Chapter 6- Strengthening a company's competitive position (Mangt. 595)

When being a first mover or a fast follower or a late mover is most advantageous

-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, property rights protections thwart rapid imitation of the initial move -Late mover advantages: *when the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs, When an innovator's products are somewhat primitive and do not live up to buyer expectations thus allowing a follower with better performing-produts to win disenchanted buyers away from the leader, When rapid market evolution (due to fast-paced changes in either technology or buyer needs) gives second movers the opening to leapfrog a first mover's products with more attractive next-version products, when market uncertainties make it difficult to ascertain what will eventually succeed, allowing ate movers to wait until these needs are clarified.

The strategic benefits and risks of expanding a company's horizontal scope through mergers and acquisitions

-Merger: combining two or more companies into a single corporate entity -Acquisition: combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired -Horizontal mergers and acquisitions, which involve combining the operations of firms within the same product or service market, provide an effective means for firms to rapidly increase the scale and horizontal scope of their core business Stregthen a firm's competitiveness in 5 ways: 1) Improving efficiency of its operations 2) Heightening its product differentation 3) Reducing market rivalry 4) Increasing company's bargaining power over suppliers and buyers 5) Enhancing its flexibility and dynamic capabilities Risk: -cost savings may prove smaller than expected -Gains in competitive capabilities may take longer to realize or may never materialize at all -Efforts to mesh corporate cultures can stall due to formidable resistance from organization members -Key employees at acquired company can become disenchanted and leave

Whether and when to pursue offensive or defensive strategic moves to improve a company's market position

-Sometimes a company's best strategic option is to seize the initiative, go on the attack, and launch a strategic offensive to improve its market position -The best offensives use a company's most powerful resources and capabilities to attack rivals in the areas where they are weakest Defensive strategies: -Signaling needs to be accompanied by a credible commitment to follow through

The advantage and disadvantages of extending the company's scope of operations via vertical integration

-Vertical integration strategy can expand the firm's range of activities backward into sources of supply and/or froward toward end users - Vertically integrated firm: is one that participates in multiple stages of an industry's value chain system advantage: Can add materially to a company's technological capabilities, strengthen the firm's competitive position, and boost its profitability disadvantage: vertical integration raises a firm's capital investment in the industry, thereby increasing business risk. -less flexibility, not enable a company to realize economies of scale, capacity-matching problems, calls for developing new types of resources and capabilities

The conditions that favor farming out certain value chain activities to outside parties

-outsourcing strategies narrow the scope of a business's operations, in terms of what activities are performed internally -Outsourcing certain value chain activities makes strategic sense whenever: *an activity can be performed better or more cheaply by outside specialists, activity is not crucial to the firm's ability to achieve sustainable competitive advantage, the outsourcing improves organizational flexibility and speeds time to market, and reduces the company's risk exposure to changing technology and buyer preferences

The best offensives tend to incorporate several principles :

1) focusing relentlessly on building competitive advantage and then striving to convert it into a 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 and decisive actions to overwhelm rivals

When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing

When: 1)It facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and great durability) 2) It helps build, strengthen, or sustain 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) It increases bargaining power over suppliers or buyers 6) It helps open up important new market opportunities 7) It speeds the development of new technologies and/or product innovations How: 1) Picking a good partner 2) Being sensitive to cultural differences 3) Recognizing that the alliance must benefit both sides 4) Ensuring that both parties live up to their commitments 5) Structuring the decision-making process so that actions can be taken swiftly when needed 6) Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances

Strategic offensives

called for when a company spots opportunities to gain profitable market share at its rivals expense or when a company has no choice but to try to whittle away at a strong rival's competitive advantage.

first-mover advantages and disadvantages

competitive advantage can spring from when a move is made as well as from what move is made

Outsourcing

involves contracting out certain value chain activities that are normally performed in-house to outside vendors

Backward integration

involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system

Forward integration

involves entry into value chain system activities closer to the end user

Strategic alliance

is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective

Joint venture

is a partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses

vertically integrated firm

is one that performs value chain activities along more than one stage of an industry's value chain system

Vertical scope

is the extent to which a firm's internal activities encompass the range of activities that make up an industry's entire value chain system, from raw- material production to final sales and service activities

Horizontal scope

is the range of product and service segments that a firm serves within its focal market

blue-ocean strategy

offers growth in revenues and profits by discovering or inventing new industry segments that crate altogether new demand -inventing a new market segment that renders existing competitors irrelevant and allows a company to create and capture altogether new demand

scope of the firm

refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses