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Strategic Managemnt Chapter 6
- 1. Amal R Unnithan BalamLova Raju Hari Prasad K P Swetha Suresh Babu Vijish Madhavan Vishnu CK CHAPTER 6 STRENGTHENING A COMPANY’S COMPETITIVE POSITION Presented by Group No 1
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- 3. MAXIMIZING THE POWEROF A STRATEGY Making choices that complement a competitive approach and maximize the power of strategy Offensive and Defensive Competitive Actions Competitive Dynamics and the Timing of Strategic Moves Scope of Operations along the Industry’s Value Chain
- 4. OFFENSIVE AND DEFENSIVE COMPETITIVEACTIONS Used to build new or stronger market position and/or create competitive advantage Used to protect competitive advantage (rarely used to create advantage) Offensive Strategies Defensive Strategies Strategies
- 5. GOING ON THEOFFENSIVE STRATEGIC OPTIONS TO IMPROVE A FIRM’S MARKET POSITION Strategic Offensive Principles: Relentlessly build competitive advantage and then convert it into sustainable advantage. Create and deploy resources in ways that cause rivals to struggle to defend themselves. Employ the element of surprise as opposed to doing what rivals expect and are prepared for. Display a strong bias for swift, decisive, and overwhelming actions to overpower rivals
- 6. CHOOSING WHICH RIVALSTO ATTACK Market leaders that are vulnerable Runner-up firms with weaknesses in areas where the challenger is strong Struggling enterprises on the verge of going under Small local and regional firms with limited capabilities Best Targets for Offensive Attacks
- 7. BLUE OCEAN STRATEGY ASPECIAL KIND OF OFFENSIVE Involves a firm seeking sizable and durable competitive advantage by abandoning its existing markets and, then, inventing a new industry or distinctive market segment in which that firm has exclusive access to new demand. By “reinventing the circus,” Cirque du Soleil annually attracts an audience of millions of people who typically do not attend circus events.
- 8. DEFENSIVE STRATEGIES PROTECTING MARKETPOSITION AND COMPETITIVE ADVANTAGE Purposes of Defensive Strategies Lower the firm’s risk of being attacked Weaken the impact of an attack that does occur Influence challengers to aim their efforts at other rivals Good defensive strategies help protect competitive advantage but rarely are the basis for creating it.
- 9. SIGNALING CHALLENGERS THAT RETALIATIONIS LIKELY Publicly announce management’s strong commitment to maintain the firm’s present market share Publicly commit firm to policy of matching rivals’ terms or prices Maintain war chest of cash reserves Make occasional counter response to moves of weaker rivals
- 10. TIMING A FIRM’SOFFENSIVE AND DEFENSIVE STRATEGIC MOVES Timing’s Importance: Knowing when to make a strategic move is as crucial as knowing what move to make. Moving first is no guarantee of success or competitive advantage. The risks of moving first to stake out a monopoly position must be carefully weighted.
- 11. STRENGTHENING A COMPANY’S MARKETPOSITION VIA ITS SCOPE OF OPERATIONS Range of its activities performed internally Breadth of its product and service offerings Extent of its geographic market presence and mix of businesses Size of its competitive footprint on its market or industry Defining the Scope of the Firm’s Operations
- 12. HORIZONTAL MERGER AND ACQUISITIONSTRATEGIES Merger Is the combining of two or more firms into a single corporate entity that often takes on a new name. Acquisition Is a combination in which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired.
- 13. VERTICAL INTEGRATION STRATEGIES VerticallyIntegrated Firm Is one that participates in multiple segments or stages of an industry’s overall value chain. Vertical Integration Strategy Can expand the firm’s range of activities backward into its sources of supply and/or forward toward end users of its products.
- 14. TYPES OF VERTICAL INTEGRATIONSTRATEGIES Full Integration Partial Integration Tapered Integration
- 15. BACKWARDS INTEGRATION TOWARDS SUPPLIERS Achieve the same scale economies as outside suppliers Match or beat suppliers’ production efficiency with no drop in quality INTEGRATING FORWARD TO ENHANCE COMPETITIVENESS Gain better access to end users Improve market visibility Include the purchasing experience as a differentiating feature
- 16. 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 Lower distribution costs Gain a cost advantage over rivals Produce higher margins Allow for lower prices charged to end users Competing directly against distribution allies can create channel conflict and signal a weak commitment to dealers. Forward Vertical Integration When should we go for forward / backward integration ?
- 17. DISADVANTAGES OF AVERTICAL INTEGRATION STRATEGY Boosts capital investment in the industry Increases business risk if industry growth and profits sour May slow technological advances if the vertically integrated company is saddled with older technology Poses all types of capacity-matching problems May require radically different skills and business capabilities
- 18. Outsourcing an activityis a consideration when: It can be done cheaply by outside specialists. It is not crucial to achieve a sustainable competitive advantage Improves organizational flexibility and speeds time to market. It reduces a firm’s risk exposure to changing technology and/or buyer preferences. It allows a firm to concentrate on its core business. The Big Risk of Outsourcing: Farming out the wrong types of activities Hollowing out strategically important capabilities ultimately damages a firm’s competitiveness and long-term success in the marketplace OUTSOURCING
- 19. STRATEGIC ALLIANCES AND PARTNERSHIPS Strategic Alliance Is a formal agreement between two or more separate firms in which they agree to work cooperatively toward common objectives. Joint Venture Is a type of strategic alliance in which the partners set up an independent corporate entity that they own and control jointly, sharing in its revenues and expenses.
- 20. CAPTURING THE BENEFITSOF STRATEGIC ALLIANCES Picking a good partner Being sensitive to cultural differences Recognizing that the alliance must benefit both sides Adjusting the agreement over time to fit new circumstancesStructuring the decision-making process for swift actions Ensuring both parties keep their commitments Strategic Alliance Factors
- 21. THE DRAWBACKS OFSTRATEGIC ALLIANCES AND PARTNERSHIPS Culture clash and integration problems due to different management styles and business practices. Anticipated gains do not materialize due to an overly optimistic view of the synergies or a poor fit of partners’ resources and capabilities. Risk of becoming dependent on partner firms for essential expertise and capabilities. Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals.
- 22. PRINCIPLE ADVANTAGES OF STRATEGICALLIANCES They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing. They are more flexible organizational forms and allow for a more adaptive response to changing conditions. They are more rapidly deployed—a critical factor when speed is of the essence.
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