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Competitive Advantage in

Mature Industries
OUTLINE

Key success factors in mature industries


Strategic Implementation: Structure, Systems,
Style
Strategies for declining industries
Competitive Advantage in Retailing: Retailers with
the Highest and Lowest Valuation Ratios

TOP 15 Valuation Sales BOTTOM 15 Valuation Sales


Ratio ($,bil.) Ratio ($, bil.)
Amazon.com (US) n.a. 3.9 Toys-R-Us 0.6 11.3
Caremark Rx (US) 18.0 6.8 J.C. Penny (US) 0.7 32.3
Expedia 16.6 0.6 Federated Dept. Stores (US) 1.1 15.4
Autozone (US) 13.1 5.3 J. Sainsbury (UK) 1.1 29.8
Hennes & Mauritz (Swe.) 10.5 5.9 Ito-Yokado (Japan) 1.1 28.0
Next (UK) 10.1 3.6 Ahold 1.2 78.3
Bed, Bath & Beyond (US) 8.5 3.7 Safeway plc (UK) 1.3 29.8
Woolworth (Australia) 8.0 16.0 Pinault-Printemps
Gap (US) 4.1 14.5 -Redoute (France) 1.4 32.2
TJX (US) 6.9 12.0 Sears Roebuck (US) 1.4 41.4
Inditex (Spain) 6.8 4.7 Dixons Group (UK) 1.4 8.0
Wal-Mart (US) 5.7 244.5 Albertsons (US) 1.5 35.6
Radio Shack 5.6 4.6 May Department Stores (US) 1.7 11.9
Family Dollar Stores 5.1 4.2 Office Depot (US) 1.7 11.4
Best Buy (US) 5.0 20.9 CVS 1.9 24.2
Kingfisher (UK) 2.0 17.6
Key Success Factors in Mature Industries
Opportunities for sustainable -- limited potential for differentiation
competitive advantage are -- technology stable and well diffused
limited -- ease of entry due to well developed
industry infrastructure and powerful
distributors
-- international competition : domestic
cost advantage vulnerable

Sources of -- Economies of scale


cost advantage -- Low-cost inputs
-- Low overheads

Segment and customer -- As general industry environment


selection deteriorates, important to locate
attractive segments and woo good
customers.

Sources of differentiation -- Emphasis on image differentiation and


advantage differentiation through complementary
services.

Sources of innovation -- Limited opportunity for product and


process innovation but considerable
opportunity for strategic innovation
Sources of Strategic Innovation in Mature Industries

Reconfiguring the value chain: - Benetton and Zara in clothing


- Southwest & Ryanair in airlines
- Dell in PCs
Redefining markets and products - Swatch in watches
- Starbucks in coffee shops
- Barnes & Noble in book retailing
Innovative approaches to - Virgin Atlantic in air travel
differentiation - Sephora in cosmetics retailing

Who are the strategic innovators?


New entrants - CNN in news broadcasting
- Nucor in the U.S. steel industry
Existing firms on the periphery -Sun Records in rock n roll music
Firms from adjacent industries - Prudential Insurance in banking (Egg)
Why not leading incumbents?
They are constrained by industry recipes, relationships with existing
customers, investments in resources & capabilities linked to past
strategies.
Product, Process, and Strategic
Innovation over the Life Cycle

Product
innovation
RATE OF INNOVATION

Strategic
innovation

Process
innovation

TIME
Strategy Implementation in Mature
Industries:The Traditional Model

STRATEGY - Pursuit of cost efficiency through


mass production
STRUCTURE - Functional departments
- Line and staff distinction
- Job specialization
CONTROLS - Quantitative, short-term performance targets
- Hierarchical monitoring and control
- Standard, formalized operating procedures,
reporting, and management by exception.
INCENTIVES - Emphasis on financial incentives linked to
individual performance
TOP - Primary functions are control and
MANAGEMENT strategic decision making
- Two main styles: politician and autocrat
The Competitive Environment of
Declining Industries

Features - Excess capacity


of declining - Lack of technological change
industries - Consolidation (but some new entry
as new firms exit)
- Old machines and employees

Smooth adjustment - Predictability of decline


of capacity Durable assets
depends upon
- Barriers to exit { Costs of closure
Management
commitment
- Strategies of surviving firms
Strategy Options in Declining
Industries
LEADERSHIP Establish dominant market position
-encourage exit of rivals
-buy market share through acquisition
-acquire capacity
-demonstrate commitment
-dispel optimism about the industrys future
-raise the stakes

NICHE Identify an attractive segment and dominate it.

HARVEST Maximize cash flow from existing sources

DIVEST Get out while there is still a market for industry assets
Strategy Alternatives for a Declining Industry

COMPANYS COMPETITIVE POSITION


Strengths in Lacks strength in
remaining demand remaining demand
pockets pocket

Favorable LEADERSHIP HARVEST


INDUSTRY to or or
STRUCTURE decline NICHE DIVEST

Unfavorable NICHE DIVEST


to or QUICKLY
decline HARVEST