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Competitive  Advantage  in  Mature  Industries. "Inefficiency in mature firms can be pervasive and institutionalised. Its elimination then requires shock treatment …" (Robert M Grant)

Editor: This chapter helped clarify for me the “what” and “why” of some of the issues which a company operating in a mature industry faces. Equally important the content applies to most related customers, which are usually also operating in mature industries/markets.

Will your customers be smart enough to survive long enough to pay your invoices? Read on:

"Inefficiency in mature firms can be pervasive and institutionalised. Its elimination then requires shock treatment in the form of a threat to the existence of the firm (e.g. an oil price collapse) or a change in management through acquisition." (page 295).

"In general, the profitability of mature industries is constrained by

(1)   sluggish demand growth and

(2)   lack of product differentiation and

(3)   customers' bargaining power.

However, sharp differences in profit rates can arise between industry segments."

"As a result, choice of segments is likely to be a key strategy issue in mature industries." (page 297).

"Cost leadership ... is difficult to sustain, particularly in internationally competitive industries. ... attaining some insulation from the constant threat of price competition through some degree of differentiation is particularly attractive in mature industries. ... Product standardisation is frequently accompanied by increased differentiation of complementary services and image."

"Across a broad range of mature industries we can observe firms attempting to escape from the treadmill of price competition among standardised offerings, through a multitude of differentiation variables." (page 298).

Editor: I find support for the difference which we in Credit can make in the words - increased differentiation of complementary services - quoted above. This is the added value part of our 'dual role', the part which clearly could be an essential ingredient in any differentiated product offering.

"... limited opportunities for establishing sustainable competitive advantage ... create impetus for innovation in marketing, product design, customer service and organisation." (page 299)

"The propensity for strategic innovation in mature industries to be led by outsiders may reflect the tendency for long-established firms and their executives to be trapped within conventional thinking concerning key success factors and business practices within their own industries." (page 302).

Finally;

"It is not that the goal of cost efficiency has been superseded but rather that the conditions for cost efficiency have changed. ... The requirements for dynamic efficiency are different from the requirements for static efficiency. Dynamic efficiency requires the displacement of bureaucratically controlled, highly specialised routines by more flexible working practices. Flexibility requires higher levels of autonomy not only for divisional and plant managers but also for individual employees to permit them to adjust their work to meet changing circumstances." (page 306).

"The essence of dynamic is smooth, rapid adjustment to change. ... in addition to being cost efficient, companies in the advanced industrialised countries have been forced to seek new sources of competitive advantage through innovation and differentiation.

Reconciling the pursuit of scale economies with the need for responsiveness and flexibility and the requirements of cost efficiency with the growing need for innovation and differentiation is a complex challenge facing mature businesses.

Many of the most successful companies in mature industries are ones that have

achieved flexibility through a dismantling of bureaucratic structures and procedures,

exploited the potential that new process technology offers for combining variety and flexibility with efficiency,

encouraged high levels of employee commitment and

rigorously imposed cost efficiency through tight financial controls."

(pages 310/311).

 

Extracted from: "Contemporary Strategy Analysis - Concepts, Techniques, Applications" Second Edition, by Robert M Grant (Georgetown University).

Copyright © Robert M Grant 1995 ISBN 1-55786-513-2.

Editor: Ron Wells

 
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Last Updated:  January 02, 2017 17:17 -0000