CHAPTER 6

Strengthening a
Company’s
Competitive Position:
Strategic Moves,
Timing, and Scope of
Operations

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 Learning Objectives
This chapter will help you understand:
1. How and when to deploy offensive or defensive strategic moves.
2. When being a first mover, a fast follower, or a late mover is most
advantageous.
3. The strategic benefits and risks of expanding a firm’s horizontal
scope through mergers and acquisitions.
4. The advantages and disadvantages of extending the company’s
scope of operations via vertical integration.
5. The conditions that favor outsourcing certain value chain
activities to outside parties.
6. How to capture the benefits and minimize the drawbacks of
strategic alliances and partnerships.

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 Maximizing the Power of a Strategy

Making choices that complement a

competitive approach and
maximize the power of strategy

Offensive Competitive Scope of

and dynamics operations
defensive and the along the
competitive timing of industry’s
actions strategic value
moves chain
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 Considering Strategy-Enhancing Measures
• Whether and when to go on the offensive strategically
• Whether and when to employ defensive strategies
• When to undertake strategic moves—first mover, a fast
follower, or a late mover
• Whether to merge with or acquire another firm
• Whether to integrate backward or forward into more
stages of the industry’s activity chain
• Which value chain activities, if any, should be
outsourced
• Whether to enter into strategic alliances or partnership
arrangements

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 Launching Strategic Offensives to Improve
a Company’s Market Position
Strategic offensive principles
1. Focusing relentlessly on building competitive
advantage and then striving to convert it into
sustainable advantage
2. Applying resources where rivals are least able to
defend themselves
3. Employing the element of surprise as opposed to
doing what rivals expect and are prepared for
4. Displaying a capacity for swift, decisive, and
overwhelming actions to overpower rivals

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 Choosing the Basis For Competitive Attack
• Avoid directly challenging a targeted competitor
where it is strongest.
• Use the firm’s strongest strategic assets to
attack a competitor’s weaknesses.
• The offensive may not yield immediate results
if market rivals are strong competitors.
• Be prepared for the threatened competitor’s
counter-response.

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 Principal Offensive Strategy Options
1. Offering an equally good or better product at a lower price
2. Leapfrogging competitors by being first to market with
next-generation products
3. Pursuing continuous product innovation to draw sales and
market share away from less innovative rivals
4. Pursuing disruptive product innovations to create new
markets
5. Adopting and improving on the good ideas of other
companies (rivals or otherwise)
6. Using hit-and-run or guerrilla marketing tactics to grab
market share from complacent or distracted rivals
7. Launching a preemptive strike to secure an industry’s
limited resources or capture a rare opportunity
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 Choosing Which Rivals to Attack

Best Targets for Offensive Attacks

Runner-up firms with

Market leaders that
weaknesses in areas
are in vulnerable
where the challenger
competitive positions
is strong

Struggling enterprises Small local and

on the verge of going regional firms with
under limited capabilities

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 Blue-Ocean Strategy—A Special Kind of
Offensive
The business universe is divided into:
• An existing market with boundaries and rules
in which rival firms compete for advantage.
• A “blue ocean” market space, where the
industry has not yet taken shape, with no
rivals and wide-open long-term growth and
profit potential for a firm that can create
demand for new types of products.

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 Bonobos’s Blue-Ocean Strategy in the
U.S. Men’s Fashion Retail Industry
• Given the rapidity with which most first-mover
advantages based on Internet technologies can
be overcome by competitors, what has
Bonobos done to retain its competitive
advantage?
• Is Bonobos’s unique focused-differentiation
entry into brick-and-mortar retailing a sufficiently
strong strategic move?
• What would you predict is the likelihood of long-
term success for Bonobos in the retail clothing
sector?
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 Defensive Strategies—Protecting Market
Position and Competitive Advantage

Purposes of Defensive Strategies

Lower the firm’s risk of being attacked

Weaken the impact of an attack that does occur

Influence challengers to aim their efforts at other rivals

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 Forms of Defensive Strategies

Defensive strategies can take

either of two forms:
• Actions to block challengers.
• Actions to signal the likelihood
of strong retaliation.

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 Blocking the Avenues Open to Challengers

• Introduce new features and models to broaden product

lines to close off gaps and vacant niches.
• Maintain economy-pricing to thwart lower price attacks.
• Discourage buyers from trying competitors’ brands.
• Make early announcements about new products or price
changes to induce buyers to postpone switching.
• Offer support and special inducements to current
customers to reduce the attractiveness of switching.
• Challenge quality and safety of competitor’s products.
• Grant discounts or better terms to intermediaries who
handle the firm’s product line exclusively.
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 Signaling Challengers That
Retaliation Is Likely
Signaling is an effective defensive strategy when
the firm follows through by:
• Publicly announcing its commitment to maintaining the
firm’s present market share.
• Publicly committing to a policy of matching competitors’
terms or prices.
• Maintaining a war chest of cash and marketable
securities.
• Making a strong counter-response to the moves of
weaker rivals to enhance its tough defender image.

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 Timing a Company’s Strategic Moves

Timing’s importance:
• Knowing when to make a strategic move is as crucial
as knowing what move to make.
• Moving first is no guarantee of success or competitive
advantage.
• The risks of moving first to stake out a monopoly
position versus being a fast follower or even a late
mover must be carefully weighed.

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 Conditions that Lead to First-Mover
Advantages
• When pioneering helps build a firm’s reputation and
creates strong brand loyalty
• When a first mover’s customers will thereafter face
significant switching costs
• When property rights protections thwart rapid imitation of
the initial move
• When an early lead enables movement down the
learning curve ahead of rivals
• When a first mover can set the industry’s technical
standards
• When strong network effects compel increasingly more
consumers to choose the first mover’s product or service
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 Tinder Swipes Right for
First-Mover Success
• Which first-mover advantages contributed
to Tinder’s gaining over a million monthly
active users in less than a year?
• How long can Tinder protect its first-
mover advantages?
• How has Tinder monetized its success
while its rivals are having to play catch-
up?

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 The Potential for Late-Mover Advantages or
First-Mover Disadvantages
• When pioneering is more costly than imitating and offers negligible
experience or learning-curve benefits
• When the products of an innovator are somewhat primitive and do
not live up to buyer expectations
• When rapid market evolution allows fast followers to leapfrog first-
mover products with more attractive next-version products
• When market uncertainties make it difficult to ascertain what will
eventually succeed
• When customer loyalty is low and first mover’s skills, know-how, and
actions are easily copied or surpassed
• When the first mover must make a risky investment in
complementary assets or infrastructure (and these are available at
low cost or risk by followers)

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 To Be a First Mover or Not
• Does market takeoff depend on complementary
products or services that currently are not
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 in
moving to the newly introduced product or
service?
• Are there influential competitors in a position to
delay or derail the efforts of a first mover?
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 Strengthening a Firm’s Market Position via
Its Scope of Operations

Defining the Scope of the Firm’s Operations

Range of its activities performed internally

Breadth of its product and service offerings

Extent of its geographic market presence and its mix of
business
Size of its competitive footprint on its market or industry

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 Horizontal Merger and Acquisition
Strategies
Merger:
• Is the combining of two or more firms into a
single corporate entity that often takes on a
new name.
Acquisition:
• Is a combination in which one firm, the
"acquirer," purchases and absorbs the
operations of another firm, the "acquired."

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 Strategic Objectives for Horizontal Mergers
and Acquisitions
• Creating a more cost-efficient operation out
of the combined companies
• Expanding the firm’s geographic coverage
• Extending the firm’s business into new product
categories
• Gaining quick access to new technologies or
other resources and capabilities
• Leading the convergence of industries whose
boundaries are being blurred by changing
technologies and new market opportunities
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 Walmart's Expansion into E-commerce
via Horizontal Acquisition
• Which strategic transformation outcomes did
Walmart expect to gain through its acquisition
strategy?
• Why did Walmart choose to pursue an
acquisition strategy that was ahead of its brick
and mortar competitors?
• How will increasing the horizontal scope of
Walmart through acquisitions strengthen its
competitive position and profitability?

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 Why Mergers and Acquisitions Sometimes
Fail to Produce Anticipated Results
Strategic issues
• Cost savings may prove smaller than expected.
• Gains in competitive capabilities take longer to realize or never
materialize at all.

Organizational issues
• Cultures, operating systems and management styles fail to mesh
due to resistance to change from organization members.
• Key employees at the acquired firm are lost.
• Managers overseeing integration make mistakes in melding the
acquired firm into their own.

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 Vertical Integration Strategies

Vertically integrated firm

• One that participates in multiple segments or stages of
an industry’s overall value chain

Vertical integration strategy

• Can expand the firm’s range of activities backward into
its sources of supply or forward toward end users of its
products

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 Types of Vertical Integration Strategies
Full integration
• A firm participates in all stages of the vertical activity
chain.

Partial integration
• A firm builds positions only in selected stages of the
vertical chain.

Tapered integration
• A firm uses a mix of in-house and outsourced activity in
any stage of the vertical chain.

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 The Advantages of a Vertical Integration Strategy

Potential Benefits of Vertical Integration

Add materially to a firm’s technological capabilities

Strengthen the firm’s competitive position

Boost the firm’s profitability

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 Integrating Backward to Achieve Greater
Competitiveness
Integrating backward by:
• Achieving same scale economies as outside suppliers:
low-cost based competitive advantage
• Matching or beating suppliers’ production efficiency
with no drop-off in quality: differentiation-based
competitive advantage
Reasons for integrating backwards
• Reduction of supplier power
• Reduction in costs of major inputs
• Assurance of the supply and flow of critical inputs
• Protection of proprietary know-how

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 Integrating Forward to Enhance
Competitiveness
Reasons for integrating forward:
• To lower overall costs by increasing channel
activity efficiencies relative to competitors
• To increase bargaining power through control
of channel activities
• To gain better access to end users
• To strengthen and reinforce brand awareness
• To increase product differentiation

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 Disadvantages of a Vertical Integration
Strategy
• Increased business risk due to large capital investment
• Slow acceptance of technological advances or more
efficient production methods
• Less flexibility in accommodating shifting buyer
preferences that require non-internally produced parts
• Internal production levels may not reach volumes that
create economies of scale
• Efficient production of internally-produced components
and parts hampered by capacity matching problems
• New or different resources and capabilities
requirements

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 Weighing the Pros and Cons of Vertical
Integration
• Will vertical integration enhance the performance of
strategy-critical activities in ways that lower cost, build
expertise, protect proprietary know-how, or increase
differentiation?
• What impact will vertical integration have on investment
costs, flexibility, and response times?
• What administrative costs are incurred by coordinating
operations across more vertical chain activities?
• How difficult will it be for the firm to acquire the set of
skills and capabilities needed to operate in another
stage of the vertical chain?

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 Tesla’s Vertical Integration Strategy
• What are the most important strategic benefits
that Tesla derives from its vertical integration
strategy?

• Over the long term, how could the vertical

scope of Tesla’s operations threaten its
competitive position and profitability?

• Why is a vertical integration strategy more

appropriate in some industries than in others?

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 Outsourcing Strategies: Narrowing the
Scope of Operations
Outsource an activity if it:
• Can be performed better or more cheaply by outside
specialists.
• Is not crucial to achieving sustainable competitive
advantage.
• Improves organizational flexibility and speeds time to
market.
• Reduces risk exposure due to new technology or buyer
preferences.
• Allows concentration on core businesses, leverages
key resources, and is more successful outsourced.
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 The Risk of Outsourcing Value Chain
Activities
• Hollowing out resources and capabilities that
the firm needs to be a master of its own destiny

• Loss of direct control when monitoring,

controlling, and coordinating activities of outside
parties by means of contracts and arm’s-length
transactions

• Lack of incentives for outside parties to make

investments specific to the needs of the
outsourcing firm’s value chain

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 Strategic Alliances and Partnerships

Strategic Alliance
• A formal agreement between two or more separate
companies in which they agree to work cooperatively
toward some common objective

Joint Venture
• A partnership involving the establishment of an
independent corporate entity that the partners own
and control jointly, sharing in its revenues and
expenses

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 Factors that Make an Alliance “Strategic”
A strategic alliance:
1. Facilitates achievement of an important business objective.

2. Helps build, sustain, or enhance a core competence or competitive

advantage.

3. Helps remedy an important resource deficiency or competitive

weakness.

4. Helps defend against a competitive threat or mitigates a significant

risk to a company’s business.

5. Increases the bargaining power over suppliers or buyers.

6. Helps create important new market opportunities.

7. Speeds development of new technologies or product innovations.

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 Benefits of Strategic Alliances and
Partnerships
• Minimize the problems associated with vertical
integration, outsourcing, and mergers and acquisitions
• Are useful in extending the scope of operations via
international expansion and diversification strategies
• Reduce the need to be independent and self-sufficient
when strengthening the firm’s competitive position
• Offer greater flexibility should a firm’s resource
requirements or goals change over time
• Are useful when industries are experiencing high-
velocity technological advances simultaneously

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 Why and How Strategic Alliances Are
Advantageous
Strategic Alliances:
• Expedite development of promising new technologies
or products.
• Help overcome deficits in technical and manufacturing
expertise.
• Bring together the personnel and expertise needed to
create new skill sets and capabilities.
• Improve supply chain efficiency.
• Help partners allocate venture risk sharing.
• Allow firms to gain economies of scale.
• Provide new market access for partners.

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 Capturing the Benefits of Strategic Alliances
Strategic Alliance Factors

Being sensitive to cultural differences

Recognizing that the alliance must benefit both sides

Picking a good partner

Ensuring both parties keep their commitments

Adjusting the agreement over time to fit new circumstances

Structuring the decision-making process for swift actions

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 Achieving Long-Lasting Strategic Alliance
Relationships

Factors Influencing the

Longevity of Alliances

Collaborating
Establishing a Continuing to
with partners
permanent collaborate is in
that do not
trusting the parties’
compete
relationship mutual interest
directly

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 The Drawbacks of Strategic Alliances and
Their Relative Advantages
• Culture clash and integration problems due to different
management styles and business practices
• Anticipated gains not materializing due to an overly
optimistic view of the potential for synergies or the
unforeseen poor fit of partners’ resources and
capabilities
• Risk of becoming dependent on partner firms for
essential expertise and capabilities
• Protection of proprietary technologies, knowledge
bases, or trade secrets from partners who are rivals

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 Principal Advantages of Strategic Alliances
over Vertical Integration or Horizontal
Mergers And Acquisitions
• They lower investment costs and risks for each
partner by facilitating resource pooling and risk
sharing.
• They are more flexible organizational forms and
allow for a more adaptive response to changing
conditions.
• They are more rapidly deployed—a critical
factor when speed is of the essence.

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 How to Make Strategic Alliances Work
• Create a system for managing the alliance.
• Build trusting relationships with partners.
• Set up safeguards to protect from the threat of
opportunism by partners.
• Make commitments to partners and see that
partners do the same.
• Make learning a routine part of the
management process.

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