STRT - QUIZ 2

CORE CONCEPT: SWOT Analysis

SWOT analysis is a simple but powerful tool for sizing up a firm's internal strengths and competitive deficiencies, its market opportunities, and the external threats to its future well-being.

CORE CONCEPT: Broad Differentiation Strategy

The essence of a broad differentiation strategy is to offer unique product or service attributes that a wide range of buyers find appealing and worth paying for.

Question 5: What Strategic Issues and Problems Must Be Addressed by Management?

The final and most important analytical step is to focus management on crucial strategic issues. Precise pinpointing of problems sets the agenda for actions to take next to improve the firm's performance and business outlook. Compiling a "worry list" of problems and issues creates an agenda for managerial strategy making.

CORE CONCEPT: Scope of the Firm

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

Question 1: How Well Is the Company's Strategy Working?

The two best indicators of how well a firm's strategy is working are: 1. Whether the firm is recording gains in financial strength and profitability 2. Whether the firm's competitive strength and market standing is improving

Determining the Competitive Power of a Company's Resources and Capabilities

VRIN Competitive Power Tests Is the resource or capability competitively valuable? Is the resource or capability rare—something rivals lack? Is the resource or capability inimitable or hard to copy? Is the resource or capability vulnerable to substitution from different types of resources and capabilities?

CORE CONCEPT: Uniqueness Driver

-A uniqueness driver is a value chain activity or factor that can have a strong effect on customer value and creating differentiation. -Easy-to-copy differentiating features cannot produce sustainable competitive advantage; differentiation based on hard-to-copy competencies and capabilities tends to be more sustainable. -Differentiation can be based on tangible or intangible features and attributes.

Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results

-Cost savings are smaller than expected. -Gains in competitive capabilities take much longer to realize or may never materialize. -Efforts to mesh the corporate cultures stall because of resistance from organization members. -Managers and employees at the acquired continue to do things as they were done prior to the acquisition. -Dissatisfied key employees of the acquired firm leave. -Mistakes are made in deciding which activities to leave alone and which to meld into the acquiring firm's operations and systems.

Strategic Objectives of Mergers and Acquisitions

-Extend the firm's business into new product categories. -Create a more cost-efficient operation out of the combined firms. -Expand the firm's geographic coverage. -Gain quick access to new technologies or complementary resources and capabilities. -Lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Integrating Forward to Enhance Competitiveness

-Gain better access to end users. -Improve market visibility. -Include the purchasing experience as a differentiating feature.

Principal Offensive Strategy Options

-Offer an equally good or better product at lower price. -Leapfrog competitors by being the first to market with next generation technology or products. -Pursue continuous product innovation to draw sales and market share away from less innovative rivals. -Pursue disruptive product innovations to create new markets. -Adopt and improve on the good ideas of other firms (rivals or otherwise). Use hit-and-run or guerilla warfare tactics to grab sales and market share from complacent or distracted rivals. Launch a preemptive strike to capture a rare opportunity or secure an industry's limited resources. -Secure the best distributors in a particular geographic region or country. -Secure the most favorable retail locations. -Tie up the most reliable, high-quality suppliers via exclusive partnerships, long-term contracts, or even acquisition.

The Five Generic Competitive Strategies

1. A low-cost provider strategy—striving to achieve lower overall costs than rivals and appealing to a broad spectrum of customers, usually by underpricing rivals 2. A broad differentiation strategy—seeking to differentiate the firm's product or service from rivals' in ways that will appeal to a broad spectrum of buyers 3. A focused low-cost strategy—concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by having lower costs than rivals and thus being able to serve niche members at a lower price 4. A focused differentiation strategy—concentrating on a narrow buyer segment (or market niche) and outcompeting rivals by offering niche members customized attributes that meet their tastes and requirements better than rivals' products 5. A best-cost provider strategy—giving customers more value for the money by satisfying buyers' expectations on key quality/features/performance/service attributes while beating their price expectations. This option is a hybrid strategy that blends elements of low-cost provider and differentiation strategies; the aim is to have the lowest (best) costs and prices among sellers offering products with comparable differentiating attributes

When a Differentiation Strategy Works Best

1. Buyer needs and uses of the product are diverse. 2. There are many ways to differentiate the product or service that have value to buyers. 3. Few rival firms are following a similar differentiation approach. 4. Technological change is fast-paced and competition revolves around rapidly evolving product features.

Delivering Superior Value via a Differentiation Strategy

1. Include product attributes and user features that lower the buyer's costs 2. Incorporate tangible features that improve product performance 3. Incorporate intangible features that enhance buyer satisfaction in noneconomic ways

The Two Major Avenues for Achieving Low-Cost Leadership

1. Performing essential value chain activities more cost-effectively than rivals 2. Revamping the firm's overall value chain to eliminate or bypass some cost-producing activities altogether

Pitfalls to Avoid in Pursuing a Differentiation Strategy

1. Pursuing a differentiation strategy keyed to product or service attributes that are easily and quickly copied 2. Offering product features or unique attributes in which buyers see little value or are easily copied by rivals 3. Overspending on efforts to differentiate that erode profitability 4. Not establishing meaningful gaps in quality or service or performance features over the products of rivals 5. Over-differentiating so that product quality or service levels exceed buyers' needs 6. Trying to charge too high a price premium

CORE CONCEPT: Competitive Strategy

A competitive strategy concerns the specifics of management's game plan for competing successfully and securing a competitive advantage over rivals in the marketplace.

CORE CONCEPT: Cost Driver

A cost driver is a factor having a strong effect on the cost of a company's value chain activities and cost structure.

When a Best-Cost Provider Strategy Works Best

A best-cost provider strategy works best in markets where: -Product differentiation is the norm. -Large numbers of value-conscious buyers can be induced to purchase economically-priced mid-range products and services, especially during recessionary times. -A provider can offer either a medium-quality product at a below-average price or a high-quality product at an average or slightly higher-than-average price.

Core Concept: Competitive Strategy

A company's competitive strategy should be well matched to its internal situation and predicated on leveraging its collection of competitively valuable resources and competencies.

Question 2: What Are the Company's Competitively Important Resources and Capabilities?

A company's strategy and business model: -Must be well matched to its collection of resources and capabilities -Requires a tight fit with a company's internal situation -Is strengthened when exploiting resources that are competitively valuable, rare, hard to copy, and not easily trumped to rivals' equivalent substitute resources

CORE CONCEPT: Value Chain

A company's value chain identifies the primary activities that create customer value and related support activities.

How Value Chain Activities Relate to Resources and Capabilities

A company's value-creating activities are enabled by firm-specific resources and capabilities that are: -Valuable, rare and necessary preconditions for competitive advantage -Effectively deployed in a value-creating activity

Perceived Value and the Importance of Signaling Value

A differentiation strategy's price premium reflects the value actually delivered to the buyer and the value perceived by the buyer. It is important to signal value when: -The nature of differentiation is subjective. -Buyers are making a first-time purchase. -Repurchase is infrequent. -Buyers are unsophisticated.

CORE CONCEPT: Dynamic Capability

A dynamic capability is the ability to modify, deepen, or reconfigure the company's existing resources and capabilities in response to its changing environment or market opportunities.

Blue Ocean Strategy—A Special Kind of Offensive

A firm seeks a large and lasting competitive advantage by abandoning existing markets and inventing an exclusive new industry or market segment (open competitive space) that makes former competitors irrelevant. By "reinventing the circus," Cirque du Soleil annually attracts an audience of millions of people who typically do not attend circus events.

Best-Cost Provider Strategies

A hybrid of low-cost provider and differentiation strategies that: -Involves giving customers more value for money by satisfying buyer expectations on key quality/features/ performance/service attributes while exceeding customer expectations on price -Creates a powerful competitive approach with value-conscious buyers looking for a good-to-very-good product or service at an economical price -Creates a "best-cost" status as the low-cost provider of a product or service with upscale attributes

CORE CONCEPT: Low-Cost Leader

A low-cost leader's basis for competitive advantage is lower overall costs than competitors. Success in achieving a low-cost edge over rivals comes from eliminating and/or curbing "nonessential" activities and/or outmanaging rivals in performing essential activities.

Low-Cost Provider Strategies

A powerful competitive approach with price-sensitive buyers when a firm's offering: -Has meaningfully lower costs than rivals—but not necessarily the absolutely lowest possible cost -Includes features and services that buyers consider essential -Is viewed by buyers as offering equivalent or higher value even if priced lower than competing products

CORE CONCEPTS: Resource and Capability

A resource is a competitive asset that is owned or controlled by a firm; a capability is the capacity of a firm to competently perform some internal activity. Capabilities are developed and enabled through the deployment of a firm's resources.

CORE CONCEPTS: Strategic Alliance and Joint Venture

A strategic alliance is a formal agreement between two or more companies to work cooperatively toward some common objective. A joint venture is a type of strategic alliance that involves the establishment of an independent corporate entity that is jointly owned and controlled by the two partners.

A Focused Low-Cost Strategy

A strategy that aims at securing a competitive advantage by serving buyers in the target market niche at a lower cost and a lower price than rival competitors. A strategy that achieves its cost advantage in the same way as for low-cost leadership—by outmanaging rivals in keeping costs low and bypassing or reducing nonessential activities.

CORE CONCEPT: Vertical Integration

A vertically integrated firm is one that performs value chain activities along more than one stage of an industry's overall value chain. A vertical integration strategy has appeal only if it significantly strengthens a firm's competitive position and/or boosts its profitability.

Resource and Capability Analysis

Analyzing the resources and capabilities of a company is a two-step process. 1. Identify the company's most competitively important resources and capabilities. 2. Apply the four tests of competitive power to ascertain which resources and capabilities can support a sustainable competitive advantage over rival firms.

Managing the Value Chain in Ways That Enhance Differentiation

Activities That Enhance Differentiation -Seeking out high-quality inputs -Striving for innovation and technological advances -Creating superior product features, design, and performance -Production-related research and development activities -Pursuing continuous quality improvement -Emphasizing human resource management activities -Emphasizing marketing and brand-building activities -Improving customer service or adding additional services

Launching Strategic Offensives to Improve a Company's Market Position

Aggressive offensives are called for when a firm: -Spots opportunities to gain profitable market share at the expense of rivals. -Has no choice but to try to whittle away at a strong rival's competitive advantage. -Can reap benefits of a competitive edge offers—a leading market share, excellent profit margins, and rapid growth. The best offensives use a firm's resource strengths to attack its rivals' weaknesses.

Reasons for Firms to Continue In Strategic Alliances

Alliances are likely to be long-lasting when: -They involve collaboration with partners that do not compete directly. -A trusting relationship has been established. -Both parties conclude that continued collaboration is in their mutual interest. Experience indicates that: -Alliances may help in reducing a firm's competitive disadvantage but seldom result in a firm attaining a durable competitive edge over its rivals.

Revamping the Value Chain System to Increase Differentiation

Approaches to enhancing differentiation through changes in the value chain system -Coordinating with downstream channel allies to enhance customer value -Coordinating with upstream suppliers to better address customer needs

Broad Differentiation Strategies

Attractive competitive approaches to use whenever buyers' needs and preferences are too diverse to be fully satisfied by a standardized product or service. -Involves offering differentiating features that clearly set the firm's products or services apart from rivals -Enhances profitability whenever the extra price the product commands outweighs the added costs of achieving the differentiation that is not easily copied or matched by rivals

CORE CONCEPTS: Backward and Forward Integration

Backward integration involves performing industry value chain activities previously performed by suppliers or other enterprises engaged in earlier stages of the industry value chain Forward integration involves performing industry value chain activities closer to the end user.

CORE CONCEPT: First-Mover Strategies

Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made.

Benchmarking: A Tool for Assessing Whether a Company's Value Chain Activities Are Competitive

Benchmarking entails comparing how different firms perform various value chain maintenance and then making cross-firm comparisons of the costs and effectiveness of these activities. -How materials are purchased -How inventories are managed -How products are assembled -How customer orders are filled and shipped -How maintenance is performed

Core Concept: Benchmarking

Benchmarking is a potent tool for learning which companies are best at performing particular activities and then using their techniques (or "best practices") to improve the cost and effectiveness of a company's own internal activities.

Choosing Which Rivals to Attack

Best Targets for Offensive Attacks -Market leaders that are vulnerable. -Runner-up firms with weaknesses in areas where the challenger is strong. -Struggling enterprises that are on the verge of going under. -Small local and regional firms with limited capabilities.

CORE CONCEPT: Best-Cost Provider Strategies

Best-cost provider strategies are a hybrid of low-cost provider and differentiation strategies that aim at satisfying buyer expectations on key quality, features, performance, and service attributes while beating customer expectations on price.

Blocking the Avenues Open to Challengers

Blocking by: -Introducing new features -Adding new models -Broadening product line to fill vacant niches -Maintaining economy-priced models -Making early announcements about upcoming new products or planned price changes -Granting volume discounts or better financing terms to dealers and distributors to discourage them from experimenting with other suppliers

CORE CONCEPT: Blue Ocean Strategies

Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.

Improving Value Chain Activities of Forward Channel Allies

Combat forward channel cost disadvantages by: -Pressuring dealer-distributors and other forward channel allies to reduce their costs and markups -Working with forward channel allies to identify win-win opportunities to reduce costs -Changing to a more economical distribution strategy or integrate forward into company-owned retail outlets Improve the customer value proposition by: -Engaging in cooperative advertising and promotions -Providing training for dealers, distributors, or retailers to improve the purchasing experience or customer service -Creating and enforcing operating standards for resellers or franchisees to ensure consistent store operations

Failed Strategic Alliances and Cooperative Partnerships

Common causes for the failure of 60 to 70% of alliances each year: -Diverging objectives and priorities -An inability to work well together -Changing conditions that make the purpose of the alliance obsolete -The emergence of more attractive technological paths -Marketplace rivalry between one or more allies

Approaches to Differentiation

Companies pursuing differentiation: -Unique taste: Red Bull, Doritos -Multiple features: Microsoft Office, -Apple iPhone -Wide selection and one-stop shopping: Home Depot, -Amazon.com -Superior service: Ritz-Carlton, -Nordstrom -Spare parts availability: Caterpillar -Engineering design and performance: Mercedes-Benz, -BMW -Luxury and prestige: Rolex, Gucci, -Chanel -Product reliability: Whirlpool and -Bosch -Quality manufacture: Michelin, -Toyota and Honda -Technological leadership: 3M Corporation -Full range of services: Charles -Schwab in stock brokerage -Complete line of products: -Campbell soups, Frito-Lay snack foods

CORE CONCEPT: Resource Bundles

Companies that lack a standalone resource that is competitively powerful may nonetheless develop a competitive advantage through resource bundles that enable the superior performance of important cross-functional capabilities.

Strategy and the Value Proposition

Competing to successfully gain a competitive advantage involves giving buyers what they perceive as superior value proposition by offering: -A good product at a lower price -A superior product that is worth paying more for -A best-value product that represents an attractive combination of price, features, quality, service, and other appealing attributes

Competitive Strategies and Market Positioning

Competitive Strategy Deals exclusively with the specifics of management's game plan for competing successfully in securing a particular competitive advantage over rivals that offers superior value to customers, strengthens its market position, and counters the maneuvers of its rivals The two principal factors that distinguish one competitive strategy from another are: 1. Whether a firm's market target is broad or narrow 2. Whether the firm is pursuing a competitive advantage linked to lower costs or differentiation

The Risks of a Focused Low-Cost or Focused Differentiation Strategy

Competitors will find effective ways to match a focuser's capabilities in serving the target niche. The preferences and needs of niche members to shift over time toward the product attributes desired by the majority of buyers. The segment may become so attractive it is soon inundated with competitors, intensifying rivalry, and splintering segment profits.

Choosing Strategy Actions That Complement a Firm's Competitive Approach

Decisions regarding the firm's operating scope and how to best strengthen its market standing must be made. -Should the firm go on the offensive and initiate aggressive strategic moves to improve the firm's market position? If so, when? -Should the firm employ defensive strategies to protect the firm's market position? If so, when? -When should the firm undertake strategic moves based upon whether it is advantageous to be a first mover or a fast follower or a late mover? Decisions regarding the firm's operating scope and how to best strengthen its market standing must be made. -Should the firm integrate backward or forward into more stages of the industry value chain? -Which value chain activities, if any, should be outsourced? -Should the firm enter into strategic alliances or partnership arrangements with other enterprises? -Should the firm bolster its market position by merging with or acquiring another company in the same industry?

Using Defensive Strategies to Protect a Company's Market Position and Competitive Advantage

Defensive strategies defend against competitive challenges by: -Lowering the risk of being attacked. -Weakening the impact of any attack that occurs. -Influencing challengers to aim their competitive efforts at other rivals. Good defensive strategies help protect competitive advantage but rarely are the basis for creating it.

Question 4: What Is the Company's Competitive Strength Relative to Key Rivals?

Determining a company's overall competitive position requires answering two questions. 1. How does the company rank relative to competitors on each of the important factors that determine market success? 2. Does the company have a net competitive advantage or disadvantage versus its major competitors?

Forward Vertical Integration and Internet Retailing

Direct selling and Internet retailing is appealing when: -It lowers distribution costs. -It produces a relative cost advantage over rivals. -It produces higher profit margins. -It allows lower prices to be charged to end users. -Numbers of buyers prefer to make online purchases. -However, competing against directly against distribution allies can create channel conflict and signal a weak commitment to dealers.

Focused Differentiation Strategy

Focused differentiation strategy is keyed to offering carefully designed products or services to appeal to the unique preferences and needs of a narrow, well-defined group of buyers (as opposed to a broad differentiation strategy aimed at many buyer groups and market segments).

Focused (or Market Niche) Strategies

Focused strategies are developed especially for competing in a narrow piece of the total market as defined by geographic uniqueness or special product attributes. Focused strategies are appealing to smaller and medium-sized firms that may lack the breadth and depth of resources to tackle going after a whole market customer base.

Integrating Backward to Achieve Greater Competitiveness

For backward integration to boost profitability a firm must be able to: 1. Achieve the same scale economies as outside suppliers. 2. Match or beat suppliers' production efficiency with no decline in quality.

CORE CONCEPTS: Horizontal and Vertical Scope

Horizontal scope is the range of product and service segments that a firm serves within its focal market. Vertical scope is the extent to which a firm's internal activities encompass one, some, many, or all of the activities that make up an industry's entire value chain system, ranging from raw-material production to final sales and service activities.

Improving Internally Performed Value Chain Activities

Implement the use of best practices throughout the firm. Eliminate cost-producing activities by revamping value chain. Relocate high-cost internal activities to lower-cost areas. Outsource internal activities to vendors or contractors to perform them more cheaply than in-house. Invest in productivity-enhancing, cost-saving technology. Find ways around activities or items where costs are high. Redesign products and/or components to economize on manufacturing or assembly costs. Reduce costs in supplier or forward portions of value chain system to make up for higher internal costs.

Strategic Options for Remedying a Cost or Value Disadvantage

There are three main areas of a firm's overall value chain where cost differences with rivals can occur. 1. A firm's own internal activities 2. Value chain activities performed by suppliers 3. Value chain activities performed by forward channel allies

Disadvantages of a Vertical Integration Strategy

Increases a firm's capital investments in its industry. Increases a firm's overall business risk if industry growth and profitability sour. Slows adoption of new ways as vertically integrated firms persist in using aging technologies and facilities. Results in less flexibility in accommodating shifting buyer preferences when a new product design does not include parts and components that the firm makes in-house. Creates capacity-matching problems among integrated in-house component manufacturing units. Requires development of new and different skills and business capabilities.

Other Strategy Performance Indicators

Indicators: Trends in the firm's sales and earnings growth Trends in the firm's stock price The firm's overall financial strength The firm's customer retention rate The rate at which new customers are acquired Changes in firm's image and reputation with customers Evidence of improvement in internal processes such as defect rate, order fulfillment, delivery times, days of inventory, and employee productivity

Deciding Whether to Be an Early Mover or Late Mover

Key Issue: Is the race to market leadership a marathon or a sprint? Deciding to seek first-mover competitive advantage requires asking: -Does market takeoff depend on developing complementary products or services not currently available? -Is new infrastructure required before buyer demand can surge? -Will buyers need to learn new skills or adopt new behaviors? Will buyers encounter high switching costs? -Are there influential competitors in a position to delay or derail the efforts of a first-mover?

The Potential for Late-Mover Advantages or First-Mover Disadvantages

Late-mover advantages (or first-mover disadvantages) arise when: -Pioneering leadership is more costly than imitation. -Innovators' products are primitive, and do not living up to buyer expectations. -Potential buyers are skeptical about the benefits of a first-mover's new technology/product. -Rapid market and technology changes allow fast followers and late movers to leapfrog pioneers.

The Advantages of a Vertical Integration Strategy

There are two best reasons for vertically integrating into more value chain segments. 1. Strengthening the firm's competitive position 2. Boosting its profitability

The Danger of an Unsound Best-Cost Provider Strategy

Losing at both ends of the market: -Dual vulnerability to both low-cost providers and high-end differentiators in not having -The requisite core competencies and efficiencies in managing value chain activities to offer significantly differentiating product attributes. -Features at attractive lower prices without significantly increasing costs.

Successful Competitive Strategies Are Resource Based (

Low-Cost Providers -Must have the resources and capabilities to keep their costs below those of their competitors. -Must have expertise to cost-effectively manage value chain activities better than rivals. Differentiators -Must have the resources and capabilities to incorporate unique attributes that a broad range of buyers will find appealing and are will paying for. Narrow Segment Focusers -Must have the capability to do an outstanding job of satisfying the needs and expectations of niche buyers. Best-Cost Providers -Must have the resources and capabilities to incorporate upscale product or service attributes at a lower cost than rivals.

The Importance of Dynamic Capabilities in Sustaining Competitive Advantage

Management's organization-building challenge has two elements. 1. Attending to ongoing strengthening and recalibration of existing capabilities and resources 2. Casting a watchful eye for opportunities to develop totally new capabilities for delivering better customer value and/or outcompeting rivals

Translating a Low-Cost Strategy into Attractive Profit Performance

Option 1: Use a lower-cost edge to underprice competitors and attract price-sensitive buyers in great enough numbers to increase total profits Option 2: Maintain present price, be content with present market share, and use lower-cost edge to earn a higher profit margin on each unit sold

Outsourcing Strategies: Narrowing the Scope of Operations

Outsourcing an activity should be considered when: -It can be performed better or more cheaply by outside specialists. -It is not crucial to achieving a sustainable competitive advantage and won't hollow out capabilities, core competencies, or technical know-how of the firm. -It improves organizational flexibility and speeds time to market. -It reduces a firm's risk exposure to changing technology and/or buyer preferences. -It allows a firm to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best. The Big Risk of an Outsourcing Strategy -Farming out the wrong types of activities and, thereby, hollowing out strategically important capabilities that ultimately leads to reduction of the firm's strategic competitiveness and long-run success in the marketplace is a big risk.

CORE CONCEPT: Outsourcing

Outsourcing involves contracting out certain value chain activities to outside specialists and strategic allies. A firm should guard against outsourcing activities that hollow out the resources and capabilities that it needs to be a master of its own destiny

Pitfalls to Avoid in Pursuing a Low-Cost Provider Strategy

Overly Aggressive Price Cutting -Price cutting results in lower margins, no increase in sales volume and lower profitability. Relying on easily imitated cost reductions -The value of a cost advantage depends on its sustainability. Becoming too fixated on cost reduction -Buyer interest in additional features might be ignored. -Declining buyer sensitivity to price might be overlooked. -Technological breakthroughs might nullify cost advantages.

When Backward Vertical Integration Becomes a Consideration

Potential situations that create opportunities for cost reduction through backward vertical integration: -When suppliers have large profit margins -Where the item being supplied is a major cost component -Where the requisite technological skills are easily mastered or acquired -When powerful suppliers are inclined to raise prices at every opportunity

Employing Best-Cost Strategies

Profitable best-cost strategies are contingent on the firm having the capability to deliver attractive or upscale attributes at a lower cost than rivals through: 1. A superior value chain configuration that eliminates or minimizes activities that do not add value. 2. Unmatched efficiency in managing essential value chain activities. 3. Core competencies that allow differentiating attributes to be incorporated at a low cost.

Signaling Challengers That Retaliation Is Likely

Publicly announce management's strong commitment to maintain the firm's present market share. Publicly commit firm to policy of matching rivals' terms or prices. Maintain a war chest of cash reserves. Make occasional strong counter-response to moves of weaker rivals.

The Strategic Dangers of Relying on Alliances for Essential Resources and Capabilities

The Achilles' heel of alliances and cooperative partnerships is becoming dependent on other companies for essential expertise and capabilities. Ultimately, a firm must develop its own resources and capabilities to protect its competitiveness and capabilities to build and maintain its competitive advantage.

Evaluating a Firm's Internal Situation

Question 1 How well is the firm's strategy working? Question 2 What are the firm's competitively important resources and capabilities? Question 3 Are the firm's cost structure and customer value proposition competitive? Question 4 Is the firm competitively stronger or weaker than key rivals? Question 5 What strategic issues and problems merit front-burner managerial attention?

Reasons for Firms to Enter Into Strategic Alliances

Reasons: -To expedite development of new technologies or products -To overcome technical or manufacturing expertise deficits -To bring together personnel of each partner to create new skill sets and capabilities -To improve supply chain efficiency -To gain production and/or marketing economies of scale -To acquire or improve market access through joint marketing agreements

Revamping the Value Chain

Reengineering the firm's value chain by: -Selling directly to consumers and cutting out the activities and costs of distributors and dealers -Streamlining operations by eliminating low value-added or unnecessary work steps and activities -Collaborating with suppliers to improve supply chain efficiency by reducing materials handling, shipping and inventory costs

Improving Supplier-Related Value Chain Activities

Remedying Supplier-Related Cost -Disadvantages Pressure suppliers for lower prices. -Switch to lower-priced substitutes. -Collaborate closely with suppliers to identify mutual cost-saving opportunities. -Integrate backward into business of high-cost suppliers. Enhancing the Customer Value Proposition -Select and retain best-quality performing suppliers. -Provide quality-based incentives to suppliers. -Integrate suppliers into the product design process.

Is the Company Able to Seize Market Opportunities and Nullify External Threats?

SWOT represents the first letter in: Strengths Weaknesses Opportunities Threats. A well-conceived strategy is: -Matched to the firm's resource strengths and weaknesses -Aimed at capturing the firm's best market opportunities -Positioned to defend against external threats to its well-being

Strengthening a Company's Market Position Via Its Scope of Operations

Scope of a Firm's Operations Describes the breadth and strength of its activities and the extent of its reach into geographic, product and service market segments. Dimensions of a Firm's Scope -Breadth of its product and service offerings -Range of activities it performs internally -Extent of its geographic market presence -Mix of businesses

Interpreting the Competitive Strength Assessments

Show how a firm compares against its rivals, factor by factor or capability by capability. Indicate whether a firm is at net competitive advantage or disadvantage against each rival. Provide guidelines for designing wise offensive and defensive strategies. Point to competitive weaknesses of the firm that will require defensive moves to correct.

CORE CONCEPTS: Social Complexity and Causal Ambiguity

Social complexity and causal ambiguity are two factors that inhibit the ability of rivals to imitate a firm's most valuable resources and capabilities. Causal ambiguity makes it very hard to figure out how a complex resource contributes to competitive advantage and therefore exactly what to imitate.

CORE CONCEPTS: VRIN tests for sustainable competitive advantage

The VRIN tests for sustainable competitive advantage asks if a resource or capability is valuable, rare, inimitable, and nonsubstitutable.

Steps in a Competitive Strength Assessment

Step 1 List the industry's key success factors and other measures of competitive strength or weakness (6 to 10 measures). Step 2 Assign a weight to each measure of competitive strength based on its importance in shaping competitive success. (The sum of the weights for each measure must add up to 1.0.) Step 3 Calculate strength ratings by scoring each competitor on each strength measure (use a scale where 1 is weak and 10 is strong) and multiplying the assigned rating by the assigned weight. Step 4 Sum the weighted strength ratings on each factor to get an overall measure of competitive strength for each company being rated. Step 5 Use the overall strength ratings to draw conclusions about the size and extent of the firm's net competitive advantage or disadvantage and to take specific note of areas of strength and weakness.

Strategic Alliances and Partnerships

Strategic Alliance Is a formal contractual agreement in which two or more firms collaborate to achieve mutually beneficial strategic outcomes based on: -Strategically relevant collaboration. -Joint contribution of. -Shared risk. -Shared control. -Mutual dependence. Strategic alliance allows firms to complementarily bundle resources and competencies to increase their competitive effects and value.

Horizontal Merger and Acquisition Strategies

Strategic options that can strengthen a firm's market position by: -Achieving operating scale and scope economies -Gaining complementary competencies -Extending current and new market and product opportunities Merger The combining of two or more firms into a single entity, with the newly created firm often taking on a new name Acquisition The combination in which one firm, the acquirer, purchases and absorbs the operations of another, the acquired firm

Cost-Efficient Management of Value Chain Activities

Striving to capture all available economies of scale. Taking full advantage of experience and learning curve effects. Trying to operate facilities at full capacity. Substituting lower-cost inputs whenever there is little or no sacrifice in product quality or product performance. Employing advanced production technology and process design to improve overall efficiency. Using communication systems and information technology to achieve operating efficiencies. Using the company's bargaining power vis-à-vis suppliers to gain concessions. Being alert to the cost advantages of outsourcing and vertical integration. Pursuing ways to boost labor productivity and lower overall compensation costs.

Benefits of Successful Differentiation

Successful execution of a differentiation strategy allows a firm to: -Command a premium price. -Increase its unit sales. -Gain buyer loyalty to its brand.

When a Focused Low-Cost or Focused Differentiation Strategy Is Viable

The target market niche is big enough to be profitable and offers good growth potential. Market leaders have chosen not to compete in the niche—focusers can avoid battling head-to-head against the biggest and strongest competitors. It is costly or difficult for multi-segment competitors to meet the specialized needs of niche buyers and at the same time satisfy the expectations of mainstream customers. The market has many different niches and segments, allowing a focuser to pick a niche suited to its strengths and capabilities. Few rivals attempt to specialize in the same target segment.

The Value Chain System for an Entire Industry

The value chains of forward channel partners are relevant because: -Costs and margins of the activities of distributors and retail dealers are part of the price the consumer pays and can strongly affect a firm's customer value proposition. -Accurately assessing the competitiveness of a firm's cost structure and value proposition helps its managers understand both an industry's value chain system and its internal value chain.

The Value of a SWOT Analysis

The value of a SWOT analysis is in: Drawing conclusions from SWOT listings about the firm's overall situation and translating those conclusions into effective strategic actions that: -Better match the firm's strategy to its strengths and market opportunities -Correct problematic weaknesses -Defend against worrisome external threats.

Vertical Integration Strategies

Vertical integration involves extending a firm's competitive and operating scope within the same industry. -Backward into sources of supply -Forward toward end-users of final product Vertical integration can aim at either full or partial integration.

Timing a Company's Offensive and Defensive Strategic Moves

When to make a strategic move is often as crucial as what move to make. A first-mover can earn an advantage when: -Pioneering builds its reputation and strong brand loyalty. -First mover's customers will face significant switching costs. -Property rights protections thwart rapid imitation of its initial move. -An early lead enables it to move down the learning curve ahead of its rivals. -A first mover can set the technical standard for the industry.

Question 3: Are the Company's Cost Structure and Customer Value Proposition Competitive?

Why are both cost structure and value important? Delivering a profitable customer value proposition that maintains a competitive edge of over rivals requires effectively controlling the costs of differentiating features in industries where price competition is a dominant feature. Useful analytical tools: -Value chain analysis -Benchmarking