FOUNDATIONS OF STRATEGY
CHAPTER 5: BUSINESS STRATEGIES
IN DIFFERENT INDUSTRY AND
SECTORAL CONTEXTS
By: Anthony Gauthier, Austin Hughes, Michael
Wilson, John Bell, and Travis Messerschmitt
INTRODUCTION
One of the greatest challenges to management is
to ensure the enterprise adapts to the
environment and changes in the environment.
 Changes in the environment are spurred on by
competition among companies to maintain or
obtain competitive advantage.
 Change is also primarily driven by changing
technology, consumer needs, politics, and
economic growth.

THE HISTORY OF COCA COLA IN CONTEXT
In 1886 Coca Cola invented, Pepsi follows in
1898, a new race begins…
 1906 Fed passes new regulations on food
contents, Coke has to change formula, Pepsi does
not.
 1916 Coca Cola designs unique cola bottle,
recognizable in dark, sets apart from 1000’s of
competitors.
 Pepsi attempts to follow to standardize bottle,
fails due to financial difficulties, rationing of
sugar leads to company bankruptcy in 1923.

INDUSTRY LIFE CYCLE
The industry life cycle is the supply side
equivalent of the product life cycle.
 Four stages: introduction, growth, maturity, and
decline.

DEMAND GROWTH
Introduction: Sales are small and market
penetration is low, often high cost and low
quality products, primary customers are
innovation oriented and risk tolerant.
 Growth: Accelerated market penetration as
technical improvements and increased efficiency
open up market.
 Maturity: There is increasing market saturation,
once pinnacle reach demand solely is for
replacement.
 Decline: A new industry with superior technology
arrives, begins decline.

PRODUCTION AND DIFFUSION OF
KNOWLEDGE
New knowledge in the form of product innovation
is responsible for the birth of new industries.
 Knowledge creation and diffusion drive
industries to evolve.

DOMINANT DESIGNS INTRO

Dominant Design – a product architecture that
defines the look, functionality, and production
method for the product and is accepted by the
industry as a whole.
DOMINANT DESIGN MODEL
Firms hone in on product innovation.
 Battle ensues to find superior way.
 Best way becomes industry standard.
 Everyone shifts to mimic dominant design.
 Firms focus in on process innovation.

FROM PRODUCT TO PROCESS INNOVATION
Dominant Design emerges in an industry
 Companies shift from big to small product
innovations
 Industry Starts growing
 Companies invest in process innovations

LIFE CYCLE PATTERN
Alternative product/offering come about
 Dominant design arrives



Product innovation declines
Companies grow around dominant design

Economies of scale are achieved
Focus turns to cash flow & market share
 Industry revenue starts declining

LIFE CYCLE GENERALITIES
Vary greatly across industries
 Isn’t the same around the globe
 Sources of competitive advantage change
 Affluent countries are first to start new life cycle

INTRO PHASE OF THE LIFE CYCLE
Introduction
DEMAND
TECHNOLOGY
PRODUCTS
Early adopters w/ high income
Rapid product innovation w/
competing technologies
Poor quality. Tons of variety in
features offered
MANUFACTURING/DISTRIBU Requires highly skilled labor &
TION
short production runs
TRADE
COMPETITION
KEYS TO SUCCESS
Advanced countries
Few companies
Product innovation. Credible
branding
THE INTRODUCTION PHASE
The number of firms in an industry increases
rapidly in the industry’s early stages.
 Some start-ups, some established companies that
are attempting to diversify their product line.
 Production innovation is the basis of entry.
 New industries typically begin in advanced
industrial countries because of the presence of
wealthy customers and the high availability of
technological and scientific resources.

THE GROWTH PHASE
•
•
•
•
When the market grows, scaling up becomes the key
challenge.
Financial resources become more important.
Production in newly industrialized countries becomes
attractive to reduce production related costs.
Example: The PC market in the 1980s and 1990s.
THE MATURITY PHASE
Competitive advantage is increasingly a quest for
efficiency.
 As product standardization increases, the number
of firms begins to fall.
 Industries go through “shakeout” phases
 With maturity comes de-skilling of production
processes and production shifts to developing
countries with low labor costs.
 Example: Cell phones; the move to
touchscreens/smartphones could be considered a
shakeout phase. The carbonated beverage industry
(Coca Cola).

THE DECLINE PHASE
Technological substitution, changes in consumer
preferences, or foreign competition may lead to
the decline phase.
 Decline phase does not guarantee loss of profits –
some firms capitalize on other firms’ exits.
 Two factors determine if firms can plan for the
decline: (1) balance between capacity and output
and (2) the nature of the demand for the product.
 If firms can plan for the decline, it is easier to
achieve a balance between capacity and output.
 Example: Print newspaper

KEY SUCCESS FACTORS AND STRATEGY
1.
2.
3.
4.
Introductory Stage: product innovation,
acquiring capital, and capabilities in
manufacturing, marketing and distribution.
Growth Stage: scaling up and adapting design
and manufacturing for large-scale production.
Maturity Stage: Cost efficiency through
economies of scale and low wages and
overheads.
Decline Stage: Cost cutting and maintaining
stability.
PUBLIC VS NOT-FOR-PROFIT SECTORS

Public organizations are defined by ownership,
funding, and interests they serve (i.e.,
government).
Revenue comes from taxes
 Examples of public goods: road services, national
defense, law enforcement
 Without these necessary goods, market failure would
result.

PUBLIC VS NOT-FOR-PROFIT SECTORS

Non-for-profit organizations do not distribute
surplus funds.
After covering costs, profits are invested back into
the organization.
 Examples: education, healthcare, arts, culture,
religion (Red Cross, Federal Credit Unions, churches)


Social enterprises are different from not-for-profit
and public organization. They are similar to notfor-profits in that they use business to achieve
social goals, but they act in interest of their
shareholders and their goals.
KEY DIFFERENCES BETWEEN PUBLIC AND
PRIVATE ORGANIZATIONS THAT IMPACT
STRATEGY
1. MULTIPLE POTENTIALLY CONFLICTING
GOALS
Public sector must worry about political interests
and resource scarcity above the interests of
shareholders
 Private sector is able to give primacy to
shareholders’ interests to reconcile competing
claims

2. DISTINCTIVE CONSTRAINTS AND
DIFFERENT LEVERS
Public sector must take into account public
opinion, political factors, tax-raising capacity…
 Private sector does not have the same tools as
public, such as regulatory framework or
legislation.

3. AN ABSENCE OF MARKET FORCES

Water treatment facilities correct failures from
the private sector in the public sector.
4. MONOPOLY POWER
Private sector can become classified as utilities
and come under heavy regulation
 Public sector provides services that can become
ignorant of customer complaints

5. LESS AUTONOMY AND FLEXIBILITY

Public sector is directly influenced by politics, but
managers have the opportunity to shape the
environment
6. INCREASED ACCOUNTABILITY
Public sector has much more public scrutiny and
are intended to act in the interest of the public
 Private sector is accountable but original intent
is to care for stakeholders and its own longevity
rather than public interests.

7. LESS PREDICTABILITY

Media pressure can change the outcome of
policies made by managers in the public sector
APPLICATION TO NON-PROFIT
Employment of volunteers: the U.S. government
conducts a census every 10 years
 Fundraising

OSTER’S SIX FORCES

Some strategic methods are not universally
applicable, especially in non-profit
STAKEHOLDER ANALYSIS
Identification of the list of potential stakeholders
 Ranking stakeholders according to their
importance and influence on the organization
 Identifying the criteria that each stakeholder is
likely to use to judge the organization’s
performance
 Deciding how well the org. is doing from their
perspective
 Identifying what can be done to satisfy each
stakeholder
 Identifying and recording longer term issues with
individual stakeholders and stakeholders as a
group

POWER/INTEREST GRID
SCENARIO PLANNING
- A systematic way of thinking about how the future might unfold
- Short term vs. Long term
- Make events and run simulations to identify outcomes
Steps:
1. Define the purpose of the analysis
Ex: Asses risk of expansion/downsizing
2. Deciding on time horizon
Short term vs. Long term
3. Identify Key Uncertainties
Public’s view of your product
4. Identify Key Trends
What is happening in your industry
Steps Continued…
5. Create Scenarios and Check Consistency
Make sure scenarios are both plausible and
consistent with current trends in your industry
6. Identify Indicators that Signal Which Scenario is Unfolding
Which events lead to certain outcomes
7. Assess Strategic Implications
Ask “What if?”
- Scenario Analysis brings different insights and ideas to the table
and puts your company on the same page before moving forward.