Strategic Management Revision Articles - Chapter Summaries of Strickland and Thompson's Book
Reasons for alliance failure include:
Diverging objectives and priorities of partners
Inability of partners to work well together
Marketplace rivalry between one or more allies
Merger - Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition - One firm, the acquirer, purchases and absorbs operations of another, the acquired
Mergers and acquisitions
Are especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Pitfalls of Mergers and Acquisitions
Combining operations may result in:
Resistance from rank-and-file employees.
Hard-to-resolve conflicts in management styles and corporate cultures.
Tough problems in combining and integrating the operations of the once-different companies.
Greater-than-anticipated difficulties in
Sharing of expertise
Achieving enhanced competitive capabilities
Vertical integration extends a firms competitive scope within same industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
Whether vertical integration is a viable or attractive strategy depends on:
How much it can lower costs, build expertise, increase differentiation, or otherwise enhance performance of strategy-critical activities
In recent days, there is research evidence that outsourcing certain activities and concentrating on core competence in value chain activities is a more sound strategy. Many companies now follow this prescription and decide that out-sourcing value chain activities are a better strategic option when it comes to lowering cost, improving their competitiveness, or gaining added operating flexibility.
Out-sourcing involves narrowing the scope of the firms operations, focusing on performing core
value chain activities and relying on outsiders to perform the remaining value chain activities
Pitfalls of Outsourcing
Farming out too many or the wrong activities, thus
Hollowing out capabilities (destroying distinctive competences)
Losing touch with activities and expertise that determine overall long-term success
Offensive Strategies
Used to build new or stronger market position and/or create competitive advantage
Defensive Strategies
Used to protect competitive advantage (rarely used to create advantage)
Types of Offensive Strategies
1. Initiatives to match or exceed competitor strengths
2. Initiatives to capitalize on competitor weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla offensives
6. Preemptive strikes
Many of these strategies are part of marketing.
Attacking Competitor Strengths
Objectives:
Whittle away at a rivals competitive advantage
Gain market share by out-matching strengths of weaker rivals
Challenging strong competitors will only be successful in the long-run if you can truly outcompete a rival at what they do best
Attacking Competitor Weaknesses
Objective:
Utilize company strengths to exploit a rivals weaknesses
Weaknesses to Attack
Customers that a rival is least equipped to serve
Rivals providing sub-par customer service
Rivals with weaker marketing skills
Geographic regions where rival is weak
Market segments a rival is neglecting
Launching Simultaneous Offensives on Many Fronts
Objective:
Launch several major initiatives to
Throw rivals off-balance
Splinter their attention
Force them to use substantial resources to defend their position
A challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader.
End-Run Offensives
Objectives:
Maneuver around strong competitors
Capture unoccupied or less contested markets
This is useful for firms that have difficulty competing head-to-head against rivals
Guerrilla Offenses
Approach
Use principles of surprise and hit-and-run to attack in locations and at times where conditions are most favorable to initiator
Appeal
Well-suited to small challengers with limited resources and market visibility
Preemptive Strikes
Approach
Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating.
Defensive Strategy
Objectives:
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Approaches
Block avenues open to challengers
Signal challengers vigorous retaliation is likely
Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
Five Approaches
Use company web site solely to disseminate product information
Use company web site as a minor distribution channel for accessing customers and generating sales
Use company web site as one of several important distribution channels for accessing customers
Use company web site as primary distribution channel for accessing buyers and making sales
Use company web site as the exclusive channel for accessing buyers and conducting sales transactions
Using the Internet to Disseminate Product Information
Approach – Website used to provide product information of manufacturers or wholesalers
Relies on click-throughs to websites of dealers for sales transactions
Informs end-users of location of retail stores
Pursuing online sales may
Signal weak strategic commitment to dealers
Signal willingness to cannibalize dealers’ sales
Prompt dealers to aggressively market rivals’ brands
Avoids channel conflict with dealers – Important where strong support of dealer networks is essential
Using the Internet as a Minor Distribution Channel
Approach – Use online sales to
Achieve incremental sales
Gain online sales experience
Conduct marketing research
Learn more about buyer tastes and preferences
Test reactions to new products
Create added market buzz about products
Unlikely to provoke much outcry from dealers
Brick-and-Click Strategies: Natural Evolution for Existing Firms
Sell directly to consumers and
Use traditional wholesale/retail channels
Reasons to pursue a brick-and-click strategy
Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels
Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online
Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly
Strategies for Online Enterprises
Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactions
Success depends on a firm’s ability to incorporate following features:
Capability to deliver unique value to buyers
Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money
Innovative, fresh, and entertaining website
Clear focus on a limited number of competencies and a relatively specialized number of value chain activities
Innovative marketing techniques
Minimal reliance on ancillary revenues
Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include:
Research and development
Production
Human resources
Sales and marketing
Finance
Tailoring functional-area strategies to support key business-level strategies is critical!
When a new product concept emerges, is it of strategic advantage to be the first firm to offer the product?
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise because:
Pioneering helps build firms image and reputation
Early commitments to new technologies and distribution channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) due to reasons like:
Costs of pioneering are sizable and loyalty of first time buyers is weak
Innovator's products are primitive, not living up to buyer expectations
Rapid technological change allows followers to leapfrog pioneers
Generic Product and Market Choices
Porter termed them as generic choices and competitive choices. In product related choices, a firm can try to focus on specific functions or benefits that others are not able to provide and maintain leadership in the target market in need of that function or benefit. The other choice is to become cost leader in a target market where the focus of the company is much more on the production and distribution processes to develop productivity expertise and design value activities in the process or value chain that incur less cost.
In the market related choice, the firm can compete in a broad market or to choose a niche market segment. A firm focusing on niche market may not be visible in mass media that serves broad market audience. A niche market firm is targeting certain product attribute that are demanded by a relatively small target market. In market related niches, even geographical areas may become niche.
After the generic strategy is chosen, the firm still has to make more strategic choices to survive and grow and also to increase its profit margins. There strategic areas are:
1. Strategic Alliances and Collaborative Partnerships
2. Mergers and Acquisitions
3 Vertical Integration for Expansion of the Firm - Increasing the Firm's Scope in the Product Value Chain
4. Outsourcing: Contracting or Narrowing the Firm's Scope in the Product Value Chain
5. Offensive Strategies
6 Defensive Strategies
7. Internet Based Strategies
8. Functional Strategies
9. First-Mover Strategy
11. Diversification of Product Portfolio
Collaborative arrangements, such as strategic alliances, can help a company lower its costs or
gain access to needed expertise and capabilities.
Competitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own, providing an edge over rivals
Firms often lack the resources and competitive skills to be successful in very demanding competitive races
Collaborative arrangements with foreign partners can be very helpful in pursuing opportunities in
unfamiliar national markets. Many companies use collaborations in foreign markets especially in the beginning to gain a foothold and acquire knowledge of the local market.
Why Alliances Fail?
Ability of an alliance to endure depends on choosing the right partner.
How well partners work together.
Success of partners in responding and adapting to changing conditions
1. Why Are Strategic Alliances Formed?
Collaborative arrangements, such as strategic alliances, can help a company lower its costs or
gain access to needed expertise and capabilities.
Competitive advantage emerges when a company acquires valuable capabilities via alliances it could not obtain on its own, providing an edge over rivals
Firms often lack the resources and competitive skills to be successful in very demanding competitive races
Collaborative arrangements with foreign partners can be very helpful in pursuing opportunities in
unfamiliar national markets. Many companies use collaborations in foreign markets especially in the beginning to gain a foothold and acquire knowledge of the local market.
Why Alliances Fail?
Ability of an alliance to endure depends on choosing the right partner.
How well partners work together.
Success of partners in responding and adapting to changing conditions
Reasons for alliance failure include:
Diverging objectives and priorities of partners
Inability of partners to work well together
Marketplace rivalry between one or more allies
2. Merger and Acquisition Strategies
Merger - Combination and pooling of equals, with newly created firm often taking on a new name
Acquisition - One firm, the acquirer, purchases and absorbs operations of another, the acquired
Mergers and acquisitions
Are especially suited for situations where alliances do not provide a firm with needed capabilities or cost-reducing opportunities
Ownership allows for tightly integrated operations, creating more control and autonomy than alliances
Pitfalls of Mergers and Acquisitions
Combining operations may result in:
Resistance from rank-and-file employees.
Hard-to-resolve conflicts in management styles and corporate cultures.
Tough problems in combining and integrating the operations of the once-different companies.
Greater-than-anticipated difficulties in
Sharing of expertise
Achieving enhanced competitive capabilities
3. Vertical Integration Strategies
Vertical integration extends a firms competitive scope within same industry
Backward into sources of supply
Forward toward end-users of final product
Can aim at either full or partial integration
4. Pros and Cons of Integration vs. Outsourcing
Whether vertical integration is a viable or attractive strategy depends on:
How much it can lower costs, build expertise, increase differentiation, or otherwise enhance performance of strategy-critical activities
In recent days, there is research evidence that outsourcing certain activities and concentrating on core competence in value chain activities is a more sound strategy. Many companies now follow this prescription and decide that out-sourcing value chain activities are a better strategic option when it comes to lowering cost, improving their competitiveness, or gaining added operating flexibility.
Out-sourcing involves narrowing the scope of the firms operations, focusing on performing core
value chain activities and relying on outsiders to perform the remaining value chain activities
Pitfalls of Outsourcing
Farming out too many or the wrong activities, thus
Hollowing out capabilities (destroying distinctive competences)
Losing touch with activities and expertise that determine overall long-term success
5 & 6. Offensive and Defensive Strategies
Offensive Strategies
Used to build new or stronger market position and/or create competitive advantage
Defensive Strategies
Used to protect competitive advantage (rarely used to create advantage)
Types of Offensive Strategies
1. Initiatives to match or exceed competitor strengths
2. Initiatives to capitalize on competitor weaknesses
3. Simultaneous initiatives on many fronts
4. End-run offensives
5. Guerrilla offensives
6. Preemptive strikes
Many of these strategies are part of marketing.
Attacking Competitor Strengths
Objectives:
Whittle away at a rivals competitive advantage
Gain market share by out-matching strengths of weaker rivals
Challenging strong competitors will only be successful in the long-run if you can truly outcompete a rival at what they do best
Attacking Competitor Weaknesses
Objective:
Utilize company strengths to exploit a rivals weaknesses
Weaknesses to Attack
Customers that a rival is least equipped to serve
Rivals providing sub-par customer service
Rivals with weaker marketing skills
Geographic regions where rival is weak
Market segments a rival is neglecting
Launching Simultaneous Offensives on Many Fronts
Objective:
Launch several major initiatives to
Throw rivals off-balance
Splinter their attention
Force them to use substantial resources to defend their position
A challenger with superior resources can overpower weaker rivals by out-competing them across-the-board long enough to become a market leader.
End-Run Offensives
Objectives:
Maneuver around strong competitors
Capture unoccupied or less contested markets
This is useful for firms that have difficulty competing head-to-head against rivals
Guerrilla Offenses
Approach
Use principles of surprise and hit-and-run to attack in locations and at times where conditions are most favorable to initiator
Appeal
Well-suited to small challengers with limited resources and market visibility
Preemptive Strikes
Approach
Involves moving first to secure an advantageous position that rivals are foreclosed or discouraged from duplicating.
Defensive Strategy
Objectives:
Lessen risk of being attacked
Blunt impact of any attack that occurs
Influence challengers to aim attacks at other rivals
Approaches
Block avenues open to challengers
Signal challengers vigorous retaliation is likely
7. Strategic Alternatives for Using the Internet
Strategic Challenge – What use of the Internet should a company make in staking out its position in the marketplace?
Five Approaches
Use company web site solely to disseminate product information
Use company web site as a minor distribution channel for accessing customers and generating sales
Use company web site as one of several important distribution channels for accessing customers
Use company web site as primary distribution channel for accessing buyers and making sales
Use company web site as the exclusive channel for accessing buyers and conducting sales transactions
Using the Internet to Disseminate Product Information
Approach – Website used to provide product information of manufacturers or wholesalers
Relies on click-throughs to websites of dealers for sales transactions
Informs end-users of location of retail stores
Pursuing online sales
Pursuing online sales may
Signal weak strategic commitment to dealers
Signal willingness to cannibalize dealers’ sales
Prompt dealers to aggressively market rivals’ brands
Avoids channel conflict with dealers – Important where strong support of dealer networks is essential
Using the Internet as a Minor Distribution Channel
Approach – Use online sales to
Achieve incremental sales
Gain online sales experience
Conduct marketing research
Learn more about buyer tastes and preferences
Test reactions to new products
Create added market buzz about products
Unlikely to provoke much outcry from dealers
Brick-and-Click Strategies: Natural Evolution for Existing Firms
Sell directly to consumers and
Use traditional wholesale/retail channels
Reasons to pursue a brick-and-click strategy
Manufacturer’s profit margin from online sales is bigger than that from sales through traditional channels
Encouraging buyers to visit a firm’s website educates them to the ease and convenience of purchasing online
Selling directly to end users allows a manufacturer to make greater use of build-to-order manufacturing and assembly
Strategies for Online Enterprises
Approach – Use Internet as the exclusive channel for all buyer-seller contact and transactions
Success depends on a firm’s ability to incorporate following features:
Capability to deliver unique value to buyers
Deliberate efforts to engineer a value chain that enables differentiation, lower costs, or better value for the money
Innovative, fresh, and entertaining website
Clear focus on a limited number of competencies and a relatively specialized number of value chain activities
Innovative marketing techniques
Minimal reliance on ancillary revenues
8. Choosing Appropriate Functional-Area Strategies
Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves
Functional strategies include:
Research and development
Production
Human resources
Sales and marketing
Finance
Tailoring functional-area strategies to support key business-level strategies is critical!
9. First-Mover Advantages
When a new product concept emerges, is it of strategic advantage to be the first firm to offer the product?
When to make a strategic move is often as crucial as what move to make
First-mover advantages arise because:
Pioneering helps build firms image and reputation
Early commitments to new technologies and distribution channels can produce cost advantage
Loyalty of first time buyers is high
Moving first can be a preemptive strike
First-Mover Disadvantages
Moving early can be a disadvantage (or fail to produce an advantage) due to reasons like:
Costs of pioneering are sizable and loyalty of first time buyers is weak
Innovator's products are primitive, not living up to buyer expectations
Rapid technological change allows followers to leapfrog pioneers
Updated on 30.8.2021, 9.7.2020
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