Lesson Plan Information

Lecture: 10 & 11 Lesson: 06

Course Title & Code: Strategic Management, MGT - 593 Faculty: Md. Shahidur Rahman Khan
Program: MBA/EMBA Date: Time:
Topic: Beyond Competitive Strategy Other Important Length of Period: 3 x 2 = 6 Hrs
Strategy Choices
Learning Objectives:
 Collaborative Strategies: Alliances and Partnerships
 Merger and Acquisition Strategies
 Vertical Integration Strategies: Operating Across More Stages of the Industry Value Chain
 Outsourcing Strategies: Narrowing the Boundaries of the Business
 Offensive Strategies: Improving Market Position and Building Competitive Advantage
 Defensive Strategies: Protecting Market Position and Competitive Advantage

Contents :
LEC:: 10
A Company’s Menu of Strategy Options

Collaborative Strategies: Alliances and Partnerships

Companies sometimes use strategic alliances or collaborative partnerships to complement their own
strategic initiatives and strengthen their competitiveness. Such cooperative strategies go beyond
normal company-to-company dealings but fall short of merger or full joint venture partnership.
Alliances Can Enhance a Firm’s Competitiveness
Alliances and partnerships can help companies cope with two demanding competitive challenges -
 Racing against rivals to build a market presence in many different national markets
 Racing against rivals to seize opportunities on the frontiers of advancing technology
Collaborative arrangements can help a company lower its costs and/or gain access to needed expertise and capabilities.
Characteristics of a Strategic Alliance
Strategic alliance – A formal agreement between two or more separate companies where there is
o Strategically relevant collaboration of some sort
o Joint contribution of resources
o Shared risk
o Shared control
o Mutual dependence
Alliances often involve
o Joint marketing
o Joint sales or distribution
o Joint production
o Design collaboration
o Joint research
o Projects to jointly develop new technologies or products
What Factors Make an Alliance Strategic?
-It is critical to a company’s achievement of an important objective
-It helps build, sustain, or enhance a core competence or competitive advantage
-It helps block a competitive threat
-It helps open up important market opportunities
-It mitigates a significant risk to a company’s business
Why Are Strategic Alliances Formed?
-To collaborate on technology development or new product development
-To fill gaps in technical or manufacturing expertise
-To create new skill sets and capabilities
-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
Potential Benefits of Alliances to Achieve Global and Industry Leadership
-Get into critical country markets quickly to accelerate process of building a global presence
-Gain inside knowledge about unfamiliar markets and cultures
-Access valuable skills and competencies concentrated in particular geographic locations
-Establish a beach head to participate in target industry
-Master new technologies and build new expertise faster than would be possible internally
-Open up expanded opportunities in target industry by combining firm’s capabilities with resources of partners
LEC:: 11
Why Alliances Fail

Ability of an alliance to endure depends on

o How well partners work together
o Success of partners in responding and adapting to changing conditions
o Willingness of partners to renegotiate the bargain
Reasons for alliance failure
o Diverging objectives and priorities of partners
o Inability of partners to work well together
o Changing conditions rendering purpose of alliance obsolete
o Emergence of more attractive technological paths
o Marketplace rivalry between one or more allies
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
Merger-acquisition strategy:
-Much-used strategic option
-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

Objectives of Mergers and Acquisitions

o To create a more cost-efficient operation
o To expand a firm’s geographic coverage
o To extend a firm’s business into new product categories or international markets
o To gain quick access to new technologies or competitive capabilities
o To invent a new industry and lead the convergence of industries whose boundaries are blurred by changing
technologies and new market opportunities
Pitfalls of Mergers and Acquisitions
-Resistance from rank-and-file employees
-Hard-to-resolve conflicts in management styles and corporate cultures
-Tough problems of integration
-Greater-than-anticipated difficulties in
o Achieving expected cost-savings
o Sharing of expertise
o Achieving enhanced competitive capabilities
Vertical Integration Strategies
Extend a firm’s competitive scope within same industry-
-Backward into sources of supply
-Forward toward end-users of final product
It can aim at either full or partial integration.

Strategic Advantages of Backward Integration

-Generates cost savings only if volume needed is big enough to capture efficiencies of suppliers
-Potential to reduce costs exists when
o Suppliers have sizable profit margins
o Item supplied is a major cost component
o Resource requirements are easily met
-Can produce a differentiation-based competitive advantage when it results in a better quality part
-Reduces risk of depending on suppliers of crucial raw materials / parts / components
Strategic Advantages of Forward Integration
-To gain better access to end users and better market visibility
-To compensate for undependable distribution channels which undermine steady operations
-To offset the lack of a broad product line, a firm may sell directly to end users
-To bypass regular distribution channels in favor of direct sales and Internet retailing which may
o Lower distribution costs
o Produce a relative cost advantage over rivals
o Enable lower selling prices to end users
Strategic Disadvantages of Vertical Integration
-Boosts resource requirements
-Locks firm deeper into same industry
-Results in fixed sources of supply and less flexibility in accommodating buyer demands for product variety
-Poses all types of capacity-matching problems
-May require radically different skills / capabilities
-Reduces flexibility to make changes in component parts which may lengthen design time and ability to introduce new
products
Outsourcing Strategies
Outsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products,
support services, or functional activities.
Internally
Performed
Activities Functional
Suppliers
Activities

Support Distributors
Services or Retailers
When Does Outsourcing Make Strategic Sense?
-Activity can be performed better or more cheaply by outside specialists
-Activity is not crucial to achieve a sustainable competitive advantage
-Risk exposure to changing technology and/or changing buyer preferences is reduced
-It improves firm’s ability to innovate
-Operations are streamlined to
o Improve flexibility
o Cut time to get new products into the market
-It increases firm’s ability to assemble diverse kinds of expertise speedily and efficiently
-Firm can concentrate on “core” value chain activities that best suit its resource strengths
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 lead to creating advantage.

Principles of Offensive Strategies

-Focus relentlessly on
 Building competitive advantage and
 Striving to convert it into decisive advantage
-Employ the element of surprise as opposed to doing what rivals expect
-Apply resources where rivals are least able to defend themselves
-Be impatient with the status quo and display a strong bias for swift, decisive actions to boost a firm’s competitive
position vis-à-vis rivals

Types of Offensive Strategy Options

1.Offer an equally good or better product at a lower price
2. Leapfrog competitors by being
 First adopter of next-generation technologies or
 First to market with next-generation products
3. Pursue continuous product innovation to draw sales and market share away from less innovative rivals
4. Adopt and improve on the good ideas of other companies
Learning Outcomes:
1. a) State the underlying characteristics of a strategic alliance.
b) Why is strategic alliance so important to successful competitive advantage?
2. a) What are the advantages to firms and their stakeholders of developing backward and forward Integrations?
b) Select an organization that competes in an industry and determine the problems it will face after integrating
vertically.
3. a) Identify the objectives of mergers and acquisitions.
b) When does outsourcing make strategic sense?