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.

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-togood 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

1. Falling demand for the product and limited growth potential.

2. A shrinking number of competitors (survivors gain market share through attrition).

3. Little product line variety.

4. Little, if any, investment in research and development or plant and equipment.

The competitive position of an SBU should depend not only on market share but also on such factors as capacity utilization, current profitability, degree of integration (forward or backward), distinctive product advantages (e.g., patent protection), and management strength (e.g., willingness to take risks). These factors may be studied for classifying a given SBU in one of the following competitive positions: dominant, strong, favorable, tenable, or weak. An example of a dominant firm is IBM in the computer field; its competitors pattern their behavior and strategies on what IBM does. In the beer industry, Anheuser-Busch exemplifies a strong firm, a firm able to make an independent move without being punished by the major competitor. Determining strategic competitive position is one of the most complex elements of business analysis and one of the least researched. With little state-of-theart guidance available, the temptation is to fall back on the single criterion of market share, but the experiences of successful companies make it clear that determining competitive position is a multifaceted problem embracing, for example, technology, breadth of product line, market share, share movement, and special market relationships. Such factors change in relative importance as industry maturity changes.

Choice of Strategy

To bridge the gap between broad guidelines and specific strategies for implementation, further analysis is required. A three-stage process is suggested here. First, using broad guidelines, the SBU management may be asked to state strategies pursued during previous years. Second, these strategies may be reviewed by using selected performance ratios to analyze the extent to which strategies were successfully implemented. Similarly, current strategies may be identified and their link to past strategies established. Third, having identified and analyzed past and current strategy with the help of strategic guidelines, the management, using the same guidelines, selects the strategy it proposes to pursue in the future. The future perspective may call for the continuation of current strategies or the development of new ones. Before accepting the future strategic course, however, it is desirable to measure its cash consequences or internal deployment (i.e., percentage of funds generated that are reinvested). Different product/market plans are reviewed at the SBU level. The purpose of this review is twofold: (a) to consider product/market strategies in finalizing SBU strategies and (b) to approve product/market strategies. The underlying criterion for evaluation is a balanced achievement of SBU goals, which may be specified in terms of profitability and cash consequences. If there is a conflict of interest between two product/market groups in the way the strategy is either articulated or implemented, the conflict should be resolved so that SBU goals are maximized. Assume that both product/market groups seek additional investments during the next two years. Of these, the first product/market will start delivering positive cash flow in the third year.

The second one is not likely to generate positive cash flow until the fourth year, but it will provide a higher overall return on capital. If the SBU’s need for cash is urgent and if it desires additional cash for its goals during the third year, the first product/market group will appear more attractive. Thus, despite higher profit expectations from the second product/market group, the SBU may approve investment in the first product/market group with a view to maximizing the realization of its own goals. At times, the SBU may require a product/market group to make additional changes in its strategic perspective before giving its final approval. On the other hand, a product/market plan may be totally rejected and the group instructed to pursue its current perspective. Industry maturity and competitive position analysis may also be used in further refining the SBU itself. In other words, after an SBU has been created and is analyzed for industry maturity and competitive position, it may be found that it has not been properly constituted. This would require redefining the SBU and undertaking the analysis again. Drawing an example from the car radio industry, considerable differences in industry maturity may become apparent between car radios with built-in cassette players and traditional car radios. Differences in industry maturity or competitive position may also exist with regard to regional markets, consumer groups, and distribution channels. For example, the market for cheap car radios sold by discount stores to end users doing their own installations may be growing faster than the market served by specialty retail stores providing installation services. Such revelations may require further refinement in formulating SBUs. This may continue until the SBUs represent the highest possible level of aggregation consistent with the need for clear-cut analyses of industry maturity and competitive position.