chap006
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McGraw-Hill/Irwin Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.
CHAPTER 6CHAPTER 6
Supplementing the Chosen Competitive
Strategy—Other Important Business Strategy Choices
6-2
Business Strategy Choices to Business Strategy Choices to Complement the Company’s Complement the Company’s Competitive ApproachCompetitive Approach
Strategy considerations in rounding out the company’s overall business strategy includeWhether to enter into strategic alliances or
partnerships
Whether to pursue mergers or acquisitions
Whether to integrate backward or forward into more stages of the industry value chain
6-3
Business Strategy Choices to Business Strategy Choices to Complement the Company’s Complement the Company’s Competitive ApproachCompetitive Approach
Whether to outsource certain value chain activities
Whether and when to initiate offensive strategies to improve the company’s market position
Whether and when to employ defensive strategies to protect the company’s market position
Choosing when to undertake strategic moves—whether to be a first-mover, fast follower or a late-mover
6-4
Strategic Alliances and Strategic Alliances and Collaborative PartnershipsCollaborative Partnerships
Strategic Alliance - formal collaborative arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes
Strategically relevant collaboration
joint contribution of resources
shared risk
shared control
mutual dependence
6-5
Strategic Alliances and Strategic Alliances and Collaborative PartnershipsCollaborative Partnerships
The strategic attractiveness of alliances and collaborative partnerships
Allowing companies to
bundle resources and
competencies that are
more valuable in a joint
effort than when kept
separate
6-6
Reasons Companies Enter Into Reasons Companies Enter Into Strategic AlliancesStrategic Alliances
Expedite the development of new technologies or products
Overcome deficits in technical or manufacturing expertise
To create new skill sets and capabilities by bringing together personnel of each partner
To improve supply chain efficiency
To gain economies of scale inproduction and/or marketing
To acquire or improve market accessvia joint marketing agreements
6-7
Failed Strategic Alliances and Failed Strategic Alliances and Cooperative PartnershipsCooperative Partnerships
Common reasons why as many as 60 percent to 70 percent of alliances fail each year Diverging objectives and priorities
Inability to work well together
Changing conditions that make the purpose of the alliance obsolete
Emergence of more attractive technological paths
Increased marketplace “rivalry” between one or more allies
6-8
The Strategic Dangers Of Relying The Strategic Dangers Of Relying On Alliances For Essential On Alliances For Essential Resources And CapabilitiesResources And Capabilities
The Achilles’ heel of alliances and cooperative partnerships is becoming dependent on other companies for essential expertise and capabilities
A company must ultimately have strategic control of critical resources and capabilities to protect competitiveness and build competitive advantage
6-9
Merger and Acquisition StrategiesMerger and Acquisition Strategies
An attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market opportunities
Merger -- the combining of two or more companies into a single entity, with the newly created company often taking on a new name
Acquisition -- is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired
6-10
Typical Objectives of Mergers and Typical Objectives of Mergers and AcquisitionsAcquisitions
Creating a more cost-efficient operation out of the combined companies
Expanding a company’s geographic coverage
Extending the company’s business into new product categories
Gaining quick access to new technologies or other resources and competitive capabilities
Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities
6-11
Why Mergers And Acquisitions Why Mergers And Acquisitions Sometimes Fail To Produce Anticipated Sometimes Fail To Produce Anticipated ResultsResults
Cost savings are smaller than expected
Gains in competitive capabilities take much longer to realize or may never materialize
Efforts to mesh the corporate cultures can stall because of resistance from organization members
Managers and employees at the acquired may continue to do things as they were done prior to the acquisition
Key employees of the acquired company may leave
6-12
Vertical Integration: Operating Vertical Integration: Operating Across More Industry Value Chain Across More Industry Value Chain SegmentsSegments
Extend a firm’s competitive scope within the same industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
6-13
Potential Advantages of a Vertical Potential Advantages of a Vertical Integration StrategyIntegration Strategy
The two best reasons for vertically integrating into more value chain segments
Strengthen the firm’s competitive position
Boost profitability
6-14
Integrating Backward To Achieve Integrating Backward To Achieve Greater CompetitivenessGreater Competitiveness
For backward integration to boost profitability a company must be able to
Achieve the same scale economies as outside suppliers, and
Match or beat suppliers’ production efficiency with no drop-off in quality
6-15
When Backward Vertical Integration When Backward Vertical Integration Becomes a ConsiderationBecomes a Consideration
Potential situations that create opportunities for cost reduction through backward vertical integration
When suppliers have large profit margins
Where the item being supplied is a major cost component
Where the requisite technological skills are easily mastered or acquired
When powerful suppliers are inclined to raise prices at every opportunity
6-16
Integrating Forward To Enhance Integrating Forward To Enhance CompetitivenessCompetitiveness
Gain better access to end users
Improve market visibility
Include the purchasing experience as a differentiating feature
6-17
Forward Vertical Integration and Forward Vertical Integration and Internet RetailingInternet Retailing
Direct selling and Internet retailing has appeal when there is potential to lower distribution costs, gain a cost advantage over rivals, produce higher margins, or allow for lower prices charged to end users
However, competing against directly against distribution allies can create channel conflict and signal a weak commitment to dealers
6-18
Disadvantages of a Vertical Disadvantages of a Vertical Integration StrategyIntegration Strategy
Boosts capital investment in the industry
Increases business risk if industry growth and profits sour
May slow technological advances if the vertically integrated company is saddled with older technology
Poses all types of capacity-matching problems
May require radically different skills and business capabilities
6-19
Outsourcing Strategies: Narrowing Outsourcing Strategies: Narrowing the Boundaries of the Businessthe Boundaries of the Business
Outsourcing is a consideration when
Activity can be performed better ormore cheaply by outside specialists
Activity is not crucial to achieve asustainable competitive advantage
It improves firm’s ability to innovate
Firm can concentrate on core value chain activities and leverage its resource strengths
6-20
Outsourcing Strategies: Narrowing Outsourcing Strategies: Narrowing the Boundaries of the Businessthe Boundaries of the Business
The big risk of outsourcing
Farming out the wrong types of activities
Hollowing out strategically-important capabilities ultimately damages competitiveness and long-term success in the marketplace
6-21
Strategic Options to Improve a Strategic Options to Improve a Company’s Market Position—The Company’s Market Position—The Use of Strategic OffensivesUse of Strategic Offensives
Strategic offensives are called for when a company
Spots opportunities to gain profitable market share at the expense of rivals or
Has no choice but to try to whittle away at a strong rival’s competitive advantage
The best offensives use resource strengths to attack rivals where they are weak
6-22
Choosing the Basis for Competitive Choosing the Basis for Competitive Attack Attack
Primary offensive strategy options Attack the competitive weaknesses of rivals
Offer a lower price for an equally good or better product
Pursue continuous product innovation
Leapfrog competitors by being the first to market with next generation technology or products
6-23
Choosing the Basis for Competitive Choosing the Basis for Competitive AttackAttack
Adopt and improve on good ideas of other companies
Attack market segments where a key rival make big profits
Maneuver around competitors to capture unoccupied or less contested market territory
Using hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals
6-24
Choosing the Basis for Competitive Choosing the Basis for Competitive AttackAttack
Capture a rare opportunity or secure an industry’s limited resources
Secure the best distributors in a particular geographic region or country
Secure the most favorable retail locations
Tie up the most reliable, high-quality suppliers via exclusive partnerships, long-term contracts, or even acquisition
6-25
Blue Ocean Strategy—A Special Blue Ocean Strategy—A Special Kind of Offensive Kind of Offensive
Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand
Cirque du Soleil has attracted 10 million people annually to its shows by “reinventing the circus” - its audience typically doesn’t attend circus events
6-26
Strategic Options to Protect a Strategic Options to Protect a Company’s Market Position—The Company’s Market Position—The Use of Defensive StrategiesUse of Defensive Strategies
Defensive strategies help fortify a competitive position
Lower the risk of being attacked
Weaken the impact of any attack that occurs
Influence challengers to aim their efforts at other rivals
Good defensive strategies help protect competitive advantage but rarely are the basis for creating it
6-27
Blocking the Avenues Open to Blocking the Avenues Open to ChallengersChallengers
Introduce new features
Add new models
Broaden product line to fill vacant niches
Maintain economy-priced models
Make early announcements about upcoming new products or planned price changes
Grant volume discounts or better financing terms to dealers and distributors to discourage them from experimenting with other suppliers
6-28
Signaling Challengers That Signaling Challengers That Retaliation Is LikelyRetaliation Is Likely
Publicly announce management’s strong commitment to maintain present market share
Publicly commit firm to policy ofmatching rivals’ terms or prices
Maintain war chest of cash reserves
Make occasional counter-responseto moves of weaker rivals
6-29
Timing A Company’s Strategic Timing A Company’s Strategic MovesMoves
When to make a strategic move is often as crucial as what move to make:
First-mover advantages arise when
Pioneering helps build a firm’s image and reputation with buyers
Early commitments produce an absolute cost advantage over rivals
First-time customers remain strongly loyal in making repeat purchases
Constitutes a preemptive strike, making imitation extra hard or unlikely
6-30
Late-Mover Advantages and First-Late-Mover Advantages and First-Mover DisadvantagesMover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
When pioneering leadership is more costly than imitation
When innovators’ products are primitive, not living up to buyer expectations
When the demand side of the market is skeptical about the benefits of new technology/product of a first-mover
When rapid technological change allows followers to leapfrog pioneers
6-31
Deciding Whether to Be an Early Deciding Whether to Be an Early Mover or Late MoverMover or Late Mover
Key issue – Is the race to market leadership in an industry a marathon or a sprint?
Seeking a competitive advantage by being a first-mover involves addressing several questions Does market takeoff depend on development of
complementary products or services not currently available?
Is new infrastructure required before buyer demand can surge?
Will buyers need to learn new skills or adopt new behaviors?
Are there influential competitors in a positionto delay or derail the efforts of a first-mover?