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Strategy 267
for 23bn （￡11。6bn） in May 2008。 Chicago…based Wrigley； which launched
its Spearmint and Juicy Fruit gums in the 1890s； has specialized in chewing
gum ever since and consistently outperformed its more diversified petitors。
Wrigley is the only major consumer products pany to grow
fortably faster than the population in its markets and above the rate of
inflation。 Over the past decade or so； for example； other consumer products
panies have diversified。 Gille。。e moved into ba。。eries； used to drive
many of its products； by acquiring Duracell。 Nestlé bought Ralston Purina；
Dreyer’s； Ice Cream Partners and Chef America。 Both have trailed Wrigley’s
performance。
Businesses o。。en lose their focus over time and periodically have to rediscover
their core strategic purpose。 Procter & Gamble is an example of a
business that had to refocus to cure weak growth。 In 2000； the pany was
losing share in seven of its top nine categories； and had lowered earnings
expectations four times in two quarters。 This prompted the pany to
restructure and refocus on its core business： big brands； big customers and
big countries。 They sold off non…core businesses； establishing five global
business units with a closely focused product portfolio。
First…to…market fallacy
Gaining ‘first mover advantage’ are words used like a mantra to justify high
expenditure and a headlong rush into new strategic areas。 This concept is
one of the most enduring in business theory and practice。 Entrepreneurs
and established giants are always in a race to be first。 Research from the
1980s that shows that market pioneers have enduring advantages in distribution；
product…line breadth； product quality and； especially； market
share underscores this principle。
Beguiling though the theory of first mover advantage is； it is probably
wrong。 Gerard Tellis； of the University of Southern California； and Peter
Golder； of New York University’s Stern Business School； argued in their
book Will and Vision： How Lateers Grow to Dominate Markets （2001；
McGraw…Hill Inc。； United States） and subsequent research that previous
studies on the subject were deeply flawed。 In the first instance； earlier
studies were based on surveys of surviving panies and brands；
excluding all the pioneers that failed。 This helps some panies to
look as though they were first to market even when they were not。
Procter & Gamble （P&G） boasts that it created America’s disposablenappy
（diaper） business。 In fact a pany called Chux launched its
product a quarter of a century before P&G entered the market in 1961。
Also； the questions used to gather much of the data in earlier research were
at best ambiguous； and perhaps dangerously so。 For example； the term；
‘one of the pioneers in first developing such products or services；’ was
used as a proxy for ‘first to market’。 The authors emphasize their point by
268 The Thirty…Day MBA
listing popular misconceptions of who were the real pioneers across the
66 markets they analysed。 Online book sales – Amazon （wrong）； Books。
（right） – Copiers； Xerox （wrong）； IBM （right） – PCs； IBM/Apple （both
wrong）； Micro Instrumentation Telemetry Systems （MITS） introduced its
PC the Altair； a 400 kit； in 1974； followed by Tandy Corporation （Radio
Shack） in 1977。
In fact the most pelling evidence from all the research was that nearly
half of all firms pursuing a first…to…market strategy were fated to fail； while
those following fairly close behind were three times as likely to succeed。
Tellis and Golder claim that the best strategy is to enter the market 19 years
a。。er pioneers； learn from their mistakes； benefit from their product and
market development and be more certain about customer preferences。
INDUSTRY ANALYSIS
Aside from articulating the generic approach to business strategy； Porter’s
other major contribution to the field was what has bee known as the
Five Forces theory of industry structure （Figure 12。2）。 Porter postulated that
the five forces that drive petition in an industry have to be understood
as part of the process of choosing which of the three generic strategies to
pursue。 The forces he identified are：
。 Threat of substitution： Can customers buy something else instead of
your product？ For example； Apple； and to a lesser extent Sony； have
laptop puters that are distinctive enough to make substitution
difficult。 Dell； on the other hand； faces intense petition from dozens
of other suppliers with near…identical products peting mostly on
price alone。
。 Threat of new entrants： If it is easy to enter your market； start…up
costs are low and there are no barriers to entry such as IP （intellectual
property） protection； then the threat is high。
。 Supplier power： The fewer the suppliers； usually the more powerful
they are。 Oil is a classic example； where less than a dozen countries
supply the whole market and consequently can set prices。
。 Buyer power： In the food market； for example； with just a few； powerful
supermarket buyers being supplied by thousands of much smaller
businesses； they are o。。en able to dictate terms。
。 Industry petition： The number and capability of petitors is one
determinant of a business’s power。 Few petitors with relatively
less a。。ractive products or services lower the intensity of rivalry in a
sector。 O。。en these sectors slip into oligopolistic （see also Chapter 7；
Economics） behaviour； preferring to collude rather than pete。
Strategy 269
You can see a video clip of Professor Porter discussing the Five Forces model
on the Harvard Business School website （h。。p：//harvardbusinessonline。
hbsp。harvard。edu/hbrol/en/archive/archive。jhtml 》 Strategy and Execution
》 By Author P 》 The Five petitive Forces that Shape petition）。
SHAPING STRATEGY – TOOLS AND
TECHNIQUES
While Porter’s Five Forces approach to strategy formulation is； as far as
business schools are concerned at least； the standard starting point； there
are a number of other tools that an MBA needs to be familiar with。 Some
pre…date Porter； some overlap； while others home in on specific issues。 Like
many such tools； they overlap with those used in marketing and in this book
you will find SWOT （strengths； weaknesses； threats and opportunities） and
perceptual mapping covered in Chapter 3； Marketing。
These are the main tools and techniques an MBA will be expected to
know and understand。
Figure 12。2 Five Forces theory of industry analysis （a。。er Porter）
Threat of new entrants
。 Economies of scale
。 Capital intensity
。 Access to marketing channels
。 Brand loyalty
。 Government regulations
。 IP and other barriers to entry
Industry petition
。 Many petitors
。 Some powerful petitors
。 High exit barriers
。 Strong brands
Buyer power
。 Buyer concentration
。 Relative size； buyer much
bigger
。 Buyers’ ability for backward
or forward integration
。 Price sensitivity
Threat of substitutes
。 Cost of switching
。 Relative price
。 Relative performance
。 Relative quality
Supplier power
。 Concentration of suppliers
。 Not a key customer to suppliers
。 Threat of supplier backward or
forward integration
。 Relative size； suppliers much bigger
Intensity of rivalry
。 Industry growth rate
。 Rate of technological
change
。 Effect of five forces
270 The Thirty…Day MBA
Ansoff’s Growth Matrix
Igor Ansoff； while Professor of Industrial Administration in the Graduate
School at Carnegie Mellon University； published his landmark book； Corporate
Strategy （1965）； where he explained a way of categorizing strategies
as an aid to understanding the nature of the risks involved。 He invited his
students to consider growth options as a square matrix divided into four
segments。 The axes are labelled with products and services running along
the ‘x’ axis； starting with ‘present’ and ‘new’； and markets up the ‘y’ axis
similarly labelled （Figure 12。3）。
Figure 12。3 Ansoff’s Growth Matrix
Existing products New products
Existing markets Market penetration Product development
New markets Market development Diversification
Horizontal
Vertical
Concentric
Conglomerate
Ansoff then went on to assign titles to each type of strategy； in an ascending
scale of risk （you can find out more about the matrix at
strategyvectormodel 》 Theories 》 Ansoff Matrix）：
。 Market penetration； which involves selling more of your existing products
and services to existing customers – the lowest…risk strategy。
。 Product/service development； which involves creating extensions to
your existing products or new products to sell to your existing customer
base。 This is more risky than market penetration； but less risky than
entering a new market where you will face new petitors and may
not understand the customers as well as you do your current ones。
。 Market development involves entering new market segments or pletely
new markets either in your home country or abroad。
。 Diversification is selling new products into new markets； the riskiest
strategy as both are relative unknowns。 Avoid； unless all other strategies
have been exhausted。 Diversification can