6-2 Choosing Strategy Actions that Complement a Firm’s Competitive Approach Decisions regarding the firm’s operating scope and how to best strengthen its market standing must be made: Whether and when to go on the offensive and initiate aggressive strategic moves to improve the firm’s market position. Whether and when to employ defensive strategies to protect the firm’s market position. When to undertake strategic moves based upon whether it is advantageous to be a first mover or a fast follower or a late mover.
6-3 Choosing Strategy Actions that Complement a Firm’s Competitive Approach (cont’d) Decisions regarding the firm’s operating scope and how to best strengthen its market standing must be made: Whether to integrate backward or forward into more stages of the industry value chain. Which value chain activities, if any, should be outsourced. Whether to enter into strategic alliances or partnership arrangements with other enterprises. Whether to bolster the firm’s market position by merging with or acquiring another company in the same industry.
6-4 Launching Strategic Offensives to Improve a Company’s Market Position Aggressive strategic offensives are called for when a firm: Spots opportunities to gain profitable market share at the expense of rivals Has no choice but to try to whittle away at a strong rival’s competitive advantage Can reap the benefits a competitive edge offers—a leading market share, excellent profit margins, and rapid growth The best offensives use a firm’s resource strengths to attack its rivals’ weaknesses.
6-5 Blue Ocean Strategy— A Special Kind of Offensive Involves a firm seeking sizable and durable competitive advantage by abandoning its existing markets and, then, inventing a new industry or distinctive market segment in which that firm has exclusive access to new demand. By “reinventing the circus,” Cirque du Soleil annually attracts an audience of millions of people who typically do not attend circus events.
6-6 Using Defensive Strategies to Protect a Company’s Market Position and Competitive Advantage Defensive strategies help fortify a competitive position by: Lowering the risk of being attacked. Weakening the impact of any attack that occurs. Influencing challengers to redirect their competitive efforts toward other rivals. Good defensive strategies help protect competitive advantage but rarely are the basis for creating it.
6-7 Signaling Challengers that Retaliation Is Likely Publicly announce management’s strong commitment to maintain the firm’s present market share Publicly commit firm to policy of matching rivals’ terms or prices Maintain war chest of cash reserves Make occasional counterresponse to moves of weaker rivals
6-8 Timing a Company’s Offensive and Defensive Strategic Moves 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 (technology, market channels) produce an absolute cost advantage over rivals First-time customers remain strongly loyal in making repeat purchases Moving first constitutes a preemptive strike, making imitation extra hard or unlikely
6-9 The Potential for Late-Mover Advantages or First-Mover Disadvantages Moving early can be a disadvantage (or fail to produce an advantage) when: Pioneering leadership is more costly than imitation Innovators’ products are primitive, and do not live up to buyer expectations Potential buyers are skeptical about the benefits of new technology/product of a first mover Rapid changes in technology change or buyer needs allow followers to leapfrog pioneers
6-10 Deciding Whether to Be an Early Mover or Late Mover Key Issue: Is the race to market leadership a marathon or a sprint? Seeking first-mover competitive advantage 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 position to delay or derail the efforts of a first mover?
6-11 Vertical Integration: Operating Across More Industry Value Chain Segments Involves extending a firm’s competitive and operating 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
6-12 Integrating Backward to Achieve Greater Competitiveness For backward integration to boost profitability a firm must be able to: Achieve the same scale economies as outside suppliers Match or beat suppliers’ production efficiency with no drop in quality
6-13 When Backward Vertical Integration Becomes 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
6-14 Integrating Forward to Enhance Competitiveness Gain better access to end users Improve market visibility Include the purchasing experience as a differentiating feature
6-15 Forward Vertical Integration and Internet Retailing Direct selling and Internet retailing have appeal when there is potential to: Lower distribution costs Gain a cost advantage over rivals Produce higher margins Allow for lower prices charged to end users Competing directly against distribution allies can create channel conflict and signal a weak commitment to dealers.
6-16 Disadvantages of a Vertical Integration 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
6-17 Outsourcing Strategies: Narrowing the Scope of Operations Outsourcing an activity is a consideration when: It can be performed better or more cheaply by outside specialists. It is not crucial to achieve a sustainable competitive advantage and will not hollow out capabilities, core competencies, or technical know-how of a firm. It improves organizational flexibility and speeds time to market. It reduces a firm’s risk exposure to changing technology and/or buyer preferences. It allows a firm to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best.
6-18 Outsourcing Strategies: Narrowing the Scope of Operations (cont’d) The Big Risk of Outsourcing: Farming out the wrong types of activities Hollowing out strategically important capabilities ultimately damages a firm’s competitiveness and long- term success in the marketplace
6-19 Strategic Alliances and Partnerships Strategic Alliance Is a formal collaborative agreement in which two or more firms join forces to achieve mutually beneficial strategic outcomes: A strategically relevant collaboration A joint contribution of resources An assumption of a shared risk An agreement to shared control A recognition of mutual dependence Is attractive in that it allows firms to bundle resources and competencies that are more valuable in a joint effort than when kept separate.
6-20 Reasons for Firms to Enter into Strategic Alliances To expedite development of new technologies or products To overcome deficits in technical or manufacturing expertise To bring together personnel of each partner to create new skill sets and capabilities To improve supply chain efficiency To gain economies of scale in production and/or marketing To acquire or improve market access through joint marketing agreements
6-21 Reasons for Firms to Continue in Strategic Alliances Alliances are likely to be long-lasting when: They involve collaboration with suppliers or distribution allies. Both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging. Experience indicates that: Alliances stand a reasonable chance of helping a firm reduce its competitive disadvantage but very rarely have alliances proved a strategic option for gaining a durable competitive edge over rivals.
6-22 Failed Strategic Alliances and Cooperative Partnerships Common causes for the failure of 60–70% of alliances each year: Diverging objectives and priorities An inability to work well together Changing conditions that make the purpose of the alliance obsolete The emergence of more attractive technological paths Marketplace rivalry between one or more allies
6-23 Merger 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 firms into a single entity, with the newly created firm often taking on a new name Acquisition The combination in which one firm, the acquirer, purchases and absorbs the operations of another, the acquired firm
6-24 Typical Objectives of Mergers and Acquisitions 1.To create a more cost-efficient operation out of the combined firms 2.To expand a firm’s geographic coverage 3.To extend the firm’s business into new product categories 4.To gain quick access to new technologies or other resources and competitive capabilities 5.To lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities