Chap006 Supplementing Chosen Strategy
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Transcript of Chap006 Supplementing Chosen Strategy
66chapterchapter
SUPPLEMENTING SUPPLEMENTING THE CHOSEN THE CHOSEN COMPETITIVE COMPETITIVE STRATEGY—STRATEGY—OTHER IMPORTANT OTHER IMPORTANT STRATEGY CHOICESSTRATEGY CHOICES
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Fig. 6.1a: Strategy OptionsFig. 6.1a: Strategy Options
Fig. 6.1b: Strategy OptionsFig. 6.1b: Strategy Options
6-6-66
Choosing Strategy Actions Choosing Strategy Actions that Complement a Firm’s that Complement a Firm’s
Competitive ApproachCompetitive Approach Decisions regarding the firm’s operating scope and
how to best strengthen its market standing must be made: Whether and when to go on the offensive and initiate aggressive
strategic moves to improve the firm’s market position.
Whether and when to employ defensive strategies to protect the firm’s market position.
When to undertake strategic moves based upon whether it is advantageous to be a first mover or a fast follower or a late mover.
6-6-77
Choosing Strategy Actions Choosing Strategy Actions that Complement a Firm’s that Complement a Firm’s
Generic Competitive Strategy Generic Competitive Strategy Decisions re the firm’s operating scope and how to
best strengthen market standing need to be made: Whether to integrate backward or forward into more stages of the
industry value chain.
Which value chain activities, if any, should be outsourced.
Whether to enter into strategic alliances or partnership arrangements with other enterprises.
Whether to bolster the firm’s market position by merging with or acquiring another company in the same industry.
6-6-88
Launching Strategic Offensives to Launching Strategic Offensives to Improve a Company’s Market PositionImprove a Company’s Market Position
Aggressive strategic 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 advantageCan reap the benefits 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.
6-6-99
Choosing the Basis for Choosing the Basis for Competitive AttackCompetitive Attack
6-6-1212
Choosing Which Rivals to AttackChoosing Which Rivals to Attack
6-6-1313
Blue Ocean Blue Ocean Strategy—Strategy—A Special Kind of Offensive A Special Kind of Offensive
Involves a firm seeking sizable and durable competitive advantage by abandoning its existing markets and, then, inventing a new industry or distinctive market segment in which that firm has exclusive access to new demand.By “reinventing the circus,” Cirque du Soleil annually
attracts an audience of millions of people who typically do not attend circus events.
Core Concept Core Concept
6-6-1414
Blue ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.
Core Concept Core Concept
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Competitive Advantage Cycle a framework describing how competitive advantage is affected by simultaneous occurrences of investments in renewal, leveraging on sources of advantage, and performance of competitive firms in a dynamic industry .
Core Concept Core Concept
6-6-1616© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 6–16
Core Concept Core Concept
6-6-1717© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 6–17
6-6-1818
Using Defensive Strategies to Protect Using Defensive Strategies to Protect a Company’s Market Position and a Company’s Market Position and
Competitive AdvantageCompetitive AdvantageDefensive strategies help fortify a competitive
position:Lowers risk of being attacked, copied.Weakens the impact of any attack.Influences challengers to redirect efforts towards other
rivals.Good defensive strategies help protect
competitive advantage but rarely are the basis for creating itCausal Ambiguity, Duplicability, Threat of Retaliation.
6-6-1919
Blocking the Avenues Blocking the Avenues Open to ChallengersOpen to Challengers
Create Barriers to Imitiation:-Causal Ambiguity-Duplicability-Threat of Retaliation
6-6-2121
Signaling Challengers that Signaling Challengers that Retaliation Is LikelyRetaliation Is Likely
6-6-2222
Signaling Challengers that Signaling Challengers that Retaliation Is LikelyRetaliation Is Likely
Publicly announce management’s strong commitment to maintain the firm’s present market share
Publicly commit firm to policy ofmatching rivals’ terms or prices
Maintain war chest of cash reservesMake occasional counterresponse
to moves of weaker rivals
6-6-2323
Timing a Company’s Offensive Timing a Company’s Offensive and Defensive Strategic Movesand Defensive Strategic Moves
When to make a strategic move is often as crucial as what move to make.
First-mover advantages arise when:Helps build a firm’s image as a PioneerEarly commitments (technology, channels)
produce a cost advantage over rivalsFirst-time customers show loyalty through
repeat purchasesServes as a preemptive strike, making imitation
difficult, or unlikely
6-6-2424
First-Mover DisadvantagesFirst-Mover DisadvantagesMoving early can be a disadvantage (or
fail to produce an advantage) whenCosts of pioneering are sizable and
loyalty of first time buyers is weak
Innovator’s products are primitive,not living up to buyer expectations
Rapid technological change allowsfollowers to leapfrog pioneers
6-6-2525
Principle 1
Being a late mover can sometimes yieldas good a result as being a first mover
Principle 2
Being a late-mover may or may not be fatal -- it varies with the situation
Principle 3
Being a fast follower can sometimes yieldas good a result as being a first mover
Timing and Competitive AdvantageTiming and Competitive Advantage
6-6-2626
The early bird catches The early bird catches the worm, the worm,
but the late mouse but the late mouse gets the cheese!gets the cheese!
Timing and Competitive AdvantageTiming and Competitive Advantage
Core Concept Core Concept
6-6-2727
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.
6-6-2828
Deciding Whether to Be an Early Mover Deciding Whether to Be an Early Mover or Late Moveror Late Mover
Key Issue: Is the race to market leadership a marathon or a sprint?
Seeking first-mover competitive advantage involves addressing several questions: Does market takeoff depend on 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?
Are there influential competitors in a position to delay or derail the efforts of a first mover?
6-6-2929
Concepts and Connections 6.1Amazon.Com’s First-Mover Advantage in Online Retailing
6-6-3030
Choosing Functional StrategiesChoosing Functional Strategies Involves strategic choices about how
functional areas are managed to support competitive strategy and other strategic moves
Functional strategies includeResearch and developmentProductionHuman resourcesSales and marketingFinance
Tailoring functional-area strategies tosupport key business-level strategies is critical!
6-6-3131
Vertical Integration: Operating Across Vertical Integration: Operating Across More Industry Value Chain SegmentsMore Industry Value Chain Segments
Involves extending a firm’s competitive and operating scope within the same industryBackward into sources of supplyForward toward end users of final product
Can aim at either full or partial integration
Core Concept Core Concept
6-6-3232
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
Core Concept Core Concept
6-6-3333
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.
6-6-3434
The Advantages of a Vertical The Advantages of a Vertical Integration StrategyIntegration Strategy
The two best reasons for vertically integrating into more value chain segments:Strengthen the firm’s competitive positionBoost profitability
6-6-3636
When Backward Vertical Integration When Backward Vertical Integration Becomes a ConsiderationBecomes a Consideration
6-6-3838
Integrating Forward to Enhance Integrating Forward to Enhance CompetitivenessCompetitiveness
Gain better access to end users Improve market visibility Include the purchasing experience as a
differentiating feature
6-6-3939
Forward Vertical Integration Forward Vertical Integration and Internet Retailingand Internet Retailing
Direct selling and Internet retailing have appeal when there is no potential to:Lower distribution costsGain a cost advantage over rivalsProduce higher marginsAllow for lower prices charged to end users
Competing directly against distribution allies can create channel conflict and signal a weak commitment to dealers.
6-6-4040
Disadvantages of a Disadvantages of a Vertical Integration StrategyVertical Integration Strategy
Locks a firm further into the same industry, should industry growth and profits sour; increases investments and risks -
May require development of radically different skills and business capabilities
Can slow the adoption of technical advances for vertically integrated firms using older technologies and facilities
Less flexibility to accommodate changing buyer preferences when a new product requires parts not made in-house.
Creates capacity-matching problems among integrated in-house component manufacturing units
6-6-4242
Outsourcing Strategies: Outsourcing Strategies: Narrowing the Scope of OperationsNarrowing the Scope of Operations
Outsourcing an activity is a consideration when: It can be performed better or more cheaply by outside specialists.
It is not crucial to achieve a sustainable competitive advantage and will not hollow out capabilities, core competencies, or technical know-how of a 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.
Core Concept Core Concept
6-6-4343
Outsourcing involves contracting out certainvalue chain activities to outside specialists and strategic allies.
6-6-4444
Outsourcing Strategies: Narrowing Outsourcing Strategies: Narrowing the Scope of Operations (cont’d)the Scope of Operations (cont’d)
The Big Risk of Outsourcing:Farming out the wrong types of activitiesHollowing out strategically important capabilities
ultimately damages a firm’s competitiveness and long-term success in the marketplace
6-6-4545
Strategic Alliances and PartnershipsStrategic Alliances and Partnerships
Strategic AllianceIs a formal collaborative agreement in which two or
more firms join forces to achieve mutually beneficial strategic outcomes: A strategically relevant collaboration A joint contribution of resources An assumption of a shared risk An agreement to shared control A recognition of mutual dependence
Is attractive in that it allows firms to bundle resources and competencies that are more valuable in a joint effort than when kept separate.
Core Concept Core Concept
6-6-4646
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.
6-6-4747
Reasons for Firms to Enter Reasons for Firms to Enter into Strategic Alliancesinto Strategic Alliances
6-6-4949
Reasons for Firms to Continue Reasons for Firms to Continue in Strategic Alliancesin Strategic Alliances
Alliances are likely to be long-lasting when:They involve collaboration with suppliers or
distribution allies.Both parties conclude that continued collaboration
is in their mutual interest, perhaps because new opportunities for learning are emerging.
Experience indicates that:Alliances stand a reasonable chance of helping a
firm reduce its competitive disadvantage but very rarely have alliances proved a strategic option for gaining a durable competitive edge over rivals.
6-6-5050
Failed Strategic Alliances and Failed Strategic Alliances and Cooperative PartnershipsCooperative Partnerships
Common causes for the failure of 60–70% of alliances each year:Diverging objectives and prioritiesAn inability to work well togetherChanging conditions that make the purpose of the
alliance obsoleteThe emergence of more attractive technological pathsMarketplace rivalry between one or more allies
6-6-5151
Dangers of Relying on Alliances for Core Dangers of Relying on Alliances for Core CapabilitiesCapabilities
Achilles’ heel of alliances: becoming dependent on other companies for core or essential capabilities.
Ultimately, a firm must develop its own resources and capabilities to protect its competitiveness and capabilities to build and maintain its competitive advantage.
6-6-5252
Merger and Acquisition StrategiesMerger and Acquisition Strategies
An attractive strategic option for achieving operating economies, strengthening competencies, and opening avenues to new market 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
6-6-5353
Typical Objectives of Mergers Typical Objectives of Mergers and Acquisitionsand Acquisitions
1. To create a more cost-efficient operation out of the combined firms
2. To expand a firm’s geographic coverage3. To extend the firm’s business into new
product categories4. To gain quick access to new technologies or
other resources and competitive capabilities5. To lead the convergence of industries whose
boundaries are being blurred by changing technologies and new market opportunities
6-6-5454
Why Mergers and Acquisitions Why Mergers and Acquisitions Sometimes Fail to Produce Sometimes Fail to Produce
Anticipated ResultsAnticipated 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 can stall
because of resistance from organization members. Managers and employees at the acquired company
may continue to do things as they were done prior to the acquisition.
Key employees of the acquired firm may leave.
6-6-5555
Strategic Analysis and Choice
(Chapter 6, Fred David)
© 2013 by The McGraw-Hill Companies, Inc. All rights reserved. 6–55
(cont’d)
6-6-5656Ch. 6-56
Strategy-Formulation Analytical Framework
Stage 1: The Input StageStage 1: The Input Stage
Stage 2: The Matching StageStage 2: The Matching Stage
Stage 3: The Decision StageStage 3: The Decision Stage
(cont’d)
6-6-5757Ch. 6-57
Strategy-Formulation Analytical Framework
Stage 1: The Input StageStage 1: The Input Stage
ExternalFactor
EvaluationMatrix (EFE)
CompetitiveProfileMatrix
InternalFactor
EvaluationMatrix (IFE)
(cont’d)
6-6-5858Ch. 6-58
Strategy-Formulation Analytical Framework
Stage 2: The Matching StageStage 2: The Matching Stage
ThreatsOpportunitiesWeaknesses
Strengths(TOWS)
StrategicPosition &
Action Evaluation(SPACE)
BostonConsulting
Group Matrix(BCG)
Internal-ExternalMatrix
(IE)
GrandStrategyMatrix
(cont’d)
6-6-5959Ch. 6-59
Strategy-Formulation Analytical Framework
Stage 3: The Decision StageStage 3: The Decision Stage
Quantitative StrategicPlanning Matrix
(QSPM)
Strategic Impact Matrix(SFU)
(cont’d)
6-6-6060Copyright 2007 Prentice Hall
Ch 6 -60
Strategy Analysis & ChoiceStrategy Analysis & Choice
© 2001 Prentice HallCh. 6-60
SPACE MatrixSPACE Matrix FS
ES
ConservativeAggressive
Find Find “median“median” to ” to define vector point define vector point ((x, y)x, y)
+6
+1
+5+4+3+2
-6-5-4
-3-2-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6
CA IS
Defensive Competitive
O
OOO
X
y
FS = H
IS = M
CA = H
ES = H
(cont’d)
6-6-6161Copyright 2007 Prentice Hall
Ch 6 -61
Strategy Analysis & ChoiceStrategy Analysis & Choice
DogsDogsIVIV
Cash CowsCash CowsIIIIII
Question MarksQuestion MarksII
StarsStarsIIII
Relative Market Share Position
High1.0
Medium.50
Low0.0
High+20
Low-20
Medium0
BCG MatrixBCG Matrix
(cont’d)
6-6-6262Copyright 2007 Prentice Hall
Ch 6 -62
Strategy Analysis & ChoiceStrategy Analysis & Choice
Ch. 6-63
Grand Strategy MatrixGrand Strategy Matrix
Quadrant IV• Concentric
diversification• Horizontal
diversification• Conglomerate
diversification• Joint ventures
Quadrant III• Retrenchment• Concentric
diversification• Horizontal
diversification• Conglomerate
diversification• Liquidation
Quadrant I• Market development• Market penetration• Product development• Forward integration• Backward integration• Horizontal integration• Concentric
diversification
Quadrant II• Market development• Market penetration• Product development• Horizontal integration• Divestiture• Liquidation
RAPID MARKET GROWTH
SLOW MARKET GROWTH
WEAK COMPETITIVE POSITION
STRONGCOMPETITIVE POSITION
Competitive Position Line
Mar
ket G
row
th L
ine
Strategy Analysis & ChoiceStrategy Analysis & Choice
Ch. 6-64
““Putting First Things First” Putting First Things First” by S. Coveyby S. Covey
II Hi, Lu– Imp’t but Not Urgent I Hi, Hu Important AND Urgent
IV Hi Lu-Not Imp’t; Not Urgent III Li Hu Urgent but not Imp’t
IMPO
RTAN
CIM
PORT
ANC
EE
URGENCURGENCYY
• Strategy- Planning/ DoingStrategy- Planning/ Doing• Value Chain Analysis Value Chain Analysis • Health, relationshipsHealth, relationships• Faith, Family, FriendsFaith, Family, Friends• Resolving ConflictsResolving Conflicts• Training, Hiring, FiringTraining, Hiring, Firing• Capacity Planning; TOCCapacity Planning; TOC
• Problems, CrisisProblems, Crisis• ComplaintsComplaints• Deliveries; DelaysDeliveries; Delays• Sales; Profit TargetsSales; Profit Targets• Project DeadlinesProject Deadlines• Imminent LossesImminent Losses• Comm’n BreakdownComm’n Breakdown
• Unplanned leisureUnplanned leisure• Unplanned Fun, gimmicksUnplanned Fun, gimmicks• Games, TV, InternetGames, TV, Internet• MistakesMistakes• Some TV ShowsSome TV Shows
• Many calls, texts, YM, Many calls, texts, YM, emails, meetingsemails, meetings• Non-value adding workNon-value adding work• Repairs, ReworkRepairs, Rework• Some unimportant Some unimportant conflictsconflicts
© 2001 Prentice Hall Ch. 6-65
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