Business Strategy Chapter 7 Outsourcing Strategies

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S 1:Outsourcing  Strategies

Concept

Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities.

Internally Performed Activities

Suppliers

Support Services

Functional Activities

Distributors or Retailers

S 2:When  Does  Outsourcing Make  Strategic  Sense?

•Activity can be performed better or more cheaply by outside specialists.

•Activity is not crucial to achieve a sustainable competitive advantage.

•Risk exposure to changing technology and/or changing buyer preferences is reduced.

•It improves firm’s ability to innovate

•Operations are streamlined to

–Improve flexibility

–Cut time to get new products into the market

•It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently.

•Firm can concentrate on “core” value chain activities that best suit its resource strengths. 

S 3:Risk  of  an  Outsourcing  Strategy

¨Farming out too many or the wrong activities, thus

¡Hollowing out capabilities

¡Losing touch with activities and expertise that determine overall long-term success

S 4:Offensive  and  Defensive  Strategies

Offensive Strategies:

Used to build new or stronger market position and/or create competitive advantage.

Defensive Strategies

Used to protect competitive advantage (rarely lead to creating advantage)

S 5: Principles  of  Offensive  Strategies

•Focus relentlessly on:

–Building competitive advantage and

–Striving to convert it into decisive advantage

•Employ the element of surprise as opposed to doing what rivals expect.

•Apply resources where rivals are least able to defend themselves.

•Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive position vis-à-vis rivals.

S 6:Types  of  Offensive  Strategy  Options

1. Offer an equally good or better product at a lower price

2. Leapfrog competitors by being:

–First adopter of next-generation technologies or

–First to market with next-generation products.

3. Pursue continuous product innovation to draw sales and arket share away from less innovative rivals.

4. Adopt and improve on the good ideas of other companies.

S 7:Types  of  Offensive  Strategy  Options (con’t)

5. Deliberately attack market segments where a key rival makes big profits .

6. Attack competitive weaknesses of rivals.

7. Maneuver around competitors and concentrate on capturing unoccupied or less contested market territory.

8. Use hit-and-run or guerrilla warfare tactics to grab sales and market share from complacent rivals.

9. Launch a preemptive strike to secure an advantageous position that rivals are prevented from duplicating

S 8:Using  Offensive  Strategy  to Achieve  Competitive  Advantage

•Strategic offensives offering strongest basis for competitive advantage entail

–An important core competence

–A unique competitive capability

–A better-known brand name

–A cost advantage in manufacturing
or distribution

–Technological superiority

–A superior product

S 9: Defensive  Strategy

— Objectives

—Lessen risk of being attacked

—Blunt impact of any attack that occurs

—Influence challengers to aim attacks at other rivals .

Approaches

uBlock avenues open to challengers

uSignal challengers vigorous
retaliation is likely

S 10:Block  Avenues  Open  to  Challengers

•Participate in alternative technologies.

•Introduce new features, add new models, or broaden product line to close gaps rivals may pursue.

•Maintain economy-priced models.

•Increase warranty coverage.

•Offer free training and support services.

•Reduce delivery times for spare parts.

•Make early announcements about new products or price changes.

•Challenge quality or safety of rivals’ products using legal tactics.

•Sign exclusive agreements with distributors.

S 11:Signal  Challengers  Retaliation  Is  Likely

—Publicly announce management’s strong commitment to maintain present market share.

—Publicly commit firm to policy of matching rivals’ terms or prices.

—Maintain war chest of cash reserves.

—Make occasional counter-response to moves of weaker rivals.

S 12: Web  Site  Strategies

—Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?

—Five Web site approaches:

—Use to disseminate only product information.

—Use as minor distribution channel.
to sell direct to customers.

—Use as one of several important distribution channels to access customers.

—Use as primary distribution channel to access buyers.

—Use as exclusive channel to transact sales with customers.

S 13:Brick-and-Click  Strategies: An  Appealing  Middle  Ground  Approach.

—Approach

—Sell directly to consumers and

—Use traditional wholesale/retail channels.

—Strategic appeal for wholesalers and retailers.

—Economic means of expanding a company’s economic reach

—Provide both existing and potential customers another choice of how to.

—Communicate with a company.

—Shop for product information.

—Make purchases.

—Resolve customer service problems.

S 14:Choosing  Appropriate Functional-Area  Strategies

—Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves

—Functional strategies include

—Research and development.

—Production.

—Human resources.

—Sales and marketing.

—Finance.

Tailoring functional-area strategies to
support key business-level strategies is critical!

S 15: First-Mover  Advantages

—When to make a strategic move is often as crucial as what move to make

—First-mover advantages arise when

—Pioneering helps build firm’s image and reputation

—Early commitments to new technologies,
new-style components, and distribution
channels can produce cost advantage

—Loyalty of first time buyers is high

—Moving first can be a preemptive strike

S 16:First-Mover  Disadvantages

—Moving early can be a disadvantage (or fail to produce an advantage) when

—When costs of pioneering are more than being an imitative follower and only negligible learning/experience curve benefits accrue to the leader.

—Innovator’s products are primitive, not living up to buyer expectations.

—Demand side of the market is skeptical about the benefits of new technology/product of a first-mover.

—Rapid technological change allows followers to leapfrog pioneers .