SESSION XII ( CHAPTER 6 )

STRATEGIC PARTNERSHIP

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Business Strategy Choices to Complement the
Company’s Competitive Approach

 Strategy considerations in rounding out the

company’s overall business strategy include
 Whether to enter into strategic alliances or
partnerships
 Whether to pursue mergers or acquisitions
 Whether to integrate backward or forward into
more stages of the industry value chain

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Business Strategy Choices to Complement the
Company’s Competitive Approach

 Whether to outsource certain value chain activities

 Whether and when to initiate offensive strategies
to improve the company’s market position
 Whether and when to employ defensive strategies
to protect the company’s market position
 Choosing when to undertake strategic moves—
whether to be a first-mover, fast follower or a late-
mover

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 Strategic Alliances
and Collaborative Partnerships

 Strategic Alliance - formal collaborative

arrangements where two or more companies join
forces to achieve mutually beneficial strategic
outcomes
Strategically relevant collaboration
 joint contribution of resources
shared risk
shared control
mutual dependence
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 Strategic Alliances and Collaborative
Partnerships

 The strategic attractiveness of

alliances and collaborative
partnerships
 Allowing companies to bundle resources
and competencies that are more
valuable in a joint effort
than when kept separate

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 Reasons Companies Enter Into
Strategic Alliances

 Expedite the development of new technologies or

products
 Overcome deficits in technical or manufacturing
expertise
 To create new skill sets and capabilities by bringing
together personnel of each partner
 To improve supply chain efficiency
 To gain economies of scale in
production and/or marketing
 To acquire or improve market access
via joint marketing agreements
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 Failed Strategic Alliances and
Cooperative Partnerships
 Common reasons why as many as 60
percent to 70 percent of alliances fail each
year
 Diverging objectives and priorities
 Inability to work well together
 Changing conditions that make the purpose of the
alliance obsolete
 Emergence of more attractive technological paths
 Increased marketplace “rivalry” between one or
more allies
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 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
 A company must ultimately have strategic control of
critical resources and capabilities to protect
competitiveness and build competitive advantage

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 Merger and Acquisition Strategies

 An attractive strategic option for achieving operating

economies, strengthening competencies, and
opening avenues to new market opportunities
 Merger -- the combining of two or more
companies into a single entity, with the newly
created company often taking on a new name
 Acquisition -- is a combination in which one
company, the acquirer, purchases and absorbs the
operations of another, the acquired

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 Typical Objectives of Mergers
and Acquisitions
 Creating a more cost-efficient operation out of the
combined companies
 Expanding a company’s geographic coverage
 Extending the company’s business into new product
categories
 Gaining quick access to new technologies or other
resources and competitive capabilities
 Leading the convergence of industries whose
boundaries are being blurred by changing technologies
and new market opportunities
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 Why Mergers And Acquisitions Sometimes
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 can stall
because of resistance from organization members
 Managers and employees at the acquired may
continue to do things as they were done prior to the
acquisition
 Key employees of the acquired company may leave

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Vertical Integration: Operating Across
More Industry Value Chain Segments

 Extend a firm’s competitive 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

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 Potential 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

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 Integrating Backward To Achieve
Greater Competitiveness

 For backward integration to boost

profitability a company must be able to
Achieve the same scale economies as
outside suppliers, and
Match or beat suppliers’ production
efficiency with no drop-off in quality

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 When Backward Vertical Integration
Becomes a Consideration

 Potential situations that create opportunities for cost

reduction through backward vertical integration
 When suppliers have large profit margins
 Where the item being supplied is a major cost
component
 Where the requisite technological skills are easily
mastered or acquired
 When powerful suppliers are inclined to raise
prices at every opportunity

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 Integrating Forward To Enhance
Competitiveness

 Gain better access

to end users
 Improve market
visibility
 Include the
purchasing
experience as a
differentiating
feature
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 Forward Vertical Integration
and Internet Retailing

 Direct selling and Internet retailing has appeal

when there is potential to lower distribution
costs, gain a cost advantage over rivals,
produce higher margins, or allow for lower
prices charged to end users
 However, competing against directly against
distribution allies can create channel conflict
and signal a weak commitment to dealers

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Disadvantages of a Vertical Integration
Strategy

 Boosts capital investment in the

industry
 Increases business risk if
industry growth and profits sour
 May slow technological
advances if the vertically
integrated company is saddled
with older technology
 Poses all types of capacity-
matching problems
 May require radically different
skills and business capabilities

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Outsourcing Strategies: Narrowing the
Boundaries of the Business

 Outsourcing is a consideration when

 Activity can be performed better or
more cheaply by outside specialists
 Activity is not crucial to achieve a
sustainable competitive advantage
 It improves firm’s ability to innovate
 Firm can concentrate on core value chain
activities and leverage its resource strengths

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Outsourcing Strategies: Narrowing the
Boundaries of the Business

The big risk of outsourcing

 Farming out the wrong types of activities
 Hollowing out strategically-important
capabilities ultimately damages
competitiveness and long-term success in the
marketplace

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 Strategic Options to Improve a
Company’s Market Position—The Use
of Strategic Offensives
 Strategic offensives are called for when
a company
 Spots opportunities to gain profitable market
share at the expense of rivals or
 Has no choice but to try to whittle away at a
strong rival’s competitive advantage
 The best offensives use resource
strengths to attack rivals where they are
weak
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Choosing the Basis for Competitive
Attack

Primary offensive strategy options

 Attack the competitive weaknesses of rivals
 Offer a lower price for an equally good or better
product
 Pursue continuous product innovation
 Leapfrog competitors by being the first to market
with next generation technology or products

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Choosing the Basis for Competitive
Attack

 Adopt and improve on good ideas of other companies

 Attack market segments where a key rival make big
profits
 Maneuver around competitors to capture unoccupied
or less contested market territory
 Using hit-and-run or guerilla warfare tactics to grab
sales and market share from complacent or distracted
rivals

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 Choosing the Basis for Competitive Attack

 Capture a rare opportunity or secure an industry’s

limited resources
 Secure the best distributors in a particular
geographic region or country
 Secure the most favorable retail locations
 Tie up the most reliable, high-quality suppliers
via exclusive partnerships, long-term contracts,
or even acquisition

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Blue Ocean Strategy—A Special Kind of Offensive

 Blue ocean strategies offer growth in revenues and

profits by discovering or inventing new industry
segments that create altogether new demand
 Cirque du Soleil has attracted 10 million people
annually to its shows by “reinventing the circus” -
its audience typically doesn’t attend circus events

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 Strategic Options to Protect a Company’s
Market Position—The Use of Defensive
Strategies

 Defensive strategies help fortify a competitive

position
 Lower the risk of being attacked
 Weaken the impact of any attack that occurs
 Influence challengers to aim their efforts at other
rivals
 Good defensive strategies help protect competitive
advantage but rarely are the basis for creating it

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Blocking the Avenues Open to Challengers

 Introduce new features

 Add new models
 Broaden product line to fill vacant niches
 Maintain economy-priced models
 Make early announcements about upcoming new
products or planned price changes
 Grant volume discounts or better financing terms
to dealers and distributors to discourage them from
experimenting with other suppliers

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Signaling Challengers That Retaliation Is
Likely

 Publicly announce management’s strong

commitment to maintain present market
share
 Publicly commit firm to policy of
matching rivals’ terms or prices
 Maintain war chest of cash reserves
 Make occasional counter-response
to moves of weaker rivals

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 Timing A Company’s Strategic Moves

 When to make a strategic move is often as crucial as

what move to make:
 First-mover advantages arise when
 Pioneering helps build a firm’s image and reputation
with buyers
 Early commitments produce an absolute cost advantage
over rivals
 First-time customers remain strongly loyal in making
repeat purchases
 Constitutes a preemptive strike, making imitation extra
hard or unlikely
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 Late-Mover Advantages and First-Mover
Disadvantages
 Moving early can be a disadvantage (or fail to
produce an advantage) when
 When pioneering leadership is more costly than
imitation
 When innovators’ products are primitive, not living up
to buyer expectations
 When the demand side of the market is skeptical about
the benefits of new technology/product of a first-mover
 When rapid technological change allows followers to
leapfrog pioneers

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Deciding Whether to Be an Early Mover or Late
Mover
 Key issue – Is the race to market leadership in an
industry a marathon or a sprint?
 Seeking a competitive advantage by being a first-
mover involves addressing several questions
 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?
 Are there influential competitors in a position
to delay or derail the efforts of a first-mover?

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