Professional Documents
Culture Documents
Chap - 6 New
Chap - 6 New
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
“The sure path to oblivion is to
stay where you are.”
Bernard Fauber
“Successful business strategy
is about actively shaping the
game you play, not just playing
the game you find.”
6-14
Merger and Acquisition Strategies
Greater-than-anticipated difficulties in
Achieving expected cost-savings
Sharing of expertise
Achieving enhanced competitive capabilities
6-17
Vertical Integration Strategies
Extend a firm’s competitive scope within
same industry
Backward into sources of supply
Forward toward end-users of final product
6-18
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
Suppliers have sizable profit margins
Item supplied is a major cost component
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
6-19
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
Lower distribution costs
Produce a relative cost advantage over rivals
Enable lower selling prices to end users
6-20
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
6-21
Pros and Cons of
Integration vs. De-Integration
Whether vertical integration is a viable
strategic option depends on its
Ability to lower cost, build expertise,
increase differentiation, or enhance
performance of strategy-critical activities
Impact on investment cost, flexibility,
and administrative overhead
Contribution to enhancing a firm’s
competitiveness
Concept
Outsourcing involves having outsiders
perform certain value chain activities rather
than performing them internally
Internally
Performed
Activities
Contract Distributors
Manufacturers or Retailers
Vendors with
specialized
expertise
6-23
When Does Outsourcing an Activity
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
Improve flexibility
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
6-24
The Big Risk of Outsourcing
6-25
Matching Strategy to
a Company’s Situation
Nature of industry
and competitive
Most important
conditions
drivers shaping a
firm’s strategic
options fall into
Firm’s internal
two categories
resource strengths
and weaknesses
6-26
Matching a Company’s Strategy
to Different Market Conditions
Freshly
Fragmented
Emerging
Markets
Markets
Rapidly
Turbulent
Growing
Markets
Markets
6-32
Strategy Options for Competing
in Rapidly Growing Markets
Drive down costs per unit to enable price
reductions that attract droves of new customers
Pursue rapid product innovation to
Set a company’s product offering apart from rivals
Incorporate attributes to appeal to
growing numbers of customers
Gain access to additional distribution
channels and sales outlets
Expand a company’s geographic coverage
Expand product line to add models/styles to
appeal to a wider range of buyers
6-33
Test Your Knowledge
Expand internationally
Frequent launches of
new competitive moves
Rapidly evolving
customer expectations
6-41
Figure 6.1: Meeting the Challenge of High-Velocity Change
6-42
Strategy Options for Competing
in High-Velocity Markets
Invest aggressively in R&D
Keep products/services fresh and exciting
Develop quick response capabilities
Shift resources
Adapt competencies
Create new competitive capabilities
Speed new products to market
Use strategic partnerships to develop
specialized expertise and capabilities
Initiate fresh actions every few months
6-43
Keys to Success in Competing
in High Velocity Markets
Cutting-edge expertise
Agility
Innovativeness
Opportunism
Resource flexibility
First-to-market capabilities
6-44
Competitive Features
of a Fragmented Industry
Absence of market leaders with large market shares or
widespread buyer recognition
Product/service is delivered to neighborhood
locations to be convenient to local residents
Buyer demand is so diverse that many
firms are required to satisfy buyer needs
Low entry barriers
Absence of scale economies
Market for industry’s product/service may be globalizing,
thus putting many companies across the world in same
market arena
Exploding technologies force firms to specialize just to
keep up in their area of expertise
Industry is young and crowded with aspiring contenders,
with no firm having yet developed recognition to command
a large market share
6-45
Examples of Fragmented Industries
Book publishing
Landscaping and plant nurseries
Auto repair
Restaurants and fast food
Public accounting
Apparel manufacturing and retailing
Hotels and motels
Health and medical care
Paperboard boxes
Furniture
6-46
Competing in a Fragmented Industry:
The Strategy Options
6-47
Test Your Knowledge
Which of the following is unlikely to be a promising
option for competing in a fragmented industry?
A. Employing deep price discounting, extensive
advertising, and other muscle-flexing maneuvers to
gain market dominance in a select few country
markets
6-49
For Discussion: Your Opinion
6-50
First-Mover Advantages
6-52
What Is Different About a Blue Ocean?
6-53
For Discussion: Your Opinion
6-54
First-Mover Disadvantages
Moving early can be a disadvantage (or
fail to produce an advantage) when
When costs of pioneering are more than being
an imitative follower and only negligible
learning/experience curve benefits accrue to the
leader
Innovator’s products are primitive, not living up
to buyer expectations
Demand side of the market is skeptical about
the benefits of new technology/product of a first-
mover
Rapid technological change allows followers to
leapfrog pioneers
6-55
To Be a First-Mover or Not?