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SUPPLEMENTING SUPPLEMENTING THE CHOSEN THE CHOSEN COMPETITIVE COMPETITIVE STRATEGY—STRATEGY—OTHER IMPORTANT OTHER IMPORTANT STRATEGY CHOICESSTRATEGY CHOICES
Choosing Strategy Actions Choosing Strategy Actions that Complement a Firm’s that Complement a Firm’s
Competitive ApproachCompetitive Approach Decisions regarding the firm’s operating scope and
how to best strengthen its market standing must be made: Whether and when to go on the offensive and initiate aggressive
strategic moves to improve the firm’s market position.
Whether and when to employ defensive strategies to protect the firm’s market position.
When to undertake strategic moves based upon whether it is advantageous to be a first mover or a fast follower or a late mover.
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Choosing Strategy Actions Choosing Strategy Actions that Complement a Firm’s that Complement a Firm’s
Generic Competitive Strategy Generic Competitive Strategy Decisions re the firm’s operating scope and how to
best strengthen market standing need to be made: Whether to integrate backward or forward into more stages of the
industry value chain.
Which value chain activities, if any, should be outsourced.
Whether to enter into strategic alliances or partnership arrangements with other enterprises.
Whether to bolster the firm’s market position by merging with or acquiring another company in the same industry.
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Launching Strategic Offensives to Launching Strategic Offensives to Improve a Company’s Market PositionImprove a Company’s Market Position
Aggressive strategic offensives are called for when a firm:Spots opportunities to gain profitable market share
at the expense of rivals Has no choice but to try to whittle away at a strong
rival’s competitive advantageCan reap the benefits a competitive edge offers—a
leading market share, excellent profit margins, and rapid growth
The best offensives use a firm’s resource strengths to attack its rivals’ weaknesses.
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Choosing the Basis for Choosing the Basis for Competitive AttackCompetitive Attack
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Choosing Which Rivals to AttackChoosing Which Rivals to Attack
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Blue Ocean Blue Ocean Strategy—Strategy—A Special Kind of Offensive A Special Kind of Offensive
Involves a firm seeking sizable and durable competitive advantage by abandoning its existing markets and, then, inventing a new industry or distinctive market segment in which that firm has exclusive access to new demand.By “reinventing the circus,” Cirque du Soleil annually
attracts an audience of millions of people who typically do not attend circus events.
Core Concept Core Concept
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Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
Core Concept Core Concept
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Competitive Advantage Cycle a framework describing how competitive advantage is affected by simultaneous occurrences of investments in renewal, leveraging on sources of advantage, and performance of competitive firms in a dynamic industry .
Choosing Functional StrategiesChoosing Functional Strategies Involves strategic choices about how
functional areas are managed to support competitive strategy and other strategic moves
Functional strategies includeResearch and developmentProductionHuman resourcesSales and marketingFinance
Tailoring functional-area strategies tosupport key business-level strategies is critical!
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Vertical Integration: Operating Across Vertical Integration: Operating Across More Industry Value Chain SegmentsMore Industry Value Chain Segments
Involves extending a firm’s competitive and operating scope within the same industryBackward into sources of supplyForward toward end users of final product
Can aim at either full or partial integration
Core Concept Core Concept
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A vertically integrated firm is one that performs value chain activities along more than one stage of an industry’s overall value chain.
A vertical integration strategy has appeal only if it significantly strengthens a firm’s competitive position and/or boosts its profitability
Core Concept Core Concept
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Backward integration involves performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain; forward integration involves performing industry value chain activities closer to the end user.
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The Advantages of a Vertical The Advantages of a Vertical Integration StrategyIntegration Strategy
The two best reasons for vertically integrating into more value chain segments:Strengthen the firm’s competitive positionBoost profitability
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When Backward Vertical Integration When Backward Vertical Integration Becomes a ConsiderationBecomes a Consideration
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Integrating Forward to Enhance Integrating Forward to Enhance CompetitivenessCompetitiveness
Gain better access to end users Improve market visibility Include the purchasing experience as a
differentiating feature
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Forward Vertical Integration Forward Vertical Integration and Internet Retailingand Internet Retailing
Direct selling and Internet retailing have appeal when there is no potential to:Lower distribution costsGain a cost advantage over rivalsProduce higher marginsAllow for lower prices charged to end users
Competing directly against distribution allies can create channel conflict and signal a weak commitment to dealers.
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Disadvantages of a Disadvantages of a Vertical Integration StrategyVertical Integration Strategy
Locks a firm further into the same industry, should industry growth and profits sour; increases investments and risks -
May require development of radically different skills and business capabilities
Can slow the adoption of technical advances for vertically integrated firms using older technologies and facilities
Less flexibility to accommodate changing buyer preferences when a new product requires parts not made in-house.
Creates capacity-matching problems among integrated in-house component manufacturing units
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Outsourcing Strategies: Outsourcing Strategies: Narrowing the Scope of OperationsNarrowing the Scope of Operations
Outsourcing an activity is a consideration when: It can be performed better or more cheaply by outside specialists.
It is not crucial to achieve a sustainable competitive advantage and will not hollow out capabilities, core competencies, or technical know-how of a firm.
It improves organizational flexibility and speeds time to market.
It reduces a firm’s risk exposure to changing technology and/or buyer preferences.
It allows a firm to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best.
Core Concept Core Concept
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Outsourcing involves contracting out certainvalue chain activities to outside specialists and strategic allies.
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Outsourcing Strategies: Narrowing Outsourcing Strategies: Narrowing the Scope of Operations (cont’d)the Scope of Operations (cont’d)
The Big Risk of Outsourcing:Farming out the wrong types of activitiesHollowing out strategically important capabilities
ultimately damages a firm’s competitiveness and long-term success in the marketplace
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Strategic Alliances and PartnershipsStrategic Alliances and Partnerships
Strategic AllianceIs a formal collaborative agreement in which two or
more firms join forces to achieve mutually beneficial strategic outcomes: A strategically relevant collaboration A joint contribution of resources An assumption of a shared risk An agreement to shared control A recognition of mutual dependence
Is attractive in that it allows firms to bundle resources and competencies that are more valuable in a joint effort than when kept separate.
Core Concept Core Concept
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A strategic alliance is a formal agreement between two or more companies to work cooperatively toward some common objective.
A joint venture is a type of strategic alliance that involves the establishment of an independent corporate entity that is jointly owned and controlled by the two partners.
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Reasons for Firms to Enter Reasons for Firms to Enter into Strategic Alliancesinto Strategic Alliances
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Reasons for Firms to Continue Reasons for Firms to Continue in Strategic Alliancesin Strategic Alliances
Alliances are likely to be long-lasting when:They involve collaboration with suppliers or
distribution allies.Both parties conclude that continued collaboration
is in their mutual interest, perhaps because new opportunities for learning are emerging.
Experience indicates that:Alliances stand a reasonable chance of helping a
firm reduce its competitive disadvantage but very rarely have alliances proved a strategic option for gaining a durable competitive edge over rivals.
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Failed Strategic Alliances and Failed Strategic Alliances and Cooperative PartnershipsCooperative Partnerships
Common causes for the failure of 60–70% of alliances each year:Diverging objectives and prioritiesAn inability to work well togetherChanging conditions that make the purpose of the
alliance obsoleteThe emergence of more attractive technological pathsMarketplace rivalry between one or more allies
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Dangers of Relying on Alliances for Core Dangers of Relying on Alliances for Core CapabilitiesCapabilities
Achilles’ heel of alliances: becoming dependent on other companies for core or essential capabilities.
Ultimately, a firm must develop its own resources and capabilities to protect its competitiveness and capabilities to build and maintain its competitive advantage.
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Merger and Acquisition StrategiesMerger and Acquisition Strategies
An attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market opportunities:Merger
The combining of two or more firms into a single entity, with the newly created firm often taking on a new name
Acquisition The combination in which one firm, the acquirer, purchases
and absorbs the operations of another, the acquired firm
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Typical Objectives of Mergers Typical Objectives of Mergers and Acquisitionsand Acquisitions
1. To create a more cost-efficient operation out of the combined firms
2. To expand a firm’s geographic coverage3. To extend the firm’s business into new
product categories4. To gain quick access to new technologies or
other resources and competitive capabilities5. To lead the convergence of industries whose
boundaries are being blurred by changing technologies and new market opportunities
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Why Mergers and Acquisitions Why Mergers and Acquisitions Sometimes Fail to Produce Sometimes Fail to Produce
Anticipated ResultsAnticipated Results Cost savings are smaller than expected. Gains in competitive capabilities take much longer
to realize or may never materialize. Efforts to mesh the corporate cultures can stall
because of resistance from organization members. Managers and employees at the acquired company
may continue to do things as they were done prior to the acquisition.