Mastering Strategic
Management
Chapter 6
Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Learning Objectives
Understand
• Different competitive moves commonly used by firms
• When and how do firms respond to competitive actions
taken by their rivals
• Cooperate strategies to create mutual benefits (joint
ventures, strategic alliances, etc.)
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
3
Merck executives must decide
• what competitive moves to make
• how to respond to rivals’ competitive moves, &
• what cooperative moves to make
Interestingly, other companies, such as Roche, will be a
potential ally in some instances & rival in others
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Making Competitive Moves
The study of competitive moves draws from military
history, including Sun Tzu’s classic book, The Art of War
Business strategists are familiar with a number of
competitive moves that may help guide their firms to
victory.
• First Mover Advantage
• Disruptive Innovations
• Footholds
• Blue Ocean Strategy
• Bricolage
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Mover – Advantage or
Not?
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Mover Advantage
A first-mover advantage exists when making the initial
move into a market allows a firm to establish a
dominant position that other firms struggle to overcome
Recall - a strategic resource is an asset that is valuable,
rare, difficult to imitate, and non-substitutable.
• Often requires significant R&D, & product testing costs
• A first-mover cannot be sure that customers will
embrace its offering, making a first move inherently
risky
• First movers must be willing to commit sufficient
resources to follow through on their pioneering efforts
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Movers
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Good News – Real disruptions usually takes some time
to catch on. Container shipping needed both ships,
railcars and trucks equipped to deal with containers and
container ports to load them
Bad News – very hard to identify what might be invented
soon…
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
First Mover – How to Fail….
• Does the product/service provide a truly sustainable
competitive resource
• Or is Innovation easy to copy, or worse improve on...
• Can company preferably continue to improve product,
or at a minimum, match product improvements (which
are almost surely going to appear)
• Failure to market aggressively (it’s new, consumers will
not know its value for them)
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Disruptive Innovations,1902
Can you think of any?
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Disruptive
•
•
•
•
Big change!
Affects whole market or industry
Very hard to predict, but usually slow to develop
Market is always evolving, difficult to pick out which are
truly disruptive amongst market ‘noise’
• Includes creating brand new market where none
existed before (i.e. Smart phone apps)
• As market emerges or develops, other firms must
decide how to respond, embrace or compete
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
(Relatively) Recent
Disruptions!
•
•
•
•
•
•
Energy Efficient light bulbs
Kindle (Gaming)
Electric & Driverless cars
E-cigarettes
iphone apps/mobile computing/texting
Robots - vacuum cleaners, lawn mowers too!
• Social Media - U-Tube, Facebook, Pinterest, etc.
• Modern Container Shipping
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Foothold (Beach-head)
Strategy
Value often far exceeds small size & costs of
maintenance
Test market & faster expansion if things go well
Can deter competitors & make harder to predict next
move
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
• Carl von Clausewitz’s 19th military strategy “aim at the sharp end of
spear where rivals are weak or uninterested in what you are doing”
• Opens single store entering country as a showcase & establish brand
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Walmart’s disruptions centered on supply mgmt
• Current data - Bar codes, satellites, inventory
• Relentless focus on prices
• Distribution system
The first Walmart store opened July 1962 in Rogers, Arkansas & expanded
in small towns underserved by large department stores
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Blue Ocean Strategy
Involves creating a new, untapped market rather than
competing with rivals in an existing market
Creating a brand new market place
• Coffee Shops, Women’s underwear stores
• Transportation - Mom Vans / SUV / Electronic
• Voluntourism
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Traditional Circus!
Circus
• Rides, side-shows & big tent
• Mobile
• Increased competition from
all other forms of
entertainment
• High costs (animals, travel)
• Star performers
• But, Animal Activists,
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Focus on Adults
Combine Theatre, ballet & Acrobat
Keep the clowns!
Dramatic experience / theme, org. music
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Build a Better Mouse Trap?
Good luck with that…
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Bricolage
• Most innovation are improvements to existing products
(including new uses)
• Many others, Bricolage, are joining two products or
services together to create something new
• And, A few are true Blue Ocean events!
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Innovative vs Incremental
Regional Hub Model
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Baking Soda
How many uses can you think of?
• Use as an antacid
• Underarm deodorant
• Keep cut flowers fresh longer (add teaspoon to vase)
• Put out small fires on rugs, upholstery, clothing & wood
• Put open container in fridge to absorb odors
• Turn baking soda into modeling clay by adding 1 1/4
cups of water to 1 cup of cornstarch
• Wipe your windshield with it to repel rain
Other ideas - http://lifehackery.com/2008/07/22/home-4/
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Key Takeaways
Firms can take advantage of a number of competitive
moves to shake up or otherwise get ahead in an everchanging business environment.
• First mover advantage
• Disruptive Innovation
• Blue ocean thinking
• Foothold
• Bricolage
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
For teaching in two 90minute classes/wk,
possible break point
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
6.2 - Responding to Other’s
Moves
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Speed and Multipoint
Competition
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Mutual Forbearance
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Fighting Brands
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Making Cooperative Moves
• In addition to choosing their own firm’s strategic
actions, executives also have to decide whether and
how to respond to rival’s moves
• Research indicates that three factors determine the
likelihood that a firm will respond to a competitive
move: awareness, motivation, & capability ->
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Razor Wars!
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
PS – Competitors…
Just how do we know what they’re up to anyways?
Corporate Intelligence
• gathering data & information
• Everything from dumpster diving to satellite monitoring
• Media monitoring, press releases, comp. websites!
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
(the absence of) Speed Kills…
(6.2.1)
• In hyper-competitive world, firms must cope with rapidfire barrage of attacks from rivals
• head-to-head advertising campaigns, price cuts, innovation &
attempts to grab key customers
• Speed is essential in responding (or competitor may
capture market…)
• Jack Welsh - success in most competitive rivalries “is
less a function of grandiose predictions than it is a
result of being able to respond rapidly to real changes
as they occur. That’s why strategy has to be dynamic
and anticipatory.”
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
So…We Meet Again (6.2.2)
• With multipoint competition, firms faces same rival in multiple
markets. Competitive moves in one market can affect other
markets
• Cigarette makers R. J. Reynolds (RJR) & Philip Morris compete in
many countries
• In early 1990s, RJR introduced lower-priced cigarette brands.
Philip Morris cut USA prices to protect market share which started
a price war, ultimately hurt both
• 2nd, Philip Morris started competing in Eastern Europe where
RJR had established a strong position.
• Combination of moves forced RJR to protect its market share in
USA & neglect Eastern Europe
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Mutual forbearance
Mutual forbearance occurs when rivals do not act
aggressively because each recognizes that the other can
retaliate in multiple markets
• In late 1990s, Southwest Airlines & United competed in
some but not all markets
• United announced plans to compete on other routes
• Southwest threatened to retaliate in shared markets &
United backed down
• Recognizing & acting on potential forbearance can
lead to better performance through firms not competing
away their profits, while failure to do so can be costly
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Responding to Disruptive
Innovation (6.2.3)
• When rival introduces disruptive innovation, firm have 3 choices
• 1st, executives may believe that innovation will not replace established
offerings entirely & choose to focus on traditional business models,
ignoring disruption
• For example, traditional bookstores did initially consider Amazon to be a
competitive threat until online sales began to grow
• 2nd, firm counter challenge by attacking along a different dimension
• For example, Apple responded to direct sales of cheap computers by Dell &
Gateway by adding power and versatility
• 3rd possibility is to simply match competitor’s move
• Merrill Lynch, for example, confronted online trading by forming its own
Internet-based unit. Here the firm risks cannibalizing its traditional business,
but executives may find that their response attracts an entirely new segment
of customers
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Price Wars & Fighting Brands
(6.2.4)
• Lowering prices, price wars, can be effective strategy
in the short term
• But, may create long-term problem of trying to return to
original price level, with new consumer expectations
• Creation of fighting brand is one strategy that can
prevent/reduce this problem
• Fighting brand is a lower-end lower-cost brand that a
firm introduces to try to protect the firm’s market share
without damaging the firm’s existing brands.
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Fighting Brands – GM & Geo
• By late 1980s, GM challenged by small, inexpensive Japanese
cars
• GM wanted to recapture lost sales, without harming existing
brands, Chevrolet, Buick, & Cadillac, by putting their names on
low-end cars
• Solution – Geo brand
• Interestingly, several Geo models
produced in joint ventures – Metro
& Tracker joint venture with
Suzuki
• By 1998, market revolved around
higher-quality vehicles, Geo
brand discontinued
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Fighting Brands - Airlines
• Some fighting brands are rather short lived.
• Two major airlines experienced similar futility.
• In response to the growing success of discount airlines
such as Southwest, AirTran, Jet Blue, and Frontier,
both United Airlines and Delta Airlines created fighting
brands.
• United launched Ted in 2004, discontinued 2009.
• Delta’s Song only lasted from 2003 to 2006.
• Southwest’s acquisition of AirTran in 2011 created a
large airline that may make United and Delta lament
that they were not able to make their own discount
brands successful.
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Key Takeaways
When threatened by the competitive actions of rivals,
firms possess numerous ways to respond, depending on
the severity of the threat including:
• Multipoint competition
• Mutual forbearance
• Responses to disruptive innovation
• Fighter brands
• Speed of response
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
6.3 Making Cooperative
Moves
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Making Cooperative Moves
• In addition to competitive moves, firms can benefit from
cooperating with each other
• Cooperative moves such as forming joint ventures and
strategic alliances may allow firms to enjoy successes
that might not otherwise be reached
• Share (rather than duplicate) resources
• Learn from each other’s strengths
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Four types of Cooperative
Moves
• Joint venture is a cooperative arrangement that
involves two or more firms each contributing to the
creation of a new entity
• Strategic alliance is a cooperative arrangement
between two or more organizations that does not
involve the creation of a new entity
• Co-location occurs when goods and services offered
under different brands are located very close to each
other
• Co-opetition refers to a blending of competition and
cooperation between firms
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Joint Ventures
Cooperative arrangement that involves 2 or more firms
each contributing to the creation of a new entity.
• The partners share decision-making authority, control
of the operation, & any profits
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Advantages & Disadvantages
of Joint Ventures
• Advantages
• Enter related businesses or new geographic markets or gain
new technological knowledge
• Access to resources, specialized staff & technology
• Sharing of risks with a venture partner
• Disadvantages
• Time and effort to build the relationship, challenges:
• The objectives of the venture are not 100% clear and
communicated to everyone involved.
• There is an imbalance in levels of expertise, investment or
assets brought into the venture by partners.
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Strategic Alliances
Cooperative arrangement between 2 or more orgs that
does not involve creation of new entity
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Advantages & Disadvantages
of Strategic Alliances
• Advantages
• Allowing each partner to concentrate on activities that best
match their capabilities.
• Learning from partners & developing competences that may
be more widely exploited elsewhere.
• Better use of resources & competencies to survive
• Disadvantages
• Potential to reduce future opportunities - unable to enter into
agreements with partner’s competitor
• Lack of commitment to the partnership
• Risk of sharing too much knowledge and the partner company
becoming a competitor
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Co-location
• Similar goods are located close to each other
• Fast food, hotels, auto-malls (cars)
• The Mall
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
“Co-opetition”
a blending of competition & cooperation between 2 firms
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
Dis/Advantages Co-location &
Co-opetition
• Co-location Advantage
• A bigger set of customers may be attracted to a set of colocated firms than (sum of) individual locations
• Co-location Disadvantage
• co-location can be very expensive
• Co-opetition Advantage
• reduction of transaction costs & other savings and increasing
expectation among customers
• Co-opetition Disadvantage
• competition and cooperation may not be always successful
between two firms
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves
In Conclusion,
This chapter has considered various competitive and
cooperative strategies commonly used by firms
• When and how can firms respond to competitive
actions taken by their rivals, and the industry in general
• Various cooperate strategies to create mutual benefits
(joint ventures, strategic alliances, etc.)
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Mastering Strategic Management
Chapter 6: Supporting the Business-Level Strategy:
Competitive and Cooperative Moves