Chapter 5: Business strategies
in different industry and
sectoral contexts
Foundations of Strategy
Rebecca Eggerman
Alexander Johnson
Miguel Lopez
Hannah Stephens
Carissa Tarnowski
Purpose of this chapter

To help us understand how managers
adapt their strategies to fit their
environments, how they go about
predicting change and adapting their
strategies to cope with change.
Introduction and objectives
One of management’s greatest
challenges=ensuring enterprise adapts to
its environment and it’s changes
 Changes in environment are driven by:
technology, consumer need, politics,
economic growth, and a host of other
influences

Competition as a strategy?

Creates a dynamic process where firms
compete for a competitive advantage, to
only see it eroded through imitation and
innovation by rivals.
Different industries= different
patterns
Different industry patterns of change help
to predict how industries are likely to
evolve over time
 Every industry follows a unique
development path
 Look for common drivers

Industry life cycle
Extent to which industries follow a common
development pattern, examine the changes
in industry structure over the cycle and
explore the implications for business
strategy.
 Starting point in understanding how
managers operating in various
environments adapt their strategies and
anticipate change
Life cycle diagram
Opening case: The evolution of
Personal Computers


Early 1970s- the personal computer (PC)
was originated through Intel’s
microprocessor
Mid 70’s- pre-assembled machines came on
to the market that included a basic operating
system and software
◦ Tandy, Commodore, Apple

By 1981-market of about $3000 million with
about 150 companies processing
microcomputers
◦ Apple~20%, Tandy~15%, Commodore~7%
◦ All used very different strategies
IMB
vs.
Previously neglected PC
market and focused on
mainframe computers until
1980s
 Adopted an open strategy
that allowed third-parties
to access the technical
details so complementary
products could be
developed
 Very little of their PC was
exclusive and was very
easily copied

Apple
Produced as much of his
PCs in house as possible
 This strategy had long
term benefits, but shortterm was very costly
 Lost its lead position in the
market by producing highly
differentiated, more
expensive products that
were incompatible with
IBM standard
 Developed particular
niches in the home,
education, and desk-top
publishing markets

Downturn of the PC
PC evolved as a general machine made
versatile by adding new software functions
 Created a more complex, less secure, less
reliable and less fit-for-use than single
purpose devices
 The PC has increasingly become only one of
many devices adopted by users
 Under threat as the platform in which
software is written because an array of
other devices are growing in popularity and
tablet computers are starting to have an
impact on low-end laptop sales

How technology companies are
resurrecting their fortunes
Apple- Created devices such as the iPod,
the iPhone, and the iPad
 Digital camera manufacturers- developed
products that download direct to printers
 Game manufacturers- consoles primarily
for gaming also connect to internet

Product vs. industry life cycles
Product life cycle
Industry life cycle

Introduction

Introduction

Growth

Growth

Maturity

Maturity

Decline

Decline
What is the difference?

Supply side of the product live cycle

Extent the industry product live cycle by
introducing multiple generations of a
product
Let’s look at the graphs
Industry
Product
Let’s take a closer look
Product Life Cycle
Industry Life Cycle
Forces Behind

Demand Growth
◦ Introduction stage
 Sales are small, and rate of market penetration is
low
◦ Growth stage
 Market penetration is accelerated
◦ Maturity stage
 Market becomes saturated
◦ Declined stage
 Challenge Industry
The production and diffusion of
knowledge

Introduction stage
◦ Technology advances rapidly
◦ Potential consumers know little about the
product

Growth stage
◦ The transition phase reflects the emergence
of dominant designs and technical standards
◦ Focus away from product innovation towards
process innovation
Dominant designs and technical
standards

Dominant design: a product architecture
that defines the look, functionality, and
production method for the product and
becomes accepted by the industry as a
whole
◦ Underwood Model 5
 Introduced 1899
 Establish the architecture and main features
 Moving carriage
 Ability to see the characters being typed
 Shift function or upper case and a replaceable
Dominant designs and technical
standards
Technical standard: a technology or
specification that is important for
compatibility
 Dominant design and technical standard
are closely related
 But dominant design may or may not have
a technical standard

How general is the life cycle
pattern?

It varies greatly from industry to industry
◦ Railroad
 Introduction phase extended from the building of
the first railroad in 1827
 Entered the growth phase in 1870’s
 In the 1959s, it started to enter the decline stage
◦ Digital audio player
 Introduction phase 1997-1998
 2001, entered its growth stage
 2008-2009, entered the maturity stage
Introduction
Growth
Maturity
Decline
Demand
Limited to early
adopters: high income
Avant-garde
Rapidly increasing
market penetration
Mass market
replacement/repeat
buying. Customers
knowledgeable and
price sensitive
obsolescence
Technology
Competing
technologies. Rapid
product innovation
Standardization
around dominant
technology. Rapid
process innovation
Well-diffused technical
knowhow: quest for
technological
improvements
Little product or
process innovation
Products
Poor quality wide
variety of features and
technologies. Frequent
design changes.
Design and quality
improve. Emergence
of dominant design.
Trend to
commoditization
Attempts to
differentiate by
branding, quality,
bundling
Commodities the
norm: differentiation
difficult and
unprofitable
Manufacturing
Short production
runs. High skilled
labor content.
Specialized
distribution channels
Capacity shortages
mass production.
Competition for
distribution
Emergence of
overcapacity.
Deskilling of
production. Long
production runs. Dist.
Carry fewer lines
Exports from
countries with lowest
labor costs.
Trade
Producers and
consumers in
advanced countries
Exports form
advanced countries to
rest of world
Production shifts to
newly industrializing
then developing
countries
Exports from
countries with lowest
labor costs
Competition
Few companies
Entry, mergers and
exits
Shakeout. Price
competition increases
Price wars, exits
Key success
factors
Product innovation.
Establishing credible
image of firm and
product.
Design for manufacture.
Access to distribution.
Brand building. Fast
product development.
Cost efficiency through
capital intensity, scale
efficiency and low input
costs
Low overheads Buyer
selection. Signaling
commitment.
Rationalizing capacity
Life cycle strategies: Introduction
De novo –start ups and de aliodiversifying firms.
 Basis of entry is innovation

◦ Wide variety of product types and diversity of
technology.

Born global companies
Growth phase

Skill in controlling manufacturing ability is
key
◦ Access to distribution
◦ Financial resources
◦ Reduce costs
Maturity phase

Efficiency is the key to survival
◦ Low wages, low overhead and cost of
production

Shakeouts
◦ High rate of firm failure
◦ New niche markets are created
◦ Labor moves to nations where costs are
lowest (developing nations)
Decline phase
Due to excess capacity
 Lack of technical change
 Declining number of competitors
 High age of physical and human resources
 Aggressive price competition

◦ Balance between capacity and output and
nature of demand.
◦ Must capture residual market demand
Public Sectors

Ownership vested in government
◦ Controlled by politicians

Produce public goods
◦ Ex. Street lighting, flood prevention, national
defense
Paid for by taxation
 For public benefit

◦ Approved by law

Not required to make profit
Non-Profit Sectors
Philanthropic goals
 Overlap of a social enterprise
 Seek profit to distribute a limited amount
to those that “own capital”
 Profit not main goal

◦ Ex. Engaging in fair trade, disadvantaged
equality
Key differences

1.
2.
3.
4.
5.
6.
7.
Public
Shaped by political
considerations
Must account for public
constraints
Correct market failure or
cut off from market forces
State controlled
monopolies, ex. Postal
services
Little freedom to change
rules
Subject to public scrutiny
Slower market to change

1.
2.
3.
4.
5.
6.
7.
Private
Prioritizing shareholder's
interests
Does not have to assess
public needs
Price and resource
mechanisms absent
Weak customer influence
in monopolies
Great flexibility in
regulation
No obligation to public
satisfaction
High-tech and constantly
changing
Non-profit Uniqueness

Employment of volunteers
◦ Promote employment based on philanthropic
goal interests

Fundraising
◦ Becoming more competitive
Oster’s Six Forces Model
Stakeholder Analysis

Definition: the process of identifying, understanding and
prioritizing the needs of key stakeholders so that the
questions of how stakeholders can participate in
strategy formulation and how relationships with
stakeholders are best managed can be addressed
Key Steps
1)
Identify the list of potential stakeholders
2)
Rank stakeholders
3)
Identify criteria stakeholders will likely use to judge
performance
4)
Decide how the organization is doing from its stakeholders’
perspective
5)
Identify what can be done to satisfy each stakeholder
6)
Identify and record longer term issues with individual
stakeholders and stakeholders as a group
Power Interest Grids

Definition: array stakeholders in a matrix with stakeholder
interest forming one dimension and stakeholder power the
other

Stakeholder interest
◦ Political interest

Stakeholder power
◦ Ability to affect the organization’s future

Used to identify which stakeholder interests and power
bases should be taken into account

Helps identify what coalitions amongst stakeholders
managers may wish to encourage or discourage
Power Interest Grids

Players
◦ Both interest and significant power

Subjects
◦ Interest but little power

Context Setters
◦ Power but little direct interest

Crowd
◦ Neither interest nor power
SH Power/Interest Grid
Response to SHs’ Positions
Whole Foods Market
Scenario Planning

Scenario analysis
◦ a systematic way of thinking about how the future might unfold
that builds on what we know about current trends and signals

Not forecasting

Quantitative
◦ Models events and run simulations to identify likely outcomes

Qualitative
◦ Narratives
◦ Useful in engaging insight and imagination of decision-makers

Similar to productive paranoia
An Example with WFM

Check flexibility of strategy in case of major drought

1-5 years

Higher prices with decreased product availability

Create the scenarios that are likely to happen in a
major drought

Identify red flags for each drought scenario

Ask “what if” for each scenario to evaluate strategic
flexibility
Key Steps in Building and Using

Define the purpose of the analysis

Decide on the time horizon

Identify key trends

Identify key uncertainties

Create scenarios and check for internal consistency

Identify indicators that might signal which scenario is
unfolding

Assess the strategic implications of each scenario
Now that we have completed this
chapter you should be able to…

Recognize,
◦ the different stages of industry development and
understand the factors that drive the process of industry
evolution
◦ the particular challenges that face managers engaged in
strategic decision making in public sector and not-forprofit-contexts

Identify the key success factors associated with industries at
different stages of their development and the strategies
appropriate to different stages in the industry life cycle

Use stakeholder analysis to gain an understanding of political
priorities
Questions? Comments?