Extra topics:

1. STRATEGIES FOR DIFFERENT INDUSTRIES

2. GE MATRIX
3. TURNAROUND STRATEGIES
4. 7S MODEL

STRATEGIES FOR DIFFERENT INDUSTRIES

This best strategy for a given firm is ultimately a unique construction

reflecting it’s particular. – MICHAEL E. PORTER.

This topic discusses on the various strategies available for/adapted by firms

in various business scenarios or market conditions.
Listed below are the different market environments and the strategies that
managers have the option of adapting in order to make strategic decisions and
face challenges in order to survive in the market.

1. STRATEGIES FOR COMPETING IN EMERGING INDUSTRIES OF THE

FUTURE

 Emerging industries are the early formative stage of a company. The

features of companies in this industry are latest technology, adding human
resource, acquiring constructing facilities, broadening distribution and
marketing channels, gearing up operating facilities and gaining buyer
acceptance.
 Emerging industries face issues such as product design problem and
technological problems that remain to be sorted out.
 Market is new and has an unproven track record and so there is an
uncertainty of how the market will behave, how fast it will grow and how
big it will get.
 Strategists should be aware of the new technological development in
product design and in the production of products and services.
 Strategic managers study the factors like competitors, demand, market,
technology and socio-cultural, political and legal environment.
 Companies strong in resources tend to emerge as winners in the
segment.
 Strategy manager should adopt generic strategies to keep costs and
price of expenditure low.
 Marketers’ task is to induce initial purchase and to overcome customers
concerns over the product features and performance reliability.
 Utilize potential buyers’ feedback as they always try to improve the
quality of the product and services of the company.
 Strategic managers are required to have ample suppliers to offset
uncertainty in supply by certain suppliers.
 In case of under capitalization, managers must look to tie up with capital
rich firms or look to being acquired by financially strong firms.

How to succeed in an emerging industry

 Perfect in technology to improve product quality and to develop attractive

performance features in the product and service.
 Acquire or form alliance with companies strong in technology to out
compete rivals.
 Adapt to the change in technology market.
  Win the early race for industrial leadership by taking bold moves in
creating strategies and with risk taking entrepreneurship.
 Make it easy and cheap for first time buyers to try the industry as first gen
product.

2. STRATEGIES FOR COMPETING IN TURBULENT HIGH-VELOCITY

MARKET

More and more companies are finding themselves in industry situations

characterized by rapid technological change, short product life cycles because
of entry of important new rivals into the marketplace, frequent launches of
new competitive moves by rivals, and fast-evolving customer requirements
and expectations – all occurring at once.

Strategic Postures for Coping with Rapid Change

The central strategy-making challenge in a turbulent market environment is

managing change. A company can assume any of three strategic postures in dealing
with high-velocity change:

o It can react to change

o It can anticipate change, make plans for dealing with the expected changes,
and follow its plans as changes occur
o It can lead change.

Reacting to change and anticipating change are basically defensive postures;

leading change is an offensive posture.

Reacting to change
  Adjust to the monetary and legal policies of the government.
 Launch better products in the market in response to competitors’
offerings.
 Respond quick to unexpected changes in buyers’ needs and preferences.
 Strategists react and respond quickly to problems that arise.

Anticipating change

 Perform market research to study buyers’ behaviour, needs and

expectations to get an insight on how the market will evolve and then
reacting to change.
 Opens up the doors for new opportunities and hence is a better way to
manage change than simply react to the change.
 Analyze opportunities for going global.
 Monitors technological developments to design product’s future path.
 Adapt strategies such as strong distribution channel, add/adopt resources
and competitive capabilities, improving the existing product line.

Leading the change

 Set standards in the industry.

 Pioneer new and updated technology.
 Introduce new and innovative products that open up a new market or
even spur the creation of a whole new industry.
 Invest aggressively in R&D to improve product capability and drive the
change with technology.
  Develop and maintain organizational capabilities quickly ahead of the
rivals.
 Rely on strategic partnership with outside suppliers and with companies
making tie in products for which first the company needs to strengthen its
internal resources base.
 Companies in depth expertise, speed, adaptation to change,
innovativeness, opportunism and resources flexibility is critical for
organizational capabilities in order to keep the products and services
fresh and exciting enough to change taking place.
 Force the rivals to follow.
 Set changes in the industry place.
 Influence the rules of the game in market.

STRATEGIES FOR COMPETING IN MATURE MARKET

This type of industry moves from rapid growth to significantly slower growth.
The industry is said to have become mature when all the potential buyers’ are
already users of the industry’s products and services. In a mature market,
demand consists mainly of replacement sales to existing users with growth
hinging on the industry’s ability to attract the few remaining buyers and convince
existing buyers to up their usage.

Challenges for maturing industry includes:

 Indulge in price-cutting policy for products and services, increased

advertising and other aggressive methods to gain market share.
  Sophisticated buyers’ indulge in evaluating different brands and use their
knowledge to negotiate a better deal with sellers. This will help them in
repeated purchases.
 Buyers prefer to purchase quality products with the best combination of
price and service.
 The company’s cash flow is affected by too much advertising but rapidly
declining sales.
 Difficult to find future users for the existing products.
 Penetrate in to foreign market for the domestic market is matured.
 Indulge in mergers and acquisition or else be prepared to get the axe.
 Adapt cost leadership, market leadership, generic strategies and new
technologies there by mergers and acquisition to develop competitive
market.

Strategic moves for maturing industry :

 Pruning marginal products and models
 More emphasis on value chain innovation
 A stronger focus on cost reduction
 Increasing sales to present customers
 Purchasing rival firms
 Expanding internationally
 Building new or more flexible capabilities
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4. STRATEGIES FOR FIRMS IN DECLINING MARKETS

Harvesting Strategy

A firm in a declining industry may choose to employ a harvesting strategy to

earn the maximum possible amount of cash from the business. This strategy
involves sacrificing market position in return for bigger near-term cash flows or
current profitability. When a firm adopts a harvesting strategy, it cuts down the
budget substantially.

Focusing on the growth market segment within the industry

The first competitive approach of strategies for firms in declining industries is to

focus on growth market segments. Declining markets are composed of a number
of segments or niches, say, one or more of these segments are growing rapidly
despite the stagnation of the industry. An astute competitor who focuses on fast
growing segments in industries and does a clean job of meeting the needs of the
buyers which comprises these segments can often escape stagnation sales and
profits and even gain decided competitive advantage in the industry.

Divestiture Strategy

Another strategic option for a firm in a declining industry is to sell it out. The
firm may divest or sell off a portion of its assets like equipment, land, stock of
materials, etc. The cash proceeds can be used for improving the core business.
Or, the firm may dispose of the business entirely .

Niche or Focus Strategy

A focus strategy concerns itself with the identification of a niche market.

Any industry, whether emerging or maturing or declining, may have several
niches (a small segment of a market that generally remains unserved or
inadequately served by competitors). A firm in a declining industry can look for
niche markets where it can operate a business profitably. Some of these niche
markets may be growing despite stagnation in the industry as a whole.
Differentiating on the basis of quality and frequency of product
innovation

This strategy either enhances quality or innovation thereby rejuvenating

demand by creating important new growth segments or inducing buyers to
trade up in the industry. Successful product innovation opens up avenues for
competing besides meeting or beating rivals’ price of product in the market.
Being successful in differentiating with upgraded innovation has an added
advantage. It becomes difficult for firms to imitate as it is expensive.

Become a low cost producer

Companies in declining industries can improve profit margins and ROI by

pursuing innovative cost reduction techniques. The potential ways to save
costs are –

 Cut down on marginally beneficial activities in the value chain

 Outsource those activities that can be performed cheaply by sub
contractors or other firms in the business
 Using e-commerce technology to redesign internal business processes to
save costs
 Consolidate underutilized production facilities
 Widen distribution channels to ensure the unit volume needed for low cost
production in factory
 Close down low volume, high cost retail outlets
 Pruning marginal products from the firm’s offering

GE Mckinsey matrix

GE-McKinsey nine-box matrix

 
is a strategy tool that offers a systematic approach for the multi
business corporation to prioritize its investments among its business
units.
GE-McKinsey
 
is a framework that evaluates business portfolio, provides further
strategic implications and helps to prioritize the investment needed for
each business unit (BU).

The GE McKinsey Matrix also compares product groups with respect to

market attractiveness and competitive power. Another name for this type of
analysis is Portfolio analysis. The portfolios of businesses consist of all
combinations of products and/ or services that are offered to the
market/ target groups. Originally, this Matrix made an analysis of the
composition of the portfolio of GE business units. Later, this matrix proved to
be very useful in other companies as well.

The GE McKinsey Matrix comprises two axes. The attractiveness of the market
is represented on the y-axis and the competitiveness and competence of the
business unit are plotted on the x-axis. Both axes are divided into three
categories (high, medium, low) thus creating nine cells. The business unit is
placed within the matrix using circles. The size of the circle represents the
volume of the turnover.

The percentage of the market share is entered in the circle. An arrow

represents the future course for the business unit.

 It is conceptually similar to BCG analysis, but somewhat more complicated.

Like in BCG analysis, a two-dimensional portfolio matrix is created. However,
with the GE model the dimensions are multi factorial.

One dimension comprises nine industry attractiveness measures; the other

comprises twelve internal business strength measures. The GE matrix helps
a strategic business unit evaluate its overall strength.
Factors affecting Industry Attractiveness

 Market size
 Expected market growth rate
 Market profitability trend
 Pricing trends
 Competition level
 Ability to differentiate
 Demand variability

Factors affecting Business Strength/ Competitive Strength

 Total market share

 Market share growth relative to competitors
 Customer loyalty
 Relative brand strength, brand recognition
 Cost structure compared to competitors
 Distribution strength and production capacity
 Management strength
Strategic investment decisions / actions to be taken based on this matrix:

Grow/Invest:
Units that land in this section of the grid generally have high market share and
promise high returns in the future so should be invested in.
Hold/Selectivity:
Units that land in this section of the grid can be ambiguous and should only be
invested in if there is money left over after investing in the profitable units.
Harvest/Divest:
Poor performing units in an unattractive industry end up in this section of the
grid. This should only be invested in if they can make more money than is put
into them. Otherwise they should be liquidated.

GE-McKinsey Matrix vs. BCG Matrix

The main advantage of the GE Matrix as a strategy tool is, of course, that it
tries to answer the question of where scarce resources should be invested.
It is more refined than the BCG Matrix as it replaces a single factor, “market
growth,” with many factors under “market attractiveness.”
Similarly, competitive strength of a business unit in the GE Matrix includes
many more factors than just market share, as seen above.
But, like the BCG Matrix, the GE Matrix also fails to consider
interdependencies between business units under one corporation and their
core competencies.
Another disadvantage of the GE Matrix is that preparing it is a complicated
exercise that probably demands the expertise of a consultant.

TURNAROUND STRATEGY 
The Turnaround Strategy is a retrenchment strategy followed by an
organization when it feels that the decision made earlier is wrong and needs
to be undone before it damages the profitability of the company.

Simply, turnaround strategy is backing out or retreating from the decision

wrongly made earlier and transforming from a loss making company to a
profit making company.

Now the question arises, when the firm should adopt the turnaround
strategy? Following are certain indicators which make it mandatory for a firm
to adopt this strategy for its survival. These are:

 Continuous losses
 Poor management
 Wrong corporate strategies
 Persistent negative cash flows
 High employee attrition rate
 Poor quality of functional management
 Declining market share
 Uncompetitive products and services
Also, the need for a turnaround strategy arises because of the changes in the
external environment Viz, change in the government policies, saturated
demand for the product, a threat from the substitute products, changes in the
tastes and preferences of the customers, etc.

EXAMPLE :  DELL

Dell is the best example of a turnaround strategy. In 2006. Dell announced the
cost-cutting measures and to do so; it started selling its products directly, but
unfortunately, it suffered huge losses. Then in 2007, Dell withdrew its direct
selling strategy and started selling its computers through the retail outlets and
today it is the second largest computer retailer in the world

EXAMPLE : Scandinavian Airlines – Jan Carlzon’s MOMENT OF TRUTH

“A moment of truth is an episode in which a customer comes into contact with

any aspect of the company, however remote and thereby, has an opportunity
to form an impression.”

How it can be utilized to improve revenue growth and profitability

The concept of the Moment of Truth was introduced in the 1980s by Jan

Carlzon when he was instrumental in the business turnaround at
Scandinavian Airlines in the early 80’s.

It was Carlzon’s position that if you managed every interaction to create a

positive outcome, the business would be successful. That theory proved right
for his airline, which eventually became one of the most admired in the
industry.

50 million Moments of Truth

Carlzon focused on improving the customer experience for business

travellers, moment by moment, and through that philosophy attracting
customers from competitor airlines. Jan’s plan was to make Scandinavian
Airlines the best provider of service in the market. The service experience
would be outstanding for the customer and the internal service
experience between staff and departments would also be outstanding. This
profound link of internal and external service ignited positive change and
gave all staff a sense of interconnectedness. 

Each year 10 million customers came into contact with approximately five
Scandinavian Airline employees and this contact lasted an average of 15
seconds each time, meaning 50 million “moments of truth” that would
ultimately determine whether the airline would succeed or fail as a
company. The impact of mapping and improving the customer experience, and
the improved empowerment of staff to best decide on the delivery of those
moments brought results.

The Moment of Truth concept is powerful. And, it has now crossed over into
sales and marketing as others have embraced the term to describe different
customer and consumer behaviors.

Some 20 years later, in 2005, A.G. Lafley, Chairman, President and CEO of
Procter & Gamble, came up with his version of Moments of Truth. Rather than
customer service, these were focused on consumer sales. Basically, he said
there were two Moments of Truth, and he later added a third:

1. The first Moment of Truth is when the customer is looking at a product.

This can be in-store or online.
2. The second Moment of Truth is when the customer actually purchases
the product and uses it.
3. The third Moment of Truth that he added is when customers provide
feedback about the product. They share it with the company as well as
their friends, colleagues, family members, etc

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