Tailoring Strategies to Fit Specific Industry and
Company Situations
Life Cycle
Unit Sales
Profits
Life Cycle
Emerging
Embryonic
Introduction
Growth
Mature
Decline
Industry Life Cycle
Introduction Growth
Mature
Decline
Growth
Low
Large
Lower
Negative
Segments
Few
Some
Many
Few
Competition
Low
Increasing
Intense
???
Emphasis
V High
Prod
R&D
High Prod
V High
Process
Production
Stability
Market
Awareness
Create
Demand
Functional
Objectives
Sales &
Marketing
Defend
Share and
Extend
Admin.,
mgt. &
finance
Consolidate
Maintain,
harvest, or
exit
Challenges of Emerging Industries
• Uncertain market conditions and
•
•
•
•
•
•
characteristics
Competing/unknown proprietary technologies
and varied marketing/service/distribution
tactics
Lack of complementary products
Limited/poor quality and high costs, which
deter acceptance
Low entry barriers
Education of users
Innovators vs. Initial adopters
vs. Mass-market.
Alternatives in Emerging Industry
• Move fast/early with superior product or
•
•
•
•
technology
Track the Dominant Design
Build alliances/merge with key suppliers or
those that provide complementary products to
out position rivals
Seek new customer groups, new applications
for your product
Make it cheap/easy for early adopters to
try/buy your product.
High Technology Industries
 Battle over technical standard, format, and
dominant design

Set by decree, cooperation, public domain, but
mostly through consumer choices
Benefits for Standards
 Compatibility
 Reduce consumer uncertainty
 Reduce production costs
 Increase in complementary products –
Network effects – which greatly enhances
sustainability
Challenges of Mature Industries
• Slow growth fight for market share
• Sophisticated buyers
• Costs, prices and service critical
• Excess capacity and oversupply
• Innovation and new uses more difficult
• International competition
• Falling profitability
• Consolidation
• Segmentation.
Alternatives in Mature Industries
• Prune product line
• Process innovation & cost reductions in value
chain
• Sell more to current buyers
• Purchase rivals at low prices
• Go international.
Fragmented Industries
 Low entry barriers
 Lack of economies of scale
 High segmentation
 Local Advantages
 Diverse preferences
Alternatives in Fragmented Industries
• Formula facilities • Low cost operations • Become the specialized vendor of choice • Focus on a customer type • Focus on a geographic segment -
Other Runner-up Strategies
• Vacant Niche Strategy • Specialists Strategy • Superior Products Strategy • Distinctive Image Strategy • Content Follower –
Strategic Management
Part II: Strategic Actions: Strategy Formulation
Chapter 6: Corporate-Level Strategy
14
Corporate-level strategy
 Specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of
different businesses competing in different product
markets


Expected to help firm earn above-average returns
Value ultimately determined by degree to which “the
businesses in the portfolio are worth more under the
management of the company then they would be under
any other ownership

Product diversification (PD): primary form of corporate-level
strategy
15
Goals of Corporate Strategy
Moves to enter new businesses
Boosting combined performance of the
businesses
Capturing synergies and turning them into
competitive advantages
Establishing investment priorities and steering
resources into business units
4 Conditions of Successful
Diversification
• 1) Growing industries with complementary
products and technologies
•
Apple IPhone
• 2) Leverage existing capabilities which match
the KSFs in other arenas
•
Disney Cruise Lines
• 3) Closely related moves which reduce costs
• Kroger & Fred Meyer
• 4) Powerful brand and reputation
• Margueritaville, NASCAR Café, or Emril’s
Levels of Diversification (N=3)
 1. Low Levels

Single Business Strategy


Corporate-level strategy in which the firm generates 95% or
more of its sales revenue from its core business area
Dominant Business Diversification Strategy

Corporate-level strategy whereby firm generates 70-95% of total
sales revenue within a single business area
18
Levels of Diversification (N=3)
(Cont’d)
 2. Moderate to High Levels


Related Constrained Diversification Strategy

Less than 70% of revenue comes from the dominant business

Direct links (I.e., share products, technology and distribution
linkages) between the firm's businesses
Related Linked Diversification Strategy (Mixed related
and unrelated)

Less than 70% of revenue comes from the dominant business

Mixed: Linked firms sharing fewer resources and assets among
their businesses (compared with related constrained, above),
concentrating on the transfer of knowledge and competencies
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among the businesses
Levels of Diversification (N=3 )
(Cont’d)
 3. Very High Levels: Unrelated

Less than 70% of revenue comes from dominant business

No relationships between businesses
20
Drawbacks for Unrelated
 Demanding requirements
 Limited to no opportunities to share
advantages
Levels and Types of Diversification
22
Strategic Management:
Concepts and Cases
Part II: Strategic Actions: Strategy Formulation
Chapter 7: Acquisition and Restructuring Strategies
23
Cross-Border Acquisitions: Increased Trend
 Number of cross-border deals continues to
increase in all corners of the world
 Acquisitions by emerging-country firms occurring
in developed countries, especially in the U.S.,
UK and Europe

Developed economies have more open policies
allowing emerging-country economies to make
inroads, especially in more mature businesses
including steel, aluminum and cement; or basic
services such as management of airports and
railroads, or infrastructure management, such as toll
roads
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Introduction:
Popularity of M&A Strategies
 Popular strategy among U.S. firms for many years
 Can be used because of uncertainty in the
competitive landscape



Increase market power because of competitive threat
Spread risk due to uncertain environment
Shift core business into different markets
 Due to industry or regularity changes
 Intent: increase firm’s strategic competitiveness
and value – the reality, however, is returns are
close to zero
25
Introduction:
Merger vs. Acquisition vs. Takeover
(Cont’d)
 Merger

Two firms agree to integrate their operations on a
relatively co-equal basis
 Acquisition
 One firm buys a controlling, 100 percent interest in
another firm with the intent of making the acquired firm
a subsidiary business within its portfolio.
 Takeover

Special type of acquisition strategy wherein the target
firm did not solicit the acquiring firm's bid

Hostile Takeover: Unfriendly takeover that is
unexpected and undesired by the target firm
26
Mergers and Acquisitions
Reasons of Acquisitions
Market Power
Overcome Entry Barriers
Increased Speed
Lower Risk
New Technologies/Capabilities
Diversify
Gain Competitive Advantages
Mergers and Acquisitions
Problems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation
Inadequate evaluation
Mergers and Acquisitions
Results
Poor
Performance
Who Wins?
Acquired Firm
Shareholders
Failures of Acquisitions
30 - 40% average acquisition premium
Acquiring firm’s value drops 4% in the 3 months
following acquisitions
30 - 50% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by
4%
3 month performance before and after

30% substantial losses, 20% some losses,
33% marginal returns, 17% substantial returns
The Curvilinear Relationship between
Diversification and Performance
31
Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are
related
When do executives loss their jobs?


1) Acquired - larger firms harder to acquire
2) Performing poorly - employment risk is
reduced as returns are less volatile
Effective Acquisitions
 Complementary assets or resources
 Friendly acquisitions facilitate integration of firms
 Effective due-diligence process (assessment of target firm
by acquirer, such as books, culture, etc.)
 Financial slack
 Low debt position

High debt can…

Increase the likelihood of bankruptcy

Lead to a downgrade in the firm’s credit rating

Preclude needed investment in activities that contribute to the firm’s
long-term success
 Innovation
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 Flexibility and adaptability
When/Why to Diversify?
To create shareholder value
Porter’s Three Point Test
1) Attractiveness Test
2) Cost of Entry Test
3) Better off Test
Should pass all 3