CHAPTER 6

STRENGTHENING A COMPANY’S COMPETITIVE POSITIONStrategic Moves, Timing, and Scope of Operations

Student Version

6–2Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Maximizing the Power of a Strategy

Offensive and Defensive

Competitive Actions

Competitive Dynamics and the Timing of Strategic

Moves

Scope of Operations along

the Industry’s Value Chain

Making choices that complement a competitive approach and

maximize the power of strategy

6–3Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

GOING ON THE OFFENSIVE—STRATEGIC OPTIONS TO IMPROVE A FIRM’S MARKET POSITION

♦ Strategic Offensive Principles:● Relentlessly build competitive advantage and

then convert it into sustainable advantage.● Create and deploy resources in ways that cause

rivals to struggle to defend themselves.● Employ the element of surprise as opposed to

doing what rivals expect and are prepared for.● Display a strong bias for swift, decisive, and

overwhelming actions to overpower rivals.

6–4Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Choosing Which Rivals to Attack

Market leaders that are

vulnerable

Runner-up firms with weaknessesin areas where the challenger

is strong

Struggling enterprises on

the verge of going under

Small local and regional

firms with limited capabilities

Best Targets for Offensive Attacks

6–5Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

DEFENSIVE STRATEGIES—PROTECTING MARKET POSITION AND COMPETITIVE ADVANTAGE

Lower the firm’s risk of being attacked

Weaken the impact of an attack

that does occur

Influence challengers to aim their efforts

at other rivals

Purposes of Defensive Strategies

6–6Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

TIMING A FIRM’S OFFENSIVE AND DEFENSIVE STRATEGIC MOVES

♦ Timing’s Importance:● Knowing when to make a strategic move is

as crucial as knowing what move to make.● Moving first is no guarantee of success or

competitive advantage.● The risks of moving first to stake out a

monopoly position must be carefully weighted.

6–7Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

STRENGTHENING A COMPANY’S MARKET POSITION VIA ITS SCOPE OF OPERATIONS

Range of its activities

performed internally

Breadth of its product and

service offerings

Extent of its geographic

market presence and

mix of businesses

Size of its competitive footprint on its market or industry

Defining the Scope of the Firm’s Operations

6–8Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

HORIZONTAL MERGER ANDACQUISITION STRATEGIES

♦ Merger● Is the combining of two or more firms

into a single corporate entity that often takes on a new name.

♦ Acquisition● Is a combination in which one firm, the

acquirer, purchases and absorbs the operations of another firm, the acquired.

6–9Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

VERTICAL INTEGRATION STRATEGIES

♦ Vertically Integrated Firm● Is one that participates in multiple segments

or stages of an industry’s overall value chain.

♦ Vertical Integration Strategy● Can expand the firm’s range of activities

backward into its sources of supply and/or forward toward end users of its products.

6–10Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Types of Vertical Integration Strategies

Full Integration

Partial Integration

TaperedIntegration

Vertical Integration Choices

6–11Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Backwards Integration Towards Suppliers

♦ Integrating Backwards By:● Achieving the same scale economies as outside

suppliers—low-cost based competitive advantage.● Matching or beating suppliers’ production efficiency

with no drop-off in quality—differentiation-based competitive advantage.

♦ Reasons for Integrating Backwards:● Reduction of supplier power● Reduction in costs of major inputs● Assurance of the supply and flow of critical inputs● Protection of proprietary know-how

6–12Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Integrating Forward to Enhance Competitiveness

♦ Reasons for Integrating Forward:● To lower overall costs by increasing channel

activity efficiencies relative to competitors.● To increase bargaining power through control

of channel activities.● To gain better access to end users.● To strengthen and reinforce brand awareness.● To increase product differentiation.

6–13Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

STRATEGIC ALLIANCES AND PARTNERSHIPS

♦ Strategic Alliance● Is a formal agreement between two or more

separate firms in which they agree to work cooperatively toward common objectives.

♦ Joint Venture● Is a type of strategic alliance in which the

partners set up an independent corporate entity that they own and control jointly, sharing in its revenues and expenses.

6–14Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Capturing the Benefits of Strategic Alliances

Picking a good partner

Being sensitive to cultural differences

Recognizing that the alliance must benefit both sides

Adjusting the agreement over time to fit new circumstancesStructuring the

decision-making process for swift

actions

Ensuring both parties keep their

commitments

Strategic Alliance Factors

6–15Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

The Drawbacks of Strategic Alliancesand Partnerships

♦ Culture clash and integration problems due to different management styles and business practices.

♦ Anticipated gains do not materialize due to an overly optimistic view of the synergies or a poor fit of partners’ resources and capabilities.

♦ Risk of becoming dependent on partner firms for essential expertise and capabilities.

♦ Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals.

6–16Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Principle Advantages of Strategic Alliances

♦ They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing.

♦ They are more flexible organizational forms and allow for a more adaptive response to changing conditions.

♦ They are more rapidly deployed—a critical factor when speed is of the essence.