3. Supplementing the Chosen Competitive Strategy
Chapter 6
Supplementing the Chosen Competitive Strategy

4. Cooperative Strategies
Strategic Alliance – formal agreement between two or more companies in which there is a strategically relevant collaboration.

5. Advantages of Alliances
Gain access to new global markets
Gain knowledge about unfamiliar markets or cultures
Gain access or master new technologies
Gain access to complementary resources

6. Keys to Alliance Success
Picking the right partner
Sensitivity to cultural differences
Must be win-win
Mutual commitment
Swift decision making structures
Managing the learning process
Maintaining flexibility

7. Who Makes a Geo?
Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse.
Geo Prizm = Toyota Corolla
Geo Tracker = Suzuki Sidekick
Geo Metro = Suzuki Esteem or Swift w/hatchback
No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.

10. Vertical Integration
Operating in more than one stage of the industry value chain
partial/taper or full integration
forward or backward
Benefits
can not be held hostage – reduces buyer/supplier power
greater control over operations
access to new business/technologies
reduce procurement and sales efforts
Risks
increased overhead, capital and administrative costs
loss of flexibility
different competencies may be requires
unbalanced capacities and increased risk
reaction of competitors

11. Vertical Integration Will add value when:
Enhance critical activities that lower costs or increase differentiation
Benefits exceed the costs
Enhances competitive capabilities

12. Outsourcing
Farming out specific activities to others, allowing the firm to focus on more critical activities and core competencies

13. Outsourcing Works When:
Others can do it better and cheaper
Not a core competency
Reduces the companies’ risk to technology changes
Improves the company’s innovation
Streamlines operations and increases flexibility
Assemble diverse expertise

14. Mergers and Acquisitions
Reasons of Acquisitions
Cost Efficiencies
Geographic Expansion
Product/Market Extensions
Increased Speed
Lower Risk
New Technologies
Invest in New Industry or
Create Convergence

15. Mergers and Acquisitions
Problems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation

16. Mergers and Acquisitions
Results
Poor
Performance
Who Wins?
Acquired Firm
Shareholders

17. Monday October 27th WSJ Bank of American – Boston Fleet Financial
BoA down $8.29, or 10%, BFF rose 23%
Anthem – WellPoint Health Networks
Anthem down 8.2%, WellPoint up 8.8%
United Health – MidAtlantic Med Services
UH down 4.9%, MAMS up 9.7%

18. Failures of Acquisitions
% average acquisition premium
Acquiring firm’s value drops 4% in the 3 months following acquisitions
% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by 4%
3 month performance before and after
30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns

19. Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are related
When do executives loss their jobs?
1) Acquired - larger firms harder to acquire
2) Performing poorly - employment risk is reduced as returns are less volatile

20. Offensive Strategies Successful offensive strategies require:
Relentless focus on advantages
Element of surprise
Apply resources where rivals have limitations
Swift and decisive actions to break the status quo

21. Offensive Options Equal or better product at a lower price
First mover or next generation
Continuous product innovation
Adopting and improving on a rivals idea
Attacking rival’s high margin segments
Attacking rival’s weaknesses
Tapping uncontested markets
Guerrilla warfare tactics
Pre-emptive strikes – tying up distribution, location, suppliers, or acquiring distressed rivals

22. Blue Ocean Strategy
Inventing new industry/segment that renders existing competitors irrelevant and helps create new demand
Ebay
Cirque du Soleil
Netflix

23. Competitive Dynamics Competitive action within an industry
Strategic and tactical action does not occur within a vacuum
What industries have high competitive dynamics?
What sort of actions/tactics are taken?

24. Drivers of Competitive Dynamics
numerous/equally balanced competitors
slow growth
high fixed/storage costs
lack of differentiation/switching costs
high exit barriers
Etc…
Competitive
Dynamics
Rivalry

25. Competition in the Pharmaceutical Industry
Reps quadrupled to 120K last years
12B on sales force, 2.76B on ads
Managed care bet – Pfizer from 14th to 1st
529 visits yearly, average length – 2.5 min
8% remember
Glaxo can reach 80% of the Drs in a week
“Is this necessary. No, but if my competitors do it and I can’t, then I’m at a disadvantage. This has been an arms race in the worst possible manner.”

26. Types of Competitive Responses
First Movers - initial competitive action
advantages and disadvantages
Fast Followers or Capable Competitors- respond quickly to first movers
Late Entrants - day late and a dollar short