supplementing the chosen competitive strategy mcgraw-hill/irwincopyright © 2008 by the mcgraw-hill...
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Supplementing the Chosen Competitive
Strategy
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
“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
Fig. 6.1: A Company’s Menu of Strategy Options
Companies sometimes use strategic alliances or collaborative
partnerships to complement their own strategic initiatives and
strengthen their competitiveness.
Collaborative Strategies:Alliances and Partnerships
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
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 importantmarket opportunities
• It mitigates a significant riskto a company’s business
• 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 neededcapabilities or cost-reducing opportunities
– Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Merger and Acquisition Strategies
• 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 boundariesare blurred by changing technologies andnew market opportunities
Objectives of Mergers and Acquisitions
Vertical Integration Strategies
• Extend a firm’s competitive scope withinsame industry
– Backward into sources of supply
– Forward toward end-users of final product
• Can aim at either full or partial integration
InternallyPerformedActivities,
Costs, &Margins
Activities, Costs, &
Margins ofSuppliers
Buyer/UserValueChains
Activities, Costs,& Margins of
Forward ChannelAllies &
Strategic Partners
Strategic Disadvantagesof Vertical Integration
• Boosts resource requirements
• Locks firm deeper into same industry
• Results in fixed sources of supply andless flexibility in accommodating buyerdemands 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
Outsourcing Strategies
Outsourcing involves withdrawing fromcertain value chain activities and relyingon outsiders to supply needed products,support services, or functional activities
Concept
InternallyPerformedActivitiesSuppliers
Support Services
Functional Activities
Distributors or Retailers
• Activity can be performed better ormore cheaply by outside specialists
• Activity is not crucial to achieve asustainable competitive advantage
• Risk exposure to changing technology and/orchanging 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
When Does OutsourcingMake Strategic Sense?
• Farming out too many or the wrong activities, thus
– Hollowing out capabilities
– Losing touch with activities and expertise that determine overall long-term success
Risk of an Outsourcing Strategy
Offensive and Defensive Strategies
Used to build newor stronger market position and/or create competitive
advantage
Used to protect competitive advantage (rarely lead to
creating advantage)
Offensive Strategies Defensive Strategies
Types of Offensive Strategy Options1. Offer an equally good or better product at a lower price2. Leapfrog competitors3. Pursue continuous product innovation4. Adopt and improve on the
good ideas of other companies5. Deliberately attack market segments where a key rival
makes big profits6. Attack competitive weaknesses of rivals7. Maneuver around competitors and
concentrate on capturing unoccupiedor less contested market territory
8. Use hit-and-run or guerrilla warfare tactics9. Launch a preemptive strike
What Is a Blue Ocean Strategy?
• Seeks to gain a dramatic, durablecompetitive advantage by
– Abandoning efforts to beat outcompetitors in existing markets and
– Inventing a new industry or distinctivemarket segment to render existingcompetitors largely irrelevant and
– Allowing a company to create andcapture altogether new demand
Blue Ocean Strategy
• Kim & Mauborgne (2005)• Driving forces are increased supply capabilities
and reduced demand distinctions• Reconstructionist view of strategy– Shift emphasis from supply to demand– Systemic strategy of driving up value while
lowering costs
Type of Markets: Blue Ocean Strategy
Red Ocean 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
US Wine Industry
• 20 billion, 3rd largest aggregate consumption• 33rd place in per capita consumption• Intense competition• 8 top producers account for 75% of production;
1,600 account for the remaining 25%• Entry of other regions and countries• California wines account for 2/3rds of sales• Consolidation of retailers
Blue Ocean Tools
• Strategy canvas• Four actions framework
Blue Ocean Strategy: Four Action Framework
1. Eliminate factors that companies in the industry have long competed on.
2. Determine whether products have been over designed.
3. Eliminate customer compromises.4. Discover new sources of value.
Casella Wines
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
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