Ch 6: Strengthening a Company's Competitive Position

When do outsourcing certain value chain activities make sense?

- An activity can be performed better or more cheaply by outside specialists. - the activity is not crucial to achieving sustainable competitive advantage. - outsourcing improves organizational flexibility and speeds time to market. - Reduces risks due to new technology and/or buyer preferences. - Assembles diverse kinds of expertise speedily and efficiently. - Allows the firm to concentrate on its core business, leverage key resources, and do even better what it does best.

WHY M&As SOMETIMES FAIL TO PRODUCE ANTICIPATED RESULTS - Strategic Issues

- Cost savings may prove smaller than expected. - Gains in competitive capabilities take longer to realize or never materialize at all.

5 steps to make a strategic alliance work

- Create a system for managing the alliance. - Build trusting relationships with partners. - Set up safeguardsto protect from the threat of opportunism by partners. - Make commitments to partners and see that partners do the same. - Make learning a routine part of the management process.

WHY M&As SOMETIMES FAIL TO PRODUCE ANTICIPATED RESULTS - Organizational Issues

- Cultures, operating systems & management styles fail to mesh due to resistance to change from organization members - Loss of key employees at the acquired firm. - Managers overseeing integration make mistakes in melding the acquired firm into their own.

The risks of outsourcing value chain activities

- Hollowing out resources and capabilities that the firm needs to be a master of its own destiny. - Loss of control when monitoring, controlling, and coordinating activities of outside parties by means of contracts and arm's-length transactions. - Lack of incentives for outside parties to make investments specific to the needs of the outsourcing firm's value chain.

Increasing a firm's horizontal scope strengthens its business and increases its profitability by:

- Improving the Efficiency of its operations - Quick access to new Products or Geographic Areas - Increase firm's bargaining power over suppliers & buyers - Reducing market rivalry - Enhancing its flexibility and dynamic capabilities

DISADVANTAGES OF A VERTICAL INTEGRATION STRATEGY

- Increased business risk due to large capital investment. - Slow acceptance of technological advances or more efficient production methods. - Less flexibility in accommodating shifting buyer preferences that require non-internally produced parts. - Internal production levels may not be of sufficient volumes to allow for economies of scale. - Capacity matching problems for efficient production of internally-produced components and parts. - Potential for channel conflict

Benefits of strategic alliances and partnerships

- Minimizes the problems associated with vertical integration, outsourcing, and M&A. - Useful in extending the scope of operations via international expansion and diversification strategies. - Reduces the need to be independent and self-sufficient when strengthening the firm's competitive position. - Offers greater flexibility should a firm's resource requirements or goals change over time. - Are useful when industries are experiencing high-velocity technological advances simultaneously.

Example of companies that used the blue ocean strategy

- NetJets - DryBar - Tune Hotels - Uber/Lyft - Cirque de Soleil - Bonobos

Reasons for integrating backwards

- Reduction in costs of major inputs - Reduction of supplier power - Assurance of the supply and flow of critical inputs - Protection of proprietary know-how

Why is it tough tough to put finger on some of your supplier or downstream customers competencies

- Their "hidden factory" knowledge - Their relationships & ability to maintain them

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.

6 conditions in which first mover advantages are most likely to arise

- When pioneering helps build a firm's reputation& creates strong brand loyalty. - When a first mover's customers will thereafter face significant switching costs. - When property rights protections thwart rapid imitation of the initial move. - When an early lead enables movement down the learning curve ahead of rivals. - When a first mover can set the technical standard for the industry. - When strong network effects compel increasingly more consumers to choose first mover's product or service

4 circumstances where late mover advantages/ first-mover disadvantages arise

- When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits. - When the products of an innovator are somewhat primitive and do not live up to buyer expectations. - When rapid market evolution allows fast followers 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.

Vertical integration can expand a firm's range of activities ______________ and/or ______________

- backward into its sources of supply - forward toward end users of its products

How can backward vertical integration support a differentiation-based competitive advantage?

- better-quality product or service offering - improves the caliber of customer service - or in other ways enhances the performance of the final product

What is included in the horizontal scope of a firm?

- breadth of product and service offerings - extent of geographic market presence and mix of businesses - size of competitive footprint on market or industry

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 partner's 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

The best alliances are

- highly selective - focus on particular value chain activities and achieving specific competitive benefit - enable a firm to build on competitive strengths and learn

What industries favor strategic cooperation?

- industries where new technological developments are occurring at a fast pace along with many different paths - advances in technology spill over to affect others

What obstacles can a defender put in the path of would be challengers

- new features - new models - broaden product line - lower prices with economy options - lengthening warranties - making early announcements - offering free training and support services - coupons and giveaways - grant volume discounts or better financing terms to dealers and distributors - convince dealers and distributors to work with your

What two types of market space exist in the business universe in a blue ocean strategy?

- one where industry boundaries are defined, competitive rules of the game are understood, and companies try to outperform each other by capturing a bigger share of existing demand. - blue ocean where the industry doesn't exist, no rivals, and wide open long term growth and profit potential

What happens if the market responds well to a firm's pioneering?

- pioneer will benefit from a monopoly position - may create a competitive advantage that can be sustained as other firms enter the market

what are the 4 ways signals can be given to challengers?

- publicly announcing management's commitment to maintaining the firm's present market share - publicly committing the company to a policy of matching competitors' terms or prices - maintaining a war chest of cash and marketable securities - making a strong counter response to the moves of weak rivals to enhance the firm's image as a tough defender

Alliances are more likely to be long-lasting when:

-They involve collaboration with suppliers or distribution allies -Each party's contribution involves activities in different portions of the industry value chain -Continued collaboration is in the mutual interest of the partners

types of vertical integration

-full vertical integration -partial vertical integration -tapered vertical integration

What purposes must an alliance serve to become strategic?

1) If facilitates achievement of an important business objective 2) it helps build, strengthen, or sustain core competence or competitive advantage 3) it helps remedy an important resources deficiency or competitive weakness 4) it helps defend against a competitive threat or mitigates a significant risk to a company's business 5) it increase bargaining power over suppliers or buyers 6) it helps open important new market opportunities 7) It speeds the development of new tech and product innovations

What are the best targets for offensive attacks?

1) Market leaders that are vulnerable 2) Runner-up firms with weaknesses in areas where the challenger is strong 3) struggling enterprises that are in the verge of going under 4) small local and regional firms with limited capabilities

For backward integration to be a cost saving and profitable strategy

1) achieve the same scale economies outside of suppliers 2) match or beat suppliers' production efficiency with no drop-off in quality

5 possible objectives of a M&A

1) creating a more cost efficient operation out of the combined companies 2) expanding a company's geographic coverage 3) extending a company's business into new product categories 4) gaining quick access to new tech or other resources and capabilities 5) leading the convergence of industries whose boundaries are being blurred by changing tech and new market opportunities

What 4 principals do the best strategic offenses incorporate

1) focusing relentlessly in 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

The key advantages of using strategic alliances rather than the arm's lengths transactions to manage outsourcing are

1) increased ability to exercise control over the partners' activities 2) a greater willingness for the partners to make relationship specific investments

The principal offensive strategy options include

1) offering an equally good or better product at a lower price 2) leapfrogging competitors by being first to market with next generation products 3) pursuing continuous product innovation to draw sales and market shares away from less innovative rivals 4) Pursuing disruptive product innovations to create new markets 5) Adopting and improving on the good ideas of other companies (rivals or otherwise) 6) using hit and run or guerrilla warfare tactics to grab marketshare from complacent or distracted rivals 7) launching a preemptive strike to secure an industry's limited resources or capture a rare opportunity

Factors of a strategic alliance

1) picking a goof partner 2) being sensitive to cultural differences 3) recognizing that the alliance must benefit both sides 4) adjusting the agreement over time to fit new circumstances 5) structuring the decision making process for swift action 6) ensuring both parties keep their commitments

4 Examples of preemptive moves include

1) securing best distributors in a particular geographic region or country 2) obtaining the most favorable site at a new interchange or intersection 3) tying up on the most reliable, high quality suppliers via partnerships, long term contracts, or acquisitions 4) moving swiftly to acquire the assets of distressed rivals at bargain prices

merger

A combining of two or more companies into a single corporate entity that often takes a new name

Strategic offensives should, as a general rule, be based on: A.exploiting a company's strongest competitive assets—its most valuable resources and capabilities. B.instigating and executing the chosen strategy efficiently and effectively. C.scoping and scaling an organization's internal and external situation. D.molding an organization's character and identity. E.satisfying the buyer's needs that the company seeks to meet.

A.exploiting a company's strongest competitive assets—its most valuable resources and capabilities.

All firms are subject to offensive challenges from rivals. The intent of the best defensive move is to: A. lower the risk of being attacked. B. weaken the impact of any attack that occurs. C. pressure challengers to aim their efforts at other rivals. D. help protect a competitive advantage. E. All of these.

E. All of these.

Being first to initiate a particular strategic move can have a high payoff in all of the following EXCEPT when: A.pioneering helps build up a firm's image and reputation and creates strong brand loyalty. B.buyers remain strongly loyal to pioneering firms because of incentives and switching costs barriers. C.there is a steep learning curve and when learning can be kept proprietary. D.moving first can constitute a preemptive strike, making imitation extra hard or unlikely. E.market uncertainties make it difficult to ascertain what will eventually succeed.

E.market uncertainties make it difficult to ascertain what will eventually succeed.

tapered integration

Involves a mix of in-house and outsourced activity in any stage of the vertical chain.

vertically integrated firm

Is one that participates in multiple stages of an industry's overall value chain.

Why are the worst suppliers often apart of your company

Often less incentive to perform than suppliers outside your company

full integration

Participating in all stages of the vertical chain

T/F Deals values at $90M+ must be reported to the FTC and DOJ

T

T/F blue ocean strategies provide a company with great opportunity in the short run but don't guarantee a company's long term success

T

vertical scope

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.

When are strategic offenses called for

When a company spots opportunities to gain profitable market share at its rivals expense or when the company has no choice but to try to whittle away at a rival's competitive advantages

What is the biggest danger of outsourcing

a company will farm out the wrong types of activities and thereby hallow out its own capabilities

What do the best offenses use

a company's most powerful resources and capabilities to attack rivals in the areas where they are competitively weakest

To be effective, what does defensive strategy signaling need to be accompanied by?

a credible commitment to follow through

strategic alliance

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

The formation of a new corporation, jointly owned by two or more companies agreeing to share in the revenues, expenses, and control, is known as : A.a joint venture. B.a limited liability company. C.a partnership. D.sole proprietorship. E.an S corporation.

a joint venture.

joint venture

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

The most frequently employed approach to defending a company's present position involves

actions that restrict challenger's options for launching competitive attack

Common way to implement defense is through

advertising

What do horizontal mergers and acquisitions provide for a firm?

an effective means for firms to rapidly increase the scale and horizontal scope of core business

partial integration

building positions in selected stages of the vertical chain

What can good defensive strategies help protect?

competitive advantage but they're rarely the basis for creating one

Because of first-mover advantages and disadvantages....

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

Scope issues are at the heart of

corporate level strategy

channel conflict

disagreements among marketing channel members on goals, roles, and rewards - who should do what and for what rewards

Mergers and acquisitions: A.are nearly always successful in achieving their desired purpose. B.frequently do not produce the hoped-for outcomes. C.are generally less effective than forming alliances or partnerships with these same companies. D.are highly risky because of the financial drain that comes from using the company's cash resources to pay for the costs of the merger or acquisition. E.are usually more successful in achieving cost reductions than in expanding a company's market opportunities.

frequently do not produce the hoped-for outcomes.

Market pioneer and other types of first movers typically bear _______________________ than firms that move later.

greater risks and greater development costs

The extent of a pioneers first mover competitive advantage will depend on

how fast follower firms can piggyback on pioneer's success and either imitate or improve on its move

Horizontal mergers and acquisitions

involve combining the operations of firms within the same product or service market

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

For backward vertical integration into the business of suppliers to be a viable and profitable strategy, a company: A.must first be a proficient manufacturer. B.must be able to achieve the same scale economies as outside suppliers and match or beat suppliers' production efficiency with no drop-off in quality. C.must have excess production capacity so that it has an ample in-house ability to undertake additional production activities. D.needs to have a wide product line, so it can supply parts and components for many products. E.should have a distinctive competence in production process technology and at least a core competence in manufacturing R&D.

must be able to achieve the same scale economies as outside suppliers and match or beat suppliers' production efficiency with no drop-off in quality.

When increasing horizontal scope, what must be done to actually gain efficiency?

must close locations or cut headcount

forward integration

occurs when a firm owns or controls the customers or distribution channels for its main products

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 business

blue-ocean strategy

seeks to gain competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new industry or distinctive market segment that renders existing competitors largely irrelevant and allows a company to create and capture altogether new demand.

The two big drivers of outsourcing are: A.an increased ability to cut R&D expenses and an increased ability to avoid the problems of strategic alliances. B.that outsiders can often perform certain activities better or more cheaply, and outsourcing allows a firm to focus its entire energies on those activities that are at the center of its expertise (its core competencies). C.a desire to reduce the company's investment in fixed assets and the need to narrow the scope of the company's in-house competencies and competitive capabilities. D.the ability to avoid capital investments that accompany vertical integration and a desire to reduce the company's risk exposure to changing technology and/or changing buyer preferences. E.that a smaller in-house workforce and a low investment in intellectual capital will produce cost savings.

that outsiders can often perform certain activities better or more cheaply, and outsourcing allows a firm to focus its entire energies on those activities that are at the center of its expertise (its core competencies).

acquisition

the acquirer purchases and absorbs the operations of the acquired

what should strategic offenses exploit?

the power of a company's strongest competitive assets

horizontal scope

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

What is the goal of signaling challengers that strong retaliation is likely in the event of an attack?

to dissuade challengers from attacking or to divert them to less threatening options

Vertical integration have merit according to

which capabilities and value-adding activities truly need to be performed in-house and which can be performed cheaper or better by outsiders

On paper vertical integration often looks

wise