6

Supplementing
Chapter Title
the Chosen
Competitive
Strategy

Screen graphics created by:

15/e PPT Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region

McGraw-Hill/Irwin © 2007 The McGraw-Hill Companies, Inc. All rights reserved.

Fig. 6.1: A Company’s Menu of Strategy Options

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 Collaborative Strategies:
Alliances and Partnerships
Companies sometimes use
strategic alliances or
collaborative partnerships to
complement their own strategic
initiatives and strengthen their
competitiveness. Such
cooperative strategies go beyond
normal company-to-company
dealings but fall short of merger
or full joint venture partnership.
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 Alliances Can Enhance a
Firm’s Competitiveness
 Alliancesand partnerships can help companies
cope with two demanding competitive challenges
 Racing against rivals to build a
market presence in many
different national markets
 Racing against rivals to seize
opportunities on the frontiers
of advancing technology

 Collaborative arrangements can help a company

lower its costs and/or gain access to needed
expertise and capabilities
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 Characteristics of a Strategic Alliance

 Strategic alliance – A formal agreement between two or

more separate companies where there is
 Strategically relevant collaboration of some sort
 Joint contribution of resources
 Shared risk
 Shared control
 Mutual dependence
 Alliances often involve
 Joint marketing
 Joint sales or distribution
 Joint production
 Design collaboration
 Joint research
 Projects to jointly develop new technologies or products
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 Potential Benefits of Alliances to
Achieve Global and Industry Leadership
 Get into critical country markets quickly to accelerate
process of building a global presence
 Gain inside knowledge about unfamiliar markets and
cultures
 Access valuable skills and competencies concentrated
in particular geographic locations
 Establish a beachhead to participate in target industry
 Master new technologies and build new expertise faster
than would be possible internally
 Open up expanded opportunities in target industry by
combining firm’s capabilities with resources of partners
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 Why Alliances Fail

 Ability of an alliance to endure depends on

 How well partners work together
 Success of partners in responding
and adapting to changing conditions
 Willingness of partners to
renegotiate the bargain
 Reasons for alliance failure
 Diverging objectives and priorities of partners
 Inability of partners to work well together
 Changing conditions rendering purpose of alliance obsolete
 Emergence of more attractive technological paths
 Marketplace rivalry between one or more allies
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 Merger and Acquisition Strategies

 Merger – Combination and pooling of equals, with

newly created firm often taking on a new name
 Acquisition– One firm, the acquirer, purchases
and absorbs operations of another, the acquired
 Merger-acquisition strategy
 Much-used strategic option
 Especially suited for situations where
alliances do not provide a firm with needed
capabilities or cost-reducing opportunities
 Ownership allows for tightly integrated operations,
creating more control and autonomy than alliances
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 Objectives of Mergers and Acquisitions

 To create a more cost-efficient operation

 To expand a firm’s geographic coverage
 Toextend a firm’s business into new
product categories or international markets
 Togain quick access to new technologies
or competitive capabilities
 Toinvent a new industry and lead the
convergence of industries whose boundaries
are blurred by changing technologies and
new market opportunities
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 Pitfalls of Mergers and Acquisitions

 Combining operations may result in

 Resistance from rank-and-file employees

 Hard-to-resolve conflicts in management styles and

corporate cultures

 Tough problems of integration

 Greater-than-anticipated difficulties in
 Achieving expected cost-savings

 Sharing of expertise

 Achieving enhanced competitive capabilities

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 Vertical Integration Strategies

 Extenda firm’s competitive scope within

same industry
 Backward into sources of supply
 Forward toward end-users of final product

 Can aim at either full or partial integration

Internally Activities, Costs,

Activities,
Performed & Margins of Buyer/User
Costs, &
Activities, Forward Channel Value
Margins of
Costs, & Allies & Chains
Suppliers
Margins Strategic Partners

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 Strategic Advantages
of Backward Integration
 Generates cost savings only if volume needed is
big enough to capture efficiencies of suppliers
 Potential to reduce costs exists when
 Suppliers have sizable profit margins
 Item supplied is a major cost component
 Resource requirements are easily met
 Can produce a differentiation-based competitive
advantage when it results in a better quality part
 Reduces risk of depending on suppliers of crucial
raw materials / parts / components
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 Strategic Advantages
of Forward Integration
 To
gain better access to end users
and better market visibility
 Tocompensate for undependable distribution
channels which undermine steady operations
 To
offset the lack of a broad product line, a firm
may sell directly to end users
 Tobypass regular distribution channels in favor of
direct sales and Internet retailing which may
 Lower distribution costs
 Produce a relative cost advantage over rivals
 Enable lower selling prices to end users
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 Strategic Disadvantages
of Vertical Integration
 Boosts resource requirements
 Locks firm deeper into same industry
 Results in fixed sources of supply and
less flexibility in accommodating buyer
demands for product variety
 Poses all types of capacity-matching problems
 May require radically different skills / capabilities
 Reduces flexibility to make changes in component
parts which may lengthen design time and ability to
introduce new products
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 Pros and Cons of
Integration vs. De-Integration
 Whether vertical integration is a viable
strategic option depends on its
 Ability to lower cost, build expertise,
increase differentiation, or enhance
performance of strategy-critical activities
 Impact on investment cost, flexibility,
and administrative overhead
 Contribution to enhancing a firm’s competitiveness

Many companies are finding that

de-integrating value chain activities is a
more flexible, economic strategic option!
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 Outsourcing Strategies

Concept
Outsourcing involves withdrawing from
certain value chain activities and relying
on outsiders to supply needed products,
support services, or functional activities
Internally
Performed
Activities Functional
Suppliers
Activities

Support Distributors
Services or Retailers

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 When Does Outsourcing
Make Strategic Sense?
 Activity can be performed better or
more cheaply by outside specialists
 Activity is not crucial to achieve a
sustainable competitive advantage
 Risk exposure to changing technology and/or
changing buyer preferences is reduced
 It improves firm’s ability to innovate
 Operations are streamlined to
 Improve flexibility
 Cut time to get new products into the market
 It increases firm’s ability to assemble diverse kinds of
expertise speedily and efficiently
 Firm can concentrate on “core” value chain activities that
best suit its resource strengths
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 Risk of an Outsourcing Strategy

 Farming out too many or the wrong activities,

thus
 Hollowing out capabilities

 Losing touch with activities and expertise that

determine overall long-term success

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 Offensive and Defensive Strategies

Offensive Strategies Defensive Strategies

Used to build new Used to protect
or stronger market competitive advantage
position and/or create (rarely lead to creating
competitive advantage advantage)

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 Principles of Offensive Strategies

 Focus relentlessly on
 Building competitive advantage and
 Striving to convert it into decisive advantage
 Employthe element of surprise as
opposed to doing what rivals expect
 Apply
resources where rivals are least able to
defend themselves
 Be impatient with the status quo and display a
strong bias for swift, decisive actions to boost a
firm’s competitive position vis-à-vis rivals
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 Types of Offensive Strategy Options

1. Offer an equally good or better product at a lower

price
2. Leapfrog competitors by being
 First adopter of next-generation technologies or
 First to market with next-generation products
3. Pursue continuous product innovation
to draw sales and market share away
from less innovative rivals
4. Adopt and improve on the
good ideas of other companies
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Types of Offensive Strategy Options (con’t)

5. Deliberately attack market segments where a key

rival makes big profits
6. Attack competitive weaknesses of rivals
7. Maneuver around competitors and
concentrate on capturing unoccupied
or less contested market territory
8. Use hit-and-run or guerrilla warfare tactics to grab
sales and market share from complacent rivals
9. Launch a preemptive strike to secure an
advantageous position that rivals are prevented
from duplicating
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 Using Offensive Strategy to
Achieve Competitive Advantage
 Strategicoffensives offering strongest basis for
competitive advantage entail
 An important core competence

 A unique competitive capability

 A better-known brand name

 A cost advantage in manufacturing

or distribution

 Technological superiority

 A superior product
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 Defensive Strategy

Objectives
 Lessen risk of being attacked
 Blunt impact of any attack that occurs
 Influence challengers to aim attacks at other rivals
Approaches
 Block avenues open to challengers
 Signal challengers vigorous
retaliation is likely
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 Block Avenues Open to Challengers
 Participate in alternative technologies
 Introduce new features, add new models, or broaden
product line to close gaps rivals may pursue
 Maintain economy-priced models
 Increase warranty coverage
 Offer free training and support services
 Reduce delivery times for spare parts
 Make early announcements about new
products or price changes
 Challenge quality or safety of rivals’ products
using legal tactics
 Sign exclusive agreements with distributors
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 Signal Challengers Retaliation Is Likely

 Publicly
announce management’s strong
commitment to maintain present market share

 Publicly
commit firm to policy of
matching rivals’ terms or prices

 Maintain war chest of cash reserves

 Make occasional counter-response

to moves of weaker rivals
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 Web Site Strategies

 Strategic Challenge – What use of the Internet

should a company make in staking out its position
in the marketplace?
 Five Web site approaches
 Use to disseminate only product information
 Use as minor distribution channel
to sell direct to customers
 Use as one of several important distribution
channels to access customers
 Use as primary distribution channel to access buyers
 Use as exclusive channel to transact sales with
customers
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 Brick-and-Click Strategies:
An Appealing Middle Ground Approach
 Approach
 Sell directly to consumers and
 Use traditional wholesale/retail channels

 Strategic appeal for wholesalers and retailers

 Economic means of expanding a company’s economic
reach
 Provide both existing and potential customers another
choice of how to
 Communicate with a company
 Shop for product information
 Make purchases
 Resolve customer service problems
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 Choosing Appropriate
Functional-Area Strategies
 Involvesstrategic choices about how functional
areas are managed to support competitive
strategy and other strategic moves
 Functional strategies include
 Research and development
 Production
 Human resources
 Sales and marketing
 Finance

Tailoring functional-area strategies to

support key business-level strategies is critical!
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 First-Mover Advantages

 When to make a strategic move is often as crucial

as what move to make

 First-mover advantages arise when

 Pioneering helps build firm’s image and reputation

 Early commitments to new technologies,

new-style components, and distribution
channels can produce cost advantage

 Loyalty of first time buyers is high

 Moving first can be a preemptive strike

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 First-Mover Disadvantages

 Moving early can be a disadvantage (or fail to

produce an advantage) when
 When costs of pioneering are more than being an
imitative follower and only negligible learning/experience
curve benefits accrue to the leader
 Innovator’s products are primitive, not living up to buyer
expectations
 Demand side of the market is skeptical about the
benefits of new technology/product of a first-mover
 Rapid technological change allows followers to leapfrog
pioneers
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