Supplementing the Chosen Competitive Strategy

Other Important Business Strategy Choices

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Strategic Management

Once a company has settled on which of the five basic competitive strategies to employ, attention turns to what other strategic ations it can take to complement its competitive approach and round out its business strategy.

Strategic Management

Business Strategy Choices to Complement the Company s Competitive Approach

Strategy considerations in rounding out the company s overall business strategy include :

Whether to enter into strategic alliances or partnerships Whether to pursue mergers or acquisitions Whether to integrate backward or forward into more stages of the industry value chain

Strategic Management

Business Strategy Choices to Complement the Company s Competitive Approach

Whether to outsource certain value chain activities

Whether and when to initiate offensive strategies

to improve the company s market position

Whether and when to employ defensive strategies to protect the company s market position

Choosing when to undertake strategic moves whether to be a first-mover, fast follower or a late-mover

Strategic Management

Strategic Alliances and Collaborative Partnerships

 Strategic Alliance - formal collaborative arrangements where two or more companies join forces to achieve mutually beneficial strategic outcomes Strategically relevant collaboration  joint contribution of resources shared risk shared control mutual dependence

Strategic Management

Strategic Alliances and Collaborative Partnerships

 The strategic attractiveness of alliances and collaborative partnerships

Allowing companies to bundle resources and competencies that are more valuable in a joint effort than when kept separate

Strategic Management

Reasons Companies Enter Into Strategic Alliances

 Expedite the development of new technologies or products  Overcome deficits in technical or manufacturing expertise  To create new skill sets and capabilities by bringing together personnel of each partner  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
Strategic Management

Failed Strategic Alliances and Cooperative Partnerships

 Common reasons why as many as 60 percent to 70 percent of alliances fail each year
- Diverging objectives and priorities - Inability to work well together - Changing conditions that make the purpose of the alliance obsolete - Emergence of more attractive technological paths - Increased marketplace rivalry between one or more allies
Strategic Management

The Strategic Dangers Of Relying On Alliances For Essential Resources And Capabilities
 The Achilles heel of alliances and cooperative partnerships is becoming dependent on other companies for essential expertise and capabilities  A company must ultimately have strategic control of critical resources and capabilities to protect competitiveness and build competitive advantage

Strategic Management

Merger and Acquisition Strategies

 An attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market opportunities - Merger -- the combining of two or more companies into a single entity, with the newly created company often taking on a new name - Acquisition -- is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired

Strategic Management

Typical Objectives of Mergers and Acquisitions

 Creating a more cost-efficient operation out of the combined companies  Expanding a company s geographic coverage  Extending the company s business into new product categories  Gaining quick access to new technologies or other resources and competitive capabilities  Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities

Strategic Management

Why Mergers And Acquisitions Sometimes Fail To Produce Anticipated Results

 Cost savings are smaller than expected  Gains in competitive capabilities take much longer to realize or may never materialize  Efforts to mesh the corporate cultures can stall because of resistance from organization members  Managers and employees at the acquired may continue to do things as they were done prior to the acquisition  Key employees of the acquired company may leave

Strategic Management

Vertical Integration: Operating Across More Industry Value Chain Segments

 Extend a firm s competitive scope within the same industry value chain

- Backward into sources of supply

- Forward toward end-users of final product  Can aim at either full or partial integration

Strategic Management

Industry Value Chain

Strategic Management

Potential Advantages of a Vertical Integration Strategy

 The two best reasons for vertically integrating into more value chain segments - Strengthen the firm s competitive position - Boost profitability

Strategic Management

Strategic Advantages of Backward Integration

 1. Potential to reduce costs exists when - Suppliers have sizable profit margins - Item supplied is a major cost component - Resource requirements are easily met  2. Can produce a differentiation-based competitive advantage when it results in a better quality part  3. Reduces risk of depending on suppliers of crucial raw materials / parts / components

Strategic Management

Strategic Advantages of Forward Integration

 1. Advantageous for a firm to establish its own distribution network if undependable distribution channels undermine steady production operations  2. Direct sales and Internet retailing may lower distribution costs.  3. For a raw materials producer, forward integration may help achieve greater product differentiation.  4. For a manufacturer, forward integration may provide better access to the ultimate consumer.

Strategic Management

Disadvantages of a Vertical Integration Strategy

     Boosts capital investment in the industry Increases business risk if industry growth and profits sour May slow technological advances if the vertically integrated company is saddled with older technology Poses all types of capacity-matching problems May require radically different skills and business capabilities

Strategic Management

Outsourcing Strategies: Narrowing the Boundaries of the Business

Outsourcing makes strategic sense whenever: Activity can be performed better or more cheaply by outside specialists Activity is not crucial to achieve a sustainable competitive advantage It improves firms ability to innovate Firm can concentrate on core value chain activities and leverage its resource strengths

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The big risk of outsourcing  Farming out the wrong types of activities  Hollowing out strategically-important capabilities

Strategic Options to Improve a Companys Market PositionThe Use Position of Strategic Offensives

Strategic offensives are called for when a company

Spots opportunities to gain profitable market share at the expense of Has no rivals or choice but to try to whittle away at a strong rivals competitive advantage

The best offensives use resource strengths to attack rivals where they are weak