Beyond Competitive Strategy Other Important Strategy Choices

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Beyond Competitive StrategyOther Important
Strategy Choices
Chapter
2
Chapter Outline

• Strategic Alliances and Collaborative
  Partnerships
• Merger and Acquisition Strategies
• Vertical Integration vs. Outsourcing
• Using Offensive Strategies to Secure Competitive
  Advantage
• Using Defensive Strategies to Protect the
  Companys Position
• First-Mover Advantages and Disadvantages

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Why Are Strategic Alliances Formed?

• Collaborative arrangements, such as strategic
  alliances, can help a company lower its costs or
  gain access to needed expertise and capabilities
• Competitive advantage emerges when a company
  acquires valuable capabilities via alliances it
  could not obtain on its own, providing an edge
  over rivals
• Firms often lack the resources and competitive
  skills to be successful in very demanding
  competitive races
• Collaborative arrangements with foreign partners
  can be very helpful in pursuing opportunities in
  unfamiliar national markets

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Why Alliances Fail

• Ability of an alliance to endure depends on
  choosing the right partner
• How well partners work together
• Success of partners in responding and adapting to
  changing conditions
• Reasons for alliance failure include
• Diverging objectives and priorities of partners
• Inability of partners to work well together
• Marketplace rivalry between one or more allies

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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
• Mergers and acquisitions
• Are 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 Mergersand Acquisitions

• Combining operations may result in
• Resistance from rank-and-file employees
• Hard-to-resolve conflicts in management styles
  and corporate cultures
• Tough problems in combining and integrating the
  operations of the once-different companies
• Greater-than-anticipated difficulties in
• Sharing of expertise
• Achieving enhanced competitive capabilities

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Vertical Integration Strategies

• Vertical integration extends 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

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Pros and Cons ofIntegration vs. Outsourcing

• Whether vertical integration is a viable or
  attractive strategy depends on
• How much it can lower costs, build expertise,
  increase differentiation, or otherwise enhance
  performance of strategy-critical activities
• Many companies ultimately decide that
  out-sourcing value chain activities are a better
  strategic option when it comes to lowering cost,
  improving their competitiveness, or gaining added
  operating flexibility
• Out-sourcing involves narrowing the scope of the
  firms operations, focusing on performing core
  value chain activities and relying on outsiders
  to perform the remaining value chain activities

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Pitfalls of Outsourcing

• Farming out too many or the wrong activities,
  thus
• Hollowing out capabilities (destroying
  distinctive competences)
• Losing touch with activities and expertise that
  determine overall long-term success

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Offensive and Defensive Strategies
Offensive Strategies
Defensive Strategies

• Used to build new or stronger market position
  and/or create competitive advantage

• Used to protect competitive advantage (rarely
  used to create advantage)

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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

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Attacking Competitor Strengths
Objectives

• Whittle away at a rivalscompetitive advantage
• Gain market share by out-matchingstrengths of
  weaker rivals

Challenging strong competitors will only be
successful in the long-run if you can truly
outcompete a rival at what they do best
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Attacking Competitor Weaknesses
Objective

• Utilize company strengths to exploit a
• rivals 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

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Launching SimultaneousOffensives on Many
Fronts
Objective

• Launch several major initiatives to
• Throw rivals off-balance
• Splinter their attention
• Force them to use substantialresources 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!
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End-Run Offensives
Objectives

• Maneuver around strong competitors
• Capture unoccupied or less contested markets
• This is useful for firms that have difficulty
  competing head-to-head against rivals

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Guerrilla Offenses
Approach

• Use principles of surprise and hit-and-run
  toattack in locations and at times where
  conditionsare most favorable to initiator

Appeal
Well-suited to small challengerswith limited
resources andmarket visibility
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Preemptive Strikes
Approach

• Involves moving first to secure anadvantageous
  position that rivals are foreclosedor
  discouraged from duplicating!

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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

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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 firms image and
  reputation
• Early commitments to new technologies and
  distributionchannels 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
• Costs of pioneering are sizable andloyalty of
  first time buyers is weak
• Innovators products are primitive,not living up
  to buyer expectations
• Rapid technological change allowsfollowers to
  leapfrog pioneers