CHAPTER -6

STRENGTHENING A COMPANY’S
COMPETITIVE POSITION: STRATEGIC MOVES,
TIMING, AND SCOPE OF OPERATIONS
 CONSIDERING STRATEGY-ENHANCING
MEASURES
 Whether and when to go on the offensive.
 Whether and when to employ defensive strategies.
 When to undertake strategic moves—first mover,
a fast follower, or a late mover.
 Whether to merge with or acquire another firm.
 Whether to integrate backward or forward into more
stages of the industry’s activity chain.
 Which value chain activities, if any, should be outsourced.
 Whether to enter into strategic alliances or
partnership arrangements.

6–2
 PRINCIPAL OFFENSIVE STRATEGY
OPTIONS
 Offer an equally good or better value product at a lower price as a
cost-based advantage to attack competitors.
 Leapfrog competitors by being first to market with next-generation
products.
 Pursue continuous product innovation to draw sales and market share
away from less innovative rivals.
 Adopt and improve on the good ideas of any other firms.
 Use hit-and-run or guerrilla warfare tactics to grab sales
and market share from complacent or distracted rivals.
 Launch a preemptive strike to secure an advantageous market
position that rivals cannot easily duplicate.

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 CHOOSING WHICH RIVALS
TO ATTACK

Best Targets for

Offensive Attacks

Market leaders Runner-up firms

Struggling Small local
that are in with weaknesses
enterprises on and regional
vulnerable in areas where
the verge of firms with limited
competitive the challenger
going under capabilities
positions is strong

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 BLUE-OCEAN STRATEGY—
A SPECIAL KIND OF OFFENSIVE

 The business universe is divided into:

● An existing market with boundaries and rules in which
rival firms compete for advantage.
● A “blue ocean” market space, where the industry has
not yet taken shape, with no rivals and wide-open
long-term growth and profit potential for a firm that
can create demand for new types of products.

6–5
 ILLUSTRATION CAPSULE 6.1
Gilt Groupe’s Blue-Ocean Strategy
in the U.S. Flash Sale Industry

♦ Given the rapidity with which most first-mover

advantages based on Internet technologies can
be overcome, what would have led Gilt Groupe
to expect to build a sustainable competitive
advantage based on its initial business model?
♦ Is Gilt Groupe a “one-trick pony” business that
the ephemeral nature of a first-mover advantage
strategy tends to favor?
♦ How critical is timing to first-mover advantage?

6–6
 Blue-Ocean Strategy

© 2013 by McGraw-Hill Education. All rights reserved. 6–7

6–7
 DEFENSIVE STRATEGIES—
PROTECTING MARKET POSITION
AND COMPETITIVE ADVANTAGE

Purposes of Defensive Strategies

Weaken the impact Influence challengers

Lower the firm’s risk
of an attack to aim their efforts
of being attacked
that does occur at other rivals

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 CONDITIONS THAT LEAD TO
FIRST-MOVER ADVANTAGES
 When pioneering helps build a firm’s reputation
and creates strong brand loyalty.
 When a first mover’s customers will thereafter
face significant switching costs.
 When property rights protections thwart rapid
imitation of the initial move.
 When an early lead enables movement down
the learning curve ahead of rivals.
 When a first mover can set the technical
standard for the industry.

6–9
 THE POTENTIAL FOR LATE-MOVER
ADVANTAGES OR FIRST-MOVER
DISADVANTAGES
 When pioneering is more costly than imitating and offers
negligible experience or learning-curve benefits.
 When the products of an innovator are somewhat
primitive and do not live up to buyer expectations.
 When rapid market evolution allows fast followers to
leapfrog a first mover’s products with more attractive
next-version products.
 When market uncertainties make it difficult to ascertain
what will eventually succeed.

6–10
 TO BE A FIRST MOVER OR NOT
 Does market takeoff depend on complementary
products or services that currently are not 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 in moving
to the newly introduced product or service?
 Are there influential competitors in a position to delay
or derail the efforts of a first mover?

6–11
 iPod was not a first mover, nor . .

© 2013 by McGraw-Hill Education. All rights reserved. 6–12

 MERGER AND
ACQUISITION STRATEGIES
♦ Merger
● Is the combining of two or more firms into a
single corporate entity that often takes on a
new name.
♦ Acquisition
● Is a combination in which one firm, the acquirer,
purchases and absorbs the operations of
another firm, the acquired.

© 2013 by McGraw-Hill Education. All rights reserved. 6–13

 GROWTH/RETRENCHMENT S TRATEGIES
E XPANS ION INTE G R ATION Me rg e r/Ac q. R E TR E NCHME NT
Inte rna l G ro wth E xte rna l G ro wth D o wns iz ing

HOR IZONTAL Dis ne y -E urodis ne y Britis h Airline s /US Air S e a rs Ca ta logue S BU

Ma rke t E xpa ns io n Nords trom's - Ne w York/J e rs e y Ba nk o f Ame r./S e curity P a cific
Co ns o lida tio n McDona ld's Ca n a da to R us s ia Chryls e r/Ame rica n Motors

D E xte rna l Inc lude s : LB O,

I R e la te d (Co n c e n tric ) Dis ne y ope ning re ta il s tore s HOS TILE TAKE OVE R ,
V Dis ne y initia ting Dis . Cha n ne l J OINT VE NTU R E ,
E S TR ATE G IC ALLIANCE
R Corpora te Entre pre ne urs hip
S
I
F U nre la te d Dis ne y S ta rts Ducks Hocke y Te a m
I
C
A
T
I
O Co ng lo me ra tive R AR E ! G E a cqu ire s Uta h G a s G E s e lls Uta h G a s
N ITT s e lls Dia l S o a p

S a fe wa y - Lu ce rne Da iry
V B a c kwa rd Nike Ma nfs . 7% of its s hoe s
E Crown Cork - Ba uxite mine s Africa
R
T
I Fo rwa rd Nore lco - R e ta il S tore s
C AR CO - a m/pm Ma rke ts
A
L

11/9/21
© 2013 by McGraw-Hill Education. All rights reserved. 6–14
 Expansion vs. Integration

♦ Expansion - Started from within. Bought land

built building, set up system, hired people.
 Nordstrom’s Entering California Market
 Disney Creating Ducks

♦ Integration - Growth through Merger or

Acquisition.
 Leveraged or Management Buyouts
 Acquiring a competitor - Microsoft Acquisition of WebTV
 Disney Acquisition of ABC Capital Cities

11/9/21
 Vertical Integration

♦ Backward or Forward

Backward Merging with a

Supplier, Distributing own Output

Forward - Opening a Retail for

Output, Acquiring a Catalogue
Mail Order Business

11/9/21
 Diversification

♦ Related Diversification
 Grand Casinos enter Native Casino
Management
 Disney creates the Ducks
 Disney starts first retail store in

♦ Unrelated Diversification
 GM acquires Hughes Aircraft
 Westinghouse Acquires CBS

♦ Conglomerate
 General Electric Buys and Sells Utah Gas
 ITT acquires Sheraton and Caesar’s World
11/9/21  RJR merges with Nabisco
 BENEFITS OF INCREASING
HORIZONTAL SCOPE

 Increasing a firm’s horizontal scope strengthens

its business and increases its profitability by:
● Improving the efficiency of its operations
● Heightening its product differentiation
● Reducing market rivalry
● Increasing the firm’s bargaining power over
suppliers and buyers
● Enhancing its flexibility and dynamic capabilities

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 STRATEGIC OJECTIVES FOR
HORIZONTAL MERGERS AND
ACQUISITIONS
 Creating a more cost-efficient operation out
of the combined companies.
 Expanding the firm’s geographic coverage.
 Extending the firm’s business into new
product categories.
 Gaining quick access to new technologies or
complementary resources and capabilities.
 Leading the convergence of industries whose
boundaries are being blurred by changing
technologies and new market opportunities.
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VERTICAL INTEGRATION STRATEGIES

 Vertically Integrated Firm

● Is one that participates in multiple segments or
stages of an industry’s overall value chain.
 Vertical Integration Strategy
● Can expand the firm’s range of activities backward
into its sources of supply and/or forward toward end
users of its products.

6–20
 TYPES OF VERTICAL
INTEGRATION STRATEGIES

Vertical Integration
Choices

Full Partial Tapered

Integration Integration Integration

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TYPES OF VERTICAL INTEGRATION
STRATEGIES

 Full Integration
● A firm participates in all stages
of the vertical activity chain.
 Partial Integration
● A firm builds positions only in selected
stages of the vertical chain.
 Tapered Integration
● Involves a mix of in-house and outsourced
activity in any stage of the vertical chain.

6–22
INTEGRATING BACKWARD TO ACHIEVE
GREATER COMPETITIVENESS
 Integrating Backwards By:
● Achieving same scale economies as outside suppliers—
low-cost based competitive advantage.
● Matching or beating suppliers’ production efficiency with no
drop-off in quality—differentiation-based competitive
advantage.
 Reasons for Integrating Backwards:
● Reduction of supplier power
● Reduction in costs of major inputs
● Assurance of the supply and flow of critical inputs
● Protection of proprietary know-how

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INTEGRATING FORWARD TO ENHANCE
COMPETITIVENESS

 Reasons for Integrating Forward:

● To lower overall costs by increasing channel
activity efficiencies relative to competitors.
● To increase bargaining power through control
of channel activities.
● To gain better access to end users.
● To strengthen and reinforce brand awareness.
● To increase product differentiation.

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WHY MERGERS AND ACQUISITIONS
SOMETIMES FAIL TO PRODUCE
ANTICIPATED RESULTS
 Strategic Issues:
● Cost savings may prove smaller than expected.
● Gains in competitive capabilities take longer to
realize or never materialize at all.
 Organizational Issues
● Cultures, operating systems and management
styles fail to mesh due to resistance to change
from organization members.
● Loss of key employees at the acquired firm.
● Managers overseeing integration make mistakes
in melding the acquired firm into their own.
6–25
 OUTSOURCING STRATEGIES:
NARROWING THE SCOPE OF OPERATIONS
 Outsourcing
● Involves farming out value chain activities to outside vendors.
 Outsource an activity if it:
● Can be performed better or more cheaply by outside specialists.
● Is not crucial to achieving sustainable competitive advantage.
● Improves organizational flexibility and speeds time to market.
● Reduces risks due to new technology and/or buyer preferences.
● Assembles diverse kinds of expertise speedily and efficiently.
● Allows the firm to concentrate on its core business, leverage key
resources, and do even better what it does best.

6–26
CORE CONCEPTS
♦ A strategic alliance is a formal agreement
between two or more separate companies in
which they agree to work cooperatively toward
some common objective.
♦ A joint venture is a partnership involving the
establishment of an independent corporate
entity that the partners own and control jointly,
sharing in its revenues and expenses.

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Historic Joint
Ventures

6–28
 REASONS FOR ENTERING INTO
STRATEGIC ALLIANCES
 When seeking global market leadership:
● Enter into critical country markets quickly.
● Gain inside knowledge about unfamiliar markets and cultures
through alliances with local partners.
● Provide access to valuable skills and competencies
concentrated in particular geographic locations.
 When staking out a strong industry position:
● Establish a stronger beachhead in target industry.
● Master new technologies and build expertise and competencies.
● Open up broader opportunities in the target industry.

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