Beyond competitive strategy
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This document discusses various strategic options for companies beyond competitive strategy, including strategic alliances, mergers and acquisitions, vertical integration, and outsourcing. It provides an overview of each strategy and considers when each option may provide benefits to a company, as well as potential disadvantages. The document also addresses how companies can capture value from strategic alliances over time and the challenges that can cause alliances or mergers to fail.
Beyond competitive strategy
- 1. 6 Beyond Competitive Strategy Other Important Strategy Choices 6-1
- 2. “Successful business strategy is about actively shaping the game you play, not just playing the game you find.”
- 3. Roadmap Strategic Alliances and Collaborative Partnerships Merger and Acquisition Strategies Vertical Integration Strategies Outsourcing Strategies Using Offensive Strategies to Secure Competitive Advantage Using Defensive Strategies to Protect the Company’s Position Strategies for Using the Internet as a Distribution Channel Choosing Appropriate Functional-Area Strategies Timing strategic option - First-Mover, Fast-Follower and Late- Movers 6-3
- 4. A Company’s Menu of Strategy Options 6-4
- 5. Strategic Alliances and Collaborative Partnerships 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. 6-5
- 6. Alliances Can Enhance a Firm’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 6-6
- 7. Why Are Strategic Alliances Formed? To collaborate on technology development or new product development To fill gaps in technical or manufacturing expertise To acquire new competencies To improve supply chain efficiency To gain economies of scale in production and/or marketing To acquire or improve market access via joint marketing agreements 6-7
- 8. Potential Benefits of Alliances to Achieve Global and Industry Leadership 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 6-8
- 9. 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 6-9
- 10. Capturing the Full Potential of a Strategic Alliance Capacity of partners to defuse organizational frictions Ability to collaborate effectively over time and work through challenges Technological and competitive surprises New market developments Changes in their own priorities and competitive circumstances Collaborative partnerships nearly always entail an evolving relationship whose competitive value depends on Mutual learning Cooperation Adaptation to changing industry conditions Competitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own 6-10
- 11. Merger and Acquisition Strategies 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 Much-used strategic option Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities Ownership allows for tightly integrated operations, creating more control and autonomy than alliances 6-11
- 12. Objectives of Mergers and Acquisitions To pave way for acquiring firm to gain more market share and create a more 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 To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities 6-12
- 13. Pitfalls of Mergers and Acquisitions 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 6-13
- 14. Vertical Integration Strategies Extend a firm’s competitive scope within same industry Backward into sources of supply Forward toward end-users of final product Can aim at either full or partial integration Internally Activities, Costs, Activities, Performed & Margins of Buyer/User Costs, & Activities, Forward Channel Value Margins of Costs, & Allies & Chains Suppliers Margins Strategic Partners 6-14
- 15. Strategic Advantages of 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 6-15
- 16. Strategic Advantages of Forward Integration To gain better access to end users and better market visibility To compensate for undependable distribution channels 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 6-16
- 17. Strategic Disadvantages of Vertical Integration Boosts resource requirements Locks firm deeper into same industry Results in fixed sources of supply and less flexibility in accommodating buyer demands 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 6-17
- 18. Pros and Cons of Integration vs. De-Integration Whether vertical integration is a viable strategic option depends on its Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities Impact on investment cost, flexibility, and administrative overhead Contribution to enhancing a firm’s competitiveness Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option! 6-18
- 19. Outsourcing Strategies Concept Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities Internally Performed Activities Functional Suppliers Activities Support Distributors Services or Retailers 6-19
- 20. When Does Outsourcing Make Strategic Sense? Activity can be performed better or more cheaply by outside specialists Activity is not crucial to achieve a sustainable competitive advantage Risk exposure to changing technology and/or changing buyer preferences is reduced Operations are streamlined to Cutcycle time Speed decision-making Reduce coordination costs Firm can concentrate on “core” value chain activities that best suit its resource strengths 6-20
- 21. Strategic Advantages of Outsourcing Improves firm’s ability to obtain high quality and/or cheaper components or services Improves firm’s ability to innovate by interacting with “best- in-world” suppliers Enhances firm’s flexibility should customer needs and market conditions suddenly shift Increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently Allows firm to concentrate its resources on performing those activities internally which it can perform better than outsiders 6-21
- 22. Pitfalls of Outsourcing Farming out too many or the wrong activities, thus Hollowing out capabilities Losing touch with activities and expertise that determine overall long-term success 6-22
- 23. Offensive and Defensive Strategies Offensive Strategies Defensive Strategies Used to build new or stronger Used to protect competitive market position and/or create advantage (rarely used to competitive advantage create advantage) 6-23
- 24. Types of Offensive Strategies 1. Initiatives to match or exceed competitor strengths 2. Initiatives to capitalize on competitor weaknesses 3. Simultaneous initiatives on many fronts 4. End-run offensives 5. Guerrilla offensives 6. Preemptive strikes 6-24
- 25. Attacking Competitor Strengths Objectives Whittle away at a rival’s competitive advantage Gain market share by out-matching strengths of weaker rivals Challenging strong competitors with a lower price is foolhardy unless the aggressor has a cost advantage or advantage of greater financial strength! 6-25
- 26. Options for Attacking a Competitor’s Strengths Offer equally good product at a lower price Develop low-cost edge, then use it to under-price rivals Leapfrog into next-generation technologies Add appealing new features Run comparison ads Construct new plant capacity in rival’s market strongholds Offer a wider product line Develop better customer service capabilities 6-26
- 27. Attacking Competitor Weaknesses Objective Utilize company strengths to exploit a rival’s weaknesses Weaknesses to Attack Customers that a rival is least equipped to serve Rivals providing sub-par customer service Rivals with weaker marketing skills Geographic regions where rival is weak Market segments a rival is neglecting 6-27
- 28. Launching Simultaneous Offensives on Many Fronts Objective Launch several major initiatives to Throw rivals off-balance Splinter their attention Force them to use substantial resources to defend their position A challenger with superior resources can overpower weaker rivals by out-competing them across-the- board long enough to become a market leader! 6-28
- 29. End-Run Offensives Objectives Maneuver around strong competitors Capture unoccupied or less contested markets Change rules of competition in aggressor’s favor 6-29
- 30. Approaches for End-Run Offensives Introduce new products that redefine market and terms of competition Build presence in geographic areas where rivals have little presence Create new segments by introducing products with different features to better meet buyer needs Introduce next-generation technologies to leapfrog rivals 6-30
- 31. Guerrilla Offenses Approach Use principles of surprise and hit-and-run to attack in locations and at times where conditions are most favorable to initiator Appeal Well-suited to small challengers with limited resources and market visibility 6-31
- 32. Options for Guerrilla Offenses Make random, scattered raids on leaders’ customers Occasional low-balling on price Intense bursts of promotional activity Special campaigns to attract buyers from rivals plagued with a strike or delivery problems Challenge rivals encountering problems with quality or providing adequate technical support File legal actions charging antitrust violations, patent infringements, or unfair advertising 6-32
- 33. Preemptive Strikes Approach Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating! 6-33
- 34. Preemptive Strike Options Secure exclusive/dominant access to best distributors Secure best geographic locations Tie up best or most sources of essential raw materials Obtain business of prestigious customers Expand capacity ahead of demand in hopes of discouraging rivals from following suit Build an image in buyers’ minds that is unique or hard to copy 6-34
- 35. Choosing Rivals to Attack Four types of firms can be the target of a fresh offensive Vulnerable market leaders Runner-up firms with weaknesses where challenger is strong Struggling rivals on verge of going under Small local or regional firms with limited capabilities 6-35
- 36. Using Offensive Strategy to Achieve Competitive Advantage Strategic offensives offering strongest basis for competitive advantage entail An important core competence A unique competitive capability Much-improved performance features An innovative new product Technological superiority A cost advantage in manufacturing or distribution Some type of differentiation advantage 6-36
- 37. Defensive Strategy Objectives Lessen risk of being attacked Blunt impact of any attack that occurs Influence challengers to aim attacks at other rivals Approaches Block avenues open to challengers Signal challengers vigorous retaliation is likely 6-37
- 38. 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 6-38
- 39. Signal Challengers Retaliation Is Likely Publicly announce management’s strong commitment to maintain 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 6-39
- 40. Strategies for Using the Internet Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace? Five Approaches to use company web site to disseminate product information as a minor distribution channel for accessing customers and generating sales as one of several important distribution channels for accessing customers as primary distribution channel for accessing buyers and making sales as the exclusive channel for accessing buyers and conducting sales transactions 6-40
- 41. Using the Internet to Disseminate 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 6-41
- 42. Using the Internet as a Minor Distribution Channel 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 6-42
- 43. Brick-and-Click Strategies: An Appealing Middle Ground Approach Approach Sell directly to consumers and Use traditional wholesale/retail channels Reasons to pursue a brick-and-click strategy Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly 6-43
- 44. Strategies for Online Enterprises Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactions Success depends on a firm’s ability to incorporate following features Capability to deliver unique value to buyers Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money Innovative, fresh, and entertaining website Clear focus on a limited number of competencies and a relatively specialized number of value chain activities Innovative marketing techniques Minimal reliance on ancillary revenues 6-44
- 45. Choosing Appropriate Functional-Area Strategies 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 to support key business-level strategies is critical! 6-45
- 46. First-Mover Advantages 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 Earlycommitments to new technologies, new-style components, and distribution channels can produce cost advantage Loyalty of first time buyers is high Moving first can be a preemptive strike 6-46
- 47. First-Mover Disadvantages Moving early can be a disadvantage (or fail to produce an advantage) when Costs 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 allows followers to leapfrog pioneers 6-47
- 48. Timing and Competitive Advantage Principle 1 Being a fast follower can sometimes yield as good a result as being a first mover Principle 2 Being a fast follower can sometimes yield as good a result as being a first mover Principle 3 Being a late-mover may or may not be fatal -- it varies with the situation 6-48