Ch 6: strengthen a company's competitive positions

Examples of first mover condition of economics of scale and learning curve

Intel was the first mover in the microprocessor market, and its early lead enabled it to invest heavily in research and development and manufacturing, allowing it to reap scale economies and move down the learning curve ahead of its competitors.

vertical scope

Internal activities encompass the range of activities that make up the industry's entire value chain system, from raw-material production to final sales and service activities EX)A grocery store chain that sells a wide range of products, including fresh produce, meat, dairy, household items, and clothing.

Blue ocean strategy:

Inventing a new mkt segment that allows a company to create and capture altogether a new demand EX) Cirque du Soleil: Rather than competing in the traditional circus market with animals, big tents, and traditional acts, Cirque du Soleil created a new market space by combining elements of theater, music, dance, and circus arts to produce a unique form of entertainment. This allowed the company to differentiate itself from traditional circuses and attract a new audience that was willing to pay a premium price for a high-quality and innovative experience. By focusing on the "circus arts" rather than the "circus," Cirque du Soleil created a Blue Ocean of uncontested market space, allowing it to thrive in an otherwise crowded and competitive industry.

Example of Preemptive strike:

Microsoft it acquired the professional networking site LinkedIn before competitors had a chance to make a move, thereby securing a valuable asset for its portfolio.

Examples of first mover condition of switching cost

Microsoft was the first mover in the operating system market, and the significant switching costs associated with changing to a different operating system have helped Microsoft maintain its dominant market position.

Horizontal mergers/acquisitions

combines operations of firms within the same product/service mak to provide rapidly increase of scale and horizontal scope of core business The goal is to increase market share, reduce competition, and realize economies of scale by combining production and distribution systems, and reducing duplication of efforts EX) AMR corp merged with US airways that increased the airline's scale of operations and extended their reach geographically to create world's largest airline.

forward integration

company acquires or merges with a distributor or a company in a later stage of the supply chain. For example, a car manufacturer may forward integrate by acquiring a car dealership to ensure a reliable distribution channel for its cars.

backward integration

company acquires or merges with a supplier or a company in an earlier stage of the supply chain. For example, a car manufacturer may backward integrate by acquiring a steel manufacturer to ensure a reliable and cost-effective supply of steel for its cars.

horizontal scope:

the range of product and service segments that a firm serves within its focal market EX)A car manufacturer that owns a steel mill to produce the raw materials for its cars.

Offensive strategy options

1. (Best cost) Offer equality/better product at lower price 2. Leapfrog competitors by being first to mkt with next generation products 3. Pursue continuous product innovation to draw sales and mkt shr away from less innovative rivals 4. Pursuing disruptive product innovations to create new mkts 5. (Executing)Adopt and improve on the good ideas of other companies (rivals or other) 6. Use hit-and- run or guerrilla mkting tactics to grab mkt shr from complacent or distracted rivals 7. Launch a preemptive strike to secure an industry's limited resources or capture a rare opportunity

Example of best cost:

1. Best cost: Walmart, which offers a wide variety of products at lower prices than its competitors, such as Target or Amazon.

What are the conditions that favor outsourcing activities?

1. Can be performed better/cheaply by outside specialists EX) IT support: A company may outsource its IT support to a specialist firm that has the necessary skills, experience, and technology to handle technical issues more effectively and at a lower cost. 2. Not crucial to firm's ability to achieve sustainable C/A EX) Janitorial services: Cleaning and maintenance services are not crucial to a company's ability to achieve sustainable competitive advantage, so it may make sense to outsource these activities to a third-party provider. 3. Improves organizational flexibility and speed time to mkt EX) Call centers: Outsourcing call center operations to a specialist provider can improve organizational flexibility and speed up time to market by freeing up internal resources to focus on core business activities. 4. Reduces the company's risk exposure to changing tech and buyer preferences EX) Marketing research: Outsourcing market research activities to a third-party provider can reduce a company's risk exposure to changing market trends and buyer preferences by leveraging the expertise of outside specialists. 5. Allows concentration on core business, leverage key resources, and become better at core competencies. EX) Manufacturing: A company may outsource its manufacturing operations to focus on its core competencies, such as design, marketing, and distribution, while leveraging the key resources and expertise of external manufacturing specialists.

How to make strategic alliance work?

1. Create system for managing their alliances 2. Build relationships and establish trust 3. Protection from threat of opportunism by setting up safeguards 4. Make commitments to each other 5. Learning a routine part of management process

what are the objectives of Horizontal mergers/acquisitions?

1. Creating more cost-efficient operation EX) The two companies combined their operations to reduce costs by sharing resources, such as R&D and production facilities. 2. Expanding geographic coverage EX) Facebook acquired WhatsApp to expand its reach in emerging markets where WhatsApp was popular. 3. Extending business into new product categories EX) Nestle acquired Ralston Purina to expand its business into the pet food market. 4. Gaining quick access to new tech or R/C EX)Microsoft acquired GitHub to gain quick access to the platform's technology and developer community. 5. Leading convergence of industries that blurs boundaries by changing tech and new mkt opportunities EX) By acquiring Whole Foods, Amazon was able to enter the grocery industry and combine its e-commerce expertise with Whole Foods' expertise in brick-and-mortar retail. This allowed Amazon to offer a new hybrid shopping experience to customers and gain a competitive advantage in the retail industry.

What are the drawbacks of strategic alliances?

1. Culture clash and integration problems 2. Anticipated gains aren't realized due to overly optimistic view of synergies or unforeseen poor fit of partner's R/C 3. Risk of becoming dependent on partner firms for expertise and R/C 4. Protection of propriety tech, knowledge, and trade secrets from partners who are rivals.

Weighing the pros and cons of vertical integration depends if

1. Enhances performance by lower cost, build expertise, or increase differenation 2. Investment cost, flexibility, and response times 3. Administrative costs incurred by coordinating operations across more vertical chain activities 4. Difficulty to acquire set of skills and capabilities for operations in another stage of vertical chain.

What are the risks of outsourcing?

1. Hollow out R/C for company to be in control of itself - Ability to lead a development of innovative new products is weakened bc so many of cutting edge ideas and tech for next gen products comes from outsiders. 2. Loss of direct control - Unanticipated problems may arise that cause delays/cost overruns and hard to resolve harmoniously. 3. Lack of incentives for outside parities to make investments specific to the needs of outsourcing firm's value chain.

Disadvantages of vertical integration strategy:

1. Increase business risk 2. Slow to adapt tech advances/more efficient production methods 3. Less flexibility to shifting buyer preferences 4. Unable to realize economies of scale 5. Capacity matching problems 6. Developing new types of R/C

what are ways to restrict rival's options for attacking?

1. Introduce new features/models to broaden product line to close gaps and vacant niches: EX) Apple's introduction of the iPad broadened their product line and closed a gap in the market for tablet computers. 2. Maintain economy pricing to thwart lower price attacks: EX) Walmart's strategy of offering everyday low prices allows them to compete with discount retailers and thwart lower price attacks. 3. Discourage buyers from trying competitors' brands: EX) Coca-Cola's "Share a Coke" campaign encourages customers to buy and share Coca-Cola products, making it less likely for them to try competitor's brands. 4. Challenge quality/safety of competitors' products: EX) Johnson & Johnson's Tylenol product's tamper-proof packaging and safety reputation challenges the safety of competitors' pain relief products.

How to capture the benefits of strategic alliances

1. Picking a good partner 2. Being sensitive to cultural differences 3. Recognize that alliance must be win win 4. Ensuring both parties live up to their commitments 5. Structuring decision making process so actions can be done quickly 6. Managing learning process and adjusting alliances agreement over time to fit new circumstances.

Signals to would-be challengers can be given by:

1. Publicly announcing its commitment to maintaining the firm's present mkt share EX) Coca-Cola publicly announced its commitment to maintaining its market share amidst declining soda consumption and increasing competition from other beverage companies. 2. Publicly committing to a policy of matching competitor's terms or price (airlines, auto, wireless carriers) EX) T-Mobile publicly commits to matching the terms and price of any competitor's wireless plans, signaling its willingness to compete aggressively on service and value. 3. Maintain a reserves of cash and mktable securities EX)Berkshire Hathaway maintains a reserve of cash and marketable securities to signal financial strength and readiness to make strategic investments or acquisitions. 4. Making strong counter-response to moves of weaker rivals to enhance its tough defender image EX) Microsoft vs. Google: When Google launched its Chromebook laptop, Microsoft responded with its "Scroogled" campaign to criticize Google's privacy policies and defend its own products.

What are the principles of offense:

1. focus to relentlessly on building C/A and strive to convert it to sustainable advantage 2. applying resources where rivals are able to least defend themselves 3. employing element of surprise 4. displaying capacity for swift actions to overwhelm rivals

what is a purpose of defensive strategies?

1. lower the risk of attack 2. weaken impact of an attack 3. influence challengers to attack their rivals it protects C/A but rarely the basis for creating one

choosing which rivals to attack:

1. market leaders that are vulnerable. 2. runner-up firms that have weaknesses in areas where the attacker is strong. 3 struggling enterprises are on the verge of going under. 4. small local and regional firms with limited capabilities.

Late mover advantages (3rd) or First mover(1st) disadvantages:

1. when imitating is cheater than pioneering and offers similar benefits EX) enters mkt after 1st and copies business model w/little modifications 2. when 1st products is not as advanced EX) enters mkt with more innovative and feature-rich product that surpasses 1st primative product 3. mkt evolution is rapid which allows fast followers to move quickly to launch more attractive next-version products. (leapfrogging 1st products) EX) quickly responses to mkt changes and launches a better product in response to 1st product 4. mkt uncertainties to predict which changes will succeed for 1st EX) enters new mkt with untested product 5. customer loyalty is low and 1st actions and skills are easily copied/surpassed by later entrants EX) enters mkt after 1st and offers better product that surpasses quickly of 1st.

First mover conditions that advantages are likely to arise:

1. when pioneering help build reputation and creates brand loyalty 2. switching cost 3. property rights protection 4. scale of economics or moves to learning curve 4. setting technical standard s 5. network effects

Example of leapfrogging:

2. Leapfrog: Apple, consistently introduces new and innovative products, such as the iPhone, iPad, and iPod, which set the standard for the industry and often leave competitors scrambling to catch up.

Example of continuous innovation

3. continuous product innovation: Google always introduces new features and products, such as Google Maps, Google Docs, and Google Drive, which keep it ahead of less innovative search engines and productivity tools.

Example of disruptive innovation

4. disruptive product innovations to create new markets: Tesla disrupted the traditional automobile industry by introducing electric vehicles that are both environmentally friendly and high-performing.

Examples of first-mover condition of Reputation and brand loyalty:

Amazon was the first mover in the online book-selling market, and its early entry helped it build a reputation as a trusted source for books, which in turn led to strong brand loyalty.

Examples of first mover condition of setting technical standard.

Apple was the first mover in the smartphone market with the iPhone, and its technical standards for the smartphone user interface, app ecosystem, and touch screen technology gave it a significant advantage over its rivals

Example of hit and run (guerilla):

Dollar Shave Club used a humorous and irreverent marketing campaign to disrupt the traditional razor market, which had been dominated by Gillette.

Example of scope of firm:

Ralph Lauren Corporation is a global fashion brand that designs, markets, and distributes apparel and other merchandise to major retailers and operates its own retail stores, concession-based shops, and e-commerce sites worldwide. It serves various market segments and has a diverse product line, including apparel, fragrances, home furnishings, eyewear, watches and jewelry, and handbags and leather goods. Its brands include Polo Ralph Lauren, Club Monaco, Chaps, and Double RL, among others

Example of Executing better ideas:

Samsung adopted many of the features and designs of Apple products, such as the Samsung Galaxy, while also adding its own innovations.

What are possible strategy and organizational risk mergers/acquisition encounter?

Strategy issues 1. Cost savings aren't effective. 2. Gains in C/A are longer to realize or not at all Organization issues 1. Cultures or styles of management fail to work together due to resistance to change from organization members 2. Loss of key works at acquired firm 3. Managers make mistakes in melding acquired firm into their own.

What should Offensive Strateigy do to exploit power?

Strongest compeitive assets and R/C. EX) better known brand name, efficient production/distribution system, greater tech capacity, or superior reputation for quality.

Examples of first mover condition of networking effects:

a. Facebook was the first mover in the social networking market, and its early lead enabled it to build a large user base, which in turn created strong network effects, making it difficult for competitors to catch up.

Why signal to challengers that retaliation is likely?

either to dissuade challengers from attacking or divert them from less threatening options To be effective, it needs to be accompanied by a credible commitment

Advantages of vertical integration strategy:

focus more on improving the firm's position and capabilities within its industry value chain 1. Add materially to firm's tech capabilities 2. Strengthen firm's competitive position 3. Boost profit This is done by either backward or forward integration. Adding materially to a firm's tech capabilities, for example, allows the firm to develop and control key technologies that enable it to differentiate its products, create barriers to entry for competitors, and capture more value from the value chain. Strengthening the firm's competitive position through vertical integration also allows it to control critical inputs, reduce transaction costs, and improve overall efficiency.

Strategic alliances

gain some benefits offered by vertical and horizonal integration and outsourcing while minimizing associated problems

Outsourcing

hiring external vendor or service provider to perform certain business functions/activities that are usually performed in-house by company. Goal is to improve efficiency and reduce cost by allowing company to focus on core competencies and strategic objectives while leaving non-core functions to specialized external vendors, such as manufacturing, customer service, IT, human resources. EX) company may outsource their IT needs to a third-party vendor who specializes in IT services. This allows the company to focus on their core business activities while the vendor takes care of the IT tasks.

What are the benefits of achieving the horizonal merger objectives?

improving the firm's competitive position in the market. 1. Operation efficiency 2. Increase in product differentiation 3. Reduce mkt rivalry 4. Increase bargaining power 5. Enhancing flexibility and dynamic capabilities For example, improving operational efficiency through horizontal integration allows firms to reduce costs, increase productivity, and improve the quality of their products, leading to increased market share and profitability. Similarly, increasing product differentiation through horizontal integration can help firms differentiate their products and increase market share. Reducing market rivalry through horizontal integration allows firms to reduce the number of competitors in the market, leading to increased bargaining power and profitability. Finally, enhancing flexibility and dynamic capabilities through horizontal integration allows firms to respond more quickly to changes in market conditions, customer preferences, and technological innovation.

Vertically integrated firm

participates in multiple stages of industries value chain system, from raw materials to distribution to end consumer. It can reduce costs, improve efficiency, and increase its market power EX) automobile company that also owns its own steel mills and rubber plantations, as well as its own distribution and retail outlets, is a vertically integrated firm. By owning and controlling the production of its own inputs and distribution channels, the company can reduce costs and ensure consistent quality in its final product.

Examples of first mover condition of property rights protection

pharmaceutical companies can secure patents on new drugs, giving them a period of exclusivity to reap the benefits of their initial research and development investment

What is the scope of firm?

range of activities that the firm performs internally, the breadth of its product offerings and extent of its geographic mkt presence, and mix of business. Determine where the boundaries of firm lie and degree which operations within these boundaries cohere. Scope issues are the very heart of corporate level strategy

When is offensive option best used

spots opportunists to gain profitable mkt shr at rival's expense or when a company has no choice but to try to whittle away at strong rivals competitive advantage