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
Ratio
($,bil.)
Amazon.com (US)
n.a.
3.9
Caremark Rx (US)
18.0
6.8
Expedia
16.6
0.6
Autozone (US)
13.1
5.3
Hennes & Mauritz (Swe.)
10.5
5.9
Next (UK)
10.1
3.6
Bed, Bath & Beyond (US)
8.5
3.7
Woolworth (Australia)
8.0
16.0
Gap (US)
4.1
14.5
TJX (US)
6.9
12.0
Inditex (Spain)
6.8
4.7
Wal-Mart (US)
5.7
244.5
Radio Shack
5.6
4.6
Family Dollar Stores
5.1
4.2
Best Buy (US)
5.0
20.9
BOTTOM 15
Valuation Sales
Ratio ($, bil.)
Toys-R-Us
0.6
11.3
J.C. Penny (US)
0.7
32.3
Federated Dept. Stores (US) 1.1
15.4
J. Sainsbury (UK)
1.1
29.8
Ito-Yokado (Japan)
1.1
28.0
Ahold
1.2
78.3
Safeway plc (UK)
1.3
29.8
Pinault-Printemps
-Redoute (France)
1.4
32.2
Sears Roebuck (US)
1.4
41.4
Dixons Group (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
Key Success Factors in Mature Industries
•
Opportunities for sustainable
competitive advantage are
limited
-- limited potential for differentiation
-- technology stable and well diffused
-- ease of entry due to well developed
industry infrastructure and powerful
distributors
-- international competition : domestic
cost advantage vulnerable
•
Sources of
cost advantage
-- Economies of scale
-- Low-cost inputs
-- Low overheads
•
Segment and customer
selection
-- As general industry environment
deteriorates, important to locate
attractive segments and woo good
customers.
•
Sources of differentiation
advantage
-- Emphasis on image differentiation and
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
differentiation
- Virgin Atlantic in air travel
- Sephora in cosmetics retailing
Who are the strategic innovators?
• New entrants
• Existing firms on the periphery
• Firms from adjacent industries
- CNN in news broadcasting
- Nucor in the U.S. steel industry
-Sun Records in rock ‘n roll music
- Apple in consumer electronics
Why not leading incumbents?
• They are constrained by “industry recipes,” relationships with existing
customers, investments in resources & capabilities linked to past
strategies.
RATE OF INNOVATION
Product, Process, and Strategic
Innovation over the Life Cycle
Product
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
MANAGEMENT
- Primary functions are control and
strategic decision making
- Two main styles: politician and autocrat
The Competitive Environment of
Declining Industries
 Features
of declining
industries
 Smooth adjustment
- Excess capacity
- Lack of technological change
- Consolidation (but some new entry
as new firms exit)
- Old machines and employees
- Predictability of decline
of capacity
depends upon
- Barriers to exit
{
Durable assets
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 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
Strategy Alternatives for a Declining Industry
COMPANY’S COMPETITIVE POSITION
INDUSTRY
STRUCTURE
Favorable
to decline
Unfavorable
to decline
Strengths in
remaining demand
pockets
Lacks strength in
remaining demand
pockets
LEADERSHIP
or
NICHE
HARVEST
or
DIVEST
NICHE
or
HARVEST
DIVEST
QUICKLY