SUPPLEMENTING THE CHOSEN COMPETITIVE STRATEGY: OTHER IMPORTANT
STRATEGIC CHOICES Chapter 6 MGT 4380
Slide 2
Strategic Management Process
Slide 3
Again, what is a competitive strategy? Competitive Strategy
Concerns managements "game plan" for competing successfully and
securing a competitive advantage over rivals (strategy asPLAN)
Represents the firms specific efforts to provide superior value to
customers by offering: An equally good product at a lower price
(low cost) A superior product with unique features perceived as
worth paying more for (differentiation) An attractive overall mix
of price, features, quality, service, and other appealing
attributes (best cost)
Slide 4
Strategic Actions to Complement a Firms Competitive Strategy
Decisions regarding the firms operating scope and how to best
strengthen its market standing must be made: Whether to initiate an
aggressive offensive or defensive strategy to expand or protect
market share When to undertake strategic moves based upon whether
it is advantageous to be a first mover or a fast follower or a late
mover. 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
Slide 5
When to be offensive? 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 E.g., David v.
Goliath
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Choosing the Basis for Competitive Attack
Slide 7
Choosing Which Rivals to Attack
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Blue Ocean StrategyA Special Kind of Offensive Discover or
invent new industry segments that create new demand By reinventing
the circus, Cirque du Soleil annually attracts an audience of
millions of people who typically do not attend circus events An
alternative to battling for existing market share
Slide 9
When to be defensive? A defensive strategy is appropriate when
a firm anticipates an attack from a rival Help to 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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Blocking the Avenues Open to Challengers
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Signaling Challengers that Retaliation Is Likely
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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
Slide 13
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 or buyer needs allow followers to leapfrog
pioneers
Slide 14
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? Must have the resources and capabilities
to move first!
Slide 15
Lets take a 5 minute break
Slide 16
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
Slide 17
Why Vertically-Integrate? The two best reasons for vertically
integrating into more value chain segments: Strengthen the firms
competitive position Boost profitability
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Backward Integration 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 to backward integrate?
Slide 20
Forward Integration Gain better access to end users Improve
market visibility Include the purchasing experience as a
differentiating feature
Slide 21
When to forward integrate? Direct selling and Internet
retailing have appeal when there is no 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.
Slide 22
Disadvantages of a Vertical Integration Strategy Increases a
firms capital investments in its industry Increases a firms
business risk if industry growth and profits sour Can slow the
adoption of technical advances for vertically integrated firms
using older technologies and facilities Results in less flexibility
to accommodate changing buyer preferences when a new product design
requires parts a firm doesnt make in-house. Creates
capacity-matching problems among integrated in-house component
manufacturing units May require development of radically different
skills and business capabilities
Slide 23
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.
Slide 24
Risks of Outsourcing The Big Risks of Outsourcing: Farming out
the wrong types of activities Hollowing out strategically important
capabilities ultimately damages a firms competitiveness and
long-term success in the marketplace Can be associated with
negative business practices
Slide 25
Strategic Alliances Strategic Alliancea 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 A joint venture is a specific strategic
alliance wherein a new entity is created in partnership with two or
more firms
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Why enter a strategic alliance?
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Why continue a strategic alliance? 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 Experience indicates
that: Alliances can help reduce a firms competitive disadvantages
over rivals But rarely help a firm gain a competitive advantage
over rivals
Slide 28
Why do strategic alliances fail? 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
Slide 29
What are the dangers of strategic alliances? The Achilles heel
of alliances and cooperative partnerships is becoming dependent on
other companies for essential expertise and capabilities
Ultimately, a firm must develop its own resources and capabilities
to protect its competitiveness and capabilities to build and
maintain its competitive advantage
Slide 30
Merger & Acquisition Strategies An attractive strategic
option for achieving operating economies, strengthening
competencies, and opening avenues to new market opportunities:
Mergercombining two or more firms into a single entity, with the
newly created firm often taking on a new name
Acquisitioncombination in which one firm, the acquirer, purchases
and absorbs the operations of another, the acquired firm Most
mergers are actually acquisitions
Slide 31
What are the typical objectives of M&As? 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
Slide 32
Why do some M&As fail? 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 company may continue to do
things as they were done prior to the acquisition. Key employees of
the acquired firm may leave.