chapter

SUPPLEMENTING THE CHOSEN COMPETITIVE STRATEGY OTHER IMPORTANT STRATEGY CHOICES

Student Version
McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Choosing Strategy Actions that Complement a Firms Competitive Approach

Decisions regarding the firms operating scope and how to best strengthen its market standing must be made:
Whether and when to go on the offensive and initiate aggressive

strategic moves to improve the firms market position.

Whether and when to employ defensive strategies to protect the

firms market position.

When to undertake strategic moves based upon whether it is

advantageous to be a first mover or a fast follower or a late mover.

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Choosing Strategy Actions that Complement a Firms Competitive Approach (contd)

Decisions regarding the firms operating scope and how to best strengthen its market standing must be made:
Whether to integrate backward or forward into more stages of the

industry value chain.

Which value chain activities, if any, should be outsourced. Whether to enter into strategic alliances or partnership

arrangements with other enterprises.

Whether to bolster the firms market position by merging with or

acquiring another company in the same industry.

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Launching Strategic Offensives to Improve a Companys Market Position

Aggressive

strategic offensives are called for when a firm:

Spots opportunities to gain profitable market share

at the expense of rivals Has no choice but to try to whittle away at a strong rivals competitive advantage Can reap the benefits a competitive edge offersa leading market share, excellent profit margins, and rapid growth
The

best offensives use a firms resource strengths to attack its rivals weaknesses.
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Blue Ocean Strategy A Special 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.

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Using Defensive Strategies to Protect a Companys Market Position and Competitive Advantage
Defensive

strategies help fortify a competitive position by:

Lowering the risk of being attacked. Weakening the impact of any attack that occurs. Influencing challengers to redirect their competitive

efforts toward other rivals.

Good

defensive strategies help protect competitive advantage but rarely are the basis for creating it.
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Signaling Challengers that Retaliation Is Likely

Publicly

announce managements strong commitment to maintain the firms present market share Publicly commit firm to policy of matching rivals terms or prices Maintain war chest of cash reserves Make occasional counterresponse to moves of weaker rivals

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Timing a Companys Offensive and Defensive Strategic Moves

When

to make a strategic move is often as crucial as what move to make. First-mover advantages arise when:
Pioneering helps build a firms image and reputation

with buyers Early commitments (technology, market channels) produce an absolute cost advantage over rivals First-time customers remain strongly loyal in making repeat purchases Moving first constitutes a preemptive strike, making imitation extra hard or unlikely
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The Potential for Late-Mover Advantages or First-Mover Disadvantages

Moving

early can be a disadvantage (or fail to produce an advantage) when:

Pioneering leadership is more costly than imitation Innovators products are primitive, and do not live up

to buyer expectations
Potential buyers are skeptical about the benefits of

new technology/product of a first mover

Rapid changes in technology change or buyer needs

allow followers to leapfrog pioneers

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Deciding Whether to Be an Early Mover or Late Mover

Key Issue:
Is the race to market leadership a marathon or a sprint?

Seeking first-mover competitive advantage 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?

Are there influential competitors in a position to delay or derail

the efforts of a first mover?

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Vertical Integration: Operating Across More Industry Value Chain Segments

Involves

extending a firms competitive and operating scope within the same industry
Backward into sources of supply Forward toward end users of final product

Can

aim at either full or partial integration

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Integrating Backward to Achieve Greater Competitiveness

For

backward integration to boost profitability a firm must be able to:

Achieve the same scale economies

as outside suppliers Match or beat suppliers production efficiency with no drop in quality

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When Backward Vertical Integration Becomes a Consideration

Potential

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
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Integrating Forward to Enhance Competitiveness

Gain

better access to end users Improve market visibility Include the purchasing experience as a differentiating feature

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Forward Vertical Integration and Internet Retailing

Direct

selling and Internet retailing have appeal when there is potential to:
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.

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Outsourcing Strategies: Narrowing the Scope of Operations

Outsourcing an activity is a consideration when:

It can be performed better or more cheaply by outside specialists.
It is not crucial to achieve a sustainable competitive advantage

and will not hollow out capabilities, core competencies, or technical know-how of a firm.
It improves organizational flexibility and speeds time to market.
It reduces a firms risk exposure to changing technology and/or

buyer preferences.
It allows a firm to concentrate on its core business, leverage its

key resources and core competencies, and do even better what it already does best.

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Outsourcing Strategies: Narrowing the Scope of Operations (contd)

The

Big Risk of Outsourcing:

Farming out the wrong types of activities

Hollowing out strategically important capabilities

ultimately damages a firms competitiveness and longterm success in the marketplace

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Strategic Alliances and Partnerships

Strategic

Alliance

Is a formal collaborative agreement in which two or

more firms join forces to achieve mutually beneficial strategic outcomes:

A

strategically relevant collaboration A joint contribution of resources An assumption of a shared risk An agreement to shared control A recognition of mutual dependence

Is attractive in that it allows firms to bundle resources

and competencies that are more valuable in a joint effort than when kept separate.
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Reasons for Firms to Enter into Strategic Alliances

To expedite development of new technologies or products To overcome deficits in technical or manufacturing expertise To bring together personnel of each partner to create new skill sets and capabilities To improve supply chain efficiency To gain economies of scale in production and/or marketing To acquire or improve market access through joint marketing agreements
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Reasons for Firms to Continue in Strategic Alliances

Alliances

are likely to be long-lasting when:

They involve collaboration with suppliers or

distribution allies. Both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging.
Experience

indicates that:

Alliances stand a reasonable chance of helping a

firm reduce its competitive disadvantage but very rarely have alliances proved a strategic option for gaining a durable competitive edge over rivals.
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Failed Strategic Alliances and Cooperative Partnerships

Common

causes for the failure of 6070% of alliances each year:

Diverging objectives and priorities An inability to work well together

Changing conditions that make the purpose of the

alliance obsolete
The emergence of more attractive technological paths

Marketplace rivalry between one or more allies

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Merger and Acquisition Strategies

An

attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market opportunities:
Merger
The

combining of two or more firms into a single entity, with the newly created firm often taking on a new name
combination in which one firm, the acquirer, purchases and absorbs the operations of another, the acquired firm

Acquisition
The

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Typical Objectives of Mergers and Acquisitions

1. To create a more cost-efficient operation out of the combined firms 2. To expand a firms geographic coverage 3. To extend the firms business into new product categories 4. To gain quick access to new technologies or other resources and competitive capabilities 5. To lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities

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