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CHAPTER 6 STRENGTHENING A COMPANY’S COMPETITIVE POSITION Strategic Moves, Timing, and Scope of Operations Student Version McGraw-Hill/Irwin Copyright ®2012 The McGraw-Hill Companies, Inc.

Maximizing the Power of a Strategy:

Maximizing the Power of a Strategy Offensive and Defensive Competitive Actions Competitive Dynamics and the Timing of Strategic Moves Scope of Operations along the Industry’s Value Chain Making choices that complement a competitive approach and maximize the power of strategy

GOING ON THE OFFENSIVE—STRATEGIC OPTIONS TO IMPROVE A FIRM’S MARKET POSITION:

GOING ON THE OFFENSIVE—STRATEGIC OPTIONS TO IMPROVE A FIRM’S MARKET POSITION Strategic Offensive Principles: Relentlessly build competitive advantage and then convert it into sustainable advantage. Create and deploy resources in ways that cause rivals to struggle to defend themselves. Employ the element of surprise as opposed to doing what rivals expect and are prepared for. Display a strong bias for swift, decisive, and overwhelming actions to overpower rivals.

Choosing Which Rivals to Attack:

Choosing Which Rivals to Attack Market leaders that are vulnerable Runner-up firms with weaknesses in areas where the challenger is strong Struggling enterprises on the verge of going under Small local and regional firms with limited capabilities Best Targets for Offensive Attacks

DEFENSIVE STRATEGIES—PROTECTING MARKET POSITION AND COMPETITIVE ADVANTAGE:

DEFENSIVE STRATEGIES—PROTECTING MARKET POSITION AND COMPETITIVE ADVANTAGE 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 Purposes of Defensive Strategies

TIMING A FIRM’S OFFENSIVE AND DEFENSIVE STRATEGIC MOVES:

TIMING A FIRM’S OFFENSIVE AND DEFENSIVE 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 must be carefully weighted.

STRENGTHENING A COMPANY’S MARKET POSITION VIA ITS SCOPE OF OPERATIONS:

STRENGTHENING A COMPANY’S MARKET POSITION VIA ITS SCOPE OF OPERATIONS Range of its activities performed internally Breadth of its product and service offerings Extent of its geographic market presence and mix of businesses Size of its competitive footprint on its market or industry Defining the Scope of the Firm’s Operations

HORIZONTAL MERGER AND ACQUISITION STRATEGIES:

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.

VERTICAL INTEGRATION STRATEGIES:

VERTICAL INTEGRATION STRATEGIES Vertically Integrated Firm Is 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 and/or forward toward end users of its products.

Types of Vertical Integration Strategies:

Types of Vertical Integration Strategies Full Integration Partial Integration Tapered Integration Vertical Integration Choices

Backwards Integration Towards Suppliers:

Backwards Integration Towards Suppliers Integrating Backwards By: Achieving the 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

Integrating Forward to Enhance Competitiveness:

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.

STRATEGIC ALLIANCES AND PARTNERSHIPS:

STRATEGIC ALLIANCES AND PARTNERSHIPS Strategic Alliance Is a formal agreement between two or more separate firms in which they agree to work cooperatively toward common objectives. Joint Venture Is a type of strategic alliance in which the partners set up an independent corporate entity that they own and control jointly, sharing in its revenues and expenses.

Capturing the Benefits of Strategic Alliances:

Capturing the Benefits of Strategic Alliances Picking a good partner Being sensitive to cultural differences Recognizing that the alliance must benefit both sides Adjusting the agreement over time to fit new circumstances Structuring the decision-making process for swift actions Ensuring both parties keep their commitments Strategic Alliance Factors

The Drawbacks of Strategic Alliances and Partnerships:

The Drawbacks of Strategic Alliances and Partnerships Culture clash and integration problems due to different management styles and business practices. Anticipated gains do not materialize due to an overly optimistic view of the synergies or a 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.

Principle Advantages of Strategic Alliances:

Principle Advantages of Strategic Alliances 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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