Chapter 8 Business Strategy and Competitive Advantage in Different Industry Contexts Copyright ©...

Chapter 8Chapter 8Business Strategy and Business Strategy and

Competitive Advantage in Competitive Advantage in Different Industry ContextsDifferent Industry Contexts

Chapter 8Chapter 8Business Strategy and Business Strategy and

Competitive Advantage in Competitive Advantage in Different Industry ContextsDifferent Industry Contexts

Copyright © 1999 by Harcourt Brace & Company

All rights reserved. Requests for permission to make copies of any part of the work should be mailed to the following address: Permissions Department, Harcourt Brace & Company, 6277 Sea Harbor Drive, Orlando, Florida 32887-6777.

Bourgeois, Duhaime,

& Stimpert

Copyright © 1999 by Harcourt Brace & CompanyAll rights reserved

Chapter ObjectivesChapter ObjectivesChapter ObjectivesChapter Objectives

Describe characteristics of emerging industry environments and special challenges they pose for firms seeking to develop a competitive advantage in those industries.

Describe the advantages and disadvantages associated with first- and second-mover strategies, and identify some of the factors that are essential to success in emerging industry environments.


Exhibit 8.1Exhibit 8.1: Industry : Industry Life CycleLife Cycle

Exhibit 8.1Exhibit 8.1: Industry : Industry Life CycleLife Cycle

Dem

an

d

Time

Emerging

Gro

wth

MaturityDecline


Chapter ObjectivesChapter Objectives (cont.)(cont.)Chapter ObjectivesChapter Objectives (cont.)(cont.)

Examine challenges associated with achieving and maintaining competitive advantage in mature industry contexts and describe specific ways to improve competitiveness in mature industries.

Compare and contrast the characteristics of manufacturing and service businesses and describe the challenges of achieving and maintaining competitive advantage in both industries.


Competition in Competition in Emerging IndustriesEmerging IndustriesCompetition in Competition in Emerging IndustriesEmerging Industries

Industry environments are constantly in flux. Managers must decide whether their firms should

be a first-mover.• Whether their firms should be the first to seize and

exploit new market opportunities or whether their firms should wait until another, pioneering firm has entered the market.

• Managers sometimes have no choice.


Exhibit 8.2:Exhibit 8.2: Model of Model of Strategic ManagementStrategic ManagementExhibit 8.2:Exhibit 8.2: Model of Model of Strategic ManagementStrategic Management

Feedbackreinforces or

suggests changes

in managers'

mental models

Managers' Mental Models

+ Industry environments

+ How to compete + Appropriate size/diversity,

how businesses are related,

how diversification should

be managed

+ How to organize

Decisions about

Business Definition

Decisions about

Organizational

Structure

Decisions about

Business Strategy

Decisions about

Corporate Strategy

and Diversification

Market Position,Resources, and

Capabilities

Performanceand

CompetitiveAdvantage


Value of First-Mover and Value of First-Mover and Second-Mover StrategiesSecond-Mover StrategiesValue of First-Mover and Value of First-Mover and Second-Mover StrategiesSecond-Mover Strategies

Not always desirable to be first-mover. Does not guarantee competitive advantage.

Advantages of first-movers: Most important: positive reputational effect with

customers. Can be recognized as particularly innovative firms

which can positively influence customers’ perceptions of products/services.

Have first opportunity to move along learning curve.


Value of 1st-Mover and Value of 1st-Mover and 2nd-Mover Strategies 2nd-Mover Strategies (cont.)(cont.)


Disadvantages of first-movers Will sometimes offer products/services that are

poorly designed or defective. Might also launch new products with inadequate

marketing or promotional efforts. Sometimes customer demand is so strong that first-

movers are unprepared to handle it.




Second-movers have opportunities due to mistakes of first-movers. They can “piggyback” on the efforts of first-

movers, while avoiding much of the initial costs• R&D, marketing and advertising, and costs

associated with opening distribution channels.




Factors which characterize the dynamic industry contexts in which these decisions must be made: Ambiguity of emerging markets

• Uncertainty of customer demand.• Lack of industry infrastructure typical of established

industries.• Lack of industry standards.

Product life cycles can be very short• PCs: 4-6 months• CT scanners: less than 2 years




Importance of three factors for successful 1st- and 2nd-movers: Dominant design

• Much of firm’s success depends of this.– Chrysler and their minivan in 1982.

Imitability• The more difficult to imitate, the better.

Interconnectedness of product requirements and company resources.


Exhibit 8.3:Exhibit 8.3: 1st- and 2nd- 1st- and 2nd-Movers in Various Movers in Various IndustriesIndustries

Exhibit 8.3:Exhibit 8.3: 1st- and 2nd- 1st- and 2nd-Movers in Various Movers in Various IndustriesIndustries

RC Cola (diet cola)Bowmar (calculator)DeHavilland (Comet)

Chrysler (minivan)Searle (NutraSweet)

Dupont (Teflon)

Kodak (instant photos)Northrop (F-20)

DEC (PC)

IBM (PC)Matsushita (VCR)

Seiko (quartz watch)

FollowerFirst Mover

Lose

Win


NutraSweet: A NutraSweet: A Successful 1st-MoverSuccessful 1st-MoverNutraSweet: A NutraSweet: A Successful 1st-MoverSuccessful 1st-Mover

Developed in 1965 by Searle when health concerns were raised about cyclamates. Proved to be “right product at right time.”

Patents expired in 1992, but company continues it dominance. Difficult to imitate (exclusive raw material supply

contract). Company resources interconnected very well to

product requirements.


Challenges of Mature Challenges of Mature Industry EnvironmentsIndustry EnvironmentsChallenges of Mature Challenges of Mature Industry EnvironmentsIndustry Environments

Unattractive characteristics of mature industry environments. Stagnant demand and excess capacity.

• Firms anticipate increasing demand.– Capacity expands faster than actual demand.

– Invites price competition.

Exit barriers.• Instead of being eliminated, certain production assets

are allowed to remain due to the reluctance for restructuring charges or large write-offs.

SeeExhibit 8.4


Exhibit 8.4Exhibit 8.4: Industry Life : Industry Life CycleCycle

Exhibit 8.4Exhibit 8.4: Industry Life : Industry Life CycleCycle

Dem

an

d

Time

ExcessCapacity

Demand

Capacity


Challenges of Mature Challenges of Mature Industry Environments Industry Environments (cont.)(cont.)


Lack of innovation.• As demand slows, managers stop investing in

product/process innovations.

• Has several consequences– Reinforces customers’ perception that industry offers nothing

new that would warrant a replacement purchase.– Products and services appear more and more to be

commodities.

Pressure from new entrants.• Entrepreneurial managers see opportunities for offering

new products or using new technologies.




Ways to improve attractiveness of and achieve competitive advantage in mature industries: Benchmarking and its usefulness in developing and

maintaining competitive advantage.• Defined as comparing and measuring a firm’s

business processes against the best practice of those processes by any organization in any industry in the entire world.

• Object is to accelerate organizational learning so that performance breakthroughs can be achieved.


Exhibit 8.5:Exhibit 8.5: Benchmarking: Benchmarking: A Continuous Learning A Continuous Learning ProcessProcess

Exhibit 8.5:Exhibit 8.5: Benchmarking: Benchmarking: A Continuous Learning A Continuous Learning ProcessProcess

Time

Perf

orm

an

ce

ContinuousImprovement

BreakthroughImprovement

ContinuousImprovement

OrganizationalLearning

Performance

Improvement

Benchmarkingaccelerates

innovation andchange




• Steps in benchmarking– Break down its operations into discrete value-adding

activities/processes (value-chain)

Engineering and Design

PurchasingAssembly and Production

Sales and Marketing

After-Sale Service

Exhibit 8.6: Value Chain for a Hypothetical Manufacturing Firm




• Steps in benchmarking (cont.)– After identifying discrete value-adding processes,

measure those processes and compare the firm’s performance against the best practice of any firm in the world.

• Objectives from any benchmarking effort:– Firm will obtain set of metrics that contrast its

performance process with best practice.

– Firm should gain tangible ideas about how it can dramatically improve its own performance.

See Exhibits 8.7 & 8.8




• The greater the differences or disparity between the focal firm and the firm being benchmarked, then the greater the need for learning and innovation on the part of the focal firm.

Rethinking the value chain.• Reconsidering which links add or could add value

and which links are unlikely to contribute to development of competitive advantage.

SeeExhibit 8.9




Product innovation.• Provide features /attributes that deliver more value.• Have remarkable record of revitalizing mature

markets.– Automobiles

– PCs

Process innovation.• Can be more valuable than product improvements.

– Gillette and its Sensor razor.

– Lincoln Electric focuses on processes that decrease manufacturing costs.




Process innovation (cont.)• JIT production

• Modular designs

SeeExhibit

8.10


Competition in Competition in Manufacturing and Service Manufacturing and Service

IndustriesIndustries

Competition in Competition in Manufacturing and Service Manufacturing and Service

IndustriesIndustries The revolution in manufacturing.

Increasing competition Productivity improvement Benchmarking and value chain analysis Re-engineering and outsourcing Quality

SeeExhibits

8.11 and 8.12


Competition in Competition in Manufacturing and Service Manufacturing and Service Industries Industries (cont.)(cont.)


The growing service sector, the nature of service work, and the problem of service productivity. Services cannot be inventoried. Personal nature of the service “encounter.”

• Based more on perceptions and other less-objective tangible factors.

See Exhibits8.13 and 8.14




Challenges in automating or improving efficiency of services.

• Cannot use the same techniques as manufacturing firms to improve productivity.

• Rarely improved by reducing employee headcount.




Improving productivity of service work. Bundling or cross-selling.

• Involves exposing customers to broader array of company’s service offering.

– Example: bank services.

More effective use of organizational knowledge and learning.

• Example: use of bar codes in retailing operations. Reorganize firms’ structures to eliminate

inefficiencies and bottlenecks. See Exhibit 8.15




Chains, franchising, and competitive advantage in service industries. Tremendous growth over last 30 years in chains and

franchise operations. Blamed for homogenization of our cities.

• Mall in Detroit would have many of same stores as mall in Portland, Oregon.

Many authors blame chain stores and franchising for loss of many small, unique, locally-owned enterprises.




Positive observations of chains and franchises.• Likely to be an important part of our economic

landscape for many years.

• They enjoy several economic and strategic advantages over other forms of businesses:

– Example: economies of scale in purchasing, distribution, and marketing.

• Almost ideally designed to promote organizational learning.

– Duplication of successful concepts.


ConclusionsConclusionsConclusionsConclusions

Importance of managerial thinking and organizational learning in developing effective business strategies. Development of competitive advantages requires

managers to do more than select an appropriate generic strategy.

Responsibility of managers of firms operating in these different industries to acquire necessary knowledge to formulate and implement appropriate strategies.


Key Points Introduced Key Points Introduced in in Chapter 8Chapter 8Key Points Introduced Key Points Introduced in in Chapter 8Chapter 8

Managers of firms operating in emerging industries face several challenges. Great deal of ambiguity and uncertainty. Short industry and product life cycles.

Neither first- nor second-mover strategies are necessarily optimal for firms operating in emerging industries. Both have advantages and disadvantages.


Key Points Introduced Key Points Introduced in in Chapter 8Chapter 8 (cont.)(cont.)


Ways to improve competitiveness in emerging industries: Producing products and services that become

dominant in industry. Producing products and services or developing

processes and capabilities that are difficult for competitors to imitate.

Possessing important interconnected assets. Managers of firms in mature industry environments also

face difficult challenges:




Stagnant demand and excess capacity. Exit barriers. Lack of innovation that makes products and services less

attractive to customers. Competition from new entrants.

Managers of firms in mature industries can take several steps to develop and maintain competitive advantage: Benchmarking. Rethinking the value chain. Product and process innovation.




Close management attention, appropriate use of technology, and development of organizational routines and standard operating procedures can lead to major improvements in service sector efficiency and productivity.

One of most important reasons why chains and franchises have enjoyed great success is their ability to accumulate, store, and apply organizational learning to enhance efficiency and productivity.

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