strategic management chap006
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6
Chapter Title
16/e PPT
Supplementing the Chosen Competitive
Strategy
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
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“Successful business strategy is about
actively shaping the game you play, not just playing the game you
find.”Adam M. Brandenburger and Barry J. Nalebuff
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“The sure path to oblivion is to stay where you are.”
Bernard Fauber
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Chapter Roadmap Collaborative Strategies: Alliances and Partnerships Merger and Acquisition Strategies Vertical Integration Strategies: Operating Across More
Stages of the Industry Value Chain Outsourcing Strategies: Narrowing the Boundaries of the
Business Offensive Strategies: Improving Market Position and
Building Competitive Advantage Defensive Strategies: Protecting Market Position and
Competitive Advantage Web Site Strategies Choosing Appropriate Functional-Area Strategies First-Mover Advantages and Disadvantages
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Fig. 6.1: A Company’s Menu of Strategy Options
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Companies sometimes use strategic alliances or
collaborative partnerships to complement their own strategic initiatives and strengthen their
competitiveness. Such cooperative strategies go beyond
normal company-to-company dealings but fall short of merger or full joint venture partnership.
Collaborative Strategies:Alliances and Partnerships
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Alliances Can Enhance aFirm’s Competitiveness
Alliances and partnerships can help companies cope with two demanding competitive challenges Racing against rivals to build a
market presence in many different national markets
Racing against rivals to seize opportunities on the frontiers of advancing technology
Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities
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Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two or more separate companies where there is Strategically relevant collaboration of some sort Joint contribution of resources Shared risk Shared control Mutual dependence
Alliances often involve Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products
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What Factors Make an Alliance Strategic?
It is critical to a company’s achievement of an important objective
It helps build, sustain, or enhance a core competence or competitive advantage
It helps block a competitive threat
It helps open up importantmarket opportunities
It mitigates a significant riskto a company’s business
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To collaborate on technology development or new product development
To fill gaps in technical or manufacturing expertise
To create new skill sets and capabilities
To improve supply chain efficiency
To gain economies of scale inproduction and/or marketing
To acquire or improve market accessvia joint marketing agreements
Why Are Strategic Alliances Formed?
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Get into critical country markets quickly to accelerate process of building a global presence
Gain inside knowledge about unfamiliar markets and cultures
Access valuable skills and competencies concentrated in particular geographic locations
Establish a beachhead to participate in target industry Master new technologies and build new expertise faster
than would be possible internally Open up expanded opportunities in target industry by
combining firm’s capabilities with resources of partners
Potential Benefits of Alliances toAchieve Global and Industry Leadership
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Capturing the Benefitsof Strategic Alliances
Benefits from forming partnerships are a function of Picking a good partner Being sensitive to cultural differences Recognizing an alliance
must benefit both parties Ensuring both parties live
up to their commitments Structuring the decision-making process
so actions can be taken swiftly when needed Managing the learning process and then adjusting the
alliance agreement over time to fit new circumstances
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Why Alliances Fail
Ability of an alliance to endure depends on How well partners work together Success of partners in responding
and adapting to changing conditions Willingness of partners to
renegotiate the bargain Reasons for alliance failure
Diverging objectives and priorities of partners Inability of partners to work well together Changing conditions rendering purpose of alliance obsolete Emergence of more attractive technological paths Marketplace rivalry between one or more allies
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Test Your Knowledge
Which one of the following is not a factor that makes an alliance “strategic” as opposed to just a convenient business arrangement?
A. The alliance involves joint contribution of resources, shared risk, and is mutually beneficial.
B. The alliance helps block a competitive threat or open up new market opportunities.
C. The alliance helps mitigate a significant risk to a company’s business.
D. The alliance helps build, enhance, or sustain a core competence or competitive advantage.
E. The alliance is critical to the company’s achievement of an important objective.
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Merger – Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired
Merger-acquisition strategy Much-used strategic option Especially suited for situations where
alliances do not provide a firm with neededcapabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Merger and Acquisition Strategies
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To create a more cost-efficient operation To expand a firm’s geographic coverage To extend a firm’s business into new
product categories or international markets To gain quick access to new technologies
or competitive capabilities To invent a new industry and lead the
convergence of industries whose boundariesare blurred by changing technologies andnew market opportunities
Objectives of Mergers and Acquisitions
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Combining operations may result in
Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities
Pitfalls of Mergers and Acquisitions
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Vertical Integration Strategies
Extend a firm’s competitive scope withinsame industry Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
InternallyPerformedActivities, Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValue
Chains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
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Strategic Advantagesof Backward Integration
Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
Potential to reduce costs exists when Suppliers have sizable profit margins Item supplied is a major cost component Resource requirements are easily met
Can produce a differentiation-based competitive advantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial raw materials / parts / components
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Strategic Advantagesof Forward Integration
To gain better access to end usersand better market visibility
To compensate for undependable distributionchannels which undermine steady operations
To offset the lack of a broad product line, a firm may sell directly to end users
To bypass regular distribution channels in favor of direct sales and Internet retailing which may Lower distribution costs Produce a relative cost advantage over rivals Enable lower selling prices to end users
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Strategic Disadvantagesof Vertical Integration
Boosts resource requirements Locks firm deeper into same industry Results in fixed sources of supply and
less flexibility in accommodating buyerdemands for product variety
Poses all types of capacity-matching problems May require radically different skills / capabilities Reduces flexibility to make changes in component
parts which may lengthen design time and ability to introduce new products
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Whether vertical integration is a viablestrategic option depends on its Ability to lower cost, build expertise,
increase differentiation, or enhanceperformance of strategy-critical activities
Impact on investment cost, flexibility, and administrative overhead
Contribution to enhancing a firm’s competitiveness
Pros and Cons ofIntegration vs. De-Integration
Many companies are finding thatde-integrating value chain activities is a
more flexible, economic strategic option!
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Outsourcing Strategies
Outsourcing involves withdrawing fromcertain value chain activities and relyingon outsiders to supply needed products,support services, or functional activities
Concept
InternallyPerformedActivitiesSuppliers
Support Services
Functional Activities
Distributors or Retailers
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Activity can be performed better ormore cheaply by outside specialists
Activity is not crucial to achieve asustainable competitive advantage
Risk exposure to changing technology and/orchanging buyer preferences is reduced
It improves firm’s ability to innovate Operations are streamlined to
Improve flexibility Cut time to get new products into the market
It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently
Firm can concentrate on “core” value chain activities that best suit its resource strengths
When Does OutsourcingMake Strategic Sense?
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Farming out too many or the wrong activities, thus
Hollowing out capabilities
Losing touch with activities and expertise that determine overall long-term success
Risk of an Outsourcing Strategy
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Offensive and Defensive Strategies
Used to build newor stronger market
position and/or create competitive advantage
Used to protect competitive advantage (rarely lead to creating
advantage)
Offensive Strategies Defensive Strategies
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Principles of Offensive Strategies
Focus relentlessly on Building competitive advantage and Striving to convert it into decisive advantage
Employ the element of surprise asopposed to doing what rivals expect
Apply resources where rivals are least able to defend themselves
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
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Types of Offensive Strategy Options
1. Offer an equally good or better product at a lower price
2. Leapfrog competitors by being First adopter of next-generation technologies or First to market with next-generation products
3. Pursue continuous product innovationto draw sales and market share awayfrom less innovative rivals
4. Adopt and improve on thegood ideas of other companies
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Types of Offensive Strategy Options (con’t)
5. Deliberately attack market segments where a key rival makes big profits
6. Attack competitive weaknesses of rivals7. Maneuver around competitors and
concentrate on capturing unoccupiedor less contested market territory
8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals
9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating
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What Is a Blue Ocean Strategy?
Seeks to gain a dramatic, durablecompetitive advantage by
Abandoning efforts to beat outcompetitors in existing markets and
Inventing a new industry or distinctivemarket segment to render existingcompetitors largely irrelevant and
Allowing a company to create andcapture altogether new demand
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Type of Markets: Blue Ocean Strategy
Typical Market Space Industry boundaries are
defined and accepted
Competitive rules are well understood by all rivals
Companies try to outperform rivals by capturing a bigger share of existing demand
Blue Ocean Market Space Industry does not exist yet
Industry is untainted by competition
Industry offers wide-open opportunities if a firm has a product and strategy allowing it to
Create new demand and Avoid fighting over existing
demand
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For Discussion: Your Opinion
Which of the following is the best example of a blue ocean strategy — Apple’s entry into MP3 players with its iPod models or Dell’s entry into LCD TVs or Audi’s recent move to bring out a luxury SUV? Explain.
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Choosing Rivals to Attack
Four types of firms can be the target of a fresh offensive
Vulnerable market leaders
Runner-up firms with weaknesseswhere challenger is strong
Struggling rivals onverge of going under
Small local or regional firms with limited capabilities
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Using Offensive Strategy to Achieve Competitive Advantage
Strategic offensives offering strongest basis for competitive advantage entail
An important core competence
A unique competitive capability
A better-known brand name
A cost advantage in manufacturingor distribution
Technological superiority
A superior product
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Test Your Knowledge
Which one of the following is not a good type of rival for an offensive-minded company to target?
A. Market leaders that are vulnerable
B. Runner-up firms with weaknesses in areas where the challenger is strong.
C. Small local and regional companies with limited capabilities
D. Companies with lower costs and lower prices
E. Struggling enterprises that are on the verge of going under
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Defensive Strategy
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Block avenues open to challengers
Signal challengers vigorousretaliation is likely
Objectives
Approaches
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Block Avenues Open to Challengers
Participate in alternative technologies Introduce new features, add new models, or broaden
product line to close gaps rivals may pursue Maintain economy-priced models Increase warranty coverage Offer free training and support services Reduce delivery times for spare parts Make early announcements about new
products or price changes Challenge quality or safety of rivals’ products
using legal tactics Sign exclusive agreements with distributors
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Publicly announce management’s strong commitment to maintain present market share
Publicly commit firm to policy ofmatching rivals’ terms or prices
Maintain war chest of cash reserves
Make occasional counter-responseto moves of weaker rivals
Signal Challengers Retaliation Is Likely
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Web Site Strategies
Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
Five Web site approaches Use to disseminate only product information Use as minor distribution channel
to sell direct to customers Use as one of several important distribution
channels to access customers Use as primary distribution channel to access buyers Use as exclusive channel to transact sales with
customers
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Using the Internet toDisseminate Product Information
Approach – Website used to provide product information of manufacturers or wholesalers Relies on click-throughs to websites of
dealers for sales transactions Informs end-users of location of retail stores
Issues – Pursuing online sales may Signal weak strategic commitment to dealers Signal willingness to cannibalize dealers’ sales Prompt dealers to aggressively market rivals’ brands
Avoids channel conflict with dealers – Important where strong support of dealer networks is essential
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Approach – Use online sales to
Achieve incremental sales
Gain online sales experience
Conduct marketing research
Learn more about buyer tastes and preferences
Test reactions to new products
Create added market buzz about products
Unlikely to provoke much outcry from dealers
Using the Internet as aMinor Distribution Channel
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Manufacturer’s profit margin fromonline sales is bigger than that fromsales through traditional channels
Encouraging buyers to visit a firm’swebsite educates them to the easeand convenience of purchasing online
Selling directly to end users allows amanufacturer to make greater use ofbuild-to-order manufacturing and assembly
Reasons to Use the Internetas a Minor Distribution Channel
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Approach Sell directly to consumers and Use traditional wholesale/retail channels
Strategic appeal for wholesalers and retailers Economic means of expanding a company’s economic
reach Provide both existing and potential customers another
choice of how to Communicate with a company Shop for product information Make purchases Resolve customer service problems
Brick-and-Click Strategies:An Appealing Middle Ground Approach
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Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactions
Strategic issues for an online company How to deliver unique value to buyers
Whether it will pursue competitive advantage based on lower costs, differentiation, or better value for the money
Whether it will have a broad or narrow product offering
Whether to perform order fulfillment activities internally or to outsource them
How it will draw traffic to its Web site and then convert page views into revenues
Strategies for Online Enterprises
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Test Your Knowledge
One very important advantage of a product-information-only Web site strategy is
A. lower advertising costs.
B. avoiding the extra costs associated with operating Web site e-stores.
C. avoiding channel conflict—trying to sell online in direct competition with retail dealers signals both a weak strategic commitment to dealers and a willingness to cannibalize dealers’ sales and growth potential.
D. added ability to create a positive image of the company.
E. lower sales force costs.
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For Discussion: Your Opinion
Suppose that you are a retailer of athletic footwear and one of the major brands you stock in your store is New Balance. What would be your reaction if you learned that New Balance announced that it would soon begin selling its footwear online at the company’s Web site? What actions would you consider taking?
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Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include Research and development Production Human resources Sales and marketing Finance
Tailoring functional-area strategies tosupport key business-level strategies is critical!
Choosing AppropriateFunctional-Area Strategies
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When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies,new-style components, and distributionchannels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Advantages
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First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when When costs of pioneering are more than being an
imitative follower and only negligible learning/experience curve benefits accrue to the leader
Innovator’s products are primitive, not living up to buyer expectations
Demand side of the market is skeptical about the benefits of new technology/product of a first-mover
Rapid technological change allows followers to leapfrog pioneers
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Strategic Issues:To Be a First-Mover or Not
Key issue – Is the race to market leadership in an industry a marathon or a sprint?
Seeking a competitive advantage by being a first-mover 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? Will buyers encounter high switching costs? Are there influential competitors in a position
to delay or derail the efforts of a first-mover?
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