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Chapter 6: Supplementing The Chosen Competitive Strategy: Other Important Business Strategy Choices
Chapter 6: Supplementing The Chosen Competitive Strategy: Other Important Business Strategy Choices
Chapter 6: Supplementing The Chosen Competitive Strategy: Other Important Business Strategy Choices
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Learning Objectives
1. Gain an understanding of how strategic alliances and
collaborative partnerships can bolster a company’s
competitive capabilities and resource strengths.
2. Become aware of the strategic benefits of mergers and
acquisitions.
3. Understand when a company should consider using a
vertical integration strategy to extend its operations to
more stages of the overall industry value chain.
4. Understand the conditions that favor farming out certain
value chain activities to vendors and strategic allies.
5. Recognize how and why different types of market
situations shape business strategy choices.
6. Understand when being a first-mover or a fast-follower or
a late-mover can lead to competitive advantage.
6-2
Chapter Roadmap
Strategic 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
Business Strategy Choices for Specific
Market Situations
Timing Strategic Moves – To be an Early
Mover of a Late
6-3
Strategic Alliances and Partnerships
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities
6-14
Vertical Integration Strategies
Extend a firm’s competitive scope within
same industry
Backward into sources of supply
Forward toward end-users of final product
6-15
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
6-16
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
6-17
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
6-18
Outsourcing Strategies
Concept
Outsourcing involves having outsiders
perform certain value chain activities rather
than performing them internally
Internally
Performed
Activities
Contract Distributors
Manufacturers or Retailers
Vendors with
specialized
expertise
6-19
When Does Outsourcing an Activity
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
6-20
The Big Risk of Outsourcing
6-21
Matching Strategy to
a Company’s Situation
Nature of industry
and competitive
Most important
conditions
drivers shaping a
firm’s strategic
options fall into
Firm’s internal
two categories
resource strengths
and weaknesses
6-22
Matching a Company’s Strategy
to Different Market Conditions
Freshly
Fragmented
Emerging
Markets
Markets
Rapidly
Turbulent
Growing
Markets
Markets
6-27
Strategy Options for Competing
in Rapidly Growing Markets
Drive down costs per unit to enable price
reductions that attract droves of new customers
Pursue rapid product innovation to
Set a company’s product offering apart from rivals
Incorporate attributes to appeal to
growing numbers of customers
Gain access to additional distribution
channels and sales outlets
Expand a company’s geographic coverage
Expand product line to add models/styles to
appeal to a wider range of buyers
6-28
Industry Maturity: The Standout Features
Expand internationally
Frequent launches of
new competitive moves
Rapidly evolving
customer expectations
6-35
Strategy Options for Competing
in High-Velocity Markets
Invest aggressively in R&D
Keep products/services fresh and exciting
Develop quick response capabilities
Shift resources
Adapt competencies
Create new competitive capabilities
Speed new products to market
Use strategic partnerships to develop
specialized expertise and capabilities
Initiate fresh actions every few months
6-36
Keys to Success in Competing
in High Velocity Markets
Cutting-edge expertise
Agility
Innovativeness
Opportunism
Resource flexibility
First-to-market capabilities
6-37
Competitive Features
of a Fragmented Industry
Absence of market leaders with large market shares or
widespread buyer recognition
Product/service is delivered to neighborhood
locations to be convenient to local residents
Buyer demand is so diverse that many
firms are required to satisfy buyer needs
Low entry barriers
Absence of scale economies
Market for industry’s product/service may be globalizing,
thus putting many companies across the world in same
market arena
Exploding technologies force firms to specialize just to
keep up in their area of expertise
Industry is young and crowded with aspiring contenders,
with no firm having yet developed recognition to command
a large market share
6-38
Competing in a Fragmented Industry:
The Strategy Options
6-39
First-Mover Advantages
6-41
What Is Different About a Blue Ocean?
6-42
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
6-43
To Be a First-Mover or Not?