Supplementing  the  Chosen  Competitive  Strategy Published by  Lecturesheet.iiuc28a9.com
Fig. 6.1:  A Company’s Menu of Strategy Options
Alliances  Can  Enhance  a Firm’s  Competitiveness <ul><li>Alliances and partnerships can help companies cope with two dem...
Characteristics  of  a  Strategic  Alliance <ul><li>Strategic alliance  – A  formal agreement  between two or more separat...
<ul><li>Get into critical country markets quickly to accelerate process of building a global presence </li></ul><ul><li>Ga...
Why  Alliances  Fail <ul><li>Ability  of an  alliance  to  endure  depends on </li></ul><ul><ul><li>How well partners work...
<ul><li>Merger  – Combination and pooling of equals, with newly created firm often taking on a new name </li></ul><ul><li>...
<ul><li>To create a more cost-efficient operation </li></ul><ul><li>To expand a firm’s geographic coverage </li></ul><ul><...
<ul><li>Combining operations may result in </li></ul><ul><ul><li>Resistance from rank-and-file employees </li></ul></ul><u...
Vertical  Integration  Strategies <ul><li>Extend  a firm’s  competitive scope  within same industry </li></ul><ul><ul><li>...
Strategic  Advantages of  Backward  Integration <ul><li>Generates cost savings only if volume needed is big enough to capt...
Strategic  Advantages of  Forward  Integration <ul><li>To gain better access to end users and better market visibility </l...
Strategic  Disadvantages of  Vertical  Integration <ul><li>Boosts resource requirements </li></ul><ul><li>Locks firm deepe...
Outsourcing  Strategies <ul><li>Outsourcing involves  withdrawing  from certain  value chain activities  and  relying on o...
<ul><li>Activity can be performed better or more cheaply by outside specialists  </li></ul><ul><li>Activity is not crucial...
<ul><li>Farming  out  too many  or the  wrong activities,  thus  </li></ul><ul><ul><li>Hollowing out  capabilities </li></...
Offensive  and  Defensive  Strategies <ul><li>Used to  build new or  stronger market position  and/or  create competitive ...
Principles  of  Offensive  Strategies <ul><li>Focus relentlessly on </li></ul><ul><ul><li>Building competitive advantage  ...
Types  of  Offensive  Strategy  Options <ul><li>1.  Offer an equally good or better product at a lower price </li></ul><ul...
Types  of  Offensive  Strategy  Options  (con’t) <ul><li>5.  Deliberately attack market segments where a key rival makes b...
Using  Offensive  Strategy  to  Achieve  Competitive  Advantage <ul><li>Strategic offensives offering  strongest basis for...
Defensive  Strategy <ul><li>Lessen risk of being attacked </li></ul><ul><li>Blunt impact of any attack that occurs </li></...
Block  Avenues  Open  to  Challengers <ul><li>Participate in alternative technologies </li></ul><ul><li>Introduce new feat...
<ul><li>Publicly announce management’s strong commitment to maintain present market share </li></ul><ul><li>Publicly commi...
Web  Site  Strategies <ul><li>Strategic Challenge  – What use of the Internet should a company make in staking out its pos...
<ul><li>Approach </li></ul><ul><ul><li>Sell directly to consumers  and </li></ul></ul><ul><ul><li>Use traditional wholesal...
<ul><li>Involves  strategic choices  about  how functional areas  are  managed  to  support competitive strategy  and othe...
<ul><li>When  to make a  strategic move  is often as crucial as  what  move to make </li></ul><ul><li>First-mover advantag...
First-Mover  Disadvantages <ul><li>Moving early  can be a  disadvantage  (or fail to produce an advantage)  when </li></ul...
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Chap 06

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Chap 06

  1. 1. Supplementing the Chosen Competitive Strategy Published by Lecturesheet.iiuc28a9.com
  2. 2. Fig. 6.1: A Company’s Menu of Strategy Options
  3. 3. Alliances Can Enhance a Firm’s Competitiveness <ul><li>Alliances and partnerships can help companies cope with two demanding competitive challenges </li></ul><ul><ul><li>Racing against rivals to build a market presence in many different national markets </li></ul></ul><ul><ul><li>Racing against rivals to seize opportunities on the frontiers of advancing technology </li></ul></ul><ul><li>Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities </li></ul>
  4. 4. Characteristics of a Strategic Alliance <ul><li>Strategic alliance – A formal agreement between two or more separate companies where there is </li></ul><ul><ul><li>Strategically relevant collaboration of some sort </li></ul></ul><ul><ul><li>Joint contribution of resources </li></ul></ul><ul><ul><li>Shared risk </li></ul></ul><ul><ul><li>Shared control </li></ul></ul><ul><ul><li>Mutual dependence </li></ul></ul><ul><li>Alliances often involve </li></ul><ul><ul><li>Joint marketing </li></ul></ul><ul><ul><li>Joint sales or distribution </li></ul></ul><ul><ul><li>Joint production </li></ul></ul><ul><ul><li>Design collaboration </li></ul></ul><ul><ul><li>Joint research </li></ul></ul><ul><ul><li>Projects to jointly develop new technologies or products </li></ul></ul>
  5. 5. <ul><li>Get into critical country markets quickly to accelerate process of building a global presence </li></ul><ul><li>Gain inside knowledge about unfamiliar markets and cultures </li></ul><ul><li>Access valuable skills and competencies concentrated in particular geographic locations </li></ul><ul><li>Establish a beachhead to participate in target industry </li></ul><ul><li>Master new technologies and build new expertise faster than would be possible internally </li></ul><ul><li>Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners </li></ul>Potential Benefits of Alliances to Achieve Global and Industry Leadership
  6. 6. Why Alliances Fail <ul><li>Ability of an alliance to endure depends on </li></ul><ul><ul><li>How well partners work together </li></ul></ul><ul><ul><li>Success of partners in responding and adapting to changing conditions </li></ul></ul><ul><ul><li>Willingness of partners to renegotiate the bargain </li></ul></ul><ul><li>Reasons for alliance failure </li></ul><ul><ul><li>Diverging objectives and priorities of partners </li></ul></ul><ul><ul><li>Inability of partners to work well together </li></ul></ul><ul><ul><li>Changing conditions rendering purpose of alliance obsolete </li></ul></ul><ul><ul><li>Emergence of more attractive technological paths </li></ul></ul><ul><ul><li>Marketplace rivalry between one or more allies </li></ul></ul>
  7. 7. <ul><li>Merger – Combination and pooling of equals, with newly created firm often taking on a new name </li></ul><ul><li>Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired </li></ul><ul><li>Merger-acquisition strategy </li></ul><ul><ul><li>Much-used strategic option </li></ul></ul><ul><ul><li>Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities </li></ul></ul><ul><ul><li>Ownership allows for tightly integrated operations, creating more control and autonomy than alliances </li></ul></ul>Merger and Acquisition Strategies
  8. 8. <ul><li>To create a more cost-efficient operation </li></ul><ul><li>To expand a firm’s geographic coverage </li></ul><ul><li>To extend a firm’s business into new product categories or international markets </li></ul><ul><li>To gain quick access to new technologies or competitive capabilities </li></ul><ul><li>To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities </li></ul>Objectives of Mergers and Acquisitions
  9. 9. <ul><li>Combining operations may result in </li></ul><ul><ul><li>Resistance from rank-and-file employees </li></ul></ul><ul><ul><li>Hard-to-resolve conflicts in management styles and corporate cultures </li></ul></ul><ul><ul><li>Tough problems of integration </li></ul></ul><ul><ul><li>Greater-than-anticipated difficulties in </li></ul></ul><ul><ul><ul><li>Achieving expected cost-savings </li></ul></ul></ul><ul><ul><ul><li>Sharing of expertise </li></ul></ul></ul><ul><ul><ul><li>Achieving enhanced competitive capabilities </li></ul></ul></ul>Pitfalls of Mergers and Acquisitions
  10. 10. Vertical Integration Strategies <ul><li>Extend a firm’s competitive scope within same industry </li></ul><ul><ul><li>Backward into sources of supply </li></ul></ul><ul><ul><li>Forward toward end-users of final product </li></ul></ul><ul><li>Can aim at either full or partial integration </li></ul>Internally Performed Activities, Costs, & Margins Activities, Costs, & Margins of Suppliers Buyer/User Value Chains Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners
  11. 11. Strategic Advantages of Backward Integration <ul><li>Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers </li></ul><ul><li>Potential to reduce costs exists when </li></ul><ul><ul><li>Suppliers have sizable profit margins </li></ul></ul><ul><ul><li>Item supplied is a major cost component </li></ul></ul><ul><ul><li>Resource requirements are easily met </li></ul></ul><ul><li>Can produce a differentiation-based competitive advantage when it results in a better quality part </li></ul><ul><li>Reduces risk of depending on suppliers of crucial raw materials / parts / components </li></ul>
  12. 12. Strategic Advantages of Forward Integration <ul><li>To gain better access to end users and better market visibility </li></ul><ul><li>To compensate for undependable distribution channels which undermine steady operations </li></ul><ul><li>To offset the lack of a broad product line, a firm may sell directly to end users </li></ul><ul><li>To bypass regular distribution channels in favor of direct sales and Internet retailing which may </li></ul><ul><ul><li>Lower distribution costs </li></ul></ul><ul><ul><li>Produce a relative cost advantage over rivals </li></ul></ul><ul><ul><li>Enable lower selling prices to end users </li></ul></ul>
  13. 13. Strategic Disadvantages of Vertical Integration <ul><li>Boosts resource requirements </li></ul><ul><li>Locks firm deeper into same industry </li></ul><ul><li>Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety </li></ul><ul><li>Poses all types of capacity-matching problems </li></ul><ul><li>May require radically different skills / capabilities </li></ul><ul><li>Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products </li></ul>
  14. 14. Outsourcing Strategies <ul><li>Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities </li></ul>Concept Internally Performed Activities Suppliers Support Services Functional Activities Distributors or Retailers
  15. 15. <ul><li>Activity can be performed better or more cheaply by outside specialists </li></ul><ul><li>Activity is not crucial to achieve a sustainable competitive advantage </li></ul><ul><li>Risk exposure to changing technology and/or changing buyer preferences is reduced </li></ul><ul><li>It improves firm’s ability to innovate </li></ul><ul><li>Operations are streamlined to </li></ul><ul><ul><li>Improve flexibility </li></ul></ul><ul><ul><li>Cut time to get new products into the market </li></ul></ul><ul><li>It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently </li></ul><ul><li>Firm can concentrate on “core” value chain activities that best suit its resource strengths </li></ul>When Does Outsourcing Make Strategic Sense?
  16. 16. <ul><li>Farming out too many or the wrong activities, thus </li></ul><ul><ul><li>Hollowing out capabilities </li></ul></ul><ul><ul><li>Losing touch with activities and expertise that determine overall long-term success </li></ul></ul>Risk of an Outsourcing Strategy
  17. 17. Offensive and Defensive Strategies <ul><li>Used to build new or stronger market position and/or create competitive advantage </li></ul><ul><li>Used to protect competitive advantage (rarely lead to creating advantage) </li></ul>Offensive Strategies Defensive Strategies
  18. 18. Principles of Offensive Strategies <ul><li>Focus relentlessly on </li></ul><ul><ul><li>Building competitive advantage and </li></ul></ul><ul><ul><li>Striving to convert it into decisive advantage </li></ul></ul><ul><li>Employ the element of surprise as opposed to doing what rivals expect </li></ul><ul><li>Apply resources where rivals are least able to defend themselves </li></ul><ul><li>Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals </li></ul>
  19. 19. Types of Offensive Strategy Options <ul><li>1. Offer an equally good or better product at a lower price </li></ul><ul><li>2. Leapfrog competitors by being </li></ul><ul><ul><li>First adopter of next-generation technologies or </li></ul></ul><ul><ul><li>First to market with next-generation products </li></ul></ul><ul><li>3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals </li></ul><ul><li>4. Adopt and improve on the good ideas of other companies </li></ul>
  20. 20. Types of Offensive Strategy Options (con’t) <ul><li>5. Deliberately attack market segments where a key rival makes big profits </li></ul><ul><li>6. Attack competitive weaknesses of rivals </li></ul><ul><li>7. Maneuver around competitors and concentrate on capturing unoccupied or less contested market territory </li></ul><ul><li>8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals </li></ul><ul><li>9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating </li></ul>
  21. 21. Using Offensive Strategy to Achieve Competitive Advantage <ul><li>Strategic offensives offering strongest basis for competitive advantage entail </li></ul><ul><ul><li>An important core competence </li></ul></ul><ul><ul><li>A unique competitive capability </li></ul></ul><ul><ul><li>A better-known brand name </li></ul></ul><ul><ul><li>A cost advantage in manufacturing or distribution </li></ul></ul><ul><ul><li>Technological superiority </li></ul></ul><ul><ul><li>A superior product </li></ul></ul>
  22. 22. Defensive Strategy <ul><li>Lessen risk of being attacked </li></ul><ul><li>Blunt impact of any attack that occurs </li></ul><ul><li>Influence challengers to aim attacks at other rivals </li></ul><ul><li>Block avenues open to challengers </li></ul><ul><li>Signal challengers vigorous retaliation is likely </li></ul>Objectives Approaches
  23. 23. Block Avenues Open to Challengers <ul><li>Participate in alternative technologies </li></ul><ul><li>Introduce new features, add new models, or broaden product line to close gaps rivals may pursue </li></ul><ul><li>Maintain economy-priced models </li></ul><ul><li>Increase warranty coverage </li></ul><ul><li>Offer free training and support services </li></ul><ul><li>Reduce delivery times for spare parts </li></ul><ul><li>Make early announcements about new products or price changes </li></ul><ul><li>Challenge quality or safety of rivals’ products using legal tactics </li></ul><ul><li>Sign exclusive agreements with distributors </li></ul>
  24. 24. <ul><li>Publicly announce management’s strong commitment to maintain present market share </li></ul><ul><li>Publicly commit firm to policy of matching rivals’ terms or prices </li></ul><ul><li>Maintain war chest of cash reserves </li></ul><ul><li>Make occasional counter-response to moves of weaker rivals </li></ul>Signal Challengers Retaliation Is Likely
  25. 25. Web Site Strategies <ul><li>Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace? </li></ul><ul><li>Five Web site approaches </li></ul><ul><ul><li>Use to disseminate only product information </li></ul></ul><ul><ul><li>Use as minor distribution channel to sell direct to customers </li></ul></ul><ul><ul><li>Use as one of several important distribution channels to access customers </li></ul></ul><ul><ul><li>Use as primary distribution channel to access buyers </li></ul></ul><ul><ul><li>Use as exclusive channel to transact sales with customers </li></ul></ul>
  26. 26. <ul><li>Approach </li></ul><ul><ul><li>Sell directly to consumers and </li></ul></ul><ul><ul><li>Use traditional wholesale/retail channels </li></ul></ul><ul><li>Strategic appeal for wholesalers and retailers </li></ul><ul><ul><li>Economic means of expanding a company’s economic reach </li></ul></ul><ul><ul><li>Provide both existing and potential customers another choice of how to </li></ul></ul><ul><ul><ul><li>Communicate with a company </li></ul></ul></ul><ul><ul><ul><li>Shop for product information </li></ul></ul></ul><ul><ul><ul><li>Make purchases </li></ul></ul></ul><ul><ul><ul><li>Resolve customer service problems </li></ul></ul></ul>Brick-and-Click Strategies: An Appealing Middle Ground Approach
  27. 27. <ul><li>Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves </li></ul><ul><li>Functional strategies include </li></ul><ul><ul><li>Research and development </li></ul></ul><ul><ul><li>Production </li></ul></ul><ul><ul><li>Human resources </li></ul></ul><ul><ul><li>Sales and marketing </li></ul></ul><ul><ul><li>Finance </li></ul></ul>Choosing Appropriate Functional-Area Strategies Tailoring functional-area strategies to support key business-level strategies is critical!
  28. 28. <ul><li>When to make a strategic move is often as crucial as what move to make </li></ul><ul><li>First-mover advantages arise when </li></ul><ul><ul><li>Pioneering helps build firm’s image and reputation </li></ul></ul><ul><ul><li>Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage </li></ul></ul><ul><ul><li>Loyalty of first time buyers is high </li></ul></ul><ul><ul><li>Moving first can be a preemptive strike </li></ul></ul>First-Mover Advantages
  29. 29. First-Mover Disadvantages <ul><li>Moving early can be a disadvantage (or fail to produce an advantage) when </li></ul><ul><ul><li>When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader </li></ul></ul><ul><ul><li>Innovator’s products are primitive, not living up to buyer expectations </li></ul></ul><ul><ul><li>Demand side of the market is skeptical about the benefits of new technology/product of a first-mover </li></ul></ul><ul><ul><li>Rapid technological change allows followers to leapfrog pioneers </li></ul></ul>

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