Business Strategy Chapter 6 Supplementing the Chosen Competitive Strategy

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S 1:Supplementing  the  Chosen  Competitive  Strategy.

S 2: A Company’s Menu of Strategy Options.

S 3:Collaborative  Strategies:
  Alliances  and  Partnerships

Companies sometimes use strategic alliances or collaborative partnerships to complement their own strategic initiatives and strengthen their competitiveness.  Such cooperative strategies go beyond normal company-to-company dealings but fall short of merger or full joint venture partnership.

S 4:Alliances Can Enhance a Firm’s  Competitiveness.

žAlliances and partnerships can help companies cope with two demanding competitive challenges

•Racing against rivals to build a
market presence in many
different national markets

•Racing against rivals to seize
opportunities on the frontiers
of advancing technology

žCollaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities

S 5:Characteristics  of  a  Strategic  Alliance.

—Strategic alliance – A formal agreement between two or more separate companies where there is

—Strategically relevant collaboration of some sort.

—Joint contribution of resources.

—Shared risk.

—Shared control.

—Mutual dependence.

—Alliances often involve

—Joint marketing.

—Joint sales or distribution.

—Joint production.

—Design collaboration.

—Joint research.

—Projects to jointly develop new technologies or products.

S 6:Potential Benefits of Alliances to Achieve  Global  and  Industry Leadership.

—Get into critical country markets quickly to accelerate process of building a global presence.

—Gain inside knowledge about unfamiliar markets and cultures.

—Access valuable skills and competencies concentrated in particular geographic locations.

—Establish a beachhead to participate in target industry.

—Master new technologies and build new expertise faster than would be possible internally.

—Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners.

S 7:Why  Alliances  Fail?

•Ability of an alliance to endure depends on

–How well partners work together.

–Success of partners in responding and adapting to changing conditions.

–Willingness of partners to renegotiate the bargain.

•Reasons for alliance failure

–Diverging objectives and priorities of partners.

–Inability of partners to work well together.

–Changing conditions rendering purpose of alliance obsolete.

–Emergence of more attractive technological paths.

–Marketplace rivalry between one or more allies.

S 8: Merger  and  Acquisition  Strategies

•Merger – Combination and pooling of equals, with newly created firm often taking on a new name.

•Acquisition – One firm, the acquirer, purchases and absorbs operations of another, the acquired.

•Merger-acquisition strategy

–Much-used strategic option

–Especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities.

–Ownership allows for tightly integrated operations, creating more control and autonomy than alliances.

S 9:Objectives  of  Mergers  and  Acquisitions

žTo create a more cost-efficient operation.

žTo expand a firm’s geographic coverage.

žTo extend a firm’s business into new product categories or international markets.

žTo gain quick access to new technologies or competitive capabilities.

žTo invent a new industry and lead the convergence of industries whose boundaries are blurred by changing technologies and new market opportunities.

S 10:Pitfalls  of  Mergers  and  Acquisitions

}Combining operations may result in

}Resistance from rank-and-file employees.

}Hard-to-resolve conflicts in management styles and corporate cultures.

}Tough problems of integration.

}Greater-than-anticipated difficulties in

}Achieving expected cost-savings.

}Sharing of expertise.

}Achieving enhanced competitive capabilities.

S 11: Vertical  Integration  Strategies

—Extend a firm’s competitive scope within
same industry.

—Backward into sources of supply.

—Forward toward end-users of final product.

—Can aim at either full or partial integration.

Activities,Costs, & Margins of Suppliers.

Internally Performed Activities, Costs, & Margins.

Activities, Costs, & Margins of Forward Channel Allies & Strategic Partners.

Buyer/User Value Chains.

S 12:Strategic  Advantages of  Backward  Integration

•Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers

•Potential to reduce costs exists when

–Suppliers have sizable profit margins

–Item supplied is a major cost component

–Resource requirements are easily met

•Can produce a differentiation-based competitive advantage when it results in a better quality part

•Reduces risk of depending on suppliers of crucial raw materials / parts / components

S 13:Strategic  Advantages of  Forward  Integration

•To gain better access to end users
and better market visibility

•To compensate for undependable distribution
channels which undermine steady operations

•To offset the lack of a broad product line, a firm may sell directly to end users

•To bypass regular distribution channels in favor of direct sales and Internet retailing which may

–Lower distribution costs

–Produce a relative cost advantage over rivals

–Enable lower selling prices to end users

S 14:Strategic  Disadvantages of  Vertical  Integration

•Boosts resource requirements

•Locks firm deeper into same industry

•Results in fixed sources of supply and
less flexibility in accommodating buyer
demands for product variety

•Poses all types of capacity-matching problems

•May require radically different skills / capabilities

•Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new products