Transcript Chapter 6 Supplementing the Chosen Competitive Strategy

Chapter 6
Supplementing the Chosen
Competitive Strategy
Cooperative Strategies
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Strategic Alliance – formal agreement between
two or more companies in which there is a
strategically relevant collaboration.
Advantages of Alliances
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Gain access to new global markets
Gain knowledge about unfamiliar markets or
cultures
Gain access or master new technologies
Gain access to complementary resources
Keys to Alliance Success
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Picking the right partner
Sensitivity to cultural differences
Must be win-win
Mutual commitment
Swift decision making structures
Managing the learning process
Maintaining flexibility
Vertical Integration
Operating in more than one stage of the industry value chain
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partial/taper or full integration
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forward or backward
Benefits
 can not be held hostage – reduces buyer/supplier power
 greater control over operations
 access to new business/technologies
 reduce procurement and sales efforts
Risks
 increased overhead, capital and administrative costs
 loss of flexibility
 different competencies may be requires
 unbalanced capacities and increased risk
 reaction of competitors
Vertical Integration
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Will add value when:
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Enhance critical activities that lower costs or
increase differentiation
Benefits exceed the costs
Enhances competitive capabilities
Outsourcing
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Farming out specific activities to others,
allowing the firm to focus on more critical
activities and core competencies
Outsourcing Works When:
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Others can do it better and cheaper
Not a core competency
Reduces the companies’ risk to technology
changes
Improves the company’s innovation
Streamlines operations and increases flexibility
Assemble diverse expertise
Mergers and Acquisitions
Reasons of Acquisitions
Cost Efficiencies
Geographic Expansion
Product/Market Extensions
Increased Speed
Lower Risk
New Technologies
Invest in New Industry or
Create Convergence
Mergers and Acquisitions
Problems with Acquisitions
Integration of two firms
Overpayment/Debt
Overestimation of Synergy
Overdiversification
Managerial energy absorption
Become too large
Substitute for innovation
Mergers and Acquisitions
Results
Poor
Performance
Who Wins?
Acquired Firm
Shareholders
Failures of Acquisitions
30 - 40% average acquisition premium
Acquiring firm’s value drops 4% in the 3
months following acquisitions
30 - 50% of acquisitions are later divested
Acquirers underperform S&P by 14%, peers by
4%
3 month performance before and after
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30% substantial losses, 20% some losses, 33%
marginal returns, 17% substantial returns
Why, then, do executives acquire?
Often, for personal reasons
Firm size and executive compensation are related
When do executives loss their jobs?
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Offensive Strategies
Successful offensive strategies require:
• Relentless focus on advantages
• Element of surprise
• Apply resources where rivals have limitations
• Swift and decisive actions to break the status
quo
Offensive Options
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Equal or better product at a lower price
First mover or next generation
Continuous product innovation
Adopting and improving on a rivals idea
Attacking rival’s high margin segments
Attacking rival’s weaknesses
Tapping uncontested markets
Guerrilla warfare tactics
Pre-emptive strikes – tying up distribution, location, suppliers, or
acquiring distressed rivals
Blue Ocean Strategy
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Inventing new industry/segment that renders
existing competitors irrelevant and helps create
new demand
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Ebay
Cirque du Soleil
Netflix
Competitive Dynamics
 Competitive action within an industry
 Strategic and tactical action does not occur
within a vacuum
 What industries have high competitive
dynamics?
 What sort of actions/tactics are taken?
Drivers of Competitive Dynamics
 numerous/equally balanced competitors
 slow growth
 high fixed/storage costs
 lack of differentiation/switching costs
 high exit barriers
 Etc…
Rivalry
Competitive
Dynamics
Types of Competitive Responses
• First Movers - initial competitive action
• advantages and disadvantages
• Fast Followers or Capable Competitors- respond
quickly to first movers
• Late Entrants - day late and a dollar short