Professional Documents
Culture Documents
Beyond Competitive
Strategy Other Important
Strategy Choices
Chapter Summary
Chapter 6 identifies that once a company has settled on which of the five generic
strategies to employ, attention must turn to what other strategic actions can be taken in
order to complement the choice of its basic competitive strategy. The chapter contains
sections discussing the pros and cons of each of the complementary strategic actions
offered. The next-to-last section in the chapter addresses the competitive importance of
timing strategic moves when it is advantageous to be a first-mover and when it is better
to be a fast-follower or late-mover. It concludes with a brief look at the need for strategic
choices in each functional areas of a companys business to support its basic competitive
approach and complementary moves.
Lecture Outline
I. Introduction
1. Figure 6.1, A Companys Menu of Strategy Options, shows the menu of strategic
options a company has in crafting a strategy and the order in which the choices should
generally be made.
II. Strategic Alliances and Collaborative Partnerships
1. During the past decade, companies in all types of industries and in all parts of the world
have elected to form strategic alliances and partnerships to complement their own
strategic initiatives and strengthen their competitiveness in domestic and international
markets.
2. Globalization of the world economy, revolutionary advances in technology across a broad
front, and untapped opportunities in national markets in Asia, Latin America, and Europe
that are opening up, deregulating, and/or undergoing privatization have made
partnerships of one kind or another integral to competing on a broad geographic scale.
3. Many companies now find themselves thrust in the midst of two very demanding
competitive races:
a. The global race to build a presence in many different national markets
Session 4 Notes 2
CORE CONCEPT: While a few companies have the resources and capabilities to
pursue their strategies alone, it is becoming increasingly common for companies
to pursue their strategies in collaboration with suppliers, distributors, makers of
complementary products, and sometimes even select competitors.
7. Allies can learn much from one another in performing joint research, sharing
technological know-how, and collaborating on complementary new technologies and
products sometimes enough to enable them to pursue other new opportunities on their
own.
8. Strategic cooperation is a much-favored approach in industries where new technological
developments are occurring at a furious pace along many different paths and where
advances in one technology spill over to affect others.
C. Alliances and Partnerships with Foreign Companies
1. Cooperative strategies and alliances to penetrate international markets are common
between domestic and foreign firms.
2. Such partnerships are useful in putting together the capabilities to do business over a
wider number of country markets.
D. Why Many Alliances are Unstable or Break Apart
1. The stability of an alliance depends on how well the partners work together, their success
in adapting to changing internal and external conditions, and their willingness to
renegotiate the bargain if circumstances so warrant.
2. A surprisingly large number of alliances never live up to expectations. A 1999 study by
Accenture revealed that 61 percent of alliances either were outright failures or were
limping along. Many alliances are dissolved after a few years.
3. Experience indicates that alliances stand a reasonable chance of helping a company
reduce competitive disadvantage but rarely have they proved a durable device for
achieving a competitive edge.
CORE CONCEPT: Many alliances break apart without reaching their potential
because of friction and conflicts among the allies.
1. Mergers and acquisitions are a much-used strategic plan. They are especially suited for
situations where alliances and partnerships do not go far enough in providing a company
with access to the needed resources and capabilities.
CORE CONCEPT: No company can afford to ignore the strategic and
competitive benefits of acquiring or merging with another company to strengthen
its market position and open up avenues of new opportunity.
2. A merger is a pooling of equals, with the newly created company often taking on a new
name. An acquisition is a combination in which one company, the acquirer, purchases
and absorbs the operations of another, the acquired.
3. The difference between a merger and an acquisition relates more to the details of
ownership, management control, and financial arrangements than to strategy and
competitive advantage. The resources, competencies, and competitive capabilities of the
newly created enterprise end up much the same whether the combination is the result of
acquisition or merger.
CORE CONCEPT: A merger is a pooling of two or more companies as equals,
with the newly created company often taking on a new name. An acquisition is a
combination in which one company purchases and absorbs the operations of
another.
4. Many mergers and acquisitions are driven by strategies to achieve one of five strategic
objectives:
a. To pave the way for the acquiring company to gain more market share and create a
more efficient operation out of the combined companies by closing high-cost plants
and eliminating surplus capacity industrywide
b. To expand a companys geographic coverage
c. To extend the companys business into new product categories or international
markets
d. To gain quick access to new technologies and avoid the need for a lengthy and time-
consuming R&D effort
e. To try to invent a new industry and lead the convergence of industries whose
boundaries are being blurred by changing technologies and new market opportunities
5. In addition to the above objectives, there are instances in which acquisitions are
motivated by a companys desire to fill resource gaps, thus allowing the new company to
do things it could not do before.
6. Illustration Capsule 6.1, How Clear Channel Has Used Mergers and Acquisitions to
Become a Global Market Leader, describes how Clear Channel Worldwide has used
mergers and acquisitions to build a leading global position in outdoor advertising and
radio and TV broadcasting.
Answer: In the late 1980s, following the decision by the FCC to loosen rules regarding the
ability of one company to own both radio and TV stations, Clear Channel broadened its
strategy and began acquiring small, struggling TV stations. Its new strategy was to buy radio,
TV, and outdoor advertising properties with operations in many of the same local markets,
share facilities and staffs to cut costs, improve programming, and sell advertising for all three
media simultaneously.
By 1998, Clear Channel had used acquisitions to build a leading position in radio and
television stations. In 2003, this company owned radio and television stations, outdoor
advertising, and entertainment venues in 66 countries around the world.
7. Mergers and acquisitions do not always produce the hoped for outcomes. Combining the
operations of two companies often entails formidable resistance from rank-and-file
organization members, hard-to-resolve conflicts in management styles and corporate
cultures, and tough problems of integration.
8. A number of previously applauded mergers/acquisitions have yet to live up to
expectations AOL and Time Warner and Daimler Benz and Chrysler to name a few.
IV. Vertical Integration Strategies: Operating Across More Stages of the Industry Value
Chain
1. Vertical integration extends a firms competitive and operating scope within the same
industry. It involves expanding the firms range of activities backward into sources of
supply and/or forward toward end users.
2. Vertical integration strategies can aim at full integration or partial integration.
A. The Strategic Advantages of Vertical Integration
1. The only good reason for investing company resources in vertical integration is to
strengthen the firms competitive position.
CORE CONCEPT: A vertical integration strategy has appeal only if it
significantly strengthens a firms competitive position.
2. Often many of the advantages of performing value chain activities in-house can be
captured and many of the disadvantages avoided by forging close, long-term cooperative
partnerships with key suppliers and tapping into the important competitive capabilities
that able suppliers have painstakingly developed.
3. Relying on outside specialists to perform certain value chain activities offers a number of
strategic advantages:
a. Obtaining higher quality and/or cheaper components than internal sources can
provide
b. Improving the companys ability to innovate by allying with best-in-world
suppliers who have considerable intellectual capital and innovative capabilities of
their own
c. Enhancing the firms strategic flexibility should customer needs and market
conditions suddenly shift
d. Increasing the firms ability to assemble diverse kinds of expertise speedily and
efficiently
e. Allowing the firm to concentrate its resources on performing those activities
internally that it can perform better than outsiders and/or that it needs to have under
its direct control
B. The Pitfalls of Outsourcing
1. The biggest danger of outsourcing is that a company will farm out too many or the wrong
types of activities and thereby hollow out its own capabilities.
VI. Using Offensive Strategies to Secure Competitive Advantage
1. Competitive advantage is nearly always achieved by successful offensive strategic moves
initiatives calculated to yield a cost advantage, a differentiation advantage, or a
resource advantage.
2. Defensive strategies can protect competitive advantage but rarely are the basis for
creating the advantage.
3. To sustain an initially won competitive advantage, a firm must come up with follow-on
offensive and defensive moves.
Session 4 Notes 8
1. A second strategic option is to use online sales as a relatively minor distribution channel
for achieving incremental sales, gaining online sales experience, and doing market
research.
C. Brick-and-Click Strategies: An Appealing Middle Ground
1. Employing a brick-and-click strategy to sell directly to consumers while at the same time
using traditional wholesale and retail channels can be an attractive market positioning
option in the right circumstances.
2. There are three major reasons why manufacturers might want to aggressively pursue
online sales and establish the Internet as an important distribution channel alongside
traditional channels:
a. The manufacturers profit margins from online sales is bigger than that from sales
through wholesale/retail channels
b. Encouraging buyers to visit the companys Web site helps educate them to the ease
and convenience of buying online
c. Selling directly to end users allows a manufacturer to make greater use of build-to-
order manufacturing and assembly as a basis for bypassing traditional channels
entirely
3. A combination brick-and-click market positioning strategy is highly suitable when online
sales have a good chance of evolving into a manufacturers primary distribution channel.
4. Many brick-and-mortar companies can enter online retailing at relatively low cost.
5. Brick-and-click strategies have two big strategic appeals for wholesale and retail
enterprises:
a. They are an economic means of expanding a companys geographic reach
b. They give both existing and potential customers another choice of how to
communicate with the company, shop for product information, make purchases, or
resolve customer service problems
6. Illustration Capsule 6.2, Office Depots Brick-and-Click Strategy, describes how
Office Depot has successfully migrated from a traditional brick-and-mortar distribution
strategy to a combination brick-and-click distribution strategy.
Exercises
Session 4 Notes 14