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    Chap006 Chap006 Presentation Transcript

    • CHAPTER 6 Supplementing the Chosen Competitive Strategy—Other Important Business Strategy ChoicesMcGraw-Hill/Irwin Copyright © 2011 The McGraw-Hill Companies, All Rights Reserved.
    • Business Strategy Choices toComplement the Company’sCompetitive Approach trategy considerations in rounding out the company’s overall business strategy include  Whether to enter into strategic alliances or partnerships  Whether to pursue mergers or acquisitions  Whether to integrate backward or forward into more stages of the industry value chain 6-2
    • Business Strategy Choices toComplement the Company’sCompetitive Approach  Whether to outsource certain value chain activities  Whether and when to initiate offensive strategies to improve the company’s market position  Whether and when to employ defensive strategies to protect the company’s market position  Choosing when to undertake strategic moves —whether to be a first-mover, fast follower or a late-mover 6-3
    • Strategic Alliances andCollaborative Partnerships Strategic Alliance - formal collaborative arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes Strategically relevant collaboration  joint contribution of resources shared risk shared control mutual dependence 6-4
    • Strategic Alliances andCollaborative Partnerships The strategic attractiveness of alliances and collaborative partnerships  Allowing companies to bundle resources and competencies that are more valuable in a joint effort than when kept separate 6-5
    • Reasons Companies Enter IntoStrategic Alliances Expedite the development of new technologies or products Overcome deficits in technical or manufacturing expertise To create new skill sets and capabilities by bringing together personnel of each partner To improve supply chain efficiency To gain economies of scale in production and/or marketing To acquire or improve market access via joint marketing agreements 6-6
    • Failed Strategic Alliances andCooperative Partnerships ommon reasons why as many as 60 percent to 70 percent of alliances fail each year  Diverging objectives and priorities  Inability to work well together  Changing conditions that make the purpose of the alliance obsolete  Emergence of more attractive technological paths  Increased marketplace “rivalry” between one or more allies 6-7
    • The Strategic Dangers Of RelyingOn Alliances For EssentialResources And Capabilities  The Achilles’ heel of alliances and cooperative partnerships is becoming dependent on other companies for essential expertise and capabilities  A company must ultimately have strategic control of critical resources and capabilities to protect competitiveness and build competitive advantage 6-8
    • Merger and Acquisition Strategies n attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market opportunities  Merger -- the combining of two or more companies into a single entity, with the newly created company often taking on a new name  Acquisition -- is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired 6-9
    • Typical Objectives of Mergers andAcquisitions reating a more cost-efficient operation out of the combined companies xpanding a company’s geographic coverage xtending the company’s business into new product categories aining quick access to new technologies or other resources and competitive capabilities 6-10
    • Why Mergers And AcquisitionsSometimes Fail To Produce AnticipatedResults Cost savings are smaller than expected Gains in competitive capabilities take much longer to realize or may never materialize Efforts to mesh the corporate cultures can stall because of resistance from organization members Managers and employees at the acquired may continue to do things as they were done prior to the acquisition Key employees of the acquired company may leave 6-11
    • Vertical Integration: OperatingAcross More Industry Value ChainSegments xtend a firm’s competitive scope within the same industry  Backward into sources of supply  Forward toward end-users of final product an aim at either full or partial integration 6-12
    • Potential Advantages of a VerticalIntegration Strategy The two best reasons for vertically integrating into more value chain segments Strengthen the firm’s competitive position Boost profitability 6-13
    • Integrating Backward To AchieveGreater Competitiveness For backward integration to boost profitability a company must be able to Achieve the same scale economies as outside suppliers, and Match or beat suppliers’ production efficiency with no drop-off in quality 6-14
    • When Backward Vertical IntegrationBecomes a Consideration otential 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 6-15
    • Integrating Forward To EnhanceCompetitiveness ain better access to end users mprove market visibility nclude the purchasing experience as a differentiating feature 6-16
    • Forward Vertical Integration andInternet Retailing irect selling and Internet retailing has appeal when there is potential to lower distribution costs, gain a cost advantage over rivals, produce higher margins, or allow for lower prices charged to end users owever, competing against directly against distribution allies can create channel conflict and signal a weak commitment to 6-17
    • Disadvantages of a VerticalIntegration Strategy oosts capital investment in the industry ncreases business risk if industry growth and profits sour ay slow technological advances if the vertically integrated company is saddled with older technology oses all types of capacity-matching problems ay require radically different skills and business capabilities 6-18
    • Outsourcing Strategies: Narrowingthe Boundaries of the Business Outsourcing is a consideration when  Activity can be performed better or more cheaply by outside specialists  Activity is not crucial to achieve a sustainable competitive advantage  It improves firm’s ability to innovate  Firm can concentrate on core value chain activities and leverage its resource strengths 6-19
    • Outsourcing Strategies: Narrowingthe Boundaries of the BusinessThe big risk of outsourcing Farming out the wrong types of activities Hollowing out strategically-important capabilities ultimately damages competitiveness and long-term success in the marketplace 6-20
    • Strategic Options to Improve aCompany’s Market Position—TheUse of Strategic Offensives Strategic offensives are called for when a company  Spots opportunities to gain profitable market share at the expense of rivals or  Has no choice but to try to whittle away at a strong rival’s competitive advantage The best offensives use resource strengths to attack rivals where they are weak 6-21
    • Choosing the Basis for CompetitiveAttackPrimary offensive strategy options Attack the competitive weaknesses of rivals Offer a lower price for an equally good or better product Pursue continuous product innovation Leapfrog competitors by being the first to market with next generation technology or products 6-22
    • Choosing the Basis for CompetitiveAttack dopt and improve on good ideas of other companies ttack market segments where a key rival make big profits aneuver around competitors to capture unoccupied or less contested market territory sing hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals 6-23
    • Choosing the Basis for CompetitiveAttack apture a rare opportunity or secure an industry’s limited resources  Secure the best distributors in a particular geographic region or country  Secure the most favorable retail locations  Tie up the most reliable, high-quality suppliers via exclusive partnerships, long- term contracts, or even acquisition 6-24
    • Blue Ocean Strategy—A SpecialKind of Offensive lue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand  Cirque du Soleil has attracted 10 million people annually to its shows by “reinventing the circus” - its audience typically doesn’t attend circus events 6-25
    • Strategic Options to Protect aCompany’s Market Position—TheUse of Defensive Strategies Defensive strategies help fortify a competitive position  Lower the risk of being attacked  Weaken the impact of any attack that occurs  Influence challengers to aim their efforts at other rivals Good defensive strategies help protect competitive advantage but rarely are the basis for creating it 6-26
    • Blocking the Avenues Open toChallengers  Introduce new features  Add new models  Broaden product line to fill vacant niches  Maintain economy-priced models  Make early announcements about upcoming new products or planned price changes  Grant volume discounts or better financing terms to dealers and distributors to discourage them from experimenting with other suppliers 6-27
    • Signaling Challengers ThatRetaliation Is Likely ublicly announce management’s strong commitment to maintain present market share ublicly commit firm to policy of matching rivals’ terms or prices aintain war chest of cash reserves 6-28
    • Timing A Company’s StrategicMoves 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 produce an absolute cost advantage over rivals  First-time customers remain strongly loyal in making repeat purchases  Constitutes a preemptive strike, making imitation extra hard or unlikely 6-29
    • Late-Mover Advantages and First-Mover Disadvantages Moving early can be a disadvantage (or fail to produce an advantage) when  When pioneering leadership is more costly than imitation  When innovators’ products are primitive, not living up to buyer expectations  When the demand side of the market is skeptical about the benefits of new technology/product of a first-mover  When rapid technological change allows followers to leapfrog pioneers 6-30
    • Deciding Whether to Be an EarlyMover or Late Mover ey issue – Is the race to market leadership in an industry a marathon or a sprint? eeking a competitive advantage by being a first- mover 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? 6-31  Are there influential competitors in a position