Strategy Formulation in Industry Situations
Strategy formulation needs to be carefully adapted to the nature and dynamics of the industry a
company operates in. Different industry situations pose distinct challenges and opportunities that
demand nuanced strategic approaches.
1. Strategy-Making Challenges in Emerging Industries
Emerging industries are those in the early stages of their life cycle, often characterized by rapid
innovation, evolving standards, and uncertain customer preferences.
Challenges:
• Technological uncertainty: Competing technologies may exist with no clear standard.
• Uncertain demand: Customer preferences and demand patterns are still forming.
• High initial costs: R&D, marketing, and infrastructure require heavy investment.
• Regulatory uncertainty: Laws and regulations may be undefined or rapidly evolving.
• Lack of infrastructure: Complementary industries, distribution channels, and suppliers
may be underdeveloped.
Strategic considerations:
• Establish first-mover advantages cautiously.
• Focus on learning, flexibility, and customer education.
• Form alliances to share risks and accelerate market development.
2. Strategies for Turbulent Industries
Turbulent industries experience rapid and unpredictable changes due to technological disruption,
regulatory shifts, or shifting consumer behaviors.
Strategies:
• Agility and adaptability: Rapid adjustment of strategies and operations.
• Diversification of risks: Spreading operations across multiple markets or technologies.
• Scenario planning: Preparing for various possible futures.
• Continuous innovation: Staying ahead through R&D and product development.
• Strong market sensing: Maintaining close connections with customers, suppliers, and
regulators.
3. Strategies for Maturing Industries
Maturing industries exhibit slowing growth, more stable technologies, and intensifying
competition.
Strategies:
• Product/service differentiation: Revamp products to appeal to niche segments.
• Process innovation: Improve efficiency to lower costs and protect margins.
• Expand globally: Seek markets where the industry is still growing.
• Acquisitions and consolidations: Strengthen market position through mergers.
• Customer retention strategies: Increase loyalty via enhanced services and branding.
4. Strategies for Fragmented Industries
Fragmented industries have many small competitors, low entry barriers, and no dominant players.
Strategies:
• Focus strategies: Serve narrow market niches better than competitors.
• Geographic expansion: Gradually build regional or national presence.
• Standardization: Bring standard practices to fragmented operations.
• Consolidation: Acquire smaller firms to achieve scale economies.
5 Strategies for Leaders in Weak or Declining Industries
Weak or declining industries face shrinking demand, excess capacity, and reduced profitability.
Strategies:
• Leadership in niche segments: Focus on profitable niches that competitors overlook.
• Harvesting strategy: Maximize short-term cash flows and gradually exit.
• Divestment or exit: Sell the business or exit before profitability collapses.
• Restructuring or repositioning: Shift business focus to reinvigorate demand.
6. Thirteen Commandments for Crafting Successful Strategy
Arthur A. Thompson & A.J. Strickland proposed these “commandments” as guidelines:
1. Stay on offense—Initiate strategic moves.
2. Avoid competitive middle ground.
3. Use strategic intent to guide actions.
4. Build capabilities to outcompete rivals.
5. Aim for sustainable competitive advantage.
6. Aggressively pursue growth opportunities.
7. Concentrate resources on high-opportunity areas.
8. Strengthen market positions continually.
9. Integrate activities for synergy.
10. Lead the industry change proactively.
11. Employ creative strategies.
12. Match strategy to organizational strengths.
13. Maintain strategic flexibility.
7. Strategy and Competitive Advantage in Diversified Companies
Diversified companies operate in multiple industries or markets. Their strategy aims to create
synergies and gain competitive advantage across business units.
Sources of advantage:
• Economies of scope: Sharing resources, capabilities, or technologies.
• Cross-business synergies: Leveraging competencies across units.
• Parenting advantage: Adding value through superior management oversight.
• Portfolio management: Balancing high-growth and stable businesses for risk mitigation.
8. Diversification: Types, Advantages, Disadvantages
Types of Diversification:
• Related Diversification: Entry into industries with synergies to the core business.
• Unrelated Diversification: Entry into entirely different industries.
Advantages:
• Risk reduction via revenue stream diversification.
• Potential synergies (cost savings, resource sharing).
• Capitalizing on core competencies in new markets.
Disadvantages:
• Increased complexity in management.
• Dilution of core business focus.
• Risk of poor capital allocation.
9. Strategies for Entering into New Business
• Internal development: Build a new business organically.
• Acquisition: Purchase an existing firm to enter the industry quickly.
• Joint ventures/strategic alliances: Partner with another firm to share risks and expertise.
• Licensing and franchising: Use another firm’s resources or market access.
• Vertical integration: Enter upstream (suppliers) or downstream (distributors) segments.
10. Strategic Options
Firms can choose from various broad strategic directions:
• Growth strategies: Market penetration, market development, product development,
diversification.
• Stability strategies: Maintain current business position.
• Retrenchment strategies: Reduce scale or scope (divestitures, liquidation).
• Global strategies: Expand into international markets.
• Blue Ocean strategies: Create uncontested market spaces.
Conclusion
Crafting effective strategies depends on understanding the specific industry context and leveraging
company strengths accordingly. Executives need to be agile, proactive, and aware of both internal
and external dynamics to sustain competitive advantage.
