1. Supplementing the Chosen Competitive Strategy
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Adam M. Brandenburger and Barry J. Nalebuff
“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

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

4. Collaborative Strategies: Alliances and Partnerships
Companies sometimes use strategic alliances or collaborative partnerships to complement their own strategic initiatives and strengthen their competitiveness.

5. 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

6. What Factors Make an Alliance Strategic?
It is critical to a company’s achievement of an important objective
It helps build, sustain, or enhance a core competence or competitive advantage
It helps block a competitive threat
It helps open up important market opportunities
It mitigates a significant risk to a company’s business

7. 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

8. Objectives of Mergers and Acquisitions
To create a more cost-efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into new product categories or international markets
To gain quick access to new technologies or competitive capabilities
To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities

9. 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
Activities,
Costs, &
Margins of
Suppliers
Internally
Performed
Activities,
Costs, &
Margins
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners

10. 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

11. 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
Suppliers
Support Services
Functional Activities
Distributors or Retailers

12. 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

13. 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

14. Offensive and Defensive Strategies
Offensive Strategies
Defensive Strategies
Used to build new or stronger market position and/or create competitive advantage
Used to protect competitive advantage (rarely lead to creating advantage)

15. Types of Offensive Strategy Options
1. Offer an equally good or better product at a lower price
2. Leapfrog competitors
3. Pursue continuous product innovation
4. Adopt and improve on the good ideas of other companies
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
9. Launch a preemptive strike

18. What Is a Blue Ocean Strategy?
Seeks to gain a dramatic, durable competitive advantage by
Abandoning efforts to beat out competitors in existing markets and
Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and
Allowing a company to create and capture altogether new demand

19. Blue Ocean Strategy Kim & Mauborgne (2005)
Driving forces are increased supply capabilities and reduced demand distinctions
Reconstructionist view of strategy
Shift emphasis from supply to demand
Systemic strategy of driving up value while lowering costs

20. Type of Markets: Blue Ocean Strategy
Red Ocean Market Space
Industry boundaries are defined and accepted
Competitive rules are well understood by all rivals
Companies try to outperform rivals by capturing a bigger share of existing demand
Blue Ocean Market Space
Industry does not exist yet
Industry is untainted by competition
Industry offers wide-open opportunities if a firm has a product and strategy allowing it to
Create new demand and
Avoid fighting over existing demand

21. US Wine Industry 20 billion, 3rd largest aggregate consumption
33rd place in per capita consumption
Intense competition
8 top producers account for 75% of production; 1,600 account for the remaining 25%
Entry of other regions and countries
California wines account for 2/3rds of sales
Consolidation of retailers

22. Blue Ocean Tools
Strategy canvas
Four actions framework

23. Blue Ocean Strategy: Four Action Framework
Eliminate factors that companies in the industry have long competed on.
Determine whether products have been over designed.
Eliminate customer compromises.
Discover new sources of value.

24. Casella Wines

25. 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

26. Eat2Eat.com