Management and Business Strategy Adapted from Thompson et al. 2020 MBS - [email protected]1 Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations Prof. Manuel De Nicola [email protected]1 LEARNING OBJECTIVES 1. How and when to deploy offensive or defensive strategic moves. 2. When being a first mover, a fast follower, or a late mover is most advantageous. 3. The strategic benefits and risks of expanding a firm’s horizontal scope through mergers and acquisitions. 4. The advantages and disadvantages of extending the company’s scope of operations via vertical integration. 5. The conditions that favor outsourcing certain value chain activities to outside parties. 6. How to capture the benefits and minimize the drawbacks of strategic alliances and partnerships.
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Blue-Ocean Strategy—A Special Kind of Offensiveu The business universe is divided into:
ü An existing market with boundaries and rules in which rival firms compete for advantage.
ü A “blue ocean” market space, where the industry has not yet taken shape, with no rivals and wide-open long-term growth and profit potential for a firm that can create demand for new types of products.
The Potential for Late-Mover Advantages or First-Mover Disadvantages• When pioneering is more costly than imitating and offers negligible experience or
learning-curve benefits
• When the products of an innovator are somewhat primitive and do not live up to buyer expectations
• When rapid market evolution allows fast followers to leapfrog first- mover products with more attractive next-version products
• When market uncertainties make it difficult to ascertain what will eventually succeed
• When customer loyalty is low and first mover’s skills, know-how, and actions are easily copied or surpassed
• When the first mover must make a risky investment in complementary assets or infrastructure (and these are available at low cost or risk by followers)
Strategic Objectives for Horizontal Mergers and Acquisitions• Creating a more cost-efficient operation out
of the combined companies• Expanding the firm’s geographic coverage• Extending the firm’s business into new product categories• Gaining quick access to new technologies or other resources
and capabilities• Leading the convergence of industries whose boundaries are
being blurred by changing technologies and new market opportunities
Walmart's Expansion into E-commerce via Horizontal Acquisition• Which strategic transformation outcomes did Walmart expect to gain through
its acquisition strategy?
• Why did Walmart choose to pursue an acquisition strategy that was ahead of its brick and mortar competitors?
• How will increasing the horizontal scope of Walmart through acquisitions strengthen its competitive position and profitability
Which parallelism Conad/Walmart can be done?As we already introduced a debat about Conad corporate strategies, try to address previous questions about Walmart’s to Conad’s strategies
Integrating Backward to Achieve Greater Competitivenessu Integrating backward by:ü Achieving same scale economies as outside suppliers: low-cost
based competitive advantageü Matching or beating suppliers’ production efficiency with no drop-
off in quality: differentiation-based competitive advantageu Reasons for integrating backwardsü Reduction of supplier powerü Reduction in costs of major inputsü Assurance of the supply and flow of critical inputsü Protection of proprietary know-how
Disadvantages of a Vertical Integration Strategy• Increased business risk due to large capital investment• Slow acceptance of technological advances or more efficient
production methods• Less flexibility in accommodating shifting buyer preferences that require
non-internally produced parts• Internal production levels may not reach volumes that create
economies of scale• Efficient production of internally-produced components and parts
hampered by capacity matching problems• New or different resources and capabilities requirements
The Risk of Outsourcing Value Chain Activities• Hollowing out resources and capabilities that the
firm needs to be a master of its own destiny
• Loss of direct control when monitoring, controlling, and coordinating activities of outside parties by means of contracts and arm’s-length transactions
• Lack of incentives for outside parties to make investments specific to the needs of the outsourcing firm’s value chain
Why and How Strategic Alliances Are Advantageousu Strategic Alliances:ü Expedite development of promising new technologies or products.ü Help overcome deficits in technical and manufacturing expertise.ü Bring together the personnel and expertise needed to create new
skill sets and capabilities.ü Improve supply chain efficiency.ü Help partners allocate venture risk sharing.ü Allow firms to gain economies of scale.ü Provide new market access for partners.
The Drawbacks of Strategic Alliances and Their Relative Advantages• Culture clash and integration problems due to different management
styles and business practices
• Anticipated gains not materializing due to an overly optimistic view of the potential for synergies or the unforeseen poor fit of partners’ resources and capabilities
• Risk of becoming dependent on partner firms for essential expertise and capabilities
• Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals