Strategy
Today’s leading edge technology is tomorrow’s commodity.Identifying the technology that will be popular tomorrow entails risk.Small companies can afford to take only a single position. They devote all their resources to that position.If they have made the right bet they survive and grow. Losers leave the market.Larger companies can pursue a variety of options, while waiting for the smoke
to clear. By diversifying to reduce risk, large companies average their
wins and losses.
Mature markets reduce the friction between companies. Reducing friction
between companies reduces the advantage of vertical integration. Market pricing provides a more efficient mechanism than transfer pricing. When
the market efficiency gain exceeds the residual friction of the market,
companies can reorganize to produce the product through a network of
companies each exercising its own distinctive competence. Economies
of scope replace scale economies as companies provide a more focused
set of activities with greater competence for a larger audience.
A company may be a market leader and shaper making big bets. It may be an agile follower, or may take steps to reserve its right to enter a field at a later date. Companies
establish various postures in a marketplace depending on their own
distinctive competencies and the uncertainty associated with the
marketplace. Startup companies are generally limited to placing big
bets.
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Retail Strategy
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Small to mid-sized retailers are under increasing pressure to adapt to technology. Reduced friction in the markets translates into pressure on margins. Shoppers expect full service retailers to match the best prices on the Internet. Typical retail markups of 100% are increasingly hard to sustain. As sales dry up, pressure on overheads mounts. Inventory must be reduced. Relationships with manufacturers and distributors must change. Forward looking players are changing the nature of these strategic relationships and small retailers must be able to adapt.
Smaller lot sizes, more frequent orders, continuous inventory counting, drop shipment, custom manufacture can all help to preserve profits in the face of decreasing margins.
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