Chapter

6
SUPPLEMENTING THE CHOSEN
COMPETITIVE STRATEGY
OTHER IMPORTANT STRATEGY
CHOICES
 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

6-2
 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 (Global) 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
• Even the Largest and Most financially sound Companies have concluded that
simultaneously running race for
 Global Market Leadership
 Acquiring diverse & Expensive skills, recourses, technologies, competitive capabilities

6-3
 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 require 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

6-4
 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

6-5
 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 partners

6-6
 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

6-7
 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

6-8
 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
• To become Market Leader or even create Monopoly in business

6-9
 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

6-10
 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

6-11
 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

6-12
 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

6-13
 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
6-14
 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

6-15
 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

6-16
 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

6-17
 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
 May prove to be more costly if used without accountability

6-18
 OFFENSIVE AND DEFENSIVE
STRATEGIES
Offensive Strategies Defensive Strategies

Used to build new or Used to protect

stronger market competitive advantage
position and/or create (rarely used to create
competitive advantage advantage)

6-19
 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

6-20
 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!
6-21
 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

6-22
 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

6-23
 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!
6-24
 END-RUN OFFENSIVES
Objectives
 Maneuver around strong competitors

 Capture unoccupied or less contested markets

 Change rules of competition in aggressor’s favor

6-25
 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

6-26
 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

6-27
 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

6-28
 PREEMPTIVE STRIKES
Approach

Involves moving first to secure an

advantageous position that rivals are foreclosed
or discouraged from duplicating!

6-29
 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
• Build an image in buyers’ minds that
is unique or hard to copy

6-30
 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

6-31
 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

6-32
 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

6-33
 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

6-34
 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

6-35
 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

6-36
 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

6-37
 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

6-38
 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

6-39
 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

6-40
 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
Finance

Tailoring functional-area strategies to

support key business-level strategies is critical!
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 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

6-42
 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

6-43