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Other Strategic Choices

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Title: Other Strategic Choices


1
Other Strategic Choices
  • Chapter 6

2
Chapter Outline
  • Strategic alliances and collaborative
    partnerships
  • Mergers and acquisitions
  • Integration backward or forward into more stages
    of the industry value chain
  • Outsource value chain activities or perform in
    house
  • Employ offensive and defensive moves
  • Blue Ocean strategies
  • First mover advantages and disadvantages

3
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 formal joint venture.

4
Why cooperative strategies?
  • Collaborative arrangements can help a company
    lower its costs or gain access to needed
    expertise and capabilities
  • Firms often lack the resources and competitive
    skills to be successful in very demanding
    competitive races
  • Allies can be useful in helping a company
    establish a stronger presence in global markets
    and helping it win the race for global market
    leadership
  • Allies with competitively useful technological
    know-how or expertise can greatly aid a company
    racing against rivals for leadership in the
    industries of the future now being created by
    todays technological and information age
    revolution e.g IT
  • Collaborative arrangements with foreign partners
    is helpful in pursuing opportunities in
    unfamiliar national markets

5
Advantages of strategic alliances
  • The best alliances are highly selective,
    focusing on particular value chain activities and
    on obtaining a particular competitive benefit
  • If the combined resources give an edge over
    rivals, competitive advantage will emerge
  • Strategic cooperation is favored and even
    necessary in industries where technological
    developments are occurring at a fast pace along
    many avenues and where the technology will affect
    each other
  • Allies can perform joint research which may even
    allow them to pursue other opportunities on their
    own
  • Alliances along different stages e.g with
    suppliers of component parts for better supply
    chain management

6
Pitfalls of strategic alliances
  • The value of strategic alliances stem from the
    capacity of partners to defuse frictions,
    collaborate effectively, work their ways through
    technological changes, competitive challenges,
    market developments and changes in their
    priorities and competitive circumstances
  • The danger of alliances and cooperative
    strategies is becoming too dependent on the other
    companies for essential expertise and
    capabilities
  • To become market leader, a company must develop
    its own capabilities
  • In some alliances, a partner may guard its most
    valuable skills and expertise, acquisitions or
    mergers may be better

7
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 include
  • Diverging objectives and priorities of partners
  • Inability of partners to work well together
  • Emergence of more attractive technological paths
  • Marketplace rivalry between one or more allies

8
Merger and acquisition strategies
  • A merger is a pooling of equals with the newly
    formed entity often taking on a new name
  • An acquisition is a combination in which one
    company, the acquirer purchases and absorbs the
    operations of another, the acquired
  • The difference between a merger and an
    acquisition relates to details of ownership,
    management control but the resources,
    competencies and competitive advantage end up
    much the same whether its a merger or an
    acquisition
  • Ownership ties allow operations of the
    participants to be more tightly integrated and
    creates more control and autonomy as compared to
    a partnership

9
Benefits of mergers and acquisitions
  • Mergers and acquisitions may be used to
    achieve one of these objectives
  • To gain more market share and create more
    efficient operation out of combined companies by
    closing high cost plants and eliminating surplus
    capacity in the industry e.g DaimlerChrysler
  • To expand a companys geographic market
  • To extend the companys business into new
    product categories or international markets e.g
    Nestle, Unilever, Procter Gamble
  • To gain quick access to new technologies and
    avoid the need for time consuming RD
  • To try to create a new industry due to changing
    technologies and new market opportunities

10
Vertical Integration
  • VI extends a firms competitive scope within the
    same ind.
  • Backward
  • Forward
  • Horizontal Integration

11
Outsourcing/Unbundling
  • De-Integration or unbundling involves narrowing
    the scope of the firms operations, focusing on
    performing certain core value chain activities
    and relying on outsiders to perform the remaining
    value chain activities

12
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
  • Cut cycle time
  • Speed decision-making
  • Reduce coordination costs
  • Firm can concentrate on doing those core value
    chain activities that best suit its resource
    strengths and capabilities

13
Strategic advantages of Outsourcing
  • Improves firms ability to obtain high quality
    and/or cheaper components or services
  • Improves firms ability to innovate by
    interacting with best-in-world suppliers
  • Enhances firms flexibility should customer needs
    and market conditions suddenly shift
  • Increases firms 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

14
Pitfalls of Outsourcing
  • Lose control
  • Farming out too many or the wrong activities,
    thus
  • Hollowing out its capabilities
  • Losing touch with activities and expertise that
    determine its overall long-term success

15
Offensive strategies
  • Competitive advantage is usually achieved by
    successful offensive moves that yield
  • yield a cost advantage
  • a differentiation advantage
  • a resource advantage
  • An offensive strategy can create an edge quickly
    if resources and capabilities can be deployed
    fast or if buyers respond immediately
  • a dramatic price cut
  • an imaginative ad campaign
  • an appealing new product

16
Offensive strategies (cont)
  • Securing competitive edge can take longer if
  • consumer acceptance of new product will take
    time
  • firm needs time to debug new technology or
    increase production capacity
  • Ideally, an offensive strategy should build
    competitive advantage quickly, the longer it
    takes, the more likely the rivals will counteract
  • Counter offensives by rivals by be swift e.g in
    textile sector or take longer e.g pharmaceutical
    products
  • To sustain initial competitive advantage won,
    the firm should have follow on offensive and
    defensive moves
  • Unless firms initiates offensive and defensives
    moves one after the other to protect market
    position and retain customers, its market will
    erode

17
Types of offensive strategies
  • 6 basic types of offensive strategies
  • Initiatives to match or exceed competitor
    strength
  • Initiatives to capitalize on competitor
    weaknesses
  • Simultaneous initiatives on many fronts
  • End run offensives
  • Guerilla offensives
  • Preemptive strikes

18
Initiatives to match or exceed competitor
strengths
  • 2 instances
  • the firm has no choice but to try to match a
    strong rivals competitive advantage when rival
    has superior product offering or superior
    organisational resources and capabilities
  • when it is possible to gain market share at
    expense of rivals despite the resource strengths
    and capabilities they have
  • Classic approach is to attack a strong rival
    with an equally good product but at a lower price
  • A more sustainable approach is to achieve cost
    advantage first and then launch a price
    aggressive challenge

19
Initiatives to match or exceed competitor
strengths (cont)
  • Other strategic options include
  • Leapfrogging into next generation technologies
    to make rival products obsolete
  • Adding new products that will appeal to rivals
    customers
  • Comparison ads
  • Matching rival model for model
  • Developing customer capabilities rival does not
    have
  • Challenging rival in its geographic market
  • Challenging a rival on grounds where it is
    strong can be a difficult and long struggle
  • If the prospects for profitability and a more
    solid competitive position are absent, such head
    on offensive strategies are ill-advised

20
Initiative to capitalise on competitor weaknesses
  • Strategies that exploit competitor weaknesses
    stand a better chance of succeeding than
    challenging competitor strengths
  • Especially if weaknesses represent important
    vulnerabilities and rival is caught by surprise
    with no ready defense
  • Options include
  • going after rivals customers whose products lag
    on quality, features or product performance
  • trying to attract rivals customers who provide
    subpar customer service
  • trying to win customers from rivals with weak
    brand recognition
  • trying to increase sales to buyers in geographic
    areas where rivals have weak market share or
    exerting less effort
  • paying attention to buyer segments that rivals
    neglecting or not well equipped to serve

21
Simultaneous initiatives on many fronts
  • Company may launch a grand offensive involving
    multiple initiatives price cuts, increased
    advertising, additional features, new models and
    styles, customer service improvements and
    promotions) launched more or less concurrently
  • Such campaigns can force rivals into defensive
    actions to protect different segments of its
    customer base simultaneously and divide its
    attention
  • Best chance of success an attractive product or
    service and brand awareness created with
    advertising and special deals and distribution
    channels support

22
End run offensives
  • An end-run offensive is maneuvering around
    competitors, capture unoccupied or less contested
    market territory and changing the rules of the
    competitive game in the aggressors favour
  • Examples include
  • introducing new products that define the market
    and the terms of competition e.g digital cameras,
    mobile phones
  • launching initiatives to build strong positions
    in geographic areas where rivals have little or
    no market presence
  • trying to create new segments by introducing
    products with different attributes and
    performance features to better meet needs of
    selected buyers
  • leapfrogging into next generation technologies
    to supplant existing technologies, products
    and/or services e.g LCD screens

23
Guerilla offensives
  • Guerilla offensives well suited for small
    challengers who do not have the resources to
    mount a full fledged attack on industry leaders
  • Guerilla offensives use the hit and run
    principle, trying to grab sales and market share
    wherever and whenever it can by spotting an
    opening through which to lure customers
  • Guerilla moves include making scattered, random
    raids on leaders customers
  • lowering price to win a big order or key account
  • surprising rivals with a short burst of intense
    promotional activity e.g 20 discount for a week
  • promote the quality of their products or
    announce guaranteed delivery times if customers
    tend to be dissatisfied with these issues with
    rivals

24
Preemptive strikes
  • Preemptive strategies involve moving first to
    secure an advantageous position that rivals are
    prevented or discouraged from duplicating
  • by securing exclusive or dominant access to the
    best distributors in a particular geographic
    region or country
  • moving to obtain the most favorable site along a
    heavily traveled route e.g at a new intersection,
    new shopping centre, in a natural beauty spot,
    close to raw materials supply or markets
  • tying up the most reliable or high quality
    suppliers via an exclusive partnership, long term
    contract or acquisition
  • Preemptive strategies are of one of its kind
    nature
  • To be successful, it does not have to totally
    block rivals from following or copying, merely
    gives firm a prime location

25
Choosing which rivals to attack
  • The best targets for offensive attacks are
  • Market leaders that are vulnerable when
    company that leads in terms of size and market
    share is not serving the market well. Challenger
    can simply win by becoming stronger runner up.
    There is also risk of a wasteful loss of
    resources in a profitless battle for market share
  • Runner-up firms with weaknesses where the
    challenger is strong when challengers resource
    strengths and competitive capabilities are well
    suited to exploit their weaknesses
  • Struggling enterprises that are on the verge of
    going under this can further sap the firms
    financial strength and competitive position and
    hasten its exit from the market
  • Small local and regional firms with limited
    capabilities a challenger with broader
    capabilities can raid their bigger and best
    customers e.g those who have more sophisticated
    needs or need more full service capability

26
Choosing the basis for attack
  • Firms strategic offensive should be tied to
    what it does best- its core competencies,
    resource strengths and competitive capabilities

27
Defensive Strategies
  • In a competitive market, all firms are prey to
    offensive moves from rivals
  • Defensive strategies
  • lower the risk of being attacked
  • weaken the impact of any attack that occurs
  • influence challengers to aim their efforts at
    other rivals
  • Defensive strategies do not usually enhance a
    firms competitive, they
  • help to fortify competitive position
  • protect its valuable resources and capabilities
    from imitation
  • defend whatever competitive advantage firm might
    have

28
Types of defensive strategies
  • 2 basic types of defensive strategies
  • Blocking challengers
  • Signaling the likelihood of strong retaliation

29
Blocking the avenues open to challengers
  • The most frequently employed approach are
    actions that restrict a challengers options for
    initiating competitive attack
  • Participating in alternative technologies to
    reduce threat that rivals can attack with better
    technology
  • Introducing new features, adding new models,
    broadening its product line to close off gaps and
    vacant niches
  • Thwarting of lower priced rivals with economy
    priced options
  • Lengthening warranty coverages, offering free
    training and support services, delivering spare
    parts faster than rivals
  • Providing coupons and sample giveaways to induce
    buyers to experiment

30
Blocking the avenues open to challengers (cont)
  • Make early announcements about impending new
    products or price changes to induce potential
    buyers to avoid switching
  • Granting a dealer and a distributor volume
    discounts or better financing terms to discourage
    them to experiment with other suppliers
  • Convince distributors to handle product line
    exclusively and force competitors to use other
    distribution outlets

31
Signaling challengers that retaliation is likely
  • The aim of signaling challengers that strong
    retaliation is likely is
  • to dissuade challengers from attacking at all
  • or divert them to less threatening options
  • Goal is achieved by letting rivals know that the
    battle will cost more than it is worth
  • Some signals are
  • Publicly announcing management commitment to
    maintain firms present market share
  • Publicly committing the company to match
    competitors terms or prices
  • Maintaining a war chest of cash and marketable
    securities
  • Making an occasional strong counter-response to
    the moves of weak competitors to enhance the
    firms image as a tough defender

32
First mover advantages and disadvantages
  • When to make a strategic move is often as
    crucial as what move to make
  • Timing is especially important when fist mover
    advantages or disadvantages exist
  • Being first to initiate a strategic move can
    have a high payoff in terms of strengthening
    market position and competitiveness when
  • pioneering helps build firms image and
    reputation with buyers
  • early commitments to new technologies, new style
    components, distribution channels and produce
    cost advantage
  • first time customers remain strongly loyal to
    pioneering firms in making repeat purchases
  • moving first constitutes a preemptive strike,
    making imitation extra hard or likely

33
First mover advantages and disadvantages (cont)
  • The bigger the first mover advantages, the more
    attractive making the first move becomes
  • Example internet rush era, several firms that
    were first with new technologies have enjoyed
    lasting first mover advantages in gaining
    visibility and reputation to emerge as market
    leaders Amazon.com, Yahoo, eBay
  • firm mover needs to be a fast learner to sustain
    its advantage
  • not just about being the first company to do
    something but rather to be the first competitor
    to put together a combination that that gives it
    an edge over rivals
  • Being a fast follower or even adopting a wait
    and see later mover strategy is another
    option.At times a first movers skills and
    know-how can be easily copied or even surpassed
    allowing late movers to catch up or overtake fist
    mover in a relatively short period

34
First mover disadvantages
  • Sometimes there are advantages to being a
    follower than a first mover.
  • Late mover advantages (first mover
    disadvantages) arise when
  • pioneering efforts are more costly than
    imitative followership
  • only negligible experience or learning curve
    benefits accrue to the leader
  • products of innovator are primitive and do not
    live up to buyers expectation allowing follower
    to win customers with better performing next
    generation products
  • Technology is advancing rapidly allowing fast
    followers to leapfrog first movers products with
    more attractive second and third generation
    products

35
  • A company that seeks competitive advantage by
    being a first mover should ask the following
    questions
  • does market takeoff depend on the development of
    complementary products or services that are
    currently not available?
  • is new infrastructure required before buyer
    demand can surge?
  • will buyers need to learn new skills or adopt
    new behaviours?
  • will buyers encounter high switching costs?
  • are there influential competitors in a position
    to derail the efforts of a first mover?
  • when the answer to any of the above question is
    yes, then the firm must be careful not put too
    many resources into getting ahead of the market
    opportunity

36
  • An adept fast follower the advantages of being
    less risky and skirting the costs of pioneering
  • Habitual late movers are usually fighting to
    retain their customers and scrambling to keep
    pace with more progressive and innovative rivals
  • For a habitual late mover to catch up
  • first movers should be slow movers
  • buyers will be sow to gravitate to the products
    of first movers
  • must have competencies and capabilities that are
    sufficiently strong to allow it to close the gap
    fairly quickly once it makes its move
  • Counting on these factors can put the late
    movers competitive position at risk

37
The Blue Ocean strategy
  • Research work----
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