Bourgeois, Duhaime,
& Stimpert
Chapter 8
Business Strategy and
Competitive Advantage in
Different Industry Contexts
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Chapter 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.
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Exhibit 8.1: Industry
Life Cycle
Maturity
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Chapter Objectives


(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.
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Competition in Emerging
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.
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Exhibit 8.2: Model of Strategic
Management
Decisions about
Business Definition
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 Strategy
Decisions about
Corporate Strategy
and Diversification
Market Position,
Resources, and
Capabilities
Performance
and
Competitive
Ad vantage
Decisions about
Organizational
Structure
Feedback
reinforces or
suggests changes
in managers'
mental models
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Value of First-Mover and
Second-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.
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Value of 1st-Mover and
2nd-Mover Strategies (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 firstmovers are unprepared to handle it.
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Value of 1st-Mover and
2nd-Mover Strategies (cont.)

Second-movers have opportunities due to mistakes of
first-movers.
 They
can “piggyback” on the efforts of firstmovers, while avoiding much of the initial costs
• R&D, marketing and advertising, and costs
associated with opening distribution channels.
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Value of 1st-Mover and
2nd-Mover Strategies (cont.)

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
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Value of 1st-Mover and
2nd-Mover Strategies (cont.)

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.
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Exhibit 8.3: 1st- and 2ndMovers in Various Industries
First Mover
Follower
Chrysler (minivan)
IBM (PC)
Win Searle (NutraSweet) Matsushita (VCR)
Dupont (Teflon)
Seiko (quartz watch)
Lose RC Cola (diet cola) Kodak (instant photos)
Bowmar (calculator)
DeHavilland (Comet)
Northrop (F-20)
DEC (PC)
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NutraSweet: A
Successful 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.
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Challenges of Mature
Industry Environments

Unattractive characteristics of mature industry
environments.
 Stagnant
demand and excess capacity.
• Firms anticipate increasing demand.
See
Exhibit 8.4
– 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.
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Exhibit 8.4: Industry Life
Cycle
Excess
Capacity
Demand
Capacity
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Challenges of Mature
Industry Environments
 Lack
(cont.)
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.
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Challenges of Mature
Industry Environments

(cont.)
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.
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Exhibit 8.5: Benchmarking: A
Continuous Learning Process
Performance
Organizational
Learning
Performance
Improvement
Benchmarking
accelerates
innovation and
change
Continuous
Improvement
Breakthrough
Improvement
Continuous
Improvement
Time
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Challenges of Mature
Industry Environments
(cont.)
• Steps in benchmarking
– Break down its operations into discrete value-adding
activities/processes (value-chain)
Exhibit 8.6: Value Chain for a Hypothetical Manufacturing Firm
Engineering
and Design
Purchasing
Assembly and
Production
Sales and
Marketing
After-Sale
Service
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Challenges of Mature
Industry Environments
(cont.)
• 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
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Challenges of Mature
Industry Environments
(cont.)
• 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.
See
Exhibit 8.9
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Challenges of Mature
Industry Environments
 Product
(cont.)
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.
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Challenges of Mature
Industry Environments
 Process
(cont.)
innovation (cont.)
• JIT production
• Modular designs
See
Exhibit
8.10
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Competition in Manufacturing
and Service Industries

The revolution in manufacturing.
 Increasing
competition
 Productivity improvement
 Benchmarking and value chain analysis
 Re-engineering and outsourcing
 Quality
See
Exhibits
8.11 and 8.12
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Competition in Manufacturing
and Service Industries (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 Exhibits
8.13 and 8.14
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Competition in Manufacturing
and Service Industries (cont.)
 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.
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Competition in Manufacturing
and Service Industries (cont.)

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
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Competition in Manufacturing
and Service Industries (cont.)

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.
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Competition in Manufacturing
and Service Industries (cont.)
 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.
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Conclusions

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.
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Key Points Introduced
in Chapter 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.
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Key Points Introduced
in Chapter 8 (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:
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Key Points Introduced
in Chapter 8 (cont.)
 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.
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Key Points Introduced
in Chapter 8 (cont.)


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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