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Mastering Strategic Management Chapter 6 Supporting the Business-Level Strategy: Competitive and Cooperative Moves. Learning Objectives. Understand Different competitive moves commonly used by firms When and how do firms respond to competitive actions taken by their rivals - PowerPoint PPT Presentation
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Mastering Strategic Management
Chapter 6Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
This work is licensed under aCreative Commons Attribution 3.0 Unported License (CC-BY).
Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Learning Objectives
Understand
• Different competitive moves commonly used by firms
• When and how do firms respond to competitive actions taken by their rivals
• Cooperate strategies to create mutual benefits (joint ventures, strategic alliances, etc.)
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
3Merck executives must decide• what competitive moves to make• how to respond to rivals’ competitive moves, & • what cooperative moves to makeInterestingly, other companies, such as Roche, will be a potential ally in some instances & rival in others
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Making Competitive Moves
The study of competitive moves draws from military history, including Sun Tzu’s classic book, The Art of War
Business strategists are familiar with a number of competitive moves that may help guide their firms to victory.
• First Mover Advantage
• Disruptive Innovations
• Footholds
• Blue Ocean Strategy
• Bricolage
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Mover – Advantage or Not?
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Mover Advantage
A first-mover advantage exists when making the initial move into a market allows a firm to establish a dominant position that other firms struggle to overcome
Recall - a strategic resource is an asset that is valuable, rare, difficult to imitate, and non-substitutable.
• Often requires significant R&D, & product testing costs
• A first-mover cannot be sure that customers will embrace its offering, making a first move inherently risky
• First movers must be willing to commit sufficient resources to follow through on their pioneering efforts
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Movers
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Good News – Real disruptions usually takes some time to catch on. Container shipping needed both ships, railcars and trucks equipped to deal with containers and container ports to load them
Bad News – very hard to identify what might be invented soon…
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Mover – How to Fail….
• Does the product/service provide a truly sustainable competitive resource
• Or is Innovation easy to copy, or worse improve on...
• Can company preferably continue to improve product, or at a minimum, match product improvements (which are almost surely going to appear)
• Failure to market aggressively (it’s new, consumers will not know its value for them)
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Disruptive Innovations,1902
Can you think of any?
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Disruptive
• Big change!
• Affects whole market or industry
• Very hard to predict, but usually slow to develop
• Market is always evolving, difficult to pick out which are truly disruptive amongst market ‘noise’
• Includes creating brand new market where none existed before (i.e. Smart phone apps)
• As market emerges or develops, other firms must decide how to respond, embrace or compete
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
(Relatively) Recent Disruptions!• Energy Efficient light bulbs
• Kindle (Gaming)
• Electric & Driverless cars
• E-cigarettes
• iphone apps/mobile computing/texting
• Robots - vacuum cleaners, lawn mowers too!
• Social Media - U-Tube, Facebook, Pinterest, etc.
• Modern Container Shipping
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Foothold (Beach-head) Strategy
Value often far exceeds small size & costs of maintenance
Test market & faster expansion if things go well
Can deter competitors & make harder to predict next move
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
• Carl von Clausewitz’s 19th military strategy “aim at the sharp end of spear where rivals are weak or uninterested in what you are doing”
• Opens single store entering country as a showcase & establish brand
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
The first Walmart store opened July 1962 in Rogers, Arkansas & expanded in small towns underserved by large department stores
Walmart’s disruptions centered on supply mgmt• Current data - Bar codes, satellites, inventory• Relentless focus on prices• Distribution system
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Blue Ocean Strategy
Involves creating a new, untapped market rather than competing with rivals in an existing market
Creating a brand new market place
• Coffee Shops, Women’s underwear stores
• Transportation - Mom Vans / SUV / Electronic
• Voluntourism
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
This work is licensed under aCreative Commons Attribution 3.0 Unported License (CC-BY).
Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Traditional Circus!
Circus
• Rides, side-shows & big tent
• Mobile
• Increased competition from all other forms of entertainment
• High costs (animals, travel)
• Star performers
• But, Animal Activists,
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Focus on Adults
Combine Theatre, ballet & Acrobat
Keep the clowns!
Dramatic experience / theme, org. music
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Build a Better Mouse Trap? Good luck with that…
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Bricolage
• Most innovation are improvements to existing products (including new uses)
• Many others, Bricolage, are joining two products or services together to create something new
• And, A few are true Blue Ocean events!
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Innovative vs Incremental
Regional Hub Model
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Baking Soda
How many uses can you think of?
• Use as an antacid
• Underarm deodorant
• Keep cut flowers fresh longer (add teaspoon to vase)
• Put out small fires on rugs, upholstery, clothing & wood
• Put open container in fridge to absorb odors
• Turn baking soda into modeling clay by adding 1 1/4 cups of water to 1 cup of cornstarch
• Wipe your windshield with it to repel rainOther ideas - http://lifehackery.com/2008/07/22/home-4/
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Key Takeaways
Firms can take advantage of a number of competitive moves to shake up or otherwise get ahead in an ever-changing business environment.
• First mover advantage
• Disruptive Innovation
• Blue ocean thinking
• Foothold
• Bricolage
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
For teaching in two 90-minute classes/wk,
possible break point
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
6.2 - Responding to Other’s Moves
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Speed and Multipoint Competition
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Mutual Forbearance
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Fighting Brands
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Making Cooperative Moves
• In addition to choosing their own firm’s strategic actions, executives also have to decide whether and how to respond to rival’s moves
• Research indicates that three factors determine the likelihood that a firm will respond to a competitive move: awareness, motivation, & capability ->
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Razor Wars!
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
PS – Competitors…
Just how do we know what they’re up to anyways?
Corporate Intelligence
• gathering data & information
• Everything from dumpster diving to satellite monitoring
• Media monitoring, press releases, comp. websites!
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
(the absence of) Speed Kills… (6.2.1)
• In hyper-competitive world, firms must cope with rapid-fire barrage of attacks from rivals
• head-to-head advertising campaigns, price cuts, innovation & attempts to grab key customers
• Speed is essential in responding (or competitor may capture market…)
• Jack Welsh - success in most competitive rivalries “is less a function of grandiose predictions than it is a result of being able to respond rapidly to real changes as they occur. That’s why strategy has to be dynamic and anticipatory.”
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
So…We Meet Again (6.2.2)
• With multipoint competition, firms faces same rival in multiple markets. Competitive moves in one market can affect other markets
• Cigarette makers R. J. Reynolds (RJR) & Philip Morris compete in many countries
• In early 1990s, RJR introduced lower-priced cigarette brands. Philip Morris cut USA prices to protect market share which started a price war, ultimately hurt both
• 2nd, Philip Morris started competing in Eastern Europe where RJR had established a strong position.
• Combination of moves forced RJR to protect its market share in USA & neglect Eastern Europe
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Mutual forbearance
Mutual forbearance occurs when rivals do not act aggressively because each recognizes that the other can retaliate in multiple markets
• In late 1990s, Southwest Airlines & United competed in some but not all markets
• United announced plans to compete on other routes
• Southwest threatened to retaliate in shared markets & United backed down
• Recognizing & acting on potential forbearance can lead to better performance through firms not competing away their profits, while failure to do so can be costly
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Responding to Disruptive Innovation (6.2.3)
• When rival introduces disruptive innovation, firm have 3 choices
• 1st, executives may believe that innovation will not replace established offerings entirely & choose to focus on traditional business models, ignoring disruption
• For example, traditional bookstores did initially consider Amazon to be a competitive threat until online sales began to grow
• 2nd, firm counter challenge by attacking along a different dimension• For example, Apple responded to direct sales of cheap computers by Dell &
Gateway by adding power and versatility
• 3rd possibility is to simply match competitor’s move• Merrill Lynch, for example, confronted online trading by forming its own
Internet-based unit. Here the firm risks cannibalizing its traditional business, but executives may find that their response attracts an entirely new segment of customers
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Price Wars & Fighting Brands (6.2.4)
• Lowering prices, price wars, can be effective strategy in the short term
• But, may create long-term problem of trying to return to original price level, with new consumer expectations
• Creation of fighting brand is one strategy that can prevent/reduce this problem
• Fighting brand is a lower-end lower-cost brand that a firm introduces to try to protect the firm’s market share without damaging the firm’s existing brands.
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Fighting Brands – GM & Geo
• By late 1980s, GM challenged by small, inexpensive Japanese cars
• GM wanted to recapture lost sales, without harming existing brands, Chevrolet, Buick, & Cadillac, by putting their names on low-end cars
• Solution – Geo brand
• Interestingly, several Geo modelsproduced in joint ventures – Metro& Tracker joint venture with Suzuki
• By 1998, market revolved aroundhigher-quality vehicles, Geobrand discontinued
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Fighting Brands - Airlines
• Some fighting brands are rather short lived.
• Two major airlines experienced similar futility.
• In response to the growing success of discount airlines such as Southwest, AirTran, Jet Blue, and Frontier, both United Airlines and Delta Airlines created fighting brands.
• United launched Ted in 2004, discontinued 2009. • Delta’s Song only lasted from 2003 to 2006.
• Southwest’s acquisition of AirTran in 2011 created a large airline that may make United and Delta lament that they were not able to make their own discount brands successful.
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Key Takeaways
When threatened by the competitive actions of rivals, firms possess numerous ways to respond, depending on the severity of the threat including:
• Multipoint competition
• Mutual forbearance
• Responses to disruptive innovation
• Fighter brands
• Speed of response
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
6.3 Making Cooperative Moves
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Making Cooperative Moves
• In addition to competitive moves, firms can benefit from cooperating with each other
• Cooperative moves such as forming joint ventures and strategic alliances may allow firms to enjoy successes that might not otherwise be reached
• Share (rather than duplicate) resources • Learn from each other’s strengths
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Four types of Cooperative Moves• Joint venture is a cooperative arrangement that
involves two or more firms each contributing to the creation of a new entity
• Strategic alliance is a cooperative arrangement between two or more organizations that does not involve the creation of a new entity
• Co-location occurs when goods and services offered under different brands are located very close to each other
• Co-opetition refers to a blending of competition and cooperation between firms
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Joint Ventures
Cooperative arrangement that involves 2 or more firms each contributing to the creation of a new entity.
• The partners share decision-making authority, control of the operation, & any profits
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Advantages & Disadvantages of Joint Ventures• Advantages
• Enter related businesses or new geographic markets or gain new technological knowledge
• Access to resources, specialized staff & technology• Sharing of risks with a venture partner
• Disadvantages• Time and effort to build the relationship, challenges:• The objectives of the venture are not 100% clear and
communicated to everyone involved.• There is an imbalance in levels of expertise, investment or
assets brought into the venture by partners.
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Strategic Alliances
Cooperative arrangement between 2 or more orgs that does not involve creation of new entity
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Advantages & Disadvantages of Strategic Alliances• Advantages
• Allowing each partner to concentrate on activities that best match their capabilities.
• Learning from partners & developing competences that may be more widely exploited elsewhere.
• Better use of resources & competencies to survive
• Disadvantages• Potential to reduce future opportunities - unable to enter into
agreements with partner’s competitor• Lack of commitment to the partnership• Risk of sharing too much knowledge and the partner company
becoming a competitor
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Co-location
• Similar goods are located close to each other
• Fast food, hotels, auto-malls (cars)
• The Mall
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
“Co-opetition”
a blending of competition & cooperation between 2 firms
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Dis/Advantages Co-location & Co-opetition• Co-location Advantage
• A bigger set of customers may be attracted to a set of co-located firms than (sum of) individual locations
• Co-location Disadvantage • co-location can be very expensive
• Co-opetition Advantage • reduction of transaction costs & other savings and increasing
expectation among customers
• Co-opetition Disadvantage • competition and cooperation may not be always successful
between two firms
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Mastering Strategic ManagementChapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
In Conclusion,
This chapter has considered various competitive and cooperative strategies commonly used by firms
• When and how can firms respond to competitive actions taken by their rivals, and the industry in general
• Various cooperate strategies to create mutual benefits (joint ventures, strategic alliances, etc.)