1. Supplementing the Chosen Competitive Strategy
Screen graphics created by:
Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Adam M. Brandenburger and Barry J. Nalebuff
“Successful business strategy is about actively shaping the game you play, not just playing the game you find.”
Adam M. Brandenburger and Barry J. Nalebuff

3. “The sure path to oblivion is to stay where you are.”
Bernard Fauber

4. Chapter Roadmap Collaborative Strategies: Alliances and Partnerships
Merger and Acquisition Strategies
Vertical Integration Strategies: Operating Across More Stages of the Industry Value Chain
Outsourcing Strategies: Narrowing the Boundaries of the Business
Offensive Strategies: Improving Market Position and Building Competitive Advantage
Defensive Strategies: Protecting Market Position and Competitive Advantage
Web Site Strategies
Choosing Appropriate Functional-Area Strategies
First-Mover Advantages and Disadvantages

5. Fig. 6.1: A Company’s Menu of Strategy Options

6. Collaborative Strategies: Alliances and 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 full joint venture partnership.

7. Alliances Can Enhance a Firm’s Competitiveness
Alliances and partnerships can help companies cope with two demanding competitive challenges
Racing against rivals to build a market presence in many different national markets
Racing against rivals to seize opportunities on the frontiers of advancing technology
Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities

8. Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two or more separate companies where there is
Strategically relevant collaboration of some sort
Joint contribution of resources
Shared risk
Shared control
Mutual dependence
Alliances often involve
Joint marketing
Joint sales or distribution
Joint production
Design collaboration
Joint research
Projects to jointly develop new technologies or products

9. What Factors Make an Alliance Strategic?
It is critical to a company’s achievement of an important objective
It helps build, sustain, or enhance a core competence or competitive advantage
It helps block a competitive threat
It helps open up important market opportunities
It mitigates a significant risk to a company’s business

10. Why Are Strategic Alliances Formed?
To collaborate on technology development or new product development
To fill gaps in technical or manufacturing expertise
To create new skill sets and capabilities
To improve supply chain efficiency
To gain economies of scale in production and/or marketing
To acquire or improve market access via joint marketing agreements

11. Potential Benefits of Alliances to Achieve Global and Industry Leadership
Get into critical country markets quickly to accelerate process of building a global presence
Gain inside knowledge about unfamiliar markets and cultures
Access valuable skills and competencies concentrated in particular geographic locations
Establish a beachhead to participate in target industry
Master new technologies and build new expertise faster than would be possible internally
Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners

12. Capturing the Benefits of Strategic Alliances
Benefits from forming partnerships are a function of
Picking a good partner
Being sensitive to cultural differences
Recognizing an alliance must benefit both parties
Ensuring both parties live up to their commitments
Structuring the decision-making process so actions can be taken swiftly when needed
Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances

13. 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
Diverging objectives and priorities of partners
Inability of partners to work well together
Changing conditions rendering purpose of alliance obsolete
Emergence of more attractive technological paths
Marketplace rivalry between one or more allies

14. Test Your Knowledge
Which one of the following is not a factor that makes an alliance “strategic” as opposed to just a convenient business arrangement?
A. The alliance involves joint contribution of resources, shared risk, and is mutually beneficial.
B. The alliance helps block a competitive threat or open up new market opportunities.
C. The alliance helps mitigate a significant risk to a company’s business.
D. The alliance helps build, enhance, or sustain a core competence or competitive advantage.
E. The alliance is critical to the company’s achievement of an important objective.
Answer: A

15. Merger and Acquisition Strategies
Merger – Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired
Merger-acquisition strategy
Much-used strategic option
Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances

16. Objectives of Mergers and Acquisitions
To create a more cost-efficient operation
To expand a firm’s geographic coverage
To extend a firm’s business into new product categories or international markets
To gain quick access to new technologies or competitive capabilities
To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities

17. Pitfalls of Mergers and Acquisitions
Combining operations may result in
Resistance from rank-and-file employees
Hard-to-resolve conflicts in management styles and corporate cultures
Tough problems of integration
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities

18. Vertical Integration Strategies
Extend a firm’s competitive scope within same industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
Activities,
Costs, &
Margins of
Suppliers
Internally
Performed
Activities,
Costs, &
Margins
Buyer/User
Value
Chains
Activities, Costs,
& Margins of
Forward Channel
Allies &
Strategic Partners

19. Strategic Advantages of Backward Integration
Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
Potential to reduce costs exists when
Suppliers have sizable profit margins
Item supplied is a major cost component
Resource requirements are easily met
Can produce a differentiation-based competitive advantage when it results in a better quality part
Reduces risk of depending on suppliers of crucial raw materials / parts / components

20. Strategic Advantages of Forward Integration
To gain better access to end users and better market visibility
To compensate for undependable distribution channels which undermine steady operations
To offset the lack of a broad product line, a firm may sell directly to end users
To bypass regular distribution channels in favor of direct sales and Internet retailing which may
Lower distribution costs
Produce a relative cost advantage over rivals
Enable lower selling prices to end users

21. Strategic Disadvantages of Vertical Integration
Boosts resource requirements
Locks firm deeper into same industry
Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety
Poses all types of capacity-matching problems
May require radically different skills / capabilities
Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products

22. Pros and Cons of Integration vs. De-Integration
Whether vertical integration is a viable strategic option depends on its
Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities
Impact on investment cost, flexibility, and administrative overhead
Contribution to enhancing a firm’s competitiveness
Many companies are finding that de-integrating value chain activities is a more flexible, economic strategic option!

23. Outsourcing Strategies
Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities
Concept
Internally
Performed
Activities
Suppliers
Support Services
Functional Activities
Distributors or Retailers

24. 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
It improves firm’s ability to innovate
Operations are streamlined to
Improve flexibility
Cut time to get new products into the market
It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently
Firm can concentrate on “core” value chain activities that best suit its resource strengths

25. Risk of an Outsourcing Strategy
Farming out too many or the wrong activities, thus
Hollowing out capabilities
Losing touch with activities and expertise that determine overall long-term success

26. Offensive and Defensive Strategies
Offensive Strategies
Defensive Strategies
Used to build new or stronger market position and/or create competitive advantage
Used to protect competitive advantage (rarely lead to creating advantage)

27. Principles of Offensive Strategies
Focus relentlessly on
Building competitive advantage and
Striving to convert it into decisive advantage
Employ the element of surprise as opposed to doing what rivals expect
Apply resources where rivals are least able to defend themselves
Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals

28. Types of Offensive Strategy Options
1. Offer an equally good or better product at a lower price
2. Leapfrog competitors by being
First adopter of next-generation technologies or
First to market with next-generation products
3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals
4. Adopt and improve on the good ideas of other companies

29. Types of Offensive Strategy Options (con’t)
5. Deliberately attack market segments where a key rival makes big profits
6. Attack competitive weaknesses of rivals
7. Maneuver around competitors and concentrate on capturing unoccupied or less contested market territory
8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals
9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating

30. What Is a Blue Ocean Strategy?
Seeks to gain a dramatic, durable competitive advantage by
Abandoning efforts to beat out competitors in existing markets and
Inventing a new industry or distinctive market segment to render existing competitors largely irrelevant and
Allowing a company to create and capture altogether new demand

31. Type of Markets: Blue Ocean Strategy
Typical Market Space
Industry boundaries are defined and accepted
Competitive rules are well understood by all rivals
Companies try to outperform rivals by capturing a bigger share of existing demand
Blue Ocean Market Space
Industry does not exist yet
Industry is untainted by competition
Industry offers wide-open opportunities if a firm has a product and strategy allowing it to
Create new demand and
Avoid fighting over existing demand

32. For Discussion: Your Opinion
Which of the following is the best example of a blue ocean strategy — Apple’s entry into MP3 players with its iPod models or Dell’s entry into LCD TVs or Audi’s recent move to bring out a luxury SUV? Explain.
Art – My answer would be Apple’s entry into MP3 players with its iPod models however, I’m not familiar with this technology or the market I have minimal time to explore the new technologies!

33. Choosing Rivals to Attack
Four types of firms can be the target of a fresh offensive
Vulnerable market leaders
Runner-up firms with weaknesses where challenger is strong
Struggling rivals on verge of going under
Small local or regional firms with limited capabilities

34. Using Offensive Strategy to Achieve Competitive Advantage
Strategic offensives offering strongest basis for competitive advantage entail
An important core competence
A unique competitive capability
A better-known brand name
A cost advantage in manufacturing or distribution
Technological superiority
A superior product

35. Test Your Knowledge
Which one of the following is not a good type of rival for an offensive-minded company to target?
A. Market leaders that are vulnerable
B. Runner-up firms with weaknesses in areas where the challenger is strong.
C. Small local and regional companies with limited capabilities
D. Companies with lower costs and lower prices
E. Struggling enterprises that are on the verge of going under
Answer: D

36. Defensive Strategy Objectives Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Objectives
Approaches
Block avenues open to challengers
Signal challengers vigorous retaliation is likely

37. Block Avenues Open to Challengers
Participate in alternative technologies
Introduce new features, add new models, or broaden product line to close gaps rivals may pursue
Maintain economy-priced models
Increase warranty coverage
Offer free training and support services
Reduce delivery times for spare parts
Make early announcements about new products or price changes
Challenge quality or safety of rivals’ products using legal tactics
Sign exclusive agreements with distributors

38. Signal Challengers Retaliation Is Likely
Publicly announce management’s strong commitment to maintain present market share
Publicly commit firm to policy of matching rivals’ terms or prices
Maintain war chest of cash reserves
Make occasional counter-response to moves of weaker rivals

39. Web Site Strategies
Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
Five Web site approaches
Use to disseminate only product information
Use as minor distribution channel to sell direct to customers
Use as one of several important distribution channels to access customers
Use as primary distribution channel to access buyers
Use as exclusive channel to transact sales with customers

40. Using the Internet to Disseminate Product Information
Approach – Website used to provide product information of manufacturers or wholesalers
Relies on click-throughs to websites of dealers for sales transactions
Informs end-users of location of retail stores
Issues – Pursuing online sales may
Signal weak strategic commitment to dealers
Signal willingness to cannibalize dealers’ sales
Prompt dealers to aggressively market rivals’ brands
Avoids channel conflict with dealers – Important where strong support of dealer networks is essential

41. Using the Internet as a Minor Distribution Channel
Approach – Use online sales to
Achieve incremental sales
Gain online sales experience
Conduct marketing research
Learn more about buyer tastes and preferences
Test reactions to new products
Create added market buzz about products
Unlikely to provoke much outcry from dealers

42. Reasons to Use the Internet as a Minor Distribution Channel
Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels
Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online
Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly

43. Brick-and-Click Strategies: An Appealing Middle Ground Approach
Sell directly to consumers and
Use traditional wholesale/retail channels
Strategic appeal for wholesalers and retailers
Economic means of expanding a company’s economic reach
Provide both existing and potential customers another choice of how to
Communicate with a company
Shop for product information
Make purchases
Resolve customer service problems

44. Strategies for Online Enterprises
Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactions
Strategic issues for an online company
How to deliver unique value to buyers
Whether it will pursue competitive advantage based on lower costs, differentiation, or better value for the money
Whether it will have a broad or narrow product offering
Whether to perform order fulfillment activities internally or to outsource them
How it will draw traffic to its Web site and then convert page views into revenues

45. Test Your Knowledge
One very important advantage of a product-information-only Web site strategy is
A. lower advertising costs.
B. avoiding the extra costs associated with operating Web site e-stores.
C. avoiding channel conflict—trying to sell online in direct competition with retail dealers signals both a weak strategic commitment to dealers and a willingness to cannibalize dealers’ sales and growth potential.
D. added ability to create a positive image of the company.
E. lower sales force costs.
Answer: D

46. For Discussion: Your Opinion
Suppose that you are a retailer of athletic footwear and one of the major brands you stock in your store is New Balance. What would be your reaction if you learned that New Balance announced that it would soon begin selling its footwear online at the company’s Web site? What actions would you consider taking?

47. Choosing Appropriate Functional-Area Strategies
Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include
Research and development
Production
Human resources
Sales and marketing
Finance
Tailoring functional-area strategies to support key business-level strategies is critical!

48. First-Mover Advantages
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise when
Pioneering helps build firm’s image and reputation
Early commitments to new technologies, new-style components, and distribution channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike

49. First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) when
When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader
Innovator’s products are primitive, not living up to buyer expectations
Demand side of the market is skeptical about the benefits of new technology/product of a first-mover
Rapid technological change allows followers to leapfrog pioneers

50. Strategic Issues: To Be a First-Mover or Not
Key issue – Is the race to market leadership in an industry a marathon or a sprint?
Seeking a competitive advantage by being a first-mover involves addressing several questions
Does market takeoff depend on development of complementary products or services not currently available?
Is new infrastructure required before buyer demand can surge?
Will buyers need to learn new skills or adopt new behaviors?
Will buyers encounter high switching costs?
Are there influential competitors in a position to delay or derail the efforts of a first-mover?