Business Level Strategy and Industry Environment

1. Business Strategy Session 7
Business Level Strategy & Industry Environment
Author: Anik Saha

2. 2
Business Level Strategy and Industry Environment
Business Model Needs to Adopt & Change to Industry
Environment Changes to Deliver SCA
© Anik Saha
Continuously Develop and Improve Business Strategies through out Industry Life
Cycle and Maintain SCA
Fragmented industry Industry Life Cycle

3. Characteristics of Fragmented Industry
3 © Anik Saha
No Major Company drives the direction of Industry Many Small Companies exist in Industry
Space for innovation and experimentation with
focus
No competition for market share
Wide variation in business practices;
Lack of standards
Low Entry barriers; lower
marketing expenses
Small market, small focus attracts
ignored customers of competition
Decide location; neighborhood/
city/ region

4. Business Strategy in Fragmented Industry
4 © Anik Saha
Chaining Franchising
Horizontal Merger IT and The Internet
Strategies for Consolidating
Fragmented Industry
• Leverages Network of linked infrastructure
• Reduces supplier price through business scale
• Effective strategy for cost leadership
• Regional distribution centers, economies of
scale, knowledge sharing
• Allows right to use name, brand, reputation to
motivated franchisees
• Profit sharing plan against franchise fee
• Faster growth expected without capital expense
• To scale up with merger of stores
• Potential increase in market share
• Leverage IT to consolidate fragmented industry
• Assuring customers a bigger marketplace and
options

5. Business Strategy in Embryonic or Growth Phase
5 © Anik Sahahttp://www.slideshare.net/tasvir007/chapter-8-tailoring-strategy-bus-690
Highest Market demand and Profitability driven by ‘Early’ & ‘Late’ Majority Entrants

6. The Strategic Implications : Big Leap to Early Majority
6 © Anik Saha
Identify needs of first wave of ‘Early Majority’ customers
Redesign Business model, realign GTM & RTM to shift focus:
‘Early adopters’ to ‘Early Majority’
https://reciprocitytheory.com/2016/08/01/marketing-mondays-your-innovation-roadmap-part-4-macro-micro-context/

7. Strategic Implications of Market Growth Rates
7 © Anik Saha
Market development speed at Embryonic / Growing phase driven by Factors
Perceived Benefits by customers for a
new product innovation
Consistent performance to the customer
needs addressing use situations
Minimum complexity & easy to adopt Tangible benefits, convenience observed
• speech controlled device
• Faster and efficient executions
• Saves time
• Customer able to relate to
previous usage experience
Leverage Influencers / Early Adopters to diffuse the benefits to Majority of Market
• Offer free services
• Share advantages/ benefits with
mass market
• Customer testimonials
• Followers to expert’s
experience of usage

8. Investment Needs at Industry Life Cycle Phases
8 © Anik Saha
Investment Strategy to Value Chain at Each Life Cycle
Phase Needs Evaluation on Profitability Returns
Profitability Changes as Competition Dynamics Changes within Industry
Determinants of
Investment Strategy
Competitive Advantage Industry’s Life Cycle Stage
• Strong market share indicates demand
growth, loyalty
• Further investment enhances efficiency
through learning, innovation etc.;
• Builds competencies through resource
• Investment on distinctive competencies
leads to SCA and higher profitability
• Market dynamics changes with
opportunities and threats
• Risk to investment varies with Business
models facing different challenges at each
life cycle phases

9. 9 © Anik Saha
Impact to Investments at Different Life Cycle Phases
Embryonic Phase
Growth Phase
Shakeout Phase
Matured Phase
• High investment needs
• Capital needed to build distinctive
competencies (R&D/ Sales etc.)
• Footprints/ market share building strategy
• Seeks investors/ VCs
• Maintain competitive position
• Extensive investment in resources strengthens business model
• Consolidate on success segment; explore new
• Enhance functional strategies to choose differentiation or cost
leadership
• Prudent choice of area of investment
• Market concentration strategy
• Competition, customer demand intense
• Maintain and increase market share
• Functional strategies to maintain momentum in
differentiation or cost leadership
• Share-increasing strategy
• Outside investment unlikely; leverage
profits for fresh investments
• Maintain-hold strategy
• Defend business model; enter new
segments or Geo expansion

10. Business Strategy at Maturity Phase
10
Established Players Try to Reduce Competitive strength in Industry
Deter Entry Manage Rivalry
Product Proliferation
Price Cutting
Maintaining excess capacity
Price Signaling
Price Leadership
Non-price Competition
Capacity Control
• Multiple players; but a few established ones
• Established players dominating Competitive forces
• Price wars likely
• Maintaining Market share key focus areas
© Anik Saha

11. Business Strategy at Maturity Phase : Deter Entry
11
Product Proliferation
Price Cutting
Maintain Excess Capacity
• Produce in bulk for every segment
• Excess coverage to ensure no gap/ niche left in market
• Product depth/ category growth to cover all potential
customer needs
• Protect customers against new entrants by price cuts
• Leverage experience, economies of scale to drive low cost model
• New entrants with lean tech, efficient cost model, better TCO
benefits to customers competes with established players
• Create excess capacity than demand to deter entry
• Excess capacity marks possibility of price drops
© Anik Saha

12. Business Strategy at Maturity Phase : Manage Rivalry
12
Price Signaling
Price Leadership
Non-Price competition
• Price Signal to competition to convey intentions
• Tit-for-tat price strategy
• Cartel formed in airlines to increase/ decrease prices
• Sets the price with max. industry profitability; others follow
• Price rivalry reduced
• High cost companies become vulnerable to new efficient entrants
https://cdn.evbuc.com/eventlogos/172779099/salesfunnel.jpg
• Mkt penetration:
• Increase mkt share with current/ former/
new customers
• Prod Dev:
• Cross sell new product/ services
• Mkt Dev:
• New geographies, untapped segment
• Diversification:
• Seeks new customers in unexplored mkts
• Leverage product differentiation
• New features, new customer segments, repositioning
helps to break clutter
© Anik Saha

13. Business Strategy at Maturity Phase : Manage Rivalry
13
Capacity Control
• Favorable conditions surges capacity build up by every
company;
• leading to excess capacity resulting price cuts
• Capacity control keeps price away; better inventory mgmt
Factors to Excess Capacity
Capacity control Strategy
Players overproduce with
• Advent of cost-effective technology innovations
• New market segment or regional demographic growth
• New entrants being in market
• Economy recessions
• Preempt rivals by forecasting high demand
• Scale up production with first mover adv. (FMA)
• Drive efficiency through experience
• Risk of vulnerability in case Imitated by large players
• Coordination with competition to set up market demand
• Investment announcement, sharing market forecast ,
production plans to assess and reduce risk of capex
© Anik Saha

14. Strategy at Decline Phase
14
Intensity of Competition Choice of Strategy in Decline
Speed of
Decline
Exit Barrier
Height
Fixed Level
Costs
Commodity
Nature
Intensity of
Competition
• Higher with higher
declining rate of industry
• Higher with high exit barrier;
high capex locks companies
• Higher with high fixed cost
• cost recovery being
important to cover excess
capacity
• Commoditized industry
pushes intensity of
competition
Decline driven by Tech Innovations, Social/ behavioral changes etc.
Leadership
Niche
Harvest
Divestment
• Aims to dominate in declining mkt
• Strength to capture share
• Aggressive price, investment in
declining mkt deters competition
• Focus pockets of demand in mkt
• Slower decline or stronger demand
than overall declining industry
• No capex, no new investments,
support existing prod/ services
• +ve cash flow in declining mkt
• Risk: Losing customer due to lack of
roadmap
• Market declining steeply
• Sell non-performing business
• Sell early to recover investments
with assets still valued
Wired Telecom carriers
Newspaper Publishing
DVD, Game, Video Rental
Desktops
© Anik Saha

15. 15
Acknowledgement
Strategic Management by Charles W. L. Hill/ Gareth R.
Jones, Published by CENGAGE Learning
© Anik Saha