Operation Strategy at maturity stage

Whichever might be the industry, the sharp rapid growth as witnessed in the initial stage does not continue permanently. At some point of time, a stage is encountered where it is not possible to expect rapid growth. A competition environment in the industry changes very widely in many cases during this maturity period.

For example, it becomes difficult to expect the appearance of new applications and new technology. The focus of competition shifts to cost and service. Furthermore, the share of competition including the international competition also becomes very severe and depending upon the case, trends like decline in profits are seen. Besides this, changes take place on various other points and in the methods including research and development, manufacturing, sales and marketing etc.

In this way, the competition environment changes fundamentally during the period of maturity and the enterprise has to adjust and modify its strategy matching these changes. There might be some mistakes in the strategy during the growth period, however, these did not pose big problem and the recovery was also very easy. However, it does not work in this manner during the maturity stage. Much finer aspects and deeper problems need attention during this period. Some of these problems are listed below.

· Organising and integrating the product line.
· Working out the steps for bringing down the cost for the product through standardisation and grouping the common features.
· To study once again in the cost system while maintaining the cost control more strictly.
· Laying more emphasis on improvement of production process rather than product innovation.

Of course, withdrawal is also one of the possibilities that can be selected. On the other hand, if the industrial environment can assure the limited profit, this type of confusion during the conversion stage can be a very good opportunity for those enterprises are considering the entry.

The internal organisational structure also calls for a change matching the change in the strategy. It is also important to carry out the coordination among different departments more strictly as compared to what has done do far in order to achieve cost competition edge. In order to do so, sometimes the directives of decentralization as formed under operation department based organisation is reserved and the centralised authority system is introduced.

During the maturity period, the pioneering spirit falls down. The promotion avenues and chance of rise in salary also become dull. The budget faces severe cuts. In this way, the control intensifies on various fronts. The employees also get a feeling of being deprived of their independence, therefore, it is natural that the desire to work gets affected. The resistance against the change also starts appearing.

Managers are expected to take due care of the feelings of the employees and promote motivation by establishing the promotion standards and reward and performance appraised system etc. The managers are expected to cope up with such sensitive aspects. Generally, it can be said that the capability and the quality as expected from the managers are different in the growth period and the maturity period.

Operation Strategy for information and growth period

New products or services come into existence as result of efforts made by enterprises and individuals where technology reforms, appearance of new consumer needs and the economic as well as social changes are properly incorporated. Various new industries have come into existence in different fields ranging from the light technology area represented by personal computer and optical communication, a while ago, to various service industries of today.

Any new industry has an uncertain future because of various factors like uncertain future prospects of the technology, all the customers are new or the strategy difference has not stabilised. It is also not certain as to what type of competition will prevail. Further, it is very natural that the size of the industry is also not very big. However, though the risk involved is also very big in this type of industry, the possibilities of a very high return are also very high, provided it succeeds. If it works well, it may be possible to create an environment which is which is beneficial for one’s company.

In any new industry, it is very important to construct a perfect system covering procurement of material, production and sales, after taking positive and resolute decisions on the basis of development of creative technology. One must not fear the risks involved even as compared to the quantity of management resources. There are many instances where the venture companies, which do not have very rich management resources, have proved to become the pioneer of the new industries.

This, however, does not mean that the planning is unnecessary. It is necessary to create a feasible scenario which is beneficial to one’s company and then making creative plan and efforts in that direction. This type of scenario can probably be created by systematically developing the product and the technology forecasting, future analysis for the market and competition environment etc.
The most important requirement in particular, in any new industry, is to find out the difference and to fix the customer segment which shall buy the new products from the industry in the initial stage. Therefore, this will require a proper study for fixing the targets on the basis of customer needs and purchasing attitudes as well as the switching cost etc. Further, in this type of industry, there are some sensitive problems while considering how one must confront the competition rival. There is a fear that the industry may face the problem of image, trust and disorientation from the customers. Therefore, it is necessary to establish the cooperative relationship to some extent.

For example, it is possible to widen the technology base through cross- licensing of patents. Sometimes, letting other companies own the company to a small extent, also helps in promoting the popularity of the products. This increases the customer awareness about the product. Further, cooperation on the front of standardisation is also beneficial.

Development Stage of the Industry and Operation Strategy

1. Life cycle of industry
Structure of an enterprise is not something that changes easily. Any enterprises should establish a strategy which matches the industrial environment at the given time.

Let us try to understand the idea of life cycle of a product of an industry here. Any industry grows gradually while passing through various stages.

First of all, the sales do not increase because the new product is not fully known or acknowledged by the general customers at the initial stage on entry. The sales pick up promptly once the merits of the new products have been acknowledged. After some time when almost all the major customers have procured this new product and the demand is mainly restricted to these customers, who want operation go in for a change, it results in dull growth. Finally, the growth rate becomes zero. Further, the sales decline due to severe cost competition as well as the changes in needs. The fall in growth rate and the sales is further severe when new alternate products start appearing.

Further, in actual practice it can not be denied that this type of standardized concept is free from problems. It is not surprising to find some industries, which have recovered the high growth rate through innovations and new application of products, though it is considered to be at a stage of maturity period. The competition pattern probably varies depending upon the industry and it may not be exaggeration to call the method of comparing the industry on the basis of single index i.e. growth rate, a too simple an approach. The structure of an industry changes fundamentally at times and there are various factors besides the growth rate, which force this change. Some of the factors are the change in technology base and characteristics feature of the product, dispersion of monopolistic know how and technology information like patent etc, originality in marketing and the change in appropriate size etc.

However, it is not the structural factors prevalent inside the industry alone, which determine the type of enterprise that should remain or enter in the industry and the type of enterprises which must move out of the industry. There are other important factors which affect the industry strongly. These factors include the policy changes by the Government and structural changes in the related industries like the world of customers or the supplier of the alternate product, the parts supplier, or material and extra finance etc.

It is necessary to formulate the strategy considering various factors, as described above during the stages of developments.

Let us try to understand the operation strategies for different periods, e.g. by dividing the periods in three, namely introduction and growth period, maturity period and decline period.

Operation Strategy during decline period

An industry is called as going through decline period when it is confirmed that its sales figures have been showing a trend of decline for a very long period and there is no hope of reactivation in real sense.

The competition within the industry becomes severe under the conditions when sales have reduced. The extent and trend of this change vary depending upon the forecast regarding the future demand and its uncertainty as well as on the basis of existence of barriers against withdrawal. Further, the negotiation power vis-a-vis the related areas like the suppliers of raw material and parts and the distribution and transportation also weakens.

It is common to consider the rule of selecting one of the two strategies, namely the harvesting strategy in which the capital investment is recovered by earning and increasing the cash flow as far as possible and the immediate withdrawal from the operation during the period of decline, besides the positives efforts to avoid any fresh investments. However, the strategy which the enterprise must adopt during the decline period is also not to so simple to decide in actual practice.

Even in case of decline in industry, there remains some demand ultimately, provided the need has not dried up totally or the alternate product has not driven away the original product completely. Consequently, if a few companies survive in the industry, it may be possible to carry out a rather congenial and interesting business. In such cases, the position of an enterprise in the overall industry can be maintained or improved depending upon the competition environment and the state in which the enterprise is placed. It is also possible to ensure only a particular segment for the business.

Consequently, the survival of only a small number of enterprises in the industry, depends on how many other enterprises withdraw from the field. There are various strategies which can be adopted to take care of such a situation. These include clearly showing the difference in the strength one processes vis-a-vis its competitor or by simply buying the equipment of the rival company and abandoning it. There is another technique of reducing the withdrawal barriers by taking over the OEM production and the production of supplementary parts etc. Even after this type of strategy has shown its results, it may be possible to sustain the position, which has been ensured through this exercise for a longer period and there is also a possibility of shifting to the harvesting strategy or the withdrawal strategy.

Finally, the main points related to harvesting strategy or withdrawal strategy are briefly explained below.

1. Harvesting strategy
In the harvesting strategy, the new investment is restricted very vigorously and efforts are made to recover the capital investment to the maximum, ultimately paving the way for withdrawal. In concrete terms, the small customers are dropped, the product line is organised and integrated. The service standards are lowered and the expenses on public relations exercise are cut to improve the cash flow. Subsequently, it leads to disposing off the operation or resorting to liquidation.

For a smooth perusal of this type of strategy, the enterprise must have the privilege of an industrial environment where the competition is not very severe even during the decline period and the enterprise should have the sufficient strength. There are not many enterprises which can maintain the trust of supplier as well as the customers even while resorting to this type of strategy. Further, it is also a very difficult problem to maintain the high morale of employees when this type of strategy is being pursued.

2.Withdrawal strategy
In the case of withdrawal strategy, the pre-requisite condition is the early disposal of assets at a higher cost during early stage. Once the withdrawal of any industry becomes known publicity, the cost of its assets reduce very widely. Withdrawal from a particular operation does not affect the said operation alone, it has more influence in relation to the other departments of company as well as enterprise image. Therefore, there are many cases, when OEM supplies are obtained from other companies even when the in-house operations have been discontinued. In this way, the business is continued and withdrawal is affected part by part now.

The selection of strategy during the decline period may be decided after due consideration to the further demand forecast and the strengths as well as weaknesses of one’s own company and those of powerful rival company. The analysis of withdrawal barriers and the strategic relationships with the other division in the company also need to be considered.

Follower

Follower enterprise is the one which does not have the pre-dominance in the quality of management resources. A follower enterprise, if it intends to continue its operations shall, for the time being, ensure the profit sufficient enough for sustaining its existence and shall make efforts for accumulating the management resources.

A strategy which it can adopt under circumstances is to copy others. It adopts the manufacturing techniques that have been successfully tried by the bigger enterprises. It aims at a market segment which has either been taken lightly or ignored by the larger enterprises. In other words, it performs the gleaning operation.

Nicher

Nicher refers to those enterprises, which possess special capability or assets, i.e. capable of matching the leader or the challenger in terms of quantity management resources. A nicher enterprise does not try to confront the large enterprises and fight for the market share. It exploits its own special characteristics and ensures for itself the pre-dominance of specified niche market. It makes efforts to establish its name and image and pursue the profits.
The concentrated strategy is also called as nicher strategy sometimes, therefore, a nicher enterprise is the one which adopts the concentrated strategy. A nicher enterprise is leader for a small niche market. Therefore, it works for the overall expansion of demand of its market. It avoids the cost competition as far as possible and makes efforts in maintaining good environment within the niche market.

The typical examples of nicher enterprises are Honda in the passenger car market, specialising in small car Sony in audio-Visual and domestic electrical appliances has special strength in the audio-visual field. Further, both Honda and Sony are already on their way to become challenger from their nicher level or may have already become challengers.

Challenger

The Challenger is an enterprise that matches or even exceeds in comparison with the leader enterprise on the quantity of management resources. However, its management resources are inferior in quality. A Challenger works for expanding the market share and it targets the position held by the leader. Therefore, it is necessary for the Challenger to adopt some progressive strategy in a bold manner that cannot be copied by the leader. It may not serve the purpose for the Challenger, which is inferior in terms of management resources, if it follows a strategy similar to that of the leader or a strategy through which it can follow the leader.

The concentrated strategy is also not very sufficient for the challenger, who is trying to expand its market share considering the shortfalls in the market share. At the present stage, the low cost strategy also has its problems. It is expected of challenger to adopt a strategy based on creation of distinction which cannot be copied by the leader in total.

One of the examples in which the above mentioned strategies showed it effect was Minolta which succeeded in capturing the single lens reflex camera market share, particularly, the auto focus camera (Alfa-7000). The Cannon which is the biggest player, faced difficult problems to follow suit. A single lens reflex camera is composed of a main body and various types of replaceable lenses. Therefore, it was necessary to modify the interface between the main body and the lens, in order to incorporate the functions of auto-focus. Therefore, it became mandatory to provide an absolutely new product line.

Leader

A leader enterprise has nothing lacking in quantity as well as quality of management resources and has already ensured top position in the industry. For a leader, sustaining the holding of maximum share, improvement of reputation and image and maximizing the profit are the obvious targets and the leader has to look around everywhere in all the directions for marching towards these target.
Considering the size of the share, it is important for the leader enterprise to maintain cordial market environment in the industry. Particularly, it should make efforts to increase the overall demand in the industry by cultivating the dormant customers and by development of new applications, It should try to avoid the cost competition as far as possible.

In the event of appearance of an enterprise, which is capable of threatening the position of leader enterprise, it should get involved in the similar competition and explore the possibility of taking advantage on the basis of difference in management resources.

Probably, there should be no objection in calling Philips dealing in audio product, Maruti in passenger cars and United Group dealing in manufacturing of liquor, the leader enterprises. All these enterprises can be considered as following the earlier mentioned strategy almost in full.

Competition Position and Operation Strategy

The operation strategy to be conducted by any enterprise differs depending upon the management resources possessed by the company. Here, position of the company can be classified into four different types namely, leader, challenger, niche and follower on the basis of the quantity (power) of the management resources as well as its quality (skills).

The quantity of management resources means the abundance of capital, size of production capability, number of marketing personnel and the scale of distribution channel.

Quality of management resources is represented by the quality of product, technology standards, brand image and the spirit of the industrial house.

Three basic Strategies

Michael E. Porter has talked about three basic strategies, which are

1. Cost relationship (low cost) strategy,2. Strategy, based on distinction and 3. Controlled strategy.

1. The cost relationship (low cost) strategy
This strategy is based upon the earlier mentioned experience effect. The experience accumulated by acquiring a larger market share and efforts are made to grab the cost leadership. Considering the economy scale also, the cost pre-dominance of leader enterprise becomes very important. However, cost pre-dominance does not depend on market share and scale alone. It is also important that the product should be so designed that the product becomes simpler, the cost may be distributed by perfecting the lines for the other related products and efforts must be made to develop alternate products which involve now raw-material cost.

In this strategy, it is demanded that the managers would implement strictly the cost control including the direct cost, however, there are some exception related to important fields like research and development, advertisement and P.R. and other such market as well as service related activities.

2.Strategy of distinction:
Creation of distinction means an opportunity to appeal something special and different in the service or the product which is to be supplied to the customer. There are various methods which can be considered for the creation of distinction on these include the creation of distinction on the basis of product style or brand image, distinction on the basis of technology, distinction on the basis of customer service and the distinction on the basis of dealer network etc. (here, the creation of distinction does not include those aspects which are based upon low cost).

All these methods are not the alternative methods to each other. It is desirable to implement the creation of distinction on more number of points. Further, in the strategy of distinction, it means that creation of distinction on more number of points. Further, in the strategy of distinction, it means that though the cost is not the prime target of the strategy, it does not mean that the cost can be ignored completely.

The margin can be set at higher level depending upon the brand loyalty of the customer, therefore, it is possible for the manufacturer to survive in the industry even when it is little disadvantageous from the cost point of view. The higher margin percentage and better customer loyalty play an advantageous role even while tacking the threat from alternate product or during negotiations with the supplier. However, it may be noted that the strategy based on creation of distinction has its limitations with regard to the share expansion.

Creations of distinction itself requires some cost and it does not go well with the establishing, which is cost sensitive, on this account. Further depending upon the point on which the creation of distinction is based, it may involve large amount of expanses for maintaining the marketing, research and development, customer services and dealer networking etc.

The customers who pay large amount of money for excellent services, high quality and brand image may not necessarily form the large part of the overall clientele.

3.Concentrated strategy:
Concentrated strategy stands for a strategy in which focus is laid on a specific part or specific customer segment or the original market and not the full line of product field in the industry.

The low cost strategy and the strategy based on creating distinction are meant for the overall products and the markets of the industry, whereas, the concentrated strategy pursues the low cost or the creation of distinction for specific market segment. Both can be achieved in the limited narrow scope.

This was a brief explanation about the three basic strategies. However, in actual practice, the organization, the resources and the business system which are involved in coordination of the strategy also have their respective diversified content.

Typical Competitive Strategy

So far, the explanation laid emphasis on the aspects like cost pre-dominance and market share. However the world of market economy is much more complex, diversified and dynamic and it may not be possible to reason out so easily just with the help of quantity aspects. It may not always be necessary that the cost reduction or expansion of market share becomes the most preferred factors in the strategy to be adopted by the enterprises.

The strategy which is adopted by any enterprise, may always have lots of variations. Competition strategy is a product of creative and direct confronting as well the analytical thought of the people who are involved in its designing. However, the competition strategy, which is prevalent in the actual world can be classified in to a few basic pattern. Here, we shall take up the three patterns mentioned below.

1. The three basic strategies as emphasis by porter.
2. Four competition strategies matching the different market levels.
3. The progress of competition strategy matching the life cycle of the industry.