Student Version
Choosing Strategy Actions
that Complement a Firm’s
Competitive Approach
• Decisions regarding the firm’s operating scope and
how to best strengthen its market standing must be
 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
Choosing Strategy Actions
that Complement a Firm’s
Competitive Approach (cont’d)
• Decisions regarding the firm’s operating scope and
how to best strengthen its market standing must be
 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.
Launching Strategic Offensives to
Improve 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 advantage
 Can reap benefits of 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.
Choosing the Basis for
Competitive Attack
Attack the competitive
weaknesses of rivals
Offer an equal or better
product at a lower price
Adopt and improving on
good ideas of other firms
Attack profitable market
segments of key rivals
Pursue continuous
product innovation
Capture unoccupied or
less contested markets
Leapfrog competitors to
be the first to market
Use hit-and-run or guerrilla
marketing tactics
Launch a preemptive strike
on a market opportunity
Choosing Which Rivals to Attack
Market leaders that are vulnerable.
Best Targets
for Offensive
Runner-up firms with weaknesses in
areas where the challenger is strong.
Struggling enterprises that are on
the verge of going under.
Small local and regional firms with
limited capabilities.
Blue Ocean Strategy—
A Special Kind of Offensive
• A firm seeks a large and lasting competitive
advantage by abandoning existing markets
and inventing an exclusive new industry or
market segment (open competitive space)
that makes former competitors irrelevant.
 By “reinventing the circus”, Cirque du Soleil annually
attracts an audience of millions of people who
typically do not attend circus events.
Using Defensive Strategies to Protect
a Company’s Market Position and
Competitive Advantage
• Defensive strategies defend against
competitive challenges by:
 Lowering the risk of being attacked.
 Weakening the impact of any attack that occurs.
 Influencing challengers to aim their competitive efforts
towards other rivals.
• Good defensive strategies can help protect
competitive advantage but rarely are the
basis for creating it.
Blocking the Avenues
Open to Challengers
Maintain economypriced models
Introduce new
Add new models
Broaden product
line to fill vacant
Defending a
Announce new
products or price
Grant volume
discounts or better
financing terms
Signaling Challengers That
Retaliation Is Likely
Publicly announcing management’s
strong commitment to maintain the
firm’s present market share
or diverting
Publicly committing the firm to a
policy of matching competitors’
terms or prices
Maintaining a war chest of cash
and marketable securities
Making a strong counter response to
weak competitor moves to enhance
the firm’s image as a tough defender
Timing a Company’s Offensive
and Defensive Strategic Moves
• When to make a strategic move is often as
crucial as what move to make.
• First-movers can earn big payoffs when:
 Pioneering helps build a firm’s image and reputation
with buyers.
 Early commitments to new ways produce an absolute
cost advantage over rivals.
 First-time customers remain strongly loyal in making
repeat purchases.
 Moving first constitutes a preemptive strike, making
imitation extra hard or unlikely.
The Potential for Late-Mover Advantages
or First-Mover Disadvantages
• Late-mover advantages (or first-mover
disadvantages) arise in four instances:
 When pioneering leadership is more costly than
 When innovators’ products are primitive, and do not
living up to buyer expectations.
 When potential buyers are skeptical about the
benefits of a first-mover’s new technology/product.
 When rapid market and technology changes allow
fast followers and late movers to leapfrog pioneers.
Deciding Whether to Be an Early Mover
or Late Mover
• Key Issue:
 Is the race to market leadership a marathon or a sprint?
• The decision to seek first-mover competitive
advantage requires asking:
 Does market takeoff depend on development of 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? Will
buyers encounter high switching costs?
 Are there influential competitors in a position to delay or derail
the efforts of a first-mover?
Strengthening a Company’s Market
Position Via its Scope of Operations
• Scope of a Firm’s Operations
 Describes the breadth and strength of its activities
and the extent of its reach into geographic, product
and service market segments.
• Dimensions of a Firm’s Scope
 Breadth of its product and service offerings
 The range of activities it performs internally
 The extent of its geographic market presence
 Its mix of businesses
Horizontal Merger and Acquisition
• A strategic option that strengthens a firm’s
market position by achieving operating scale
and scope economies, gaining complementary
competencies, and extending current and new
market and product 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
Strategic Objectives of Mergers
and Acquisitions
1. Extend the firm’s business into new product
2. Create a more cost-efficient operation out of the
combined firms.
3. Expand the firm’s geographic coverage.
4. Gain quick access to new technologies or
complementary resources and capabilities.
5. Lead the convergence of industries whose
boundaries are being blurred by changing
technologies and new market opportunities.
Why Mergers and Acquisitions May Fail
to Produce Anticipated 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 stall because
of resistance from organization members.
• Managers and employees at the acquired continue to
do things as they were done prior to the acquisition.
• Dissatisfied key employees of the acquired firm leave.
• Mistakes are made in deciding which activities to
leave alone and which activities to meld into the
acquiring firm’s own operations and systems.
Vertical Integration Strategies
• Involve extending a firm’s competitive and
operating scope within the same industry
 Backward into sources of supply
 Forward toward end-users of final product
• Can aim at either full or partial integration
The Advantages of a Vertical
Integration Strategy
• The two best reasons for vertically
integrating into more value chain segments:
 Strengthen the firm’s competitive position
 Boost profitability
Competitive Advantage
Integrating Backward to Achieve
Greater Competitiveness
• For backward integration to boost
profitability a firm must be able to:
1. Achieve the same scale economies
as outside suppliers.
2. Match or beat suppliers’ production efficiency
with no decline in quality.
When Backward Vertical Integration
Becomes a Consideration
When suppliers have large
profit margins
Backward Vertical
When the item being supplied
is a major cost component
When the requisite technological skills
are easily mastered or acquired
When powerful suppliers are inclined
to raise prices at every opportunity
Integrating Forward to Enhance
• Gain better access to end users
• Improve market visibility
• Include the purchasing experience
as a differentiating feature
Forward Vertical Integration
and Internet Retailing
• Direct selling and Internet retailing is
appealing when:
 It lowers distribution costs
 It produces a relative cost advantage over rivals
 It produces higher profit margins
 It allows lower prices to be charged to end users.
 Numbers of buyers prefer to make online purchases
• However, competing against directly against
distribution allies can create channel conflict
and signal a weak commitment to dealers.
Disadvantages of a
Vertical Integration Strategy
• Increases a firm’s specialized capital investments in its industry.
• Increases a firm’s overall business risk if industry growth slows
and profitability declines.
• Increases resistance by vertically integrated firms using aging
technologies and facilities to technical advances and efficiencies
• Results in less flexibility in accommodating shifting buyer
preferences when a new product design doesn’t include parts
and components that the firm makes in-house.
• Creates capacity-matching problems among integrated
in-house component manufacturing units.
• May require development of new and different skills and
business capabilities.
Outsourcing Strategies:
Narrowing the Scope of Operations
• Outsourcing an activity should be considered when:
 It can be performed better or more cheaply by outside specialists.
 It is not crucial to achieving a sustainable competitive advantage
and won’t hollow out capabilities, core competencies, or technical
know-how of the 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.
Outsourcing Strategies: Narrowing
the Scope of Operations (cont’d)
• The Big Risk of Outsourcing:
 Farming out the wrong types of activities and thereby
hollowing out strategically-important capabilities that
ultimately leads to reduction of the firm’s strategic
competitiveness and long-run success in the
Strategic Alliances and Partnerships
• Strategic Alliance
 Is a formal contractual agreement in which two or
more firms collaborate to achieve mutually beneficial
strategic outcomes based on:
Strategically relevant collaboration
Joint contribution of resources
Shared risk
Shared control
Mutual dependence
 Allows firms to complementarily bundle resources and
competencies to increase their competitive effects
and value.
Reasons for Firms to Enter
Into Strategic Alliances
Expedite development
of new technologies
or products
Overcome technical
or manufacturing
expertise deficits
Bring together personnel
to create new skill sets
and capabilities
Improve supply chain
Reasons for
Gain economies of
scale in production
and/or marketing
Acquire or improve
market access via joint
marketing agreements
Failed Strategic Alliances and
Cooperative Partnerships
• Common causes for the failure of 60–70%
of alliances each year:
 Diverging objectives and priorities.
 An inability to work well together.
 Changing conditions that make the purpose of the
alliance obsolete.
 The emergence of more attractive technological paths.
 Marketplace rivalry between one or more allies.
The Strategic Dangers of Relying on
Alliances for Essential Resources
And Capabilities
• The Achilles’ heel of alliances and
cooperative partnerships is becoming
dependent on other companies for
essential expertise and capabilities.
• Ultimately, a firm must develop its own
resources and capabilities to protect its
competitiveness and capabilities to build
and maintain its competitive advantage.