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66chapterchapter

Student VersionStudent Version

SUPPLEMENTINGSUPPLEMENTING

THE CHOSENTHE CHOSEN

COMPETITIVECOMPETITIVESTRATEGYSTRATEGY

OTHER IMPORTANTOTHER IMPORTANT

STRATEGY CHOICESSTRATEGY CHOICES

McGraw-Hill/Irwin Copyright 2013 by The McGraw-Hill Companies Inc! "ll rights reser#e$.

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Choosing Strategy ActionsChoosing Strategy Actions

that Complement a Firmsthat Complement a Firms

Competitive ApproachCompetitive Approach Decisions regarding the firms operating scope and

how to best strengthen its market standing must be

made

Whether and when to o on the o!!en"#$e and #n#t#ate are""#$e

"trate#c %o$e" to #%pro$e the !#r%&" %ar'et po"#t#on(

Whether and when to e%p)o* de!en"#$e "trate#e" to protect the

!#r%&" %ar'et po"#t#on(

When to +nderta'e "trate#c %o$e" ,a"ed +pon whether #t #"

ad$antaeo+" to ,e a !#r"t %o$er or a !a"t !o))ower or a )ate

%o$er(

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Choosing Strategy ActionsChoosing Strategy Actions

that Complement a Firmsthat Complement a Firms

Competitive Approach !contd"Competitive Approach !contd" Decisions regarding the firms operating scope and

how to best strengthen its market standing must be

made

Whether to #nterate ,ac'ward or !orward #nto %ore "tae" o! the

#nd+"tr* $a)+e cha#n(

Wh#ch $a)+e cha#n act#$#t#e"- #! an*- "ho+)d ,e o+t"o+rced(

Whether to enter #nto "trate#c a))#ance" or partner"h#p

arrane%ent" w#th other enterpr#"e"(

Whether to ,o)"ter the !#r%&" %ar'et po"#t#on ,* %er#n w#th or

ac.+#r#n another co%pan* #n the "a%e #nd+"tr*(

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#aunching Strategic $ffensives to#aunching Strategic $ffensives to

%mprove a Companys &arket 'osition%mprove a Companys &arket 'osition

Aggressive strategic offensives are called

for when a firmSpot" opport+n#t#e" to a#n pro!#ta,)e %ar'et "hare

at the e/pen"e o! r#$a)"Ha" no cho#ce ,+t to tr* to wh#tt)e awa* at a "tron

r#$a)&" co%pet#t#$e ad$antae

Can reap the ,ene!#t" a co%pet#t#$e ede o!!er"a

)ead#n %ar'et "hare- e/ce))ent pro!#t %ar#n"- andrap#d rowth

(he best offensives use a firms resource

strengths to attack its rivals weaknesses)

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*lue $cean*lue $cean Strategy+Strategy+

A Special ,ind of $ffensiveA Special ,ind of $ffensive

%nvolves a firm seeking si-able and durable

competitive advantage by abandoning its

e.isting markets and/ then/ inventing a new

industry or distinctive market segment inwhich that firm has e.clusive access to new

demand)0* 1re#n$ent#n the c#rc+"-2 C#r.+e d+ So)e#) ann+a))*

attract" an a+d#ence o! %#))#on" o! peop)e who t*p#ca))*do not attend c#rc+" e$ent"(

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0sing Defensive Strategies to 'rotect0sing Defensive Strategies to 'rotect

a Companys &arket 'osition anda Companys &arket 'osition and

Competitive AdvantageCompetitive AdvantageDefensive strategies help fortify a

competitive position by

Lower#n the r#"' o! ,e#n attac'ed(Wea'en#n the #%pact o! an* attac' that occ+r"(

In!)+enc#n cha))ener" to red#rect the#r co%pet#t#$e

e!!ort" toward other r#$a)"(

1ood defensive strategies help protectcompetitive advantage but rarely are the

basis for creating it)

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Signaling Challengers thatSignaling Challengers that

2etaliation %s #ikely2etaliation %s #ikely

'ublicly announce managements strong

commitment to maintain the firms present

market share

'ublicly commit firm to policy ofmatching rivals terms or prices

&aintain war chest of cash reserves

&ake occasional counterresponseto moves of weaker rivals

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(iming a Companys $ffensive(iming a Companys $ffensive

and Defensive Strategic &ovesand Defensive Strategic &oves

Whento make a strategic move is often as

crucial as whatmove to make)

First3mover advantages arise when

P#oneer#n he)p" ,+#)d a !#r%&" #%ae and rep+tat#onw#th ,+*er"

Ear)* co%%#t%ent" 3techno)o*- %ar'et channe)"4

prod+ce an a,"o)+te co"t ad$antae o$er r#$a)"

5#r"t6t#%e c+"to%er" re%a#n "tron)* )o*a) #n %a'#nrepeat p+rcha"e"

Mo$#n !#r"t con"t#t+te" a pree%pt#$e "tr#'e- %a'#n

#%#tat#on e/tra hard or +n)#'e)*

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(he 'otential for #ate3&over(he 'otential for #ate3&over

Advantages or First3&overAdvantages or First3&over

DisadvantagesDisadvantages&oving early can be a disadvantage !or failto produce an advantage" when

P#oneer#n )eader"h#p #" %ore co"t)* than #%#tat#on

Inno$ator"& prod+ct" are pr#%#t#$e- and do not )#$e +p

to ,+*er e/pectat#on"

Potent#a) ,+*er" are "'ept#ca) a,o+t the ,ene!#t" o!

new techno)o*7prod+ct o! a !#r"t %o$er

Rap#d chane" #n techno)o* chane or ,+*er need"

a))ow !o))ower" to )eap!ro p#oneer"

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Deciding 4hether to *e an 5arly &overDeciding 4hether to *e an 5arly &over

or #ate &overor #ate &over

,ey %ssue

I" the race to %ar'et )eader"h#p a marathonor a sprint8

Seeking first3mover competitive advantage

involves addressing several uestions9oe" %ar'et ta'eo!! depend on de$e)op%ent o! co%p)e%entar*

prod+ct" or "er$#ce" not c+rrent)* a$a#)a,)e8

I" new #n!ra"tr+ct+re re.+#red ,e!ore ,+*er de%and can "+re8

W#)) ,+*er" need to )earn new "'#))" or adopt new ,eha$#or"8

Are there #n!)+ent#a) co%pet#tor" #n a po"#t#on to de)a* or dera#)

the e!!ort" o! a !#r"t %o$er8

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Vertical %ntegration $perating AcrossVertical %ntegration $perating Across

&ore %ndustry Value Chain Segments&ore %ndustry Value Chain Segments

%nvolves e.tending a firms competitive and

operating scope within the same industry

0ac'ward #nto "o+rce" o! "+pp)*

5orward toward end +"er" o! !#na) prod+ct

Can aim at either full or partial integration

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%ntegrating *ackward to Achieve%ntegrating *ackward to Achieve

1reater Competitiveness1reater Competitiveness

For backward integration to boost

profitability a firm must be able toAch#e$e the "a%e "ca)e econo%#e"

a" o+t"#de "+pp)#er"Match or ,eat "+pp)#er"& prod+ct#on

e!!#c#enc* w#th no drop #n .+a)#t*

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4hen *ackward Vertical %ntegration4hen *ackward Vertical %ntegration

*ecomes a Consideration*ecomes a Consideration

'otential situations that create opportunities

for cost reduction through backward vertical

integration

When "+pp)#er" ha$e )are pro!#t %ar#n"

Where the #te% ,e#n "+pp)#ed #" a %a:or co"t

co%ponent

Where the re.+#"#te techno)o#ca) "'#))" are ea"#)*%a"tered or ac.+#red

When power!+) "+pp)#er" are #nc)#ned to ra#"e pr#ce" at

e$er* opport+n#t*

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%ntegrating Forward to 5nhance%ntegrating Forward to 5nhance

CompetitivenessCompetitiveness

1ain better access to end users

%mprove market visibility

%nclude the purchasing e.perience as a

differentiating feature

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Forward Vertical %ntegrationForward Vertical %ntegration

and %nternet 2etailingand %nternet 2etailing

Direct selling and %nternet retailing have

appeal when there is potential toLower d#"tr#,+t#on co"t"

Ga#n a co"t ad$antae o$er r#$a)"Prod+ce h#her %ar#n"

A))ow !or )ower pr#ce" chared to end +"er"

Co%pet#n d#rect)* aa#n"t d#"tr#,+t#on a))#e" can

create channe) con!)#ct and "#na) a wea' co%%#t%entto dea)er"(

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$utsourcing Strategies 7arrowing$utsourcing Strategies 7arrowing

the Scope of $perations !contd"the Scope of $perations !contd"

(he *ig 2isk of $utsourcing

5ar%#n o+t the wron t*pe" o! act#$#t#e"

Ho))ow#n o+t "trate#ca))* #%portant capa,#)#t#e"

+)t#%ate)* da%ae" a !#r%&" co%pet#t#$ene"" and )on6ter% "+cce"" #n the %ar'etp)ace

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Strategic Alliances and 'artnershipsStrategic Alliances and 'artnerships

Strategic AllianceI" a !or%a) co))a,orat#$e aree%ent #n wh#ch two or

%ore !#r%" :o#n !orce" to ach#e$e %+t+a))* ,ene!#c#a)

"trate#c o+tco%e") (o create a more cost3efficient operation

out of the combined firms

?) (o e.pand a firms geographic coverage

@) (o e.tend the firms business into newproduct categories

) (o gain uick access to new technologies or

other resources and competitive capabilities

B) (o lead the convergence of industries whoseboundaries are being blurred by changing

technologies and new market opportunities

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(he %ndustry 5nvironment(he %ndustry 5nvironment

Different industry environments present different

opportunitiesand threats)

A companys business model and strategies haveto change to meet the environment)

Companies must face the challenges of developing

and maintaining a competitive strategy in

5ra%ented Ind+"tr#e" = Mat+re Ind+"tr#e" E%,r*on#c Ind+"tr#e" = 9ec)#n#n Ind+"tr#e"

Growth Ind+"tr#e"

There is the need to continually formulate and

implement business-level strategies to sustaincompetitive advantage over time in different industryenvironments.

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Fragmented %ndustriesFragmented %ndustries

2easons for fragmented industries Low ,arr#er" to entr* d+e to )ac' o! econo%#e" o! "ca)e

Low entr* ,arr#er" per%#t con"tant entr* ,* new co%pan#e"Spec#a)#;ed c+"to%er need" re.+#re "%a)) :o, )ot" o! prod+ct" 6

no roo% !or a %a""6prod+ct#on

9#"econo%#e" o! "ca)e

StrategiesCha#n#n > networ'" o! )#n'ed o+t)et" to ach#e$e co"t )eader"h#p

5ranch#"#n > !or rap#d rowth w#th pro$en ,+"#ne"" concept"-

rep+tat#on- %anae%ent "'#))" and econo%#e" o! "ca)e

Hor#;onta) Merer > ac.+#"#t#on to o,ta#n econo%#e" and rowth

IT and Internet > to de$e)op new ,+"#ne"" %ode)"

A fragmented industry#" one co%po"ed o! a )are

n+%,er o! "%a)) and %ed#+%6"#;ed co%pan#e"(

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An embryonic industry #"one that #" :+"t,e#nn#n to de$e)op when techno)o#ca)#nno$at#on create" new %ar'et or prod+ctopport+n#t#e"(

A growth industry #"one #n wh#ch !#r"t6t#%ede%and #" e/pand#n rap#d)* a" %an*

new c+"to%er" enter the %ar'et(

5mbryonic and 1rowth %ndustries5mbryonic and 1rowth %ndustries

Co%pan#e" %+"t +nder"tand the !actor" that a!!ect a%ar'et&" rowth rate > #n order to ta#)or the ,+"#ne""%ode) to the chan#n #nd+"tr* en$#ron%ent(

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&arket Share of Different Customer&arket Share of Different Customer

SegmentsSegments

Mo"t %ar'et de%and and #nd+"tr* pro!#t"ar#"e d+r#n the ear)* and )ate %a:or#t*c+"to%er "e%ent"(

Figure 6)?

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Strategic %mplicationsStrategic %mplications

Crossing the ChasmCrossing the Chasm

%nnovators and 5arly Adopters are !while the earlymajority are NOT): Techno)o#ca))* "oph#"t#cated and to)erant o! en#neer#n #%per!ect#on" T*p#ca))* reached thro+h "pec#a)#;ed d#"tr#,+t#on channe)" Re)at#$e)* !ew #n n+%,er and not part#c+)ar)* pr#ce6"en"#t#$e

(o cross the chasmbetween the early adopters andthe early ma9ority/ companies must Correct)* #dent#!* the need" o! the !#r"t wa$e o! ear)* %a:or#t*

+"er"( A)ter the ,+"#ne"" %ode) #n re"pon"e( A)ter the $a)+e cha#n and d#"tr#,+t#on channe)" to reach the

ear)* %a:or#t*( 9e"#n the prod+ct to %eet the need" o! the ear)* %a:or#t* "othat the prod+ct can ,e %od#!#ed and prod+ced or pro$#ded at)ow co"t(

Ant#c#pate the %o$e" o! co%pet#tor"(

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(he Chasm A$# and 'rodigy(he Chasm A$# and 'rodigy

The ,+"#ne"" %ode) and "trate#e" re.+#red to co%pete #n ane%,r*on#c %ar'et pop+)ated ,* ear)* adopter" and #nno$ator" are$er* d#!!erent than tho"e re.+#red to co%pete #n a h#h6rowth%a"" %ar'et pop+)ated ,* the ear)* %a:or#t*(

Figure 6)@

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Strategic %mplications of &arket 1rowth 2atesStrategic %mplications of &arket 1rowth 2ates

Different markets develop at different rates)

1rowth rate measures the rate at which theindustrys product spreads in the marketplace)

1rowth rates for new kinds of products seem to

have accelerated over time

U"e o! %a"" %ed#a = Low6co"t %a"" prod+ct#on

Factors affecting market growth rates Re)at#$e ad$antae = Co%p)e/#t*

Co%pat#,#)#t* = O,"er$a,#)#t*

A$a#)a,#)#t* o! = Tr#a)a,#)#t* co%p)e%entar*prod+ct"

*usiness3level strategy is a ma9or determinant ofindustry profitability) (he choice of business modeland strategies can accelerate or retard market growth)

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Differences in Diffusion 2atesDifferences in Diffusion 2ates

So+rce< Peter 0r#%e)ow- 1The S#)ent 0oo%-2 Forbes, @+)* - B- pp( BD6BB( Repr#nted ,* per%#""#on o! 5or,e" Maa;#ne FDDF 5or,e"- Inc(

9#!!erent %ar'et" de$e)op at d#!!erent rowth rate"(

Figure 6)

7 i ti (h h th #if C l t7avigating (hrough the #ife Cycle to

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7avigating (hrough the #ife Cycle to7avigating (hrough the #ife Cycle to

&aturity&aturity

5mbryonic stages ; "hare ,+#)d#n "trate#e"

9e$e)op%ent o! d#"t#nct#$e co%petenc#e" and co%pet#t#$e ad$antae

Re.+#re" cap#ta) to de$e)op R9 and "a)e"7"er$#ce co%petenc#e"

1rowth stages ;%a#nta#n re)at#$e co%pet#t#$e po"#t#on Strenthen ,+"#ne"" %ode) to prepare to "+r$#$e #nd+"tr* "ha'eo+t

Re.+#re" #n$e"t%ent to 'eep +p w#th rap#d rowth o! the %ar'et

Shakeout stage ; #ncrea"e "hare d+r#n !#erce co%pet#t#on

In$e"t #n "hare6#ncrea"#n "trate#e" at e/pen"e o! wea' co%pet#tor"

Wea' co%pan#e" "ho+)d e/#t the #nd+"tr* d+r#n the har$e"t "tae

&aturity stage ; ho)d6and6%a#nta#n to de!end ,+"#ne"" %ode)

9o%#nant co%pan#e" want to reap the reward o! pr#or #n$e"t%ent" A co%pan*&" #n$e"t%ent depend" on the )e$e) o! co%pet#t#on and "o+rce o! the

co%pan*&" co%pet#t#$e ad$antae

. !ompetitive advantage of company"s business model

#. $tage of the industry life cycle

Two crucial factors:

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&ature %ndustries&ature %ndustries

5volution of mature industries Ind+"tr* ,eco%e" con"o)#dated a" a re"+)t o! the !#erce co%pet#t#on d+r#n

the "ha'eo+t "tae(

0+"#ne"" )e$e) "trate* #" ,a"ed on how e"ta,)#"hed co%pan#e" co))ect#$e)*

tr* to red+ce "trenth o! co%pet#t#on(

Interdependent co%pan#e" tr* to protect #nd+"tr* pro!#ta,#)#t*(

Strategies

9eter entr* #nto #nd+"tr* Prod+ct pro)#!erat#on Ma#nta#n#n Pr#ce c+tt#n e/ce"" capac#t*

Manae #nd+"tr* r#$a)r* Pr#ce "#na)#n Capac#t* contro) Pr#ce)eader"h#p Nonpr#ce co%pet#t#on

A mature industry #" do%#nated ,* a "%a)) n+%,er o! )are

co%pan#e" who"e act#on" are "o h#h)* #nterdependent that "+cce""o! one co%pan*&" "trate* depend" on the re"pon"e o! #t" r#$a)"(

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Copyright oughton &ifflin Company) All rights reserved) 6 E @"ee'" to ,eco%e do%#nant p)a*er #n dec)#n#n #nd+"tr*N#che >!oc+"e" on poc'et" o! de%and that are dec)#n#n %ore ")ow)*Har$e"t > opt#%#;e" ca"h !)ow9#$e"t%ent >"e))" ,+"#ne"" to other"

A declining industry #" one #n wh#ch %ar'et de%and ha" )e$e)edo!! or #" !a))#n and the "#;e o! tota) %ar'et "tart" to "hr#n'(Co%pet#t#on tend" to #nten"#!* and #nd+"tr* pro!#t" tend to !a))(

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Factors for %ntensity of Competition inFactors for %ntensity of Competition in

Declining %ndustriesDeclining %ndustries

Figure 6)>@

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Strategy Selection in a DecliningStrategy Selection in a Declining

%ndustry%ndustry

Cho#ce o! "trate* #"deter%#ned ,*

Chap 006

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