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3. Competitive Advantages and Strategic Choices in Growing Industries
a) Rapid growth brings new competitors into the industry.
(1) Oftentimes, those new entrants are large competitors with substantial
(2) At this stage, growth industry strategies that emphasize brand
(3) Accelerating demand means scaling up production or service capacity to
(4) Doing so may place a premium on being able to adapt product design and
(5) Increased investment in plant and equipment, in research and development
b) For success in this industry setting, business strategies require one or more of
the following features:
(1) The ability to establish strong brand recognition through promotional
resources and skills that increase selective demand.
(2) The ability and resources to scale up to meet increasing demand, which
4. Competitive Advantages and Strategic Choices in Mature Industry Environments
a) As an industry evolves, its rate of growth eventually declines.
(1) This “transition to maturity” is accompanied by several changes in its
competitive environment:
(a) Competition for market share becomes more intense as firms in the
industry are forced to achieve sales growth at one another’s expense.
(b) Firms working with the mature industry strategies sell increasingly
to experienced, repeat buyers who are now making choices among
known alternatives.
b) These changes necessitate a fundamental strategic reassessment. Strategy
elements of successful firms in maturing industries often include the following:
(1) Product line pricing, or dropping unprofitable product models, sizes, and
options from the firm’s product mix.
(2) Emphasis on process innovation that permits low-cost product design,
(3) Emphasis on cost reduction through exerting pressure on suppliers for
(4) Careful buyer selection to focus on buyers who are less aggressive, more
c) Business strategists in maturing industries must avoid several pitfalls.
(1) First, they must make a clear choice among the three generic strategies and
(2) Second, they must avoid sacrificing market share too quickly for short-
(3) Finally, they must avoid waiting too long to respond to price reductions,
5. Competitive Advantages and Strategic Choices in Declining Industries
a) Declining industries are those that make products or services for which demand
(1) This slow growth or decline in demand is caused by technological
b) Firms in a declining industry should choose strategies that emphasize one or
more of the following themes:
(1) Focus on segments within the industry that offer a chance for higher
(2) Emphasize product innovation and quality improvement, where this can be
(3) Emphasize production and distribution efficiency by streamlining
(4) Gradually harvest the business—generate cash by cutting down on
c) Strategists who incorporate one or more of these themes into the strategy of
F. Competitive Advantage in Fragmented Industries
1. Fragmented industries are another setting in which identifiable types of competitive
b) Fragmented industries are found in many areas of the economy and are common
2. Tightly managed decentralization
a) Fragmented industries are characterized by a need for intense local coordination,
b) Recently, however, successful firms in such industries have introduced a high
3. “Formula” facilities
a) This alternative, related to the previous one, introduces standardized, efficient,
4. Increased value added
a) The products or services of some fragmented industries are difficult to
5. Specialization
a) Focus strategies that creatively segment the market can enable firms to cope
with fragmentation. Specialization can be pursued by:
(1) Product type. The firm builds expertise focusing on a narrow range of
(2) Customer type. The firm becomes intimately familiar with and serves the
needs of a narrow customer segment.
b) Although specialization in one or more of these ways can be the basis for a
6. Bare bones/no frills
a) Given the intense competition and low margins in fragmented industries, a “bare
G. Competitive Advantage in Global Industries
1. Global industries present a final setting in which success is often associated with
identifiable sources of competitive advantage.
a) A global industry is one that comprises firms whose competitive positions in
b) To avoid strategic disadvantages, firms in the global industries are virtually
2. Global industries have four unique strategy-shaping features:
a) Differences in prices and costs from country to country due to currency
3. These unique features and the global competition of global industries require that two
4. Three basic options can be sued to pursue global market coverage:
a) License foreign firms to produce and distribute the firm’s products.
5. Along with the market coverage decision, strategists must scrutinize the condition of
a) Broad-line global competition—directed at competing worldwide in the full
b) Global focus strategy—targeting a particular segment of the industry for
c) National focus strategy—taking advantage of differences in national markets
d) Protected niche strategy—seeking out countries in which governmental
6. Competing in global industries has become a reality for most businesses in virtually
IV. Dominant Product/Service Businesses: Evaluating and Choosing to Diversify to Build Value
A. Many dominant product businesses face the question of whether to focus its core business
1. What grand strategies are best suited to continue to build value?
B. Grand Strategy Selection Matrix
1. One valuable guide to the selection of a promising grand strategy is called the Grand
strategy selection matrix shown in Exhibit 8.10.
a) The basic idea underlying the matrix is that two variable s are or central concern
2. In the past, planners were advised to follow certain rules or prescriptions in their
choice of strategies.
a) Now, most experts agree that strategy selection is better guided by the
b) It should be noted, however, that even the early approaches to strategy selection
3. The same considerations led to the development of the grand strategy selection
matrix.
a) A firm in quadrant I, with “all its eggs in one basket,” often views itself as over -
risks.
b) One reasonable solution is vertical integration, which enables the firm to
c) Another is conglomerate diversification, which provides a profitable
d) However, the external approaches to overcoming weaknesses usually result in
e) Acquiring a second business demands large investments of time and sizable
f) Thus, strategic managers considering these approaches must guard against
4. More conservative approaches to overcoming weaknesses are found in quadrant II.
a) Firms often choose to redirect resources from one internal business activity to
another.
b) This approach maintains the firm’s commitment to its basic mission, rewards
c) The least disruptive of the quadrant II strategies is retrenchment, pruning the
d) If the weaknesses of the business arose from inefficiencies, retrenchment can
f) Divestiture offers the best possibility of recouping the firm’s investment, but
5. A common business adage states that a firm should build from strength.
a) The premise of this adage is that growth and survival depend on an ability to
b) If a firm believes that this approach will be profitable and prefers an internal
c) As shown in quadrant III, the most common approach is concentrated growth,
d) The firm that selects this strategy is strongly committed to its current products
e) It strives to solidify its position by reinvesting resources to fortify its strengths.
6. Two alternative approaches are market development and product development.
a) With these strategies, the firm attempts to broaden its operations.
b) Market development is chosen if the firm’s strategic managers feel that its
existing products would be well received by new customer groups.
7. Maximizing a firm’s strengths by aggressively expanding its base of operations
usually requires an external emphasis.
a) The preferred options in such cases are shown in quadrant IV.
b) Horizontal integration is attractive because it makes possible a quick increase
8. Concentric diversification is a good second choice for similar reasons.
a) Because the original and newly acquired businesses are related, the distinctive
9. The final alternative for increasing resource capability through external emphasis is a
joint venture or strategic alliance.
a) This alternative allows a firm to extend its strengths into competitive arenas that
it would be hesitant to enter alone.
b) A partner’s production, technological, financial, or marketing capabilities can
C. Model of Grand Strategy Clusters
1. A second guide to selecting a promising strategy is the grand strategy cluster shown
in Exhibit 8.11, Model of Grand Strategy Clusters.
a) The figure is based on the idea that the situation of a business is defined in terms
(1) Strong competitive position in a rapidly growing market
(quadrant I)
c) Each of these quadrants suggests a set of promising possibilities for the
2. Firms in quadrant I are in an excellent strategic position.
a) One obvious grand strategy for such firms is continued concentration on their
current business as it is currently defined.
b) Because consumers seem satisfied with the firm’s current strategy, shifting
notably from it would endanger the firm’s established competitive advantages.
3. Firms in quadrant II must seriously evaluate their present approach to the
marketplace.
a) If a firm has competed long enough to accurately assess the merits of its current
b) Depending on the answers to these questions, the firm should choose one of four
4. In a rapidly growing market, even a small or relatively weak business often is able to
find a profitable niche.
a) Thus, formulation or reformulation of a concentrated growth strategy is usually
b) However, if the firm lacks either a critical competitive element or sufficient
c) A final pair of options involves deciding to stop competing in the market or
d) A multiproduct firm may conclude that it is most likely to achieve the goals of
5. Strategic managers tend to resist divestiture because it is likely to jeopardize their
control of the firm and perhaps even their jobs.
a) Thus, by the time the desirability of divestiture is acknowledged, businesses
b) The consequences of such delays are financially disastrous for firm owners
6. Strategic managers who have a business in quadrant III and expect a continuation of
a) Minimal withdrawal is accomplished through retrenchment; this strategy has the
b) An alternative approach is to divert resources for expansion through investment
c) This approach typically involves either concentric or conglomerate
d) The final options for quadrant III businesses are divestiture, if an optimistic
7. Quadrant IV businesses (strong competitive position in a slow-growth market) have a
basis of strength from which to diversify into more promising growth areas.
a) These businesses have characteristically high cash flow levels and limited
b) Thus, they are in an excellent position for concentric diversification into
c) A second option is conglomerate diversification, which spreads investment risk
d) The final option is joint ventures, which are especially attractive to
e) Through joint ventures, a domestic business can gain competitive advantages in
D. Opportunities for Building Value as a Basis for Choosing Diversification or Integration
1. The grand strategy selection matrix and model of grand strategy clusters are useful
a) When considering grand strategies that would broaden the scope of their
b) Opportunities to build value via diversification, integration, or joint venture
c) Such opportunities center around reducing costs, improving margins, or
d) Major opportunities for sharing and value building as well as ways to capitalize
2. Dominant product company managers who choose diversification or integration
eventually create another management challenge.
a) That challenge is charting the future of a company that becomes a collection of
b) These distinct businesses often encounter different competitive environments,
c) The next chapter examines ways managers of such diversified companies
d) Central to their challenge is the continued desire to build value, particularly
