Determining Sbu Strategy
SBU strategy concerns how to create competitive advantage in each of the products/markets it competes with. The business-unit-level strategy is determined by the three Cs (customer, competition, and company). The experience of different companies shows that, for the purposes of strategy formulation, the strategic three Cs can be articulated by placing SBUs on a two-by-two matrix with industry maturity or attractiveness as one dimension and strategic competitive position as the other.
Industry attractiveness may be studied with reference to the life-cycle stage of the industry (i.e., embryonic, growth, mature, or aging). Such factors as growth rate, industry potential, breadth of product line, number of competitors, market share perspectives, purchasing patterns of customers, ease of entry, and technology development determine the maturity of the industry. As illustrated in Exhibit 9-3, these factors behave in different ways according to the stage of industry maturity. For example, in the embryonic stage, the product line is generally narrow, and frequent changes to tailor the line to customer needs are common. In the growth stage, product lines undergo rapid proliferation. In the mature stage, attempts are made to orient products to specific segments. During the aging stage, the product line begins to shrink.
Going through the four stages of the industry life cycle can take decades or a few years. The different stages are generally of unequal duration. To cite a few examples, personal computers and solar energy devices are in the embryonic category. Home smoke alarms and sporting goods in general fall into the growth category. Golf equipment and steel represent mature industries. Men's hats and rail cars are in the aging category. It is important to remember that industries can experience reversals in the aging processes. For example, roller skates have experienced a tremendous resurgence (i.e., moving from the aging stage back to the growth stage) because of the introduction of polyurethane wheels. It should also be emphasized that there is no "good" or "bad" life-cycle position. A particular stage of maturity becomes "bad" only if the expectations or strategies adopted by an industry participant are inappropriate for its stage of maturity. The particular characteristics of the four different stages in the life cycle are discussed in the following paragraphs.
Embryonic industries usually experience rapid sales growth, frequent changes in technology, and fragmented, shifting market shares. The cash deployment to these businesses is often high relative to sales as investment is made in market development, facilities, and technology. Embryonic businesses are generally not profitable, but investment is usually warranted in anticipation of gaining position in a developing market.
The growth stage is generally characterized by a rapid expansion of sales as the market develops. Customers, shares, and technology are better known than in the embryonic stage, and entry into the industry can be more difficult. Growth businesses are usually capital borrowers from the corporation, producing low-to-good earnings.
In mature industries, competitors, technology, and customers are all known and there is little volatility in market shares. The growth rate of these industries is usually about equal to GNP. Businesses in mature industries tend to provide cash for the corporation through high earnings.
The aging stage of maturity is characterized by
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