll ;((' I"rill ,~ l,n,"'I , 1,1\1' 111 ;111 ' (/;'" J>; t('b,~(' d('liV<'ry service in conjunction with a shipping service, NextTt't. A

rial s tl'ci II lology, or III;tlkdili g l,n'lIl <lIHlllills III"" II()I Iii III<' 1';II):J I)ililil " " I' 1'",IIIII)('r places all order on <I \Veb site, a C01l11 e r picks it lip , and delivers it to

Ill(' firlll , :Ill :\11"'1'1(';[11 iliglll, ;\11.1 another COlililr then deliver s it to the rt'cipi(~nt,

254 Part Four Growth Strategies Chapter 1.3 Growth Stmtegies 255

A key to d etecting new markets is to consider a wide variety of segm e ll[;LI i,,,, \ II ' ' I II ,II I"d III'<:T huy ing a retail chain. B ackward integration is moving upstream such as
ahles. SOll1 etimes looking at m arke ts ill a differ ent way will un cover a ll se rld ,'(' ~', II" " I I" " ., 111,111 Ll f'adurer in ves ts in a raw mate ri al SOllrct' . A good way to llnderstand
It is especially helpful to identifY segments that are not being served well , Slleil :1', ii i \\1" " \ I' ltical integration should b e considered and h ow it should be evaluated i s to
lVomen 's ca.klliator market or the fashi o n needs 0 f' older p eopl e. III general , sq!. "" "I 1111,1 ,II III(' possible bene fits and costs o f a ve rtical integration strate!,,)'. Vertical inte­
should be sought fe)r whi ch th e hrand can provide value. Entering a new mark, 'I 11 ,11, i d" ," plltcntially provides:
Ollt providing any increm ental cu stom e r valli e is very 11Sky.
• ,\('( '(,SS to supply or dc mand
Evaluating Market Expansion Alternatives • ( :(liitrol o f the <l'wlity of th e prodllct ()l' SLTvict'
Althollgh syne r)...,,), call potentially he high , several other consid eratioll s are illvoh" I I,i • 1<1111'\' into an attractive bu siness area
a Illarket expansion :
I \, II ill trodllct's :
• Is the market attractive? \;\lili ClIstolllerS valu e the prodllct or s('rv i(" :.'
Docs it reall y offe r mC;1I1ing flll and distincti ve vallie;! I Tow forlllid ;lhl (' ;lIli I • 'I'll(' risks ur managing a very diiTe rent hu siness
cOlllmitted are compdil()rs'~ Call th eir assets alld cOllipetelicies h e 1H'1I11.1 • ;\ I'Cdlldion in strategy !-lcxibility
il.ed h y the right strategy? A re market and Clivi ron melltal trend s sllJlJlolllI'
• Do the resources and will exi~t to make the neces.~ary c01mnitmCII/ "' \ j '( ' j'SS to Supply or Demand
the face of ullcertainties? Docs the lIlove Illake strategic s e nsc'~ ( ;0111\ ,." I
bailed Ollt or th e printer bll.silH'SS despite having a slipe rior pl'Odlwt III '' ,''"'., \. <I ' SS /0 Supply
the prospects of catchillg I-IP ;lIl(ll'll c' ot!tl' r leaders wen' too lilflllid"IIII', i " '.111111 ' contexts, a key sll ccess ractor is access to a sllppl )' or raw material , a part ,
The cOlllmitnwllt was lackill g. " J .'IIiJil ll' r inpllt factor ; backw ard integration can redllcc the availahility risk. A
1I'In i Im)(llIl:ts firm may thllS aC(lllire tint\)('rland. I1 t'wlett-Packard lost a crllcial
• Can the business be adapted to the llew market? To the exl'cnl' tll"["""
' 1\ 1I1011lh s getting a w orkstation to the market \Vh en a k ey suppli(-'r of c hips w as
ditions dillcr, is there a cOllvincillg plan to adapt th e 11ilSinl'ss? F()r ('\;11111,1,
1IIIIIIth s lat(" wh ercas IBivt , w ith intt' !'Ilal source s, did Il()t have that pmhl e lil .
Hh cillgold Brewery, a N ew York company, I~liled in an atteilipt to !'lllI-l' IIII
' " ," ".liIIIl' S sllppli e rs are not capabl e 01' or in te rested ill providillg the II(-,('d('d
Calif'mllia rnarkd , ill part hccall sl' it tried to lISt' a (Ii .s triblltion challll!'l
" " "I")Io" :llt. For example , w hell rcrri ge ratcd hoxcars alld w arehollses w erc rirst
Illl slIitable r'or C ,tiif()]'Ili,1 ami in part h<:x ';lIlse a promotion that wa.s (,Iii '1'111 '
1" , ·01, ,<1 hv Illl'at packers , th ey had to develop them b ecause th e re was no S(lIIITl'.
in New York Idl [-Iat in C ililelrllia.
• Can the assets and competencie.<; that are at the heart of business S/I' \ , IT S .S to Denunul.
cess be transferred into the new business environment? Prod('!' &
' '' " I J!;II'lv, liJiward illteg ration could he moti vated h y a cOllce rn about prodllct out­
Camhle was IInahle to capitalii'.e Oil its marketing alill distrihution assl'i.S ill
I, ! '. TillIS , all ill.Sllrall C(, firm could lJilY r egional ill suranl'l' agencies to proVide sales
efforts to market soft drinks , and it stru ggled in cosllldics and fragrall('(" ,,'.
" I1I II'I.s. i\ Illoti vatioll to gaill acce ss to major bll yers was b ehill(l th e large alltollwk­
well until it aC(luired brand s w ith estahlished di strihlltioll .
, I i 11 \'1'stlll('II[' in car rental f'i rIlis-Forll in ve sted ill H ertz and Bndget, G eneral
\ lll lll rs ill A\·i.s and National , alld Chrysl er in Tllrifty allli Snappy. Tlws t' V(-' rtical
The expeliellce ofFedEx when it attempted to chlplicate its concept ill EllmJl(' ilill ',
I' 1;lIi"II,llips pro Vide Ilot Oil I)' sal es , hilt also important exposure of new nHHlds to
trates the last tw o issues,.') Setting up a huh-and-spoke system in Europe w as ilillihil< ,d 1, \
1"" ' IHTliv(' Cll.stollH'rs.
regl datOlY roaclblocks at every turn. Attempts to shOit-ci r(;uit regulations hy ;lC( II Ii rlllV
Firms with related abilities res ulted in sOlllethi ng of a hodgepodge- Fed I'~x II( I\\! "\\'11.'. .,
( 0111 n)1 of the Product System
barge (;Olllpany, lor example. The firm also lack ed a first-mover aliv<lIltage ill 1':111 "I'"
i>eC<IllS(-' DI-IL and others had employed th e F ed Ex con cept years carli(']' i\ n ,lialH'I " "' II '""\ Iw('ollll' 1I(,(,('SS ;1I-V to illtcgrak verticall y ill order to gain slifficient control ovc~r

th e English language ,Illd a de(;ision to impose a pickllp deadlill(, fi vc o'c1()ck ill SII;III' or , 1'1'11<111(1 Ill' s( ' lyi( '(' (0 IIlailiLlil1 til(' illtegrity or a dillccr c iltiation strategy. F o r exalll­
(wh ere p eople w ork until eight) cansed additional illlpl(,11H'nt<ll'ioll Jlmlll! ' "ls. 1,1, . ,, \'il;!1 ('IlIIlP"II('1I1 111<1\ 11('( ·d (0 1)(' Illad(' w itll prcc isioll, alHI O(ltsi(k contractors

"',1 \ 1)(' III1;tI,J( · III III·II\i,I,· il 'II 1I11 \\'illili g III IILtI", ;111 ill \.'(' S(III( 'llt ill til!' specialii'.cd

"".l'I s 1'("I"i,nl \ ', ·ili, ·,,1 illl" " I, <lill l ( 111:1 \· 1)(' IIII' (lilk w a\ ' III ('II SIII'l' 111 ;<1 (III' d( 's in '( 1

VERTICAL INTEGRAT[ON STHATEC I ES

' l 'I:dil \ is ;II'I,i,·\,·oI.
\'I'I·lil·;J! ilil",l',r;!lillil 1'1'1""""111 " ;IIII ,IIII'I'I,"I"IlII:J! .L,.... ,\\ II, ,Iill"1111" r " ,,\; ,"1 illl" : ', I ~ 1 "' .11'1 ':1111 1 ', It" " ,,,,,I I, ., ,1",,".0111' I I. II, ·.IIIIIII:oIillll , i,ll'" IIII' 111111 I!I!HI, . (l,II"'" 111;"111
li ' lI' ''' '1'111':; \\111'11:0 lilill ''"'\'", ,111 \1 11 '. 11" ;1111 \\ill, 11 " '1" ','1 I" 1,1,,,1 11 " 11,, \\ '.11, ·1, " ', ,, 1.,1'1111"1"11" ,, 1,," ·,·, 1, , " "'"11" I ' h , I" ''' II' '· ' I"il"'(I ·,,1 11 011,:0,1"'1" d"'I",,111I .I ,·,I,il ,"I,·,1
 256 Part Four Gro wth Strategies
th rough value retail er s, tlte Korean firm 110W sells i ts higll-priced , top -quality wall ",
throuf.Sh prem ium ch annels, Gn e r eason behind th is turn arollnd was S'lInS llll ~(~ ell II 'I
gence as a p roduct le<lder in lIlohile phon es and flat-sc reen television sets and CO IIlPIII"1
Illonitors, The compa ny attJihutes its abili ty to make tlwse product advall ces-and i',..t
th e resulting bllzz-to its b ackward in tegratio n in to microprocesso rs and Illc nHlIY d lil'"
By inve nting, lllal lllElctlllill g, and owni ng i ts advances, Sam su ng call get (and stay) all< '; Ii I
o f competitio ll th at mll st r<~ ly on all outsiele supplier,
Sony h as li ve d with th e me ln ory of its superiol- Beta h)l'lll at h(~ ing overnlll by 1111
cOl1Solti UI II o f V H S fi rm s, T i le Rnal nOli I was hammc red in w lll' n th e lIlovie " ti l( Ii, )"
stopped producing films ill th e Beta f(lI'I Il ai', Sony h,ls sin ce hl'co m( ' a oll e-stop shop I; "
entertainm en t so th at in ti l(' hl tllW it can guaran tee a supply o r so rtware "(H' its l"llti
ware pmdu ds, By 11I l)'ing C olumhia Pictures, Tri -S tar Pictur(~s, Collllllhia Pietllrl ",
T(~ It"vi s i o n , and C BS Heco nls, SOli )' has sllhstantial control ovl' r sllpplier dl'cisions,
Entry into a Profitable Business Area
M all Y m anuf;lcllll'{' I'S have stnl ggl ed Iwcall se of'mal'gill pr<"SS llrcs, Th os(' tilatll:l \ '
prosp e red h ave ortell v(, lt i ca lly integrated d owlI\vanl to tl l(' CIIS to Il 1('1', 1)('(';[ 11 '"
th at is wh e n-: th e 11IOlle), is, From alito illohiles t o rail mad c f(lIipll Wllt to C011qll11
e rs, th e sil,e o r t he ill stall ed base is llIu c h larg(, r t hall th e Il l'\\' IIllit sales, In COI'P, I
rate cOlTl p llting, 1'01' exa lilple , th e ;tv(' rage ('o lilpally sp ecs Oldy "bollt o ne-ril'tli (I I
its ,ulnu al pl' rsonal -co lllpiite r 1)lJ(lgH Oil hll)'ing hoxes- ll le res t go(,s to t<'C IIlI; (,, "
support, FOl lr dilll' n 'nt dow n strea m l)JI sill !>ss Il lo de ls can Iw cO ll sid ('red :
Comprehensive Services
Sllitcs o f w rvices are pac kaged ,dong w itli th e prod llCt. Boe ill g cOIli/JiI H-'S rl ll ' lll (' i ll.~
local parts stl ppl)', grOllild lllailll'c ll<lnCe, logisti cs nl;tnag(' IIIl' nt, alld pilot traillin g illill
a thri ving sl' r vice bllSin ess, IBM and C E ha\'(" we ll Illil c h o r I'heir growt li and pro'il ~
cO lil e ri'o nl sl'rvices th ,lt augill e nt th eir p roducts, In IlI all), caSt' S, thl' prod"d is III<'
tail th at wags th e dog,
Distributor/Retailer
\ I\' hen a distrihuto r or retai h ~ r is Ilsed th ey w ill comlll<l1H1 a slliJstanti<lllliargin , 13:, g()i l l ! ~
direct to cil stoill ers ,IS Avoll and D ell do with a dirt' cl model and Appl e ' liHI Kri sfl),
Krenl(:' do wi th th eir re tail si tes, th e p otellti<ll f<lr a p ro fitahle hu si ness Illay ex ist.
Embedded Serv ices
\ Vith dig ital techllolo).,'y, ser'vict's that on ce wert' ex ternal to th e produ ct can 1)(' 11I Ii li ill ,
John D eer e's G ree nSt'<ut machin el), has cOIllPuter- en hance d yidd lll<1nagl ' 11I1' 111 all< I
preci sion hlrilling capability. Stlyker makes surgical equi p illent that C<l1l he (,O llt mill ,.J
throug h voice recog nitiOIl , E ach of th ese ,1IIgnlt'ntation s extends the p rod"ct:, \ ,dll ('
Integrated Solutions
N o"; ;! illl ls ll', tI( ,S Il o\\' ;[ fil 'll l ('; 111 ('()llIhill (' Ill'()d' l<'h alld S(' ly i( '(', i ll l'l:J "': I1I1I" s,' (d f" I'
ill ,~ 111:1 1 , l(ldl'< '~s( ' \;1 (' II "I() II I(' r ""('( 1. \\ '11<' 11 ;1 1" ' ( '",~( lIi /,('( I II ' ''1 1. ,1. '1.1 '00111' " ;11 ri " I's I ii "
Chapter 13 G1-owth St rat egies 257
,'(J>;I Oilwr) w er e st r uggling with the co nversio n from analog to digital and a m ass ive
",rm vth in de mand , Nokia bro ke into a leadership positi on by crea ting an array of cel ­
1,, 1;11' products, including handse ts, tran smi ssion eq uipll18nt, and switches, In addition
III dep loyin g th ese produ cts with a ran ge of serv ices, th e co mpany helped th e carri­
1'I S pl an and lll auage th eir n etw orks,
'I\vo sets o f (Iuestion s w jll h elp g Uide an)' down st r ea m option , F i rs t , can it he
', 'I('( '('ss hdl y imple m e n te d hy y o ur o rg<lni /,ation? C all the neeeled assets and CO Ill­
1",1(' ll ci es he d eveloped ? Seco nd , is th e opportunit y at t racti ve in te rm s of proF­
,l.ti) i1ity? \Vill t il<:' de mand sllppo rt th e hnsin ess? Wi ll the cO lllplJtiti ve lan dscape
,dill\\' h ealth lIlarg ins?
IIi'iks of Managing a Different Business
\ " 'li ic,t! in tegrati o n in vol ves <lddin g an ope ral'ion whose re( I ' lin~d organi zatiollal
,I', ~ ( 'I s and ('oll1pe t ences 111<1)' diffe r markedly from th ose o f th e fj rm 's oth er bu si ness
,)( ,':lS, D ell , f'O)' exampl e, wo ul d re(lllire a very diFfe r ent typ e o f' o rganiza tion if i t
,d l" lllpted to m anllfactllre disk dri ves o r mi croprocessors, than tb e OJ1(~ it has devel­
"1 1< ,11 f(u' se ll i ng fi ni shed compll lt' rs, Th e din(' ren ct~ betwee n man agi ng packaged
I'< H)d s li ke Pepsi o r Frito-Ll), c hip , and res t aurant s slich as KF C , T<.lcO Be ll , and
1'1//,, \ lJll t h ellX'd Pep SiCo dec id (" to get out o f th e I'('s tallran t hu sin ess , An o thl ~ 1'
" "lll( 'nee on th e d ec ision w as th e probl e m w ith b eing a compet ito r to large ClI S­
I, >lIII ' rS ( Bollnd Tabl e Piz/,a was reili cta nt to ofler Pepsi in its loca tions , g i vt~ n that
1"'I)siC(I o Wll ed its ri val Pi Zl.a Hut) A nd J'Illllling an integrated organi /,a tion i ntro ­
.l11('('S added co mplexiti es,
B('d uction in Strategic Flexibility
The in cr eased cOlllmitnlt' n t to a busin ess awl its market refl ected by ve rti ca l
11I1 (',l!;rati o ll redu ccs ,trategic fl exibility. rf'th at marke t is hea lthy, t h (~ n integrati o n Illa),
1'11 1" 111 ('(:' prodll cl's, Gn t'he othe r han d , if the lTl arlwt tllrn s dow lI , illtcg ratiOl I may
, '; III S( ' a larger drop ill proRts, In tegration also rais es exit harriers , U th e husiness
I H'I'O III ('S weak , th e add i ti o nal in vestm ent and co mmitme nt cr eat ed hy integrat io n
\\ ill illhihit' co nsiderati on of an ('xit alternati ve, Furth erm ore, if o nc operation
1WI'O IlI( :S d ep endent on th e oth er, an ex it strate)..,'Y Ill ay be inhibited ,
\ llt' matives to Integration
'i , '\ (' I',d ,Ji tt- mati ves to integrati o ll exi st, su ch as l ong- term co n tr acts , exclu sive deal­
111,e; a,ll,"( '(' nle ilts, asset own er ship , jo i n t ventures , strategiC alliances, techn ol of.Sy
11<'(' lI sl 'S, dlld fran chi Sing, F o r exa mpl e, a win ery can have a lon g-ter lll contract w ith
\ 111<'\ ,\I'd s th at prott' ds both , Exc lu si ve d ealing agr ee m e nts th at link a manu hlctu rer
,111<1 ;1 1'('''lil ('hail l or distrihu tor can p roVide th e needed inform atio n tran sfer, strat­
I ',~\ ' ('oll l'll i l l;r l i') II, ;\l l< llrall s<ld io n <11 111 di strihuti oll emciPllc),- A uto illobil e Rrms that
11\\' 11 IIII' ,>; pI '(' i:.! III" I;II )~ 11,(,( 11 )\ , Ill<'ir SIiPllli ('I's p roV ide a t( 'c hll o logi cal and finan c ial
1111 " 11, ;11 1)(' 11 1" ;11 ',111< ' 1<, li :.!d " ~ 1I1 ) I)h ~' lo S I (I f' Ill<'s(' all( ' l'lIali v('s ill vol ve dif'fi (' llitil 'S,
1" 1" '(' 1:"" "', I 1I,' j(III',I ,II )('I", ,11 11 11 1(1\\ "1' 1'< 'l:lIi' )II , llq )' (' I I<II \ ,~(' 0\'(' 1' l ill l(', hi li 1111'\1 ;" ';0
 258 Part Four Growth Strategies
(:/1/(/'/'" / :1 (;, 1111"1/, SI"II"';~ il'S :.!.:;!)

provide many of t h e advantages of i ntegrati on w ith fewer di , ad v<l ntag("s. TIlt \

11)1.10theticaJ idea. Southwest Airlin es olTered poiltl - lo- IJflilil ~I' rvi(' I ' \l' ill'fllll SI,:t1
should Ilswdly h e considered Iwfil!"(,! cO lllmi tm e nt, to i Jl tt'gratioll are pllrsllcd.

ass igllillents , tHeal s, or oth er amenities w h e n a huh-a lld -s pokc .W SI('lll W:l.' l'I'g,lIdl ,d
Although Il et profit as a p ercent 0(" sales does increase with vertical integ rali(111 as a key success factor in th e indu stry. Fed e ral E xpress piollC('II'd a cOlllp'('I( ·/1· <iiI"
tlte return Oil inves till e nt (nOl) may not beC<luse of th e increase in investment. ()II'
["ert'nt way to delive r packages , Re voilltionary st rat egies , w hen slIccessl"l ti , (':UI I( 'ad
study of l,fj.')() bllsines ses suggested dlat the most profitahle husin esses are al III, '
to strategic ad vantage and avoid the difficult task of improving Oil the san I(' strat(' ­
ex tre nws 0(" th e ve rti ca l integration sp ed n .l lll. (i A V-shaped re latio ll ship Iwt\ve (' 11 \ 1'1
,t.;ies use d by co nl[wtitors .
ti cal integratiOl1 and profitability W,IS fi)[lIld. T hu s, manulilcture rs should h e wa lY .. I
How can revolutioll<uy stnltegies be d eve loped , especially with in an orgalli/,atioll
takillg a middle course. The hu si ll ess that puts togdil er systems and I;tnn s Ollt ('(JIl l
cOllllllitted to tlw accepted w a),s of op(-~ral"ion ? Th e answe r in vol ves some creative
pOlwnt- prodlldion w ill tend to lI1il\imize in ves till en t , s(' ek Ollt low pri('(-'s , and 11:1\,
Ihillking. Use tIl(-' guide lin cs suggested Oil page 24(-j. Dming external and inte rn al
maxilllulrt f-!('xibility Th e heavi ly illtegratcd finn w ill Illasimi w the IWlldits 0(" v('rli
ca l in tl'g rat ion . ,\ll,ll ys is look [i) I' re volution ary ideas. Hanlt, l suggests sOlTl e add iti ona l gll idelin t's.'

• Li st" t lt e f'undallwnhtllwlieFs th,lt in cumhents in your industry share. \Vhat

THE BIG IDEA new op]>o r tllnities w (lItid (:xist if onl' or lTlore of tlwse \V(-~ re relaxe d ? \Vilat if
hotels o[1er<l t(-'d Similarly to re ntal -ca r agencies, sell in g room s Oil a 24·hour
TII(' li)rl'going lias illtrodllu 'd fi ve path s to grow th . Each path COII IPI'is(-'s a spec/n lill (,I
hasis instc'ad of' using a rigid check-in systl'Ill'~
.s tTal"(·gi(·s that rallge rrolll the illCl"CIlI('lltal to r('ally hig ideas , as Figllre 1:3.:3 sllggt'sl s,
Althclilgll ill(Tl~ nl('llbtl growth str,ltcgi('s call ,uHI should he th(' fi)l liidatioll lill
• Look at tile function ctlllt'ndits recei ved hy th e Cli stOlll er and cons ider dir­

growth . SOIlI(' sigllificallt growth initiatives and I)ig id('as ()lIght to 1)(' O il til(' tahl(. :1', ("en"nt ways 01 ' supplying those hencfits .
w (·'11. I rno hig id('as arl' (' v(' r cOlls id('I"(··d , t·hcl"(' is vi rtll a II)' l\O c hallce to tTt'atc hr(';ll­ • Co nsidn how assets or cOlllpete nci es could I)(~ exploited in difTere nl" settin gs
throllgh strall'gy- so I'xpand VO llr hori'I.011 alld look li)r the j)isTley l,llld i lll(i Nikdll\\ II or in di("Ji ~re nt w<lys.
type of" id( 'as .
• L ook ill' the di scontinuities in the illdllstry and let thelTl lead to lII1COnVCll­
Creativity and inllovatioll co n\('s ("1"0111 a di v(' rsi t), 0[' ideas ,11111 idea SOllru's. (:,,{
tiollal st rategy op tion s.
1I\11lhpl!' sOllrc('s and PC' I'speclivl"S illvolv( ·d. thl 'll test the Ill'st it/eas. Sincl' il- is Ililitl

to pred ict w llat w ill hl' a significallt growth illit iat ive or it IJig id('a. dOIl 't II(> a("raid I"
takl' live I(-'sse r ideas <lnd S ('(' w hich olle sllrprisl's YOIl.
Str'ategy as Revolution
Cary 1lalli I:' I Itas pilI' f()J"\Nard the thesis that th(., real pay ofF r es ults f'rolll dev(' lop
Ill(-!nt 01' revolilt ion illy strat-eg i('s that IIn' ak Ollt of indu stry norm s or operati()Il ~,
D e ll COl lIpli tel', fill' l'xaillple. sold COlllpllte rs hy llIail whell that was .ili SI
The Impact of Growth Strategies
• COll sidcr or("erillg a scaled-down ve rsion of" t ill' prodlld or se rv ice, suc h as
I)('d-and-hreakr.lst inll s or mi crohl"l'we ri cs. Or, think ahollt illl expanded ve r­
sion , fronl loca l to g lobal, p e rhaps.
• Pll Sh the hOIl ntLlries or L111 iVl' r sali ty. For exam pk, make disposahle ca llwras
thilt cllildrell can Li se.
• Add ('v:itclI\( 'nt or rUll to th e prodllet or sen' ice . tht:H'hy redefillin g th e
ol"!(·ring. I' or (·~ x ample, a s1\penllark(~t added a childre n 's playland , a minor
:t
I cag ll (~ has( ,hall team ad(kd a jil"I.i', hand and gourllle t picnic li)od. and
Trader Joc's adtil"d ("ash ion to ("ood rdailin g.
• The most Frllitl'n l grow th area is oftcn to increase product usage within the
I'xist ing prodllct market h y in c reasing th e frequency or qll<llltity Iised , b y

Increme ntal
Significant

9
findin g nn v applications or revitali zing th e hrand.

Growth
Growth

Strategies
Strategies

Big Ideas KEY LEARNINGS

• New flavor • TIll' 1I1llsi 1'1"1 Iii I'ltI g rowth area is often to increase product usage withi ll
• Enler new country
• Rem inders
• Disn eyland IIII' 1 ' \i~lllI,L!, 1)1"1)(1'11'1 IlIarkct. w herl' assds ,md COll1petellces ilre iJl plac e
• New generation • NikeillWIl
to lise product :tlill I l l i k 111 '1',1 III Ill' 1I'\'('I·:t,l!:(·tl. ( :l"I)wtll w illtill ;J prodllc:t rtlarkd Ciln
l " i.l~III ·( ' 1:1.:1 ill\I.I \ I ' :1I1,IJlI " 1111111111"1 I'(': IIIII"I 'S, 11I'\\'-,!.!.( ·III'l"dlillll Ill'o<1II('/"S, (·.'\j><lllsioll 01 '
'1'1 It' 11 111 J. ... I "I" ( :" "' II I -" I':t I, '.c',i, "
II ... , ,,,,, 1111 '1 "" "1'" "I 1II'\\' llrll"III"'-' .
260 Part Four Growth Strategies Chapter 13 Growth Strategies 261

• D eve loping new produds, a second route to growth, call involve lin e
ex te n sio ns, exp(tn de d prOollct scope, or new gen e ratioll products.
• A third growth route, market development, in volves expanding th e mar·
ke t either geographically or h )' targeting ne w market s<::'gnw n ts.
• A key co nside ration of an )' growth strate gy is how to acb ic vt' syner/-w hv
leve raging c urrent assets and compet:e nc(-:s.
• Vertical integration , another growth dire dion, can provide access to Slip
pi)' or o e m<lnd, co n tro l of the ':[ltalit)' of tlw produd or service , an d (-,lItry
into an attractive l)l1sint'ss area. It also, however, introduces th e risks or
ll1<lnagillg a ve ry diff<"rent 1)llsi ncss and re(lilc ing strategy Hexihility.
• Olltsourcing rather than vertical integ ration Iflakes it e asi e r to change
strategic direction in rcspo ilse to threats and pressures ror tile markd .
• Crow tll call Iw achieved w ith illcn-'lIwnta l growth stratcgi(-'s , significant
growth initiati vl~ s, or big ideas. All husinesses sholdd strive to IIncove r
a nd i I1lpkl1l c nt hi g ideas , hec<\lls(" th(-,y arc uSliaily the sou rce or hre ak­
th mllgh stratcgi(,s.
NOTES
I. Sl\~ge stions \\~th resp ect to this second bullet, as well as the seve nth bulle t fdJowing,
come from Al exande r Rid, an act ive and successhil creati ve thinking innovato r and
(acilitator.
2. r,indf' n A. Davis, Jr, "lvlarket Positioning Consi de rations ," Fmdltt:t -Line Slmicgi es.
N ew York: The Confe re ncE' Board , 1991 , pp. :37-:39.
:~. Jay Gmene, " Ikyond th e Omce," BI/.sill ess Week. Sepl't!llIhe r 16, 2002, pp . .54- .5G.
4. Adrian Sly,votsky alld Hi chard 'vVi se. lIme to Cmu; \Vlu :lI M([rkell JJolI 'l , New York:
\\Iarner Bllsilwss Books, 200:) .
5. Daniel Pe ;ul , " Federal Express Fillds Its Piollee ring FOrlllllla Falls Flat Ovnse;ls ,"
\ 11(/1/ SI reet .lul/rIlIIl, April 1.5, 1m) 1, pr· A l-AG.
Ii. Hobe rt D. Bllzzell , "Is Vl' liica l Integ ration ProFitable?" H llnJllrd /)//sil wss Hevjnv,
.lal1u ar),-F(-'il rll'"Y Illin , pp 92-102.
7. Cary 1·1a 111('1 , "Strategy As Ikvollition " I-JariAlrel /)IlSiIIf'SS ]-in ;iI'lv. Jlll y- AllglISt 199G,
pp. (i9-i)[.

FOR DISCUSSION
1. Pick <III indll stry alld a prodlld or se rvice. Eng<lgt' ill a creati v(' titinkill,l;
pmcess (as outlin e d ill tlH' ins(,rt in tl1<' citapte r) to gc n('rat(~ a n
inlprov('d oIT('ring. Do till' same to cr('at(' an ('ntir('ly n(' w ofTering that
II S(,S OIH' or mow or th e assds and cOlnpel'ellcies or th e rirm .

2. Pick a rirlll and hllSil wss and lise tlw (~ i g ht suggestion s propos('d hy
C;;lIY r Iamcl to COIIH' I1p with a hig ide a.

3. Il o\\! \\!ollid YOli in cn",N' the usage oi'pmdmts if' yoll wew th(' III <u lage r or:
a. Do ritos
b. Charles Schwab
c. Cap
4. Starhll cks Cofii-!t' is now being orrnc d hy United Airlin e s in Hight se r­
viet' and Starhll c ks Ice Cream is distributed by Dreyer·s. E\!<lhtat(-~ tll<'s( '
tw o g l'OIvth initiati ves . In each CdS(" , what is th e asset or compete ncy
t hat is bein g leve raged ? \Vas it as wise d("cision?
5. Hecall the D e ll case in C itapt<~ 1' lO. Dell is planlling to t'xp<lnd its s('r­
vice bus iness , as it has hi ghe r margins and is a growth area. \Vhat 111 li st
D e ll do to Ill:' sliccess l'l.ll in this are na? \Vltat sugges tion s would YOIl
make as to the bllsin ess Illodd th ,lt will allow D e ll to compd(' witll III'
a nd IBM?
 Chupter 14 Diversificatio/l 263
CHAPTER FOURTEEN

• t\ saJes forcl' Of ckmnel of distriimtioll

• A brallli n a111 e and its image
• Faciliti(" s Ii se d rm 1ll,1I11Ifacturing, o["Rces, or w<lrl ,hollsi11g

Diversification
• H& D (-,florts
• Staff and operating svs telllS
• M ari«'ti" g a])(1 I1wr1(('ti11g n 's('arcll

'1'11(' pmdl1l't (~ xp ansiol1 growth ~,tratcgy n or illall" ;111 (l lv(' s II i(' S,lIlll' Illd ll d ami
d i', l l'il l lltiOIi S\'ste lll, S() it w Oldd (j"alil\· as a ]'( ' iat~'d ciivc'rsiricati(lIL 'I'll(' 1ll<lrkC't njl,lIl­
,. i(1 11 growtl, str<ltq!;y is Il sllall v also a r (' lat n l di v(' rsiri ca tioll h C'('<l lI sc ' it <t]lplic's t i l('
' "lillI ' jlmcllll't ioll tl ' chllology allci o Ftc' 1l illl 01 1'1 '.S a silililar IllarkC't , [Ilei distriillitioll .w.s­
11 ' 111. Verl'ical illtc:g r<ltioll is IIsllali y <til 1111)'( 'iat('(1 e1i l'('r.sifi('ati oll , 110II'c'v('I', 1 )( ~ c, lIlsc ' it
'Tis til(' part or;l WiS(,111<1I1 10 kl '('p hilll ~(' II' tod<ll' 1'0 1' IOll1ormw, ,lIlclllOI' \ (' ntlll'{" all hi~ ('ggs ill II p ic-ally lacks all arc :a or CO lIlIllonalit\"
011(' hasket. All illl[1ort<lllt iSS II(' to co nsiclel' ill <til :' e1i vc: rsil'icati()11 ciecisioll is II' ll('tlll 'I', ill
-Ali gucl dl' C(Tti(I1IIl 's
111' 1, tll('f(' is a wal an d IIl('allill g rllI arc',l ol' coll llilolialil l' t h ,ll will alTc 'dll1C' IIltilll<II'1'
1;( ) 1, All Illlrc :latc'd e1i v(' r si/'i c,ltioll ( a cli ve rsil';calioll lac kill g IIl1'allill g rlll C( JlIIIIIOllal­
Pllt all YOllr eggs ill 011(' hasket ;In d- \\I!\TC I I 'I'll AT BAS KI':T
- -M llrk ' // C(I; II II ie 's) Illav st ill 1)(' Jllstil'iah lc-, hilt a e1i/l('re'lit ratioll<l k w( )ldcliw II c'('c l('d Tilli S, III('
('(IIIC'('pt or re,Jatc:e1 di v(' rsii'i catiol1 is 111 0]'( ' thall <III iSSllc' oi ci (' iilliti o ll, III til(' [011011'­
II I", seelioll IV( ' cO lIsi(in t he r<llioll al c' allcl risks o j' J'(' htl'c1 c1il (' rsil'i( 'ati (1 11 ,wei tlll'lI
l ill IS" of ' lllm ,Jakel c1ilc'I'sil'icatioll.

A tobacco firm 1)1IY' a rro i'.c ll-[()oc1 compan y, a cola finll l' nlt'rs th e w in t' bllSiIW'i.'i,
H ELATED DlVEll.SIFICATlON
1';'po.<Ling 01- Exchanging AsseLs and Compelendes
a cl ll' 1I1ical compan y goc's into swinlillin g pool slipplics , or ,111 aerospace finll starl s
lIlaking autolll ohil e parts, Su c h c1iversiG ca tion IIlOV('S re pres(~ llt hoth thc~ oppOltlinih li "i;tI (, cl cli\'('1'sifi ca tioll providc's till' 1)()tc' "liai to attaill sY II('1'g ic's Ill' sku'illg ,,,sd.'> or
[()r grow th ,\nc1 reviblii i'.,\tion ,tlHI th(-~ .'illhstantial ri sk or op(~rating <In 'lId~lIl1i1iar 1)1l si
''' llI l w t(' II Cic's ac m.'iS iJll siIl C'S."".s (Sl'C' t<' ig lll'(' 1't ,l ), \ VilC '11 rt ,l<lt(,cl e1il'l'l'.'i di ca tioll is
IICSS in ,\ new contc'xt, ,](,C'(llIl llli slwel h ' illl'c'I'lI ,d c.\ pallsi oll, [il(' go,,1 i.s to c"p o rt as s(' ts or Cll llllwt(' II Ci('s,
Di ve rsifica tion is til e' strategy of' en tning proc111d Illarkds c1itlcrl'nt rrom those ill \\ 11(' 11 acqlli sitioll 0[' or IIlng(' r w itll arHltl ll ' l' bll Sill ('sS is til(' vcili c l(', til(' ,!.';cJdi is to
w hi ch a firm is currently cngaged, T w o g rowth strategi es clisc lIsscJ in C haph'r 1:\, ("l lIll1iIlC' Iw() sds 0[' COlllpl c lI l(' lltar\' assets <llIeI (,Ollllwt( 'IICic's, witll ('a('h P ,l rl V CO II­
prodlld' expansion anc1market expansioll , IIsually involve l~ lllry into n ew proc1l1ct iliaI' II illillili g w klt til(' otll(' r lac ks, In cith( 'r CdSC" a hli sill( 'sS (" pIOl'ill ,CC: I'C ,Lttc ,d di l'l ' rsifica­
kels, thus reprc~ s e nti ng di v(~ rsi hcatioll, HOWeV('T di ve rsiFi cation can also i nvolvc-' hoi II
l i' "1 , ll o lll cl cIlllsicic-r thn '(> stc'ps,
n ew products and new markd s, t\ dive rsi hcation strategy can hle i IIlpl elllen t("d h\' Tll c first stc'p i,'i to iIl V(')ltol,), as.'ids <[lid CO lllpC'l('11Cic's ill orcl( ' r t() icl c' lltil\' w,d
(~ither an '\(;'(lui sition (or IIl erger) or a new lmsin (>'ss Vl"ntllrc,
',11<' 11 ,\.';11" Ihat arc' c'\portahle to an otll('r i li lsirH'ss arc ',l. 1\('call I'll(' clis Clissioll ill
It i s h t:lpf,d to catt:gorize div er sification as r elated amI IInreiat(-:c1, I n a re lal!-d ,+
( :iL if )I (T Oil i (1('11 ti hri Tl g as.'i ds a Tlel COlllPct(' Ill' iC'S, i\ 111011 g ( 'xpo I'tah I(' as sd s ,111 cl co 111­
diver sificati on, th e n ew hll Si ness area has Ill eani ngrul cOllll11onali ties wi th the con' 1)(' 1( ' ,)('i c's dn ' 111'<111<1 lIa I11 (,S , marketill g skills , "tic's ,1I1<1 cli striilllti()11 cap<lcitv, 111<11 111­
busin ess, Meaninghd cOlllmonaliti es provide th e potential to gC IIl'rate Ccollol1lies or 1. ]('llirill g ski ll s, ,IIHi I\ &D capahilitic's,
sca le or syn er gi es based on an exchange of assets or co mp etenci es, Th e n'Si ill i ".L;
comhincJ bu sin css shollld h e able to ,wlli ew improve d ROI lwcans(' or illcl'( ';ls('c\
r eve nues , d ccre ased costs, o r reducc d invest mcnt. As noted in Chapter S, 11 1I '; "li II)'!:' Identify Busine ss
As sess Assets, Implement
fill comillonalities call inv ol ve sharin g of': Comp elencies. and
Plans that will
the Busines s
Leverage Asse ts
::XCO!'lS: Cnrnr.lly Plans
illlO Competencies
• ( :1IS i'OIlH' rs ;1I111 .s cIlIl('liIlI('S ('II.S[OIlI('r ;lJlllli(';tli(lIl.'i (1IId"lrti;dh "1";]1 III,\.'; a .W.'i
1"III.S .soIlIlioll )
"'i~,", ' 1 1.1 1 , ' 1 ' ,1"11 111 \ ··,-, 1 1 . , IIH ! ( " III1I H 1( !U' il'\

~ Ii ~
264 Pari F Uli r Growth Strotegie8
T he s(-'l'ond "tel' toward rt'latc(l divt'rsific,ltioJl is to riml a business area where
tIll' ass(-'ts and COil Ipl'tellci t's can he 'Ipplied to gfneratf an advantage, A line of greet­
ing cards sold through dmgstore" might he able to use the distrilliltion assets and
competcncies 01' all ov(~r-tlll'-l'onnter drug m'lrkdt'r.
Onc l'I'llitflll ('\ ('rcise is to examine e,lch asset fell" excess capacity. Arl' some assets
1IIIci(-Tlltilil.l'(P A, bl\ Firm that eOl1Sidert~d this question took advantage ol'excess officc
SP,lU' to olhT I('gal services, A sllpnlllarket chaill with ohsolete sitt'S went into til('
discolllll li(jliOr Ililsilles", A cooki(' plant hegan Illaking Illuf'fins, The advent of Illlllti­
SCIl'I' 11 eill('Ill'l.S ('Xllloil('(1 tll(' ('xcess capacity oC thl' staff If a diversification can ll.S('
C\(,('S,S capacitv, a Sid l,stantial, ,SI Ishti Ilahl(-, cost advantage COl lid reslilt.
All I'\alllpl(, 01' ,WIHTgy Il<lscd, in part, Iln (':>.ploiting ('\cess capacity is the Los
Allgell's ,sports ('lllpirt' 01' .Jt:ny 1311'-;,S, 13IIS,S OWIl.S IClllr sports teallls, including the
1,ake'!",s hClsh,tlJa11 teanl and tIll' Killgs hmley tealll, all 0[' which play in his J7,.SOO­
s('at F01"l111i ,llld ap[l('ar Oil Ilis Prime' Ti('kct rt-'giollal cahle chann('l, which rcaclw,s
II(',lrlv 16 Illillioll 110111('S, TIl(' tl'alll,<; provide' a pmdlld lelr the Fonlill ,lIId the cahll'
cklll Il('1 , hotll 01' which lI,lv(' ('\U'SS capacity. Fllrtll('rmorc, thc cahle channcl helps
generatc illlt'I"('St ill tIl(' lc'IIII.S and othcr Forllill eVl'llts, such as mek concert-s,
I<'iI ICllly, illlplc-lll('lltation prollknl.s 1I(,(,c1 to 1)(' addre,ssed, Assets and COIllP('­
tl'IICi('S Illay rC(jllirl' adalltatioll.s whell applied to a difTerent hll.Sincss, Flirthcr,
Ilew ("lpallilitil's Ilia), kll'(' t() 1)(' rOlllld or d('vel()pt,(1. \,\111('11 al'Clilisitiom arl'
illlolvl'd, two (lI",[,;dllil',atioll.S with t!iller('nt sys[('IlIS, pcopl(J, all(1 cllltllrt's will have
lo 1)(' 'II(T,[,;('(I, i\,LlII\ cllol'[s at acllievi'lg syllergy I'alkr hccall,sl' 01' implementa­
ti(lll dillicliltil',s
Bnmd :\lame
OIl(' COllllllOl1 I'xportaille )"('SOIII"l'e is ,I strong, ('stahlishl'll hrand llallle-a name witll
vi,sihility, as';lll'iatiollS, perc('ivl'(l ljll<tlity, ,lilt! IOY<llty ;lInong a clJslolller group, Tlw
cktlll'lIg(' is 10 Llkc' tlli" Imllid a,ssd amI IlSC it 10 l'ntl'r ncw prodllct-Illarkds, '1'11('
11,1111(' ('an lIIake' til(' task 01' estahlishillg a n('w pmdlllt 1I(0)"(J f(-;asihle alld eHicienl.
I)('calls(' il Illakl's dl'velopillg awar('nl',ss, trust, d!ld interest all easier,
;-"1<111) I'irilis h,llT hllill- Lngc, divl'l-s(' hllsillesses around a strong brand, illcllld­
ing SOIIV, Ill', J J)M, lvIitsllhi"hi, S('illlt'JlS, CE, Schwab, Virgill, alld Disney More
thd!1 :3()() hllSil1('ss('S carry tIl(: Virgill II a III (-;, and ,Ill gain ['rolll the pllblic-rclatiolls
llair 01' Hichanl Brallsoll, its OIVlllT Mitsllhishi has its naille Oil tholls,lIlds 0[' prod­
llCts, ('ach o[ wllich I)(-'nl'[lts I'will tIl(-' name l'\POSlll'l' <tnd frolll the cllllllllativl'
Ill'w-product vitality.
Dislll'y fOlllld(-,c1 in 1~)20 ,IS <L cartooTi cOlllpallY with Mickey Mouse (thell
knowll as Stealllhoat \Villic) as its initial asset, Illigbt he the lIlost sllccessful I'irlll
ev('r at leveraging its hrand, III tIll' 1850,s, tIle cOlllp,my Imilt Disneylalld allll
launched a TV show linked to the thellll' park, dramatically cbanging tIl(' ImllJ(lllv
mdkillg it Illuch ril'lwr ,lIld cleq)('r t"'lll Iwl'ore P<lrticlllal'I;' al'I('I' (,\It-ll(lillg
Di,slll'vlall(1 to f l()rida, Pari" all(1 lall<lll, ;111" ('sl;tI,li,sllill,~ ils ()\III 1,'I;lil sl()!"(',s,
I-('Slll"i", ;111(1;t ('I"llis(' sllil), l)isll('1 1';(11 cI('liITI' ;111 ('\IWI'i('IIlT 11,,11 ",Ill'" 1',11' [1('1'()11l1
Chapter 14 Diversification 265
watching cartoollS, As a result of this bralld power, the Disney Chanlll'l is argllahly
(lnC' oCthe strongest TV chanllC'ls available, all incredihle achievement ifyoll COIl­
sider what others bave put illto that space,
It is instructivt; to see why Disllcy has done so well with an aggressive hrand­
l'xtensioll strategy. Fil'St, h'Olll the begililling the company has knowll what it stands
[()f-- magical hlillily enteltaillinent, e:>.eclItcd with cOllsisten[ excellence, EvelYthing
I)isney does reill[cJrct'S that brand id('lltitv; when it went into rilms [(lr matllre amli­
l'nlTS, it did ,so IllIder tIlt' naillc TOilchstont' ratlwr than Disney. Second, Disney has
r('lentll'ss, Illlcolllpnllnising drive [(lr operatiolwl l'xccllclllT that ,starlt-'d with \Valt
i)i,slley's I;ulatical concern For dl't,lil in the earliest cartoons alld theille parks, The
Jldrks are rtlll so well that Dislley holds scllools 1'01' other rirm,s seeking to learn how
I(l maintain ('IHT,[2J' all(lcoll.si,stcncy. The crllise ship was Ckla)T(l, de,spite hallooning II I
l'oStS, lIntil everything was jlldgcd pcri'cct, Third, llie organil',atioll actively Illdlldg(',S a
I. ,
II(lst of ,sllhllnLllds that have their OWII identities, iTlchldillg Mickey MOllse, Donald
I)IICI<, a nlountain (tIll' Mdllerl\(lI"Il), a SOllg ("It's a Sinall \Vorld''), rilillcll<lracter.s like
r--.la rv POppillS or th(' Lioll Killg, and Oil dil(l Oil, FOlllth, Di,SIH'Y Illl(krslall(ls syn('rgy
;l('l"OSS prodllctS, Th(' Lion King i,s 1I0t oilly a film Iliit sllpports lideo/])V]) ,,,,tle.s, the
l)isll('Y stort', ,111 ('xhallstiv(' sd 01' prolliotiollS, aTid a IlIllsicaL
The hrand-(",t('ll.sioll dcci,sioll i,s largely hased OIl three qllcstion,s, Each 1IIII.st Ill'
;lIl.sw('rl'd in tl)(' afFirlllativ(' ror [II(' ('xt(,lIsioll to he viahl(', \
1. Does the brand fit the new product context? I [' tIl(' Ciistoillcr is IIIICOlll­
f'ortahk ,1IId S('IISl'S a lack of' rit, acccpl<1IlCl' will 1I0t COIlIC I'asily. Thl' hralld
llIay not 1)(' St'(,1l <],' having tIl(' IIc('e1l'd l'rt'e1ihilitv or I'\pertisl', or it lila.\'
havl' the wrollg associations ['or Ill(' cOlllTxt. III gell(Tal, a hr<llHl that kl.s
strong til'S to <I prodlll,t cLt,ss and attrilliites (I'or ('xample, !-l(willg,
Books,collI, or KIl'('ll('x) will h<lve a nlOre dilHclilt tillll' strl'tchi'lg tllan a
hrand th<lt is as"ocidted with intallgihles sllch as ['asllion, valllc, (;l'1"lllan
('lIgilll't'I'ing, or acliv(' lil'c-styll's, Cl'rtai,dy, all 0[' thl' DislH'Y ('\ll'IISiOlis ril
I)(,c~lllsl' tlwv wl'r(' sllpportillg or part olthl' "magical I',unily l'lltl'rtain­
lIlCllt" Immd idl'ntity. TIll' Disncy storc, IClI" example, Fits hecliisc it i.s filII
0[' Di,sney chdradcl".s, vi(k,os, ,lllll spirit.
2. Does the brand add value 10 the offering in the new product class?
i\ Cllstonl('r ,should Iw able to C\PI"l'SS wby the hrallel wOllkl he pr('l(.~lTed ill
its IWW contl'xl. Despite the Fact that cruise ships are difficillt to tell apalt,
ne<lrly anyolle cOidd vcrh,dil',e rather cle<lrly bow a ])isn(-~y enlis(.., ship
would hl, difFerent fmlll others-it wOlild have Dislley charactl-'rs ahoard,
cOlltain more kids allll f,lIl1ilie,s, 'lml provide lll<lgical falilily enkrt,lill III en t,
11' the hl',lIld name does not ddd \,Ihw in the eyes or tlw customer, the
I'xtellsion willlw vlIlnerahle to competition, For example, Pillsbury
j\linmvav(' POPCOril initially Iw[wFitl'd ['rom the pmslllll"Y n,lIl1e llilt was
I 11111l'1;II,I(, I(l llll' ('Illry Ill' all I'sl<lhlisll('d P()PCOril n<lII1(', TIllIS, althollgh
()II ill,' 1:,,(I('liI,;«('IIl'I' ('lll('I(,c1llll' II I iITll\1 ,11'1' ('<lI(',[,;ol'Y lale, it ,,;till IV'OII witll
,I 11,1111" II" II II 1l';I I1\ I [I" II i I I ;( I[( I ;II III [( '11\ i(' i I I' i II 1)('1)('(' I'll
 266 Pa'rt Four Growth Strategies
A concept test Cd ll help d e termine what va lue is added by the brand
Prospe ctive Cllstom e rs ca n be given onl y the brand name , th e n aske d
whetlwr they would be a ttracted to th e product and why if th ey cannot
alticltlate a specific r easo n why tilE' off eri ng would he attractive to tltCIII , it
is Illllikdy that tlw brand name will add significant value,
3. \lVill Ihe extension enhance the brand name and imager The ide al is to
haw an extension I'hat will provid t, visibility, ene rgy, and associations thai
snpport the brand , C oach was a sllccess ful, bllt sonH:~w hat stodgy maker 01
leathe r bags until it hire d a new d eS igne r and extended its brand to ha ts,
shoes , sllllglass(-'s, coal's, watc hes , and ev(:' n straw beac h hats , all with til('
signatll re "c' in leathl'r, The ex tension s provided en e rgy to til(' brand and
he lped attract YO llnger cllstomers , hoos ting th e finn's long-krill future,
SlInkist's associa tions with on1Jl ges, healih , and vitality art' r(-'in f()rced hy
th e promotion of Sunkist jllice -bast'd drinks and vitamin C tabl e ls , w hile
SlInki st fruit rolls may Iw a ri sk The Disney extensions into thl'ml' parks,
cruise ships, <lnd retail s tort's ;111 reinf(lrced the hrand,
Tr an exte nsion will damage the hrand , another branding option n(-TtI"
to 1)(-' f'ollnd, \,Vh('n (;;lp introdllced a value clwin and called it Cap
VVareholls(', t-iw primary nall lt'salw brand W,lS ill danger oj' heing ('onflls('d
and taflli s hcd, TIl(' rinn qlli ck ly n ,' collsi<!('r('d and protected thl' Cap brand
hy c klilging the l1am e of the lll'W chaill to Old Navy.
Subbrancls and E'fUloT,~ed Brands
Two unf'ortlll1<lt( ' realities l'an illtt'r!ere w ith hralld e xtl'lIsions, First, a new hrand IIlal
not he fe asihle bec;lllsl' tlw space is too cillltl'rcd and !'lit' organi/,atioT1 docs lIot havI'
the size or resource's to build a nl'\\' bralld ill that context, SecOlld , th e ('xisting hralld
rnay havl' till' w rong associations or risk I )(-~ ing damaged hy the c x[( ' nsion, perh;'lJ I,'
hecallsc the lalt(~ r 's lwrc('i ved qualily or person ality is illcolilpatihl(~ with the brand ,
In these cases , l'he answel' 1I1ay lie in th e lise of sllhbr;llids or end()rse d hrands,
TIll' GE ProFile sllbhrand allowed Gl'lwntl Electric to stretch into a premiUIll seg
1lll'llt w ith it's prodllct' cnergy and high margin s, Silllilarly, th e Pc ntill1l1 Zcon Slti)
brand allowed Intel to oHer a high-e nd se rve r microprocessor, A sllhhrand Ids I'll('
ufFering separate itself sOll1cwlwt hom the parellt hrand , 'lllli it oflers the pan'lIl
brand som e degree of ilisulMion,
An endorse d brand otTe rs eve n more separation, For exa mple, Marriott needed III
e nter the business hot(~ 1 arena b ecau se it was huge and growing, Because it wOllld havI'
bee n extre mely expensive to create a stand-alone hrand in that area and the e xislillg
brands were all too Illessy to buy, the company Cl'eared Courlyard by tvlarriotL TIlt'
e ndors e me nt indicated that Marriott as an organization stood hehind the COllrIV;11l1
brand, w visitors could be conFident that th e clwin would d eliver a re liahle ex[>( ' ri('IJ('('
Lev(~raging a hrand by l1Sillg it to ('ndorsc oth er hrands , ofte n provides ;[ 11'llsl Illlll In ,I h
Marketing Skills
1\ lil'lll \\'illl)I'II'III ' ill" 'I ' jlt)"'I',,,, 111' 1;11''' ,'oIII)IIL', IILII ' I, ( ' III) ,l~ "kill" 1111 ,I 1',IIII1 'IIi,11 111.11""1,
'1'1111" ,11 '1'('1 1"1 '"1 11I"li,,' 111(' "i l "I '"i li,':rlilill i\ III " ' 11111/ "I 11111'11,1 11 1111 , IIII !', "I,ilk
Chapter 14 Diversificatiol1 267
1',I;lC'k & D ecker held cleve lope u amI explOited all aggressi ve new-products progralll
II'g , cordless screvvdrivers and HandyChopper), e flective consumer marketi llg (f()J'
II :II11( 'S such as Space maker, DustbLlster, and ThLlnde rVolt cordless tools) , and inte ll-
II', clistoHler service alld dealer relations 2 Th e acqui sition or Emhart, with its
1)I; llHled door locb , d ecorat ive hlllce ts , outdoor lighting, and racks , provided Black &
I )I'( 'ker with ,In opportllnil)' to apply its marketing skills and distribution clout to a
lilill Ihat lacked;1 mclrketing cu lture,
I\pplying marke ting s kills is not always as e asy as it appe ars, Philip Morris , a SIlC­
"I 'ss 1'111 marketer of Miller Lite ;m d other hrands , I:ailed with 7 UP, which it attempted
It) Il()sition as a caff(Jilll'-I'rel' soft drink in response to health in[cres ts of conSlimers,
\[1 1'1 a s('v('n-year hatti e, Philip Morris gave lip and sold the lint' 1'0 Pepsi-Cola, Tlw
lilt )111( ' II1 S that hescl Philip l'v1onis illcll\(lc d Ill(' reaction of' competitor,,, who ru she d
I,,, I[('il\('-f'n,' (' drillks to til(' market, the pow(' r o['C;>.iStillg Ilottiers and distrihutors, and
lilt' lilllitcd appeal oj' klllon-lillJ(' drinks,
( :apacity in Sales or Distdbution
\ firlll with a stJ'Ong di striblltion capahilil)' may add prodllcts m ,(,rvic('s that could
1" llloit that capability 'fhII S, Black & Decker's distrilllll'ioll strength Il e ipeel provide ;l
i"ll)\t to the Emhart lin(,'s, A joint ve lltUl'e hclw(~(-'n Nestl0 and Coca-Cola in the
1'; 11111('<1 lea hu sin ess cOlnhilwd Cokc's distriblltion s trength with the prodllct knowl­
I" I,L!,l ' and nal11(-' of' Nest](~,
j'>cO l1ll1l<'rce rirtns II s llally have o[>eralions that cal1 add capacity jllSt by addillg
,I 1>lllt!)ll to ;lCCCSS anotl1<'r prodllct gI'O UP, '1'11(' resilli' call he addihonal sales and Illal'­
:',iIIS 10 ()fr-sl'l the ri xcd costs of' the operation,
'\ Ianll facturing SkiHs
\ 1:llllt!;tl't llring or processing 'l llility l'<111 be th e basis f(lr e lltry inlo a new hi lsi ness
; III';t, Tlte ahility to d esign and Iliake small l1lotors helped I jonda succced in the
1I IIllllrC)'ck bllSillCSS and le d to ii's l'ntry into lawn-care e <!lIipn1l'nt, olltboard lTIotOI'S ,
:lIlll ,t Itost of other prodllctS, The abilil-y to make small products has b ee n a key f(lr
SllIl)' as it has llloved from prodllct to product ill conslim er e lectronics,
H& D Skills
j';\ 11l ' rtist' in a ce rtain technology ca n lead to a new business h ased on that technol­
1Il.!"I, c: E's (-'arly res earch has spawned very successful husinesses, For l,xarnpl(~ , its
II'S( ':II'CIt on tllrbillE'S [(Ir e le ctricity g e ne ration provid ed the hasis t(lr its aircmf!
l'II ,l',ill<' illl.sincss , and its light hulh research provided the roumlation ror what becam e
IIIl' Ilwdie,11 ill stnrn)('ntation business, The challenge is to h(' open to c hann e l H&D
1111\'; 11'(1 II"\\' hIi Sill<'SS ;In'as , Too orlen there is a tendcllcy to f(lCIlS excillsivcly Oil
1'\IlII ill" :- . IIH' ",i,,,lilw 1)II.'oilJ('SS,
, "",
Adli('villg I<collullli( ''i or Scale
I:"!:JI,,,I,I "" I', III' ,111"11 ",III ', 11111"111111 '," l'I 'llIilll' "1'1»1<11)111'," 1"',,,,,,1, ,, 'I'\\'1l 's 1I1;11I"I'I'I)11
', 111111'1 111t"1,,, I' I" I" I, ,I , " 01 1,1" 111.11 11111 " ;(1'1, I", ;1111" III : li'I~,1t1 :111 1'll"I'lill' '0:11" ,\
268 Part Fow- Growth Strategie,~
Chapter 14 Di ve rsificlltion 269

force, ll ew product tleve loplllt' nt or t esting programs , Of warellOLIsing ,mel logisli,'"

s;'Sh:' IIlS , Howt'vt-'r, the COlllhinatiOll of th es e finns may he able to operate <It an ('f'ii TI-IE ELUSIVE SEARCH FOR SYNERGY

cient k vel. Si milarly, !>.vo finns , w hen combined, may he able to justify an expc lIsi\( '
'I'll(' conccp t of a total com mlinicatioliS 1i1'T11 that cOll'lprisl~ .s advI'ltising, direct IIIdI'lwt­

pi ece 01' alitomat(Jd prodllc!ion eqllipment.

Somdinll's a cril"icallllass is n t't·,dt-:d in order to he e ffective, For ex ample, a sl)(' illg, markehn g r("search, pllhli c relatioll s, dlJsign , sales promotions, and now Internet

"'"I111111nications has bel'n ,1 drealll of' many org,lllizations far two decades, Th e COllC(' pt

c iali'l.(' d t'l(-'drollics firm 11 1a)' Iwed an H,&D e fi(llt, bllt H&D producti vity IIl<ly ht' I()\\
II<IS Iwen that s),lH' rgy wiJl be crea ted hy pl'ovirlillg ciil"nts w il'li 1110('(' consistl' lIt, coo rdi­

if' it is not f'~' as ibl e to ha ve se ve ral rcsearciwrs who can inkrac!,

lI:1tcd co nlllHinicatioll 1, I'/illtS «lid hy cross-selling Sl'I Vicl'S, TIllIS, YOl\lIg & Bllilic«111 h«rl

11,(' '\v holc~ egg" «lid Ogilvv & M«thc r talked ahollt "Ogilvy on:lll'str«tioll's, "

I)cspit(e the l'Il,lJpellilig logiC«lid cOli sicln,lhle err()rl s, sll(:h syllc:rg)' has hl-'I'lI 1,III.,i \ll',

THE MIRAGE OF SYNERCY

1\(,(,"I1Sl- l',)C'h com nll1l1i cation discipli1)c invol \'('d difhorcllt peopk , pararligllls , c,litlll'(,s,

SYllvrgy, as SII).';.L;t'stcd in Ch ,lpkr S, is an illlport«nt source of competitivc advantag"

sl,lIlclarrls , and processes, till' dispar<ltc gr<> IIJls had di l'fil'ldt\ not Ollh-- \\'()]'i<illg togc'tiJ('I'

1 I ()\V('\'cr, s)'llcrg\' is orten luor(' IIlil'age than reality. Svrlcrgy is oltt' n a,<;s Llnlt'd WII('II ,
I,"t "V"'l doillg silllJlk things like s"'"'ill ),( strategies alld \'islI«ls, A rcLItl'd problc'lIl \Vas

in lild, it do('s not ('xi,st, canllot he reali'/(:d hvc,lIlsc or ililplelll l' ntatio n prohl ,' IIIS , "I
<I 1'1,I II (;(<1 IlCI' to re k~r elit'llts to si,.ster IIl1il's wllO w ere slLspCeled to rieli ver illl'c rior I'c<;(dts,

is \ast" O\'('rt',tt'llt!t,d,
w llieh crcatl·,d c lil'nt-rr,:lati()11Ship OWIII'I'silip iSSIiC'S ,

Pulellt ia t synergy does not exist, Strategisl's OI'tl'll Inaniplliatc s('manties I"
y(lung & I\lIilic« 1ll has hcen r)('rhaps tl)(' 1lI0st SIIl'l '('sslli1 , ill large parI l)('callSl' it

ckllld(' 111('IIIS('lv('s tklt a syn c rgistic jll st ificatioll cxists , l~lIt w hel1 packaged -go()"',
IlH'I'),(Cri its dircclillarkctillg, public I'elaliolls , JlIte ril et COllllllllllil:atioll s, ,lIld advertising

lil'llis into Oil( ' orgallil.atioll , witll sli;lI'('d locat iolls ,lIld eli("lt -rdaliolls bldcrsllip, Eal,11

In<lllllbdlll('l C(,Il('r,ti Foods hOllg ht Ilurgt'r Cll('l', ,I chaill 01' ,OU Llst-I()(ld r('sl;(11

1I!;IJor ,ICCO' lnt has ,I dirt'('['o r al](I cl ('rlic:a tccl 'pal' e, \ \' itll 1111'S" four IInil s togl'llll ' r

rallts , tllc' Ltd tll,lt both ('Miti('S wcr(' kchnic<llly in tl\(' lood hllsincss was ollittk ('Oil

:lin ':ldy, it ilccall«-' t' asier 10 illl'llide a dl,',sigI1 rinll slich as LalHlor in eiil'lIt ('lIgag" llll '11ls,

S('(IIIClll'<' Il(T«IIS(' C('Il('ral I<'ooels Iw\,(' r c(lItid 111'l.<;t('r til(' ,skills I)(,(,lkd 10 r li ll

1) 1)11 NC'l'rillalll has I,ad SIlCCl'SS with vil'tllal cliellt «',UllS drawil fro 11 , its I'dillil)' 01' COlll­
J'('sLillr<lllts , thcl'c ' w as ('olisidt'I'ahk nl',l.;ati \'C' orgalli/',atiollal sy nergy Tlw ,I[lpawld
1I111llicatioil cOlllpanies, TIl('s(' lToss-diseiplill(' ka'llS l'I'cat.. II'l'ir OWII cllltilre 'liid

S)lll'l'gy 01' OIH'-StOP fill<lllCial ~ h()ppillg tUI'I)('e1 Ollt to 1)(' iIIIlSOI')' as well, ill Il:iIl
1""lel'ss( 'S tklt allow 1111'111 to proVide till' e()()nlillateclcollllllllllicalion tllat dil'lIts IH ,(,d,

1)(,("IIISl' CIlStcllll('I'S Silllpl)' dir\lIot \'alll(' its pllrported COI1\'l'llil' IICl',

Til(' Icssoll 11('1'(' is tll<lt sy"crgy clol's lIot .iILSt Ilaplwll, despitc' logiC '"Id moti vatil)ll. It

Potential syne rgy exi,~ts, but i1ll1!/ement,ation barriers m.ake it tf.IH/ (f (I i /I ":til n '<{"irc neal iI1110\'atioll ill implelll('ntaiioil-liot jllst I'ly ing harri('\'.

able, Tllis kl)11)('IIS ",ilell a di\('rsificatioll IlI()V(' illll'gratl's !>.vo orgalli/',aliolls til<ll 11:1\1'
1'llIlli.ulll'ntal dillnc'llcl 'S, TIl(' J),lillll('r-lkll/, and Cllryslvr Illl'rgcr sCl' lIH'cllo 11<1\'" ,I

Ilost ofp<l[llT SVII('rgi 1',<;, hill tllc !llmll'lI orcolilhinilig two very dillc,rt 'llt orgallil.,llillll'"
stnldlll'C'S , sv Stc'lllS , ,lIl(lcltitllrt'S ill part Iwt oill y illhillilt'e1 thesc s)'llngics 11I1l "dd".\ , 'I "ilb' Pl ' I'.S()llalit;' bralld illto thl' Iliaillstr(,,1111 bl'\'I'I"<l,L;( ' III,illd ( its progl'alll w as
<Ill ,11'1'<1\' 01 ' Ill '\\' pmhkllls, A,<; ,I resillt, til(' Ill<lrkct v,dll(, (lr tlw Ill('rgcd entity <[lIi,'I,1I 1':1",<1 ()II p(,licstriall acivcrti,<;ing alld a gi,lIlt sa llllllilig gi\'('<I\\':I\'), ~ 1()n ' o\'c'I', !'Iii' lilcl
1( ,11 1;lr IfIOi'(' thall tit t' ~:3(-i hillioll Daillllcr-Bvll/, Ilael paid I()J' C III')lsl('I', 11,,11 (.lll<lk(' r paid s(,\,(, l'al tilll<'S Ino\'( ' Ih<lll Snappl(' was wo rth w as a l'a Ld halltlicap ,
S\'Ill'rgy i s al)Ollt rCSO III,(,CS 1l10rC thall prodliCtS, Olle firm l11aking illdllSlri<llllll'l 'I'lli' acqllisitioll of'TIlr' Ll'<lrnillg COlllpallv- a popldar ('llillln'II's sol 'twa n ' pldl­
Illostats dt'cir\('ti to Ic ve r,lgl' its t('c hnol0i-.'Y hy capitalil.illg Oil a grow tit Illarkd 1111 1,,/11 ' 1' willi titles lik<, HtJ,l(icr lbhllit , I,("am 10 Speak , and Orr'gon Trail - s( 'l'lllr'd like
hOll s('hold tll('rillostals TllI't 'l' )'v drs btcr, thl' e fl(Jrt was writt('11 olT ,IS ,III l'\I)('II.,i\, ' ,I I, ',L',il 'allll()\'l'llV ]'vlal'l(.J, (Ill' pI)wcrhtl tov cOlllpan y witll Ihrhi(' alnoll g its pmpl'rtit',<;,
rilillift. hCC,1I1Sl ' or the cOIl'lP:\I1 y's lack 01 e\perh sC' ill design, packagill g , Illas,<; jll'odlll ,,1 I"s, thall a war and a haH'a l'ter p'I\'ill/.( %:3.'5 hillioll lill' it , lviaUl'l hasica ll v gavt' Thc
./,
tioil , ,\I1ci distl'ihlltioll 10 nlarlw ters ant! cOlltractors, :l Th e ultilnall' illtcgr<ll'i()11 ('11:11 I ":Ill1illg CIlillpallY away 1'0 gd out ii'om IlIldl' r 1ll01l11tillg Io.'ses,
icllgl' is whell a grollp 01' l'lltitie's ,l l'e ('olllhinC'd to providc an illt('g Llteci c'lIsIIlIIII ' 1 ()II(' Sllilly of' wVt' nty -fi vt, pcopl t, f'rom I(lrly cOlllpallics that wC,[,( ' e;o;periellced at
SOllltioll I .ClI l ClTstller inciic,llTd tl1<lt integrating the COli 11 try, prodm't , allrl ," ' 1'\ i, " ,"'I IIII,ilioll I('d to s(' veral cOllclusions, First, Il:w cOlllp,mics cio <I rigo],(lIls risk <In,tiysis
silo s at 113M was his most significant legacy. 1 He ,.Iso IIOlc'd, th(lIl g h , tkll il Illllk li\, ' I",,"ill~ al lilt' least :\I1ci Inmt b vorahk OlltcOi\lC'. \N itll optimi stic vihes "holilltiin,l.(, it
y(:',lrs to accomplish till:' progncs,<; that was m :ldl", Citing till' 1;lilll[,(',<; or 111,111\' lirlll S III ", 1>: lIlic'III<1rl\- wi,<;t' to look at l'\)(' ciow il sici e: \-\lllat C< lll go w rollg '~ Second , it i s usc-'Itd to
('['C'atl' trill' Hll,1l1Ci,ti SlllK'rlllarkHs, llluiti-service tl'l('COlrllllllllicati()1I (,OIlIP'illi,'s, :11111 "' I :1 I"i(',' 'IVI'r w iliel, Vil li wililiot P<lV, l \ \'oici /.(dtill/.( so l''\ld wra llt ailOllt the sVllngis­
rldl y integrated (Jlltcrtainllwnt COIllP,lllil'S , II(' opill(,ll lklt illl'l',L '/<llillg ci(,(,I'lIlr,di/",1 I .. 1,,,II ' lIliallll:l1 \ '()II IIllilll:ti(,I\ 11<1\' IIHlI'(' lh ,ill )( 111 w ill ('\,er 1)(' ,lhle to rt,(,OIlP,:;
operations is a strngglc at w hich kw Ila\(' 1)(,(,II,II('('( 'ss rlil
Potentiaf sy"ergy is orC'/Talll ed. OIl<' risk ()I ' Illl\ ' ill ,~:1 1'"Silll'.'S ill :111(1111"1
I
(h H' -Slop Shopping 1'01 I' illanl'ial St'I" ic C,' ,,
arc ':I , l'\'('n ,I 1'('bt('( 1 'lill', is Ih," III<" IHlI('lili ,d <;\III'l'co;\ 111:'\ ,S""III III()I( ' "IIli"ill,!': 11","
il ('('all." i.s, 1'<'rh''11., "' "Til,,1 :1 \\,;1\ ' 1,\ il s 's II",',',' ,S \\'illl (: ,11"1,:(,1" (,hl:I""1 ()"I " I"II I )(II 'ill ,!" III(' I'J ' ,() " ',"\I" ,.I " IIII " ,IIIIIII'I:II,'.s \\', ' 11' """""''' I" 1"'''\ i,I" ()II<' ,' 1" 1) I
(-I 1<1.'s' ,<I IIII' SII:lI'I,I" I,"'. i lll'," III 1'1'111'''1':1;1, '/ Ililll")! ')1,1\ III " ,,11,1 I " " \":(1'\ hl<-I 1',,1 1111.11J('i.d ' ,1'1\1\',", If) "11'.1111 111 ' " .""11 , ,l.d.. t· .)(" ; 1111:1 111 ' ()1'111)('I ': di()ll :d 'o\'I( ' I' ,: I,il'''''', ()III '
I[
:I ""''-1' ,',;: ;II() 1111 lIi,," , (,)11:1"' " !,;"I,III 'li"IIIII"" ill ,11',1111,"11"" ,11, , 1 II, "~ , 111"1" :Ii 1,1,1111', ,, 111" " ,1' \\ ,1' , 1111111",1 \\' 1" II ' '' '1 « \ 1' 1' (111' 111 II .. , 11',.1 1" ,1, 11,' "1111'1',111 \ ('"1 , 1,, , ,1\ 1',:1111"'1
270 Part Fotl'r Growth Strategies Chapler 1-1 /)il' l"' ifi{'(f li() 1I '271

and th e b m k erage hou se D ea n \N itte r i nto a brl n that al r eady had Ali sl ;" , Ikla ted Dive l'sification Um'clated Dive rsificatioll
In surance , A llstate Savings and Loan , and 25 million acti ve Sear s charg('-('a lll • I ~x ch all gc or share assets or • Manage and allocate cash lio",
II ser s, To ex ploit th e per cei ved syn e rgy rep r ese nted by t hi s array of se rvi ces , SI ': 1'
I'ompde ncies, tlw reil), expl()itin ~ a • O htai n high HOI
ope ned m o re th an :300 fi nan cial h o utiques in its l arger sto res w ith va riollS COIIII"
1)l'all<l name • O bta in a klrgain p ri cl'
nations of A ll state sal esp eopl e, D ea n Witter hrokers, ,Illd C old we ll Banker agl 'II" ,
) 1vl arkC'ti ng skills • Hef(lCIiS a Rrill
In addition, it introduced th ,' Discover ca rd,
) Sales alld dist l'iilutioll capacitl' • I-\e<iucl' ri sk hy operating ill IIlIdtip le
Th e hoped-f()l' syne ri-,'Y though , did n o t happen , Th e Sears llam e and c lIIIIIII
Manuf;,ctllrin g ski ll s prodllct nw rkl'ts
w hi ch meant valu e and t r l1.';t in tires alld tool s, w as not an assd in secllritil's : II"
merge r also contrib llted to the d erar t ll re of key D ean \ Vitter lllo rtgage han ki Il g I" '" I{& D and 11(''''' product capalJility • Tax Il(-'ndits
p Ie, Nor w as th e Sea rs custom er base a SOllrce o f proFital lle hrok erage clislolIlI "" • 1':("Ollllllli l'S 01 ' scal (:' • Ohtain liquid assets
Most importantl y, th e has ic assllmption that c ustomer" wOllhl valu!:' Olw-stop sl'''I' ,., ration
• Verti cal illt('<>
ping in financial se rv ices was simply w ron g, TI ]('y wallted th t' least expe nsive 1"'" I • D"I'l·nd against a takt '()\'('r
gages, t l1(~ best hroke rage advice , th e most con ve niellt hanking, and so OIl. Iial i l "', • l'rovid(, (,x(~c llti \'(' interes t
tlw,e servicl's II nde r OIl(-' roof (lid Ilot add value, In addi tion , the i lllpienw iltal il "' ,"
cross-selling w as di,sappointill g hecause it was dif'fic ldt to Illoti vate tIl(-' finan c ial 'ii" i1!;lIl1'c 14.2 iVl otil'al'io!lS Ii II' /)i l 'I'" i ficatio n
vice IInits to J'('comm("Il(1 each otlwr. Sears 1Iltimately gavt' lip on th e co ncept, allllllll'
financial IIni ts- ii1cllldillg A ll stat(-' , DiscoV('r, D ean Wittt' r, and Co ldwcll 13<111"1'1'
I':n ledng Business Areas with High ROI Prospects
wnc splln ofT to again opnatc ind ependently.
ivlore rec(-, ntly, on e-s t op linall (' ial sllopping II;ls 1'('ClllI'rg('d w ith 1)('11"1 (J ill' Il ' l.sic moti vatioll for di\'c rsil:y ing is to improve HOI Il)' ll10ving into hll si ness
,I '
pmspects or acl li cv in g ,'yl H'rgy, ;tltllllli gh tlw ve rdict is sti ll i ll dOllht, One p()sil iI, , II [':IS w itll lli g h growt h prosp eds, 1 l eill'/. hO ll g ht \Vc igh t \ ,V"tclwrs ill th e late I f:J70s

d iflerVIIC(' is th e n latllrity o r Inte rn et sites as d evices to expos!' CIi StOI Il(:,1',S 10
v ices and to p rovide !'(·po rl'ill g th at ca n spa ll prodll cts, Anothe r is t he 1I 10J'(' I'(lrl",
rid and c llcctiv e li se o f' c ross -se llillg h y \ Vell s Fargo and othns IlSillg ta rg"",,1
Illarkding eff()rts , cll slo m e r inc( ,nl'iv(-'s, and pI" rl(lrn l<l ll C(· nH'aSIl!,( '", Still allolh"1 " ,
tlw n"alii',ation o r cost s;lvi ll gS hy co mbining orgalli'/.;ltiollS , One I" sso n is thai ('; '1'
tllri ng s)'lll'rg)' ca ll re<[lIire rl'a l e H(lI't, the right p rodll cl' nli x, ~111 elTccliVl' hl'; II,,1
pOl't[(llio stratch'Y, ,lIld timing,
UNUELATED DIVERSIFICATION
U nrl~ l ate d di ve rsi rlcati o ll lacks e llough cOll1l l1onality ill hrand s, marketing, disirillil
li ol1 , channels , manllf~lcturjn g , or H&D thrll st to pmv ide th t' opportunity f(JI' S),"I 'I'\.',1
thro ugh the ('xch ,lllge or sharin g of assets or compete ncies, T he ohjecti v('s arc lll('i'"
f(lrc mainly finan cial, to gen erate p ron t stl't'a lil s that are eitlwr largt"'I', less IlI ll'I' I'I;lill
or IIIOl'( ' stahl e th,m th ey w ould oth en vi se he, Figlln~ 1.4,2 sllll1l1larii',cs tIl(' IIIOli l; '
tiOIlS fill' hoth unrelated an d related dive rsificatio ll,
Managing and Allocating Cash Flow
Unrelated di ve rsi Rcation C,lI1 balan ce' the cas h Hows 01' hllSil\( 'sS Illlit" , i\ lil'lIl w il l,
b usinesses that merit inve stment m ig ht hll )' or Illerge w i th a (';Ish cow (a IlIl.,illl" ",
'ii" 1',,1' lhi s I'(~ a son , ;\ d(:'cad e lakr, it had exte nd ed th t' VVt·ig ht \V atclwrs hrand into
',[lIlIl' 200 prodlll,ts and IVas c,lI'Il in g cl ose to it s acq lli si tion C()st t~ac h yt' ar, Fllji
I,'i lill ;Ind K odak, hoth look ill g at th e d ecl in e i ll HIm process in g and f'ilnl-ha sed
": I1I1I'ra,s , have aggr<' ss ivl' ly Ill()w d into d igita l eanwras and tlH'ir aC(,I'ssorics,
Man y disaslTolis fIIt'rgers or aC(jllisitions hav!' hel'n mo tivalc d hy th e 1-' ll ti('e­
' "1' 111 of' HOI prospcct", Til SOlne cases, th e catastropll e w as callsed ill part hy :llI
III:lhility to Ill<lllagc th e ITsldtin g orgalli'l.ation , as \lid I as ;1 Illi st"k en proilli se or
',lllI' rg)'- Otlier til ll (,S , howeve r, it lVas c<.tll s("d by an OVl' rcs tim<lti OIl 01' the
1"'lIs pcds hy a riml 1IIlli inliliar wi th t he illdll st ry. A vo n , [()r ex ample , los t a [ill'llJlI ~'
HOI
t
1
1111\ ill g Tifbll Y & Co, alld perflllil e r C iorgio l kV('rly Hills. ill part h cca ll S<-' it over-
1';lid 1'01' those hll sillesst's, TII(' sa m e ca n he sa id aho ut Qllal<t' r 's aCljllisitioll o f
.' ;";qlll le , Daimlcr- 13(-!Il i','s acqlli sitioll of C hryslt' r, and lllall Y lllore,
( )hlaining a Bargain Price for a Business
I'!" ,J'( ' arc c(,ltailli y bargains I'm the astute hilye r, Bargains arc most likely w hell thert'
I"" l ll'l' lI a crash , Tn wal ('sLl te , olle trui sill i s that th e second (or third) huye r-after
IIII' lil's l li a" go n(-, halllml]lI-lVill be sllccess fl.ll. This call happell ill other sectors,
\11,'1' III(' dot-COlli cra sh , Illall \' viable finll s we l't' availahle for r easonahl e prices 1'0 1'
11'1),, ,' \1,111, 1'0 111" icl l' ll ti h . till' IlilSin csscs w ith real ass('[s ,
()II ;11'1' I'<Igl ', il lsl l 'a" (II ,!..'; l 'llill ,!..'; h:l I'gai li S, a(''1"il'ing ri nll s rail to n-'ali ze valli e

w il'lI a Sllhstantial (;<Ish \-low ) ttl provide a SOllrl 'I' o r fi ll all('iall'l 'SI)III'I'['S, ( ;OIIl[' rsl' h-. ;1 1" 'I': IIIs(' 111('\ IlIisrl';II III1;II-k", IlI'O' IH'd s ;( 11111111'1':11.-; , I'ail l o('apllln ' hO[led-f(ll' syne rgy.
Finll w ith a cas h ('() W 111 <1)' 1'11 11'1' III'IV 1I1;1I'kC'is sl'I ' kili g g/o\llil "lljlorllll lil il's, '1'111' III i, "1;"' ;(,l',[' IIII' 1II" ',I ',I :tli ll" III' lil' lI" (111"11 ' 11 II('(,;IIISI ' ('lIllilig I'os l s lak[ ,s pn '('l 'dl'II(,( '
toh;t('('o finll s, li ll' 1'\; lIlI pl l ', /, ;11'1' 1I S1 ,<I IllI'il' I'IIIII'IIIIIII S 1': 1.,1, II"",,: III III" ;, Il lIsl " I 'tI"l 11['lil"'l'ill ,! ', 1'11 ',1'"""1' " :llis h l' li , ,,, ' :11111 ;(''1' ,",; d"I' I" (''' ''''Iil lf ' (, IIIIII(,( 'S ;11111 "IH' I'­
lil'lIl\ , illl'llillili g (;1 '111'1'; " 1"'lIlI l., \J :d",SI'I), :1111 1 1)[ ,1 1\-IIlIII [', ,ii,' IIII' :((,' I"il "" 1111 ',11"",'" \l II II 11'11 II I', ', llItli, " "-, II' "' 111111'1'(11111' " lllIl 1'1 '111 1'11 11;11 '111'1'
272 Plirt FOllr Growth Strategies
when an ,Ic<j uisi tion is m,lde, O ll e review (JI' sonw rorty -ol le sllch studi es conclndes
that th e aC<jllired stock was pllrchaseu at a premiu lll of around 22 pe rc" llt fi Alloth l'r
stuuy or acquisitions OVl>r time showe d that arou n d flO p ercent of th em result ed in th('
total II1drket-adju skd rd unl of the aC<jllirill g company goillg dowil UpOJl thl'
H1lIl0UllCl' mellt and, inmost cases , stayillg down f(lr tlw Il ('~ t yea r. '
Tlw Ililsi ness model f(lr too man)' Grill s is to acqllirt' a busin t'ss with a l ow
price- t'arnings Il1ldtiplie r, which will create "t:arn in gs g row th " w hen COJl)h ill l'd wi th
tIll' aC<[llirillg company, The rt's ult is appart'llt fillall c ial StlCU-'SS as IOllg the Ilargaills
p er sist , acquisition s continu (', and ill Vl's tor,s wl11ailll'd COllvillced that thl' {-" lrnin gs
growth is real. TIl(' prohl ell l is that l've ntllall), till' ahscllct, of' a r cal stratel-,,)' alld oper ­
atjollal l~:\ce ll (:'llce w ill show through , alld the hous l' of cards will colldps c,
The Potential to Hefocus a Firm
All acq ui sitioll C lil prmide the' hasis I(lr a rl'i(lC11S of' tIll' aUjllirnl finn , the dCljll irillg
rirlll , or both , The ohj('ctive wOIlIt! 1)(' to c hallgl' th (' thru st of' a Finn I'ro 11 I (J1l(, sd or
indllstril's to '1I 1otl w l'. For (':xa illple, Esmark draillah cally r( ~ I(lClJs('d hI' scllillg its oil alit!
gas IlIl si ll (!ss('s ilild its Swil'l ()pel'atioll illld COI ICl-' lllrating thl' resilltillg ,lSSetS o n its COil "
Sl llll l'l' prodlil-ts hllsinl'SSl',S , Not illcidellhdly till' thrust l'hallg(' Ill il)' n'sldt in in vestors'
pncl'i ving il finn h) 1)(' ill lIIore iltt ractiv(' indnstri('s , lhll s c<lllsill,t; its stock pricc' to risco
TIl(' key is to id cllti l)! fi nll s tklt arl' IIIICIl' rva liwd w ilh resped to tl w ir potl'llti,JI
art l' r a rl'i()C II S, On(' ilpproach sllggestc'd hy Bow: I\lIcll acqlli sition sp(' ci ,di sts is l()
g rollp a fi nll 's iJllsilH'SS( 'S into lillir l'all'go ri (~s:'')
1. Core businesses , A cOr( ' IlIlsilH'sS Ini gllt rq)r('s (' nt 2.5 to (j() percent or
saIL'S, Strillc'gi ca ll v, the core hllsin('ss sllouldl H' ,~ tron g and hi\ve SOIll(' SlI S­
taillahl(, cC)lllpd iti v(' advillltagcs Oil w hi c il to hnild,
2, Su.ccessful diver,~ iftcatioHs, These wOIJld hr' th(' f'irlll 's stars w ith strollg
positiollS ill anTacti v(' Illarlwts,
:3, Unsuccessful diversifications. All 111l(1(~' I'V, lhll'd firm lypica lly hilS a sllh­
stantiill proportioll 01' Si\les ill 1111.SIICCl'ssl'ld div('rsificatiolls , w hi ch is a Illaj()r
cI J'ilg on pnrOrillillll'C,
4, Nonoperating 'i nvestments. Th t-'sc'~ cOlllcll)(' sl'ol''' inl('stlll(-'nts ()I' ph ys ie; d
assets car ri ed Ilc lmv Illarket vilh w,
U nsuecess rul di vl'rsificiltiolls ,In d their elf('et Oil perrOnllall ('( ' Jllay g('Ill' ratl' as,so
ciation s allJ p ercl'i vc d risks th at CillIS(' a firm t() 1)(' 111](1( ' 1"1 allied , 'I'll(' core hllSilll'SS,
sllccessflll di v(~: rsifications , <lIHIIlOIIC)pn,ltill g illl'('Stlll(' lil s Il lav 1)(' wortll Ilili ch 11101'( '
than the c urrent finn as a IVhole , Liqlli(Lltillg or clil'('~ lillg lll(' 1IIISll l:l'( 'ssrld (lil('rsili
c<ltiO)lS wo uld he OIl(' WiI)' to n-ali/,I' lkl l lalill ', ;\llollll'r I)Clssil,ilil,' w() llldll(' 10 Silill
ofT th l' core IJll sillc's,s , ",lli cll I H' il sc,II'llldl ' llJ' ";J IIIl' ( II '(' I :llilc'h ' lli ,~ ld\', al](1 tll('wll) IIS( '
the slll'Cl'ssrl d cli l (' rsili(';lIi(lIl ,s ;l\:1 \J;IS(' II I ,~( ' III'I:llc '; 1 IH'\\' ('() I( ' llIISill(',S<'; , Ir III(' 1)li ,~ ':i
lI;d con' Il lIsilJ('s s i,s ill ;1 11 illci'I.,II\ 1'''/ Ili ,~ldl 1( ' ,~;II.!"cI III IIII' , 1(,,'" 111 ;lr" ('1 IIII'
rn 'isc, d ('C II"! , c'() ld.! 1)(" \; JlIJ(',llli ,~': I,, ' r,
Chapter 14 Di!;ersificatioll 27:3
Heducing Risk
Th e redu c tioll of risk can be allother lllotiva ti on hlr tlme latt'd dil'(Tsificiltioll. I ka,)'
rt'lian ce on a singl e prod l\ct lill e can sti llluLltt' a di ve rsification 1ll00T, I L(~rsh cy wa,s
a l lllo~t totally dep en d ent on its candy and cO Ilf'eclion('J'Y IlllSill l'SS , a htisill(-'sS th ,lt 1I',1S
I lIln erabl e to all in c r eased intt' r es t in hea lth ilnd hl'alth foods, Jkrshl'y pmc klsc'd
I" riendly I ce Cream , a ch aill 01' f~ll11ily rt'st,lUrants hased ill :\l asS<lc illlsdts , ,\lid the
Skillner J\1acaroni COll lpall)' w ith th e goa l 01' maki ng ll OIl -l'O lllc'ctioll ],( '\'('IlII(',S ,l sig­
Ili 'n callt pe rcentage of sales,
....'oc k/wlder Risk versus Management Risk
I)ive rsificatio ll may 1<-'dU l'l' t he 111ark(-o[ I-isk filC illg a fil'lll alICl thll~ protcd the f'i rill 's
(' Inployet:s , Cl l.stollwr,s , and ma llagers, ~/bll agl'rs, ill P,Ii'hclllar, 1;lc( ' lll(' lo,ss o i'jo l> alld
Ic'plltatioll 1'1'0111 a hll Sill l'sS dOlVlltllrll ovcr w hil'll t hey Illay Ilal'l' lI D cOlltrol , alld tlili s
Ill('v lTlay he 11l(lhvatl't1 to di l'('l'sif)" I I OIV(-'vcr, ri sk r l'd lldioll oh taill( 'd 1'1'0 111 1l ll l'l' lalccl
di l'C-'rs i ficaholl is or
no vahw to stockholders , w ll o aI'( ' l'nT [-(l di l'c rsil\ ' Ill' II Old illg a
11I)rHillio or stocks , Based Oil t-/H' pr(,lIli s(' l'llat stock llol d('rs aI'( ' thl' ollly ITll'l',lTlt
,lakl'holde rs of' <1 hIISi1lc-'ss, it ('all h(, argll('d that th (' ITd lldioll o f' risk is 110t a Ic 'giti­
Illatl' ohj (-'c ti vl' ,
E Vl' 1l sto ckhold c Ls l ',11111 0t di l'(' rsi I:;, ['ro m systl' l nat ic ri sk, t h<lt porl-i o11 or V, ll'ialioll
"r tilt' stock rl'lllril cOITl' latcd with gel1 (' ral ('('on o illic cOll cliholl ,S, T hll s, a dil'(Tsifica­
I i011 that wOli ld n'ellIC(' a ~i nll ~~ sys tl:lllati c ri ,slc WOl del )(' of v, d Il( ' to stocld lold (' rs Fo r
('\, lIllple, all Ilpscaie chaill 01 ' rest<lnr,lI}ts migh t aCljllir(' a sl't of Tll'O Il( ,11 oll[ lds ,
whic h wOllld elo w(' 11 w l1('11 till' l'COllOIll), is dowll,
'I'<l\: Implications
' J;].\ cOll si(krati olls call stililidate I\\ c rg(,rs or aCljlli,sitioll.s ol ' IIIII'( ,lat('d finll s, Fi nll s C,1I 1
;1('cllilliilall' large tiL\ -loss cany o v('I's, w hi ch they Cill l c'xploit , Thll s, a firlll lI'itll a lar,t!;c'
, ,' ri c's oflossl,s froll} its ,II I tOIll<ltic t('II ('I' ilIac ilin l',s pllrch 'l.sed a prlJritahl(, SW('ilt('r Ill illl­
IIi:Jdll wr, w lli ch cOllld Iltili /.(~' til(-' l ossl'~s to 1"(,(I1I C(' [,L\CS, Mng('rs have ,dso 1)( '(' 11 1I1()ti­
1';JIl'e! hy finlls that hilvl' IIIHI (:'I'l ltili /,ce! tax in ('(' lltiw's to In;lk(-' capi l',,1 in ves l'lllt' llts,
()htaining Liquid Assets
\ lirlll Cilll I W(;OIlW an ,Ittradi v(' aCCj lli sitilJll cane!ilbtc I)(,C,ll IS(' or sll h,s LlIlti al lic[lJici
;1.',, ('[<.; that call 1)(' rcauily dcp)o)'(,'d or b l' U liIS(-' 01 ' a loll' e! cht-to-C(jllitv ratio that pru­
\ ide's tll (' ]lott-'lltial to sllpport d(~ hl' Gnall c illg, Ballks and illSIII'<1n c(' cJ)lllpa lli (~s ca ll 1)('
:Ii Il dU in' acqui sitioll targets I)('callsl' tl1(')' prmidc LlCct',SS t o nWllC\ ',
\'cl'tical Integl"ation Motivalions
\ l 'l ' rli(';i\ ill/c'g r;il i() 11 is Il sl l;dl v ;1 11 1I IIr('I;Ii<'d di l'('I',s iricatio IL III (;11;I]>h'r 1:3 , SO IIl<'
tIl' III(' 111l)Ii l:JliclIl " l'cI I' 1('l'li(';i\ iIJic',l!,ral i(l1l \\ ' ('J'(' cii S('II."s(,d , sl l(' ll a<.; gaillill t!; <In' ('\,s
III SIlI II) I\' (lr clt ' III:!I,,1 ('t)I "r()lIil' ,~ ': CIII ;,]il\ ', ;111l1 ,~;Iill ill ,~ ('11/1"\ ili/ o ;JI/I':J(' lil'(' hll ,si ­
lit '\.'\ , In ': I',,
 Chapter] 4 Div en'ificatioll 275
274 Plirt FOllr Growth Stl'(/l e,~ies
Il lI'at-packing firm , ju st b efore its plallt and metho d s wer e m<tde v irtually ob sole t e
J)efencUng against a TakcovCl' 1)1 Il ew pac h ' rs with hi ghly autom at ed pbnts, Na ti o nal Inter g roup , w ith steel and
liil as its co re hu sin esse s, hought a drug wholesaJe r, 0111y to finJ tltat a price waf w as
T h e threat 01' an ullFril-lldh' Llk('o\'l'r call k ,ld to all acqui siti on, On!:' hn11 hou gh I :1
" Iarting and that a project to se ll computer se r vices to dru ?;gists w as a di sas te r
small hallan<l ('Olllpall Y to g('I1l'rat(' ,111 antitnlst ohslach" to ,\ tah'o\'(" r h \ ' U ni tt-t1 Frllil
IvI mti 11 :Vlaridta n'spOll(kd to a t<lkcol'e r 1110W h y Bendi x h y ,1ttl-' lI1ptillg to hil I
rklldi x with tl ](-' help o f ,\ thin1 Firm , Unitl't1 T('chllol ogi es Th e complex ,\Ild expel! Pl'I'formance of Diversified Firms
sin' lll<lIll'IlI'(' rill g e nded with a ['oll1'th COmP'IIl j. Allicd Corporation , h uyin g l k lldi \ A case can he made for a foc llse c\ strategy - keep y our l:'y e on th e hall, stick to
w ll il(' \ \artill ~ la ridt a n'llwill (,,(l i m lq)(,lldC'lIt, 1()llr knitting, and so Forth, Althou gh of little valn e to a shareholder, howeve r, di vcr­
il il'ation can proVide a finll with strat egic Hexibility and a c nshion against h ,1(l eVl' lIts
p.-o\'icUng ] ~:\.('culi vc lnlc l"(:~ sl 1. 111(' 0lll~rative cli che in tltis case bl~illg not to put all of your eggs in one basket ), One

I"or the ('\('C llti l \' S Iliakill g tIl(' decisi o ll , di \'(' r siFi catioll call l w stillll1l ,ltill g, 1t call ;tI ~"

II ',s('arc h sbldy h y a McKinsey g ronp sllggests a lTIiddle grollnd , noting that moderate
r , 11\ 1'I'sification l11ay, Oil av('ragc , \)(' h e tt er titan e ither cx trt' lllc",11
k ,l(l to tlw pr(,s ti g(, o i' a brge r o rp lIli'l.atioll , A stlldy ill w hich [.'o llrt('(' 11 Jll('rge (, X]!I 'I'I ',

w( ' n ' ([l l(' ri( ,d as to tl i(' JlIOti V:lti 0 11 S iJl I 'o\v(,d [o llnd that ellhal1l:(' lll(' lIt ni' pns(lIt:ti'

rII th(' sl'ud )" a total or 41 Z of till:' S&P ,sou compani es w('~ r(' c1ass i ri t, d as f(lClised
,, 1" I'iving at least ()7 perccnt of f( 'VCllIl(',S comin g I'l'Oln o n t: bIISili t'SS), III()(krate ly
POW('l' ,IS 111('aSllr('<1 h) tI l(' saks 1'0111111 (' ('olltrnlkd Il)' ,1chiei' ('\('c ll t i\'(' 111<ly 1)(' a 11111I1

(' rat (,I), illl]lo rtallt IIIOti l<lt ioll ill IllCl')2;t'r deci sioll s,'! 1\lllltll('r r( ,lat('d Clllll,hl Sioll W :t ' ;

dl,'('rsihed (witll at I(~ast () 7 jlcrc('~ nt or r(,vc ll1 it'S rrom ,",1'0 sq; l11(:nts ), or di vl' rsiri ed
' I'illl I( 'ss titan fi7 p( ' rccnt or rcv('nu cs 1'1'0111 tw o seglll('nts), Tot al rletlli'll to share­
that til<' lI l<'rg(' r d ('ci si(lII S \\'( '1'1' Illtinlatl'l v Illadc hv 011 (' p('rs o ll , th e CI~O ,

I <I '\ iI ('rs betwet'n W80 alld 20()() ror the Inod(' ratl,ly di vcrsi fi( ,d ril'lil S w as 1:3 percent
Risks of llm'clalcd Dhc l'sifka Lion
TIl(' I '('I'\' ('I )lll'l'pl Ill' 1I1H(' lat{'d diIC 'rsifiL'ati o ll SII g.\2;('Sts ri sl< ,lli d dilli ('lrlt\, 11 ('l 'aII S(" 1'1
d(,filliti()ll , tll('r(' is IJ( ) possihilih III s;'lwrg", M all \' kllow l('(lgeahl (' p('opk hav(' Ilud, '
s
hlankd statl 'lIl('llts \\'arllillgagaill st 1IIIr('i.\t(,d di\'('i'sil icatiol1. I' dn ] ) nlCk(' r chim 111;11
,til sll('('('Ssrlti di l'(' rsifi c,lti o ll 1'( '(lllin 's ~l (,() 11111101 1 CIlI'( ' o r IIII iI'\' rqm 'scl1tl'd Il\' ('0111111(11'
II1 ;1I1ds , tl'l'llllol()~> , m Pl'l,dlldi o ll l)ro('( 'SS( 'S,11l 11(' stat('~ tlrat witlll)1lt sllch 1I11i!1
dil( ' rsifi('ati() ll 1II'I'(' r w urks; lill<lll('ialti( 's alo l l( ' an' ill slli'fi ci('llt , 1\1l1(1I1 ~ tll (' Iliai
m
ri sl,,',
• i\tt( 'llti o ll 111 ,1\ II(' dill'l'l (, d fro 11 I tl1l' l 'O I'(' hII Sil1l'SS,
"1('1'(' tll<lll F()r tlwir im\ll stl Y [)('ns, as cOlnpan ,d to H p t'l'c( ' nt ('or ti l(-' 1(ICII Sl'd cOll1pa­
"it 'S alHI 4 p(' r('c nt I'o r tit !:' div('1'sifi (, d rirm s,
Wh y IIligllt 11lod(~ ratdy di vl'I'sified Finll s p (' ri(mn !letl'n',> Mol'(' div(' rsiricd Finn s
I, 'lit! to slIlfer ('ronl sprcadill g th eir ],( 'SOIll'C('S and c lr1tur(' too broadl)" resultin g ill a
II " III('(,d ahility to g,lin e lT-ici('nc i("'s alld Illarkl'l leadl'l'ship, More i'ocll sed rirl11 s, CO II­
" 'I SI,l v, may hnd it diiTicult to lli anage market dy nall1i cs b ecau sl' or w h at is knll c d
', I ral('gic stl1hhol'lllle ss" in C haptn H, In an e;(a mplc of 11loderak di ve r sifi cation,
111 i1 llglr, Cin c inn ati Ikll k Vl'i'ag(>d its loca l \'('k~phol1l'- l'l'lat('d capahilih t 's durin g th c
I ~),')()s 10 cn"atl' a significant bu sinl'ss 11)' providiil g call-c(,ntf-,], alld hac k-olri('1' sClv ices
I" oili e r COll1pani(>s,1 2 A s a r('s ldt , th l' l 'OI\lI)<1I1 Y (eve lltuall y 1'l'll<lI lH'd Broadwill g ) w as

• ;vlall ~ l~il1 g tli(' III'\\' IJIISilH'SS Ili a), 1)(' (lif'fi c l1lt
III :1 1IIIIdi I)(' tt('r positioll to llt-al w itli tlw d(er{'g illatl'd lilarlwts of' tlt e I Sl80s,

• Th(' II( 'IV hII Sill<'SS 111<1\, 1)(' (1\'cr,ahwd ,

U JII'(,latl'd di \' ('rsificati o ll , il' 1111 SIIC(;( 'SS i'1i1. Illav <tl'liialiv dal\1,I~( ' t il(' origillal ('Oi l I ": ~THY STRATEGIES
I1IISillC'sS hI' di v('rtin g at[('lltioll alld IT SOIII'U 'S fro1l1 i t , C)lukt 'r (),ltS (, Ill h arki,d (JII ,III \\ 'liI'll till' d L' ci sioll is lilad l' to e lltl'r a IWW product market , th e c ntry stratl'gy
a).!:gr css iv(' aCljllisitioll 1)l'llgralll ill til(' {' arl v 18'70s, goil1g i lltO to),s al1 (l tl 1(' l1((, r(" sl:!11 1"'I'OIII ('S criti caLI:l Figure 14,:3 SlIlllil1<lri'l.es eight .litc1'l1 ati ve str<\teg ies w ith th eir
Llilt~ , III tIl(' pmu'ss , hOWel '(' I', tl 1(' ('lImp,lll \' allow ed its cor(' hll SilH'sS <twas to dl 'l, 11 h ;lllldg(' S alld disadvantages,
I'i () rall ' 'I'll(' IH'I\' [lrod"d I,[ro d sldl( 'red , ,\l l d I'I\(' Illarkd Sh ,\lT all(l sh('II' ('a('il l g~ 1, ,11 'I'lli' IllOSt l'OllllnOT1 L'ntry routes are inkrnal d evelopm ellt and aC(ll1isition,
;\.' a n 'sli1t. I )'I't,lopill,l!; a 11('11' hll silless internally 1I1(-',\11S that a cOI1l'ept, stratE'h')" an(l team CHn b e
TIH' P()t('lltial I'or dii'fil 'ldti( 'S ill 1l1 ,1IIagill ~ a di \'l'I'siricatioll is 1 1I~lgl1ifi ecl \\111'11,111 , '" ':Ii I ,cI w itllOl1 I' til(' Ii 111 itation s, liahil ities , or clcql1isition costs r cpresen ted hy ;lCqu iii li P;
IllllTlat('d I l Ii Sill('SS is <1 (',[,'in 'd, Tlt e nc w hu sillCSS mal' rl'!]ltire ass('\ s, ('lI llllll'l( 'lwi,'" II I " \ i,lillg hIISiIH 'SS, ;\11 illtl'rnal vt'l1tnre is a valiant in w hich a sep arate enti ty w ithin
~111(1 ,\II (Jr~'lIlil.iltioll al ('I tIl' iI1'( ' tltat cl i lT(' r i'mlll th os(' o i' tlH' (,lIrl' 111I , iIJl" 's 1111 ' ('\i ,sl i Ilg Ii rill is (,Sial l\i slll'd , so that th e new business will not be constrain ed h y exi st­
1<'llrtIH'1'Il1()I'l', a sl, illnl , I'all li'd Ill ,lllagc ll H'llt l'l'alll ill ti ll' aU I',i1'('d ('()lllj l :!11 1 IId" ,11I I!lI' , ) rL~:t1l i/,;i\ il >l1 ;d ('I rill 11'1' , S),St('IIIS , <\m1 stnl ctl1rc , For example , th e IBM PC was d evel ­
k ' ,lVt' al1d h(' diiTi c lllt to rl'piau' •'I" " I ;(1111 II r; Ill( ,it'd It)' ;t S('Ilarat(' org;lll izaticmal (' lIti ty ill a rema rk abl y short tim e ,
A lWI\' 11li siIH 'SS alT a IIli gl l t 1)(' ilw()I'I'I'dl , (,,, t1II<lI('d , I'l l!' 1'\: \1 111 111 ' , 1'111 il"" TIll' ;(('tllli ,s ilillil 1'11111( ' S;1\'('S ('all 'II("'r lillH' , 1\11 :t('(l'lisitioll can l11 (' an that a hn l l
1I1t' lltal tl11'! 'ats 111<11' 1)(' (),'(' rl()()ki ,d ()r Illi sjl1d~2t d , II' ,III ;ll " llli sil itJl l i~ illliJllt'll II " 1"" "JlIII',S : ,11 , 'sl :tI,li ,slll'.1 11!:t,,('r ill ; 1 III:I\I(T 1)1' WI 'I.].' i II Sit';ld oi' V(';l r'i, 1'(' I'\r:tp s 11101'('
,Iralt'g i(' li:lj,ilili(' 's , \\'I ': lklli'' '' 'S, ;1I1 t! 111'1 ,1 ']1 ' 111., 111: 1\ Ill' 1111IIi " '''I''I 'I ,,1 ti l' Illi sl,:rlt'lI 1" '1 (1),1:1111 , il II1" ,III S 111:11 ,Slti,sl:rldi :d "lill 'I I ,, "ri( ' rs SlIl'II :I.S .Ii ~ lril\1lli o ll 01' 1II';(lIdll;(IIII'
LiI ('(\. (;"111'1',,1 I I II~I :1 rl ){ 11 1 sltll" :11 111 1" t1" ,d " t" '.I " ri l '" ,I' '1 1111 ' , I ( :' 1I1 ;t11\ II"
276 Part Fou r Growth Strat egies
Entry Sh'ategy
In ternal D evelopment
I Tlt(~ rn,l l Venture
AC(lI li sitioll
Join t Ventllre or Alli,llKT
Lic('nsing rnlln Olhers
Major Advantages
• USE'S E'xisting reSOllrces
• Avoids acquisition cos t
e,~ pt:;c i all y i f llnLlIlliliar
with product/ market
• Uses ex isting resourcE'S
• May keep t,) lenteJ
(~ ntrepre llf'll rs
• Sav('s c.den<im timE'
• OVt'rl'om cs t:ntry harriers
• T<:chnologica l/ nl<lrketin g
Iln ions ca n exploit
small/ large finll syllc rgies
• Oistrih'll("S ri sk
• Hapid <l('u'ss to Iccilllolo).,'Y
• H(,dIICl,d fillallcia l I'isk
Chal1tej' ,l4 Diversificatioll 277
Major Disadvantages " " III rces and access to clistliblltion, Licensi ng a t echnology from o th ers provides a f~ls t
• Time lag 11:11 to overcome one entry !Janie I', but makes it difficult to gain control of that s,lme
• Uncertain prospects 1I,, 'IIIIoi ogy in the future, Both entry options m e impOJtant in inlt'rnational hllsin('ss
"IIII 11'xls ~Hld are discllsseu in detail in Chapter 11, An alte rnati ve to ajoint ve nturl' i,s
,III ,t/liance in whi ch the parties share asse ts to attack a market, For example, Sony's
• Mixed success record , , "II )('ral"ive technology-shaling arrangem ents with a host of small high-tech fi nn s serve
I, ) " " ('[) Sony on th e c utting edge of technoloi--.'Y and also provide tIlt' sill all finn,s wi th
• Can create in tern al
stresses ,w,',',ss to SOlly'S produ ction , engi neering, and marketing assets ,
Th e lowest in volvellll' nt options are li ce nsing others to use and market a tech­
• Cos tI Y-lIsll,)II), 011 )'
1I< llllgy or enterin g into a husin ess as a ven ture capital in ves tor, Cenera l E lecl"ric and
redlilldant asse ts
I I " i'lli Ca rl)id e ,Ire amo ng firms th at have made minority inves tm ents in Yotlng and
• Probl('nl or in tegralill).!:
",I I)\\'ing higll -teclt ente rprises in order to secure so m e relati o nshi p to a new t echnol­
two organi zatiom
1'''\ Both li ce nsing and hl'cotnin~ a venture capital investor offer th e potential to
• Pot(' lltiall()r conHic:t ill IIII'I "' I.S(; in vo lvement ove r tim e, if' tilt' husin ess dot's \Ne ll , and to control an y ri ,slc
ope rations he1"\\,(0(011
fir ms
...dec ting the Right Entry Strategy
• Va illt' of' one rinn may I" ,
rcd llced over tim e I ;, Ill(' r[s alld Berry sllKt!;est that the selection of' th e right entry ,st rategy depen(1.s Oil
I I" , I('ve l of' a rirm 's f:llniliarity with th e prodllct tnarkd to 1)(' ente red, l'j They ddill(,
• 'ViII lack proprieta ry
It,('hnolog)' and I.lIl1iliarity alollg two dime nsion s: (1) market alld (2) t(,chnology or scrvice embodied
tech Ilologil'a l ski lis III III(' prodl1cl.
• Wili 1)(' d l' p e nd(~ lll \Vi th resp('ct t() nl<ll'kd ractors , three levels o/,railliliarity <ll"e ddill(,d :
0 11 li (;("lISor

E:d llcaliollal i\cq lli sitioll • Provide's window ,")d • liisk of' dt'partlll'(, or
• Base. E xistin g prod llcts are sold within thi s market.
illitial stafr t' lltreprent' llrs • New/familiar. T h c compallY is rami li ar \-vitll the lllarket Iwcall s(' or exlen ­
VCll llII"t, Capital • ( ;"n provid(o wi l)dow Oil • Unl ikely alone to 1)(' a sive r esearch, (,",xp erien c(:d stal'f , or lin ks wi th I'he market as a c ustoill c r,
and Nllrlllring Il (,W technolof.,'Y or markd 1l1'IJor stilln dus of [irlll • Newlu1Ifamiliar. Knowledge of and <-',xp eri ence w i th th e 1l1arket are lacking,
growlh
Licensillg to Others • Hapid access to a market • Wi ll lack kn()wleclg"/ ;\ II analogo tls set of three levels of' f:llniliarity w ith th e tcc hnologics or servi c('s
• 1,ow cost/risk control or market "11II)()dic(/ in th e produc:l' is set f'l) rth:
• 'I\Iill h(~ dqw ndenl O il

licensee
FigUl'e 14,3 EIIlI)' Strakgies
rro
SO /l /'{"<: I\dapt c d II I Edward n, J\"h,~ rts and C ha rk,s A, Ikn)" "E nt crill),! Nl'w Busillt'ssl'S: S('I,'("lill ,!',
Stratp),!il's f()l' SIll'l'l'SS ," S/(l11/1 MIIlI lIgI ' /I/('lIt /l.('l)inc, Spring J9X5, pp , :3- l 7,
reco~nition are o vercom e, A variant i s an educational acquiSition in which a ,S llI;tll finll
that is not es t,lbLshed as a major force is aC(lu ired in order to ohtain a wi lldow illl" :1
tedl] lology or Inarke t, as well as knowleuge, experi ence, and a Il<lse frOl n w hid I II) g" 1\1,
The other options shown in Figure 14,3 represent r educed lisk and CO IIIIII it 1111 '111 ,
as well as a recluced chance that the route will lead to an es tahli shed hI lsi n('ss slli1IH )11, " I
hy SCAs, A joint venture will share the ri sk with others ;llld pr()\i cl(' () Il<' ()J" III()J"(' II li s>;
in g and needed as,sets and COIl1 I1<'t(,lIci('s, 1'01 ('x, llllpl(', <I ,s lIl,dl finll 111:11 pms(',s,," : 1
II('W t('('hll()I() ,~I' (,(ll ild (' 111 ('1" illio <l j()illl V('II II1J"(' wi lli ,I 1:11 ',1':"1' lil 'lIl 111:1i II:IS fill ;llll'i:d
• Base. The tl'chnoloh'Y or s(~rv ic e is e mhodied within ex ist in~ pmdllcts,
• New/familiar. The compan y i s hllniliar with th e t(~chnoloh'Y h ecalls(:' of' work
ill wlakd technologiC's , an estahlished H&D elhllt in th e technology, or
('xt('n ,siw f()cll sed res earch in th e technology.
• Newlullfamu-ia-r. Know ledge orand exp elience w ith tIlt' technology are lacking,
I'l l<' "asi (' sll ggestioll is that as th e l eve l of fami liarity on th ese [\,vo dim en sion s
, I, ' lill('s , tl w c()lllmitme llt leve l should he r edlleed, F igure J. 4.4 shows [,h e baselin e
"IIII\ 's lral(',L;I ' l'('Co llln l('ll dation s that follow rro m a familiarity assessment, Of course,
11 11'1(' w ill 1)(' ,'olll ('xi"s ill w" ic ll a high-co mmitm ent approach in th e new/unfallliliar
1,,11 1\'illllI:lk, ' ,,'IIS(' , I I (lIV('I'(T, 1\()lwrls and I\(,rry stl ggest , on th e hasi s ofexpe ri enee
,,,,,1111('111 '1 11,,11 "lllsl:lll1 i;III'i,s" i,s 'I.S,S(}(' i,Ji( ,d wi llI ,SlI<'II all approach and th e option of'
" illill ,! ', [ ~ I""li , 1I111 slll )lI ld 1)(' s,' ril""/v (" )ll.si d"I'<'II ,
278 Part Four Growth Strategies Chapter 14 Diven4ication 279

Technologies or Services Embodied in the Product FOR DISCUSSION

..­
Base I
Newt
Familiar 1 Newt
Unfamiliar
- J
1. 'v\Th at is th e differenct' b etw t'e n r elated and unrelated diversifi cation ?
A r e th e foll owing related or unre late d'~ Why'~
a, D ell selling TV sds
Venture Venture h. Ban k of A m e ri ca ow nin g th e m e parks
Joint capital capital
Newt
Unfamiliar ventures or or c. C res t pllrchasing a ch ai n of d e n t al o fRces
educational education al
acquisitions acquisitions d . Catl~ 11) i l lar manufact uring all to ll w hil es
e . Snackwells ownin g exe r cise clu hs
~
o
{)
f Internal market
developments
Internal
ventures
Venture
capital 2. P ick a hranded offerin g , sil c h as Sou t h wes t Airlin es. Com e li p with
co Newt
or or twe n ty p rodllcts or servi ces t hdt are alte rnativ(-' (-:xt t' nsioll options.

,
LL or
Familiar
Qi acquisitions acquisitions educational I lI c l l )(le sOlli e tbat wO\ll d 1)(> a st r dc h. E valuate each of t he t':x t t' n sioll
~

ro (or joint ventures) or licensing acquisitions

Op ti OIi S u sing th e three cri te ri a li sted in the chapter.
:2:

Internal
Internal . 3. Co nside r th e [illl( l\\,i ng i\l er ge r s or dC<[lIi sitiollS. Tn w hi c h C< LS t' ,S w( ))lld
product s)'ll e r).,'y he log ically poss ihl e? \Vh at \Vould inhihit t hi ssy n(-'I').')''?
., CO lISide r
base Joint
Base developments ope rati o n s, c llltllre, and hrand e(lliiti c s.
developments ventures
or acquisitions
r (or acquisitions) or licensing a, C iti corp acq ui res P rov idi an ( d credit card f'inll se r villg 1o w ­
. - ill COllle segm ellts)

FigUl'e 14.4 Optillial 1£lI t ry Sirategics

h. Pepsi (the own e rs of F rito- Lay ) aC<JlIires Qil ake r Oab and Ca torad e

s"'{/'(:(', ,\<I:lpt('d rrt"" F;d"" ",,1 /l, Holw rls and ( ;1",,'1< ., /\ , Ih- rrv. " F,,,[ ('rin g Nt'\\' /lllsi.",s"',, S(' I ('(' l i ,, ~
c. D ai I1Iler- BellI, <Icqlli res C llI)l sle r
Slr<ll('giC's f()r SIW("('S S, " .~ /(!(fl/ A/ nl/{/:.!/'Jlw-ul net , if ' l e, Sprillg 19H5, pp. :1- 17 4. Cons ider t he alliall cc o f Starl lil cks <lIld Barnes & Nohl e, initi akd ill
H)~n , in w hic h Stu-hll ck s Cd f'CS we re opened inside th e b ooks tores.
E valn atc thi s alli an ce ['r o m h oth sides. \ V hcll Ham es & N oble op(,ll('d
KEY LEARNINGS sto rcs ill areas o f th e tvl id \\'cs (' w he re Starhu ck 's h ad no presc ll cc , t'he
cal<::s w ere b r allded Hil m es & N ohl e hilI sold St arhll cks cofI<.'e WO llkl
• H(>la te d di ve rsiR ca tioll in vo l v('s th e potenl"i al t·o attain synergics h y e:xp ml ­ YOI I accept this arrdll ge TlW nt if y o II w(-' w S tarl)J )(; ks'~ ( E ve n t ll ally, it was
inp; o r exch ang ing assd s o r co nIIw te lll'Cs. appli ed to Ilearl)" all of' t h (~ c a l (~s. ) Again , CO lllln ('lIt fro lll hoth sides .

• Th e bra nd i s o n e asset that orte ll can I)e levl'raged . Di sn ey and SOil )'
ar e exa mpl es o f brall(ls th ~\t h ave pro v ided til e ba sis fo r a b ro ad arra y
of hu sin esses .
• A h ra nd sh ou ld fit ,\ proposed n cw product markc-'t ,md ,l(ld vah l(' . /\ 11( 1.
im p()It<\Ill"iy, th e new product m arket CO li text should enh an ce ' and rc in­
NOTES
I . I) a vid t\ . Aaker, ,H ollol!,iJlI!, 7-3mllll h:r/ llilll , New York: The Free Press , 199 1, Chapter
~) and 1)<)\'i<1 A. Aa ker a nd Eric h JOiIChi ll1s lh ak r, B m llll f ~cl/drTs/ riJ!, N e w Ymk: The

[em:e th e lmmd (and certainl y sh o ul d n ot (Lunage it). Vn '(' I' I'{'-,S, 2000, c ha pte r 5.

• Sy n e rgy call h e illu sory, b ei llg p er ct'i vt' d w l)(;n in fact it dol'S ri ot ex ist ,
J.
2 . Mi cha(' 1 Iv kD p l'll lOtt , " T he IlOIIS(> Th at Nolan's Bllilding," l \ dr ccI,I;- \ M rrriw/illl!,
I\I( ,!,/;-. t\ ll glLSt 14, 101)9, pp. 20- 2 2.
imp l em e ll t<ltio n b arrier s m ak e it u nac hie vabl e , or it is ove rva llH'd.
:\. I ); I\ id J. Coil is ,uld Cynt hia 1\. lvJoi\ tgolllery, "C rea tin g C o rpora t(·' Ad va ntage,"
• Ther e <lr c e leven m o tiv atio ns [( H' u n r e lated div ersifi ca tion , in c lildill g 10 1/ 1(1'1 (/ ul J)/(Iillr'ss H!'vin c, M ay-Jlill e H)91) , pp. 71- 1):3.
manage cc\sh How, to o btain attract i V(· hll sill c sscs , to rC[(IC IIS <I fin ll , al ld 10
.1. 1,(I I Ii " \ ' (;('1"111('1', .II' , \ \11/(1 S(II/-> h~ lcJ! h (/ Ji ts COl/'1 ])I/ II Ce, Nt'w York : Ha l1X' r Busin ess ,
r educt' r isk 2(11)2, 1)li 2:5 1-2:52.
• F ig llJ'(' 14.:3 il1llstr<llcs ('iglll' ;JJlJl J'()<Ic l l(',s 10 111 ~ \ll('1 (' Itlr, Il:I.st, <I () II IJ() \\' !) , It(ll " 'II ( : I« '('II 's , Kl' rsl(' 11 I ,. I ,<l I)('S , all (l Tllol1l<1s C. \Vi Isoll , .. i\ r(' YOII l'a) illg Too vlt 1('1,
III '\\' IIII' 1 (' cllll()I(I,~" (II' III:II-k<'l i,s Ie ) IIII' (lI g:llli;:lIi()ll, 10 , ' 1'1,;11 :\i-' I'lisilio'l " ," !/I/rrmd /i/(\'illl '" /i rTi l' lI . .l,d, "II ,~ II.S I I D9~) , pp. l:j(i-ll:j.
280 Part Four Gmwth Strategies
CHAPTER FIFTEEN

(j. D eepak K. Datta. George E. Pincb es, and Y. K. Narayanan, " Factors InHu encing
We'llth C reation from Mergers and Acqu isiti ons: A Meta-An,llysis ," Str({tegic
Manag.ement J01l rn({I 13, ]992, pp. 67- 84.
7. Op. Cit. Ecclcs e t. a!. pp. 126-142.
8. Michael G. All en, Alexander R. Oli ve r, and E dwa rd I-I . Schwa llic , "The Key to
Succe ssfu l Acquisitions," .foltrnol <1' Business Str(Jtq!,lj. Fall 198 1, pp. 14-24.
Strategies in Declining and

9. '''layn e 1. Boucber. "The Process or Conglotner<1le Mergn," prep'lred fi)I' th e I:3l1l'eall

or Competitio[), Federal Trade COl1lmission , JIlJ1 e 1980.
Hostile Markets

10. Pete r Drucker, "The Five Buies of SlIccesshd Acquisition," \Vall Stred .fOIir/Wi.
Octobe r 15, 191) 1, p. 1fi.
11. Neil W. C. I-Iarpt!r and S. Patri ck Vigu e ri(), "Are You 'roo FOCIIS(>d'~ " M(;Kinselj
Quarterly, 2002, No.2, pp. 2k-:37
12. Ihid. , p. :32.
1:3. Edwa rd 13. Hohc,ts alld C harl es A. ('le roy, " I~ nt('ring Nc\v Busincsst's St,ledi llg
Strategi es f(n Success," Sloo1/ M(m(/ /!,ell/(~ 1I1 Reviell;, Spring 191)5, pp :3- 17.
14. Ihid . \"\'0 11( ' call hold til(' h('IIl' wl,cII tb(' sea is l',tilll.
-1'"I,lili" , SIII'IIS

\ Vi 1('1'(' th(,r(, is IlO willd , row.

-/J orl ll t.!,1w.''i(' jJ}"(J/j(,}-/;

Tlll'rc is nothing so IIScl('ss as doillg efTi cit"ltl y tl, at wl ,il'h shollid not Ill-' done at all.
' /'('/I '/' f)1'llI'kt'/'

S trate gic planning is OnCII associ ;ltt'd with a search fi)r healthy, growing markets
'!lId t he developmcnt of' strategies to pe ndrate those market s. Howeve r, as the dis­
"llssiol1 in Chaptn.5 'llak('s clear, the re are a v,niety of' ri sks in hi gh-growth co ntexts ,
illC'lllding the possihility that a market can lw crovvded w ith competitors , each tTying
I'l find a niche. On the other hand , d ec lining m,lrkds as wel l as Inature markets can
I',' prese nt real opportllniti es h)r ,\ hllSi1WSS f'ollowing th e right stratel-..,)" in part
lli'cans(-) they ,Irc not as attractive to co mpetitors. Thus , d eclining markets are not
.'] ways tu he avoided.
A d (~c linjng nlarke t in volves a fall in d e mand , often cause d hyan exte rnal event
s l/('h as t'he c reation of ,1 competi ng techn ology, a change in customer needs or tastes,
()r ;1 sh ift in government policy. OF con rs e, a participant in a d eclining market "rill
.lill " llpt to obt'lin sllstainabk competitive ad vantages (SeAs) and cOll1pete suceess­
I·"II.\'- In a 111<11'1(('1' ch'lraderi7.t'd hy Zt'ro or negati ve growth, howevt' r, the options of
Illilkil/g ,1/1<1 "\"1' '·\ilil1.~ should 1)(' co ns idered , as snggested hy th e portt()lio model s.
TilliS . il is illillil/I'!III III 1I11(1, ' rslall(ltlI<'SI ' OptiOIlS as 11'(,11.

:.!HI
282 Pmt Four Growth Strategies Chapter 1.5 Strategies in Declining and Hostile Markets 283

In this chaptt'r several strategic alternati ves especially relevant to declining mar­
kets are cons ide red:

1. Cre ate a growth conte xt by revitalizing th e industry so that it heco mes a

growth industry or hy focllsing on a growth sllhmarket.
2. Be the profitabl e sllrvivor in th e indu stlY hy dominatin g the market, thus
e ncouragin g others to e'Cit.
:3. M ilk or harvest. \,Vithdraw wsources so that they call Ill' in wsted elsewhere.
4. E xit or liqu idate. Sal vage ex i.sting assets. Revitalized Marketing

Hostile markets are thost' with overcapacity, low lIlargins , intense cOIllpetitiOIl,
alld managcment in tllnlloil. [-{Cl.';tility has two pril1l,uy callses. The first is a d ec lilH'
in d (-:lll a lld. The second and most imporblilt ca lise or hos tility is competitive e xpall­
sion. Celtainly olle r(',lson 1'01' till' collapse of IlIan;' sedors of e -c() mnH'rce was the
('xplw;ion or well-funded cOl1l1wtitors, especially on-line. TilliS, even a growing m<tr­
h,t call he hostile .
Ilostile Illarket.s arc' all too conllllOIi. or thollsall(ls of l'\('clltivv.s in this allthor's
(-,X('C llti v(' progralns , ( 111)' onc ha.s admitte d to cOlnpetillg in a IrIariwt that wa.' not Ilos­
tile, and that person was the Inallager or th e Panalna Canal l It is thlls illlportant to
understa nd til(' dy nami cs 01' hostile markets and w hy sOllle CO lllpditors do Ill'tter
than oth e rs in s lIch ('nvironlll('nts. III the I1nal section oftiIi.s chapter, the lire cycl e 01'
a Ilostile 1I1 ,Irkd wi ll he dv"uil w d and the "trategics of ah()vc-averag(~ p erli JrlllCrS w ill
he discu ~s(' d.
CREATING GRUWTH IN DECLINING INDUSTRIES
It is IIsllally ,Issllnwd that ('xisting participants h ave alr(,ady fttll y cxploikd tilt' Illar­
kct potential of a stagllant or d(-'dining industry If that assllmpti()n is Iliitme, a dra­
matic opportllnity exists li)r a hll sin('ss to participate in n'Vit~llizin g th e ind'lstry and
achieve a c(jmliialldillg position ill tlw Ilew growtII co nl·cxt. As sllggestcd hy Figllr<'
.1 .'5. l , there are at- kast seve n rOlltes to rcvitali/,ing ,I stagnant market.
New Markets
All olwioll s w,ly to generate g ruw th is to l110ve illto n eglected or ignore d market scg­
ments that have the potential f()r new growtll. COrIS lllller electronics compallics
co uld bClls on wonwn or the elderly, hoth of which ,lre llnderserved Illarkets. SOliI<'
illdllstries Ilave seell illkrnational ex pansion hwl growth. The Barhie doll , I()r (' xalll­
pIe, f()und lIew market viahility in Europe and Japan .
New Products
S()lll('tillH's a <iOrtllalit illdll s try Call 1)(' n'vit:tii z( ,d hy a prttdlld 11"t! III<1k('s ('~islill ,~
llm<ilwl\ oh.,ol('I(' <111(1 ;[('('('ll'r;iI(" III(' r<'pl;[('('lIl1'liI n·('I(,. 'I'll(' ('''"'tl II I''!' "I(Tlrollics
IlIarl\ .' 1 11;1., .'1'1'11 .·,,1,,1' 1(,I(,, ·i.,i"II, ( :1)', I)i .~ ,('1'( '('11 11'1""i si()II :111,1 ,dlwll" I' llI)()I(),I"i";ti
Government-Stimulated
Growth
Exploitation of Growth
Submarkets
Figure 15,1 l{olltes to Hcvitali zing a Stagnant rvla l'i<ct
a<iv<lllc('s (T('at(' vitality in declinillg markets. A new prodlJct variant call add inkre.st,
sllch a., the illtrodllctioll 01' gourmet coflee.' or Illtcnwt-(-:nahled pholl es.
T he Superpl'emium A"ena
III man \, ho.,tiic marh:t ('nvirollillents , from he el' to wa(Tr to ca r.' to bankillg, there
is a sll)('rprcmillill category thai' has healtllY margills and prodllct v itality. For
('.\ a mple, despit(-, tlw dil'rlcllit natllre or the heavy ,tppliallce marke t. Whirlpool
illtrodm'('d its Dll et washer/drye r .set with rounded styling, room ['or nearly (wo
tio/,e n hath towcls , and a co mputer that optimizes the process to save ti nw , .,ave
('II erg)" protect I'abrics, and improve cleaning. I Despite heing priced at a I)I-ea th­
(akin g three times as IIllI CII as the average \Vhirlpool was h e r/dryer set, it becam e
;1 hot product ror middle-cla.'S cus tolJlers ,IS well as tlt e wea lthy.
New Applications
A 11('\\1 application li)r a product can stimulate industry growth. In Chapter 1:3, the
.!C,'dphic example of haking soda and its lise as a deodorize r was given. The cranbe n y
illdnstlY has created new growth by findin g ne w recipes for its product and encouraging
nanlwrry use other than f()r h oliday mt'als. The make r of Lysol Disinfectclllt Spray gave
il.s product a new sce nt ,1I1d targe te d day-care cente rs. The small reftigerator opened up
III 'W SOllrce~ of sales in offices and student dOrInitOlies. A prime way to find promising
;l[lplicatiolls is to I<-',Im how exis ting CllStollwrs arc ming the product or service.
He vilaliz"41 1\l:II'kdin~
. \ I)I'()(I'I<'I ,·1 .1',, 11<.1' 1)(' r""il'I,ti 1"' ;1 rn'sll 1I1;lrld 'li llg <l 1'1' rO<lCII, slwll ;1., Cll<llIgill,~ III('
tii ., llil'lil,,,", I, " '1 11 II" 11',111 ", IIC' IV "I )("s ,,['.,1,,,,,., "I' dinTI .,,'Ilill.!~, .", lliIl Y: Ilw IlI'I II I, 1<'1

284 Part Four Growth Strategies
to Rrms to li se <1S g iveaway promotion items, ch,mt,ring the pIking structl\l"e, ()I" p erhaps
clwngin g th e adve ltising, A dormant heauache prouuct was re juve lJated by lin king it to
its rural south easte rn roots, The original packaging and bilte r taste were res tore d ,
auve rtise m e nts were run featuring southern spokespe rsons, and associations we re
u e veloped with eve nts such as bass-Fishing toumalTlcnts <lnu minor leag ue hase ba ll.
Government-Stimulated Growth
Th e re is an o ld adage, "If all e lse filils , c han ge the rules of tlw ga llle," S trateg ically,
th e ide a is to c ha nge t he e n Vi rOllltll'nt so that indu stJY sales w ill he e nll<lll cl'd , A gov­
e rnm e ntal body can provid(:' in c(:'nti ws lilr change, sllc h as tax ince nti v(:'s (i)r iltstalling
ho me in sulation o r rc ru rhi sh ing low- i ncoltll' hOI lsi ng, Ora gow rn Ille lt t mi ght di ctate
that air bags h e insta lled ill cars, thus sti millating a new industry.
Exploitation of Growth Submm-kets
So me rirills have h ee n sll Ccess rtll ill declining or matllre indll.';tric,' I)(-'call.';(-, th ey ha v('
h ee n ahl (:' l'o 1(ICIl S on growt h s nilal'('as, pockets of demand that art' Iwalth)' and per­
haps (, Vl' n grO\ving ni cl>l)'- Th e superdry nonalcoholic , allllini crohrcwe r,v hrands are
all g row ing ill dl l' Inal'll l'(> h('e r market, COll vertihles art' again a growth s('g lll l' nt in
th e alltomohile i n(li IstlY.
So nw l'im c,,,; a gl'()wt h Sllhnlarlwt has the Sanll' visihility and risk as allother gl'()wlll
market, hilt it is Il eglected iJecallse its parent ind'lstry is llnattradive, As a I'('SI 11 t, it is
likely to ITcl>ivc I (~ss cOlllpetitiw attention,
BE THE PROFITABLE SURVIVOR
Th e conventiollal advicc is to avoid investing in dleclining markets and to Inilk or ex il
hllSilleSS('S tilal' are ITapped ill a d ec lilling sitllation 2 Howcvl'l', ;tll agg ress ivl' a ilT l'lW­
livC' is to in vest ill ordC' r to ohtain or strellgthen a lead(~rship positioll , A stron g sllr­
vivoI' may 1)(>profitable, ill part l>ec,tlls c' thert' may he little competitioll alld in pari
IWl'<tlls(~ tlw ill Vl',..;t lll t' nt might lw relatively low The COrllerstolw of thi s strategy is lo
encourage COll1pditors to ('x it. Toward that ('nd a Firm call:
• Be visihle a hou t its CO lllnlitrn e nt to Ill' th c slll'Vivillg Il'ad(~r ill dI e indll strv.
• Hais t' th e cos ts of compe ting hy price re ductioll s or illCl'e ase d promol'ioll ,
• Introdu ce n ew products WId covcr ne lV segments, tllnc hy makillg il' Jl)ore
diHi c ult /'(Ir a cO lllpe titor to rind a profitahle nidw,
• He dll ce compe titors' ex it harrie rs hy assllming; their lon g-t(~ rll1 cont ract",
supplyin g spare parts and servic ing th eir products ill th e field , or sllpplyillg
the m with products, For example, a regional hake ry could supply privall'­
labe l products to a local rt'ta ile r, thus e nahlin g the retail e r lo (',il 110111 doill,g
its o w n bakin g,
• Create a Ila['iollal. dOllllllall1 1)1';11)(1 ill" dl'c1illillg il)(lll s lr\ 111:11 I', !I:l!~
IIH 'lil l'<i , C h" , (,I.roll g ll -11ol)(ls, !i ll ' ('\: IIIIJ .I( " 111111 \1,111 I{:I I',II 1',1 1 I 111 ,1', :t 1I '.! ',ioll:ll
Chapter 1.5 Strategies in Declining and Hostile lHm'kets 285
spaghetti sclll ce make r, and crea te d a major nati o nal brand, th e re by gen e ra t­
ing economi es of s(:clle in both marke tin g a nd manuhlcturing,
• Purchase a co mpe titor's m a rke t share and/ or its production capacity. This is
the ultimate re m oval of ,I co mpe titor's exit barri e rs and ensures that a tired
competitor won 't be take n ove r by a mo re vigorous organization, Tn the late
1980s, KUIl Z, which mad e pass b ooks hlr financial institutions, was ahle to
buy competitor asset s so hu' und e r book val ue that the payhal'k period was
measure d ill lllonth s, As a res ult, Kunz h ad re cord years in a husiness area
others had writte n ofT as all hut d ead d ecad es e arlier,
MILK OR HARVEST
1\ milk or hal'V('st stratcgy aims to ge n e rat(~ cash ['low hy red'lcing investment and
('lwrating expenscs, even ii' th at causes a re dll ct ioll in sales and Illarket share, Th e
1II1(lcrlying aSSlllnptions are that the ri rrn has hene r llses /(Ir the funds, that th e
involved hllsilless is Ilot crllcial to I'lw finn (' ith e r Financially or synergistically, and
lhat milkillg is I<'asihle 1)(~c;tII.';e sales w ill d ed ilH: ill all orde rly lVay.
A milking strategy call lit' prec ipi tated hy a IWW e ntrant that tmll s a market
hostik', Cllase & Sanhorn w as ollce a le adillg co!l el-'; th e "Chase & Sanhorll IIoIIJ',"
starrillg Edgar Bergen , w as on e or tlw most popldar radio s hows of its tim e, Arter
World War 1I, thollgh , Chase & S<lni>oJ'll d ec idlod to re treat to a Illilking strategy
rather than I'ight <Ill exp e n sive market rei'e ntioll ha ttie aga in sl' the ri sin g pop,dar­
it)' 01' instant cofree and tl w appearance or Ce n e ral Food s' he avil y advertised
i'vLlxw(OII JlOll Sl' brand ,
Th c rt' arc variants or ntilking s trategies, A slow Iltilkillg strategy wo uld sharply
wdllce long-terll! ill Vl~s tlll c nt hut c ontinu e l'o supp o r t ope r' ltin g areas sllch as mar­
ke ting and st'rvic(', Afi/.~t Illi/Icing stra tegy wo uld h e di sc iplill e d ahout minimizing
lh e ex p t' nditllres Io waI'd th e hrand ,mel m aximiz ing l'h e s!tort-term cash /low,
accepting the ri sk or a hlst exit.
Conditions Favoring a Milking Strategy
Scw ral conditions support a 'nilking stral e1-,,)' rath e r than a hold or exit slrategy:
• Tht' decline ratt' is pronounce d anclunlike ly to c han ge bllt not excessively
s[eep, and pockets or e mhlling d e mand e nsure that th e d e cline rate will not
sudden Iy becoTllt' precipitous,
• The price structure is stable at a leve l tllat is proRtahle for e ffici e nt finns,
• The husiness position is weak hilt th e re is e nough cuslome r loyal ty, p e rhaps
ill ;1 1IIIIil(,d part 01' the market, to ge ne rate sa les and profits in a milking
1111111,', '1'1)(' li,k ()I'I()sill g re la tiv(' pos ition with a milkin g stratel-,'Y is low,
• '1'111' 1111,1111''', 1.\ II()I ('( 'III rall() III(' ('IIIT(' liI slrakg i( ' dir( '(' lioll or ll\(' finll
• ,\ II II 11 ,11 Il~ ',1, ,il," ',\ 1': 11. I" , S ll( '(' ( ,,, I', dh 111 :11 LI ,L~' ,d
286 Part Fou'/" Growt h Strategies Chapter 1.5 Strategies ill lJeclining alld Hostile M01-kets 287

Implementation Problems ,IIHI a busin ess contrilm [es by its presen(:e to oth e r bllsin ess units in th e firm . A hold
,lrategy wo uld 1)(' pre fe rahle to an in ves t strategy wh (~ n a n industry lacks g rowth
implementation of a milkin g strate!,,'y (:an be (liffiellit. One of th e most SC'lious prohle ", :.
IIp[lortllnities and a strategy of inc reasin g sha rc wou ld risk tri gge rin g competiti ve
is that if e mployees anc! c ll stom e rs suspect that a milking stnttegy is being employe( I, t il,'
rl'taliatioJl. Th e hold stra te)..,,)' can b e a lon g -te rm strate!,,), to ma lJage a cash (:ow or an
res ulting lack of trust Ill ,l\' upse t tbe whole strategy. As the lin e h etween a milking st r,iI
lilterim strategy e lilployeduntil th e ull (:ertainties of" an industry are resolved.
<'i,'Y ,Inri ,Ihandonment is sometimes very thin, customers lTlay lose confide nc(:' in tilt" A prohl e m with th e hold strate!,')' is that if conditions c hange, re luctance or slow­
firm 's product and e mployee morale may suffer. Compe titors lll ay attack more vigo r
II ('SS to re in ves t may result in lost market sh are. The l:\vo largest can lllanllr~lctilrers ,
ously. All th ese possihilities (:all ueate a sh,IITlt'l"-than-anti(:ipated de cline. "fo minimiz, '
;\lIwrkan and Contine ntal , r~lil ed to in ves t· in the tw o-piece ca ll process when it was
SUdl effects, it is he lpFll1 to ket'P a milking stratc-:)..,')" as inconspi(:uolls as possihle.
d, 'w lopc d beca ll s(~ they we re engaged in divt'rsi fication e He)rts alll] wcr(' attempting
Alloth er serious probl em is the diffk,dty of pl aC in g and 1II 0 ti vating a ma nagl' l
10 avoid in vestments in th eir (;<Ish cow. As a lTslJit, they lost slIhstantiallllarkl'l share.
in a 'Ilil k in g si tu atioll. Most hll Sill(::sS Inallagt' rs d o IIOt Ilave tll(.: orient'a l"ion , hack
grolllld, or ski ll s to e ngage in a s uccess hd Illilkin g strategy. AdjllStilig p e r/orm a ll( 'I'
llI easu res and rewa rds appropriate ly ca n h (' diffi(:lIlt ror hoth th e orga ni za tion all d DIVESTMENT OR LIQUIDATION
th e manage rs in vo lved . It lTlig ht sec m re aso nabl e to IJ se a IIl a ll ag('" w ho sp e(: iali z(" ,
:\ s Figllre 1.5.2 Sllggl'Sts , wh e ll a husin ess e ll viro ll Jll c nt and hi I.,inl'SS position ,liT both
in milking strategies , but that is orten not kasihle simply hecall s(" s li c h spec ial iz<I
I lld~lvorablt', thell the rinal alU·'rnativl' , diwstllH'llt or liquidatioll , i., precipitate d.
tion is rare . Most firm s rotate managers throll g h c1ifTcre nt type-'s of Sitll al"iolls, a lI(I
\ Inong the conditions that wOlild sliggest a ll exit d ecis io n rathe!" than a Illilkin g d eci­
ca n-~e r path s simply are not geared to creatin g milkill g sp ec iali sts.
Sil)11 are the l"oIlowing:

''''hen the Premises Are Wrong • The declille ratl=' is rapid and acce le rating, and no pockds of" e nduring
Olle ad va ntage or mil king rat'lw r thall di vesting is that a milkill g stratvgy (:an o f"te ll 1)(" d(~nl;IIHl arc aC(:l'ssil)l e to the llli silwss.
reve rse d ir it tllnlS Ollt t·o he has(-'d Oil incorrect premise-'s regarding n"'rkct prosp l~d.'i. • The priu-~ pressures are expected to Iw ('xtreme, (:<lllsvd I)), d eterillille d (:O lll­
co mpditor move.'i , cO.'i t project io ns, or other relevallt r~letors. A resllrgc I1 C(-' ill prod petitors with hig h exit harrie rs alld hy <l b (:k o f hrand loyalty alill procilict dif­
li d classes that we re seemingly d e ad o r in tcrmillal decline gives pallse. OatnJ(-"al , [i ll ' fe rcnti 'ltioll. Thll s, a milkin g stratcgy is lIrtlikdy to he profitahle [i)r all yollc.
exampl e, has experit" H.:e(l a sharp increase ill s,ties IJecalisc 0[' its low cost a nd ,Iss(wi
• TI It' bu siness pos ition is weak; oll e or Illore dOlllin a nt cO llipetitors hav('
ations with nlltrition ,\lid h ealth. JlI nWlI\; apparel, sllspcllllers and pocket watclJ('.'i
achieved irreve rsihl e adva llta)..!;t'. TIl(' busin ess is now Io,ill g 1l10lWy, ,Illd
have show n sigll s of growth. FOllntain pens, invented in ISS4, were virtllally kil lc d IIV
/"\It\ln~ prospects , UT dim .
th e appearance in H).39 of the ha llpoint. However, the comhinati o n of" nostalgia ,III(/
a desire [i)r prestige h as provided a major comehack li)r the luxury i(llilltdin p e n . /\ , • Th e firm 's stral<;gic dirt'ct ioll has c hanged, and th v role or the bIiSill(~sS has
a result, the indu stlY h<ls seen ),ed rs in which sales douhled. h cco nll' slJpc dlllOIiS o r (-'ve il lln w'lll kd.
• Exit harrier s (:,111 Ill' ove lUJmc.
Forecasting and Managing the Flow of Funds from Milking
The How of funds from a milking st rategy n eeds to he hoth f(lr ec,lsted and Illallag('<i
properly. AT&T pLum e d to Llse funcis ("mill its IOll g-distance hllSin(~ss to in v( ~s t in en'­ Business Position in Key Segments
-,.
ating millions o(broadh,l n cl-cablc households w ho wo uld h e sold local as lVel l as 101lg ­
distance se rvi(:es. Because t he va lu e of" th e lon g-d istance uls h (:OIV Iell mlll:h rast( 'r
Strong Weak i
th,111 plann e d , however, the agg ressive inves tment in cable cOlild no t h e SliPPOr[ ('<i.
The lesson is to make sure that th e (:as h flow <Idually e.'(ists bd())"(:=' it is SP(, lI t.
Favorable Invest or hold Milk or exit
Industry Environment
The Hold Strategy • Rate of decline
• Pockets of demand -I
A vari ant of th e milking strategy is th e hold strategy, in which growth-lIl()li"al(·d • PrieR pressure
!
in ves tm e nt is avoide d , hut a n ade qll att: l(='v('1 o r in v('s tllH"nl is ("I'lllm,'d l() 111:tililaili
prodlld qllality, pro<illt"tiO Il Ll("iliti( 's, <1 11(1 ('lIstolll( ' r loya ll ". i\ 1",1,1 'il':ill' ,l~\ i., '1j1!>!"O­
Unfavorable Milk or exit Exit
I
1
jl!"ial<' w lJ("1l all ill<illslrv is d( ,dillill g ill a ll () r<i, ' r/ \ 11':1\', 1'()(" i-I'i S ,d" 1·111"'"I!'. ,1"111:11111 -_. ­

" , isl , 1)J ' i ("(' /)J"( 'ss "J"( '~ : 11"1 ' 11 ,,1 , ·, 11 1' 11 11' . , I [i!"111 II : I ~ '·' III(l il:d,l ,· : , ' ,', > I 1>' l'I>IIII"'I,,'lt"i,". I"iglll'( ' I r; . ~ dl III II 11 1111 I ),·,· I illl l !! ', t " S I.I,:~. Il ; 1I11 IlIdll . . ,I ·jl "
288 Part Four Growth Strategies Chapter 15 Strategies in Declining and Hostile Ma.rkets 289

A set of ex it barriers call inhibit an exit uecisioJl. In particular:
• Specializeu ass e ts such as plant <md e (luipm e nt rnay have little valu e to others.
• Long-te rm contracts with supplie rs a nd w ith labor groups may be exp e nsive
to bre ak.
• The husiness m ay have conllnitm e nts to provide spare paJis and se lv ice
back up to retail e rs allu cli sto m e rs. For exa mple, in th e UK-iOs, ma ny vacuul11­
tuhe manufacturers, sllch as HCA, also made TV sets that used speciali7.ed
tubes. T he custo mers' assLlIllption that HCA w01t1d supply p ,lIis proVided a
substa ntial exit barrier ()r th e HCA vacu ulll-tllbe bllsin ess.
• Finn s' financial ami manage m e nt i'("so urces a re beill g absorhed w he n they
could h e e mployed more effecti vely e lsewh ere.
• An exit d ecision may affect th e reputatiou a nd operation of other (;()lllp<lny
hu sin esses. Thus , CE was co nce rn e d ahollt tlw illlpact its d ecisio n to di s­
continll t: s l1 1all appliances wO ldd Itave o n its lal11p ,lnd large-applianc(, husi­
ness re tailers a nd cons llmers.
• Cove nlln cnt restrictions can effect ive ly prohibit an exit de cis ion. Hail ser­
vice, I()!' example, cannot simply h e te rminated.
Managt'l'i a l p"ide 11 lay also b e a I;lctor. Pmll.~ssio nal Illallagt' rs oft(' 11 v ie\V tl]('l1l ­
sdves as prol)l e m so lvt' rs and an:' rl' lu ctant to admit del(~at. Seve ral anccdotes
to co nside r strategie un celiainties in the fi ve are as summadzed ill Figure 15 .3 and
di sc ussed n ext.
Market Prospects
A basic considprati on is the rate and pattem of d e cline . A precipitous d eclin e should
be distinguisbed from a slow, steady decline . One d e te rrnining f~lctor is tb e e xistence
of pockets of e nd\lli ng de mand, segments that are capable of suppor ting a core
demand level. Th e vac uulll -tube industry had re place m e nt demand even after v<)c­
IIUlll tubes had al l but disappeared from new products. In the le athe r ind ustlY,
le ather IIpholst e ry is still a healtby Illarket.
Allothe r r;ldor aHecting the decline rate, partic ula rl y in d ynami c indu stri e s, is
product obsolescellce. \iVhe n disposable di ap e rs we re introduced, th(-; sale of rubber
[ldllties for habies dramatically decli ned.
A related issu e is th e pre dictability of the p attern. If the pattern is bas e d 011 d e mo­
g raphics, such as the size o f the teen population , th e n it Illay be predi ctabl e . In con­
lrast, fashion and techn o logy can change quickly, and th t; re f()l'(~ predicti ons base d on
SOME STRATECIC UNCERTAINTIES
M;\I·kel PI'ospecls
1. Is the rate or decline or<krly and p redictahl e?
2. Are ther" pockdS or "llllming ,k lll<llld?

d escrihe finn s that have had to sc1ll1 a series or (,Xl'Clltives to close dow n a subsidialY.
:~. Wllat <lIT the reasons Ii)!' the decline-is it tt·mporary?

heC<ILlse each e xec uti ve cOll vill ced hilll- o r herse lra(+e r arri ving that a tUl'llarolllld \Vas
possihle , o nl y sllhse(lil e ntl y to rail at th e l~llo r t. Furt hermore , th ew lllay he <I ll CIII() ( :ornpetitive Intensity
tional attachm e nt- to a hu sin ess that has Iwcn in t he " Iillnily" I()r man y yea rs or tllal 4. Are there dOlllin <lnt cO lllpetitOl'S with uniqu e skill:; or cOIll[wtencies?
was even tlw original bu siness on which th e re,'i! or tire firm was hasl:ll . It is dil'ficlr!1 5. Are tlrere Illa ny competitors IlnwilJing to ex it or cOI1l'ra(;t gril cl' ''ully'~
to turn yonr back o n slich a val lied friend. (j. Are cllStollle rs hr<.l l\d loyar) Is there product dilfe re nti 'ltion?
Many finns avoid divestitllre decision s nntil t l1(:'y beco me ohvious 01' are f()\'(;e <! Oil 7. Are tlwre pric(-' press ures':>
the firms hy externa l I() rces. The Iwtte r-lllall agl'd-and , according to olle st lld).', n)()["( '
p['()fitablt~-organ ii'.ations w ill act ively mallag(-; these d ecision s h y syste ma ti cally (,V, till Pe ,-fonnance/Strengths
ating the strategic f-it a nd fnture prosp ects of e ach hn sin ess, th e n regularl y makill g S. Is the bllsiness pr()Rta"l e'~ What are its f"uture prospects?

di vestiture d ecision s or placing husin ess IInits Oil a probationary statlls. :] Jack \,Velclr, !). \Vhat is the market-s hare position and trend?

uuring hi s first /(lLlr years as CE's CEO , di vested 117 hminess units <lccOllllting r'o r ZO 10. DoC's the bllsiness hav(" so niC seAs with respect to key segme nts?
p e rcent of th e COJ1)onttion's assets. Such divestit ures can generate cash at a 1;lir (as 1 I. ell I tlw busilless Ill ,ln ,lge cos ts in the fact' of declining sales?
opposed to <I I()rced sale) plice, liberate manageme nt talent, help repos iti o ll t hc rirlll
InlclTelationships with Othe r Businesses
to l1l<ltch its strategiC vision, amI <100 vitality. T he dive sted business es wi ll o rte ll 1)('11<'
12. I., th e re synergy with othe r businesses?
fit as well, ,)S they wi ll like ly move to envirollm e nts th<lt will b e more slippo lti v(' III
U . Is th e husiness co mpatible wi th th e firm 's current strategic thrust?
te rms of Jlot only asse ts anu competencies but also th e co mmitme nt to S UCU'('(1.
I I. Ca ll tlte rinn snpport th e cas h needs of' tIle busin ess?

IlIIple mentation BalTicl'"

SELECTING THE RIGHT STRATEGY FOR THE
I:). \\ '11;11 :11" II". ('\il II;II"["i"I<r'

DECLINING ENVIRONMENT
I(i . (:;111 1111'1>1":111 (/ "1,,,,, 111 :111 ,'''',' ;111111<' ill\"'sllll<'lll ()Pli()lls "

'I'll(' Sp('('lrrllll () r ill\-('"I 11[('111 ;111( ' rll;lii\,('s r;lllg"s i'1 '()111 ill v(',s l I() 1,,,leil,, Illilk I() (',il III --------~------------------------
()I ',I"I' I" (1('I('I'lllil[(, IIII' "lllil'I;11 ;ill('rrLlli\,' ill ;1 ei ,·" lillill!', ,'1(\ illlllll","1 ;, lil 'lIl 1[('",1, I"ig lln' I ; •. :~ 1111' 111 \ 1 'l IHI' Id I )I'C'l' . 1I111 ill;1 1)1 '(' lillill ,!J~ 111£111 ,. .; 11 \'
290 Part FOllr Growth Strategies
them are riskier. A slow declin e may accel e mte, or a d eclining marke t Illay sudde nly
he revi ved. For cxa lnplt\ th e natural food tre nd has revived oatm e al, and a n inflation­
stimul<lted pri ce st~ ll s itivit)' at one point gave Kool -AiJ a resurgence.
Competitive Intensity
Ano th e r consideration is the level o f competitive inten sity by the indu stry structu reo
Are tb e re dominant co mpetitors that have substantial shares and a set of uniqu e
assets ,t llll cOlllpe te nc ies that f()]'Ill f(mnidahl e sustainah le compe titi ve advantages'~ Is
th l'l't' a relati vely la rgt' set of co mpetitors that is not di sposed eithe r to ex it or to COI1­
lTact g racefull y'? If the an swer to eithe r or these qu estiolls is yes , th e prorit prospects
fo r oth er.'i may he di sma l.
Anoth e r pe rsp(~ ctive comes fro lll c ustom e rs. A kcy to maki llg a profit in a declin­
ing ind'l stry is price stallility. Are c ll sto mers re lati ve ly pri ce iltSl'miti ve, as are hllye rs
of savin gs pass-hoo ks'? Is th ert' a re lati ve ly high leve l of' prodllct difh: r(:' lltiati on and
hrand loyalty;! O r has th t' prodllct hcconl(' a cOll1nwdity? Are costs in vol w d in
S\\~t(; hing from o ne hrand to a nother?
Performance/S trengths
A hu sin css po.'iition app rai.'ial should l(lC US on hmin ess strengths a nd capahiliti t's,
as wl~ 11 as o n cnrre n t perforillan ce . Sotlrce s of' ;; trt'llgth in a d ecl in ing e nvironm t' nt
arc ml1all y <]nitl' different frolll tho.'il' in ot he r contexts. The stre ngths mU ,'i t re ll e ct
l~ h e re, tiity that th e re are k wc r produ cts to makc a nd fewer Cll sto mc rs to se rve.
TIlliS , stich S(lI lrCeS of slTc,tgth as economies of scale , ve rti cal integra tion, and
tl' c hllological leadership ma), not lw nC'C'd e d or Illay e ve n he liabiliti es. Il l' lpftti
.st rl"llgth s in a dcclinin g illdnstry a rc :
• St rong e .'i t'lhli shed n ·,lationships with proGtahl c CtlstOl1ll'l'S, esp e cially tllose
in pockets o r (-' ndurin g d e mand.
• A strong hrand name, At this stage it will be dif'Ficult Ill!' competitors to alter
th e ir illlag(~s signiricantl y. Thu s, the nature of an estahlishe d image can be
most im portant .
• T he ahility to ope rate profitably with lln de rutili zed asse ts.
• T he ability to redu ce costs as bllsilWss shrin ks; Hcx ibility in ilpplyin g assets
and reSOlirces ,
• A large mar ke t sh ilre if econom ies of scale are present.
An analys is of curren t proFitabil ity is impo rta nt to the assess ment of fu til rc 1)( l."i·
tion, hu t care is need e d, espeCially if all exit d e cision is involved. Book assets , lil l'
eXclm p le , may he overstated, because the ir market value may b e small or eV(' 1l Il! 'g:t
tive iF they have associated ohli gations . Some overh ead itt' Ill S that wOl lld haw 10 1)('
shifte d to o the r hllsinessl's lInde r alt exit ~ tll! ' rnilti vc 'nighl lw 1)" () IH' ri v () (llill (,d i'('()(11
.'i(J IIl(' ilnalyses.
Clw1lter 1.5 Stm tegies in D eclining and Hostile Mark ets 291
Interrelationships with Othet' Businesses
I ntcrrelatioll ships among bmill esses sh ould h e considered ill a finn 's investm e nt d eci­
,ion . A husin ess may SUppOlt other businesses within the Finn h y providing part of a
S)lStt' lll , by supporting a distrihution channe l, or by u sing excess plant capacity or a by­
IHodllct or another produc tio n process. If th e Finn is veltically integrated , a decisio n
It l kave a pmticular husiness ma)' ,lfrect the oth e r c ompon e nts.
Vi sihl y closin g down a hll sin e ss m,l)' ge ne rate a c red ibility problem for th e
Ildrent corporation , es pecially if a large w rite -ofT is invo lved. Closing dow n cO ltld
,tiled ,lccess to financiall11arkets and influellce th e opin ion of d e alers, sl1ppliers ,
;[ 11([ Cll.'itollwrs abo ut tb e Firm's other operation s. \ t\1 hc ll Gen e ral Mo tors c losed its
O ld sl nohik Di vis ion slwck waves were felt all10n g Cll stOll1e rs, s liPpli e rs, and
()tlwr stake holders .
Implementation Barriers
I' illal ly, the possi hle impknl<-' n tation prohl e ms associatl'd wi th e ach option IllUst be
(,(lIlsidcrcd. Exit barriers aflt'ct the exit option. Th e milk optio n presE'nts d iffic ult
III Clnagl' llll' nt prohlems in that hoth th e manage rs and cllstomers involve d will have
I(l dccep! a disin ves t context. The ho ld optiOli is also a delicate iss li e , heca Llse a pas­
"in' invl'stnlf'n t strategy can inad vc lte n tly le ad to a loss or positio,l.
IIO STILE MARKETS
Ikc linillg ll1 ilrlw ts Cil n cre ate hostil e ma rkets , markets Il sllall y associate d with over­
(': qlacity, low margin s, in tense comp etition , and milltageme nt in tllnlloil. However,
Ilostik markets call al so OCCllr in growth conte xts if th e re is ove rcapacity callsed by
I( )(l 111a11 Y compe titors. It is not an exaggeration to say that most indllstri cs are t~ ith e r
IIf )sti lc o r in d ange r 01' hecoill ing hostil e. It is thLls Il se ful to take a close look at hos­
Iilil )' Fmtf1n<lte ly, il major study is avaiblb1e to provide insights.
\ Nilllknw re Associates , a manage me nt cons ulting firm , has syste matically
"llldied Illore th a n fort y hostil e il1d llstrie s. Its findings are re ported in two articles
Il\' DOlt Potter. 1 TI1(-'S(:' re ports sll gges t that h osti lity can he preCipita te d by com­
1)('1 ito rs w ho are attracted to- a nd who te nd to minimize the risks of- growth
('(lIll c xts ill w hi c h margins and profits are hig h . Th erefore, high prices ilnd profits
,I (( 1111 d 1)(' :l callSl' Il)r con ce rn as well as celehra ti on, and it mig h t he worthwh ile
«( [11(' IOllg 1'1111 to li ngo th e ln or to build other harrie rs to di scourage competi tors
I (() I( I ('Ili('rillg tIl(' market.
\ Ilo!.l ilc I lldustry-Six Phases
'1'1 If' \\il«I('III('I'(' sllldy Id('lililicd six ph ases of hostile marke ts (shown ill Figure 1.5.4)
11( :<1 ('(lIiI( 1,SI):III rI ('(,:ld( '~ . /\III«lIl,:.;h [11('), d (lI l'!, illw,rvs OCCllr in th e order set fOlth , most
{I() {)('(' 1(r. ,\ I< III I{' I " I: I ({d i 1) .1'. () r ill i \ 'i i \ - [l kls(' It i'1' eye I(' ('i1l1 \1('1P ri I' III S Prev(' Ilt o r III a n­
«
.I! ','· 11().o.;li l( · ( ' 1(\ il'({ I{III('ld',
292 Part FOllr Growth Stmtegies Chapter 15 Stmtegies in Declining and Hostile Markets 293

Phase l-M argin p ress ure ()f compe titors , wh ich can be costly in te rms of sh are. For example, some 1l1(\Jl UL1 C­
Phase 2-Share shifts II II-e rs of organic-fe lt shin gles for roofing we re slow to invest in improve d glass -fi b er
Phase 3-Product prolif'crati on s hingles until a major share shift occurre d . Eve n more se riou s is the failure to keep
Phase 4-Selr-deleating cos t reduction pace wi.th risin g industry quality standards. As General Motors , Schlitz, and mallY
Phase 5-Colisolidatioll an d shakeout o th e rs have learned, it is hard to recover From a da maged reputat ion. A tte mpting to
Phase 6- H.l'SCIIl' squ eeze margin s out of th e distrihution chan ne l or sales force may provide illusory
,110It-term savin gs at the expe n se of market position.
Figure 15.4 Six Ph,lst's oillosti li ty
i>/w se 5-Consolidation and Shakeout
Phase l -.M argin Pressure ( ;onsolidation, ge ne ra lly geared to redU Cing overhead , oeeurs in three waves. Th e
lirst is internal and in vo lves re du cing th e workforce, clos in g Facilil-ies, and pmnin g
Prcdatol Y pricing to gain share, stimulate d in part hy ove rcapaci ty, leads to 111;11'1.',111
hl),inesses , The seeond in volves m e rge rs and acqu isitio ns , with stronge r rirms huyin g
erosion ; th e prillle hcneficiaril' s a re la rge c listOIl1C rs. As a res ult , cO lllpdito rs ;1tl"l ' lllj Ii
\\caker on e s, ill p<ut to re du ce o ve rhead, Th e third is glo bal in scope, w ith comhina­
to cn-'aLe or fi nd protected niches. Uow('v('J', oth ers (-~ velltllally will e llcro,I(' 11 ""
IiOI1S of inte rn ati onal pLtye rs b e ing forllled, s uch as w h e n Bridgeston(-~ hou ght
attractive nil'h es. No te: that d 'f() r['s to iso latlc Japan ese companies ill th e low ('lid Id
I"il'<-:., tone Tires .
co piers , cars , moto rcyc k-s , and S(,1ll ico llductors 1 ~liI ('d , as th ey eve ntl lally mo ved II,( ,; I
prodlll,t lili es lip , attacki llg the hig h-margi ll ni c he markets, ,'ha8e 6-Rescue
Phase 2-Share Shifts Ilidu st ri es can e me rge from hostility, some in as few <IS fi ve years, hilt most afte r a
tf ('cade or lon ge r. One route is consolidation , w h e n three or four key playe rs control
Eac h yea r, I to.5 percent of t il(-' share in a hostil e lI1arket w ill sh irt frolll olle g mllj> (II
111()re than kO p e rce nt of th e marke t a llll all playe rs h ave given up trying to w in share
l'o lTlJ>,lIli('s to another. Oll e Ca IJ,~~ is th e leader's trap , w he n a leadin g conlpany, 01'1"11
Illrough pri ce co mpe tition. Procter & Gamble and Kimberl y-Clark ha ve achi('ved
th l' higgest ;tlld Iwst finn, will not match discollnling ill its market, be li eving thai"
s ll e lt a co nsolidati on in th e disposabl e diape r market. Howeve r, it can take fiftee n to
si llwrior prodllct alld c listOlller loyalty w ill slipport a large price pre lTlilim . This "I r;ti
Iwe nty years (as it did in applianees ) [() r co nso lidation to p lay Ollt. Indu stri es may
cgy rawly works. The leader's prices (,V("lltllall), I;dl, hilt on ly after market , II:!'"
(' In e rge I'rom hostility more quickly if d emand grows enollgh to soak Ill' o vercapac­
(wh ich is dil'ficilit to regaill ) is lost and CIlsto nlt'rs have heco me eonvinc('d thai lilt'
il Y. Th e neces s;lIY growth in d e ma nd m ay h e f'u e led I>y expande d c llstOliler markets
lead e r's p ri c(-:s l)('f()I'(~ the adju st ment we rt' t:xcessivc. The ex pe ri e nce or PC 1)1';11)(1 "
I))' shifts in th e valne oFin te rn atio n,11 c urrencies that stimulate export d e ill a nd.
that clllllg to hig h pri ces long af't(-!]' competitors s'llc ll as Dell had cstai> li slwd IO\\!'1
price points, is illnstrative. Ano t he r ca li se of share s hift is ,1 Hight to quality, w ll('11 ;1
Strategies That Win in Hostile Markets
cO Jllpany, snch as FedEx, Simply d e li wrs mow reliability or has more ac(:(-~ss ihl(' <Ii,"
tri iliition. A third Ca l),e is acquisitions, whi ch ocell), w he n CO lTlpditors h ecolll<' <1(" '1'1, (-, \ /Vi Ildc mere study ide ntiries two typ es of fi rills that h ave achi eved above-average
p e rate to achieve (:collomies of seale, -;; des growth and profitability within th e h ostil e industri es Th e first type , te rm e d
(;old compet itors, holds th e nllmber one or two position and incl udes s llch finlls as
Pha.~e 3-Product Proliferation "'('dEx , Am e ri can Airlin es, Alcoa Aluminum , Canon Copiers, Owe ns Coming
Compe titors compete J()r Ill<lrke t share hy attempting to gene rate valli e I()r th l' ('II,'
I,'ilwrglas roofing, Yellow Fre igh t trucking, and Paccar trllch. Th e st-cond , te rmed
toml'l' throu gh product proliferation. The prodllet might I>e upgrad ed hy hlln<llill.I',
,,) iIv(~r co mpe tito rs, includes firm s s ueh <lS Airborne Express, Alaska Airlin es, Pitney
ad ditional features or fi.lllction s , s uch as a suite hotel room , color-tinted Ce lll (' III . 0 1'
Ilowes copie rs, Tamko roo fing, and Freightline trucks. Silve r com petitors are, malle r
not-From-concent rate o ran ge juiee. A soup cO lllpany might ad d n ew lilH's . SII('11 ;( ,
,111<1 occupy number three slo ts, or lower, in sales .
low-sodillm so nps or new re c ipes. A bank might add new clll'ckill g acco llnls willi St'l'
;\ 11 examination of how these 1:\\10 types of fi rm s have slicceedeu in hostile eon ­
vice vari,<lnts. Product proliferation mrc ly resu lts in WiIIIH'l'S, hilt rais('s Ill<' ,lIil( ' 1(>1
tlili o ll s i" illulHinating. Th e ir reeipe for success has five h<lsic illgre cli e nts_
all, F urth e r, otber firm s such as M arriott's Fai rfi e ld Tnn mig ht ofk:r wrs ion s III,'
or
product that uele te features and SC lv icl's.
,,'OCIIS on Large Customers

\'0111111(', w lli (' 11 is nll('i:ll hecan se it drives th e cost strlll'tllrL' , COIlH '" rrolll a 1'(' 1.1 ­
Phase 4-Self-Defeafing Co.~i. Redu ction
Ii\ ·(,I." s nl ;dl s(d,.,( ·1 ('[' ('(l SIOIII(TS Cold ('o llll )di tors ar(' I·h( , prilll (' SIIPI)li('I" 10 III<'

;\ l)r('ss l)I'( ' to II I<1 ilil;)ill 111;lrgilis 1( ·;)( 1., 10 s ('II' - d('I ('; llill,!'~ ('().' I r,· ti'l('li " " , 1\ ('('''11 ';1 11 .'
illd(lslly'., LII''','',I (''' SI' "III ' r, . ;Jillioll,t>;11 III('Y , (' rv(' ollll'r';;ls \\, (,11 , '1'11('11' \\'('; qllllI S ;11 ',·

ilil (' lri Oil lilll ilill,t>; ill \'(',1111<'111\ "1 ;1\ 1';lill o 111;11 ('1, 11I,,(I,1t'1 ;II It1 II,r:,jih illll>l'I,\I ' I""II"
;1 ' Ir() 11,\~ 1'1';111,1 ,,1 " ltlih "il l'I ' lld 11 ,'( '1" ;111(1 (' I()s(' 1'('Lrlioll , l,il) ' \\'illlllll' LII ' ,!'~" \,,,1"'111'

294 F(IIi FOt/'r Growth Strategies
d istributio n chann els, Th ey adapt Wf'1l to chann el sh ifts, OlVen s Corn i ng Fiherglas ,
for example, added a stron g retail marketing progra m to its IVhol esal e distribution
w b ell r etai,1 channels hecclllw important. Tn ilHlli st ri ~ s with ou t ch ann els of' di strib­
ution , Gold com pani es wi ll atte mpt to create a larp;e cli stoiner out of medium-si ze d
fir ms, F edE x, 1'0 1' exa mpl e, c reated a parts hank prog1'<l1l1 that maintained an i nve n­
to ry of parts J(lI' /'inllS in md er to exped il e shipnw nt.
Beulllsc Silver co mpani es rart'ly possess the ini'r,l strlll'tlire t o serve th e largest
Cli stOill c rs as cIT(:'(; ti vl'l), as their Gold cO l npd i tors, they l'oc l l.s instcad on d evelop ing
strong rciatio1l.S1lips w i th nwdi uln -sil,('d Cl lstonll'rs , Frcightlinl ' (>C lI ses O il
[nicks to sln all Hee t OWli ers, ['or l>xalllpk, Thcst' second- tier Cll sto llIers klld to
c mphasiz(:' good service and reaso nahle pl'ict's to tlH-'ir own end-Lise I' cllst om (' rs,
Sil ve rs can thus stTvicl" thcir Cll sto n w rs w ith ollt sacri ric ing margin ,<;, To attract th ese
cil sto nwrs, Sil ve rs ofte n adop t in d llstry specialties, Ball, (( )I' example , has h eco m e th e
m ajor suppli er of w ide- IllOilth j ars to t he ( lOll indl\stry.
Differentiate on Reliability
Thl' top rirms tv nd to eli ('f(.'re nti ah' 011 intang;iiJl es sll ch as reli.dlility and a relatioll ship
u l' t ru st an d (,o llfid t'lIc<:~ rathe r than on p rotllll't f'catl I I'es ailll att rihll lt-'s , w hi ch al'e (~as­
ier to copy. Tlw I(K'II.<; i_<; on pro viding th e l' nd usn w ith a prodllc l- or service t hal­
wurks (;o ll.<; i" I-Vlltl ,v ,lIld tilt' chanllt-'i 11I(,IIII )l' I' with (' Ilic i('lll alill rcliahle d eli ve r,\!,
Co lli cO lllpani(',<; 11Sl' wid ('spread physical pn'S('1 I(;l' alill advertiSing to create: a
large sll are or nlind alld a ,<;trong bran d idl" l tity w it h end Ii sers, \ V it h challnl, 1 Cl IS­
tomeI'S , Colds 1-l'dIl Cl~ co,<;ts hy in vestillg in i ll for mati o ll technology.
Silve rs oller ,<;l ' IVic( ' lev(, ls that art' higher an(llll orc consistlcnt than those or th eir
ri va ls, Pi tney l30Wl 'S g llanll1 t-t:l>s a 1()I1r-holll' r('spons(' time on a copin se rv ic(' cali , f(n
('xa mpl e, Sil vers tl'll(l to have ,<;trong Ch~lIll)(-'ls ailll Or[el l of'f(,1' exc ili sivity ul' tl'rritori e,<;
to protect thcIII_
Cover Broad Spectrum of Price Points
Col ds will o lTe r a broad array ur prodllcts cove rill g t lte high , llll'diul11 , and low e nds
of the m ,lrke t. They avoid Il'avin g nich es aV;lilahle to other s and elld up with a prod­
uc t mix th at mir rors th e nlarkct , Silwrs wi ll" sually participate in tlw high-end IlIar­
ket hu t w ill not feel co nstraill ed hy a Ili ch e segme nt. Bather, th ey w ili il lt rodl lc('
prodncts that are respo flsive to th eir largest custo m ers,
Tu.rn. Price into a Commodity
In the early stag(,s of hostility, p ric e differences can b e as large as I () to ].') p (' r('(' 1II,
However, price dillen ' ntials evel ltually conve rge to within 5 perccnt all d l )('co lIH' k ss
impOltant. Gol d s, sllch as F edE x in air express, RO<ldway in less-tlwn -t mckload tl'lll'k­
ing, and IBM in p er sonal computers , drop their price 111lll>reli a so th at ,<;Illa ll( ' r C() II I­
p etitol's ean grow and price ,It t h e market, They hdsically IIlatch till' l)l'il '(' (>I' jl('( ' rs,
the reby r e moving plicc from til(' custo llwrs' 11IIvi l ig crit('ria, TIJ('il'<;lIpl 'I'i()r l H' rii)l ­
1ll ,1llCC is rewarded 1>)' Cll stoll J(' r lovally, Si h('rs ,e;;lill sli ;lr(' illilialk by di ,~l ' (lll l"ill g , Ill"
('1'(,1" I Iall)' I-h('ir di ,<;(,OIII" 1(,\,(· 1 is I(·dl l('(· d ;II HIIIJ('ir li)(,l l.<; sllil"<; I" d( ' li \ '('I ' il'.~ <;Iljli'rior
I)(' ri i ll-III"II('(' li )1' k,,\ ('II<;I,, ",, ' rs,
Ch(/pter 15 Strategies in j)eciining and Hostile Mark ets 295
1/ave an Effective Cost SI ru clur e
Th e IllOSt sllccessh d cOlnpan i('s in Illlsti le markets have an dlel'tivl-' cos t stm clllre,
Colli s sllch as GaJl o ill tahl e \Vill(~ allti John Del~ n~ i n Farm l'(jl lipm l'lIt achiew higll
protiuclivitv not only hy exploiting l-'l'OIl Omies of' scalc hilt dLso h~ invcsting in
;t lltoill ation ami inl()I'Inatioll systems to reli llce costs_ Sikcrs targd the high ent! or
llll' marke t wh ('n~ l'etllrl\S arc l)('ttt:r allll 1()ell S intt-' ntlv on kcy Cllstolnl'l'S Th ey are
;Iiso Clistoilier r()(;IJ.<;(~ti ill th ci l' H&D , <II ld they strdch their l11 arlwt ill g hlldgl"lS hy
cO llce ntrating on exis ting Cli stomers ami avoidin g ,Id vl'rtisillg dircc[-('d at ga illing 1\( '\\1
se ll ing its
('i lstollwrs ,
I II ,<; lIl11lll<lry, the compa lli es tha t Oll tpe rf'o 1'1 II oll l(' rs ill hostil c' illlilistril 's l(-'llll to (ilc ll s
;Ittl' ntion Oil largc CLl,<; tollwrs , t!if'kr( ' ntiale Oi l rc li ahilitv, co ve r a w id l-' speet-fl lm o j'
IlI'in' poillts, tllrn pricl' illto a comiliotiitv, all(l haH' l~ll('divl' cost strl ld lllTS,
II ()\veVl' 1', tlt e Cold s co 111 pdl' Vl' ry di l'I'e 1'(,11 t IY I-ro III thc S ikl'l's, Col ds ('njo)' s i gil i rica II t
('l'OIlOJllil>" o r sc,dc , Il avl' a brJl,1(1 pn'Sl'llc(' in sharl ' o r sl ll'lI' <Iml sklJ'l" or mill t! , and
" Ill'r cI'ficicllci('s to challlwi partlll'rS, Si lver ril' lltS dl'l' s l ll~d l l'l', olll ' l- aiJ()\'l ' -stan dal'd
s( ' rvice, CO lllpdl' at Iliglwr pri c(-' l)oilltS , [l nlll'ct tll( ' Illargills of llH'il' cll<lIlllld par t ne r s,
.1I1t! f'Ol'II S Oil low 1IIIit cost with kl'Y CIi StO Ifll'rS_
KEY LEARNINGS
• O ne ' stra ll'gic opt io ll in a lkclillillg or stdgllan t il ltliistry is to l'I'('al-c a
g row ll, contl' xt , I-c\'itali/,ill g ti ll' ill(lllst r v hy s('l'k i' lg Ill,\\! ntarkds, tl'{,h­
Ii ologics , app l ical"iolls-Illarkdi ng tactics , gO\,l'l'Il l lll'llt-Sl"i 1111 dal(·d dl' II " lilli ,
alld g row th ,<;1 d llll<1l'kds ,
• Al loth(' r ()ptioll is tu 1)(' thl' profi tahk SI IIVivu)' hy st l'l 'llgllwlJ ilig a I('a(i('r­
ship pOSition allllencolII'agillg ot l ll'r,<; t(l l')'i t, pl'rll aps 1)\ III IyiIJg their as,<;ds,
• A Illilkillg or harvest strategy (gc llnatil1 g cas h Il ow hy rl'dllcing illV('st­
IIWl l t al1(1 ()lwratioll exp('nses) works whl>1 1 the in vol\,(-,d hll silil'sS is not
crucial to I'll(' rinn finalll'iali); or sy nergisti cally. For milking to 1)(' !'cas ibl ('
tll o l1 gh , sales mll st dec line ill ,III orderly way
• 'I'll(' ('x it decision call 1)(-' optililai. {'v(>n though it is psychologica ll v alld
l )rol\-ss iollally paill!'111 and Il sll ally Il1I1St ( ~IC(, orgalli'/,atiullal harri ers , A
proactive di V('sti tll1'e policy w ill 1)(-' hetter than waiti ng IIntil the situ ation
dl'll'riorak,<; to th e poi li t that the decision is ohvious ,
• TIll' iII V('s tllH'llt lit-cis io lJ ill dl'ciinil1g markets sholii d w lv on an ,lilah/sis
Ill ' 111 :lrk(" Ill'<>'<;I)('('l ,<;, cO lllpl't itiv(' iI1l('II Sih', h " silll'SS stn" 'gths, intelTc la ­
li(lIlsl,il)\ \\ 'illl ,,111('1- l lJ lsilJl'ssl',<; ill til(' fil'lll , alld i lnpll'll1(' ll tation barri e r s,
• 11 ",'l il, ' "",, \.<'1\ ":tll , ,,d 1\\, I,,() 111;111: ('Il IIIIH'lilors as \\-,,1 1;1<; dl'l'lillilig
, 1"111:" ,, 1 "1''' ',1 11 \ ".' , 1IIII li l ,~'.11 pl,;I"'_<; : III ; II ',~ill 1)I"<'SS " I"('<;, sll<II'" sllii't s, pr()d ­
'1<'11'11,111, l _tl l"" ""II , I,'I(',Jll l t'! ('(},\1 1-" , ll l('li""s, (,,, " \() li(I :Jli<Jll , ;11,,11'<',\(' 11('_
296 Part Four Growth Strategies
• T\\o strah'gies to gain nho vC'-;l ver ;lge r eturn s i n hostil e m ark ets are r epre­
sented hy C olds (mu n Ge r on e or t w o firm s w ith eco Jlo mies o f scale and sub­
stantial presence) and Sil ve rs (numbe r thrPe or lowe r £inn s that f()cu s on a
sm al ler seg m ent, I lsll ;llly at t h e hig h end o fth e m arket ).
FOR D ISCUSSION
] . Identity t'xallipi es of l m lm \s that have (Te ated growth in stagnant or
d eclinin g i n dl lstri es. \Vklt rcvi talL/.ati o ll ro u tes w ere tak e n'?
2. I <.le n ti I), pro fit ;lhl (J sll r v ivors in d eclining markets. \ V hy w as KlIll Z so
proritahk o ve r t in l(' :) \ V hy did o thers leave th e m arketplace ?
3. Ide ntiFy hrands tllat art' t' lllploy ing a milking strategy. vVh at are tlw ri sks ?
4. CO llsidt' I' a di wst n1('ilt strategy. Wh y i s it h ar d to di w st a hll sin es s? Jack
\Vclcll div('stl,d l lU ll<l l'ctis o r Illisinl'sscs durin g h is I'c nure . \ V hat are
sOlne 01' til(' Illo t ivat i o ll S t hat kd to thesc di Vl'st i t llres?
5. Slllllnlari/,e t il l' h ()sti le Inarkd theory. \,Vhat are t h e key asslllllptiollS?
Evaillat(' th (' tl temy. [l ow wOlild you test it?
NOTES
1. C ,.egory I ,. W hit.. ,111(1 Shirley L ellllg, " !'v liddl (' M arkel Sllrin b As All i( 'ri l'<l ns Migrate
Toward til(' Iligll I': n<l ," 1111111 Slr('('/ JOIl r/wl, March 29 , 20()2, P I .
2. SO III(' (,.\('(' ll c ll l r('s( ',II'I:h 11< 1., h(T II done Oil slrat('{-!:: d('v(' lop "' (" l t in declining il ldll s­
tl'il'S , Oil wlli('11 ti ll' h" lall u ' 0 1' tllis cl, apter til·all's. I t h,ls 1)('(' 11 rq )orte d ill Michael E.
I'orll'l'. COil1lwlili u ' Slm l l'!!,!;' New York 1'11(' Free I' I'('SS, I ~JS O , cll<ll)t('r S; Kalhry n
1{lldi(' [larri,~"'I , Sl r (/( ('!!,il's for f) r:clilliil!!, J3l1silil'SSI'S, L(' xill gtO ll , ivlass.: Lexingloll
Il o()"' , 1~)NIl ; ali(I Ka llll} 1i Hildie Ila'Tiga" and ivli l'[I ;[(' [ 1.. : . Po rt(,r, "End-Callw
St rategies lC)r j) ('(' li' lillg IlI dllSlri('s," I/ orwnl 13I1 silll's.\ H('v i (' u; , .IldY- ;\ llgliSI Lmn,
I)P 111-1 21l.
:3. 1,(,(, I)raniko ll, T i lll Ko lin , alld i\ nto()n Schll('ider, " L) i",(' sti tI1l'(': Strakgy's Mi ssing
Lin k, " I/(/ /,wnl HIISi ll l'SS I k v il' lc, May 2002, pp. 7.5-IB.
4 . D onald \' 1'0Il l'r, "S llccess Under Fire; I'oli cil'.\ to Prosper in H ostil e Tilll es,"
C ill i/im / ill M II II II{.!.I' IIU'II { I kciu I C, \Vint(' r HJ9 1, pp. 24~'3i) , ,ll ld " St rategies T[t al W ill
ill Il os til " M arh'ls ," C IIU/,) n/ill ;\l 1ll11l!!,I'JII(,II( /{ ITil'I L' , Fall L994.
CASE CHALLENGES FOR PART IV
Leveraging a Brand Asse-t
DOVE
[n lY,S.5 , Unil ever ( th en L t'w r Broth er s) i ntr odl1 <:ed Do ve, whidl co n ta il H:,d a
p atented , m ild c lea nsin g i ng red ie nt , into th e soap catego ry. It IVas p osi ti on ed -th e n
and no w-as a " h eauty har" with oll e-t(llIrth cle<1I 1sin g c ream th at 111 oi stll r i'l.es skill
w hil e washin g (as Oppos( 'd to till' dr)'ing e lh-'ct o r regul ar soap ). A d verti sl' lll c nts re in -
1()['lT d til<:-' ll H-'ssage h y showing th e CIT all1 he in ~ p o ured ilitO th e h eauty b ar. In H){H,
th e phrase " cl ea nsing c ream " w as r epl ace d w ith " nlOi st llri/,e r c real11 ."
Also ill I \;)79 , a U n ive rsi ty o f' Pennsy l va ni a d t' n natologist show ed that Dove dried
a llli irritated skin signifi<:a ntly less than ordinary soap s. Base d on this stll(ly, U n ileve r
hegan aggrlcssi veiy marketing Dove to doctors. SOO II about 2.5 percent or D ove u se rs
said they hOllght th e Im llld Iwcallse a doctor n,'Co trln w ndcd it, gn'atly enh an Cin g I,h e
har's credihili ty as a 111 o isturi /.er. By th e lliid- lY!)()s, D o vt' had lwconlt' th c h est­
se lling soap h ran d an d cO lllm anded a pri ce p n,' nliun l. By 2()():3, Unil ew r was se lling
~ :3:3 () Illilli o n o f D o\'(' bar soap , occupying m ore thall 24 p ercellt or til(' Illarker, 1;11'
ah ead or its n earest <:olllpe titor.
Th e first t'fhrt to ex te nu th (' D o v(~ hrand oCl'tllTc d in J96.5. Th e exte nsi on , in to
di shw as hing dete rg(~ nt , snrv i ves hut has to be r('~a rdt'd as di sappo inting. Ik call sc t h e
leadin g co mpd i tor at t h e tim c , Palm o li ve , pro m isl,d to " sll['te n kUHls \V llile YOII d o
dishes ," ti l<' hop e W,IS t h at th c Dove eleansin g-c rcam nK'ss agc would tran slal e into a
cOlllpditivt' IWll dil'. In ste ad , Cllstollwrs [(~ It n o r CdS( Jr[ to change "mill th e IVc ll­
positiolled Palm oli vc , and sinc(-' Dove's rq)llta ti o n I(l r flloistllrizillg allll h ea lll), did
110t imply cle an di sh es, th e re was silllpl y no p c r<:c i vc ci h e ll e fit. AI'l<:'r re ce i v in g '·\I('ak
Illarket acc(, p tance 1(11' t lw ex tension , D ove lowe red t h e pric(" , crc at in g an ot l ll' r
so urce of' strai n o n t he Il ran d. Fiftee n y ears a fh =' r its lallil c h , th c hrand lan g ui sh ed at
a rath e r poor s('ve nth ill th e U .S. IHarke t , w ith a sh art' o f aronnd :3 p e rccl lt . T h e di sh­
w ashing d ek rge n t not only rai led to e llh ance th e Dove hrand , it al so Iind o llh tedly
inhibited D o ve fro m ex tending its Franc hise Furthe r {( II' d ecad es.
[n 1DDO tl \(=' Do ve soap p atent ran (lil t , and ar <:h-<:Olllpctito r P& G was soon !'est­
il lg an Olay h eauty h ,lr w i th moi sturizin g prop e r ti es, a prod\ld that roll ed out in 199:3.
Olle year later, 0 1,1)' hody w ash ;Ipp(c~are d and soon ga rn e red over 2.5 p er ce ll t o f ,I
high-lllargill prod u ct l'ategory. Blindsided , th e Dove hrand team Iwlatedly I'ecog­
Ili/.cd that th eirs was t he natur;tl hrand to own t h e llloi sturizer body wash p ositio ll .
'I'll(' lil'lll h ad apparen tly missed the chan ce to he a l ead er ill this new suhcategory.
11 1 r<'S POI IS( ' to O la)'. th e firm r u sh ed D ove MOi st ll li zi ng Bod y wash in to stores. Th e
jlHldlld did 111 )1 li \( ' lip to I,he Dove promi se , h ()\v(-'v(-'r, and a r e f(lrInulatio n in 1996 was
Ollly: l p:lrli :d illl} l r')"' IIIC ' 111. [11 I lJm), Iho llg h , J)()\'( , fi n ally got it ri g ht witll th l' inn o v;\­
I iI'<' N ilirillill [ill , ' [ " 1" ''[ (I II :I I('cili loillgy IIial d<,[ )os il ('d lipids, \,il,lIllill I ~ , ,\11(1 otl l(' r
ill ~,/ , ',[i " II (o; " "I , , II " , ', 11 11 TI ll' :1I 1' ;l II('(,d ski ll -' I(I' I,i sl,i" g 1'i()IHTli( 's p ['()v i<i" <i " IIIIII ,g[1 o i'
:l lil 'l III :1 11 1111 I I,, " 1", 1,. 1"'." ,I ~)() 1"' 1'('(' 111 1""llli lll ll '1\( ' 1' il .s II 'L':I d:ll 1",,1" 1\':1., 11 . 1,: d " I'
:!m
298 Part Four Growth Strategies
Dove introduced a vcrsion of Nlltliulll with antioxidants (which have b ee n linke d to
reduced signs of' aging ), which helped Dove to pull even with Olay in the bouy wasil
category. By leveragi ng s trong brand equity, pursuing innovative technology, anu. being
pcrsistcnt, Dove was abl e to ove rCOllle ;\ late entry into the market.
The Dove hody wash C "f{(lI"tS inHlll'nced the hrand's soap bu sin ess, whi ch was Hat
Iintil tilt' mid- H)9()s (, lilli , ill hlCt. d eclined in I99()). The introdllction oftlw body was h
cOlTesponde d to a :30 lwrce nl- growth s urge in Dove soap From th e mid-i!;l90s to ZOOI ,
(' vide nce that th e e ne rgy an d t'XpOS li re of the Dove hrand helpe d evc n though I-he
prodlld \Va., sonwwhat wanting dllring milch 01-that p e ri od Jn addition , th e N lItrilllll
sllllhrand, cstahlislwd in the hody was h categOlY, was e mployed to Il e ip th e soap llUsi­
Ill'SS. 111 200l, Ullil c-'I 'c~ r introd uced a Dove N lltrillm soap (positiollcd as re pl e nishing
skill IIl1tric ~ llh ) that was priccd ahollt 30 percent hi g lle r than regillar Dove.
Another hattldield , ('nl-cred ill ZO()O, was the ra the r Illatlm~ category or· d eodor­
anls---('v('n tllollgh (hy ness, tlw key benefit, sceillcd contradidol), to thl' Dove promise
01· IIloistllri :t.illg, and tl)(' target s('glllenl was _YOlinger than th e typical Dove CLJsto mer.
Despite lhese apparcnt ri.,ks, Dove illtrodlJced a deodorant lill t' with llll c haracte 11sti­
cally hold culverti.,illg ([(lr (''(aillple, Oil(' tag lilll' was "Nt'xt stop , armpit heavcn")_ As it
litrlwcl IHlt, th e d coc1orallts wcr(' Ilamed <IS olle of the top ten nOll-f'ood new prodnds
ill 200 I, garnnillg over $/0 millioll ill sales with close to ,') l)('rce nt of tile:' Ilwrket, mak­
ing Dove HI( ' IlIJllll)('r l,vo hrand aillollg [('Iliale deodorants. Th(, "O Il('-qu,lJtt~ r mois­
turi z ing loti o ll " llositiollillg, dl(xti \'cly COl11l11l111icated as protl'ctillg se nsitive lillderanll
sk ill , gc n('r,lted a DoV(' spin on dl)!J ll'sS that diU t'rc ntia[-cd th e prodUd Iin l'.
III spil<' of this Will , P&C 's Ola), again h cat Dovc to a I1(' W Ill arlw t ill th e SUllllller
of lOOO , this tilll(' w ith disposable 1;IC(, c10lhs illfu sed with Illoi sluri:t.t' rs. illook Dovc
ahollt a )('<l r to rcspolld w ith its Dove Daily I Iydraling C leans ing C loth s. \ ,\li lh the
body wa., h SIICCCSS I)('h illd it , how t'ver, the Dovc-' brand was we ll suited to CO IIlPt'tC ill
this category, alld illitiallTslllts have lll'(' n promi si ng.
'I'll(' Il(' xt prodllct ('xtensioll was Dove Hair Care , w hose Illoistllri z ing (lualities
Wl'r<' directl y responsi ve to OIW of til(' lop two Illlm et n('.cds ill the category Th(' prod­
llCt'S hr'lllclcd diflt:n ' llliatm, \i\\'ighllcss Moistllri·;,ers, is Cl set of Fi f'tee ll ingredients
design e d to nlakc, till' llair soller, silloother, and more vi lmlnt WitiJOllt adding an y
l'xtra weig ht . After achieving top-selling statlls in Japan and Taiwan, Dove Hair Carl'
(' Iltcred tlw U.S. markd ill early 200:3 with a massive intmdllc bon campaign, joining
a product falnily II sed hy nearly one-third or· Amcri ean f'amili es .
VV ith th ese extc' nsion SllCCl'SSes, Dove in 20():3 h ecam e a $2 billion dollar hrand,
o ve r te ll tinws a., lu c rative as it W,lS in 1990.
FOR DISCUSSION
lial hlldge t of· arollnd $lOO million. (The logo-whi ch has a light , pe rsonal tOlleh, as
1. \'Vh y was D()\T dormant I(l r so long?
2. " 'hat W('r(' til<' keys [() [II<' SII C(,('SS tllat DOl.!' ;(clii( 'I'('<i ill I'llililill.e: il s
11I·;lIltl illl() ;l .'52 IJillioll IlIl sill('ss·~ \ \' Ii ;1I w :!s III<' r()I( · or Sll<'n·.ss IIlll1l«'II ·
[1I111·~ '['[1( ' slll>lJr;lIld·~
Chapter 15 Strategies ill Declining and Hostile Markets 299
3. \ Vhat was th e role of a vigorous compe titor? \t\fou IJ Dove have go tte n
the r e without P&G pushing (or, more accurately, pulling) the brand?
4. \iVhy we re Dove soap saJ es aFfected b y th e oth e r Dove s ll cces~es?
5. \ '\That do es this cas e te ll you abollt first-mover advantage?
Source: Adapted with th e permission of· the Free Press, a division of SinlOll & Sch ll ster
Adult Publis hing Group Frolll Brand PortfoliO Slml eg fj- C r ea tiflg n eicu(IflC!:,
]Ji[f enmtiation. Eflcrgfj , J£verogl'_ aff(1 C/aritfj, by David A. Aah'l Copyright ID 2()()4 by
David i\. J\ah:r. 1\ II r ights resl, rved.
Creating brand assets to ,<;upport a growth strategy
INTEL
Durin g th,,~ ] 99()s , Inkl achi evc d remarkahle success in te rln s o r in c re ase d sales,
stock return, and market capitalization. Sales of its microprocessors went from $ 1.2
hillion in 19k9 to over $:3:3 billion in ZO()O_ The firm's market cap italizatioll grew to
l)VCr $400 hi Ilion in jnst over three decades. Inlel's ahility and w illin gness to rcinvelll
its product lin e again and again, making ohsolete hllsin ess are as in whi c h it had hig
illVes tm e nts, ccrtai lli y played a key role ill its Sllccess. its ope rational exce lk' llcc in
(Tcating cO lnpl ex new prodllcts with hreathtaking speed and ope rating microproces­
.'or hlhricahon p!;lnt.s effici e ntly ,lIld ellectively was also criticai.
Inte l's sii stained risc would not have happe ne d withollt th e Finn\ clhility to ere­
ate and nl<lIlagc" a hrand p(lItf(llio lhat inch IJe d a eOlllplex set of e ndors e r hrands and
slIbhrands. The bra lld StOlY really sta rts in 1975 w h en Illte! Cl',,:aled the micro­
processor c hip , th e kOS(), whi c h won 113M 's approval to powe r its First Pc. Th e Intel
c hip and its sll hs(:;cllient ge ne ration s-th e 21)() ill I9S2, th e :31)6 in 191),5 , and the 41)()
ill J 9k9- ddin e d th e inuustry s tandard and made Inte l the dominant hrand_
In e arl y 1891 , thou g h , Inte l was hlcing competitive pre ssure s from co mpe titors
who we re ma king clon es of the 3kfl a nd e xploiting th e hlct that Inte l lililc u to ohtain
Ilade nlark protectioll on the XS6 series. Callin g th e ir products nam es like the
,\ .\ '1D:31)(), th ese rinn s created confusion b y implying that a AMD31)6 was as e ffective
a., an y other :3S6.
To r eS p(lIlU to this business challenge, in th e spring of 1991 Inte l began a re mark­
;i1lic ingre di e nt branding program, establishing th e "Inte l Inside" branu w ith an ini­
i' · it was \1' I-itll'll Oil a n inf(lrIllal notc-was a sharp clqXII't-IIrC-' ['rolll Inte l's coq)orate
·' riroPIH'ri-l '·· [og(» ) Under thl' In<lll(lill ,i.!; progralll , COllp"[('r II I<lll11 Ltcturers who prop­
(' r]\' rii spl:ll ·(·d [11f' 11I[ (' lllIsitil' logo 1·(,Cl'ill'd a () Ill 'I·CI'11l ;d l()w<llIct' on their purchases
Ilr 11Ii<'1111I«('['()(,·s.' (lr,. w lli,-II (,()lIld I,l' II SI, dl() Pd\' [·'JI· II[) lo :iO pcrce nt ofthl' part­
Il<'r ·s :1<1 1, ·,11 ·,(1"'. 1'.«II" ·I.s :li S(l \I'('r(' 1(" I"ir,·(II,) IT(·:"(· .' IIi>lIl :lIlll., [(lI·pr()clllds Iising
300 Part Four Growth Strategies
Chapter 1.5 Strategies in Declining and Hostile Mllrkets 301
a com pe ting microp rocessor, so that buye rs wo uld realize that th ey were LHlying a
a d vantage of e nh a nCing the PentiulIl brand b eca use it assoc iate d Pe n t iUIli with a
co mpute r without Intel I ns ide,
lTlore ad vance d product.
Thi s d ecisio n was very controve rsial within Inte l. man y p eople argue d th aI
In 2001, the Xeon subhrand steppe d Ollt from be hind th e Pe ntillm nam e.
brand building was irrelevant for a finn that o nl y sold to a handful of co mputer
Technological advances (in palticuiar, th e hrande d Net f3urst architecture) had dra­
manufacturers; the mon ey cO ltld b e IIs e d f(Jr R&D instead, 'v\!ithin a relatively shol'l
matically improved th e chip 's processing powe r. Th e Xeoll brand had also beco me
time, however, the Intel 11lside logo hecame uhi(llJi tous, and t iJ e program was ,Ill
established, making it eas ie r to support as a stand-al o ne brand, and initial trade lll ,u'k
in credi ble success, Even as the blldget grew to we ll over $1 hillion per year, the
issues over the Xeon na me had been resolve d . Finall y, because the target market had
hrand-huilding effort was p en:t'ived to generate su c h loyalty that it more than paid
become even more im portant to Intel, having a hrand d evoted to it was now a str<lte­
for itse l r.
gil' imperative.
For In ,1l1 ), yea rs, a co mpllte r w ith ,Ill Inte l 1n side logo could Iw sold at arollnd
1n 1999, a nothe r prohle m o r opportunity cIIlCrged . As the P C market mature d ,
a 10 pe rce nt pre millm (/(lr t!t(' \Vhol(-~ CO lllp"le r, not just th e lntt:imi c roproccsso r).
a vallie segill e nt e me rge d , led by so me co mpe titors e age r to find a ni c he and willing
Becall se or th l' logo's w ick expos ure, Ilite l was g ive n cred it f'(l r cwa lin g reliahl e and
to lllld(-,re ut th e {ntt'! price points. [nte l nee ded to compete in thi s market , if only
innova ti ve prodllcts and fil l' he in),!; an organization or s libstan ce and leaders hip­
delt~ n s i vdy, hut II si lig the Pe ntillill brand (even with a snbbrallll) wo uld ha ve hee n
even tho"gJ, Illost CO ll1p" l<:'r hu yc rs ha(lno idea w hat a mi croprocessor was , or w hy
ex trclllcl y ri .sky. The so lu tio n was ,I stand-alone h ra nd, Cl'lero n. Th e hrand-Illliidin g
Inte l's wc re beiter.
hudget, like that felr man y va lue hrands , was nlini rnaj -t h(~ target mark et I'(lll iid the
In tilt' ['all or 1992, th o ugh , whe n lntel was ready to a nn Olln Cl' the successor to til('
hrand, ratllt'r than the other way around.
4N6 c hip, it faced illcreasin g co mpe titor confil.,ion d esp ite the flltel Inside campaign.
The d ecision lVas mack, to link til(-' C ciero n to Intel Inside, so there was an indi­
A hllgc (kcision l(Jonl e d . C,IIIi ng till' Sllccessor the Inte l ,SN6 would Icve r,lge the In t('1
rect link to PentiUIll. Tht' tr'lde-oll was th e credibility lhat the 1ntel c ndorsenwilt
fn sid e hrand and provi d e ramiliarity to Cllstonwrs w ho 11<1<1 Iwcoillt' accllstoilled to t l)('
wOItld provi d e' to Ce le ron \l(-'rSIiS the n('ed to prokcl th e Pentium brand fronl ca nni­
XS() progrcs., ioll. Ev(-'n so, lnld e lc~ct(-: d to g ive the chi p a new nan1l': Pentillill.
balization a nd a tarnish ed image throllg h asso(; iat ion with a low(' r-c ll(1 ('nIT)'.
FOllr h-:y iss lies g uide d l·he d ecisio n to ad apt the Pe ntillill hrand. First, it wOlild
[n 200] , fnte l introdllced the lla niuln processor as a 'WIV-gc'l('ration successor
avoid con Flls io ll w ith co mpdi tors w ho mig ht also II S(J til(: .586 nan I(-' . St'CO IH I, t he cos l
to th e Pentiliin se ri t:s. \'Vity not ca ll it til(' PClltinlll ,S ? The processor was IllIilt rronl
or creatin g a new hrand and transitioning clistoillers to it , although hll ge , was withill
Ihe g rollnd lip wi tlt an ent in ,ly IH'W architf:ctnre, based o n a brand(Od d(-'sig n te nn e d
th e capacity and will or Inte l. T hird , th e lnlel lnside e qllil)! a nd I)mgra nl could 1)('
I ~xpli c itl y Parall e ll nst nl cti()n CO lllpntin g (E PIC ), WId it had Ci4-bit cOl llpllt ingpowcr
leve rage d hy addin g " 1n tel Jn side" on the IleW P(-: ntillill logo , in essence making til('
as oppose'd to the :32-hi t PcntillnlS. Capahl e or d e liverin g a IlCW level 0[' pcri()I'IlI <l 11 Ce
[clrinc r hrand an ell(lor.'wr f(lr the latte r. Finally. a new Il<lIm~ wO lild signal that til<'
[(lr high-end t' lite rpri se-ciass servers, the proCCSSO l' lH.'e d e d a n('w naille to signal that
prodllct was a significan t e nollgh advallce to sllpport denwnd at a prcmiuill pricc ,
il was qualitati ve ly diffe re nt than the Pentillm .
w hi c h was necessary to pay for a costly new Llhrication plan t.
In 200:3 , In tel introdllcl'd its Ccntrino In oh il e t(Jc hnoloi-,'Y Thc 11CW proc(>s.'o r
A [t:w years later, In t(-:I d eve lope d an improved P e ntiulll with sllperior graphic
p rovided laptop COlllp ll ters with enhanccd p e rformance, ext( 'I Hlcd battcl), lire , in te ­
capahility. Hather than c ha nge th(-, hrand name itself', th e Finn add e d a branded tccll ­
g rated wireless co n nectivity, a nd tllinllcr, lig h ter design s. Thcsc gro llndh reakin g
nology, MMX , to the P e ntiUIII . This d ecisio n gave ti le Pe ntium hrand more time to
~Idvan ces promis(-:d to li.llldalllc litally alh~ct pe rson,ti Iili~styl('s alld hll sin ess prodllc
re pay its in ves tme nt, and it reserved th e impact ofannouTl c inga new-generation c hip
Iivily by ellahli ng pcople to "U IiCO llllec[" (the Ce n trino ad vc rti si ng tag Ii ne is "U n wire
1'01' a mo re sllhstantial technolog ical le ap. Sllbseqll e nt ge ne rations did e me rge and
Yo m Life ") . Tht' llew Centrino logo re fl ects the Illtel vision of the con ve rge nce of
leve raged th e P entium name and e (l"ity with names li ke Pentium Pro (189.5),
COlll llllllli cation and co mputing, as well as a new ,Ipproaclt to pmdll ct d(-~velo pillellt.
Penti lll11 II (1997), Pentium rrf (1999), and P e ntillm 4 (2()OO).
Ilather than Simply pushin g the perf(lfIn ance e nvelope, this prodllct responde d to
In 1998, Intel d ecided to extend its reach to mid-range an d higher-end serve rs
I'('al cllstOll1 e r needs as dete rmined by market resea rch.
and workstations. To address th is market, it develope d Featllres that allowed fOllr or
e igh t processors to h e linke d to supply the necess<Il)! comp llting power. Thi.,
The most draillatic de m ent or the Centri)1o logo is its shape, a sharp dep<IJtlln~
['rom the rectangli lar d es ign hllnily that preceded it. Th e two wings sllggest a mc rgc r
progress, however, rai sed a hnlllding issue. On on e hand. because the Pentillill
Ill' technol ol-.,')' and lifestyle, a /()j'Nanl-looking perspective, and the freed om to go
bnmd was associated with the 1000ve r- e nd personal computer market , it wou ld n()1
w hew VO II will. Tlw mage n ta color used for th e Ce ntrino wing balances th e In te l h ln e
h e regarded as suitable for serv(~ rs and workstatiom. O n th e o the r hand , the Illar­
:llld \'is ll ;dk (," "1I0tCS YOllth and excite me nt while suggestin g a connection be twee n
ket wOlild not snpport d evelopin g yd another stand-a lol\ e hrand alollgs ide 1111<'1
1 ('(' IIII () l o,!~\ :11111 1): lss ioll , logic alld (,IIIOlioIiS . T Il( ' fnt(-:I lil sid e logo has also evol ved .
lil sid(-, and P(-'Iltillill. Th (-' sohlti o ll was to intro dll(,(-, a Sllhlll';llId , III(' l'l' lllilllll II
I\ jo re ' pr, ... i·", '· " I , III ~ li (·: tI ( ' d , :IIHI ('ollridl ' IIL il 11 0'" plO\'ides a link 1'0 tile c l,lss ie
:\(,() II , ill Imm. '1'111' s lIhhr;llId di s lall('('d II I<' II (,IV Illi crollrol'I ',,"r l' I""l g h 1'1'11 111
.ilo llj ll'.i 1< IliI, ·1 ' ·"'I '" I:II ,· I".l!," :111 .1 11' II I'I'ls:1 \""rl d ill w hi c h IIII' po,il i\l', 0 1'11)(' cor­
l'I'li/illlll III 11 1:i1,,' il 1):i1 :tI: lhll' I;,,' III<' I li.l~I I('I·- I'IHI II .SI'rs. II :i1 .s l' 11:1,1 111,' "TIl IH!:II'\'
1",,·:tll· ,'''i1i1'' 1,"1, ,1",11[,.. 1"\:111\ 1""t',I:1I1I 1':1 11 IlI·lillk"11
302 Pari Fou l' Gl'owfh Strat egies

FOR DISCUSSION
l. T he Inte l I ns ide cam pa ig n started in th e spring of 199 1, anu $100 mil ­
lion was budgeteu for it in 1992, Was that wort h \Vh i l e '~ Why wo uld
Co mpaq pa Jticipare in the prog rall1 '~ 'Wlt at abo u t De ll ? I-low wo uld yo u
evaluate the p rog ram'~ \Vhat al tt' rn atives dot's a co mpe tito r suc h as
AMD have to cOJl1hat th e I ntel Inside b randing strate).,')'?
2. In th e fall of 1992, wht' ll the "51)6" ch ip was ready, wou ld yo u have
I
============~l
PART
F I VE
ca ll ed it In te l 51)6 or i51)6, or wo uld you have starte d over with a ne w
na me? \"'h at a re rh e pros a nd cons of e ac h alte rn ativt' r
3. W ha t e ff(:'cts d id cl la ngi Jl g the hrand name from XI)6 to P(:' nti lll n and
others hal'l' o n In ter s ability to manage the prod llct !ire cycle o f the
ILewl)' IJr<UI lkd prodll cts?
4. \Nhe)) wo ul d a llCW prodllct W<j ll irc a 11('! W ILa llie (s il c h as Pe ntium) ve r­
IMPLEMENTATION
s us , I new sllhh rallll (s llc h as XeoJl )'?
5 . Evalu ate th e C e nt riJl () hrand strategy. W ill it he lp lJltd he rt\l('v<l nt to
the Illoh ile C0 1l1p ll ting wo rld ?
 CHAPTER SIXTEE N

Organizational Issues

;\ 11 progress is initiated hI' lhdll'ngillg c mrent COlll'('ptioIlS allei ('\(Tllted h\' Slippl.llltillg
existing ill SlitlltiollS.
- Cr:(lr{!,r' Hf'rJwrt/ Sjulle

SITl](; tmc 1()lImv.s strategy.

- AI/i'l'd UWI/,ll"I : ./1:
~

Thosl' that illlpir'11H'llt til{' plalls lllllSt Ill<lkC' tllC plal1 s.

-Patrick fI Oll/'r/y , Tf '.\"(/.\'/I/,/nlJl!( 'It("

KorVdtl::S .st'lItcd ,LS a Illggage and appliancl' di sCtlllnter s(,llill)2; IlallH' hrands I(Jr ,~.s
Crom a second-Hoor lolt in Manhattan. By HJ("i2, it had IK'co l1ll' a profitabl l' di sCOllllt
chain lVith a do/ell storcs, and its I(Jllnlkr lVas namcd as one l>I'lll(' IIIOst illl'III('lltial retail­
ns of' till' cl'ntllJ Y hy a [larvaI'd ret-ailing gllllLI Its initial SIICU'SS pmlllptctl all aggressi vc
g rmvth strakgy, w hieh turn ed Ollt to he a disast(~r. Thl' firnl (li-<llllati u dl; ' expalllied iloth
the nllllllwr of ' stores and the nllmher of" citi('.s .sl'r\'l'd , (-'xpandc(l its product" lin e by
adding hLshiol1 goods , flllllitllH" all(l i2:rI)C(, IY pmdllcts, and added IllOl"(' stOJ"(' allll'llitie.s.
Thi s w as a def t' ll sihle growth stralT~')f, similar to that o r othl'r .SIICCl'SSf"lti di s­
Cou11ters, silch as KI1I'llt. Th e prohl (' nl was its impll'llH-'ntatiol1. Thl' stral"l'gy was not
sllppOJted hy th e ri g ht lwopk, strul'llll"(~, s),stelns , or culture. Korvl' tte's PlTSOlllll'1
lack ed the depth to staff the n ew ston~s ,llld the e,-pelti sc to handk the llew prodllct
al ·(~ as. Th e centralized ~ trtlct\ll"e did not adapt well to Illllitipll> cities ,llll] produl'l
lilles. Th e management system s were not sophisticated enough to handle the added
l·oTllple xil-v. Th(' cllltllrc 01' casual m an,lgenwnt w ith low pri ces ,LS the dri vi ng force
w as nol r"[l!;W( ,d w itll allotll('r strong CUltlll"l' that would il(" appropriate to the I1(-,W
IllISilil'SS : II'·:I~ '\.' ,I ("('sldt , III I9fifi the finlllV<ls 11car deatli , and it ncver l"(;e o\'(~r('d.
'1'[ ... k," \, '11,' ,1,,,\ '~ r; 'Jlh;("allv illllstT;(I( ' ~ til(' illlp()rt,llIU ' oJ" ~tratq2;Y illlplcllwn­
1:11;011. '1'1 ... .1·.·." ', '''''',,1 '" : 111 \ s lratq~\' .slltlll[d il\("IIIII":1 (';(1'(,1'111 allaksis (11' (lI·g,llii :t.a­
li()lI:d I i·,I, ', ,,,,,I ., 1" , 1, III ' "I ' '! '' lill III(' 11:11111'" ()[" :111\ ' 1""(l'li l·, ',1 III ,l!,: II I i:t.; tI iOII:d ('[I:III,L':"S

:lOa
306 Part Five Ililplementation Chapter 16 Organizational Issues 307

alld their ,\ssociated costs and ( ' <lsi1>ility. Tow ard th at e nd , this chap ter ArsI- deve lops
a cOJlceptllal f"n lJ) wlVo rk th at \Villlwip in an alyzing an organization_
A CONC EPTUAL FRAMEWORK
TI1(' conceptld l-r,IJll l'work shown in Figllre 1(i l ca n l)(~ Ilsed to idelltil)1 and positioll
orgallii',atioll ,d cOlllpOn( 'nts alld their inl-(Tad ioll s_ TIll' hcart of the fram ewo rk is
of' {(lllr key cOllStnld s that (icscrilw til(-' organ i/a ti o Tl: stnlctlll'(-' , sys t(, m s, p('ople, allt!
l'111t1lrl'_ The fi glll-(, ill clndes slrat<')c;v, w hic h lnll st sll cc('ss ['lIl1 v interact w illi th e (HII'
orgallizati o llal elllnpOI1( 'nts, ,\lHI orgalli i',ati o n,t1 p (' rrormall('e, It al so incilld('s exte rnal
anal vs is and int( ' rll ,t1 dn ,ti ysi s. ",hidl provi(\t- ,I link to Fig m(' 2_1 and th l' str ategy­
d ev<:iop'll (' llt l) roC( 'SS, n« -all that a slrategy illvol ves th e prodllct-Il,arket iIl Vl's l'tll(' 111
d ecisioll , tllc vahl e propllsitiOll , th (' ,,(' Iecti o ll or rlln ctiOllal ared stratcgi es . and 111('
i<iclltificatioll or has('s I'm SIIS[,lillahic cOIIl[X'titi \'(' ad valltagc_
COllsi(icmtil lll o r ll rgalli/atioll<llcOlll[)OIl('l1ts (', Ill Iwlp <lllIl.,ill('SS idl'ntil), ,Idllal ,lilt!
potential illIPiclll (' lil-atioll prohlcl1lS. ,I, w('11 as dd('l'lllille how its orgallii'atioll WOlJi<l
adapt to dll('W strategy Thc rir,t SC('[iOll 01- tlli s chal)lcr disciisscs each CClltr,t1 COIII(lO
IH'lll ,lIld its link to Stl -,II-I 'g,,_ The 1)('I'd lilr aelli e\'i llg a ri t or COllgrJl l'll CC alllong tll('sl '
I(llir orgallii',atioll<ti COIII[lOI-l('llh <111<1 slrdtl ',l!;\' is lli e ll cOl1 si(icred_ Finall\', w ay s by w lli('11
;1Il orgallii',ati ()ll (:,111 iH ~('()lll( ' IJlorc- illllOl'ali l'c alld respo llsil (' t() dlallge arc sliggesl ed
STRUCTUl{E
Orgalli'l.alio ltal sl rlll'\1 11'(' ddi l)('s lirw, 0(" ,lIltllority al1(l COllllllllllicatioll alld sp('cifies IIII'
Il lr'C11<1I1i,'illl hI' wili ell () rgalli/aliollal tasks ami pmgrailis ,lI-(' ac('o"lplislwd_
D e centralization versus Centralization
N earl y eve ry organii',atioll , [i-olll Stanford University to P&C , CE , HP, and BotA ,
prides itself' on being decentrali/,(-,d, A nd with good J'('asollS_
Au tO IlOlllOllS gro\lps Jlllming di stinct businesses have enormo us inhe rl'nt advan­
tages, Th e m anagers are dose to th e markd and can th e rel() re IInde rstalld cu stollter
Iw eds, Th ey art:-' also intimate with th e prodllct technology and t-IHi s can chart the din~c­
,Is('\ tion ofprodllct o [h-:lings_ Beillg (:, Illp()\v(-~ red to act <{Ilickly in all (' nvi ro nllwnlilleans no
d elays in making and ilnplc l11 (-, llting strategic decisions , a diITer (' ncl' that is vital in
dywlll1i c markets, Also, Iwc<lnsl-' d is t-in ct husiness IInits can he Il eid <lccolllltaiJle I(lr
ill l'est m ents and resillts , husin ess pt~ rf-( Jnll<lTlce will 1)(-' known in a l'i1ll('lier alld less
alllhigllOll s III ,II \ll er_ The most ill1pJ'(-'s" ive f'catllrc ol-dt~celltralizati()n, however, is that it
I'()st<-~ rs incredihle clwri-,'Y and vitality lVlanagers are (-:mpowr~ r(-: d and l1lo(-j va ted to illllO­
I 'at(-', to gaill competitive advantagr, h y providillg sllpcrior v~\h J(' propositio ns to the Cll S­
tOlll ers, N eve ltlwless, there an' chall t' nges as w(' 11.
On e c hall e nge f~lcing a d ece nlralize d organi 'l.atio n is creatin g CrosS -hllSillcss sy n­
('J'gy Pok nlial sy nergy is orte n lIn l'('ali /e<l hecall se having a host o f' silos can in vol ve
dllpli cation , in pHicielll-ies , and lost opportllnitics to create val ll(-' 1'0 1' c ustolllers_ III
;Iddilioll , it Ina), he h,lrd [(lr a hli sil wSS to ,' llpport a world-class Illarlw t-ill,l!;. IT, or sales
i'lIlldion IIl1l ess it finds a way to cO lllhil w l'(-~S Ollr(:('" with other Illlil s_ TIll' 1;lillll-c to
a('lli ('v(' sy ner gi(,s can 1)(' dc!Jilil;lting wh e n competitioll I(lr C1I stllllwrs is intense alld
1II<Irg il1.' are unde l- prcssllw_
A secolld challenge is to respolld strate g ically at tlw firlll leve l to Illarkd dy naTll­
ic-s_ \Vhat is "tratcgically optinlal I(lr a i>ll sill ess Ilnit Illay no t h e t1w I)('s t I(lr the firlll
,IS a whol e, Brand portl(llio strategy ( lI' ('xample , i s easily IIIHl e rlllill(~ d ir ,I hralld is
,Il ;tr< ,rl ac ro ss !JIISiIWSS units , w ith r'ac h II sing til(' hrand to its local ad vantag<',
( ;1l11 I'r' rse ly, a technology l{&]) pro ject th al- COldd res liit in a<i v; tntage I()r sevc ral hllsi­
11I 'SS Ill1its might 1I0 t he jll stifi ed w h(-' n (Jv,tillatc d allhe iJlI sin ess I (J V(~ 1.
011 (' w ay to address these.: prohl e m s is w itli c(-'ntra1i7,ed conlTol , lll(' polar oppo­
" il e Il l' d( 'ce lltrali z,ltiOI1_ III this Illode l , a centralized tealll makes all tlw,tratcgic and
i;J('li c,d d('ci siom ,tlld has a strong f llnctional capahility to impl e m ent l-helll (01' at 1cast
111<lll agr-' t lw ir illlpiell)('lltation)_ Silch a g roup will create-- Im sin ess ,strategy hom a
lililiwitir ' p e rsp ec tive, and itcal1 Illake Sllrl:' that S),I1(;'1'g), oppor tlllli ti es are detected
,1111 I exploi \(-'rl. To sllcceed, the cen tral le,lIll necds to hav e lTedihJ(, kn owled ge or tilt'
IlJ'()(I'ldS and th e Illari<ets. th e nt'ce"sary r esources, and th e allthority alld statllre to
,~'" Illill ,~ s d Olle_ It will w ork h es t w hen th e husiness scope i s limil-c d o r th e r e i s a sea­
S()J 11'1I. k'l( lw lcdg(Jahle CEO wh o has earn ed r espect throug ho ut th e organi zation_

PT><"T"
Systems Culture
i\ ('(' lltr,t1 1ll ,lIlagelllent team c an in(-jue nce decentrali ze d bLl S in (~ ss IInits even
lI' illll)J Il (,Oil tmlli ng th e m by utili zin g t h e ap p roaches descrih co d in C hapte r 11­

11 ;11111'''-, 1)lal'l'l g th e role 0[' a servi ce prOVid er, consultant , or f~lc iJit a tor, In the scr­
I il 'l ' IlI llI itl e l' ro le, the central \eaJl'lwill man age a variety ofstlpport flill c ti o ns . such
:I, " PI 11lSol'sii ip , Illarkcting resr~ arc h , LT, advertising, and p erf(lJ'ln an cC' l'racki ng_

11'II,silll ',S 1IIIil s w Oltld 11IIy services ("mill th e C(,lllral tealll_ In th t' cO ll s\lltati ve 1'01('.
1111'1'1'1111':" 11 '; 1111 will rir'I('lop i"siglll ,s dIH11'('( 'l l IIII1l (, llrl strateg ies_ /\ " a Ll('ilil-alo[' or
Prlr IOl tn,i rlC () ',11:111',1'.1 111 'I 'I ,llIl l IIII ' 11I . 1111' l 'I ' II I I :d 11':1111 11'(lldti 1)(' Il 'ss ;lgg rl 'ss il l ' ill Sll g,gl 'slill g
',II':III' ,I',il 's 1' 111 11'11 11111 Slllll ''' 11 ,111,( hl 'ilil :ll. , !111 ' 1I1 IISill,!', IIII' rl 'SI ' "t'I '. ',' :111" I'(,( H" '""',,
I ,' i I:" J'( ' 1(; , I \ I"I,II I H ' \\ III! 11'1 \ 11111\ / 11 1[,' (h l~, 'I'I;.illl"I" (Ii II H' (II ! ' : II II /, 11 II lit .
308 Pm-t Fiv e Implem entation
'iVhatever manage m e nt style u sed by the central team-controlling, service
prOVide r, consultative, or fac ilitative- need s to match the organiza tio nal h e ritage a nd
culture . If it is too d isp a rMe, it Illay b e rejecte d like an in compatible tran splante d
o rgan in a human body. Sometim es a c hange age nt is n eeded, though , and som e orga­
ni ~atio n al s tress Illay h e he althy. ' '''ha teve r styl e is used , th e ce ntral tea m wi ll b e most
e ffe ctive wh e n it has r e sources, marke t knowle dge , product knowl e dge, and resp ect.
If it lacks an y of th ese, it will b e lnargin alized .
Matrix Organization
}\ matrix orga ni zati o n allows a p e rso n to h ave two or more re p or ti ng links. Several
husin ess unit~ co uld share a sales fo rce by h aving th e sal es p eopl e re port to a busi­
n e ss un it as we ll as to th e sal es manager. An R&D group co ul d have a re se arch tea m
th a t re ports hoth to th e busin ess unit and to th e R & D LlWna)!;e r. As a res ult, th e
salesp e opl e and th e resea rc h te am in th e se exampl es are e <lch supporte d hya crit­
icalmClss of e ntployt'es and inFrastructure that all ows tllt' 11l to e xce l w hil e still he ing
a part of th e hu ~ in es s unit. A p e rson mi g ht a lso h e attac h e d to a tas k !()rct~
(a ssi g ne d , li )r instan ce, to ex plore a new InMke t opportun ity). T hat p e rson would
re port to ho th th e task li)rce manage r and h is or h e r bll sin ess unit. The conce pt
dual re porting re quire s coordillation and commullicatioll that can he stres sful a nd
co stl y, hil t it al so provid es th e [l (-~ x ihility nee d e d to dea l w ith a fa st-mo vin g market
The Virtual Corporation
The virtual corpoJ"<l tio n is a team of p eople and organizations sp eeAically d(~s ign ed lor a
p arti cular cli e nt or joh. Th e urgani7.<ltions brolJght toge the r may he suppli e rs, CUStOI ne rs ,
and compe titors. The people can he drawll rrom a vwi ety of SOl Irccs and might· includc
COlltrad worke rs who are hired only lor the proje ct a t hane!. The \~ Jtual COlvon1tion call
s(Jllie tim es Iw hrllle d or lIlodified in a matte r 01· days, w hi ch me ans it is th e ultimat('
respon se ill a LlS t-moving e nvi ronme llt.
C Olllmuni cation firm s, f()r exampl e, are now fo rming te allls tailore d to the n e eds
ofpalti cuia r cl ie nts. Some lIl e mbers o f th e team wi ll cOlll e from suhsidi euy finn s spe­
ciali%ing in corporat(:' d es igll , p ac kagin g, dir('ct mark e tin g , and promotions. Oth e rs
111<ly corn e li·om finn s that sp()cia li %e in brochures and th e m e dia. The core or th ('
te,ull is like ly to be locate d in a sing le bU ilding , but some tea lll me l11be rs \·\~ 11 be COII ­
n ccte d via compute r workstations that share vis ual i mages and in -process ad ve rti sing.
Thu s, clie nts do lIo t h ave to wait fi)r an agency w ith th e opti mal set of cha nlcte r is tics
to evolve; it can he fimn e d al most ove rni g ht. ' ''' PP, th e world 's la rges t CO IllIllUllicd­
han firm , has hlJm e d an ongoing vi ltua l fir m around h e alth-care marke ting se rvi( '('S
that has b eco me a dOl11inant fo rce in its market, with th e virtu a l firm 's CEO as til('
onl ye mpl oyee. 2
Alliance Networks
III til(' glo/'al (-' ll virollnH'lll, Illarl«'t., <llld cOIIIjH'titors C<l1I dl:lll g(' .s igllili(";)lilly, ,111(1 il
i., ill lJ l1l rl :lIi1 1(1)(" aill( ' lo J"('s pollci ' 1IIi( '];I\'. '1'1 1('r, , lliav 111)11 )(' l ill l<" I" d, ·\, ·I" 11 111 '('ci( ,d
:l.ss.-i s :l1HI ( ·ollll)( ' II ' lwi "~ . :11 11 1 1·1·.SI>(III ." ·S IILiI I·' ·flllir(' I:w'.' · " ''' III"IIIII' 'lll.s 10 11(' \\·
Chapter 16 OrganizCttionallss'tles 309
techn ologi e s or di strihutioll channel s may h e risky, esp ecially For a finn wi th littl e
re levant hackground . On e \Vay to b e abl e to go on -lin e imm e diate ly with n ecessary
bu sin e ss changes is to form a ne twork of allian ces and jOint ve ntllre s \Vith suppli e rs ,
c ustom e rs, di s trihlltors, a nd even cOlilpe titors . \Vith su c h a lIe tw ork, Iw(·,d c d asse ts
can b e m ad e availahle in sta ntl y, th e firm can loc us on w hat it d oes h es t·, th e ris k o f
1~lill1n:, is share d , and mall Y Illore opportllnities can he fund e d .
The li St' o f strategic allian ces, tlw ir I))Oti v,ltioIl S, and Il0w to Ill ake th e lll work are
di scll.';sed in d e tail in Chapte r U . Th t'se alliance s play an t'sl)(-;cialiy impo rta nt role in
).!;Io bal strak!-,ry deve lopllwnt .
SYSTEMS
Several lll anag enH'll t S),s teill S arc stra tc).!;icail y fel evant . Anion ).!; th t' 1ll arc the IlIl(l­
g(' till g/acco llntillg, inforillation , nH-'aSI II"(-'Ill (' nt and r('ward , a lld plannillg SY.,;U' IIlS .
Accounting and Budgeting System
i\ccollntin g ,IIHI hlldgetin g are key e le llwnh ill a ll)' IIlanageTllcllt sys te m . Th e risk
or th a t th ese syst-eli ls call1 Hl t hc adapte d to th e 1I ('('ds or
a n('w';trateg), call Iw \'(' ry real.
;\11 accolilltill).!; a lld blldgdillg Sy stCl1I that is well cOllce ived ,lIld cOlitaillS valilable
Ili storica l d a til Ili a), no t fi t th c rc orgall i/.cd stnlctme reqlli r(, d by die II(,W .s tra tegy. Or
a s)'s tl'1ll that worked w t'll li)r all el e drOlli c illStnlnH'lIts finll n la)' Ilot \Vork w h(, 11
appli e d to a IICW s('J"vic(' bll s in(~ss . Alloth e r conce rll is tll (~ .';YStCIII \ inllll (' 11C(' Oil
ill V('stlllcnt d e ci s ion s, ('sp ec ially w hen a II ('W stra tegy is proposcd that does 1I0t fit a
l;lIllili ,lr pattc ril .
Infonnation System
TIt (' illl(JI"III <ltioll s),ste lll and til(' tcchllo logy, database's, modl' ls , 'lIld expert SYS tCIII'; Oil
w llic lt it is hascd can IiIlHla llwllbdly affect stratq..r,y. Th (~ lillk het wee n illallid ~lc tm(' r~
a nd retailers, lilr (~\'.II11pl(-" is ill(;J"casillgly Iw in g I()rge d hy illliJrl n atioll tec hnology.
EASY STEPS TO DESTROYING REAL VALUE
by Henry Mintzberg3
1. lvLlIlag~' th e bottolll Iille (as if· com pani es make ITIOIl t'y hy Inanaging IlHl/!('Y).
2. Ma ke a [ll <l ll for every actioll. (No spontan eity pl e;ls(:', definit ely no leinnin g.)
3. M()V(· fllall ag('rs aroll nd to be cert ain th ey lIev er get to know ,11I)'thilig hut 111,\11­
a,l.;(' III (, 111 \\"(,11 . alld kt th e Imss ki ck hilli w if upstairs so that he can mallage a
ptJ rll i,i; tJ ill sl" :111 ,,1·:1 {"('al i>lIsiIWSS .
'I. \\"1 "' 1' ;" I""dd,· r:lI; ofl ;) li ,.('. fi re , ,lilt! di \·('s l·; wll1'fl " lit (>I" Iroltl,l (" ('xp;l1Id ,
.f l"' lfl lf ' Ii fl ,1 ·" dlli, ,· lei 1"·('1" " llIplo) f'J"s (l ll 111(" ;r i<H ") : :lIH)vl ' :dl , IH' vc' r ("1"(,,11( '
!I I 111 \ ' I II 111 \ 111111 ', ' H 1..1,("" I()o 1 () '1 .~).
310 Part Five Implementation
New systems control inventory ,lilt! hallllk onl(-'ring, pricing, and prolllOtiollS, The
ahility to control the illfonnation generated hy r etail SC,lHlH:'rS C,lll he key to strategies
or m ,lIltlfactur(,r s and retailers, The creatioll, orgallii',ation, and lise of knowledg('
banks can he a significant strategic asset. Thlls , Ulldl, rstallding the currellt capability
and Future direction of all organization 's informati on systelll is a key dimension 01'
strategy d evelopm ent.
Measurement and Reward System
iVlc~ asllrl'llll'llt can drive IwiJavior and thlls din 'dh' ane'l'! strat l'),.,'Y illlpkTlH'lltati(lIl.
Th e key to stratq,ry is oltl'n the ahility to illtrodll l'(' appropriate pl'l'l(>rIllallcc Ill("a­
sllres th"t arc linked to the rewa rd stnldllr(:',
Olll' conc('rn is to IllOtivall' (' Illplo)iccs to cooperate , COllllllllllicalc , and create'
sYllcrf.,ry. Hewan[s that arc based too clowl y Oil a husilless Illlit's pcrf'orll1ancl' can w(nk
ag"illst this nloti vatiollal goaL As a rl' SIJit, I 11 a 11 \ ' cOllipani('s (klihcrately ha,sc a portioll
of' their Ilollus('s or t'va illatiolls on th(' rcsll1t.s of' a Ltrgn IIllit. Prophet, ,I hr,lIl([ str,lI­
cg), cOlIsli ltillg rinn w ith S(-'V('II ollic('s, ('ncollragcs (;I'o.'S-omC(' SIiPPOr( hy 1ll,lkillg its
hOllll Sl:'S c01ll1 iti o[),'] on finmvidc pcri(Jrlll<lIlce. Another business Illav [()CIl.S Oil divi­
.SiOIl''] lwrl'(lrInallce l)('calls(' sy"ergy across divisioll.' i.s lIot realistic.
Anoth e r pr('I'l'(I"i"itc is to creat(' 1l1('a.'llrcs rdl ecting a IOllg-t('rlll p('I'spectivc ill
ol'der to 11,,1<llIce shOlt-krlll FiTlam:ial I'csli1ts. Th))s , ml"l.SIIITS ~"Ich as Cll.stollwr satis­
f;lction, Cllst(II))('I' loyalty, (jlwlity indicators, flew prodllds hrollght to Illarket, or traill­
ing progralll prodlll:livity Ill"y 1)(' Ilsefld to gallg(' till" progl'(,s s or str,lt('gic initiatiw."
Planning System
All ,1I11l1lal stl'atl'gic plallnillg process i .s "lll lost al w ays IlSl'rld hl~C" " S(, it f()l'cCS In,lIl­
agcl's to tak e tillil' (Jilt to cons ider stralt'gic 11Ilc('rtaint ics, 'vVithollt that illlpdll S, roll­
tillc tasks w ill gl' ll c rall y ahsorb 1ll,lnagcllIl'nt\ availahk hlne, \ Vorks hops alld rcln'al.s
arc onc' " crucial c1(~ nwllts in d('dicatillg (l"ality hln( ' to plallnillg,
Cre,ll'ivc , ollt-o[-tlw - ho'( thinkin g ( perhaps «iel('(l hy ronnal cn~ativc -thinkill,~
exe r ci ses) is a v ital part or ,In y pialliling systclll Too ofkn , strat(~gi(' plalllling is
lIothill g bllt all extrapo!at ioll o[ past strategies, with a I"illan cial spre,,(islw(-'( a., til('
dOll)illallt tool. '1'h('l'(' arc two prohl(~llls with this <Ipproac h. First, it will not 1(,<,,1
to the hre<lkthrough strategi(cs that can n~invellt a hll.siness wh e l'l needed. SecolI(1,
it w ill not prOVid e the consi deration of' strat(~ gic options that proVides tile basis 1'01'
allapting to n ew eve nts or trends. \Vhen Eisenlwwc r sai(l , "Plans are notllill ,~,
planning is eve r y thing" in part he meant that the pl'O ces s or ex amining a varid),
of strategic options makes the Illanager nwrl' capahl(~ of' adaptillg or cllallgill.~
wh(m n ecessary.
Planning shol dd not he sep<lJ'<\te(l from tIlt' v<lllles , Cliltl\1'e , and e n('r,!.!,} of' till'
organi zation, According to Mintzlwrg, sllcccssful planning is often hast'd on a ( ' 0111
mitling, rath e r I·han a calcillating .,l yle of'lllanagenwnt: " ?\ IaIlClgers w ilh ;1 ( '()nllllittill~
styl e e ngage people in a jOllnll'V, TI)('y l('ad in sllc li a wa,. tll al ('''I'I\'()III ' 1111 Ilwi'lili
II('V 1)('lps sl,,'1 )(' ii's ('OIIl'S( '. i\S;1 ('('\1111. ('IlIIIlIS;;ISIiI ill ('v il"I,h IIIlil l l,; "l l lIl .:', III(' IV;)\ ·...
~. li"I /I)(',g 11;l r;I]!I,r;lsl's IIII' ' ,)('illlll.~i ~ t l'llilil' S" I'/,IIi,t \V I1<'1 I I" , '"n, 11 .. 11
Chapter 16 Organizational Issu es :311
Oldy blke OIl value as COllllllittt'(1 p eople illi'use thel11 wi th energy," Th e outpllt of'
., tratcgic planning should have soul as well as IOf.,ric ../
PEOPLE
A strategy is ge nerally hased on an organizational (;ollllwtency that, in tUI'll , is ha.<;( ,d
O il p eopl e, Thlls, strat('g ies require ce rtain tnws of people. For each stratel-,,)I, it i .,
illlp(lItant to know how many peopl e, with what expcrienct', depth, and skills , art'
lI('eded I()r:
• FlInctional ar('as, such as marketing, nlallllh,cturing, ass(,mhly, ali(I finan ce
• Prodlll'l or mar1«:t areas
• Nl'W prodllct progranls
• 1vLITldg('"ll'nt 01' particlllar typ es of' p eople
• Management of a parliclliar type of' o[)('I'ation
• M,ln;L<'ell)(,llt
h of' (o'rowtli
'-, and ('ll allo'('
j- .
Muke, Buy, OJ' Convert
11 ' ;1 strat(',!.!,), i'("jllif'('s capahilities not aln'ady avai lahle ill t\)(' hu silless, it wi ll 1)(' n('('('.S ­
s;(r), to obtain tllen1. TIlt' make approach , d eveloping a hroad mallagerial or tl'('lillieal
STRATEGY AND PEOPLE DEVELOPMENT AT GE
.J ack Wd e" , thl' Iq.';<'IHLIlY 1()I'IIll'r CE CEO, cn"atcd a S)'S1'<:1I1 alld ('111tlll'(, to d(~vd()p ],otll
stratq2.Y alld p('opil' throllghout Ilis l\Vl'llty-y0ar ('<:' 11 I 1I'l'. Fivc cleillents w(,n' illl'oll'(-'([::')
• Eacll .Jallllary, (Ill' top .5,000 CE ex('clltiV('S gathered ill Buca fbtOll to shar('
best practices and sd III<lior IlllSill('ss pri()I'ities (Ill 2000, tlw priorities W(' ],( '
C-l'Olllllll'I'Cl" ).!:lohali7.atioll , and six-sign"l (iliality ) \Vchcasts of' the eV(,lI t \V(,I'('
<IvailalJle to the whole org<mi7atioll,
• K)('II Ijll<lrtcr, top executi ves met in two-day rdreals laci litated hy vVelc:h 'lilt!
1()(; lIs,.'d on i Ilitiati vl's H'latcd to th e ;lgcnda set ill Boca Ibtoll . This was a k( ,),
placc [(Ir I'lltme leaders to emerge, eal'J1 1'("SP(,'ct, and demollstrate growtll.
• Twice a year, Welch and others foclIsc>d on persollll(, 1 lI('cds Il)!' cach hllsi II ('ss,
such as how to handle each unit's top 20 pc' rc(' llt alld hottol)) I [) l'l'l'CClit 01
('Illployc('s,
• Silililar Ili<lllllllal "'" iollS ( 011(-, in th e 'prillg ,11111 Dill' ill tlli' "til) 1""I(('<i "11,;,,,11
"Ilsil" '" IlI·,'r" 111\'('I'-I'I';L1I"lri 'f.()II.
• Tltl 1'1 11" 1' 1,11, ,('/ \\1 1' ""II[lIlIll',1 by II,,' (:1-: SIH'i;iI <l1 '(' llili'I'I"I'I' ,d' ;III')J'JII;d;I\',
( ', II,,!. ,1 , ,,1, ',11 111 111' '[I.>i" I.' II" [""1111[ :11'111"., 1",11:11';1 " ,1'11 1[,11;,,;, IlI1 ['Il[["'\"
1IIICIII J~ 11 lililil i d l HI" 1111 h' ll ll III ' , (III (I,r:dil:di\'(' 1)II ~ill!'\ ' ditlll'll.o...;j(lIIS,
\ I'<ll q',il"
312 Palt Five Implementation Chapter 16 OrganizationallsslIes 313

I
base hy hiring and grooming w orkers, ellSurcs that p eopl e will fit the organi/ation , bllt
it can take years, "

Th e convert approach, con ve rting th e existing w orkforce to the new strategy,

takes less tilll e, AT & T is an exampl e of a firlll that attpmp led to change its orien­
tation from that of se rvice to marketing , largely hy retraining E:';-; isting staff. A hosl
of strategies , parti cularly those precipil<lted hy ac(plisitiollS, have !;til ed h ecause or ORGANIZATIONAL
th e hullty asslImption that all old staH' cOllld adapt to a new context, A sllp errnar­ CULTURE
Iwt bll y ing kalll, f(lr e x all1pJ(~, cOllld not Ill' adapted to the 11(-' pds of' a discolIlIl
d ru gs ton-" Illai Illy Iwc<luse a dis COIIIl t oricntation and h ackgrolllHI were III issi ng,

Thc hll)' approach , hringing in eX ]1t' ri('nced people ('rom til(' olltside , is the
inllllcdiate solution w h('n a dramatic c hange in stratel-,,)' needs to 1)(-' inlpll'nwntcd
({Ilickl)', Ililt it in vol vl's I-he risk o(,hringing ill l w opk w ho art' accustom ed to diflen'lll
sy steills and CII ItII r(:'s,

Motivation
FigUl'c Hi.2 Olg<llli /,atioll,d (;lIltlll('
In addition to the tYll(-' and (l'wlity of' people , thl' 1I10tivation lew I can al'l(,ct strat('gv
inlplellwntation , There are , o['course , a varidy o['ways to Inotiv atc p eople, inclllding
the [( 'ar of losillg a joh , financial incenti v('s, s e lf~['lJlfillllwllt goals , <1IHI the dev(,lop • A key asset or compl'tency that is th e eSSl-' IICl' 0[' a fi 1'111 '-' cOlllp<-'titi vl-' advan­
II 1('11 t 0[' goals f(ll' tIl(' orgalli/atioll or grollps withill tIl(' orgalli/,atioll, ,," c h as tpams or tag(': \-\1e w ilille til<' lI10st creative ad v(-,rt ising agl'llcy.

quality cireles, • !\n opel'atiollal l'oCIIS: SAS [(lclI"ed on OIl-l'iIl1l-' P(-T[(JrII1:U1Cl',

Mol-ival'ioll liS II all)' is !"n1J.lnc ed ii' employees ar<' l ' llIpowered to acc olllpli,,11
their goal s e\o'(' 11 w h('n a departllr(, I'rolll the rolltill<' r('spoIIS(' is I'PqlliI'ed, People
who arc inhihited ['mill IIsillg th('il' illil'iati v(' w ill ('vl'lItllall ), los(· illtcl'est alld
Ill'colll(, cYlli c al Motivatioll also is ('I"lan ce d Wll l' lI ('Illployel',' al'l' link( 'd to the cor­
poral<' cllltllr!' alld ohj ecti ves, COlllpanies call <lccolliplish thesc links in part Sill'llh'
by providillg titl(~s,';!I C " ,IS " I lOSt" ( Di slley ), " crew nWllllwl''' (McDonald 's) , ali<I
" as soci ate -' (], C, 1'('IIII< 'Y) ,
CULTURE
As sllggested h y Fignre 16,2, an ol'galli/ationalcnltllre illvolvcs thl'ee e lcllwllts:
• An orgalli/ational olltput: \Ve will deli v('r /,e ro d e j'l·cl's or JOO percellt CIIS­
t(llll l' l- "atis[-aclioll,
• An (-,Illphasis Oil a ['ullcl'iollal al'('a: Blac k & Decker trans[(lI'Ilwd itselr rrolll a
fil'TIl with a IlIallll[-a dllring [(lCIIS to on( ' with a llIarket-dl'iven approach,
• A 1I1:lIlag(-'lli ent "ty k· : This is all ill/(lI'IlIal , Hat organi/ation that [(lSI-l'l'.' COIII­
Ilillnicatioll ,lIId encolIl'ages IIl1collv('ntiollal tllinking,
• A 1ll'1i('j' ill tlw ill1portan ce or peopk a" indi vidll ,t1 s,
• A ge ll c ral ohjecti ve , snch a" a beli(-' [' ill bcing the b est or comparahle to th e
I)(-'st : KonlatslI sd Ollt to heat Cate '1)illar; Samsllllg strove to he a majo!'
player in mi c rolVave ov(,ns; Sharp w alll's to he onl' of the IllOSt innovati ve in
,111V area ill w hich it COlllpdl's,

• A sd or shared valne" or dominant hdie!:, that de fin e an organi/,atioll:, pliorili(',

Nonns
• A " d oj' norm s of I)(-~ havior,
T(l lilah, :1 r('al diffe rcnce , the cultlll'e nlllSt Iw strong t'llough to develop norms of
• Symhols and sy mholic acti vities used to develop and 11111'1'111'(-' thos(' shared
lH'ha\'i( l r- ill[()I'Inal rul es that inHuellce d ecisions and actiolls throul.!;llOUt an organi­
vahws and norms_
I <I[ i()11 hI' S1lgg('stillg w hat i s appropriate and w hat is not, Charl es O 'R eilly of Stanf()I'(l
l i lli l (Tsil l' talks 0[' Cllltilre as a social control syste m with norills as h ehavio r g Uidesfi
Shared Values 'I'll(' [';1<'1 i" Illal "ll'OlIg nmill.' C:IlI gellnale much lllore t' ff(-~ cti ve control over w hat is
Shared valu es or dominant Ill-'Ii c j's IIl1lkrlil' a l'I1ltllr(' hv -'l)('cil)'in g 1Vllilt is illil lorl :IlIi , :wlll:"l\' <1011(' (lI' II()I d(lll(' ill all org:lIli/atioll than a vl'ry sp ecific sd of ohj ecti ves,
111(''''(11 '('" :111<1 -':IIH'li(lIl.', I'('(llll (, (':111 ;d ll';[\", gl'l anlllild rlll( ,s, Tlw concept of lIorlll S
III a strong cldtllre , the I'allies will he w i(klv ;[('('(']1(('d , :lIld virlll;[I" ('I,(,I-\'(lll(' \\ 'jllll<'
al>le to i<i(,lilil'v tll<'l1l ,lIul d(",('I'ilH' IIl('ir r:llioll,d(" i" 11,,11 I)(,(ll l l(, \\ 'jllll()1 ,1i[('I1II'[ 10 ;J\oj (llll('lIl 1)(,(,;III S(' III('\' willlH' <lC(,OIIlP:llli(,d Il\' <I
sl,,"(,(1 1';dlJ('~ (':11111:11(':1 1':lI'id\' (1[' liwi , '1'/1('1' (':111 jlll(ll " , 1(1(' " \: lIl1lll( " ('() 111111 i IIII( ' II [ [( I " ,,: II' ,d 1"III' ",
314 Part Five Implementation
O'Reilly suggests that norms C,lll vary 011 two dimensions: the intensity or
amount of approval/disapproval attached to an expectation and the degree of con­
sensus Of consistency with which a norm is shared 7 It is only when hoth intensity
and consensus exist that strong cultures emerge,
Norms encourage hehavior consistent with shared values, TIllis, in a lillality
service culture, an extraordillary effort by an employee, snch as renting a helicopter
to ['ix a cOllllllunication component (a FedEx legend), would Ilot seelll l)\lt of lille
and risky; illstead, it would Ill' something that most in that culture wlJIIld do Imdl-;r
silllilar circllmstancl:'S, Furthermorl', sloppy work an(~cting quality wlJllld Ill' ill[(Jr­
rnally policed hv [dlow workers, without reliancl:' Oil a [(Jrlnal system, Olle produc­
tioll finn Iises no quality-control inspl~ctol's or janitors, Each production-line
person is respollsible ['or thl:' ljuality 0[' his or her olltput and [()l' h'Cping Ih(' work
awa clean, Sllch a policy wOlllclnot work withollt sllpport from a stmng cldtll),C,
Symbols and Symbolic Action
Corporale cultul'l's arc largl'ly developed and maintaineci hy the \lV' lJi' consistellt,
visible symhols amI sYlnholic ac!ioll. J n [;lct, the lTlore ohviollS IlwtlHJds lJi' a[kcting
hehavior, sl1('h as cha1lging systelTls 01' struct\lrc, art' often lllilch less dkctivl' than
scemingly trivial synlholic actiolls,
A host of' s)',nhols and synlholic actiollS are availahll~, A [('w or till' IIIOJ'(' Ils('rlll
are discllssed Ill-'Xt.
The Founder and Origi'nal Mission
1\ corporation's uniqul' mo!s, inclllliing till' plTsollal style alld l'Aperil'lllx' 0[' its
f(JIII)(\cr, call providc extreillcly potellt svmlJols, The strong cnltllre 0[' the Shakkl'
Corporation is dllt, largl~ly to its [(lunder's illvolvelliellt ill holistic IllcciicillC, his COI1­
trilJlltions to vitamin developTIll'llt alld lise, and his ahility to anlilse enthusiasill ill
gronps, The conCl~pt lli' entertainml-'nt devcloped hy \\I,llt Dislll-'Y, tilt' Cllstonwl'­
oricnted philosophy 0[' J, C. Pl~llIWy, allli tIle prodllct and advl'rtisillg traditiolls
stcuicd hy the l'ol1mlns 0[' Procter & Canlhle continlll' 10 in[llll'llce the cltltl1n's 0['
their firms generations later.
Modem Role Models
jV/odern h('roes and roic Illodels help COllllllllllicak, pt'rsonali/,c, anclll'gitilllii'.(' 1'<1[­
II(~Sancinorllls, LOll Gerstller ]Jec,ulIe a symhol of'tlll' Ilew lllarkcting-['ocns('ci cnltlll'l'
at IBjvl. Other examples arc the managers at :3M who tellaciollsly pllrslwd idl'as
(h~spik seth,lci<S I1ntil they succeeded in hLlilding major divisions such as the l'osl-il
Notes division, and the Frito-Lay workel's who maintained customer sel-vice ill III('
[;lce of n<ltural dis,lsters,
Activities
An executive's Ilse of time call Ill' a svlliholic actioll afTectillg 11((' l'IIIIIII'I', ;\11 <111
lillC' l'\eClltill' who sIH"His 111'0 wl,(,ks <l IIIOIt!it OIJl<lillill!C:;1 lil"I["IIH[ 11)1)k ;11 ('II';
IOIIH'I' s('rViCl' Sl'llll, ;1 sl(,()ll,l2. "i,ll,ll:ti 11111((' ()lg;lllii',;lIil)II, 1';IIIi-III', "I' ('I)II,i,II'111
Chapter 16 Organi:wtional lssues 315
REPRESENTING CULTURE AND STRATEGY WITH
STORIES, NOT BULLETS
Hesearch has sllown that stories are 1lI0rc~ likelv tkm lists to be read ,md relllPlubered,
NevertJwkss, lllOst business slrategists rely on lmllct points to cOlnrnunicatl' both culture
,md strategy. :3;v1 is OIll-; firm tbat bas based its culture on classic storil's -how initial Llil­
IIrl'S oLdJrasive prodllc!S Jcod to procllict Im-:akthroughs; how Illasking tape was invc,nted:
how a scieillist conceivlcd of' Post-il Notes when his bool(] narks 1(;11 Ollt of' a 11yl11l1<1l, and
how the Post-it-Notes team, instead ol'giving up in the L1ce ufiow initial sales, got l)eopll:'
hoolwd on the product by Aoodillg a city witl] samples, These stOlies l'Umlllllnicatc IlOw
illilovatioll OCCI1r.S at :31vl and how its cntrqlrClll'lUial cnltnHc' olwratcs,
At :3iVI, iJlISiness stratq.,') is also COllllllllnicatlcd \Cia storil',s rathn than the conVl'n­
ti(mal hlillets, which kill] to he gelJ(-'ric (the goal of increased market sh,lr(o app.lic's to
any bllsin ess), skit) over critical asslllllptiollS ahlJllt how the hnsincss works (will
increased Inarh,t Sll,11T fllnd ll(,W products, or resllit frolll new proeJllc!s?), and lea\'('
clIl.sal rcl~ltiollship, lIllspeci ried (if A is dOlll', B hcconll's dfl'ctive), A strategic StOl} will
involves several pltascs- sl'tting Ill(' stagl' hy dl'scrihing the ClllTCnt sil'IWtiOll, inlrodllc­
ing til(' clr,ml<ftic conHict in tIl(-' I'orm of' clldikllgl'S awl critical iSSUl-'S, dill] reaching res­
ohltion wil'lt cOllvim:illg storil's allOll! how the compallY' C,lll 0\ l"l'CO I1](' obstacles and win,
PreSl'ntillg d Ilarmtivc Illotivatcs 11ll' ,u1(licllCe, adds liclnwss allli detail, <[11(1 provilks <[
glimpsc into t!tl' logic 01' till' strategistS
rcillf'orCl'lnl'llt Clil repn'scllt allllther important synd)()lic activity. For l'\ample, a
['irln tllal regularly ]'('Cogllii',cs cost-saving ac('onlplishnll'nts ill a Ilwallillg['ld way
with thl:' visihle .'iIlpport or topnlan,lgl'llwllt can, over tillll', a[lce[ Ihe cldtllre,
Qu estions Asked
;\11 l'Xl'Clltivl' 01' a lIIajor hank reportl-,clly silii'ted concern from l'('v('n1ll' to proRt hy
cOlltillll~JiI)',1sking aiJollt pmfit implicatioTls, \,VIll'n a type 0[' qu(,stion is continLially
askc'd hy top l"\('Clltives alll] llIacie a central part of lIll'cting agendas and report f(lr­
Illats, it will eve1ltl\ally illHul'nce till' shared vahws or <ill ol-ganil,atioll,
RituaZs
I{itllals of' wmk Ii[t~, li'om hiring to cating 1IIIlCh to retirement dinllers, help define <l
l'llltlll'(, OIl(' lJi'tlw early SllCc\~SS stories ill Silicon Vallcy was a firm with a cultllre that
\l'dS iJdSl'cI ill palt 011 a reqllirt'llll:'llt that a person cOlllmit I)(-,[(Jre knowing his or her
",ti<11Y allel l'ollsicierahlc priell' ill a Frillay a[t('moon heer 1111st ritnal.
OBTAININC STB ATI I;CIC CONGHU ENCE
I'I,!;IIII' I(i,\ li,I':I "'I 1>i"IIII",III)(('; 1[1:11 I)I()\I([I' <llJasis f'or anal)'i',ing <111 orgclllization
;1111 [ ih 1'1'[;11 il)IIS[lill I" ,I I'" 'IIi, ,', 1,1 I:II, ''', \., I [iSI'Ii\Sl'cI l'arliel', <l stl'atq:;v IIIIISI 111:l1T11
316 Part Five Implementatio/l Chapter]() O rgal1i;:,(/ /iIJJ]allssues 317

STRUCTURE
• \\filat is th e organi za tion 's stnlctllrt·'? H ow dece ntralizC'd is it?
• \Vltat are tl, e li nt'S of a\lthority and t:o l1l ln ' ln ication ?
• \\fhat arc' tlt e roks or task (lITC'S, l'OllllllittC'l'S, or si 'llilar ml'chanisms')
SYSTEMS
• II ow arc 11iIdg(· ts set?
• What is thl' natlll'C ' o f tilt' pLlIlIling systelll?
• \Vh ,l\ art ' tl ,l' key Ill(-'aS'Irt 'S lI sed to I'val\late pnlclrInallu")
• Ilow dOl-'s the <lC'l'olllltillg sYS t('1l1 ",o,'k',)
• Il ow do prodll et al ld inl(lrIliatiorl 11ow?
PEOPLE
• Wlwt art' tl\(' ski ll s, kll{)\vlcdgl', ,lIld I'spcril'lIl'c or til(' finn 's ('lIlplo)l'esr
• What is llwi r depth alld t[il<liity ')
• \Vltat arl' tl1<' eillplo)'cl's ' c 'x pc'etati()IIS '~
• "'kit art' tl, c ir " ttitlldc s toward th(' rirll' ,1I,d tlll 'ir joh s~
CULTURE
• ,1\1'(' til('rl' sl,art ,d vallic 's tl,at' an: vis iloll' alld ,ll'ccpt ('d?
• \\' I,at , II'< ' tlll'sl' sl'ared val III'S alld h()\\' arc: tlI< 'V
TJ-m E-ORGANIZATJON
E -orCf,\IlizatioIIS li St' the Int(~ n lt't to tr,lnsf(lI'In thl'ir IIliSi ll t-'ss h\' /'11l1lh\J Tll'lItall" ehall t!;illg
t he \~IY tllt'y intel'act aml co ndllct 11liSiIH:'SS w ith s\Jppli ers, P,llil;(-' rs, and ellston'wr s, TllC'st-'
rir ms, sileli as C isco, have d evel opl'd very 1' ('\\' organizati ollal IlII'IIlS, In pa'iil'lliar:
• Stru.cture- Hatl wr thall hierarc hi cal strlle tm( 's, !lat, Il(''(illit- , dC'('(' lIlralii',('d
teal1l - ,mel allian ct'- ha s(,d orga ni /,:ttiol1s are II (-' (,(kd to all()\\' I;\st :\J,cl rrll' IISHI
responses to stral egic opportllnitil's alld [ll'llhlcl11s aro ll'ld Ill(' wo rld , ,\llian( 'l'
pa,tnl'rs hav(' h('co lll<' an illtt 'gral part or th e finll at 1),.'/1 <t nd ( :isl'O, Blisilll'ss
ullits all d tca lllS arl' 11101'(' li"I, I\, [0 1)(' organi i',('d arolilid l' II S[OII ,('rS,
• S!J,~tems-i\t finn s l ike 1)(>11, sllpplil' rs , partm'rs , a'id l'llStollll'rS ,II'<' illtcg r,lli 'c1
into \'ir l'llally all SyS t~" II.S , The 1,11'('s l illronnatioll "'stt' II IS arc 1'(' '1llil'C'd in o rcl l' r to
illlprm'C CliStOlI1l' r ser v il'c ami i' l('rt'as(: pcrso l),dii',dlio,1. ]ntranc'ts IWl'OIlI(' a kC'v
illstnlllll'lIt i 'l l' tllllllltilli l'atill g 1',xj1l'ril'I' l'C'S ,1I1d 11I'II I" g illi2: illil'iali\'cs,
• People- !.,( ',lt!nship is '1 0\\' 11ll' prlJ\,i llCI' o r tl)(' llla' lV ratl wr thall thl' I('\\', All
arlll)' oj' p C'opll' is C' 1I1po\V(>I'( 'cilo <lchil'v(' ell<lngl ' ,,'Id S'll'jlOl't (It'lll'rs in r('spolld­
in)!; to l'llll,rgill)!; opporllilliti('s ,lIld thl'l ' ats, il l'ili sh Tl'it'l'IllI' , I'm 1''';lIll p ll', crl'­
ated a 1(' <1111 of l'vall!,!('li sti c: \i si(Jllaril's "lid 1II'IV('ri l' ks w llO (,O liitl qlli('kh- lilill
Iltarkct s lill' the lil'llI'S l" lttill)!;-('dgl' I'('sl'arcil.
• Cull:ure-Thl' (,lIltl 'I'(' 1(,lIlls to ('IIIj1h asi/,l' thl' ('lIstO'II('1' ('11,III)!;c', :lI,d illI,()\ ';I­
C' ()'IIIII'llli (' at (, d ~ \'iOIl , ClIStOlll('l' l(wllS is ,I (Iri\'ill g rOrl'(' at ( :isc:() alld 11l ",\, I'lli' (''<IIl'pl(' , w lwl'l '

• \Vklt ,II'<' tlte ,ltorlllS o r 1)('11,lvior? l'll sto '\\l'r- oiJS ('SSI,d C: 1 ~Os It'ad til(' w ay. CI'<lllg(', 1' \(' 11 i't III tia II 11 ' 11 tal hlls i,l<'ss­
"'Ollc'll'hang(' , i s SI 'pportl'd ily III(' l'l oItllrt " I Illl()\'atiol I i s tli l' 11 01'1 11 1'0 1'
• What ,liT tll( ' sigllifil'allt s;" lIilols alld s),,1I1h()l i(' a l'l i v ili ('s'~
I'-or),!;ani/,atiolls and ,(Cl'C 'pblll CC' 01' hlil llr('. i s " rt (,ll a " i sil)l!' '. , dil l',!)
• \ Vhat is th(' dOllli'lallt 'liallag( 'III('I,t styl('r
• Ilow is l'ollllil't rl's()lvc'd'~

STHATEGY • Do the people fil the slrllclllre ? C:II1 till'\' o[ll ' l'atl' w ilhill till' or,l,';,llli za­
• \ \11\('1'<' w() ,dd till ' 1)( '\1' stratcgy lit illto tl)( , ()rg"n i /.a \i()ll ~ tioila l glUlipS ,111(1 il ltl'gratc 111<'(' 11 'l ll i ,SII I.' to ('oillpldc' till' (,Isld I'm ('\<lllIl'l( "
• \\'o,dd tllc' 1)('\1' st-ratl'gy rit illt" till' st ratl'gic plall ,1I1d 1)(' adl'qll ,il( ' ly rlll\(I l'C I'~ u('ativc or c' lItr('p rC'IH'llrial 1ll,lIlagc'l's 11/<1\ , 1)(' III1('ollil'mt,tlll c' ill a IIi g ld \'

• \'1'01 del thc ' sYStC' IIlS alld l'lIltllJ'l' Sllpport t hl' IlI'W stratl 'gy')
• What organ i/.,J! iCJllal Chal lgl'S wOl(ld 1)(' rl''1'li /'(,d IiiI' tl 1< ' Ill'W st 1',ltq,'y to SllcCl'l'd ')
• Wh at illlpact w Ollld th l'sc, l'lt allg('s havl") /\rl' tl,( ,)' rl',lsihlc?
Figure 16,:3 Obtaillill g IlIlilrllla tioll aliottt Org,llli /,atiol l,d COIII[lolll'nts
slrll c-tl l red orgal1i '/ ,al'iOlI,
• Does the structure fit the cultllre? DoC's lll l' ,St 1'1Icrll1'(' CO lllr l C'II 1l'llt tli (' \ al­
IIC'S or l10rm s of' the org,lIli /,atioll '? FOI' l'\, lIl1pl l" ,I top 111,1I1ag(,l1l('llt grol l[l
accllslo lll('cl to C'o lllrollil1g cl eclicated 1'("SOIll'(,(,S 'lI :I:' l )J' I('ss d'll'd i\'(' ill a Illatri,\
organization , ill w hic h pC'rsllasioll ancl coorclillatiol1 arc IliO n' illl [lOl'tallt.

th e structllre, sys tem s, people, alld cultnre of the organi za ti o ll , [ II add iticlIl , c',1(' 11
Corporate Culture and Sl.-aleg)
o r gan izatiollal CO IllP(IlWllt n ee ds to Fit w ith th e oth c'rs , I I' ,III ill COllsistt' ll cy ex ists , il is
lil«:> ly that illlple lllt'lltation or th e strate).,,)' \Vi lll w alll'('[('ci. Orgal1i zatioll:tl ClIltllrc pro villes till" h~y 10 stratc'g\' ilnpil'll lC ' n tatio ll l)(, C';(l1 se it is
The con('ept of org ani zational cOll grll ellce sll gg( 's ls tl (at i IItc rac{'iol ls I)('l W('( 'II s' lc h a [lowl'd'lll 1( l r c:c-' 1'01' prov icling i-l)('II S, 1l1OtiV<ltiOII , andll Ol'lll S tvLiII )' stratc'gi('~;
organi zational cOlnpont' llt s should h e ('ollsiclC'l'C'cl, SII (' 11 as: C'O Il('(, lltrafe 011 al1 orgalliza ti onal ass('t or COlllpdl 'I1C: ', SII I' II as th (' pmclnct ([Ii<llity
Ic-\'I.J, servi ce SYSlt'lll , or CllstOlllCr sll[l[l ort , o r Oil a i'llllctiolial area , sli ch as maTlII­
• Do the systems fit the strl.tct-lIre? Do(' s tilt' ( '(llltjll ' IISali l )I' S\ " I('III 1"l ljlll;! ' Ltdllrin g or sall's , A Cldt llr(' (';Ill [l1'll\'il1<- sllp[lo rl ii' it is C't)lll,'; rIl C' Tlt w itll tll c' Ill'W
si /,C' t c,lI1"i\Vork I'all/{'r lll:111 ill<1ivitlll:d IH'I'I '( )I"II:III(,I' \vi 1('1 , 11': '"I\\'()I'" :111(1 slr," 'lllrt'S, S\,SII' llI S, and I)l '0 [llt- 1'l,t[lIil'l ,tI 1i\' :1 III '\\' sl l':J!('!!\ ', II ' il is IllIl C'O II,l,';I'IIC 'lll.
c'oopc ' r:ltioll ,/I'(' l'I '(llli.-. ,<1 '" 11 ('\\'( ' \" ' 1', tilt' ",dllll't " ,-; IIIOli \,: t!ioll' ;111 <111111'111' 1'()ld" 1'l'i l 'II II ' t ill' slr:t!t',l,';\,
318 Pari Fi ce Implementatioll Chap te r 16 Orga lliwtiollailsslI es 319

A nc-'IV strategy's fit with ,\Jl org,lllization's cu lture i s or greatpr conce rn tl1<1n the' Strategy Ddlle l-s Pumpcl's Dis tributors
strategy's ['it with till' other mg;\Jli'l,ational components b ec aus e c ulture is so J ifli­
Slrllct ll l"(J • F lat. loos(' • Centralizc d • D(-'c c-' lltrali ?(~ cl
c llit to ch,mge, An oil company CEO d evelope d ehtb oratt' di vp rsifi catiol1 p lan s thai
• Alno rp l,olls • Ti ght ('oilirol • I ,OOSI' control
['ail ed IwcallSe tlw.' wcre illCOlllp,ttihl e w ith t lw finll's oi l busin ess cu ltun',
The prohlems expcrienced In' '\'1'&'1' in its e [lorts t o c hange from w hal' was a Botlo lll-lil lC"' • [U gh • NOliI' • Low
Per/lIn II , lII Cl'
,"('I"vi CC/procillcticJII/i nterllal ['OCllS to a lllarkcti ng/ cJx terna l ori t' ntation ill ust r ate h ow
I n cc~ nti \-'c-'s
pow Cc' rl"ld anci resistant to cha n gp a e llltllr<.' ca ll h e, AT&T ve ry v isihly c h an ged its
strategy ,wd l 'Ven th e assoc iat c-'d strll c tllrt' and sys tems ( intmcill c in g pmdllct/ People • I'l'Ildll cl" cic'I"l' loPlll l'lIt • "i'rodmtillil control • ivI<lri<eting <\ 1\(1
Illarkl-'t o r gani/,at i o ll s anci sa lcJs in l'C'n ti vt's), hllt was inhihi ted hy t i l(-' c llltllr(" \Vhcll distriillltioll

AT&T hirl 'd ciilTc ' ITnt t" pc' s o ['p<,' rso nlwl-I\IBA, anci ln arketing p eople-it f( lllllCl C liltllre • SLIY loost' • Disl'iplill('ci • I'roIlIOti OII ­
iIl C() J1 sis ten c il's Iw tw ('c ' n tI l(' n ew people alld til(' c hange-resi st ant C1 dtnre, • J'vl ()I'(' 1;lst • C:osloril'llted oriC'IIITci
\ t\ilwn <I Ill'W stra tc'g)' is pmposl' ci , il is import,tnt to 1J1lci e r staiid t il(-' l'C'latioJlSllip • Take : I'isks • /\I 'oid risks • C;olltrol risks
of t lwt str,ttc 'g), to ti l(' sh arc 'ci valllc 's alld II (JrI11S 0[' t h l' organizaticJII , Is it cOln patibl c,",J
\V ill til(' ('Illtllre' ha vc' to 1)(' Ill odiFic'c]"':> Il" so , w ll at impact w i ll t h at h ,tv<.' Oil t ile orgalli­
K('y SIICCl'SS • Filldill g <llid kCI'pillg • E>ploit till' • I)i st l'iilliti oll
Fac'tol's key people­ 1>X lwlic'lll'l: l'lll"\"C' ehalllll'ls
/ ,atioll ;.l O Fl'c'n I-h e w ors t case dt" 'l'lops w h c' lI a slTolig positivc' Cll ltllrc' is sacri ficed t()
acco lllill ocbtc" a new strategy, allci tIl(' rcsl ilt i,s all ahsl'n('(' o[: an)' po,s itiv(' c ldtllW, TIl('
• lcil'a SO llrC(' • °IWr<lliollS • 11 11'1'Il t()ry

Korv l'lll' cas(' di sC II SS(' tl attlw lwgilliling 0[' llli.s chapter illll.';tratc's this poillt. • Cd prodl Ids 1'0 • 1'l'Ocil lclioll • !' mlllO ti () J)
111 <lI'kl'l <['Iickl ), • I l~ 1l ,--'
0" ill ('( 'ri Il (f
,,-> • Pos iti oning

• Pricill~
Hi t-J nd llsh), Topology
F iguI'c ](;.4 i\ tv l " d( :1 (Jr lIi t IlIdllslri l 's
T I ll' Ill'c'ci [(II' cOllgnwllce IwtWl'l'lI stratc'g)' ,1Ilci orgalliz<1l"iollal CO IIlPOIIC-' ll tS ca ll 1)('
illll.str,ttcd hy til l' tlJr('(' VlT)' ciin('reilt t'lx's 0[' riJ'Jll.s tllatl'o'llpC'll' in fl it indll.Stric',s,11I Th l' third tvvc ' s[ll'ci ali /,('s ill di st l'il)JIti o ll. 'I'll(' cii strilllltOis arc til<.' pipelilll' OPl'l'­
A hit illcill,stl) ' is OIIC ill whicll tIl(' goal is to obtaill , prmlll c(', anll c'''p loit a pmtl ll ct tll;t\ ;It ors allel rdailc ' l s in til(' o il indll st ry allel till' di stlilJlltOis alld J"(' tail ('rs in tl \(' rillll ,
wi ll h ave' <I l"('lat ill, lys llOrt Ij[(~ cycle, E\allJpks or sll c h indllstril ',s im: fll l k ' Ill ov il'S , I)VD , and pldlli sliing incl n stril 's, T hl' ke y sliccess Llctors ill a distrilliitioll hl lSi lH'.sS
rl'l'ord s, ['; lslli oll, plilliishillg, vicico g<lIl1l'S, l'OJllplltc'r ,so[twart', V(, llt1l1"( ' capital «-S pl ' II s11<l 1ly ill c ],lCh- m arketin g, promotioll , p hy sica l cli strii>lltioll , ,\JIcl accc,ss to or (' \ (" 11

c dl y ill Il igh-lC'ch al"('<ls), Clllcl oil. llllliistric's with ,s hort li l'c cVl' lc's a1"(: illtc ' I( 's lill ~( cOllt ro l o vc')' di strihllti o ll c h alln c ls, T I l<.' kcy p('ople alc' ill 1ll,lrkc,til l g :tTlllllistrillillioll,
Iw(;,\1l sC ' Illall Y o['tllC'ir (lrf!;<llli/.atiollal pmfllC'JIls art' 11101"( ' ill tc n sL' ,1IId gl'ap hic ,\ cl C'CC ' lltJ',tli 'l.cc l st J"ll d llrC ' w ith I()os(' cO lltJ"lll s alld SCH II C' holtOIIl-lilll' iIICC'llti vl'S is
T[w IllOlk [ ill Figl'IC' Hi,4 divicies a hit illcill str), illto tllr('(' ['l lndiolls , w hi c h ;111' o n e il efh,cti ve,
sll o\v 11 as llC'illg l)('d(lI"IllC'd hy diffcTC'llt org;llIizatioJlS, altl, ol lgh o rt e ll tW() or 11101'1 ' Tlw hit-iJldll strv t()po l ogy shows how t Il(' LICk oJ' rit Iwtwc'eTl org,lfli/,atic)[Jal COIII­
wi ll col's ist w i t llill tlJ(-' same' ()rg<llli'l.dlioli. ; \ ll ()il illcill st ry <l1I;t l og), pro v id es tlJ(' ("O il [101H'lltS can clc' ,'el op, "IYpic,t[I )" ;In orgallii',atioll stal't,s a,s ,t cirillillg company Af"tcr
cl'pt ll<ll f'I',IIIIC 'WO lk , c'stahli shing SOIIIC' proci ll cl"S ali l l expe ri c il c ing rapid gmwth , IIIl' l'Olnp,lIlY hlllis that
Th e rirst mgallizatiOlJai tvpc' is tC ' J"lllC'd cirillc 'rs, T l w )' ;\1'(' t lw w iltlca ttl ' rs w ll o fil il l it lksperatel), TllT cis to contro l procillctioll costs , d CJv c,lop;t S(,Clm', eflective cii,strib­
oil ricllb ,tnci drill WC[[S , til(' t,tic ' nt .S(,O lltS alld arti sts ()r thc ' rt'Cll1'tl iIlUUSIT)' t i ll' pili Iition CklllJlC'l, and pmk',ss ion ;tii zcJ the nwrke ting eflort As a rl',sltlt, pnillping and
tllll'c:rs aJ]ti \l' 1-itc-rs ill tl\(' 1IIo\'ic ' incill stl"\ , ;wcl til(' c,'dito rs ;tnd <l lith ors ill til(' pl lh[ i,,, [, clisirilliition pcoplc' an' brol, ght ill. T h e orgallii',ation thl'lI lake.s tIll' {(JrJII of c~itlll'r a
illg illdll Stl"\' A b '." ,S II C(,('SS fi lc tm is to locatl ' 01 lTl'ale' th c~ JlC'W IVcll s, projl('l'ti c's, ()J' Il"II'pc'r or ,t ciistrihlltol", tlept' l\(lill g on whicll hlilctioll is JJlo.sI crilic,11 or which t'1)('
ploj e cts, A ll Ilitilll atl' goal ill tI ll' r<.~(;onl hllSiI WSS , I(l)" CXdlllpk., w Ol dtl l w to gl'l a [cwk Il[ p('rsoll flC'collJ('S thl' CEO, In ,.Illy ('<tSt: , t ill" ,S),SIC'lll, stntc!llrl' , ;lIlll culture Il[' the
Oil p t TfiJrJl1illg tak llt ,tllci kc~c 'p tlw arti sts so h appy that I'h e)"' \l'o llltlllOt cO llsidc ' I' II ';11' 1lJ",f!;alli/"ttioll change, amI t h e"~ drillers w h o ,starkd thc~ hll.lilll'sS hec()ll\(' IIIICOlll [(Jrt ­
iJlg t.lw COIllP;lI l), Kc 'y pc 'opl c tend to he.: crcJti vt', hi gh -e ll c' rgy, dc 'c isil l ' ri sk tal;l'I.', "Il[c' allc! Ic'alc'. pC'l'llap.s to start a competing hmill t' ss, \\'11(-'11 the existillg we ll s dry
T ht,), thri vl~ ill a Hat olg an i zatioll w ith littl e stm ct m e ,wd hig h hotlclill-lill( ' ill( 'C' lilil I·" 1111 ()J' <li"(' CLlI11<lgl'ci h v compctition , no one in the orgalli z;tti oll i s availahle t o Crt' ,lk
T Ill' sl:cond organ iz;tl"ional ty p e is tt'rll ll'd 11\ 11 IIP('1'S, They ;tl(' I'll<' 11'('11 111)(' I', il ()I " IJC'W lIlieS,
,lilt! I'd in ers of t ill' oi l h1l sincss, th e ])Vl) presse rs, til(' 111 ()vi (' ciil'el'iOl,s, <111(1 111(' [l l'illl II i,s ,I clldllc'llge in ,my IlllSill Pss to keep access to drillc' l s Oil<.' ;tpproach is to kpep
C')'S ill pllhlishing, T Il(! ke y sllcn'ss [~t<.' t()r<; il l a [llllll[lill;!; ()I';!;;lIli '/~ liilJll :IJ'(' Illll'J';tI il II IS, 1[11' clli [II ·I',S sat i sfic 'tl hv nll ;\ll ci;tl ince ntives and orgal I1'/"ltioJlal 111('('11<111 iSI rl S, sllc h as ael
produ c tion c~ ngi n l'l'rin ,f!;, ,tlld , \II ;Ih ili" 10 c'SI1 [llil l l l\' 1"llI'lil'llI'l· 1'1111< ' '1'111' "1'1 IlI'1I11[1 ' [)(W glllll[l" lI'illl ('\Iraonlin ary I"rec-' dom and alltcllHH II) ' II OII'CI( 'r, Ih c',(' spcci,tI iII C'( 'II­
; tn ' d isc ipli' ll'cl , ('Ih l dllel jlll Hlllcti()11 cllil 'lill'll. ill [IIIHlllI'li()1I :IIII[ l'IJIIIIlIi jll[I .", :lIlIlli , [, 1111'S 111 ".1' (" n ';) I(' ill l'lj llil"i c-'s and disince nti l't's for ot l ll' J''' _ I I 1·ltln ' jll"l' lll'llli ,tI 1'lIg illl'l 'I S
; 1\ ui l I(' I S, ,\ 1'1'1iI J";i Ii11 '1I CII ,t!" II Ii I ,. II il III \I iI [I II,!':[II 1'1 11111'1 II.S 111"1 1\ i<1<" III q ') ' 1, 'I'I 1'111 ' 1'111 II I '\ I :III' [ )(,I'llI lIill ,f!; Illilli o llain 's, II'Il('J"I 'C1S I-hosc' charg ed w il[, " "Iill/;I illi)l ,: ~ ,·\ i ,'li l' ,!~ 1)J (II I'J('l s
:320 Part Fiue Implementatio/1
are on <l fixed sabry, tellsiollS ar e bOUIl(1 to IllOUllt, FU1-t h e rlll ore , th e entr epre n euri al
gro ups may 11('e(1 ,ICCl'SS to tilt' facilities <llld vxpelt ise o fth e pu I1lpers alld distrihutors,
<.\11(1providing that access l1lay compro mise their separatell ess,
A ll ot h er w ay to approac h a fit pro bl e ll1 i s to r estrict a llii sillt'ss to o n e fllnction
<\1ld allow other organizations t o [Wrf( >rIll th e ot he r flillctions, Venture capital hrl11 ~
restrict thclil se l \'es to heing drill er s <llld d o lI o t Iwco lll e iJi vo l ve d in th e ot h er fllll c ­
hOllS , Pllhli slH-'rs art-' large l\' di st rihlll"i o n cO lllpall ies ; thei r pro(lilCtio[l i s htrnwd o u t
alld th e drill e r s arc acluall \' th e allthors , w h o <Ire not pa rt 01' the organ i /,atio ll , A
11il sill ('sS w ithollt ill-ho l ls(' drillers lila), kl v(, IiIJlited <lcces,<,; to Ill'\\' \'l'nturl'S ,
howc ve r, hcea1l s(' otlH'r i"irll1s Ilia]" sllcc e,ssi"1 111 ), COil tract w ith till' hest illllqll'lHlent
driller,..; Also, the price I"or 111 (' provcn drillns Illay hccolll(' so high that prollt-s
an' lilili lt,(1.
I'rohkllls C,III also arise wllell PIIIlI[X'rS alld l listTil111 t()rs share all orgallization, Tf
OII C 0[' thl' two cic,Lrlv dOillillat('S, th(' pl'( )hl( ' lll is Illillilllizc,d, If ('ach is (-'fj"all y sig niC­
ica llt , howc\'('r, tll('l'(' cOIJid ('asih' lJ(' ,I rit prol)I("'I 1.
ORGANIZING }<'OR INNOVATION
AltlHl'lgh the ac llicV('I II('1 11 o l' l'i g h l'OIlgnl('llc( ' allll )lIg all orgalli / ,alioll's CO IIiPOIl( ' IIl's
;L1 111 sll'alc',~v lead s to o rgalli /,a tiollal ell('div('II(,ss ill til(' slll)r[ to IliediLIIII tcnll , it' ('; \11
also illhihit d es irahle aTid (,V(, II III 'CC'SSdl) c h<lllge , A ll organizatioll call b Cl'o nl(~ so
illtl'gral'C'd alld II,e l'IJitllr(' so S troll ,~ tll at Oill y cO lllpatihl l' challg('s are tolerated , For
('>'<lIliple , w lle ll 1; lced w itll a tec llllOlog ic; 11 t'l I I'l'a t , Finlls o l'tc n r('spollli w ith eVCl 1
g rl'ate r rcli<1I1 Cl' Oil til(' o iJsold( ' 1',1Il1iliar t( 'Clllio logy
Thl' cilall e 'lge is t o cn'at(' all o rg; lI li:;,:ltio[l t lwt call ,s llcCl-"<.;,,Jldly op('I'ate ,I CIJII­
gn L< ' lIt stra IT ~.;y and still ha \'e til(' ahility to d d('cl I'll(' 11('( ,(1 I'm 1'lllllLlIlI(,lltalchange,
JI' a ,sig 'lifi ca nt c h ~ LII g(' ill stratq.',,)' i,,,; Il('ede (1. a 11l:1jor orgalli:;,atiollalchallgc lIlldollbt­
edl y w ill Ill' wq"ir('(1 as well Also , eVI'11 ill till' CO lllt '\t of' a COll,~nl('llt strategy, l'll('n '
Ill,('ds to he a capacity lill' Ollgoillg illlJ()v<1tillll- tl H' ahi I it')' to crl',lt(' Ill'W or improve d
prodllcts or PI'OC('s,<,;(',"; 'lllli elllt'I' Ilew nlarh ' I',<,;, S('ve r,d approach(,s, inclll(lillg dCl'l ' n­
ITali 'l.atillll , t'l.<.;k I'Ol'el'S, skllilk works, i«liz(' Il , <1llll rt'(' ll gi ll ('(' rill g , are [willg Ils(~d ,"; II C­
C('ss l'lllI ), to prOJllot(' Cklllg(' <tIle! [()ste ' r illlH JVatio l1.
Dcccnlnl liza(i()n-Kc~'ping Business Units Small
M ic hal' [ TlIShlll<lll and Ciwrl('s O'l\(>ill v 11<1\'(' ide ntifi ed thre(, firm s that an' good al
hoth evolv ill g aile! ill1prov in g operations alld ge n era tin g re vo illti o n ary chall ge: III'
(tlewIHt-Fackanl), Jo hnsoll & JOhIi SO Il , and ABB ( Asl'a Browil /)overi ) ,11 Eacll 01'
tlll'Sl' Finns l" lllpiJ<lsi z('s ,lJItollomOllS groups, Jo hn son & Jo hn son has Hi,s s('pal'<lk
o{ll' r<lt illg compan i es , ;\ 1)1) has ovcr ,s ,OOO profit ce nter..; w ith an average stall 0[' lin\,
each , an d II P h as o vC'r fifty di vi si o n s and a p oli cy 0 1' split tin g anl' di vision thai ,~d,<.;
large r t'h an a thollsalld or so p eop le, Sm,dlilnil's alT clll.S( 'r 1'0 ('I I."; to I 11('1',"; and tn'llIk
ca ll iH ' agil (-' <lIIei li lsl lIIoving, allllcr('at(' Illoli\'atl'c1 c lllpl m 'I'I" ", 1101'1'1,1 <III ()w'II'r,<.;I,il)
0 1' IIII' ClIH ' I'; di lll1. TIJ(' ITslll1 is a \'ilal , illllll\<lli \'I' I JI ',~: llli 'I. :lli'lll 1'"I ,lli\(,I\ 11111'111'11111
1)1'1'<'11 Ill':1 l'I' IJir:lllllll 'I ':lII(,I':I1'V,
Chapter](j Organ izat i()/1 (ll Is slIes 321
Task Forces
Sometillles a fin II will find th ' lt it must 1ll,lkv a suh stalltial change ill Op(cnttions hcc,ll i se
of a sig nificant chal1engl" snch as ,I eil'l'eriorati(JI) ill cOlllpetitiw positi () n , or OP[l()ltll­
ni ty, sllch as a techllologica l hrc'lkthml, I,~ll. A cross-['llllcliollal task I()rcc ca n l ook at t il('
i ssues in depth and j(JrIn a respolISl" that proVides a mt::aningiillch,\l1g(-' ill dirl'clio ll ,
Jap<lIH::'sc cOl11pani l',s inf'l I sl' t'L.sk Forces \\lith a st'ns(-' ol'lIrgcll cv t'o CI"( ',L((-' si g ­
nil'icant change agcnts, Tht, s(-, lI se 01' Ilrgf' IICy will lISliall) imoh(, a l'Olllrwtito l'­
oril'lltl'(1 goal, such as " b eat C,l('" in tlw case 01' KOI11<ltsll; sp('cil'i c ohj('l'l'il'( 's, sll ('11
as rcdlldioll ol'costs hv:2() J)(-,l'(:('l1t ; a tight til1ll'-t<tblc; al1(1 a proc('ss , sl l l' 11 as t o t al
quality control or ".illSt-ill-tilll"~ , " TIlt' r(-' slilt is ('\tr(' l11l' prl'sslIl'(, to wo rk hard alld
[lCrifJrlYl al1(1 to hreak Ollt 0 1' t lw Illold and i"illd c J'( ' ati vc ll CW approaclws,
Skunk Works
Major nl'W Ilii sin ess V( ' lltIJl'( 'S In ay rel[llirc sc parate (' lltrcpJ'('II (' llrial Imil's 1)('(,<llls('
tlw slow d ('c isiIJlI-m .lking PrlJCI 'SS , I'l l(' )'('so llrce al1ocatioll hiases <tgainsl' risky 11('11'
bu sin ('sses , alld th e overhl'ad hllrtl (' 11 of' til(' co r e o rg,lIIizatilJll an' too gn';l t a II :lIld­
i e-a p, Sinali. <llltOIlOIIIOIIS gro llpS o f' [l('opl(' IT [lJ'('Sl'l ltillg all tll(' illljiortalit ['llll d io l J<;
join toget he r to l'1'eat( ' a p rudll cl' or a hllSilil'sS ,L1 ld IIIII'S(' it thro'lgh till' ('<lrl;- St<lgl'S
o f'lii"e , Of't(' 11 ill ,1I1 of'r-sit(, g:l rag(' op('ratililicalkd a sl(Jlllk works, Used h) :3 IvI , JIj\{ ,
XenJ\ , <1I1(1 Illall)l other,s , sllch <I gJ'()I IP i s Ii siially 'LlltOllOlllOII.S ('llollgh that it ('<t Il
hypass the Iisiial d('cision proccss <1lll1 ['('sist [l1'( 'S SIIrt'S to cOlli'lJl'lIl to I''( istillg IlJl'lll< d
alld inl(JI'IlialcollslTaillt,s, ;\ key to l' lltn 'prt' lll'lIrialllllits is to Iwv(' a hIi Silll 'SS CIl<L III ­
pioll COlnll1itlt,d to til(' COI1C('pt, T ('x: Is fll...;t l'llllH'llh revi('wed ril(v II('\\' prod"l't i lltl'o­
dlictiollS allli I(Jllllll th~lt (,vcry l<1illll'c lalll'ri a vollilitarv pmtlilct Cll<lIlipioll , ll
Kaizen
K(li;::en , which Illl ',li IS ollgoillg il1lpro\'(' lll l' llt in vo l v illg ('Vl'f),OIH' i"mlll to p 111 ;lilagl' ­
11H'l1 t on dowll , has h ('(' 1l till' h as is oi" ,1I1 ill cJ'('as( ' ill prodLIl'!-i vity I()r Ill allY J<I[1<lIl ('SI '
rirm s, l > ParticlJiariy .IaP;\l1('S( ', it tiO('S Ilol' eas il) lit into III(' U,S, I1lalla,~( 'llI( ' lll' sl'.\ I(,
l )('c;[lI s(' it lill'II S(,S ()Il prlll'('ss rath e r l'h all Oil I'l'SIlIt'S aJld IWl'<lIl s(' it d ep"'l tis Oil Illall;'
siliall illlproV('IlICTltS r,lll1\'r thall OJl a <j"i ck fi x based o n a (ir<ull,lIic Ill'\\' proclll(,t or
technology. The 11IittoJll IiIl C is Ill'v(' r thl' I Jloti val'ioll , B atlwr, tll(' goal i,<,; COlltiJlllOllS
illl[)I'OV(' III( ' llt tlJl'(lli gli o 1l1 th e orgall i /" lti oll,
Heengineedng
1\('('llgirw('rillg, the antithesis 01' kai l'.l' ll , i,s t ill' se<l rch I()r ,lIldirnplenwntatioli of rad­
i('alcII<L'l,~I' ill IlIlsilll'ss o[lcral'iolls to achicv(' hl'l" Lkthrollgh n-'sllits, 1,1 Tlw h ;lSic iti('d
is III ,..;1<11'1 \\illl;1 ('11,:t11 slll'1'l ol'p;ljlt'r ;lllli ,l sic, " 11'11'(' Wl-'re to start a IIl'W COl11p.\ll\',
IlIl'" "'(IIJiII WI' ()11"':Ji(,'~" I\;LIII('I' tklll atl<')llptillg to rl'lilH' ,lIlll illlpro\'l" ti ll' dhnt is
10 ('I'1';III':J 1"'\(llllli«11 l'llllll \\lIllill. 'I'll(' "I';' 10 rl'l'llgill('l'rillg is to h J'( ',lk d owil th e o ld
1'llll1'li'lIl:i1IIIIII', ,11111 ,1/'1"'1:1,,11 1111 ' I" " ,J,J"", ['I'IJlII ;11 1i'Ii ''l'( li sc iplill :IIY\'il '\\' IIsillg( 'I'OSS­
1" lllI'li«II"II",I III" 1'1" ' 1 '11 11 11', I H,i,il is I I.SI J:i1i1' ('" l"i", ' rill ~ III I \\' l 'II SIIlIIH'rS \\'ll liI" lik,'
III 11",,1 \\illl III<' /1 1111 1,I li li 11 11,111 1111\\ I III' lirl l l \\ll lil" li"I ' 1" "" :Ii \\ illl "II Sl lI ll lI' r" ,
322 Pa rt Five Implementation Chapter 1 (j Orglllli;:,ational Issues :323

FOI- cX'llnple, CTE lliscllven-,d th,lt clistomers w,ll1ted ,l single pbol1t' 111lJllber
to celll ahout aTl)' prohlem, rather tllan separat<c' lIulIllwrs f(H the rcp,lir, billil1g, aJld
marketiJlg departmel1ts, As a result it started a Cllstotner C<lre centel- staffed by
pcople who could f'iclel allel dcal with ,lIlV inlfuiry The goal was to have the pcople
amI syslems in place so that i() percent of allc,dls coulcllw handled without being
passl'cl 011 to anothl'r elepartmcnt, This approach was illdeed <l radical dep,lrture,
which cndl'll"p lIot (111) iIIIJl]'()\'illg SI'l'\'ic(-', hut also rt'ducing cosls,
Hccl1gilll'I'rillg, Iloth risb al1l1 ('xpI'nsil'l" is l1lost appmpriatl' wlll'll there is a
slrong thn'at i'rolll a I'h;lI1gilig 1'II\irOlllllcnt or cOl1ljll'litor ,Lncl Illargill<l1 illlprovc­
Incllts i,l llll' olel opCralil}1I ,sililply will IIOt gl'l thc joh clolH', \Vithlllit <I lll'ljm clwnge
ill OPl'l'<ltiollS, lilt' h'lsill('ss willll(' ill jl'oparc1\,
Seeking Rad ical, Bt'eaklhl'Ough innovation
A In tly p'lI-'lIli.~III-shi I'li Il,g, IlrC'aldlll'lJllgll illll(l,,'alioll-<lS opposcd tCI (JIll' that SllslailiS
lhe prescllt COllrSI'---can re',sllll ill an C'IIOI'llIOII.S slr<Ltc'gic payolf I\ol)('r[ Strillgl'l', a
strategic COII.'liltallt, Sllggl'sls ,l \,ll'id" 01' "llI'l'<Lkthrtlllgh" slrategil's that Sllcccssl'ltl
cOl1lpallil's C,lIl IISI' (ill addititlll to sbll1k works anei CkCI'lIlr<Lli/.atioll) to rcill\'clll
titCIIISI,hc's <LillI tllcil- Illarkl'ts l ,)
• (vlalC(' Ilrc,lklllnlllgli illliovatiull,S a strategic allll citilllrl' priorily, as C;cllc1'al
j\IIills h<ls dOIH' ill til(' cl'real IlI<lrkd,
• I Iii-I' Ilion' crt'alive anc! ililiovatil'l' Iwopk, Cilibal1k (}lIce hirc,d packlgcc\­
,~O()I1.s Illarkcll'rs ill ()rc\I'r lo vit<L]j/.cits COllSlllllcr hllSiTic'ss,
• Create "idc<I 11 I <Lrkl'ts" ",line tIll' bl'st ide<Ls ill llll' orgalli/.aliol1 COIIlPl'tC
i(lr II Illd i Ilg
• J)1'CIIIIII' all am bidl'xtrollS org,lll ii',<lti()ll, 111('<111 i ng tli,lt thc abili ty to COllllllC'r­
cialii',l' I-adical illlllJV<ltioll (':-;ists ill tllc' l'OI1Vl'lltilJllal org,lllii',ati(}ll (this solll­
tioll is dTicicllt, hilt diITiclllt to illlpiclliClll),
• USI' aC'llli,sitiom, j(}illt VI'lItllrt°S, ,1I1cl alli<llll'C's lo hrillg ill illilovatioll, Cisco
<llld MicrtJsoI't ;lIT ease stlldics Oll how to (10 this,
• Participate ill a corpoLltc' VClltllrt'-capital iilllcl or illtel-Ilell corporatc VC'l1t,lr­
illg, \\fhl'l-chy IWIII bll.sillcsscs arc Illall,lgcd ,IP,lIt frolll ,I cOllipally's I'xistillg
hliSillt'ss ill orell'l- to proviclc' clitre'jnC'llCllrs the-: it-vci (}i' ,llltOTlOIII\ tll<lt
tlll'y v<lIIlI',
A RECAP OF STUATEGIC MARKET MANAGEME NT
Fig\\1T 16,5 providl's a capstllill' S\\l1l111ary oi' the iSSIIC'S rai.sl'ci ill b()lh slTall'gil' all,lh
sl,<; anel stratl-'g) lle-\ CIOpllWl1tircFillCl1Wllt, It sllggc;ts ,I cli,sC'IISSioll age-IIlLL III Il('lp :lll
org,ll1ii',atioll l'lIS111'1' tlwt lilc c'\ll'l'Il,t\ drill illlC'I'lldl ,1IIah-,sis 1"l.s III(' Ill'I'C'S"11'\ clc'1111"
hn',lIlth, alllli'()rw,ml tilillkillg ;lIlclll1al lll(' sll'all',~) c'll':ilillll ,IIIll,I,lilll'IIll'lIl IJl.l)('I'SS
yil'ltI.s wilillillg, SII.SI:lill:ti}ll' .sll;ill',gil's,
CUSTOMER ANAl~YSrS
• \\1lw are thl' major sl~gJ\\(-,lltS)
• \\fhat <lIT their nllltil'atiOJlS <lnc1'l11md nt'eels;)
COMPETITOR ANALYSIS
• \V!Jo art' till' I'xisting ,111(1 potl-'"1ial COlllpetitms" \Vhat stratl'gic ,groliPS ('all hI' itil'IIhfil'cj)
• \Vhat arl' their "<III'S, sll<Irt" 'lJld pmrits? \Vil,lt arc' til(' gro\\'lh tre'lIlls'~
• \Vhal arl' thcir stre'II,gths, lI'('aklll'sSI'S, alld stratl'gic",)
MARKET ANALYSIS
• 110"" attrdcli\(' is til(' lI1<lrkl't (})' illl["xtr, <lIId its sldJnl<lI-kds') \\,'klt aI'(' Ill(" [()'-CC'S I'CCittl'­
illg profit'lhility ill till' IIlarkcl, 1'1111'\ ,lilt! ('xit L<lrrins, gro\\'tll projl'l'tiollx, CI)Xt Stl-IIdlll'c,s,
<1 III I profit,t1JiliIV p]'()spc'ds')
• \Vhdt dl'(' till' altl'l'lIdtil'(' distrihlltioll c,I'<lIII1('ls allli tlll'il' 1'(,lalil'C SIJ'l"lgtllS')
• \Vhat inci"strl lre'11dx dJ'l' Xigllificdl1t to xlr,licg;-?
• \VI,at arc' thl' CIIITC'II1 alld l'I1tlll'e key s"c(,('ss [,ll'tOI'S"
ENVIHONMENTAL ANALYSIS
• \VI,dt c-'Il\'i 1'011 II Il'IIt,t1 thredts, o]lporlllilitics, <Inti lre'llds nist')
• \VI,at are' thl' lI1<rjm strate-gic' II1I('C'I'laililic's ,IIHI iltl(JI'Ilidtioll-lIl'C'd arl'a.s'~
• \VI,at sl'l'IIdrios (,,1111)(' COliccil'C'CP
I NTEHNAL ANAl,\SlS
• \VI,at ,trC' om costs, Stl'<ltl'gy, pc",['mlll,lIlI'C', poillix 0[' ciil'i(-rI'1I1iati(}II, .stl'c'llgtll.s, weak­
IIl'S.sC'S, stl'ategil' prohlc-lIlS, aIII I I'lJl I I(I'C'?
• \I'llat is 0111' ('\istillg hliSilic'ss pOI-l ['olio'!, IVhall,,1S Ill'c'lI olll'lc'vl'l 0[' ill\l'stllll'lll ill 0111' lar­
iOlls llrolllll,t II1<II'k('[.s)
STHATEGY DEVELOPMENT
• IVI,at .stratl'gic (}pliollS si'Olilcilll' I'Ollsicin('(i-qllalitl, 1'<lIt,C', [(WIIS, ilillOlatioll, gloind,
procilld attrihlltl's, prodllcl cil'sigll, Pl'Ocilll'I-lillc' hr('adth, I'OI-poratc' so('d rl'spolISilJilit\
11I-allci['IIIIiIi<lrit\", 'ilici CII.stOllll'l' ilitilllaCl,
• \1'llat ,Issl'ts <l11dl'lJ111Pl'tC[)('C'S wi Ii proVide tl,c' h<lsis I'(}l' <I SeA') 11011' ('all tl,l'l i)(' clt-VI'I­
()pl'd 'IIIdl11<lilll<tilll'Ij',) Ilo\\' ('<111 tilt'\' 1)(' Ic,c'J'<lgl'(1<'
• \1'll<lt 1'<11,1(, propositioll will Ill' till' C'(}l'(' olll,c' ollerillg'~
• \1'1,,11 ,1I'C' 11,1' ,dtcrtlatil'l' [\lI1ctiollalstrdtl'gics"
• \I'lldt stl'<lt('gil's hest fil om strcllgths, 01(1' ohjc'c'tjl'cs ami Oil!' (}l'gdlli/"Itioll')
• \I'klt altcrtlativl' growlh dirt'ctiol!.s siloltldlll' l'oll.sillcrccV Jlow .sholtld tl,c'\, 1)(' p'lrslll'CP
\\'1,,11 iIlVC'.stllll'llt It'\,cl is mosl appropriatl' ['OJ' ('ach prodlll'I-II1<lrh,t- \\,itl,d,-<!w,d, lIlilkillg,
1l1;lillLLillilt~, ()r gr()\\'il1~?
F i)!;IIIT J(i.!) Sll':tl(',~\' I kl('lo]lllll'lIt A i)iSl'IIS,sioil !\gC'IHLl
:32-1 Furl Five Implementatio/l Cllullte r j6 OrganizCltionallssues ;325

n. COll sidn Pm"l ' r Bar. thl' stra tl'gv jl ))' w hi<..:1t is sUlllmari zed in the C,lSI':'
KEY LEAR NINGS O il page 1:32, \Vhat illlpli<..:atioli s illr the culture, stru ctu r e , sy ste ms anu
people wo uld \Oll sliggest g i ven t h e n ,lt u rt' of tIl e prodllct and the COIll ­
• FOllr key organil',atiolla i co ili poll('nts a]'(" stn lct m c , ,wstc'III S, pt'oph~, amI pam, \\!ollld this challgl-' w l1(:'n it w as purcli<lsed by Nest l l~? ii,
CIJittllT \ 11 1l1ilSt 1)(' ins)'llc with (',\eh oth er and witll tlil' business strategy,
7 . Pick a hank or oth ('r,cr\' ict' firlll , E v alll<lte th e orgalli zational rOlltes
• The fit hdw('l'll COIl1pOncnts is i11l1stralt-'d hy the hit-intliistry tOjlologv, to inno"ation,
whicll ('ollt rasl s til(-' 1'IIlIc[i(lllS 01' dri ll (' rs (w ho dcv('lop [)J'odllcts), jlllillpers
( wl lo (lICIiS Oil [lrodlI CtiOl il, ilild distriblltor., (wlm spccialil',(' in 111drlwtillg
and dislrililitioll ) NOTES
• Orgall l'l Aional st rm;lll/'(' tI('rilH'S tlit' lil H',' 01' illltil oritv amlcolllllll illica­ 1. l\oiwlI V JI ,lI,t l('\ , Modl'iill!!. "1i"lIk!'.\' , ,5tll cd" NI W York: \\'ile.", J ~)~)2 , C ilap ll'J' IT
tioll alit! ca ll vary ill t i l(' c\('gn'(' of c('lltrali mt iol l illHllormality 01' CO IIlIT\\I­ 2, \li('llill'II'~ Ih\ 'IIIII'i llld.l osl'p ll I " JllllI'('I', " 1 ,("ad 1'J'olllllJ('C(,lItcr," /I (f/,wrd/3l1Sil/{:ss
Ili cill'ilili c hall l1('l s, HI'lil'lt: \-b\ 2()() I , P 9i
• lVL lll ilgC ll ll'llt svStC III S- ill Citldillg hlldgdillg alld accO lllltil lg, iill'orllla­ :3, Jklll'\ \ ,Jilil/,]ll'rg , " i\lIISillgS Oil t-,'LIII<I,gl'IIIl'lIt ," /l lIrClio/ /311,,i I/('S.\' liITinl;,
tiOll " Iill'aSIIJ'('IlICllt iliid r('w il/,(I, iliHI plallilillg- cil il all inllll(-' II CC sUat­ Jllh '\ l lgl,, 1 I~J% , pp (i I - hi,
('gy illlpl clll( ' lIt alio ll. 4. /11'111,\ 1\ 1i II 1/,1 ll'1 ,g, "TIl(' 1,,,11 'I lld Ihsl' 01 ' SII'atl'gil' 1' lal llli11 g, " /l IIIUII'I/ /3l1sill l'S'
/in if 'lr , .I all ll 'II'\ - I'l' III'II<11I IDU..I , 11P' 11l'(- II ',l. <) 1I 0[('S ilJ'(' ('J'(1I11 p, 1m),
• J>( 'llpll' prorill 'S illitl tlll'ir IlHlti vat io l1 proVilk tlit' hast 's o f' cOl llpl'tl' ll cil's
5, '(; I':'s 'i'l'II-Sll'P 'I',til'llt 1' 1,111," I ,'orll/II!', '\pril Ii, :WO() P' 2:32,
11('('dl't! to SI IJlJ>ort S( ;/\ s,
Ii, (:II"rl"s Ulkill\. " (;ol'llm,JlillllS, (; ltll'III'(' , il iid (;Ollllllilllll'lll rVlotililtilJlI alHI Social
• Ikcall,(' or,e;illli/ationa l c ltittl J'( '- w llicil im oivl 's sit a/'('d " aIIH 's, IIOJ'JlI S 01'
( :olllmi ill Org:llli/"l'iolls ," (.'lIliji'l'IIill MIIIIII!!.r ' IIII'1/1 1i!'(',il 'U;, ,S lIlIlIll( ' l I DSD, pp, D- 2,5,
IlI'llil\'im, ')'llti)(lls , alI( I '.Vlliholic <Idi v itil 'S- is tliI'fi c itit to c hange , till' fit
7, IIJill , [l 13
l)('t\\'('I'11 ('llltIII'C illill st ratr:g\ is [lal,ticltiari.v ill1pmt<lnt.
S, (;mdllli ,Sllil\\" l(olll:!'1 II r{l\l'lI , "lid l'l lilip Ilro lllil !'v, "S IT:ltl'gi c Stories: Ilow :3tvl is
• :\ fi I d ci tal l( '1IgI' is til ('rt '< Il( ' all orgililil',atil III thilt call cllallg!' rapidl y throll g h Ikll'rilillg IlIIS ill('" l' i:lIlllillg," /1 111'1 ;01''/ /3l1silll:sS /i{'( ;i!'IL', iVl:ty- .I"IH' I \.JIm, pp,
11Sl' () I' dl'l.'l'IIITilli',ciltiOli , tilsi< Illl'C'l's, skllilk works , tail',l'll, amI rt'l'llgilll'lTillg, 1- .sO
,~

H, T"i , 1I1<lll'I'i;d dr,,\\'s 11111 11 (: :II'li l ,ll' (:'II'Y I" Nl' il slllI , Ihlll'!' 1\, I'"slt'rll:ll'k, illid ;\I"('I't
.I . \ 'isl' io. " Up litl ' l '-Org:llli/,:Il'illill " Sll'!Ill'glj G' /)I/sil/l",' , F irsl C)II'lI'tl'I' 20()O, pp
FOR DI SCUSSION :32- (; 1.
1.. TIll' !(ol'\'dIT ('O ll ('('pt was stil r tl,tl alld 1'1 11111\ (llil' 11l'I'SO'1 ilmlltis grtll ip 10, "I'll(' Ilil -i lldll ,II'Y ll'llolog\' waS deve lojled ill disl'IISSi(JIIS w itll 1)1'. Noriliall SlIlotl1('rs,
Ill' l'r i(' IIlI s, I l ow cO III (1 i ts l'ilillJl'l ' 11:11'(' h('c'l1 av()ickd'~ \Va" til(' pmhll'm II. ~ li l' I "J(' 1 I ., ' l'tISIIIll<lll allu ( :it :l rl (' s f\, U Hl'illy III , \\fil/I/il/g I/o-,mg/I [lIl1ow/ioll' ;\
1111(' lll ' SiT;lt(',~: 11l\:('r('xpaJlsioll ), or W:IS it 11I'gililil',iltioJlill'? \Vlly'? I ' mf'l i{'{// Clli,/" /0 !n/(/illg ()r:!.!..lIl1i ,~,(/li{JI/(d C/IIII I{!," III/(/ nl' III ' IUI/ , Ilostoll: [Iarl'alll
Il lI silll '" Sclll)oll'l'('ss , 1997 ,
2. \Vllilt ill'(' til(' ;tCkililtagl's 01' dC'('('litralizatioll;.l SOIliC' pcoplc argllc' that
IIIO/'(' l'l' litrali/il('ill1l ill 11('('(lt-tl to tlc\'c,lo[) and illlplclllCllt stratq.>:v in
12 , TllIlJlI 'lS J I'dns alld 1(0" ('1'1' II. \V"I'I 'J'iliil ll , [II SI'fll"-/1 or 1':xU '//I ' I/I:(,: i "I'SS(JI/Sfi-O IiI
; \/I/I'r im:, 13r-sl-111111 ( ;"III/)(l lIi('s , Nl '''' Yo rk : Il il l'p('r ilnd now, 1S)S2 , p, 20:3,
tll('s(' (h-11<l11Ii c ti li ll's , I'>:prcs" Y0 111- opil1ioli, illlll illnstratl' it with (," lI ll ­
J:l. \i:lsilak i 1IIlili , !\.fli::I' II , Nl w YoJ'k : I'vlc(: ra \\'- Ilill, H)i)4,
pl( "s, \-\lll('li wO lil (1 )01 1 rt'COlillli('lltl tllilt till' ('('Iltrititc'aill lise a i'acilita­
til'I ' ro ll " riltlwr thall impost' its ,Itlvicl"? 14. T!tIJllliiS 1\ SIt 'II, lIt , " lk-l 'llgilll'I'J'illg: Till ' Itot N t'1I' i\-I '"lilgi llg Tool ," Pori II III',
,\ 11,l.!,II SI 21, I ~)!J:3, PP 4 1- 4S,
:~ . Elililliltl' :\I illt/ hcrg's eas)' stq)S to dc'stroyillg valm', \Vhich i" thc Illosl
l!l, I{"I H'rl Sl rill );('I', " llo\\' ill tvl il il age Hiltlicill Illllo\'alillll ," (.'({lifiJrI,i({ M f/lwg(,II!(,II/
l 'OllllilOl1 sk[);.l
/!,'/'il'l{', SlllIlllll 'I', 200", P[l, 70- SS,
4. (; l~ 's .lack \'\ '('Ieh I w li l'\!'s that pl'opll' arl' til(' llloSt importill1t il1glTtlil'liI
to SIJ('Cl 'SS , \ Vhil[' M t' thl' ill1plil'al'iom of' that 1ll'lid',l
5. ASS IIIII C' t hat VOII art' CEO o f' a C() llIp:lm lik!' I ,('apfmg, w lli ('11 s(,l l.s
t-' ntr-rt;Jinin g , l'lt-dron ic- l l<Isl ,rllc'ilrtlillg dl'\'ic!'s Ill r l' II Sio IIIC 'rs rililgill,!.!;
['m i ll illhlli h l () Ili :-,,'., 11 sl, ll oo l slll(l l' llI " 1)I'sni l H' IIIl' (,I till ll(' \'(1 11 1\-( llllll
liJ, (, [0 ti ('I (,lojl ;l1l1 llllililli:lill. II,o w \\ (l lIlti \ '0 11 ti l) 111:11':'
 CASE CHALLENGES FOR PART V
Chapter 16 Organiz.ationallssues 327

Future, creati ng 8ll orga nizational environme nt to foster innovaho n and growth, amI
cOJitriblltin g to a better glohal society. Th e initiative was relaunch e d ill 1996 after it
received little initial traction. As part of the relau nch, Lee in 1996 set up a training
cen ter lor ill f()J"lllation-re lated in frastructure topics.
The re were several key aspects to the imple mentation of Yun 's strategy f<lr
Charting a Risky Direction Without Internal Support Samsung Electronics. ODl~ was (h e hiring of Eric Kim to be the global marketing
SAMSUNG ELECTRONICS head in 1999. Kim, who left Korea at th e age ofthilteen, had an e ngineerillg and m<lr­
kt'ti llg hackground. I-Ie was determi ned to get the global silos to be 011 the same page.
Salllsll ll g Electronics, which lwgall ill ] 972 as a 1I1allU hctll re r of dl(-:,Ij1 hLlck-alld-whit(>
Toward that e lld Ite c()]lso lidated the disparate llllsin ess operations and dro ve toward
televi sion sets, had sales (>I" over ~J4 hillioll and a net pro~t of ~5. 9 hj lIion in 2002- lcss
a sillgle visioll hased on the new cool, upscal t' Sa msllllg brand of tec /rllology I(>ade r­
than Microsolt's profits, hut 1I)0re thall 113M and Nokia (who ranked third and I<Hllth
ship in digital conve rgl~nce. T-Ie replaced the c( lI[lpany's rirty-fi ve ad ve rtisillg agellcies
in indllstry proFitahility). III part dllt' to its product Il>adership , Sall)s llllg achivved third
with one global agt'llcy. In part to emphaSize the glohal fllture or the Firm, Kim 1Il'lde
place in worldwide Il)ohile handset sail'S (aFter Nokia, and c10sillg in Oil lVl otowla I<lr
his First big prt~sentation in Korea to fl)llr hllndred top Saillsung managers in English.
s('cond ), Iwcaillt' the second leading selle r 01·se l1licondllctors (alter [ntcl) , and was the
Anoth e r initiative was sponsorship and advertising. Yun be lieved that th(-' new
largest fl),lnlri ildllrt'r of (-e l(-'vision sets alld compllter Illoilitors in the wo rld.
S<lIllSlllIg cOl rld best he CO IlHllllni cated hy sports spollSorship. The logiC was (hat
The Samsllllg prodllcts de livered j"llnction alld morl'. F'ronl plasn1<l TV scn-'(·' IIS to
sports COIllPl~ titioJl , whi ch invol ved hard wo rk by athle tes strivin g to achieve their
mhotic vac ulim cleaners to rd·riger<ltor-frt'ez(>rs that tell YOll whe n YOli <lrt~ low on Illilk
highest potential, sllited the industry an d th e associations that Samsll ng wa nte d to
(-0 hracelet c(' 11 phones, thc), were cool alld had a hllzz ahout th e m. 13l1sill ('SS l\f('d: I"('C­
nllrture. Sports also provided a stage to deillollstrate technolo,l,'Y Samsung sponsore d
ogni;r.cd Sall1s11ng as tlte top illl<lrlnatioll technology co mpany in till' world, and its
s(-,veral ('Wilts, illciliding the 1991) Bangkok Asian Gallles , hut the crown jewel was
I>rand was vahled hy Interhrand at ~S.J hillioll (ranking tl Iirty-I<)1 11th ill the world). Tllis
tht' spon so rsltip of tlw OlympiCS, st;lIting with th e 1991) Winte r Camcs in Nagano ,
pe r/<mnallce was astolll1dillg, give n (·hat only rive years l'arlie r Salnsllllg was Fillallcially
Japan. [n 1999, Samsll llg embarlw d on a ~40() milJion adv(-,Itising e H<)l"[ arollild tlte
crippled in the EIC(, of a Korean economic cri sis alld sO ll1 e had strategic decisions.
hlg lin e " DICn~t1I." This sloga n sigllaled that Sams llng was a lea<1er in the digital con­
In SO Il1(-, n:spcds, it was the wor.~t of tim es ill laIc Hl9() when \'Iln .long Yong
vcrgcnct> world , whic/r wou ld appl y to all peop le and all products.
[)('canw CE O oj" S;lIl1s11ng E lectroni cs. fIc addressed the linancial crisis in part hy
Alnong th e Illisadventlln~s oC Samsllng that contrihllted to tile Fill<lncial crises of
cll tting some 24,OO() t~ 'llployc (-'s , sh'ltting Llctories , a nd selling i>llsilH'SS Illlils. Bllt ill
1997 was its (-:x pcriencl~ \vi(h AST, whi ch in th e early 1990s was among the top f()ur
the tlCl' oj" this adverSity, Iw set the stage for ga ining glob'll leaders hip bye nunciat­
lI1anulilcturers or pe rsonal conl[1llters in the United States. AST was stnlKt;ling to ]';c<'p
ill()"
I' a hold stratl'OV ('-" lip, however, and lwgan losing llloney a(- an alarming rate-in part because its acquisi­
Thl' strakgy had s('vt' ral conlpOIWl1tS. First, S,ll1 lsllng wO lild change its mar\w(
hon of til(' Tandy PC business in 199:] was not mallaged we ll , and also lwca llse its prod­
positio ll in the United Stat<;s alld E llrope I·rom a price-oriented copycat Illal1lr\·ac­
IICt dewlopllwnt tended to be late (t lte Firm missed a Ch listmas selling season one
(1lrcr to a premilJlll-pl·iced prodnct leader whose wares were so ld ill tlw most IIpscal('
war). Meanwhil e SamslIng, which sold :]0 pe rcen t of the complJte rs purchased in
retail olltlets. (Almost no Ollt: Oil Ylln 's lI)allagem e llt tcam agre(-:d with this directioll ,
Korea, tried ;lnd fililed in its cI"f()lt to crack the criti cal U.S. nwrkd, a Llilure attribute d
as it l1leant walking away h·Olll 1Il1ich oj" tlte firm 's business and wOllld be ri sky t()
to a lack of marketing S,IVVY and distrihution clout. Its solution was to inves t in AST in
il1lplemellt. ) Second, Sa msllng wOlild continue its poli cy to 1)(-' vertically illtegratl'<i
199,5, huying the entire cOlllpany in 1997. A Korean CEO, in selted in 199(), institllted
<ll id tllrll it s me molY and co mpon e llt design and nwnufact llring into all assd hy pro­
Il(-'cded manllfilcturing e fficiencies and some co- marke ting e/f()]ts with Disney. \Vhcll
viding direct <lcc(css to th(-~ latest technolo)..,'y. Ne arly all other firm s It'lt tlwt strakgi("
(hat did not stem the tide and an effl)]t to focus on the busitless Illarket fililed, Samsullg
Hex ibility re(lllired moving aw,ly from ve rtical integration. T hird, Sarnsnng wOlild Ill'
hailed out ill December 1991), after hdving lost well over $1 billion.
<l It'ade r in creating n(cw prodllcts desigl1lcd to he distinctive ,md cool ; the orgal1iza­

tion wou ld hecom e milch faster to mall et \·vith th ese products. Fourth , it wOl1ld hllild
the brand, espeCially outside Korea, a st(~P that would be crucial in hecoll lillg (II("
Jemlef in th e Ile ar future.
The new course was somewhat aide d by the new nl ~magemc nt illitia(iv,' FOR DISCUSSION

launched in 199:3 by Let' Klln-lIe(~ , til(' CEO or tlt e S,I I11SlIng CrollP (01 · \\'Ilidl
Sams llllg Electronics is a part). No Ivss thall a toted (" hall gl' ill (II(' 11';(\. (11;d (II(' gro lljl I. 1"1111 1:1<"",·tI .stI11111l1·( lill· hi s IWW s(rategv. 11011' ililportant is orgalliz;l­
t/101l,t;itt , worked, al ld s('I·ve<1 ("ILS(Ollll'r.';, (Il(" illi(i;ilil'(' ill("lll,l<-tI :1 I·"I· II S "II '111;[li(\·, li '>I"" /'111 ill 1,1/·:1 ( :I':(l'.s s(r;ill',!.';v'? I/o\\' v;[l llalll(, is it (() 1",,·(, (III,IIII \-ill
li.sl"llillg ( t) 111;lr"l'I .s , (T";](ill,!C. tli.s(ill('(iv,' ;J(iI-:IlIi;I.t;'·.S, I)('ill .!~ (11( · 1" ". 1 "Ii i(· il>:tI iIIL': (II<" I,,· (·"11", ,,.<" .110 . ' /1 ,,\\· '·:111 (Ill' (:1 -: 0 .!~:li " .stll)IHld Ii)!";[ .' lr;III',I~\·J

:~ >~ (i
328 Part Five Implementation ------------------------------------------------------------------------------~'--

APPENDIX

2. \iVh at are the organizational implications of veliical integra tion and the ------------------------------------------------------------------------------~~

new product program'~ vVitb respect to vertical integration, how wou ld

you make sure that th e component suppliers have ince ntives to beco llH'
efficient even though the ir customer is captive?
3. How would you change the reward system to reRect th e new strategy? J II Planning Forms

the past, all units we re largely measured on sales and marke t share, How
would you change that, if at ,Jl ? How wo uld you imple me nt any changes':'
4. W hy didn 't Lee's initiative gain traction in 1993? What is needed to
make it happe n?
5. I-low should Kim gain acce ptance for himself and his ideas? \ Vas it risky
to speak in English? In creating a global strategy, would you use a to[l­
down or bottom-up approach'~
\ set 01' s t,lIldard (mn s can he he lpful ill presenting strate)..,,)1 recomm e ndations aJ~d
6. Do you agree with th e logic of the Olympic sponsorship ? How wOltld
~I IJlJl()]tin g analyses, Th ey can e ncou rage the lI se ful consiste ncy of the prese ntati C)1l
you ge t organizational support for it'? [-low would yOIl decide what
1)\'('1' ti IT)e alld ac ross husinesses within an organization, Th ey ca n also provide a
spOJis eve nts to spo nsor'~ Can YOll recomm e nd a diffe re nt strate;..,'Y I()r
(,llI'cklist ol'areas to conside r in st rate)!,y de velopment and make commun ication e<\.,s­
communication instead of the spOlis connection ?
il'1. The l(lllolVing samp le I'onlls are inte nded to provide a point of d e parture ~ll
7. \iVh at was th e objective of the AST ac(!uisition'~ Why did it ['am (I( 'signi Ilg I(lnns for a specific context, The external analys is in the exampl e is dra'vV:Jl
11'(1111 the pet r( )od indu stry The [()]'IllS are 1'01' illustration purposes on ly.

SOllrce: Salll s llng E le ctronics a nnual reports, 1997 to 2002; C lirT Edwa rd s, MODI) IIt!w,III, l'lanlling 1(1rI11 S need to he adapted to the context in vo lved: th e indu stry, tl ' le
and Pe te Ellgardio, 'The Sall1sung Way," /3u.s'incss Week , JUIW 16, 2()(J:3 , pp, 56- Ci], lillll, ~11l(1 til(' planning co ntext. They Illay well be diffe re nt Hnd shorter or I()n g~r
",ill'll a p~lrticllla!' contex t. Forms I(l!' use with other product type s- an industrial
I)Iotilll:t, Itl!' exa mpl e- could be modified to include information su ch as curre nt ar'ld
IH)lcllti,t1 applications or key existing or potential custom ers,

'I'l l E PET FOOD INDUSTRY

S('dion I. Customer Analysis
,\, Segments '---­
" ")~ Jll c nts Mm"kct (Billions) Comments
/ )".~ dill .-
,)".l
-'I
Lllrgest segllJelJt , segm ent er! nutritiollal
offerill gs, gruwillg
/ )",: : -I'({)IIII 'ri 14 Mllr/efrum r/ainl products, e'lC,
((// riJ'JI 2,..J Seco Jldl(lrgest segmellt, nutritiol/.a/ (lfferi llgs,
IIcce/eratillg growth
! '(// ('(111111'(1 / 7 ;vlm/eti"oll! IIl1iJlwl hy-prodlJ(;ts, rilliry
))/'()r!II C/S , ute,
I )I )! ~ I I 'f'( II ,.. . Ui NlliJisCli d'JllliJllltes wit h Milk-BOlle
I', /",)(,Iill//I/ 1/ 1>(Jrgc IJ/III/I'r.l'--Sci(,l1ce J)i et (Inri Tmlls , uses
I'l'is (JIJII )w/s/{)1"('s, IIlwllt 61% r/ogf()()r/,
/I/{!s/I!/ til'll, Iti:~ /1 ;.!, mwlil ({)ver J1 % )

: ~ ~ ~ II
330 Appendix: Planning Form s Appe ndix; Plannin g for ms 331

B. Customer Motivations Cha n L(itcrb tic sl

Segme nt Motivations ~ 1I· a l cg it· G ro up St rategies Stl'e ng ths Weak ne sses

Dog­
dl'll N u l riti on , not m essy , /lot .wn elill, hell/llul , easy 10 se rve , 11'l'th r:ieaTii ng I I) J /ll i l/s/ /"I'({JI/ Mlli llsln;1/I1I pmrillcls • Pr o r/u ction sl'lI/e • /-li!!./I ~fi.red COSI (.'0111 '
/Jrillll/s{roll/. /(/ r ge CI ;( ))/()JI(ir,s II I.illll«lIt 10 ('(I))(Jci l lJ
D og-clll lll cd Fo r ji ni cky dogs, tasle' (/nd Iw l ritio/l va r iet y • I A II:!!.I' ]J"rlfil/io of ill l :reIlV:S I;OIl/)WU,
("()IISlIlIwrfi.rIJl
Cllt--{/ry N u lril ion, healthy, easil to sere e, coIJI} JZement 10 m e(/ /. l eelh d ell II i ng
o)"
)I m illl r:ls • Nll ge I)/'{ ' I'(' I/ ('(' ill
I icc )11'1'1.1'11 r e O il 11//
CI/ I--{.·lIlIn ed TII.vi e alll/n1l t rition , wi will lik" , conve n ien l si:::es. ellsy /0 sa Ge. • II(,({( ;II IISI ' of SIII WI'lllIl l kl'is .

I m idol ntts, wriet ll llri cerlisillg ' Idterl' ,]5% of (I/II/Icrs /0 ricfi' lIIl

i nrillsi rll cr>iI; II l(' S/'IIIT 1/l l'IIu g h

'1'1'1'111.1 C Olllpleli Wl/ t /0 /HI'III, ITlcllrri, II l1im(/ / likl'.\· iI' , ,{t lll c!i(}/ III/ ,III /ril im w! /'r l'lII illl ll / 11 ir:!w Iinl/llo/ill/ IS, I'll'.

is solri
/wll ef1ts j i r orilll'ls
• I )ct'jl g/ol w i ji ll llli' • IJI' I'('('I )/ il ){f liS /I'SS
Pel Sp ecill /UI Hell ith w ll cern , )(;ie ll liji r: nll/ritio n , percei ver/ sll p erior ill g n,diclIls • SI'// 10 //Ili /lifi /e IIlI lrilio{( s l /u l/l S))(,'
I:ill/ n'so /lru 's
d lllll lle/S cill/lrl hrllllds
• CO){III/ii ){WIII III
• i ';II I/I/lIIsis • S"J IITII I.ll r kl'l 1:/, 11/ 1'
ill( //f sl rtl
C. Unmet Needs Oil I /II II/i l If 1/(:/ is /osi llg S/II{/'(' In
i lll/,{'(n ;I'lI wIII o l it er 1:iL{//I/Il'/S

111f( )J'lHa{i o ll o n p ets

• fYr iUl /c /II/w/ ill g III
WII /·M(lrl 111111 1'/.1("
FIlI·th erl /l/m eed s ofscglllcll
. iS ((IS d ef. llw rl fJlj/wllwl/
. IIllf r iti o /l , c.g , allergies)

I(' / /{'/"I' is i ll (T('IISi ll !!,

Puckol!,i ll g/<;i'(lrinl!, COIIVClli cll CC
l; lIi,d""lId '1 )('1-;11/111 • N llr"" I/ 'ill/i )c/(.\'('ri , • tlr or/III:I /ill" FWlls • II ig /lI'r i llgrl'l /i l' lIi
Iwl/i}( )ri/ )/'((I/(/.' / 11'1'111'; I I 111' 1n-in'ri Oil /WII/tii. nil/lim / 1I1I r! j l rtll /II I'IiI!/l. ('ns l ,
V mril/('I hili'S ill grl'{lil'l l ls , llIlri • lle('{' 111 illimriu l'l ioll
Section 2. Competitor Analysis • llig/ I /1 1"1 'SI'I/.O , ill IIl1tl'i l io ll . reS{(/li ll g (If 11/11/.1 illill ,'!,WUTII
11I1I 1,sll jl('rt ll({lkel i ll UTII slml/g 11111 / IIIIISS II/I'rdl lll l ~
A. Competitor Identification (,/'llI rt ll'/S , .1111'/' liS
(''' IISII I/U T r/Cf)/(lW/ : riis!' (-IlI llIlIe/s II l1r·
u'/t'rillllril°{ficl's . /l ig /I'"l lIrgill m/ (.' riiffi T I'1I1 ill l iOIl
M ost d,irccl;llj (;oln]lctiliuc; Nes!:l(; Pu ri l/ (/ Pet CII r e, V el MO lll c, Mil l'S. Less dircct/lj C()J/I '
])('I/ !I'I '"rias 1111(/ /}{f Silll " 'S
• , 1// lll11itlr 1I 111i1 ){ Ut/
Jiclitive: H ill J>elfood (Colgllte PIIIII IIJ!ivc), 1(// 1/..1 (P&C ), J)O(fI/C (s II JiJilier / 0 '.V(f/·Mlfrl)
s/ )(,I'i ll/III slores • I ;i rs /·i n III/mlllllg l' 1'0/1/])('1 i/ o !'s II{'( '
III /l ig /I' I'liri gaing II/in - I /II'
.'per:ill/I II .W'gf) U'II I , .f((s!- g'·( )lci JI g
rl'sli/li ng i ll ({ 'jll'l'ill /I II d UIIIIIC/S
I)('rl'l')ll {(II/ I'I /ge
B. Strategic Croups 1/lIIl slIl lITllwrk l'l
/mlli r/s fiw/ r/it71nrl/
Sh'ate gic Group Major Competitm's ShalT 10 (l Cf'rU!II/I'
(J ) MoilllilWll 1I /;/'{/ /fris [nJl /L Nesl/l; P ll ri no Pl'l cllrr: .:J()'!' • Sf,1I tlIIVUg/1 II/ li T '

III rgc I:OII SlI llI c r f i r ilLS MIIFS II'i: 1/1I /.iIA'dW lI l/ cl l· ,
Icitil-/I lire gml ci ll g
De/ 1H ollte 7(A
flls ll'r ({nri li re /I'SS
(2 ) H ig iL' ('nd spccial/II /mllu i.\ llllllS (P& C ) II '" ' ('() I 1/) I!'t it it ;!' II lId

H ilr~ ( Co/gllle'PII/ll w/itA ) 1:; '1, uffer /ililil ed I{( 'I;I'SS

In ol/lI'r /n'wII /s, II
(3) Private·/Ilbel /m ll/ d.s Wal· Mllrt II 'i: /JII rril 'r /n I ' ll/ I'll
Oil ter /.r ,',:
3:32 Appendix: Planning Forms ChaJ-acteris tics/

Competitor Strategies Strengths ';Yeaknesses

Characteristics/ Del Mon ic • Emphasis on canned • Economies (If scale, • Helatively weak in
Strategic Group Strategies Strengths Weaknesses ca t and rio!!, treats, low costs brand hI! ildiHg
but competes in IIIl • Efficient riistrihlltiOll • Milki.lIg strong
(3) Privute-/ahel pel • Sell through multiple • High volume and • UNle hmlld segments of lIulrket system hmnds, su ch (IS
ji)()r!s supcnllllrlw ts Ilnd low unit costs (hffereltiiatioll • Lou;-c()st prod/lcer 9-Livi'S
nutss 7Ilenliandisers • Profit IIwrgins • Luw-nwTgin
IIllder hOllse hrand
stralc{!,lj • Lack of pTodur:t
an: attractive to lJllsilli:ss iIl1l.011(JtiOJI
(lesigTlatioll retailers
• P(ncer of IVal- Mori M ars • Dog.«)ocl expertise
• InlernatilJrlllll!j donl.i­ • L ack col food of
(IS n/tmber one Hal11 under smile • Economies (lscale , !'Xllcrlise
relailer (Wa!-Mar(s hrond I/anl('s (IS in lite low costs
01' Roy h(I S 1Ii% of Unil ed States
• Deep./in(lncial
tlw I/wrkel ) • Commitment 10 build­ res()'I{.rces
ing hmn ds
• l 'riGale fin II gives
• U)igmrling S(11) ennllr­
freedml1 from short­
C. Major Competitors IWi hrrtluls for ll re­
terllL pressu:res
Characteristics/ minllt a}Jpt:lIl
• P({ckaging
Competitor Strategies StJ-engths Weaknesses renovation
!Yesflt; Purina • Overall llli/rkel lead('l~ • F.corwmies of.w;ale, • \in ClII(fwd 1)('/ ! )UIII w I'mr/ucts • La rgesf pl-ivatr:-lahel • f eonoillies ,,{scoll', • LOlC-I/I(frgin
P('/core venjl) mw l ll'roillld lou; costs . .«Iod IJIIsill('ss pror/ (f w r ill lhe lme GOsts . Inl siltess
line • S(f]l]l/y-c/will • J,(lek ()f
I mc IJrud Un ited Slates • D e7)C1Iricli/ 011
• Incn:ilsing (:inplwsis Cfficic1tcies (f(:/ inlioull/iOIl Wlfl-J'V/llrl
(I'll niche llrodn ct l'iru:s • J ,('SS dl'l;r:/o]lf'r/ i ll
({/((/ lJl'gror/(' ofJlror/­ II( nls«}wr/«((1 rkl'l II il/\ I' d/ilor/ • L ear/er in spccially • Lr:llIling recillicn/ • No IJlTsencr: ill
/lGl s /0 )lTeJlti(UII status dllUlllels luul v el IlIlIrkds of 1A'lcrin({rlj SII }Wrlllllrkels,
• Pro/iferof io1/. of nelC • Enlrlj /Jarrien ill (lel 1:r:ClIIIIIIWII I/~11 it )11 I!)/wrr: 42% of
• \Veilk ]lr('s('l ICI' ill
IJroducls . s]lecial/y scgW ('II/ IJIIsi.lli'sS «n- Science • BI'Sl niciU:-III(f rl((; / illiluslnj
il sold
l;"lifll/('
• Mossi ce aducrtisiug Oid hr(l;,.d product l)osiliolling
(I lUI )lrm/loUolw/ ill tI/(~ indllslrlj
s)wudillg 10 Ilmle(;1
s!t({re I(I)IIS ( /'0'(;) • Trl/(liI iou.alllj a .1')11'­
• Occ}ljin({/I.('i({1 • .')lroll'gie-til "{III'/
ci llily IIwTkel brilnd, reUJI(rses jillJ(/ ill I)"r/./('/ill
• I-Ugh COl/ifni/melt!
witl, em)lhasis 011
• Dec)I f,wlllci(l/ sp ecialt y-store sa.les
reS(Jurc;es and n4;~rrtlls from
• Collt)l(!lty t(lkes long­ pel hreer/ers .
lenn Dietl; l!rand­
OJI • iV! oved to grow ry and
hUildillg efforts; high ITUlSS IIwn:lwllriise
leuel of cOlI!mitment c1l11 llnei1citich stimu­
to hrrind, lateci gnJlclh
• Glohal commitment
10 Inti/ding bmllds

:tTt
:334 Appendix: Planning Forms Appendix: Planning Forms 335

D. Competitor Strength Grid Section 3. Market Analysis

A. Market Identification: The u.s. Pet Food Market
B. Market Size
.Y 1990 1995 2000 200:3
C\l

~ ~ U~ ~ ~ U~ ~
U S, indllstry \'(/l('s (oS ill /JilliulIs ) 7.7 9] 111 lUi

jl Emerging Submarkets
• Special diet-base d products

~I ~ uI u~ I ~ ~ f
• vVal - Mmt and otl1l::'r pri vate -Iahel products

Market Growth

~1 ~u~ ll u UU n • SlIperlllarket-growing at 1 pt'l"ce nt

• Spl~cialty store-growing at 13 llcrct'nt annually

~
uI J I u U~
• Mass nwrchandisl'rs-growing at 14 p e rce nt

Factors Affecting Sales Levels

I! Uu • Crowth or pd population

il UU~ ~ I u uI I i
Segments with High Unrealized Potential
• As U ,S, houst'holds spend less for pet rood on average ($60/ye<lr) th,lIl the
rest or the world ($90) , the re Inay b e pote ntial for growth,

-1 c. Mal,ket Profitability Analysis

III ~
I I III

OJ -'OJ ro '­
Q) J
'" -Cra
....
CtJ 'lii'C
Q):lQj 01 Bardet's to Enh')'
~ I zo..o..
~' • Brand ,Iwareness , budget f()r marketing programs , access to distriblltion

il
Q)
chann els, large in vestment required f()r manufactllring,
Q) ~
:ill (»
C\l ill
>
• F or [ld sp<'cialty segm e nt-loyalty to lams ami I-fill 's Science Die t,
'~I
CI) , ill o
o
Q) >
0; c o c Q)

Potential Entrants

;~ ~
o
.-= I t> Q)
C\l
";:: (f)
(»

~o
C\l Q)
~ c
c
c 0
:;
QJ­
• Other marketing giants , sllch as U nilever, might enter this industry iF they
o>
-0 ';::
u c o C\l
""iii
(» (l -5 2 ~ ~ o c
feel it is attractive, However, th e probability of new e ntrants is (:Illite low,
~ ~ o

~
U
'0
-g l 8 '0 '0 >. -
U E
o

'iii
hecause pet food industry is already vely competitive, with lots of incum­
"' I Q) ~ C\l 2
n.
8
LL.
CI)
0;
­
Q)
.r:
'5
.r:
'5 ,£!1
o
'0
C
iii <0
0,(1)
C

ill he nts , and barri ers to ently are high,

E C\l <0 C\l iii o ' C
~
Q)
0; , C\l
Q) Q)
n. c o Q):::>
0.. 1 <I: z en en (fJ i.L () CJ
Threats of Substitutes
• 1IIIIIIail li )( )(II('i"I()v('rs

• 1'()()1i ,,()() k"1i " " I)('('i:llk I'()r pets

lIaq,':;lillillg 1'''''''1 .. rSlIl'plicl'S

(:1(1 \\ «1 " 1: ,1 111,11,'11,1 " , I I: II " '1i willi 1111111,,11 i"()oli 111;lrk<'l s, (;o« s(lli<iali'IIJ ()f"
';(11'1<1", I'" ,[,1 \ ,,[ 1,'\\ «1 )',I"'lii"III ., 1"'I"in ' «II'I" S g r()II'iI I,l'; ,
336 Appendix: Planning Forms Appendix: Planning Forms 337

Bargaining Power of Customers • Introductioll or new products

• Grocery stores, warehouse clubs have strong bargaining power over pet • Breadth of prodllct line
food ~uppliers. • Marketing program
• Specialty stores, veterinarians might have moderate bargaining power. • Cost reduction
• Mass merchandisers (especially vVal-Mart, with around .30 percent of the • Awareness or recommendation by specialists
volume in this category) have strong bargaining power. • Packaging

D. Cost Structure Future i

l
• Diversified [inns have lower cost because of economies in advertising, man­ • Capture the trends of consumers
ufacturing, promotion, ane! distribution. • Packaging
• Specialized Finns have higher costs. • Follow the trends of distributors
t
E. Distribution System Section 4. Environmental Analysis
Major Channels
A. Trends and Potential Events
• Supermarkets are dominant ill terms of qllantity they deal with (:3.5 jlercent).
StJ'ategic Time
• Mass merchandisers handle about 17 percent of lllarket and are increasing
SOUl'ce Descl-iption Implication Fnlme Importance
rapidly.
'/{:d WI ill igir:al New prodflct Ionl/s Limited LiYI.G
• Pet f()ods are effective traffic huilders in supermarkets and mass merchandisers,
/{egfll(l/ort/ [Ili/)()\'(' slrmdardl' Limited Lm.G
• Farm-supply stores arc" locakd in suhurbs and local areas.
ofuJIllent
• Pet stores handle most premium brands and some national brands. /.:{'( II/olllic TI/sel/siiive to Verl/ li//tited Lmc
• Veterinarians handle only snperpremium hrands. ecol/.omic dw I/.ges
,J
Cliliural Thillk of 7)eis us Crowth of Since t.he High
Observations/Major Trends 1Iu.:mhers of SII)) eI7J1'Clllilllll mid­
fil/lLilies . hrands 1980s
• Vets' salcs arc Hat and have very high margins hoth It)]· producers amI [()I'
Delf/ond {i)J- new, [ntroriuctio/l ol
themselves.
Iwu!liI;/ products heoltlu/ )!TO(zlictS
• Specialty stores' sales have increased very rapidly. Users' needs have M nit i7 lie .\71ecia/i:::eri
• The~e two channels have captured high-involvement customers' needs to dicersified segments
feed their pets healthier foods, /)(,lIuIgm]!l,ic H()IJS(;/l(lld {imitation Co ntilll ter! Since the Med-T-ligh
isslowillg inuovation of 1980s
• VVarehollses have gained [()otholds in market-leader brands.
Tlte II II Iliher of cu{s is 'l Jr()r/uct all( i III
illcr('(/sillg If/ore COllll7!llnicrltio1]S
F. Market Trends and Developments thun dogs to keep br(llu/s

• Premium and supellJremiuln brands have grown, and most produccrs <II'(' Tile iJ(/hy boomer releu/I1t
is aging
introducing new products in this area.
'J'/unlls Growth in (he ]ietfood Potential declinc ill POlt-201 () Med-High
• Large manufacturers are introducing new products continllollsly. ilUllistn/ depends on pet ownership
til(' pU]!II/uritl/ of pels vAil 1/(/1)e (I
G. Key Success Factors negative i1llpuct
Present ( )III/(i/ii//(ilil's (;nl(l'ill.~ lI/flrAT! j(}r Tiwre is still mum Sillce the High
I"" 'II/il/ III 11I'IIlIds ,«11- growl" ill mid-J980s
• Brand recognition I': \I )II 1/, I I /I ~ : ,/I, /I 1,'1'i '1!I'I'i(//i,:nl
• Product I{llality I, 1'1 i, , 1/,' /,,1/('/,
I( S('::' II/('II{.\

• ;\cccss to lll:lj()1' challlJ('l.,

(::lill 111:lllI'1 ,,11:11,' ill 1lI'I'IIIillili 1)1':111<1"

 338 Allpendix: Planning Forms Appendix: Planning Forms 339

B. Scenario Analysis C. Strategic Problems

Two most like ly are :
['roblc-Ill Possi hIe Actiol1
1. Little growth in specialty-store am! in cre ase in superpre mium seg ments.
2. High growth in Goth sp e cialty-store and sllperrl remiuJll segments .

C. Key Strategic Uncertainties

• V/ill growth in dem and hlr SlIpe Jvrellliulll sp ecialty prodllcts C<.H1l"inLw·?
• ' ViII specialty stows ' share contilill e to grow at the expell se of Slipe r­ D . Characteristics of Internal Organization
markt'ts?
( :0 111]1011('11 [" " Dl'sc riptioll- Fil wilh CIIIT('n l/ l'roposcd Strat('I-,)'

Section 5. Intemal Analysis

A. Performance Analysis
Ohjectiv(, Ar('a Ohjectiw Statlls and (;011 1111 (' 11(

I. SI/{I'.\' 'i ~ 11 'IH: tlln " "'Y~ [('lll,\, Cilillll"(' , alld pC'opl ('.
2. I'ro/i/S
.3. </1I111i.!!I/\!, J'[;il'l' K Portfolio Allalysis
4. Cosl
5. N!'IL' prodll cts
6. Clis/OI llI'r .\'0 / isfilcl i o tl Ili gh I SHUa S llU h
7. PI'III){!'
8. Of/wr 13IISi IICSS
snu"
jJosilioll
B. Summary of Past Strategy
Low SHUc SBUd
lli g h Low
(vl(frkcl All mcli VCII {,IS

\'ol{': :\11 ~l)lJ ( o.;ll'alq.!,ic hll ~ ill(,ss IInit ) call 1)(' lk, riH('d h:' prnd llcl or hy Sq!Ul l' llt.
 IIp/WIIi/ix: l 'lollllill,!!, h" Ill S :~ - II
340 Appendix: Planning Forms

F. AnalY!iis of Strength!i and Weakne!i!ie!i S('clion 6. Summary of J>roposed S l nt tc)!;y

Ikk'rc-'IlU' C;olll pdc Il Cics/C;0I11[1(,tl' J"l C)' I)di c i( ' Ill'i l's, r\ss('ls/l.ial)ilitil's,
Strategic C roup Stn'il\.(ths/\V('akllt'ss(-'S with l-ks]led to Strategic Crollps /\. Stat e ment of Vi,~ion

Ii"

R. Slra tegy Desc r ip t ioll

C. FinanciaL Projections Ba!ied on Existing Strategy
• 111 1'(' stll1('11l Ohjl'di\ (' Prolhld- IV[arkct
Past I'n's(,lll Pro Jl :ell'd
\\'ithdr<lll'
Operalillg Siull'/IWII./ rvI ilk
Markl'l slum' fvLli II rai II
Suil's
Crow ill 1II<lI"kd sha n,
Cosl oi'go(}( l , sold
Market ('XP,III Sioll
(;J-(),\')" IJI.((./ -gill
Prorliid ("pallsioll i I
H& n
Vertical illtq,; r,ilioI1
Sl'lIillg/lldOl'rl isillg

/'rodlll'l C&;\

• Strat(',l';Y TllrII st,s Prorilid - tvlarkl'l

/)ill , 6- {'( lip _ C&/\

0f!l'nJlill{!, I,mfil Qllalilv

/)alflll(, .'-)/11'1'1 V,tlll('

C:lIsh/l~ lUi II W ill, Inl I' oclls
/\J> iII11()\ -,lti()1l
,vI'! ('IIITI ' II [.II I Sl'is Clol><Ji
Fi xed ((1',1'11 01 ('01'1
Otl WI' ,.1
/\('(' 11 1111."11 I I'd dq li n:ilil iu/(
'\/1'1 jixed 111'1'('/.1' C. Assets and C om pet encies Providing seAs
'l i,la l llssl'l I - Ij()"k {,-lIillI'
/':s/i llw!i,d illlirkl'i 1:lIilw orllssl'is
llO(\ (/)(/.w' -I}()ok will c)
/l OA (/Jlls( '-lIlIIrkcl tlil li e) D. Strategic Position
{is"s or Flillds
NI'i ('II ITelil 1lIIl'is

JiiXl'd IIS-'l'I
01'(TIiIi I'1!- Jlm/il i':. I\ey Strut(~{!,y Initiatives

})qmTilllio ll

Oflwr

Hn'o /l rc(' ~ lie(11I ired

/Volt': H('~()llr("('S I\ 't illin ·d ("o ldd 1)( , \\'(llkl' " " il" 1) ;lI li ("1 11.11" sLlil -.: ()I h;wl..c ro ,ll lt l.. . 41 1 4 1 1 1 Iitl ,,1 ,,\11'. 11
f';wilil I' ","'. " I lC'g: tl i"(' Is (i.( ·. I) r( dil l i... :1 ' I Jlll"n ' «l rill H I.. . I ' 1 11il T I I "( I 111 111 II II ', " 111,1 I I I' l' li
11.'\ " (I I" I'll III

,'\(" \ (' r: d f ( , 11 "\ :1111 \ (':11"

342 Appendix: Planning Forms
INDEX

F. Financial Projections Based on Proposed Strategy

Past l)resent Projected

Opcratill!!, SI({lc1IlI'1I1
Markel shan: ;\amcu, 22.'3 cOll) pd("nl'i es and , 7- 1-), D, :3:3

Sales
AllB (Asca Browil Bov(-'ri), :320 ('0 1'(" 14D
I,i
Cos! of !!,oods so/d
1\hl lOtt Lahoratori(:'s, :30 creatillg bralld , lo Sllpport !!/ m\th slratcgv,
ABC,,')\! 2~JH-:j02
C;ross nUlrgill

H&J)

,;\ ht'l"('J"()1ll hil" alld I~' it c h , 24,,)

'lCCOlilltilig S),Stl'IlIS, Ih, :3OS)
l'xpOliing ur l'Wliall" ill g , 26:3-f-i4

expo Ii 01', 64 ,'-0 ,

I
Sdlill!!/aducrlisill!!,
acqllisitions , I (i, 11-)2, 2i,'5 , :322 kvnaging hrand , I~) I , 2U7-\)9

Pror1i1l'1 C&;\
11('llra, 11-)4 ohtaining li'llli<l , 27:3

J)iu, & (:(}"/y G&/I

adillillistl'ativl' halTi e rs, WS) specialized,21-),')

adillillistl'ativl' dist'lnCl' , l\!\! ,<.;tratq.!;ic, 7

Operalill!!, I'm/il

advCllltagc, Sec ii/SO sll st'lill ah l" ('O lll[1l'liti vl' lIST. :327
13({/a/ll,T Shed a(han!>lgl' (Se A) tltkillS "dl'<llIt<lg(" r:n
C(lsl t.lA lUi 11["'('1 11 ( J/'II cost, 120, IilO- S:) 11'1'&'1', I ~\), 2,%, :,12, :31,')
;\P crl'at illg, 141 - 5S) <Iii ril)lIlcllll'lldit posiliollillg, 22()
/Vel (' /IIT('II/ IIS,I"!'/'
ri r.SI-II1(I\'" 1", I ~)O tllldi,74
",lIower, I ~) I ~ Lllt()n()1I101IS grollps. :10,
/,'ixerl (/ssr:is 01 cos/

;((I vc rli sillg , sitar" d , I ~)5 avcrag" l'()stillg, 12()

;1(;('11-11/11/111('(/ riq)}"I'('ill/ iOll
age pallerlls , 2.'5 fll'l'rv, Sl'wl'lI, :,
NI'l./i,Her! (lS,II'/S
;t(((f rC(fatioli. ;)
,-'h h
;\\ 'is: 2:"3() , 25.')
'/()/III (ls,I('I.I - lmok VII/ II (,
'lid)()rJ1l' E xpn '.s.s, 2\):3 1\\'011 , 271
II i I' I V iscoli si II , (n 11rl'ast (;;111('('1" (;1'llsa<l(" I()(,
/';s/illlli/Cr/ /I/lIrlle! wlll(, o/"lI.\Scis
l la.ska IliriilH'S, 2S):3 ,I & IV, I Wl
H();\ (IJ(lsl'- lmo" W/II!')
II klla t\ IlIlllilllllli , 2~n
!lO;1 (/)(1,1'1'- )1/11 }'kd["lI/ul' )
alll"lt , 110 ("a ni \' 1I10d " l , 205 backwa rd illll'gratioll , ()4 , '2:-;5
Ust's oI I'll 1Ir1.\' ,llliall c('s , 2,7, :loS- H, :122 Ihlall l'( ', (-i()
Nr:i (:II/T('III (Isseis strat(,gic, 201- 1I ball jars, 2\)4
Fi.,y!'!/ (/.\'s('/.s s;'IJ('rgY'llld , 141-)- 4S) Ball;llla IlI-pllhli(', 222 , 2:3 1

O}wl'lllill!!, })}'(Itil
II lIi l,d Corpora tioll , 274 Bal,k or{11Ilt'ril'a, 5~) , 7:3
,llls l at(' IllSlIr'" ll'l', 2(iH- 70 Ihll(jlll't, 7~)
J)('I'}'n:i(l./i(1I1 alll'I'II'ltiv(' 1l1;II-kds, lii2 Harbi( ' doll , 225, 21-)2
O//r!'l' ,lllla"oll, (i, 7, 11:1, J4U , 171. 1,') 1, (.')2 , 2 14, 22~) h;lrga ill pri l't', ohlaillillg, I()I' hllsinI'' ', 271--12
/t(;s(l li/"{:n J-i.(;(I"i}'('(1 111(('I'icall Iliriil (('S, 17,'1 , '2..5:1, 2~n ilarndl , Stt'\'l ', II ()
I IIl('ri(";1I I (;;111, '2,') 7 harri e rs
11I1I'li('all 1'~s l)J '''ss, 1,')2,2:30 , 2:3J adillilli slrati "l" I \!~)

111I('l"i"a Olllil\(' (tI<)L), 71 , 1-)7, \!~), l4~) ('n try, 16,K7

11111"'.1 , I ql cx it, I b, 61-), 2K4, 2,l-)i- KK, 2D I

1I1<II'l'II,' Ill ud (l 205 i Illpi(, IlH'lllatioll , 152, 2~) I

,llIsoll. I gilI', I I) Iliobility, ill stral t'g il' gn)llps, 62

1111,1" CiIlIII""('I', (i4, iI) , ill, il7 , Wl, 100,10:1, tradl', Hm, 2()1-)

Ihii, I()q , I \! I
Barlll,h , l) erl1ard lVI" 177
\I i( :( J, '2 I
Bask ill-l\ohhillS,201
Irl<" , ,,):1
Ihst(,J",211)
11111 i:\: Ilallllll<'r, '2 I!), '2 :, 1, 2:-;2
ILI\('I', ,'l(), I (i:1, 221
I IIl1sll "" ,~ [{III" 11' 1', I '<ili
Ilt":<: ~r()\l"tll-sll'IJ"(' IIlatris, 12,
I 1\( )(, :~ I
1"'I(("IIIII.II-1<illg, 121
\ \, I II i ..., I I I)e I' I ) 1'\ I ~ I '(' I \,)
1\"".1",271
, 1' , " 1 -j " 1l('Il('Ii!-.;
. 1', 1.,1.1', I d 1'11111 1 1('/1111 HI I I. \ ill (I.·fillil !)', \ / ' ,1',111('111'-. It)
I II •• II. '~It I 4' Ill( d I() 1l.11 ) I ~; 1\,

:11:\
342 Appel1dix: Planning Forms
INDEX
F. Financial Projections Based on Proposed Strategy

Past Present Projected

O}JI: mfill{!, StilfellLl'II1
M{frkel sharI' l\al!lCO, 22:3 CC)ll,[WkIiCit's alld, 7- !-;, ,), :3:3
Salt,s ;\lll) (Asc-'a Brown I)owri), 320 cme, 1-19
"hhott Lahoratories, 30 tTealin~ hral1(\. t() '"[lp()rt growth sITa l,-'I-."' ,
CosI of {!,oods sold
ABC, 59 299-:302 ' ,,
Gross IIwrgi li
AI)('rnolllilie alld Fite\" 24K exportillg or exchal1gillg, 2():3- ()4
H& /) acc'ollilling systellls , Ih, :30,) "xport Ill'. h4

SI-Ili "1':/(1(1 u'rtisi III.'; ae(l"isiti()lls, I (i, 1i.,2, 2/5, 322 It,vt' ragillg hralld , J 9[ , 2~)7-')C)

Prodlle! G&!\
ACllra, I K4 ()h[;lilling liqllid , 27:3
adll1inistl'ative h"rriers, 199 s[)('ci"li/ <,d , 2KK
/)io. & ('(Jrji G&/\
"dnlillistrati\'(' di stalllT , I lJH strategic 7
O]!erlifilll.'; l'm/i.l
,,<i vanlage, S('! ' II/SO slIstaillahle COIII[H'lil'i\'l' AST, :327
/3l1ll1l/1il' SI/('(:I a(k;lIllagc (SeA) AI killS A(kailiag/' , 1:3:3

ClIsl ,I; \ lVill (",1:11 I I 1/'1/ eost. 12(), I KO- In AT&T, I ,jC) , 2Sh, :312, :31 S

AI'
neali " g , 141-5<) allrilllltt'/hl'IlC'lit [lositi()lIillg, 22(;
rirst-lIl m'c r, I~)() i\1It1i,/4
NI'! currl'l/l IISSr:/S
li,l\o\V" r, 191 ~l lIt()11()1l1()11'" grollps, :1(),
Jii..r l'lllIssI'ls III li{)sl
advertising, , hal'l'(1. Il)::; <l\ 'c r ;' L.e:c ('ostillg, 120
; \ I,(,( llI llIlo ll'IIIII'}))'I'!iill/ioll (Ig( ' paltCrllS , :2:5 ;\V('I'V, Sc,\\C'iI, :3

Nd fired 11.1.11:1.1 Cl{flfn'(falioll

,~ ,~ l~ ,
5 /\\' is , 2:')[) , 2~.5

'/iI/III assels- Im"k 1;111111' ;\i"')1""1(' !':\pre,ss, 2 c):j t'\"() I I, 2,/1

Air \ViS(,OIISill, ():3 lln,,,,sl C:"'1C('r C,.,I.,,,d(', I hh

/';s!i/lwlcd (/wrkl'f Utili!' O{lIssl'fs

;\Iaska ;\i"'illl'S, 2'):3 A & \\', I,,):}
H()A (I}(/M,- Im"k witll' )
Alcoa ;\llIlIlilllllll, 2~n
H(); \ (I}(/s!' -/l/(/rkl'f vIIIIII ) all hal, n() cattle 1111 ,ell'\. 20,') ha('kw;II'c\ illic'gr"ti()n, h4, 2.55
(lSI'S I If ['II lids "lli"IIl'(", 211, :30S-') , :122 B;i1alll'(', Gil
'lid ('IIITI'lli 11.1.1('(.1 st rategic, 207-1 I hall pr.s, 2~H
wllerg), alld, 141) -49 Ballall;l H" jlllhlic, 222, 2:,1
Fi,rl'llllssl 'ls
O}wmli lll.'; I)m/il
1\lli('d Corpmatio n, 2/4 B,,"k or 1\ IIll' rica , ::;~) , 7:3
Al lst" te I 11 S lira II c(' , 2()U-7() Il; L1)(I'I('[, 79
/)I'j)rnililio/l ,,\tel'llali ve Illarkl'ts, I (i2 Barhi(' d() l\ , 22.'5, 2S2
Otlll :r 1\ II W()11 , () , 7, 1l:3, 14~) , 1/ 1, I K I , I K2, 2 14, 22~) harga ill pl'in ', ohtainiflg, ICII" husillt'SS, 271 - 72
Hcsol(,ru's 1\('1111 ired ,\lIl{'riC;lIl )\iriill{,S, III), 25:3, 2~n l3al'lldl, SI('\l', 110
,\llIc ri ca n Ca ll , 2.:)7 l I< lITi c rs
'\'lIl' ri C<l 1l E xpress, 1-''52, 2:30, 2:3 1 "dlllillisirativt', I')')
'\IIIl'ri ca Onlill/' (,\OL) , 71, 1)7, 9~) , 1. 49 ('1l11'Y, If), S7
\111[1<'\ , I~)I exit , IG, hK, 2K4, 2K7-,,)K, 291
,"I:lrchy Illm[el, 20.5 illlpll'lllt'lltalioll, 1,,)2, :2~)1
i\ lIS 0 IT, Igm, I 0 mohilitv, ill slTatcgic g'(III[1S, (i2
Apple C()Il1[l"tt'I', (A, 70, S1, S7, 9:3 , lOO, 10:3, trac\e, 19K, 2(1)
IGri, I (i9, 191 I'l;,rllch, Ikl'll,ml M, 117
,\ I{CO, 24 Baskin - I\()hhins , 20 I
;\ rial', .'5:') B"xtt' r, 2 10
'\ 1' 111 & I LlIl1llWr, 249, 2 ..51, 2.52 B"yt'r, SO , ifi,] , 227
; \ ,' II 1St rollg Rllhher, 11)6 Bee gmwth-,j,arc Inalri x, 127
,\1()C:,24 hl'IIClllllarkill).!" 12 1
.\,,,I,i SIIP!'I' Dry Bet'r, 1)2 Il, 'lid ix, 27,,1
:1." . . ( ' 1,\ I" '11\'1il\
,IS 1);ISi s ()1"411 11lI H' lilioll , 11 :1 ill t! ,·lill lll l'; ', I ' I! lIlI'lih f()
1 )1 II 1\, )')() 1 ' l t lllli()lI : d h,
:In