Chapter 6

Horizontal Strategies. Merger and acquisition strategies typically set sights on achieving any of the five objectives.

1. Creating a more cost-efficient operation out of the combined companies. 2. Expanding a company's geographic coverage. 3. Extending the company's business into new product categories. 4. Gaining quick access to new technologies or other resources and capabilities. 5. Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Best targets for offensive attacks include

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

The principal offensive strategy options include the following:

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 share 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 market share from complacent or distracted rivals. 7. Launching a preemptive strike to secure an industry's limited resources or capture or rare opportunity.

Weighing the Pros and Cons of vertical Integration

1. Whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect know-how, or increase differentiation. 2. What impact vertical integration will have on investment costs, flexibility, and response times. 3. What administrative costs will be incurred by coordinating operations across more verical chain activities. 4. how difficult it will be for the company to acquire the sets of skills and capabilities needed to operate in another stage of the vertical chain.

A business guerrilla offensive is best suited for A. small companies that lack the capacity to launch a full strategic offensive agaisnt better established rivals. B. Industrial leaders that are unable to slash prices for a just a brief period. C. Industrial leaders that are seeking to reduce market visibility D. Small companies with large amounts of cash reserves to take on industrial leaders.

A

Expanding along the value chain into products and services that are closer to the end user is called A. forward vertical integration B. backward vertical integration C. leapfrogging D. a blue-ocean strategy

A

In a winner-take-all type of market A. first mover advantages can insulate a company from competition B. A first mover has little hope of obtaining a competitive advantage C. A company should consider entry only as part of a strategic partnership D. A company is likely best served by being a late arrival to the market

A

What would be an example of a firm pursuing vertical integration? A. The owner of a poultry farm expanding into food distribution B. A shoe manufacturer and a cosmetics manufacturer merging to expand their offerings C. an airline outsourcing its customer service to a firm based in another country

A

What are examples of ways that a firm can pursue vertical integration? All that applies. A. Building positions in selected stages of the value chain and avoiding participation in others. B. Acquiring a company that performs activities further along the value chain, closer to the end user. C. Cutting one product line in order to replace it with another product line

A B

What are reasons that mergers and acquisitions sometimes fail? A. Cost saving are less than anticipated. B. Gains in competitive advantage materialize more slowly than was anticipated. C. Increased bargaining power with suppliers drives up the cost of operation. D. Enhanced market rivalry drives down prices for products and services.

A B

A company can achieve which of the following by signaling would be business challengers that retaliation is likely in the event of any strategic attack? A. diverting challengers to less threatening competition B. Lowering production costs for a greater competitive advantage C. Dissuading challengers from attacking altogether D. Driving the company's rivals out of business

A C

Under which of the following circumstances might backward vertical integration lower costs? Check all that apply. A. when there are few suppliers in the market B. when the item being supplied is a minor but costly component of the final product' C. When the item being supplied is a major component of the final product

A C

Which statements are true concerning vertical scope? A. It is extent to which a firm engages in the activities that make up the industry's entire value chain system. B. It is the range of product and service segments that a firm serves within its product and service market. C. It is defined by the range of activities that may extend from initial production to after-sale customer service. D. It can be reduced through company mergers and acquisitions.

A C

Which statements are true concerning vertical scope? all that applies. A. It is defined by the range of activities that may extend from initial production to after-sale customer service. B. It can be reduced through company mergers and acquisitions. C. It is the range of product and service segments that a firm serves within its product and service market. D. It is the extent to which a firm engages in the activities that make up the industry's entire value chain system.

A D

A firm with a vertical integration strategy that seeks full integration A. adopts a vertical integration strategy that begins aggressively but slow down over time B. Participates in all stages of the industry value-chain system C. combines in-house and outsources activity in any given stage of the value chain system D. start up operations in discrete stages of the value-chain system.

B

In a strategic alliances, a company's proprietary knowledge and trade secrets are most vulnerable when the partnership involves A. vertical integration strategies B. Collaborative research and development C. Cost-saving measures. D. Horizontal integration strategies.

B

What are examples of preemptive strikes? A. adopting and improving on the best ideas of other companies B. obtaining the best retail location in a mall C. Funding research and development to maintain a continuous flow of a new product offerings D. Entering into exclusive, long-term contracts with the best suppliers.

B C D

Approximately what percentage of strategic business alliances fail each year? A. 25% B. 80 to 90% C. 60 to 70%

C

If the race to market leadership is a particular industry is a marathon, A. fast follower and late movers are usually heavily penalized B. companies do not need to weigh the advantages and disadvantages of when to enter the market C. there may be enough time for fast followers and late movers to catch up

C

Outsourcing is a strategy that involves A. conducting value chain operation in-house rather than relying on outside vendors. B. moving value chain activities from one division in the company to another. C. Contracting out certain value chain activities that are normally performed in-house to in-house to outside vendor

C

The defensive approach that companies use most frequently to defend their market position is A. to deploy blue ocean strategies that open new markets B. To pursue continuous product innovation to draw sales and market share away from less-innovative rivals C. To block avenues that competitors might use to launch a strategic offensive D. To disguise the fact that they will retaliate strongly to a strategic attack

C

Vertical integration strategies.

Can expand the firm's range of activities backward into sources of supply and/or forward toward end users.

In some cases, backward vertical integration can increase efficiency by A. giving a company proprietary knowledge that is expensive to keep from rivals B. allowing a company to outsource activities that are too costly to perform in-house C. Improving the competitive position of existing suppliers in the value chain. D. coordinating production flows and preventing bottlenecks

D

What is a sign that a leading firm may be vulnerable to an offensive strategic attack? A. The firm's controlled and methodical diversification into other industries. B. The firm's willingness to engage in a fierce battle for market share. C. A recent switch by the firm to a supplier with more extensive service capability. D. The firm's use of ageing technology and outdated equipment.

D

Timing a Company's strategic Moves Timing is especially important when

First-mover advantages and disadvantages exist.

Joint venture

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

Outsourcing

another dimension of scope since they involve narrowing the firm's boundaries with respect to its participation in value chain activities.

The purposes of defensive strategies are to

lower the risk of being attacked, weaken the impact of any attack that occurs, and induce challengers to aim their efforts at other rivals.

Strategic offensives

when a company spots opportunities to gain profitable market share at its rivals' expensive on or when a company has no choice but to try to whittle away at a strong rival's competitive advantage. The best offensives use a company's most powerful resources and capabilities to attack rivals in the areas where they are weakest.

Horizontal scope

which is the range of product and service segments that the firm serves within its product or service market.

To be a first mover or not

1. Does market takeoff depend on the development of complementary products or services that currently are not available? 2. Is new infrasture required before buyer demand can surge? 3. Will buyers need to learn new skills or adopt new behaviors? 4. Will buyers encounter high switching costs in moving to the newly introduced product or service? 5. Are there influential competitors in a position to delay or derail the effoirts of a first mover?

Signaling challengers That Retaliation is likely

1. Publicly announcing management's commitment to maintaining the firm's present market share. 2. Public committing the company to a policy of matching competitors' terms or prices. 3. Maintaining a war chest of cash and marketable securities. 4. Making an occasional strong counterresponse to the moves of weak competitors to enhance the firm's image as a tough defender. To be an effective defensive strategy, however, signaling needs to be accompanied by a credible commitment to follow through.

Disadvantages of a vertical integrations strategy

1. Raises a firm's capital investment in the industry, thereby increasing business risk. 2. slow to adopt technological advances or more efficient production methods when they are saddled with older technology or facilities. 3. Less flexibility in accommodating shifting buyer preferences. 4. May not enable a company to realize economies of scale if its production levels are below the minimum efficient scale. 5. Poses all kinds of capability matching problems. 6. Forward or backward typically calls for developing new types of resources and capabilities.

There are 5 such conditions in which first mover advantages are most likely to arise:

1. When pioneering helps build a firm's reputation and creates strong brand loyalty. 2. When a first mover's customers will thereafter face significant switching costs. 3. When property rights protections thwart rapid imitation of the initial move. 4. When an early lead enables the first mover to move down the learning curve ahead of rivals. 5. When a first mover can set the technical standard for the industry.

The potential for late mover advantages or first-mover disadvantages

1. When the cost of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs. 2. When an innovator's products are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader. 3. When rapid market evolution gives second movers the opening to leapfrog a first mover's products with more attractive next-version products. 4. When market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified. 5. When customer loyalty to the pioneer is low and a first mover's skills, know-how, and actions are easily copied or even surpassed.

A company that aggressively pursues an online sales strategy risks A. Threatening crucial relationships with distribution allies B. retaliation from suppliers C. Signaling too strong a strategic commitment to dealers d. Losing the benefits that accrue from channel conflict

A

A company's strategic offensive should be based on A. The company's strengths as well as its rival's strengths and weaknesses B. Buyer segment that the company needs to be better equipped to serve C. The company's customer service capabilities. D. Those areas where its rival has the greatest competitive advantage.

A

Decisions regarding the a company's scope of firm A. concern choices about which operations a company will conduct internally and which it will not B. Are more important for boutiques and small businesses than for large companies. C. refer to decisions associated with the timing of competitive moves. D. Have minimal impact on the strength of a company's market position.

A

In order to be successful, a preemptive strike by a company needs to A. Give the company prime position in the market that rivals cannot easily bypass. B. Completely block rivals from access to the best distributors.

A

When buyer preferences shift, a vertically integrated company A. may have difficulty adjusting its product lines to meet new demand B. may decide to abandon agreements with suppliers and distributors and rely on its in-house capabilities. C. will likely be in a good position to negotiate a mutually beneficial contract with a new supplier.

A

Guerrilla warfare tactics in business competition include which of the following? A. partnering with rivals in an attempt to capitalize on each other's strengths B. Catching rivals off guard with intense burst of promotional activity C. Launching special campaigns to weaken a rival that is undergoing a period of internal discord D. Raising prices to improve brand recognition and attract buyers to niche markets

A B C

What are reasons for a company to favor Internet retailing? A. To lower cost for end users. B. To lower distribution costs C. To increase brand recogniation D. To improve business relationships with wholesalers.

A B C

Some companies have adopted forward vertical integration strategies to a. supplement to their core product line with iconography and memorabilia B. faciliate the sale of overstocked and slow-moving items. C. avoid costs associated with building relationships with end users. D. Decrease dependence on sales agents, wholesalers, and retailers.

A B D

Which two firms would be best targets for an offensive strategic attack by a company? A. Regional firms with limited capabilities. B. LEading firms with superior products and happy customers. C. Firms in danger of going out of business. D. Runner up firms with no discernible weaknesses.

A C

The benefits of forward vertical integration include A. improving a company's market visibility B. increasing a company's internal costs C. giving manufacturers better access to end users. D. differentiating a company from its competitors

A C D

Which statements about strategic alliances are generally true? A. All parties of the alliance contribute resources B. The alliances exclude extensive collaboration and long-term agreements C. Financial responsibility is shared among all parties of the alliance. D. The alliances involve mutual dependence and shared risk.

A C D

A vertically integreated firm A. concentrate on one stage of an industry's value chain system. B. Participates in multiple stages of an industry's value chain system. C. cuts the cost of operation and limits the scope of a company offerings.

B

A blue-ocean is a strategy that seeks to gain a competitive advantage by A. Maintaining efforts in existing markets to render competitors irrelevant B. Defining a new market space that allows a company to maintain old sources of demand. C. Inventing a new segment of the market that makes existing competitors no long relevant. D. Launching a strategic offensive that imitates the successes of relevant competitors.

C

The term "blue ocean" refers to a market space in which A. intense competition increases the likelihood that a company can create a new product to secure new demand. B. Industry boundaries are well-defined and all companies understand the competitive rules of the game. C. An industry does not yet exist and the market space is untainted by competition. D. Competitive pressures obstruct a company's ability too grow and to increase its profits.

C

The best strategic offensives for companies involve which of the following? A. Applying resources that rivals are capable of handling B. Doing what rivals expect slowly and deliberately over a long period of time. C. Overwhelming rivals with swift and decisive action D. Striving to convert a competitive advantage into a sustainable advantage.

C D

The introduction of disruptive product innovations A. Is used by risk-averse companies seeking to cut production costs. B. Involves testing products with a large group of trial users and then rolling out the product to a small segment of the market. C. is a less risky business strategy than introducing continuous innovations. D. Is a risky business strategy that has the potential to earn a company a majority of the market share.

D

Outsourcing Including:

Involves contracting out certain value chain activities that are normally performed in house to outside vendors. 1. An activity can be performed better or more cheaply by outside specialists. 2. The activity is not crucial to the firm's ability to achieve sustainable competitive advantage. 3. The outsourcing improves organizational flexibility and speeds time to market. 4. It reduces the company's risk exposure to changing tehcnology and buyer preferences. 5. It allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

Scope of 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.

Blue-Ocean Strategy

seeks to gain a dramatic and durable competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new market segment that render existing competitors irrelevant and allows a company to create and capture altogether new demand.

Vertical scope

the extent to which the firm engages in the various activities that make up the industry's entire value chain system, from initial activities such as raw-material production all the way to retailing and after-sale service activities.

Strategic alliance

a formal agreement between two or more separate companies in which they agree to work collaboratively toward some strategically relevant objective.