Chapter

5
Beyond Competitive
Strategy
Other Important Strategy
Choices
“Successful business
strategy is about
actively shaping the
game you play, not
just playing the game
you find.” for taking
“Strategies
hill won’t necessarily
hold it.”
John W. Teets
 Chapter Roadmap
 Strategic Alliances and Collaborative Partnerships
 Merger and Acquisition Strategies
 Vertical Integration Strategies
 Outsourcing Strategies
 Using Offensive Strategies to Secure Competitive
Advantage
 Using Defensive Strategies to Protect the Company’s
Position
 Strategies for Using the Internet as a Distribution Channel
 Choosing Appropriate Functional-Area Strategies
 First-Mover Advantages and Disadvantages
Fig. 6.1: A Company’s Menu of Strategy
Options
Strategic Alliances and
Collaborative 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.
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
 Capturing the Full Potential
of a Strategic Alliance
 Capacity of partners to defuse organizational frictions
 Ability to collaborate effectively over time and work
through challenges
 Technological and competitive surprises
 New market developments
 Changes in their own priorities
and competitive circumstances
 Collaborative partnerships nearly always entail an evolving
relationship whose competitive value depends on
 Mutual learning
 Cooperation
 Adaptation to changing industry conditions
 Competitive advantage emerges when a company acquires
valuable capabilities via alliances it could not obtain on its
own
Why Are Strategic
Alliances Formed?
 To collaborate on technology development or new
product development
 To fill gaps in technical or manufacturing expertise
 To acquire new competencies
 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
 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
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
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
 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
Objectives of Mergers
and Acquisitions
 To pave way for acquiring firm to gain more market
share and create a more 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
 To invent a new industry and lead the convergence
of industries whose boundaries are blurred by
changing
technologies and new market opportunities
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
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

Internally Activities, Costs,

Activities,
Performed & Margins of Buyer/User
Costs, &
Activities, Forward Channel Value
Margins of
Costs, & Allies & Chains
Suppliers
Margins Strategic Partners
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
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
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
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!
Outsourcing Strategies
Concept
Outsourcing involves withdrawing from certain
value
chain activities and relying on outsiders
to supply needed products, support
services, or functional activities
Internally
Performed
Activities Functional
Suppliers
Activities

Support Distributors
Services or Retailers
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
 Operations are streamlined to
 Cut cycle time
 Speed decision-making
 Reduce coordination costs
 Firm can concentrate on “core” value chain activities
that best suit its resource strengths
Strategic Advantages
of Outsourcing
 Improves firm’s ability to obtain high quality and/or
cheaper components or services
 Improves firm’s ability to innovate by interacting with
“best-in-world” suppliers
 Enhances firm’s flexibility should customer needs
and market conditions suddenly shift
 Increases firm’s ability to assemble diverse kinds of
expertise speedily and efficiently
 Allows firm to concentrate its resources on
performing those activities internally which it can
perform better than outsiders
Pitfalls of Outsourcing

 Farming out too many or the wrong

activities, thus
 Hollowing out capabilities
 Losing touch with activities and expertise that
determine overall long-term success
Offensive and Defensive Strategies
Offensive Strategies Defensive Strategies

Used to build new or Used to protect

stronger market competitive
position and/or create advantage (rarely
competitive used to create
advantage advantage)
Types of Offensive Strategies

1. Initiatives to match or exceed competitor strengths

2. Initiatives to capitalize on competitor weaknesses

3. Simultaneous initiatives on many fronts

4. End-run offensives

5. Guerrilla offensives

6. Preemptive strikes
Attacking Competitor Strengths
Objectives
 Whittle away at a rival’s
competitive advantage
 Gain market share by out-matching
strengths of weaker rivals

Challenging strong competitors with a

lower price is foolhardy unless the
aggressor has a cost advantage or
advantage of greater financial strength!
Options for Attacking
a Competitor’s Strengths
 Offer equally good product at a lower price
 Develop low-cost edge, then use it to under-price rivals
 Leapfrog into next-generation technologies
 Add appealing new features
 Run comparison ads
 Construct new plant capacity in rival’s market strongholds
 Offer a wider product line
 Develop better customer service capabilities
 Attacking Competitor
Weaknesses
Objective

Utilize company strengths to exploit a

rival’s weaknesses
Weaknesses to Attack
 Customers that a rival is least equipped to serve
 Rivals providing sub-par customer service
 Rivals with weaker marketing skills
 Geographic regions where rival is weak
 Market segments a rival is neglecting
 Launching Simultaneous
Offensives on Many Fronts
Objective
 Launch several major initiatives to
 Throw rivals off-balance
 Splinter their attention
 Force them to use substantial
resources to defend their position
A challenger with superior resources can
overpower weaker rivals by out-
competing them across-the-board long
enough to become a market leader!
End-Run Offensives
Objectives
 Maneuver around strong competitors

 Capture unoccupied or less contested

markets

 Change rules of competition in

aggressor’s favor
Approaches for
End-Run Offensives
 Introduce new products that redefine market and
terms of competition

 Build presence in geographic areas

where rivals have little presence

 Create new segments by introducing products

with different features to better meet buyer needs

 Introduce next-generation
technologies to leapfrog rivals
 Guerrilla Offenses
Approach
Use principles of surprise and hit-and-run to
attack in locations and at times where
conditions
are most favorable to initiator
Appeal
Well-suited to small
challengers
with limited resources and
market visibility
Options for Guerrilla Offenses

 Make random, scattered raids on leaders’

customers
 Occasional low-balling on price
 Intense bursts of promotional activity
 Special campaigns to attract buyers from
rivals plagued with a strike or delivery problems
 Challenge rivals encountering problems with quality
or providing adequate technical support
 File legal actions charging antitrust violations,
patent infringements, or unfair advertising
Preemptive Strikes
Approach

Involves moving first to secure an

advantageous position that rivals are
foreclosed
or discouraged from duplicating!
Preemptive Strike Options

 Secure exclusive/dominant access to best

distributors
 Secure best geographic locations
 Tie up best or most sources of essential raw
materials
 Obtain business of prestigious customers
 Expand capacity ahead of demand in hopes

of discouraging rivals from following suit


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
Using Offensive Strategy to
Achieve Competitive Advantage
 Strategic offensives offering strongest basis for
competitive advantage entail
 An important core competence
 A unique competitive capability
 Much-improved performance features
 An innovative new product
 Technological superiority
 A cost advantage in manufacturing or distribution
 Some type of differentiation advantage
Defensive Strategy
Objectives
 Lessen risk of being attacked
 Blunt impact of any attack that occurs
 Influence challengers to aim attacks at
other rivals
Approaches
 Block avenues open to challengers
 Signal challengers vigorous
retaliation is likely
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
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 counterresponse

to moves of weaker rivals
Strategies for
Using the Internet
 Strategic Challenge – What use of the Internet should a
company make in staking out its position in the
marketplace?
 Five Approaches
 Use company web site solely to disseminate product
information
 Use company web site as a minor distribution
channel for accessing customers and generating sales
 Use company web site as one of several important
distribution channels for accessing customers
 Use company web site as primary distribution
channel for accessing buyers and making sales
 Use company web site as the exclusive channel
for accessing buyers and conducting sales transactions
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
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

Brick-and-Click Strategies: An
Appealing Middle Ground Approach
 Approach
 Sell directly to consumers and
 Use traditional wholesale/retail channels
 Reasons to pursue a brick-and-click strategy
 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
Strategies for
Online Enterprises
 Approach – Use Internet as the exclusive
channel for all buyer-seller contact and transactions
 Success depends on a firm’s ability
to incorporate following features
 Capability to deliver unique value to buyers
 Deliberate efforts to engineer a value chain that enables
differentiation, lower costs, or better value for the money
 Innovative, fresh, and entertaining website
 Clear focus on a limited number of competencies and a relatively
specialized number of value chain activities
 Innovative marketing techniques
 Minimal reliance on ancillary revenues
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
 Tailoring
Finance
functional-area strategies to
support key business-level strategies is critical!
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
First-Mover Disadvantages

 Moving early can be a disadvantage (or fail

to produce an advantage) when

 Costs of pioneering are sizable and

loyalty of first time buyers is weak

 Innovator’s products are primitive,

not living up to buyer expectations

 Rapid technological change allows

followers to leapfrog pioneers
 Timing and Competitive
Advantage
Principle 1
Being a fast follower can sometimes yield
as good a result as being a first mover
Principle 2
Being a fast follower can sometimes yield
as good a result as being a first mover
Principle 3
Being a late-mover may or may not be fatal --
it varies with the situation