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BLOCK 5 STRENGTHING A COMPETITIVE POSITION: STRATEGIC, MOVES, TIME AND SCOPE OF OPERATIONS OBS 310 CONTENTS Launching Startegic offensive to improve a Market Position...................................................... Choosing the Basis for competitive Advantage .....................................

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BLOCK 5 - STRENGTHING A COMPANY’S COMPETITIVE POSITION: STRATEGIC, MOVES, TIME AND SCOPE OF OPERATIONS OBS 310

CONTENTS Launching Startegic offensive to improve a company’s Market Position.......................................................4 Choosing the Basis for competitive Advantage ..............................................................................................4 Offering an equally good or better product at a lower price: ....................................................................4 Leapfrogging competitors by being first to market with next-generation products. .................................4 Pursuing continuous product innovation to draw sales and market share away from less innovative rivals: ...........................................................................................................................................................4 Pursuing Disruptive product innovations to create new markets ..............................................................5 Adopting and improving on the good ideas of other companies ...............................................................5 Using Hit-and-Run or guerrilla warfare tactics to grab market share from complacent or distracted rivals. ...........................................................................................................................................................5 Launching a pre-emptive strike to secure an industry’s limited resources or capture a rare opportunity. ....................................................................................................................................................................5 Choosing Which Rivals to attack .....................................................................................................................5 Market Leaders that are vulnerable: ..........................................................................................................5 Runner-up firms with weaknesses in areas where the challenger is strong. .............................................5 Struggling enterprises that are on the verge of going under .....................................................................5 Small Local and Regional Firms with limited capabilities ...........................................................................6 Blue – Ocean Strategy – A special kind of Offensive startegy ........................................................................6 Defensive strategies........................................................................................................................................6 The Purpose of Defensive Strategies: .........................................................................................................6 Forms of Defensive strategies: ...................................................................................................................6 Blocking the Avenues open to Challangers:............................................................................................6 Signalling Challengers that Retaliation is likely:......................................................................................6 Timing a Company’s Strategic MOves. ...........................................................................................................7 First-mover Advantages and Disadvantages (or later-mover advantages): ...............................................7 To be or not to be a First-Mover? : .............................................................................................................7 Strenghting a firm’s market postotion via its scope operations.....................................................................8 HOrizontal Merger and Acquisition strategies ...............................................................................................8 Merger: ...................................................................................................................................................8 Acquisition: .............................................................................................................................................8 The Strategic Objectives for Horizontal Mergers and Acquisitions: ...........................................................8 Strategic benefits and risks of expanding a company’s horizontal scope. .................................................9

Vertical Intergration strategies .......................................................................................................................9 What is regarded as a vertically integrated firm?.......................................................................................9 Benefits if Vertical Integration Strategy......................................................................................................9 Backward Integration vs Forward Integration ..........................................................................................10 One achieves backward integration by:................................................................................................10 Firms integrate backwards to: ..............................................................................................................10 Pros forward integreation:....................................................................................................................10 Advatages..............................................................................................................................................10 DISADVANTAGES of Vertical integration as a Whole:...............................................................................10 OUtsourcing ..................................................................................................................................................11 The Risks of Outsourcing...........................................................................................................................11 Strategic alliances: ........................................................................................................................................11 Joint Venture:............................................................................................................................................11 When can you regard an Alliance as “STRATEGIC” ...................................................................................11 Benefits of Strategic Alliances and Partnerships: .....................................................................................11 REASONS FOR ENTERING INTO STRATEGIC ALLIANCES ............................................................................12 When seeking global market leadership...............................................................................................12 When staking out a strong industry position........................................................................................12 Strategic Alliance Vs Outsourcing .................................................................................................................13 Factors Influencing the Longevity of Alliances..............................................................................................13 The Drawbacks of Strategic Alliances and Partnerships: ..............................................................................13 HOw to make Strategic Alliances Work ........................................................................................................13

LEARNING OBJECTIVES  Whether and when to pursue offensive or defensive strategic moves to improve a firm’s market position  When being a first mover or a fast follower or a late mover is most advantageous  The strategic benefits and risks of expanding a firm’s horizontal scope through mergers and acquisitions  The advantages and disadvantages of extending the company’s scope of operations via vertical integration

 The conditions that favour outsourcing certain value chain activities to outside parties

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When and how strategic alliances can substitute for horizontal mergers and acquisitions or vertical integration and how they can facilitate outsourcing

BLOCK 5: STRATEGIES TO IMPROVE MARLET POSISTION LAUNCHING STARTEGIC OFFENSIVE TO IMPROVE A COMPANY’S MARKET POSITION 1. Relentlessly focusing on building competitive advantage and converting it to a sustainable competitive advantage. 2. Applying resources where rivals are least able to defend themselves. 3. Doing what rivals least expect of you. 4. Displaying the capacity to move quickly on decisively to overwhelm rivals.

CHOOSING THE BASIS FOR COMPETITIVE ADVANTAGE Offering an equally good or better product at a lower price: Low prices can lead to a growth in market share if rivals don’t respond with price cuts. Prices cutting offences should be initiated by first achievers of a cost advantage.

Leapfrogging competitors by being first to market with nextgeneration products. In technology based markets, the first to next-generation technology gains the competitive advantage and market share by leaving under developed companies in the dust with older technologies.

Pursuing continuous product innovation to draw sales and market share away from less innovative rivals: When continuous new and improved products are introduced, the competitive pressure mounts and companies with less capabilities often crumble in these situations.

Pursuing Disruptive product innovations to create new markets This strategy a significant risk but comes with great reward if successful.

Adopting and improving on the good ideas of other companies Offensive minded companies tend to take ideas that are already being practiced and improving them to offer an improved product or service and gaining market share in this way.

Using Hit-and-Run or guerrilla warfare tactics to grab market share from complacent or distracted rivals. This involves spontaneous strategic plans that aim to grab customer’s interest to attempt to increase market share. This is usually a good channel for smaller firms in an industr y.

Launching a pre-emptive strike to secure an industry’s limited resources or capture a rare opportunity. Moving first on a market opportunity available to all rivals. Some examples of this would be: 

Getting the best distributors

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Getting the best spot a new shopping mall

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Tying up big suppliers and distributors in long-term contracts

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Moving swiftly to acquire assets of distressed rivals

In summary, the best offensives use a company’s strongest resources and capabilities to attack rivals where they are at their weakest competitively.

CHOOSING WHICH RIVALS TO ATTACK Market Leaders that are vulnerable: Some so-called market leader aren’t always fully on top of everything. Finding their weaknesses and exploiting them could is a good form of offensive attack.

Runner-up firms with weaknesses in areas where the challenger is strong. These firms are good targets especially if the challenger has resources and capabilities well-suited to exploit the weakness.

Struggling enterprises that are on the verge of going under Attacking these struggling firms weaken their resolve and hasten their exit to the market which for the challenger helps increase market share and financial benefits.

Small Local and Regional Firms with limited capabilities A challenger with bigger and better resources and capabilities are perfectly positioned to attack firms who don’t poses the strength.

BLUE – OCEAN STRATEGY – A SPECIAL KIND OF OFFENSIVE STARTEGY A strategy that offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.

DEFENSIVE STRATEGIES The Purpose of Defensive Strategies: 

Lower the risk of a firm being attacked.

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Weaken the impact of an attack that does occur

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Influence challengers to aim their efforts at other rivals

Forms of Defensive strategies: BLOCKING THE AVENUES OPEN TO CHALLANGERS: This involves a firm taking action against where it may think its weakness are and actively taking steps to ensure that they appear as less of a weakness to anyone that may be looking to challenge.

SIGNALLING CHALLENGERS THAT RETALIATION IS LIKELY: The goal of this it to make it know that strong retaliation is likely. In this a firm aims to discourage challengers to attack. This can be done in the following ways:

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Publicly announcing its commitment to maintaining the firm’s present market share.

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Publicly committing to a policy of matching competitors’ terms or prices.

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Maintaining a war chest of cash and marketable securities.

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Making a strong counter-response to the moves of weaker rivals to enhance its tough defender image.

To be an effective defensive strategy, signalling needs to be accompanied by a credible Commitment to follow through.

TIMING A COMPANY’S STRATEGIC MOVES. Because of first-mover advantages and disadvantages, competitive advantage relies heavily on what move is made as well as when it is made.

First-mover Advantages and Disadvantages (or later-mover advantages): Advantages When you are the pioneer, the firm gains a reputation and 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 the first mover to mover to move down the learning curve ahead of rivals. When a first mover can set the technical standard for the industry.

Disadvantages Pioneering can cost way more than imitating and you forgo negligible experience or learning-curve benefits. The new product may not catch buyer interest The market can be quickly evolving which would allow imitators to leapfrog first movers. If market uncertainty exists, it can make it harder to ascertain what will eventually succeed. Customer loyalty may not reach ideal levels and the new product may be easy to imitate.

To be or not to be a First-Mover? : A few questions need to be asked before deciding on whether or not to be a first mover or not. A lot of trade-offs are put into perspective. Some examples are: 

Does the market take-off depend on complementary products or services that currently are not available?

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Is new infrastructure required before buyer demand can surge

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Will Buyers need to learn new skills or adopt new behaviours?

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Are there influential competitors in a position to delay efforts of a first mover?

STRENGHTING A FIRM’S MARKET POST OTION VIA ITS SCOPE OPERATIONS The scope of the firm refers to the range of activities that a firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence and its mix of business and lastly the competitive footprint on its market or industry. Scopes are divided into two parts. Namely: 

Horizontal Scope: is the range of product and service segments that a firms serves within its focal market

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Vertical Scope: is the extent which a firm’s internal activities encompass the range of activities that make up an industry’s entire value chain system, from raw material production to final sales and service activities.

HORIZONTAL MERGER AND ACQUISITION STRATEGIES MERGER: A merger is the combining of two or more firms into a single corporate entity that often takes on a new name

ACQUISITION: Is the combination in which one firm, the acquirer, purchases and absorbs the operations of another firm.

The Strategic Objectives for Horizontal Mergers and Acquisitions: 

Creating a more cost-efficient operation out of the combined companies.

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Expanding the firm’s business into new product categories.

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Expanding the firm’s geographic coverage.

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Leading the convergence of industries whose countries are being blurred by changing technologies and new market opportunities.

Strategic benefits and risks of expanding a company’s horizontal scope. Benefits Improving the efficiency of its operations

Heightening its product differentiation

Risks 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.  Key employees at the acquired firm are lost  Managers overseeing integration make mistakes in melding the acquired firm into their own.

Reducing market rivalry Increasing the firm’ s bargaining power over suppliers and buyers Enhancing its flexibility and dynamic capabilities

VERTICAL INTERGRATION STRATEGIES What is regarded as a vertically integrated firm? A firm that performs value chain activities along more than one stage of an industry’s value chain system. Therefore this means that a vertical strategy is one that can expand the firm’s range if activities backward into its sources of supply or forward end users of its products. There are different types of vertical integration strategies, namely: 

Full integration

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Partial integration

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Tapered integration

Benefits if Vertical Integration Strategy 

Add Materially to a firms technological capabilities

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Strengthen the firm’s competitive position

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Boost the firm’s profitability

Backward Integration vs Forward Integration Involves entry into activities previously performed by suppliers or other enterprises position in the earlier stages of the value chain. Forward integration involves entry into value chain activities closer to the end user.

ONE ACHIEVES BACKWARD INTEGRATION BY: -

Achieving some scale economies as outside suppliers.

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Matching or beating suppliers’ production efficiency with no drop in quality.

FIRMS INTEGRATE BACKWARDS TO: -

Reduce supplier power

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Reduce input costs

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Assurance of supplier

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Protect proprietary know-how

PROS FORWARD INTEGREATION: ADVA TAG ES ADVATAG TAGES Lowering overall costs by increasing activity efficiencies Increased bargaining power as a result of controlling channel activities Increased access to end users Strengthened and reinforced brand awareness Increased product differentiation

DISADVANTAGES of Vertical integration as a Whole: -

Larger risk due to higher capital investment

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Slow acceptance of new tech or more efficient production methods

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Production levels may not reach volumes that create economies of scale

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Less flexible to accommodate shifting buyer preferences that require non-internally produced parts.

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The new efficient production may surpass the capacity of the firm

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A whole new set of resources and capabilities may be needed.

In conclusion with Vertical Integration the question becomes, will performance be enhanced in such a way that lowers cost, build expertise, protect proprietary know-how or increase differentiation? Next is what impact vertical integration have on investment costs, flexibility and response times? Following that will be what admin costs are incurred by coordinating operati...