Presentation on theme: "Beyond Competitive Strategy Other Important Strategy Choices"— Presentation transcript:
1 Beyond Competitive Strategy Other Important Strategy Choices Prof R K VermaSBS ,Sharda University
2 “Strategies for taking hill won’t necessarily hold it.” “Successful business strategy is about actively shaping the game you play, not just playing the game you find.”The Koran“Strategies for taking hill won’t necessarily hold it.”John W. Teets
4 OTHER STRATEGIC CHOICES Strategic Alliances and Collaborative PartnershipsMerger and Acquisition StrategiesVertical Integration StrategiesOutsourcing StrategiesUsing Offensive Strategies to Secure Competitive AdvantageUsing Defensive Strategies to Protect the Company’s PositionStrategies for Using the Internet as a Distribution ChannelChoosing Appropriate Functional-Area StrategiesFirst-Mover Advantages and Disadvantages
6 Strategic Alliances and Collaborative 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.
7 Why Are Strategic Alliances Formed? To collaborate on technology development or new product developmentTo fill gaps in technical or manufacturing expertiseTo acquire new competenciesTo improve supply chain efficiencyTo gain economies of scale in production and/or marketingTo acquire or improve market access via joint marketing agreements
8 Alliances Can Enhance a Firm’s Competitiveness Alliances and partnerships can help companies cope with two demanding competitive challengesRacing against rivals to build a market presence in many different national marketsRacing against rivals to seize opportunities on the frontiers of advancing technologyCollaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities
9 Capturing the Full Potential of a Strategic Alliance Capacity of partners to defuse organizational frictionsAbility to collaborate effectively over time and work through challengesTechnological and competitive surprisesNew market developmentsChanges in their own priorities and competitive circumstancesCollaborative partnerships nearly always entail an evolving relationship whose competitive value depends onMutual learningCooperationAdaptation to changing industry conditionsCompetitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own
10 Potential Benefits of Alliances to Achieve Global and Industry Leadership Get into critical country markets quickly to accelerate process of building a global presenceGain inside knowledge about unfamiliar markets and culturesAccess valuable skills and competencies concentrated in particular geographic locationsEstablish a beachhead to participate in target industryMaster new technologies and build new expertise faster than would be possible internallyOpen up expanded opportunities in target industry by combining firm’s capabilities with resources of partners
11 Why Alliances Fail Ability of an alliance to endure depends on How well partners work togetherSuccess of partners in responding and adapting to changing conditionsWillingness of partners to renegotiate the bargainReasons for alliance failureDiverging objectives and priorities of partnersInability of partners to work well togetherChanging conditions rendering purpose of alliance obsoleteEmergence of more attractive technological pathsMarketplace rivalry between one or more allies
12 Merger and Acquisition Strategies Merger – Combination and pooling of equals, with newly created firm often taking on a new nameAcquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquiredMerger-acquisitionMuch-used strategic optionEspecially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunitiesOwnership allows for tightly integrated operations, creating more control and autonomy than alliances
13 Objectives of Mergers and Acquisitions To pave way for acquiring firm to gain more market share and create a more efficient operationTo expand a firm’s geographic coverageTo extend a firm’s business into new product categories or international marketsTo gain quick access to new technologiesTo invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities
14 Pitfalls of Mergers and Acquisitions Combining operations may result inResistance from rank-and-file employeesHard-to-resolve conflicts in management styles and corporate culturesTough problems of integrationGreater-than-anticipated difficulties inAchieving expected cost-savingsSharing of expertiseAchieving enhanced competitive capabilities
15 Vertical Integration Strategies Extend a firm’s competitive scope within same industryBackward into sources of supplyForward toward end-users of final productCan aim at either full or partial integrationInternallyPerformedActivities,Costs, &MarginsMargins ofSuppliersBuyer/UserValueChainsActivities, Costs,& Margins ofForward ChannelAllies &Strategic Partners
16 Strategic Advantages of Backward Integration Generates cost savings only if volume needed is big enough to capture efficiencies of suppliersPotential to reduce costs exists whenSuppliers have sizable profit marginsItem supplied is a major cost componentResource requirements are easily metCan produce a differentiation-based competitive advantage when it results in a better quality partReduces risk of depending on suppliers of crucial raw materials / parts / components
17 Strategic Advantages of Forward Integration To gain better access to end users and better market visibilityTo compensate for undependable distribution channels which undermine steady operationsTo offset the lack of a broad product line, a firm may sell directly to end usersTo bypass regular distribution channels in favor of direct sales and Internet retailing which mayLower distribution costsProduce a relative cost advantage over rivalsEnable lower selling prices to end users
18 Strategic Disadvantages of Vertical Integration Boosts resource requirementsLocks firm deeper into same industryResults in fixed sources of supply and less flexibility in accommodating buyer demands for product varietyPoses all types of capacity-matching problemsMay require radically different skills / capabilitiesReduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products
19 Pros and Cons of Integration vs. De-Integration Whether vertical integration is a viable strategic option depends on itsAbility to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activitiesImpact on investment cost, flexibility, and administrative overheadContribution to enhancing a firm’s competitivenessMany companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!
20 Outsourcing Strategies ConceptOutsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activitiesInternallyPerformedActivitiesSuppliersSupport ServicesFunctional ActivitiesDistributors or Retailers
21 When Does Outsourcing Make Strategic Sense? Activity can be performed better or more cheaply by outside specialistsActivity is not crucial to achieve a sustainable competitive advantageRisk exposure to changing technology and/or changing buyer preferences is reducedOperations are streamlined toCut cycle timeSpeed decision-makingReduce coordination costsFirm can concentrate on “core” value chain activities that best suit its resource strengths
22 Strategic Advantages of Outsourcing Improves firm’s ability to obtain high quality and/or cheaper components or servicesImproves firm’s ability to innovate by interacting with “best-in-world” suppliersEnhances firm’s flexibility should customer needs and market conditions suddenly shiftIncreases firm’s ability to assemble diverse kinds of expertise speedily and efficientlyAllows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders
23 Pitfalls of Outsourcing Farming out too many or the wrong activities, thusHollowing out capabilitiesLosing touch with activities and expertise that determine overall long-term success
24 Offensive and Defensive Strategies Offensive StrategiesDefensive StrategiesUsed to build new or stronger market position and/or create competitive advantageUsed to protect competitive advantage (rarely used to create advantage)
25 Types of Offensive Strategies 1. Initiatives to match or exceed competitor strengths2. Initiatives to capitalize on competitor weaknesses3. Simultaneous initiatives on many fronts4. End-run offensives5. Guerrilla offensives6. Preemptive strikes
26 Attacking Competitor Strengths ObjectivesWhittle away at a rival’s competitive advantageGain market share by out-matching strengths of weaker rivalsChallenging strong competitors with a lower price is foolhardy unless the aggressor has a cost advantage or advantage of greater financial strength!
27 Options for Attacking a Competitor’s Strengths Offer equally good product at a lower priceDevelop low-cost edge, then use it to under-price rivalsLeapfrog into next-generation technologiesAdd appealing new featuresRun comparison adsConstruct new plant capacity in rival’s market strongholdsOffer a wider product lineDevelop better customer service capabilities
28 Attacking Competitor Weaknesses ObjectiveUtilize company strengths to exploit arival’s weaknessesWeaknesses to AttackCustomers that a rival is least equipped to serveRivals providing sub-par customer serviceRivals with weaker marketing skillsGeographic regions where rival is weakMarket segments a rival is neglecting
29 Launching Simultaneous Offensives on Many Fronts ObjectiveLaunch several major initiatives toThrow rivals off-balanceSplinter their attentionForce them to use substantial resources to defend their positionA challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader!
30 End-Run Offensives Objectives Maneuver around strong competitors Capture unoccupied or less contested marketsChange rules of competition in aggressor’s favor
31 Approaches for End-Run Offensives Introduce new products that redefine market and terms of competitionBuild presence in geographic areas where rivals have little presenceCreate new segments by introducing products with different features to better meet buyer needsIntroduce next-generation technologies to leapfrog rivals
32 Guerrilla Offenses Approach Appeal Use principles of surprise and hit-and-run to attack in locations and at times where conditions are most favorable to initiatorAppealWell-suited to small challengers with limited resources and market visibility
33 Options for Guerrilla Offenses Make random, scattered raids on leaders’ customersOccasional low-balling on priceIntense bursts of promotional activitySpecial campaigns to attract buyers from rivals plagued with a strike or delivery problemsChallenge rivals encountering problems with quality or providing adequate technical supportFile legal actions charging antitrust violations, patent infringements, or unfair advertising
34 Preemptive Strikes Approach Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating!
35 Preemptive Strike Options Secure exclusive/dominant access to best distributorsSecure best geographic locationsTie up best or most sources of essential raw materialsObtain business of prestigious customersExpand capacity ahead of demand in hopes of discouraging rivals from following suitBuild an image in buyers’ minds that is unique or hard to copy
36 Choosing Rivals to Attack Four types of firms can be the target of a fresh offensiveVulnerable market leadersRunner-up firms with weaknesses where challenger is strongStruggling rivals on verge of going underSmall local or regional firms with limited capabilities
37 Using Offensive Strategy to Achieve Competitive Advantage Strategic offensives offering strongest basis for competitive advantage entailAn important core competenceA unique competitive capabilityMuch-improved performance featuresAn innovative new productTechnological superiorityA cost advantage in manufacturing or distributionSome type of differentiation advantage
38 Defensive Strategy Objectives Approaches Lessen risk of being attacked Blunt impact of any attack that occursInfluence challengers to aim attacks at other rivalsApproachesBlock avenues open to challengersSignal challengers vigorous retaliation is likely
39 Block Avenues Open to Challengers Participate in alternative technologiesIntroduce new features, add new models, or broaden product line to close gaps rivals may pursueMaintain economy-priced modelsIncrease warranty coverageOffer free training and support servicesReduce delivery times for spare partsMake early announcements about new products or price changesChallenge quality or safety of rivals’ products using legal tacticsSign exclusive agreements with distributors
40 Signal Challengers Retaliation Is Likely Publicly announce management’s strong commitment to maintain present market sharePublicly commit firm to policy of matching rivals’ terms or pricesMaintain war chest of cash reservesMake occasional counterresponse to moves of weaker rivals
41 Strategies for Using the Internet Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?Five ApproachesUse company web site solely to disseminate product informationUse company web site as a minor distribution channel for accessing customers and generating salesUse company web site as one of several important distribution channels for accessing customersUse company web site as primary distribution channel for accessing buyers and making salesUse company web site as the exclusive channel for accessing buyers and conducting sales transactions
42 Using the Internet to Disseminate Product Information Approach – Website used to provide product information of manufacturers or wholesalersRelies on click-throughs to websites of dealers for sales transactionsInforms end-users of location of retail storesIssues – Pursuing online sales maySignal weak strategic commitment to dealersSignal willingness to cannibalize dealers’ salesPrompt dealers to aggressively market rivals’ brandsAvoids channel conflict with dealers – Important where strong support of dealer networks is essential
43 Using the Internet as a Minor Distribution Channel Approach – Use online sales toAchieve incremental salesGain online sales experienceConduct marketing researchLearn more about buyer tastes and preferencesTest reactions to new productsCreate added market buzz about productsUnlikely to provoke much outcry from dealers
44 Brick-and-Click Strategies: An Appealing Middle Ground Approach Sell directly to consumers andUse traditional wholesale/retail channelsReasons to pursue a brick-and-click strategyManufacturer’s profit margin from online sales is bigger than that from sales through traditional channelsEncouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing onlineSelling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly
45 Strategies for Online Enterprises Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactionsSuccess depends on a firm’s ability to incorporate following featuresCapability to deliver unique value to buyersDeliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the moneyInnovative, fresh, and entertaining websiteClear focus on a limited number of competencies and a relatively specialized number of value chain activitiesInnovative marketing techniquesMinimal reliance on ancillary revenues
46 Choosing Appropriate Functional-Area Strategies Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic movesFunctional strategies includeResearch and developmentProductionHuman resourcesSales and marketingFinanceTailoring functional-area strategies to support key business-level strategies is critical!
47 First-Mover Advantages When to make a strategic move is often as crucial as what move to makeFirst-mover advantages arise whenPioneering helps build firm’s image and reputationEarly commitments to new technologies, new-style components, and distribution channels can produce cost advantageLoyalty of first time buyers is highMoving first can be a preemptive strike
48 First-Mover Disadvantages Moving early can be a disadvantage (or fail to produce an advantage) whenCosts of pioneering are sizable and loyalty of first time buyers is weakInnovator’s products are primitive, not living up to buyer expectationsRapid technological change allows followers to leapfrog pioneers
49 Timing and Competitive Advantage Principle 1Being a fast follower can sometimes yield as good a result as being a first moverPrinciple 2Being a fast follower can sometimes yield as good a result as being a first moverPrinciple 3Being a late-mover may or may not be fatal -- it varies with the situation