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Competitive Advantage in Mature Industries

Competitive Advantage in Mature Industries. Key success factors in mature industries Strategic Implementation: Structure, Systems, Style Strategies for declining industries. OUTLINE. Competitive Advantage in Retailing : Retailers with the High est and Lowest Valuation Ratios.

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Competitive Advantage in Mature Industries

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

  2. Competitive Advantage in Retailing: Retailers with the Highest and Lowest Valuation Ratios Toys-R-Us 0.6 11.3 J.C. Penny (US) 0.732.3 Federated Dept.Stores (US) 1.1 15.4 J. Sainsbury (UK) 1.129.8 Ito-Yokado (Japan) 1.128.0 Ahold 1.2 78.3 Safeway plc (UK) 1.3 29.8 Pinault-Printemps -Redoute (France) 1.4 32.2 Sears Roebuck (US) 1.441.4 DixonsGroup (UK) 1.4 8.0 Albertson’s (US) 1.5 35.6 May Department Stores (US) 1.7 11.9 Office Depot (US) 1.7 11.4 CVS 1.9 24.2 Kingfisher (UK) 2.0 17.6 TOP 15ValuationSales Ratio ($,bil.) Amazon.com (US) n.a. 3.9 Caremark Rx (US) 18.0 6.8 Expedia 16.6 0.6 Autozone (US) 13.1 5.3 Hennes & Mauritz (Swe.) 10.5 5.9 Next (UK) 10.1 3.6 Bed, Bath & Beyond (US) 8.5 3.7 Woolworth (Australia) 8.0 16.0 Gap (US) 4.1 14.5 TJX (US) 6.9 12.0 Inditex (Spain) 6.8 4.7 Wal-Mart (US) 5.7 244.5 Radio Shack 5.6 4.6 Family Dollar Stores 5.1 4.2 Best Buy (US) 5.0 20.9 BOTTOM 15ValuationSales Ratio($, bil.)

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

  4. 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.

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

  6. Strategy Implementation in Mature Industries:The Traditional Model STRATEGY - Pursuit of cost efficiency through mass production STRUCTURE - Functional departments - Line and staff distinction - Job specialization CONTROLS - Quantitative, short-term performance targets - Hierarchical monitoring and control - Standard, formalized operating procedures, reporting, and management by exception. INCENTIVES - Emphasis on financial incentives linked to individual performance TOP - Primary functions are control and MANAGEMENT strategic decision making - Two main styles: politician and autocrat

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

  8. Strategy Options in Declining Industries LEADERSHIP Establish dominant market position -encourage exit of rivals -buy market share through acquisition -acquire capacity -demonstrate commitment -dispel optimism about the industry’s future -raise the stakes NICHE Identify an attractive segment and dominate it. HARVEST Maximize cash flow from existing sources DIVEST Get out while there is still a market for industry assets

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

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