chap006 supplementing chosen strategy

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6 6 chapter chapter SUPPLEMENTING SUPPLEMENTING THE CHOSEN THE CHOSEN COMPETITIVE COMPETITIVE STRATEGY— STRATEGY— OTHER IMPORTANT OTHER IMPORTANT STRATEGY CHOICES STRATEGY CHOICES Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

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Page 1: Chap006 Supplementing Chosen Strategy

66chapterchapter

SUPPLEMENTING SUPPLEMENTING THE CHOSEN THE CHOSEN COMPETITIVE COMPETITIVE STRATEGY—STRATEGY—OTHER IMPORTANT OTHER IMPORTANT STRATEGY CHOICESSTRATEGY CHOICES

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

Page 2: Chap006 Supplementing Chosen Strategy

Fig. 6.1a: Strategy OptionsFig. 6.1a: Strategy Options

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Fig. 6.1b: Strategy OptionsFig. 6.1b: Strategy Options

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6-6-66

Choosing Strategy Actions Choosing Strategy Actions that Complement a Firm’s that Complement a Firm’s

Competitive ApproachCompetitive Approach Decisions regarding the firm’s 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 firm’s market position.

Whether and when to employ defensive strategies to protect the firm’s 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 Choosing Strategy Actions that Complement a Firm’s that Complement a Firm’s

Generic Competitive Strategy Generic Competitive Strategy Decisions re the firm’s operating scope and how to

best strengthen market standing need to 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 firm’s market position by merging with or acquiring another company in the same industry.

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Launching Strategic Offensives to Launching Strategic Offensives to Improve a Company’s Market PositionImprove a Company’s 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

rival’s competitive advantageCan reap the benefits a competitive edge offers—a

leading market share, excellent profit margins, and rapid growth

The best offensives use a firm’s resource strengths to attack its rivals’ weaknesses.

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Choosing the Basis for Choosing the Basis for Competitive AttackCompetitive Attack

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Choosing Which Rivals to AttackChoosing Which Rivals to Attack

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Blue Ocean Blue Ocean Strategy—Strategy—A Special Kind of Offensive 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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Core Concept Core Concept

6-6-1414

Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.

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Core Concept Core Concept

6-6-1515

Competitive Advantage Cycle a framework describing how competitive advantage is affected by simultaneous occurrences of investments in renewal, leveraging on sources of advantage, and performance of competitive firms in a dynamic industry .

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Core Concept Core Concept

6-6-1616© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 6–16

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Core Concept Core Concept

6-6-1717© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 6–17

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Using Defensive Strategies to Protect Using Defensive Strategies to Protect a Company’s Market Position and a Company’s Market Position and

Competitive AdvantageCompetitive AdvantageDefensive strategies help fortify a competitive

position:Lowers risk of being attacked, copied.Weakens the impact of any attack.Influences challengers to redirect efforts towards other

rivals.Good defensive strategies help protect

competitive advantage but rarely are the basis for creating itCausal Ambiguity, Duplicability, Threat of Retaliation.

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Blocking the Avenues Blocking the Avenues Open to ChallengersOpen to Challengers

Create Barriers to Imitiation:-Causal Ambiguity-Duplicability-Threat of Retaliation

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Signaling Challengers that Signaling Challengers that Retaliation Is LikelyRetaliation Is Likely

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Signaling Challengers that Signaling Challengers that Retaliation Is LikelyRetaliation Is Likely

Publicly announce management’s strong commitment to maintain the firm’s present market share

Publicly commit firm to policy ofmatching rivals’ terms or prices

Maintain war chest of cash reservesMake occasional counterresponse

to moves of weaker rivals

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Timing a Company’s Offensive Timing a Company’s Offensive and Defensive Strategic Movesand Defensive Strategic Moves

When to make a strategic move is often as crucial as what move to make.

First-mover advantages arise when:Helps build a firm’s image as a PioneerEarly commitments (technology, channels)

produce a cost advantage over rivalsFirst-time customers show loyalty through

repeat purchasesServes as a preemptive strike, making imitation

difficult, or unlikely

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First-Mover DisadvantagesFirst-Mover DisadvantagesMoving early can be a disadvantage (or

fail to produce an advantage) whenCosts of pioneering are sizable and

loyalty of first time buyers is weak

Innovator’s products are primitive,not living up to buyer expectations

Rapid technological change allowsfollowers to leapfrog pioneers

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Principle 1

Being a late mover can sometimes yieldas good a result as being a first mover

Principle 2

Being a late-mover may or may not be fatal -- it varies with the situation

Principle 3

Being a fast follower can sometimes yieldas good a result as being a first mover

Timing and Competitive AdvantageTiming and Competitive Advantage

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The early bird catches The early bird catches the worm, the worm,

but the late mouse but the late mouse gets the cheese!gets the cheese!

Timing and Competitive AdvantageTiming and Competitive Advantage

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Core Concept Core Concept

6-6-2727

Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made.

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Deciding Whether to Be an Early Mover Deciding Whether to Be an Early Mover or Late Moveror 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 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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Concepts and Connections 6.1Amazon.Com’s First-Mover Advantage in Online Retailing

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Choosing Functional StrategiesChoosing Functional Strategies Involves strategic choices about how

functional areas are managed to support competitive strategy and other strategic moves

Functional strategies includeResearch and developmentProductionHuman resourcesSales and marketingFinance

Tailoring functional-area strategies tosupport key business-level strategies is critical!

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Vertical Integration: Operating Across Vertical Integration: Operating Across More Industry Value Chain SegmentsMore Industry Value Chain Segments

Involves extending a firm’s competitive and operating scope within the same industryBackward into sources of supplyForward toward end users of final product

Can aim at either full or partial integration

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Core Concept Core Concept

6-6-3232

A vertically integrated firm is one that performs value chain activities along more than one stage of an industry’s overall value chain.

A vertical integration strategy has appeal only if it significantly strengthens a firm’s competitive position and/or boosts its profitability

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Core Concept Core Concept

6-6-3333

Backward integration involves performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain; forward integration involves performing industry value chain activities closer to the end user.

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The Advantages of a Vertical The Advantages of a Vertical Integration StrategyIntegration Strategy

The two best reasons for vertically integrating into more value chain segments:Strengthen the firm’s competitive positionBoost profitability

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When Backward Vertical Integration When Backward Vertical Integration Becomes a ConsiderationBecomes a Consideration

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Integrating Forward to Enhance Integrating Forward to Enhance CompetitivenessCompetitiveness

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

differentiating feature

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Forward Vertical Integration Forward Vertical Integration and Internet Retailingand Internet Retailing

Direct selling and Internet retailing have appeal when there is no potential to:Lower distribution costsGain a cost advantage over rivalsProduce higher marginsAllow 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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Disadvantages of a Disadvantages of a Vertical Integration StrategyVertical Integration Strategy

Locks a firm further into the same industry, should industry growth and profits sour; increases investments and risks -

May require development of radically different skills and business capabilities

Can slow the adoption of technical advances for vertically integrated firms using older technologies and facilities

Less flexibility to accommodate changing buyer preferences when a new product requires parts not made in-house.

Creates capacity-matching problems among integrated in-house component manufacturing units

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Outsourcing Strategies: Outsourcing Strategies: Narrowing the Scope of OperationsNarrowing 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 firm’s 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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Core Concept Core Concept

6-6-4343

Outsourcing involves contracting out certainvalue chain activities to outside specialists and strategic allies.

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Outsourcing Strategies: Narrowing Outsourcing Strategies: Narrowing the Scope of Operations (cont’d)the Scope of Operations (cont’d)

The Big Risk of Outsourcing:Farming out the wrong types of activitiesHollowing out strategically important capabilities

ultimately damages a firm’s competitiveness and long-term success in the marketplace

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Strategic Alliances and PartnershipsStrategic Alliances and Partnerships

Strategic AllianceIs 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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Core Concept Core Concept

6-6-4646

A strategic alliance is a formal agreement between two or more companies to work cooperatively toward some common objective.

A joint venture is a type of strategic alliance that involves the establishment of an independent corporate entity that is jointly owned and controlled by the two partners.

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Reasons for Firms to Enter Reasons for Firms to Enter into Strategic Alliancesinto Strategic Alliances

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Reasons for Firms to Continue Reasons for Firms to Continue in Strategic Alliancesin 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 Failed Strategic Alliances and Cooperative PartnershipsCooperative Partnerships

Common causes for the failure of 60–70% of alliances each year:Diverging objectives and prioritiesAn inability to work well togetherChanging conditions that make the purpose of the

alliance obsoleteThe emergence of more attractive technological pathsMarketplace rivalry between one or more allies

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Dangers of Relying on Alliances for Core Dangers of Relying on Alliances for Core CapabilitiesCapabilities

Achilles’ heel of alliances: becoming dependent on other companies for core or essential capabilities.

Ultimately, a firm must develop its own resources and capabilities to protect its competitiveness and capabilities to build and maintain its competitive advantage.

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Merger and Acquisition StrategiesMerger 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

Acquisition The combination in which one firm, the acquirer, purchases

and absorbs the operations of another, the acquired firm

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Typical Objectives of Mergers Typical Objectives of Mergers and Acquisitionsand Acquisitions

1. To create a more cost-efficient operation out of the combined firms

2. To expand a firm’s geographic coverage3. To extend the firm’s business into new

product categories4. To gain quick access to new technologies or

other resources and competitive capabilities5. To lead the convergence of industries whose

boundaries are being blurred by changing technologies and new market opportunities

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Why Mergers and Acquisitions Why Mergers and Acquisitions Sometimes Fail to Produce Sometimes Fail to Produce

Anticipated ResultsAnticipated Results 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.

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Strategic Analysis and Choice

(Chapter 6, Fred David)

© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 6–55

Page 47: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-5656Ch. 6-56

Strategy-Formulation Analytical Framework

Stage 1: The Input StageStage 1: The Input Stage

Stage 2: The Matching StageStage 2: The Matching Stage

Stage 3: The Decision StageStage 3: The Decision Stage

Page 48: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-5757Ch. 6-57

Strategy-Formulation Analytical Framework

Stage 1: The Input StageStage 1: The Input Stage

ExternalFactor

EvaluationMatrix (EFE)

CompetitiveProfileMatrix

InternalFactor

EvaluationMatrix (IFE)

Page 49: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-5858Ch. 6-58

Strategy-Formulation Analytical Framework

Stage 2: The Matching StageStage 2: The Matching Stage

ThreatsOpportunitiesWeaknesses

Strengths(TOWS)

StrategicPosition &

Action Evaluation(SPACE)

BostonConsulting

Group Matrix(BCG)

Internal-ExternalMatrix

(IE)

GrandStrategyMatrix

Page 50: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-5959Ch. 6-59

Strategy-Formulation Analytical Framework

Stage 3: The Decision StageStage 3: The Decision Stage

Quantitative StrategicPlanning Matrix

(QSPM)

Strategic Impact Matrix(SFU)

Page 51: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-6060Copyright 2007 Prentice Hall

Ch 6 -60

Strategy Analysis & ChoiceStrategy Analysis & Choice

© 2001 Prentice HallCh. 6-60

SPACE MatrixSPACE Matrix FS

ES

ConservativeAggressive

Find Find “median“median” to ” to define vector point define vector point ((x, y)x, y)

+6

+1

+5+4+3+2

-6-5-4

-3-2-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

CA IS

Defensive Competitive

O

OOO

X

y

FS = H

IS = M

CA = H

ES = H

Page 52: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-6161Copyright 2007 Prentice Hall

Ch 6 -61

Strategy Analysis & ChoiceStrategy Analysis & Choice

DogsDogsIVIV

Cash CowsCash CowsIIIIII

Question MarksQuestion MarksII

StarsStarsIIII

Relative Market Share Position

High1.0

Medium.50

Low0.0

High+20

Low-20

Medium0

BCG MatrixBCG Matrix

Page 53: Chap006 Supplementing Chosen Strategy

(cont’d)

6-6-6262Copyright 2007 Prentice Hall

Ch 6 -62

Strategy Analysis & ChoiceStrategy Analysis & Choice

Page 54: Chap006 Supplementing Chosen Strategy

Ch. 6-63

Grand Strategy MatrixGrand Strategy Matrix

Quadrant IV• Concentric

diversification• Horizontal

diversification• Conglomerate

diversification• Joint ventures

Quadrant III• Retrenchment• Concentric

diversification• Horizontal

diversification• Conglomerate

diversification• Liquidation

Quadrant I• Market development• Market penetration• Product development• Forward integration• Backward integration• Horizontal integration• Concentric

diversification

Quadrant II• Market development• Market penetration• Product development• Horizontal integration• Divestiture• Liquidation

RAPID MARKET GROWTH

SLOW MARKET GROWTH

WEAK COMPETITIVE POSITION

STRONGCOMPETITIVE POSITION

Competitive Position Line

Mar

ket G

row

th L

ine

Strategy Analysis & ChoiceStrategy Analysis & Choice

Page 55: Chap006 Supplementing Chosen Strategy

Ch. 6-64

““Putting First Things First” Putting First Things First” by S. Coveyby S. Covey

II Hi, Lu– Imp’t but Not Urgent I Hi, Hu Important AND Urgent

IV Hi Lu-Not Imp’t; Not Urgent III Li Hu Urgent but not Imp’t

IMPO

RTAN

CIM

PORT

ANC

EE

URGENCURGENCYY

• Strategy- Planning/ DoingStrategy- Planning/ Doing• Value Chain Analysis Value Chain Analysis • Health, relationshipsHealth, relationships• Faith, Family, FriendsFaith, Family, Friends• Resolving ConflictsResolving Conflicts• Training, Hiring, FiringTraining, Hiring, Firing• Capacity Planning; TOCCapacity Planning; TOC

• Problems, CrisisProblems, Crisis• ComplaintsComplaints• Deliveries; DelaysDeliveries; Delays• Sales; Profit TargetsSales; Profit Targets• Project DeadlinesProject Deadlines• Imminent LossesImminent Losses• Comm’n BreakdownComm’n Breakdown

• Unplanned leisureUnplanned leisure• Unplanned Fun, gimmicksUnplanned Fun, gimmicks• Games, TV, InternetGames, TV, Internet• MistakesMistakes• Some TV ShowsSome TV Shows

• Many calls, texts, YM, Many calls, texts, YM, emails, meetingsemails, meetings• Non-value adding workNon-value adding work• Repairs, ReworkRepairs, Rework• Some unimportant Some unimportant conflictsconflicts

Page 56: Chap006 Supplementing Chosen Strategy

© 2001 Prentice Hall Ch. 6-65

Indu

stry

Sal

es G

row

th R

ate