Chapter 4 Crafting a Strategy Screen graphics created by: Jana F. Kuzmicki, PhD Troy University - Florida and Western Region

Adam M. Brandenburger and Barry J. Nalebuff Quote . . . “Successful business strategy is about actively shaping the game you play, not just playing the game you find.” Adam M. Brandenburger and Barry J. Nalebuff

Chapter Outline Five Generic Competitive Strategies Collaborative Strategies: Strategic Alliances and Partnerships Merger and Acquisition Strategies Vertical Integration Strategies Outsourcing Strategies Offensive Strategies Defensive Strategies Web Site Strategies Choosing Appropriate Functional-Area Strategies First-Mover Advantages and Disadvantages

Fig. 4.2: The Five Generic Competitive Strategies

Collaborative Strategies: Strategic Alliances and Partnerships Companies sometimes use 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 formal joint venture.

Merger and Acquisition Strategies Merger – Involves a 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 Characteristics of mergers and acquisitions 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

Vertical Integration Strategies Extend a 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 Performed Activities, Costs, & Margins Margins of Suppliers Buyer/User Value Chains Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners

Outsourcing Strategies Concept Involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities Internally Performed Activities Suppliers Support Services Functional Activities Distributors or Retailers

Offensive Strategies Purposes of offensive strategies Improve market position Build a competitive advantage or widen an existing one Whittle away at a strong rival’s competitive advantage Gain profitable market share at the expense of rivals despite their resource strengths and capabilities

Defensive Strategies Purposes of defensive strategies Lesson risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim attacks at other rivals Defend a firm’s competitive position / advantage Protect valuable resources and capabilities from imitation Types of defensive strategies Block avenues open to challengers Signal challengers vigorous retaliation is likely

Web Site Strategies: Which One to Employ? Strategic Issue – What role should a firm’s Web site play in its competitive strategy? Approaches to using the Internet Solely as a vehicle to disseminate product information Minor distribution channel One of several important distribution channels Primary distribution channel Exclusive distribution channel

Choosing Appropriate Functional-Area Strategies Involves strategic choices about how functional areas are managed to support competitive strategy and additional 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!

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

First-Mover Disadvantages Moving early can be a disadvantage (or fail to produce an advantage) when Costs of pioneering are sizable and loyalty of first time buyers is weak Innovator’s products are primitive, not living up to buyer expectations Rapid technological change allows followers to leapfrog pioneers