1. STRATEGYSTRATEGY Core Concepts and Analytical Approaches 4th Edition (2016-2017) An e-book published and distributed by McGraw Hill Education, Burr Ridge, Illinois Arthur A. Thompson The University of Alabama Copyright © 2016 by Arthur A. Thompson, Glo-Bus Software, Inc. All rights reserved. Not for distribution. CHAPTER 6 Supplementing the Chosen Competitive Strategy—Other Important Strategy Choices CHAPTER 6 Supplementing the Chosen Competitive Strategy—Other Important Strategy Choices

2. 6–2 Copyright © 2016 by Glo-Bus Software, Inc. Competing in the marketplace is like war. You have injuries and casualties, and the best strategy wins. John Collins

3. 6–3 Copyright © 2016 by Glo-Bus Software, Inc. Winners in business play rough and don’t apologize for it. The nicest part of playing hardball is watching your competitors squirm. George Stalk, Jr. and Rob Lachenauer

4. 6–4 Copyright © 2016 by Glo-Bus Software, Inc. Don’t form an alliance to correct a weakness and don’t ally with a partner that is trying to correct a weakness of its own. The only result from a marriage of weaknesses is the creation of even more weaknesses. Michel Robert

5. 6–5 Copyright © 2016 by Glo-Bus Software, Inc. Think of your priorities not in terms of what activities you do, but when you do them. Timing is everything. Dan Millman

6. Copyright © 2016 by Glo-Bus Software, Inc. “The sure path to oblivion is to stay where you are.” Bernard Fauber 6–6

7. 1. Become acquainted with the various types of offensive and defensive strategies and when and why to use them. 2. Learn the strategic options for operating a company’s website. 3. Understand when and why to have certain value chain activities performed by outside vendors with specialized expertise. 4. Understand when a company should consider using a vertical integration strategy to extend its operations to more stages of the overall industry value chain. 5. Gain an understanding of how strategic alliances and collaborative partnerships can bolster a company’s competitive capabilities and resource strengths. 6. Learn when and why merger and acquisition strategies make good business sense. 7. Discover when being a first-mover or a fast-follower or a late-mover can lead to competitive advantage. 6–7 Copyright © 2016 by Glo-Bus Software, Inc. Learning Objectives

8. Chapter 6 Roadmap  A Company’s Menu of Strategic Choices  Going on the Offensive—Strategic Options to Improve a Company’s Market Position  Defensive Strategies—Protecting Market Position and Competitive Advantage  Website Strategies  Outsourcing Strategies  Vertical Integration Strategies: Operating Across More Stages of the Industry Value Chain  Strategic Alliances And Partnerships  Merger and Acquisition Strategies  Choosing Appropriate Functional-Area Strategies  Timing a Company’s Strategic Moves 6–8 Copyright © 2016 by Glo-Bus Software, Inc.

9.  Whether to go on the offensive and initiate aggressive strategic moves to improve the company’s market position  Whether to employ defensive strategies to protect the company’s market position  What role the company’s website should play in its overall strategy to be a successful performer  Whether to outsource certain value chain activities or perform them in-house  Whether to integrate backward or forward into more stages of the industry value chain  Whether to enter into strategic alliances or partnership arrangements with other enterprises  Whether to bolster the company’s market position via mergers or acquisitions  When to undertake strategic moves—whether advantage or disadvantage lies in being a first-mover, a fast follower, or a late-mover 6–9 Copyright © 2016 by Glo-Bus Software, Inc. Supplementing a Firm’s Competitive Strategy: The Key Decisions

10. FIGURE 6.1A Company’s Menu of Strategy Options 6–10 Copyright © 2016 by Glo-Bus Software, Inc.

11.  Going on the offensive to improve a firm’s market position and business performance is called for when: ► A firm spots opportunities to gain profitable market share at rivals’ expense ► A company wishes to aggressively pursue gaining a competitive edge over rivals (or widening an existing edge) and reaping the benefits—better profitability, faster growth, the reputational rewards of being known as a firm on the move, and so on ► A firm has no choice but to try to whittle away at a strong rival’s competitive advantage 6–11 Copyright © 2016 by Glo-Bus Software, Inc. Going On the Offensive—Strategic Options to Improve a Firm’s Market Position Strategy Principle Successful offensive strategies are needed to secure competitive advantage, widen an existing advantage, or narrow the advantage held by a strong competitor.

12. Core Concept Sometimes a firm’s best strategic option is to seize the initiative, go on the attack, and launch a strategic offensive to improve its market position. It takes successful offensive strategies to build competitive advantage, widen an existing advantage, or narrow the advantage held by a strong competitor. 6–12 Copyright © 2016 by Glo-Bus Software, Inc. Strategy Principle Challenging rivals on competitive grounds where they are strong is an uphill struggle. The best offensives use a firm’s most potent resource strengths and competitive assets to attack rivals in areas where they are vulnerable.

13. The best offensives tend to incorporate several behaviors and principles: 1. Focusing relentlessly on building competitive advantage and then striving to convert competitive advantage into decisive advantage 2. Employing the element of surprise as opposed to doing the expected or what rivals may be prepared for 3. Using a company’s most potent resource strengths and competitive capabilities to attack rivals where they are competitively weakest 4. Being impatient with the status quo and displaying a bias for swift and decisive actions to overwhelm riva ls 6–13 Copyright © 2016 by Glo-Bus Software, Inc. Crafting a Potent Offensive Strategy: Four Important Principles

14.  Attack competitor weaknesses rather than challenging competitor strengths, especially if those weaknesses represent important vulnerabilities and weaker rivals can be caught by surprise with no ready defense  Base offensives on the company’s most potent competitive assets ► Its core competencies, competitive capabilities and valuable resource strengths, such as a better-known brand name, manufacturing or distribution cost advantages, superior technological capability, or a better product Failure to tie an offensive to competitive strengths and what the firm does best dims its prospects for success. 6–14 Copyright © 2016 by Glo-Bus Software, Inc. Choosing the Basis for Competitive Attack

15. Core Concept The best offensives use a company’s most potent resource strengths and competitive capabilities to attack rivals where they are competitively weakest. 6–15 Copyright © 2016 by Glo-Bus Software, Inc.

16. The Principal Offensive Strategy Options  Offer an equally good or better product at a lower price  Leapfrog competitors by being a first adopter of next- generation technologies or being first to market with next-generation products  Pursue continuous product innovation to draw sales and market share away from less innovative rivals  Pursue disruptive product innovation to create new markets.  Adopt and improve on good ideas of other firms (rivals or otherwise) 6–16 Copyright © 2016 by Glo-Bus Software, Inc.

17.  Deliberately attack those market segments where a key rival makes big profits  Attack the competitive weaknesses of rivals  Maneuver around competitors to capture unoccupied or less-contested market territory  Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent or distracted rivals  Launch a preemptive strike to secure an advantageous position that rivals are prevented or discouraged from duplicating 6–17 Copyright © 2016 by Glo-Bus Software, Inc. The Principal Offensive Strategy Options (cont’d)

18.  Seeks to gain a dramatic, durable competitive advantage by: ► Abandoning efforts to defeat competitors in existing markets and ► Inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand 6–18 Copyright © 2016 by Glo-Bus Software, Inc. Blue Ocean Strategy—A Special Kind of Offensive

19.  Typical Market Space ► Industry boundaries are defined and accepted ► Competitive rules of the game are well understood and accepted by rivals ► Firms try to outperform rivals by capturing a bigger share of existing demand ► Lively competition constrains a firm’s prospects for rapid growth and superior profitability since rivals move quickly to imitate or counter the moves of an aggressor  Blue Ocean Market Space ► Does not exist yet ► Is untainted by competition ► Offers wide-open opportunities if a firm has a product and strategy allowing it to: Create new demand Avoid fighting over existing demand 6–19Copyright © 2016 by Glo-Bus Software, Inc. What Is Different About a Blue Ocean?

20. Choosing Which Rivals to Attack 6–20 Copyright © 2016 by Glo-Bus Software, Inc. Best Targets for Offensive Attacks Vulnerable market leaders Struggling firms on the verge of going under Small local or regional firms with limited capabilities Runner-up firms with weaknesses in areas where the challenger is strong

21. Objectives ► Lower the risk of being attacked ► Weaken the impact of any attack that occurs ► Influence challengers to aim attacks at other rivals Two Main Approaches ► Block the avenues open to challengers ► Signal challengers that retaliation is likely 6–21 Copyright © 2016 by Glo-Bus Software, Inc. Defensive Strategies—Protecting Market Position and Competitive Advantage

22. Core Concept defensive strategies Good defensive strategies can help protect competitive advantage but rarely are the basis for creating it. 6–22 Copyright © 2016 by Glo-Bus Software, Inc.

23. The primary blocking options:  Participate in alternative technologies  Introduce new features, add new models, or broaden the product line to close gaps and niches rivals may pursue  Maintain economy-priced models and options  Lengthen warranties  Offer free training and support services  Reduce delivery times for spare parts  Provide coupons and free samples  Make early announcements about new products or price changes  Challenge quality or safety of rivals’ products  Offer volume discounts, better financing terms, and exclusive agreements with distributors 6–23 Copyright © 2016 by Glo-Bus Software, Inc. Defensive Approach #1: Blocking the Avenues Open to Challengers

24.  The goal of signaling challengers that strong retaliation is likely in the event of an attack is either to dissuade challengers from attacking at all or to divert them to less- threatening options.  Ways to signal would-be challengers include: ► Publicly announcing management’s commitment to maintain the firm’s present market share ► Publicly committing the firm to a policy of matching rivals’ prices or terms ► Maintaining a war chest (reserves) of cash and marketable securities ► Making occasional strong counter- responses to moves of weaker rivals 6–24 Copyright © 2016 by Glo-Bus Software, Inc. Signaling Challengers that Retaliation Is Likely Competitors Beware !!!   

25.  Strategic Question: ► What role should a firm’s Web site play in its strategy?  Strategic Approaches to Using the Website ►Only to disseminate product information ►As secondary or minor distribution channel to sell directly to customers ►As one of several distribution channels to access customers ►As the primary distribution channel for assessing customers ►As the company’s exclusive channel for transacting sales with customers 6–25 Copyright © 2016 by Glo-Bus Software, Inc. Website Strategies

26.  Entails providing extensive product information at the company’s website ► Relies on click-throughs to the websites of distribution channel partners for sales transactions and/or ► Enables site visitors to learn with one-click where nearby retail stores are located  An attractive option for manufacturers and/or wholesalers that have invested heavily in building and cultivating retail dealer networks to access end user WHY? avoids channel conflict ► Because it avoids channel conflict is competing directly against its distribution allies and is trying to cannibalize their sales, profits, and growth potential ► A company vigorously pursuing online sales to consumers at its own website is competing directly against its distribution allies and is trying to cannibalize their sales, profits, and growth potential ► Channel conflict leads to angry dealers and loss of dealer goodwill 6–26 Copyright © 2016 by Glo-Bus Software, Inc. Product Information-Only Strategies— Avoiding Channel Conflict

27.  Uses online sales as a relatively minor distribution channel for ► Achieving incremental sales (small enough to avoid angering dealers) ► Gaining online sales experience ► Conducting marketing research Learning more about buyer tastes and preferences Testing reactions to new products Creating added market buzz about new products  Will likely avoid provoking channel-conflict outcry from dealers as long as sales volume remains low 6–27 Copyright © 2016 by Glo-Bus Software, Inc. Website e-Stores as a Minor Distribution Channel

28.  A strategy to gradually grow online sales into a “minor” sell-direct distribution channel makes sense when: ► Profit margins from online sales are bigger than those earned from selling to wholesale/retail customers ► Encouraging buyers to visit a firm’s site educates them about the ease and convenience of shopping online, increasing the likelihood of more higher-margin online purchasing over time ► Selling directly to end users allows a firm to make greater use of build-to-order manufacturing and assembly and begin the process of streamlining its value chain 6–28 Copyright © 2016 by Glo-Bus Software, Inc. Reasons to Use Website e-Store as a Minor Distribution Channel

29.  A two-pronged approach to accessing buyers ► Selling to consumers at firm-owned retail store locations (brick) ► Selling directly to consumers at the firm’s website (click)  The strategic appeal of brick-and-click strategies for wholesalers and retailers: ► Sales at the firm’s website are a low-cost means of expanding its geographic market reach ► Gives customers a choice of how to: Shop for product information Make purchases (and perhaps pick up purchases at local stores rather than waiting for home deliveries) Resolve customer service problems Communicate with the firm 6–29 Copyright © 2016 by Glo-Bus Software, Inc. Brick-and-Click Strategies: An Appealing Middle Ground Approach

30.  Approach: Use the Internet as the exclusive channel for all buyer-seller contact and transactions  Strategic issues for an online firm: ► How to deliver unique value to buyers ► Whether to pursue competitive advantage based on lower costs, differentiation, or better value for the money ► Whether to have a broad or narrow product offering ► Whether to perform order fulfillment activities internally or to outsource them ► How to draw traffic to the company’s website and then convert page views into revenues 6–30 Copyright © 2016 by Glo-Bus Software, Inc. Strategies for Online Enterprises

31. Outsourcing Strategies  Outsourcing strategies involve a conscious decision to not perform certain value chain activities internally and to instead farm them out to outside specialists and strategic allies. 6–31 Copyright © 2016 by Glo-Bus Software, Inc.

32. Core Concept Outsourcing Outsourcing involves farming out the performance of certain value chain activities to outside vendors. 6–32 Copyright © 2016 by Glo-Bus Software, Inc. Strategy Principle While outsourcing can result in appealing benefits, a company must guard against outsourcing activities that hollow out the competitive capabilities and resource strengths it needs to be a master of its own destiny.

33.  Outsourcing a value chain activity is appealing when it: ► Results in the activity being performed better or more cheaply ► Does not hinder or impair the firm’s ability to achieve a sustainable competitive advantage ► Helps streamline operations, improves internal operating flexibility, or reduces time-to-market for new products ► Reduces the firm’s risk exposure to changing technology or shifting buyer preferences ► Helps improve the firm’s ability to innovate ► Facilitates assembling diverse kinds of expertise speedily and efficiently ► Enables a company to concentrate on core value chain activities, leverage its key resource strengths and capabilities, and do even better what it already does best 6–33 Copyright © 2016 by Glo-Bus Software, Inc. When Is Outsourcing Advantageous?

34.  When a firm outsources too many or the wrong activities, it risks ► Hollowing out capabilities and being held hostage by outside suppliers ► Losing touch with activities and expertise that determine overall long-term success ► Undermining its ability to lead the development of innovative new products (because cutting-edge ideas and technologies for next-generation products now come from outsiders) 6–34 Copyright © 2016 by Glo-Bus Software, Inc. The Big Risk of Outsourcing Value Chain Activities

35.  Vertical integration extends a firm’s competitive and operating scope within the same industry. ► Backward into sources of inputs/supply ► Forward toward end-users of the final product  A vertical integration strategy can entail either partial or full integration across the industry value chain 6–35 Copyright © 2016 by Glo-Bus Software, Inc. Vertical Integration Strategies: Operating Across More Stages of the Value Chain Value Chain

36. Core Concept A vertically integrated firm is one whose business activities extend across several portions or stages of an industry’s overall value chain. 6–36 Copyright © 2016 by Glo-Bus Software, Inc.

37.  The two best reasons for investing company resources in vertical integration: ► To strengthen the firm’s competitive position ► To boost its profitability  Vertical integration pays off only if it ► Produces sufficient cost savings/profit increases to justify the extra investment ► Adds materially to a company’s technological and competitive strengths, and/or helps differentiate the company’s product offering 6–37 Copyright © 2016 by Glo-Bus Software, Inc. The Advantages of a Vertical Integration Strategy

38.  Integrating backward successfully requires a firm to: 1.Achieve the same scale economies as outside suppliers 2.Match or beat suppliers’ efficiencies with no drop-off in quality  Backward integration can lead to lower costs and/or reduced competitive risk when: ► Suppliers have outsized profit margins ► The item supplied is a major cost component ► The requisite technological skills are easily mastered or acquired ► It is a competitive necessity to keep proprietary know-how in-house 6–38 Copyright © 2016 by Glo-Bus Software, Inc. Integrating Backward to Achieve Greater Competitiveness

39.  Can produce a differentiation-based competitive advantage when performing activities internally: ► Yields a better quality product/service offering ► Improves the caliber of its customer service ► Enhances the performance of its final product  Reduced risk of depending on suppliers for crucial raw materials, parts, components, and/or support services  Can add to a firm’s differentiation capabilities by building or strengthening its core competencies 6–39 Copyright © 2016 by Glo-Bus Software, Inc. The Potential Benefits of Integrating Backward

40.  Can enable better mastery of key skills or strategy-critical technologies formerly performed by outsiders  Can facilitate adding product features/attributes that deliver greater customer value  Lessens a firm’s vulnerability to powerful suppliers inclined to raise prices at every opportunity 6–40 Copyright © 2016 by Glo-Bus Software, Inc. The Potential Benefits of Integrating Backward (cont’d)

41.  To gain better access to end users and build stronger brand awareness  To reduce dependence on the marketing and sales efforts of independent distributors/ retailers that stock multiple brands and often steer customers to the brands on which they earn the highest profit margins  To offset the lack of a broad product line, a firm may sell directly to end users  To bypass independent distributors/ retailers in favor of direct sales at company-owned stores and/or the company’s Web site which may ► Lower distribution costs ► Produce a relative cost advantage over rivals ► Enable lower selling prices to end users 6–41 Copyright © 2016 by Glo-Bus Software, Inc. The Potential Benefits of Integrating Forward

42.  Increases a firm’s capital investment in its industry, increasing business risk if industry demand, growth and profitability should decline  Locks a firm into relying on its own in-house activities (which later may prove more costly than purchasing from best-in-class suppliers or using the services of independent distributors and retail dealers)  Can impair a firm’s flexibility to accommodate shifting buyer preferences or a product design that requires parts and components not made in-house 6–42 Copyright © 2016 by Glo-Bus Software, Inc. The Disadvantages of a Vertical Integration Strategy

43.  Creates a vested interest for the firm to stick with its vertically integrated value chain for a while longer rather than undertake an immediate value chain overhaul that entails big asset write-downs (even though the overhaul might have considerable merit due to new technology or other important industry developments). The faster the pace of change in an industry’s value chain system, the bigger the risk of a vertical integration strategy  Poses many different kinds of barriers to achieving full economies of scale and at the same time only producing the needed volumes  Often requires new or different skills and business capabilities that entail considerable time and expense to develop the needed proficiency (with no guarantee of success!) 6–43 Copyright © 2016 by Glo-Bus Software, Inc. The Disadvantages of a Vertical Integration Strategy (cont’d)

44.  Whether integration is a plus or a minus depends on: ► Whether it enhances strategy-critical activities in ways that lower cost, build expertise, protect proprietary know-how, or increase differentiation ► Whether it reduces investment costs, increases flexibility and response times, and reduces administrative costs of coordinating operations across more value chain activities ► Whether it will substantially enhance the firm’s competitiveness and profitability Pursuing a vertical integration strategy hinges on which capabilities and value-chain activities need to be performed in- house and which are performed better or cheaper by outsiders 6–44 Copyright © 2016 by Glo-Bus Software, Inc. Weighing the Pros and Cons of Vertical Integration

45.  A strategic alliance is a formal agreement between two or more separate firms in which there is: ► Strategically relevant collaboration of some sort ► Joint contribution of resources ► Shared risk ► Shared control ► Mutual dependence  Collaborative relationships between partners may entail a contractual agreement but commonly stop short of formal ownership ties between the partners The purpose of a strategic alliance or collaborative partnership is to join forces to achieve mutually beneficial outcomes. 6–45 Copyright © 2016 by Glo-Bus Software, Inc. Strategic Alliances and Partnerships

46. Core Concept Strategic alliances Strategic alliances are collaborative arrangements where two or more companies join forces to achieve mutually beneficial outcomes. The best alliances are highly selective, focusing on particular value chain activities and on obtaining a specific competitive benefit. In bringing together firms with different skills and knowledge bases, alliances open up learning opportunities that help partner firms strengthen their own portfolios of resources, competences, and capabilities and thereby become more competitive. 6–46 Copyright © 2016 by Glo-Bus Software, Inc.

47.  An alliance becomes “strategic” when it: ► Facilitates achievement of an important business objective such as lowering costs or delivering more value to customers ► Helps build, strengthen, or sustain resources, competencies, and competitive capabilities ► Remedies a key resource deficiency or competitive weakness ► Speeds development of technologies and/or product innovations ► Facilitates entry into new geographic markets or pursuit of important market opportunities ► Blocks or defends against a competitive threat or mitigates a significant risk to a firm’s business 6–47 Copyright © 2016 by Glo-Bus Software, Inc. When Does an Alliance Become “Strategic”?

48.  Firms commonly enter into strategic alliances to: ► Expedite development of promising new technologies or products ► Overcome deficits in their own expertise and capabilities ► Bring together the personnel and expertise needed to create desirable new skill sets and capabilities ► Improve supply chain efficiency ► Gain economies of scale in production and/or marketing ► Acquire or improve market access through joint marketing agreements ► Open up learning opportunities that help partner firms better leverage their own resource strengths 6–48 Copyright © 2016 by Glo-Bus Software, Inc. Why and How Strategic Alliances Are Advantageous

49.  A firm that is racing for global market leadership needs alliances to: ► Get into critical country markets quickly and accelerate the building of its global market presence ► Gain inside knowledge about unfamiliar markets and cultures through alliances with local partners ► Access valuable skills and competencies that are concentrated in particular geographic locations 6–49 Copyright © 2016 by Glo-Bus Software, Inc. Why and How Strategic Alliances Are Advantageous (cont’d)

50.  A firm that is staking out a strong position in an industry of the future needs alliances to: ► Establish a stronger initial competitive position for participating in the target industry ► Master new technologies, new expertise and competencies faster than through internal efforts alone ► Open up broader opportunities in the target industry by melding the firm’s own capabilities with the expertise and resources of partners 6–50 Copyright © 2016 by Glo-Bus Software, Inc. Why and How Strategic Alliances Are Advantageous (concluded)

51.  Most alliances based on technology-sharing or providing market access turn out to be temporary because ► The benefits of mutual learning have occurred ► Both partners have developed to the point where they are ready to go their own ways  Alliances are more likely to be long-lasting when: 1.They involve collaboration with suppliers or distribution allies 2.Each party’s contribution involves activities in different portions of the industry value chain 3.Continued collaboration is in the mutual interest of the partners 6–51 Copyright © 2016 by Glo-Bus Software, Inc. Why Many Alliances Are Short-Lived or Break Apart

52.  50-70% of alliances are unsuccessful because: ► The objectives and priorities of allies conflict or diverge ► Allies discover they are unable to work well together ► Changing conditions render the alliance obsolete ► More attractive technological paths have emerged ► One or more allies find they are becoming increasing strong market rivals with other allies ► Alliances can help a firm reduce a competitive disadvantage but rarely help secure a durable competitive edge over rivals 6–52 Copyright © 2016 by Glo-Bus Software, Inc. Why Many Alliances Fail

53. Merger and Acquisition Strategies  A merger is the combining of two or more firms into a single entity, with the newly created firm often taking on a new name.  An acquisition is a combination in which one firm, the acquirer, purchases and absorbs the operations of another, the acquired.  The difference between a merger and an acquisition is in the details of ownership, management control, and financial arrangements–the resources, competencies, and competitive capabilities of the newly created enterprise end up much the same. 6–53 Copyright © 2016 by Glo-Bus Software, Inc.

54.  Mergers and acquisitions are best for situations in which alliances or partnerships do not go far enough in providing access to needed resources and competitive capabilities.  Combining two firms, via merger or acquisition, is an attractive means of achieving operating economies, strengthening competencies and competitiveness in important ways, and opening up new market opportunities. 6–54 Copyright © 2016 by Glo-Bus Software, Inc. When Does a Merger or an Acquisition Make Strategic Sense? Strategy Principle The main impetus for employing merger and acquisition strategies is to fundamentally alter a firm’s trajectory and improve its business outlook.

55.  Merger/acquisition strategies typically aim at achieving any of four objectives: 1.Creating a more cost-efficient operation out of the combined firms 2.Expanding a firm’s geographic coverage 3.Extending the firm’s business into new product categories 4.Gaining quick access to new technologies or other resources and competitive capabilities 6–55 Copyright © 2016 by Glo-Bus Software, Inc. Merger and Acquisition Strategies: The Typical Objectives

56.  The anticipated revenue growth may not occur.  Cost savings may prove smaller than expected.  Gains in competitive capabilities may take substantially longer to realize, or worse, never materialize at all.  Efforts to mesh the cultures can be defeated by formidable resistance from organizational members.  Key employees at the acquired firm become disenchanted with newly instituted changes and leave.  Differences in management styles and operating procedures can prove hard to resolve.  Personnel at the acquired company may stonewall changes, arguing forcefully for doing certain things the way they were done prior to the acquisition. 6–56 Copyright © 2016 by Glo-Bus Software, Inc. Why Mergers and Acquisitions Often Result in Disappointing Outcomes

57.  The task of crafting functional-areas strategies involves making strategic choices about how various functional parts of the business (R&D, production, marketing, finance, etc.) will be managed in support of the chosen competitive strategy and other important strategic moves being undertaken  It is difficult to say just what the content of the different functional-area strategies should be without first knowing what higher-level strategic choices a company has made ► Managers with functional-area strategy-making responsibility must be clear about which higher-level strategies top executives have chosen and then must tailor their functional-area strategies to support the higher-level strategies and the achievement of companywide performance targets 6–57 Copyright © 2016 by Glo-Bus Software, Inc. Choosing Appropriate Functional-Area Strategies

58.  A manufacturer employing a low-cost provider strategy needs ► An R&D and product design strategy that emphasizes cheap-to-incorporate features and facilitates economical assembly ► A production strategy that stresses capture of scale economies and actions to achieve low-cost manufacture (such as high labor productivity, efficient supply chain management, and automated production processes) ► A low-budget marketing strategy 6–58 Copyright © 2016 by Glo-Bus Software, Inc. An Example of How Functional-Area Strategies Must Be Supportive of Higher-Level Strategy

59. A business pursuing a high-end differentiation strategy needs  A production strategy geared to top-notch quality  A marketing strategy aimed at ► Touting differentiating features ► Using advertising and a trusted brand name to “pull” sales through the chosen distribution channels 6–59 Copyright © 2016 by Glo-Bus Software, Inc.

60. Timing a Company’s Strategic Moves  Timing is especially important when there are ► Significant first-mover advantages ► Significant first-mover disadvantages  The bigger the first-mover advantages, the more attractive and competitively important it is to be a first-mover or early mover  The bigger the first-mover disadvantages, the more attractive it is to be a follower or late mover 6–60 Copyright © 2016 by Glo-Bus Software, Inc.

61. Being first to make a strategic move has appeal when:  Pioneering the market helps build the first mover’s image and reputation  Early commitments to new technologies, new-style components, new or emerging distribution channels, and so on produce an absolute cost advantage over rivals  First-time customers face significant costs in later switching to the product offerings of follower firms  Moving first constitutes a preemptive strike (like securing an especially favorable location or acquiring an appealing company with uniquely valuable resources or capabilities)  Actions are protected by patents, copyrights, or other forms of property rights, thus thwarting a response by would-be followers  Actions prove so overwhelmingly popular that its product sets the technical standards for the industry 6–61 Copyright © 2016 by Glo-Bus Software, Inc. When Being a First-Mover Pays Off

62. Core Concept Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made. To sustain any advantage that initially accrues to a pioneer, a first- mover must be a fast learner and continue to move aggressively to capitalize on any initial pioneering advantage. It helps immensely if the first-mover has deep financial pockets, important competencies and competitive capabilities, and astute managers. A first-mover’s advantages are fleeting if its skills, know-how, and actions are easily copied or even surpassed; in such cases, followers and even late- movers can catch or overtake the first-mover in a relatively short period. 6–62 Copyright © 2016 by Glo-Bus Software, Inc.

63.  Moving first is more costly than imitating followership when few experience or learning-curve benefits accrue to the first mover, thereby enabling a follower to end up with lower costs than the first- mover (because the follower escapes the added costs of pioneering).  When the innovator’s primitive products do not live up to buyer expectations, thus allowing a clever follower with better-performing products to win disenchanted buyers away from the leader.  When buyers’ skepticism about the benefits of a new technology or product pioneered by a first-mover causes them to delay purchases.  When rapid market evolution in either technology or buyer needs and expectations allows fast-followers and late-movers to leapfrog a first- mover’s products with more attractive next-version products.  When customer loyalty to the pioneer is low and a first-mover’s skills, know-how, and actions are easily copied or even surpassed. 6–63 Copyright © 2016 by Glo-Bus Software, Inc. The Potential for Late-Mover Advantages or First-Mover Disadvantages

64. To Be a First-Mover or Not  Is the industry leadership race a sprint or a marathon? ► First-movers and fast-followers tend to win sprints; followers and late-movers often win marathons  With sprints, being a first-mover is important because pioneering early introduction of a technology or product ► Delivers clear and substantial benefits to early adopters and buyers ► Can provide a durable reputational head-start advantage when early adopters/buyers remain loyal to the pioneer’s product offering  When the race is a marathon: ► The firms that end up dominating new-to-the-world markets are almost never the pioneers that gave birth to brand-new markets ► First-mover advantages are fleeting, allowing resourceful fast- followers and even late-movers to overtake the early leaders 6–64 Copyright © 2016 by Glo-Bus Software, Inc.