Bài giảng Crafting and Executing Strategy - Chapter 6: Supplementing the Chosen Competitive Strategy: Other Important Business Strategy Choices

Chapter 6: Supplementing the Chosen Competitive Strategy: Other Important Business Strategy Choices Screen graphics created by:Jana F. Kuzmicki, Ph.D.Troy UniversityChapter Learning ObjectivesGain an understanding of how strategic alliances and collaborative partnerships can bolster a company’s competitive capabilities and resource strengths.Become aware of the strategic benefits of mergers and acquisitions.Understand when a company should consider using a vertical integration strategy to extend its operations to more stages of the overall industry value chain.Understand the conditions that favor farming out certain value chain activities to vendors and strategic allies.Recognize how and why different types of market situations shape business strategy choices.Understand when being a first-mover or a fast-follower or a late-mover can lead to competitive advantage.Chapter RoadmapStrategic Alliances and PartnershipsMerger and Acquisition StrategiesVertical Integration Strategies: Operating Across More Stages of the Industry Value ChainOutsourcing Strategies: Narrowing the Boundaries of the BusinessBusiness Strategy Choices for Specific Market SituationsTiming Strategic Moves – To be an Early Mover of a LateCompanies 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.Strategic Alliances and PartnershipsCharacteristics of a Strategic AllianceStrategic alliance – A formal agreement between two or more separate companies where there isStrategically relevant collaboration of some sortJoint contribution of resourcesShared riskShared controlMutual dependenceAlliances often involveJoint marketingJoint sales or distributionJoint productionDesign collaborationJoint researchProjects to jointly develop new technologies or productsWhat Factors Make an Alliance Strategic?It is critical to a company’s achievement of an important objectiveIt helps build, sustain, or enhance a core competence or competitive advantageIt helps block a competitive threatIt helps open up importantmarket opportunitiesIt mitigates a significant riskto a company’s businessTo collaborate on technology development or new product development To fill gaps in technical or manufacturing expertiseTo create new skill sets and capabilitiesTo improve supply chain efficiencyTo gain economies of scale inproduction and/or marketingTo acquire or improve marketaccess via joint marketing agreementsWhy Are Strategic Alliances Formed?Alliances Can Enhance aFirm’s CompetitivenessAlliances and partnerships can help companies cope with two demanding competitive challengesRacing against rivals to build a market presence in many different national marketsRacing against rivals to seize opportunities on the frontiers of advancing technologyCollaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilitiesGet into critical country markets quickly to accelerate process of building a global presenceGain inside knowledge about unfamiliar markets and culturesAccess valuable skills and competencies concentrated in particular geographic locationsEstablish a beachhead to participate in target industryMaster new technologies and build new expertise faster than would be possible internallyOpen up expanded opportunities in target industry by combining firm’s capabilities with resources of partnersPotential Benefits of Alliances toAchieve Global and Industry LeadershipCapturing the Benefitsof Strategic AlliancesBenefits from forming partnerships are a function ofPicking a good partnerBeing sensitive to cultural differencesRecognizing an alliancemust benefit both partiesEnsuring both parties liveup to their commitmentsStructuring the decision-making processso actions can be taken swiftly when neededManaging the learning process and then adjusting the alliance agreement over time to fit new circumstancesWhy Alliances FailAbility of an alliance to endure depends onHow well partners work togetherSuccess of partners in respondingand adapting to changing conditionsWillingness of partners torenegotiate the bargainReasons for alliance failureDiverging objectives and priorities of partnersInability of partners to work well togetherChanging conditions rendering purpose of alliance obsoleteEmergence of more attractive technological pathsMarketplace rivalry between one or more alliesMerger – Combination and pooling of equals, with newly created firm often taking on a new nameAcquisition – One firm, the acquirer,purchases and absorbs operations ofanother, the acquired Merger-acquisition strategyMuch-used strategic optionEspecially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunitiesOwnership allows for tightly integrated operations, creating more control and autonomy than alliancesMerger and Acquisition StrategiesTo create a more cost-efficient operationTo expand a firm’s geographic coverageTo extend a firm’s business into newproduct categories or international marketsTo gain quick access to new technologiesor competitive capabilitiesTo invent a new industry and leadthe convergence of industries whose boundaries are blurred by changing technologies and new market opportunitiesObjectives of Mergers and AcquisitionsCombining operations may result inResistance from rank-and-file employeesHard-to-resolve conflicts in managementstyles and corporate culturesTough problems of integrationGreater-than-anticipated difficulties in Achieving expected cost-savings Sharing of expertise Achieving enhanced competitive capabilitiesPitfalls of Mergers and AcquisitionsVertical Integration StrategiesExtend a firm’s competitive scope withinsame industryBackward into sources of supplyForward toward end-users of final productCan aim at either full or partial integrationInternallyPerformedActivities, Costs, &MarginsActivities, Costs, &Margins ofSuppliersBuyer/UserValueChainsActivities, Costs,& Margins ofForward ChannelAllies &Strategic PartnersStrategic Advantagesof Backward IntegrationGenerates cost savings only ifvolume needed is big enoughto capture efficiencies of suppliersPotential to reduce costs exists whenSuppliers have sizable profit marginsItem supplied is a major cost componentResource requirements are easily metCan produce a differentiation-based competitive advantage when it results in a better quality partReduces risk of depending on suppliers of crucial raw materials / parts / componentsStrategic Advantagesof Forward IntegrationTo gain better access to endusers and better market visibilityTo compensate for undependable distribution channels which undermine steady operationsTo offset the lack of a broad product line, a firm may sell directly to end usersTo bypass regular distribution channels in favor of direct sales and Internet retailing which mayLower distribution costsProduce a relative cost advantage over rivalsEnable lower selling prices to end usersStrategic Disadvantagesof Vertical IntegrationBoosts resource requirementsLocks firm deeper into same industryResults in fixed sources of supply andless flexibility in accommodating buyerdemands for product varietyPoses all types ofcapacity-matching problemsMay require radically differentskills / capabilitiesReduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new productsOutsourcing StrategiesOutsourcing involves having outsiders perform certain value chain activities rather than performing them internallyInternallyPerformedActivitiesContract ManufacturersVendors with specialized expertiseDistributors or RetailersConceptActivity can be performed better or more cheaply by outside specialists Activity is not crucial to achieve a sustainable competitive advantageRisk exposure to changing technology and/orchanging buyer preferences is reducedIt improves firm’s ability to innovateOperations are streamlined toImprove flexibilityCut time to get new products into the marketIt increases firm’s ability to assemble diverse kinds of expertise speedily and efficientlyFirm can concentrate on “core” value chain activities that best suit its resource strengths When Does Outsourcing an ActivityMake Strategic Sense?Farming out too many or the wrong activities, thus Hollowing out capabilitiesLosing touch with activities and expertise that determine overall long-term successThe Big Risk of OutsourcingMatching Strategy toa Company’s SituationMost important drivers shaping a firm’s strategic options fall into two categoriesFirm’s internal resource strengths and weaknesses Nature of industry and competitive conditions6-22Matching a Company’s Strategyto Different Market Conditions Fragmented MarketsTurbulent MarketsFreshly Emerging Markets Rapidly Growing MarketsMature, Slow-Growth MarketsStagnant or Declining Markets6-23New and unproven marketProprietary technologyLack of consensus regarding which ofseveral competing technologies will win outLow entry barriersExperience curve effects may permitcost reductions as volume buildsBuyers are first-time users and marketing involves inducing initial purchase and overcoming customer concernsFirst-generation products are expected to be rapidly improved so buyers delay purchase until technology maturesPossible difficulties in securing raw materialsFirms struggle to fund R&D, operations and build resource capabilities for rapid growth Features of an Emerging IndustryStrategy Options for Competing in Emerging IndustriesWin early race for industry leadership by employing a bold, creative strategyPush hard to perfect technology,improve product quality, and developattractive performance featuresConsider merging with oracquiring another firm toGain added expertisePool resource strengthsWhen technological uncertainty clears and a dominant technology emerges, try to capture any first-mover advantages by moving quickly Form strategic alliances withCompanies having related technological expertise or Key suppliersStrategy Options for Competing in Emerging Industries (continued)Pursue new customers and user applicationsEnter new geographical areasMake it easy and cheap forfirst-time buyers to try productFocus advertising emphasis onIncreasing frequency of use Creating brand loyaltyUse price cuts to attract price-sensitive buyersWhat Is the Key to Success forCompeting in Rapidly Growing Markets?A company needs a strategypredicated on growing faster thanthe market average so itCan boost its market share andImprove its competitive standing vis-à-vis rivalsStrategy Options for Competing in Rapidly Growing MarketsDrive down costs per unit to enable price reductions that attract droves of new customersPursue rapid product innovation toSet a company’s product offering apart from rivalsIncorporate attributes to appeal togrowing numbers of customersGain access to additional distributionchannels and sales outletsExpand a company’s geographic coverageExpand product line to add models/styles to appeal to a wider range of buyersSlowing demand breeds stiffer competitionMore sophisticated buyers demand bargainsGreater emphasis on cost and service“Topping out” problem in adding production capacityProduct innovation and newend uses harder to come byInternational competition increasesIndustry profitability fallsMergers and acquisitions reducenumber of rivalsIndustry Maturity: The Standout FeaturesStrategy Options forCompeting in a Mature IndustryPrune marginal products and modelsEmphasize innovation in the value chain Strong focus on cost reductionIncrease sales to present customersPurchase rivals at bargain pricesExpand internationallyBuild new, more flexiblecompetitive capabilitiesStrategic Pitfalls in a Maturing IndustryEmploying a ho-hum strategy with no distinctive features thus leaving firm “stuck in the middle”Being slow to mount a defense against stiffening competitive pressures Concentrating on short-term profits rather than strengthening long-term competitiveness Being slow to respond to price-cuttingHaving too much excess capacityOverspending on marketing effortsFailing to aggressively Invest in product / process innovationsPursue cost reductionsStagnant or Declining Industries:The Standout FeaturesDemand grows more slowly than economy as a whole (or even declines)Advancing technology gives rise to better-performing substitute products or lower costsCustomer group shrinksChanging lifestyles and buyer tastesRising costs of complementary productsCompetitive battle ensues among industry members for the available businessPursue focus strategy aimed atfastest growing market segmentsStress differentiation based on qualityimprovement or product innovationWork diligently to drive costs downCut marginal activities from value chain Use outsourcingRedesign internal processesto exploit e-commerceConsolidate under-utilized production facilitiesAdd more distribution channelsClose low-volume, high-cost distribution outletsPrune marginal productsStrategy Options for Competingin a Stagnant or Declining IndustryEnd-Game Strategiesfor Declining IndustriesAn end-game strategy can take either of two pathsSlow-exit strategy involvingGradual phasing down of operationsGetting the most cash flow from the businessFast-exit strategy involvingDisengaging from an industryduring early stages of declineQuick recovery of as much of acompany’s investment as possibleFeatures of Turbulent MarketsRapid-fire technological changeShort product life-cyclesEntry of important new rivalsFrequent launches ofnew competitive movesRapidly evolvingcustomer expectationsInvest aggressively in R&DKeep products/services fresh and excitingDevelop quick response capabilities Shift resourcesAdapt competenciesCreate new competitive capabilitiesSpeed new products to marketUse strategic partnerships to developspecialized expertise and capabilitiesInitiate fresh actions every few monthsStrategy Options for Competingin High-Velocity MarketsCutting-edge expertiseSpeed in responding to new developmentsCollaboration with othersAgilityInnovativenessOpportunismResource flexibilityFirst-to-market capabilitiesKeys to Success in Competingin High Velocity MarketsCompetitive Featuresof a Fragmented IndustryAbsence of market leaders with large market shares or widespread buyer recognitionProduct/service is delivered to neighborhoodlocations to be convenient to local residentsBuyer demand is so diverse that manyfirms are required to satisfy buyer needsLow entry barriers Absence of scale economiesMarket for industry’s product/service may be globalizing, thus putting many companies across the world in same market arenaExploding technologies force firms to specialize just to keep up in their area of expertise Industry is young and crowded with aspiring contenders, with no firm having yet developed recognition to command a large market shareCompeting in a Fragmented Industry: The Strategy Options Construct and operate “formula” facilitiesBecome a low-cost operatorSpecialize by product typeSpecialize by customer typeFocus on limited geographic areaWhen to make a strategic move is often as crucial as what move to makeFirst-mover advantages arise whenPioneering helps build firm’s image and reputationEarly commitments to new technologies,new-style components, and distributionchannels can produce cost advantageLoyalty of first time buyers is highMoving first can be a preemptive strikeFirst-Mover AdvantagesWhat Is a Blue Ocean Strategy?Seeks to gain a dramatic, durablecompetitive advantage byAbandoning efforts to beat outcompetitors in existing markets andInventing a new industry or distinctivemarket segment to render existingcompetitors largely irrelevant andAllowing a company to create andcapture altogether new demandWhat Is Different About a Blue Ocean?Typical Market SpaceIndustry boundaries are defined and acceptedCompetitive rules are well understood by all rivalsCompanies try to outperform rivals by capturing a bigger share of existing demandBlue Ocean Market Space Industry does not exist yetIndustry is untaintedby competitionIndustry offers wide-open opportunities if a firm has a product and strategy allowing it toCreate new demand andAvoid fighting over existing demand6-42First-Mover DisadvantagesMoving early can be a disadvantage (or fail to produce an advantage) whenWhen costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leaderInnovator’s products are primitive, not living up to buyer expectationsDemand side of the market is skeptical about the benefits of new technology/product of a first-moverRapid technological change allows followers to leapfrog pioneers To Be a First-Mover or Not?Key issue – Is the race to market leadership in an industry a marathon or a sprint?Seeking a competitive advantage by being a first-mover involves addressing several questionsDoes market takeoff depend on development of complementary products or services not currently available?Is new infrastructure requiredbefore buyer demand can surge?Will buyers need to learn newskills or adopt new behaviors?Will buyers encounter high switching costs?Are there influential competitors in a positionto delay or derail the efforts of a first-mover?