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Supplementing Chapter Title the Chosen Competitive Strategy

16/e PPT
McGraw-Hill/Irwin

Screen graphics created by: Jana F. Kuzmicki, Ph.D. Troy University-Florida Region
Copyright 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

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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Collaborative Strategies: Alliances and 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.
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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 Joint marketing Joint sales or distribution Joint production Design collaboration Joint research Projects to jointly develop new technologies or products
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Alliances often involve

Why Are Strategic Alliances Formed?

To

collaborate on technology development or new product development fill gaps in technical or manufacturing expertise create new skill sets and capabilities improve supply chain efficiency

To To To To

gain economies of scale in production and/or marketing acquire or improve market access via joint marketing agreements
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To

Capturing the Benefits of 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 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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Reasons for alliance failure

Merger and Acquisition Strategies

Merger

Combination and pooling of equals, with newly created firm often taking on a new name One firm, the acquirer, purchases and absorbs operations of another, the acquired

Acquisition

Merger-acquisition

strategy

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
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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

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Vertical Integration Strategies

Extend

a firms 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

Activities, Costs, & Margins of Suppliers

Internally Performed Activities, Costs, & Margins

Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners

Buyer/User Value Chains

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Strategic Advantages of Backward Integration

Generates Potential

cost savings only if volume needed is big enough to capture efficiencies of suppliers 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 risk of depending on suppliers of crucial raw materials / parts / components
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Reduces

Strategic Advantages of Forward Integration

To To To To

gain better access to end users and better market visibility compensate for undependable distribution channels which undermine steady operations offset the lack of a broad product line, a firm may sell directly to end users 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 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 all types of capacity-matching problems

Poses 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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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 Activities

Suppliers

Support Services

Distributors or Retailers
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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 It improves firms ability to innovate Operations are streamlined to

Improve flexibility Cut time to get new products into the market

It increases firms ability to assemble diverse kinds of expertise speedily and efficiently Firm can concentrate on core value chain activities that best suit its resource strengths
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Risk of an Outsourcing Strategy

Farming

out too many or the wrong activities,

thus

Hollowing out capabilities Losing touch with activities and expertise that determine overall long-term success

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Offensive and Defensive Strategies

Offensive Strategies Used to build new or stronger market position and/or create competitive advantage Defensive Strategies Used to protect competitive advantage (rarely lead to creating advantage)

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What Is a Blue Ocean Strategy?

Seeks

to gain a dramatic, durable competitive advantage by

Abandoning efforts to beat out competitors in existing markets and Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and Allowing a company to create and capture altogether new demand
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Type of Markets: Blue Ocean Strategy

Typical Market Space

Blue Ocean 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

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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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
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Signal Challengers Retaliation Is Likely

Publicly

announce managements strong commitment to maintain present market share commit firm to policy of matching rivals terms or prices war chest of cash reserves

Publicly

Maintain Make

occasional counter-response to moves of weaker rivals

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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!

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First-Mover Advantages
When

to make a strategic move is often as crucial as what move to make advantages arise when

First-mover

Pioneering helps build firms image and reputation Early commitments 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
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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 Innovators 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 firstmover 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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