Topic 6
Industry Environments
Rationalizing Diversification and
Integration
Behavioral Considerations Affecting
Strategic Choice
Different Industry Environments??
• You also may want to evaluate different
strategies to build competitive advantages
…. given the fact that you may be operating
in any one of a number of different industry
environments
“Typical” Industry Settings
Emerging Industries
Industries Transitioning to Maturity
Mature and Declining Industries
Fragmented Industries
Global Industries
Characteristics of Markets in
Emerging Industries
• Proprietary technology and technological uncertainty
• Competitor uncertainty due to inadequate information
• High initial cost structure
• Few entry barriers***
• First-time buyers require initial inducements
Strategic Options/Opportunities
for Emerging Industries
1. shape industry’s structure
2. rapidly improve product quality
3. establish favorable relations with key
suppliers**
4. acquire a core group of loyal customers
5. forecast future competitors
Characteristics of
Maturing Industries
 Intense competition for market share
 Increased sales to experienced, repeat buyers
 New products and new applications harder to
come by
 Increase in international competition
 Declining profitability
Strategic Options for
Maturing Industries
•
•
•
•
•
Prune the product line
Emphasize cost reductions
Focus on selecting loyal buyers
Pursue horizontal integration
Expand internationally
Characteristics of already
Mature/Declining Industries
 Demand grows more slowly than economy, or
even declines
 Slowing growth is caused by
 Technological substitution
 Demographic shifts
 Shifts in consumer needs
Strategic Options for already
Mature/Declining Industries
• Focus on key market segments offering growth
opportunity
product innovation and quality
improvement
• Emphasize
• Emphasize
production and distribution efficiency
• Gradually
harvest the business
Characteristics of Fragmented
Industries
 No firm has a significant market share
 No firm can significantly influence industry
outcomes
 Examples
 Professional services
 Retailing
 Wood and metal fabrication
 Agricultural products
 Funeral industry
Strategic Options for
Fragmented Industries
• Tightly managed decentralization
• Standardized, efficient, low-cost facilities
at multiple locations
• Specialization (Product type, customer type, type of order,
geographic areas)
• Bare bones/no frills
Strategic Options: Pursuing Global
Market Coverage …
• export products
• License foreign firms
• foreign-based plants and distribution
Questions Related to Diversification
and Integration #1
1. Are there opportunities for sharing
infrastructure and capabilities?
Critical Elements for Shared
Opportunities to Be Meaningful
• Shared opportunities must be a
significant portion of the value chain of
businesses involved
•
Businesses involved must truly have
shared needs or there is no basis for
synergy in the first place
Questions Related to Diversification
and Integration #2
2. Are we capitalizing on our core
competencies?
Evaluating the Role of Core
Competencies
Is each core competency providing a
relevant competitive advantage to
the intended businesses?
Are businesses in
Are our
the portfolio
combination of
related in ways
competencies
that make the
unique or
company’s core
difficult to
competence(s)
create?
beneficial?
Questions Related to Diversification
and Integration #3
3. Does the company’s business portfolio
balance financial resources?
–
A number of portfolio techniques
The BCG Growth-Share Matrix
Cash Generation (Market Share)
High
High
Low
Star
Cash Cow
Low
Problem
Child
Dog
Growth Rate: Dividing point is usually
the GNP’s growth rate
Market share:
Dividing point is
usually … only the
two-three largest
competitors in any
market fall into the
high market share
region
Behavioral Considerations Affecting
Strategic Choice
• Role of current strategy
– What is the amount of time and resources invested in previous
strategies?
– How close are new strategies to the old?
– How successful were previous strategies?
• Degree of firm’s external dependence
– How powerful are firm’s owners, customers, competitors,
unions, and its government?
– How flexible is firm with its environment?
Behavioral Considerations Affecting
Strategic Choice
• Attitudes toward risk
– Risk-oriented managers prefer offensive,
opportunistic strategies
– Risk-averse managers prefer defensive, conservative
strategies
• Managerial priorities different from
stockholder interests
– Agency theory suggests managers frequently place
their own interests above those of their shareholders
Behavioral Considerations Affecting
Strategic Choice
• Internal political considerations
– Major sources of company power are CEO, key
subunits, and key departments
– Power can affect corporate decisions over analytical
considerations
• Competitive reaction
– Probable impact of competitor response must be
considered during strategy design process
– Competitor response can alter the success of
strategy