CHAPTER 6

Strengthening
a Company’s
Competitive
Position:
Strategic
Moves,
Timing, and
Scope of
Operations

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 LEARNING OBJECTIVES
1. Understand whether and when to pursue offensive or
defensive strategic moves to improve a company’s market
position.
2. Recognize when being a first mover or a fast follower or a
late mover can lead to competitive advantage.
3. Understand the strategic benefits and risks of expanding a
company’s horizontal scope through merger and
acquisitions.
4. Understand the advantages and disadvantages of extending
a company’s scope of operations via vertical integration.
5. Understand the conditions that favor farming out certain
value chain activities to outside parties.
6. Understand how strategic alliances and collaborative
partnerships can bolster a company’s collection of resources
and capabilities.
 Choosing Strategy Actions That Complement a
Firm’s Competitive Approach (1 of 2)

Decisions regarding the firm’s operating scope and how

to best strengthen its market standing must be made.
• Should the firm go on the offensive and initiate aggressive
strategic moves to improve the firm’s market position? If so,
when?
• Should the firm employ defensive strategies to protect the
firm’s market position? If so, when?
• When should the firm undertake strategic moves based
upon whether it is advantageous to be a first mover or a fast
follower or a late mover?

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 Choosing Strategy Actions that Complement
a Firm’s Competitive Approach (2 of 2)
Decisions regarding the firm’s operating scope and how
to best strengthen its market standing must be made.
• Should the firm integrate backward or forward into more
stages of the industry value chain?
• Which value chain activities, if any, should be outsourced?
• Should the firm enter into strategic alliances or partnership
arrangements with other enterprises?
• Should the firm bolster its market position by merging with
or acquiring another company in the same industry?

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 Launching Strategic Offensives to Improve
a Company’s Market Position
Aggressive offensives are called for when a firm:
• Spots opportunities to gain profitable market share at the
expense of rivals.
• Has no choice but to try to whittle away at a strong rival’s
competitive advantage.
• Can reap benefits of a competitive edge offers—a leading
market share, excellent profit margins, and rapid growth.
The best offensives use a firm’s resource strengths to
attack its rivals’ weaknesses.

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 Principal Offensive Strategy Options (1 of 2)
Offer an equally good or better product at lower price.
Leapfrog competitors by being the first to market with
next generation technology or products.
Pursue continuous product innovation to draw sales
and market share away from less innovative rivals.
Pursue disruptive product innovations to create new
markets.
Adopt and improve on the good ideas of other firms
(rivals or otherwise).

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 Principal Offensive Strategy Options (2 of 2)
Use hit-and-run or guerilla warfare tactics to grab sales
and market share from complacent or distracted rivals.
Launch a preemptive strike to 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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 Choosing Which Rivals to Attack
Best Targets for Offensive Attacks
• Market leaders that are vulnerable.
• Runner-up firms with weaknesses in areas where the
challenger is strong.
• Struggling enterprises that are on the verge of going under.
• Small local and regional firms with limited capabilities.

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 Blue Ocean Strategy—A Special Kind
of Offensive
A firm seeks a large and lasting competitive advantage
by abandoning existing markets and inventing an
exclusive new industry or market segment (open
competitive space) that makes former competitors
irrelevant.
By “reinventing the circus,” Cirque du Soleil annually attracts
an audience of millions of people who typically do not attend
circus events.

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 CORE CONCEPT: Blue Ocean Strategies
Blue ocean strategies offer growth in revenues and
profits by discovering or inventing new industry
segments that create altogether new demand.
 Using Defensive Strategies to Protect a
Company’s Market Position and
Competitive Advantage
Defensive strategies defend against competitive
challenges by:
• Lowering the risk of being attacked.
• Weakening the impact of any attack that occurs.
• Influencing challengers to aim their competitive 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
Blocking by:
• Introducing new features
• Adding new models
• Broadening product line to fill vacant niches
• Maintaining economy-priced models
• Making early announcements about upcoming
new products or planned price changes
• Granting 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 the firm’s present market share.
Publicly commit firm to policy of matching rivals’ terms
or prices.
Maintain a war chest of cash reserves.
Make occasional strong counter-response to moves of
weaker rivals.

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 Timing a Company’s Offensive and Defensive
Strategic Moves
When to make a strategic move is often as crucial as
what move to make.
A first-mover can earn an advantage when:
• Pioneering builds its reputation and strong brand loyalty.
• First mover’s customers will face significant switching costs.
• Property rights protections thwart rapid imitation of its
initial move.
• An early lead enables it to move down the learning curve
ahead of its rivals.
• A first mover can set the technical standard for the industry.

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 CORE CONCEPT: First-Mover Strategies
Because of first-mover advantages and disadvantages,
competitive advantage can spring from when a move is
made as well as from what move is made.
 The Potential for Late-Mover Advantages or
First-Mover Disadvantages
Late-mover advantages (or first-mover disadvantages)
arise when:
• Pioneering leadership is more costly than imitation.
• Innovators’ products are primitive, and do not living up to
buyer expectations.
• Potential buyers are skeptical about the benefits of a first-
mover’s new technology/product.
• Rapid market and technology changes allow fast followers
and late movers 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 a marathon or
a sprint? Deciding to seek first-mover competitive
advantage requires asking:
• Does market takeoff depend on developing 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?
Will buyers encounter high switching costs?
• Are there influential competitors in a position to delay or derail
the efforts of a first-mover?

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 Strengthening a Company’s Market Position
Via Its Scope of Operations
Scope of a Firm’s Operations
Describes the breadth and strength of its activities and the
extent of its reach into geographic, product and service market
segments.
Dimensions of a Firm’s Scope
• Breadth of its product and service offerings
• Range of activities it performs internally
• Extent of its geographic market presence
• Mix of businesses

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 CORE CONCEPT: Scope of the Firm
The scope of the firm refers to the range of activities
the firm performs internally, the breadth of its product
and service offerings, the extent of its geographic
market presence, and its mix of businesses.
CORE CONCEPTS: Horizontal and Vertical Scope
Horizontal scope is the range of product and service
segments that a firm serves within its focal market.
Vertical scope is the extent to which a firm’s internal
activities encompass one, some, many, or all of the
activities that make up an industry’s entire value chain
system, ranging from raw-material production to final
sales and service activities.
 Horizontal Merger and Acquisition Strategies
Strategic options that can Merger
strengthen a firm’s market The combining of two or more
position by: firms into a single entity, with the
• Achieving operating scale newly created firm often taking
and scope economies on a new name

• Gaining complementary Acquisition

competencies The combination in which one
• Extending current and firm, the acquirer, purchases and
new market and product absorbs the operations of
opportunities another, the acquired firm

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Strategic Objectives of Mergers and Acquisitions
Extend the firm’s business into new product categories.
Create a more cost-efficient operation out of the
combined firms.
Expand the firm’s geographic coverage.
Gain quick access to new technologies or
complementary resources and capabilities.
Lead 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 stall because of resistance
from organization members.
Managers and employees at the acquired continue to do things
as they were done prior to the acquisition.
Dissatisfied key employees of the acquired firm leave.
Mistakes are made in deciding which activities to leave alone and
which to meld into the acquiring firm’s operations and systems.

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 Vertical Integration Strategies
Vertical integration involves extending a firm’s
competitive and operating scope within the same
industry.
• Backward into sources of supply
• Forward toward end-users of final product
Vertical integration can aim at either full or partial
integration.

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 CORE CONCEPT: Vertical Integration
A vertically integrated firm is one that performs value
chain activities along more than one stage of an
industry’s overall value chain.
A vertical integration strategy has appeal only if it
significantly strengthens a firm’s competitive position
and/or boosts its profitability.
 The Advantages of a Vertical Integration
Strategy
There are two best reasons for vertically integrating into
more value chain segments.
1. Strengthening the firm’s competitive position
2. Boosting its profitability

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CORE CONCEPTS: Backward and Forward
Integration
Backward integration involves performing industry
value chain activities previously performed by
suppliers or other enterprises engaged in earlier stages
of the industry value chain
Forward integration involves performing industry
value chain activities closer to the end user.
 Integrating Backward to Achieve
Greater Competitiveness

For backward integration to boost profitability

a firm must be able to:
1. Achieve the same scale economies as outside
suppliers.
2. Match or beat suppliers’ production efficiency
with no decline 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 is appealing when:
• It lowers distribution costs.
• It produces a relative cost advantage over rivals.
• It produces higher profit margins.
• It allows lower prices to be charged to end users.
• Numbers of buyers prefer to make online purchases.
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
Increases a firm’s capital investments in its industry.
Increases a firm’s overall business risk if industry growth and
profitability sour.
Slows adoption of new ways as vertically integrated firms persist
in using aging technologies and facilities.
Results in less flexibility in accommodating shifting buyer
preferences when a new product design does not include parts
and components that the firm makes in-house.
Creates capacity-matching problems among integrated
in-house component manufacturing units.
Requires development of new and different skills and business
capabilities.

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 CORE CONCEPT: Outsourcing
Outsourcing involves contracting out certain value
chain activities to outside specialists and strategic
allies.
A firm should guard against outsourcing activities that
hollow out the resources and capabilities that it needs
to be a master of its own destiny
 Outsourcing Strategies: Narrowing
the Scope of Operations (1 of 2)
Outsourcing an activity should be considered when:
• It can be performed better or more cheaply by outside
specialists.
• It is not crucial to achieving a sustainable competitive advantage
and won’t hollow out capabilities, core competencies, or
technical know-how of the firm.
• It improves organizational flexibility and speeds time to market.
• It reduces a firm’s risk exposure to changing technology and/or
buyer preferences.
• It allows a firm to concentrate on its core business, leverage its
key resources and core competencies, and do even better what
it already does best.
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 Outsourcing Strategies: Narrowing
the Scope of Operations (2 of 2)
The Big Risk of an Outsourcing Strategy
Farming out the wrong types of activities and, thereby,
hollowing out strategically important capabilities that
ultimately leads to reduction of the firm’s strategic
competitiveness and long-run success in the marketplace is a
big risk.

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 Strategic Alliances and Partnerships
Strategic Alliance
Is a formal contractual agreement in which two or more firms
collaborate to achieve mutually beneficial strategic outcomes
based on:
• Strategically relevant collaboration.
• Joint contribution of.
• Shared risk.
• Shared control.
• Mutual dependence.
Strategic alliance allows firms to complementarily bundle
resources and competencies to increase their competitive
effects and value.

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 CORE CONCEPTS: Strategic Alliance
and Joint Venture
A strategic alliance is a formal agreement between
two or more companies to work cooperatively toward
some common objective.
A joint venture is a type of strategic alliance that
involves the establishment of an independent
corporate entity that is jointly owned and controlled
by the two partners.
 Reasons for Firms to Enter
Into Strategic Alliances
Reasons:
• To expedite development of new technologies or products
• To overcome technical or manufacturing expertise deficits
• To bring together personnel of each partner to create new skill
sets and capabilities
• To improve supply chain efficiency
• To gain production and/or marketing economies of scale
• To acquire or improve market access through joint marketing
agreements

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 Reasons for Firms to Continue
In Strategic Alliances
Alliances are likely to be long-lasting when:
• They involve collaboration with partners that do not
compete directly.
• A trusting relationship has been established.
• Both parties conclude that continued collaboration is in
their mutual interest.
Experience indicates that:
• Alliances may help in reducing a firm’s competitive
disadvantage but seldom result in a firm attaining a durable
competitive edge over its rivals.

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 Failed Strategic Alliances and
Cooperative Partnerships
Common causes for the failure of 60 to 70% of
alliances each year:
• Diverging objectives and priorities
• An inability to work well together
• Changing conditions that make the purpose of the alliance
obsolete
• The emergence of more attractive technological paths
• 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.
Ultimately, a firm must develop its own resources and
capabilities to protect its competitiveness and
capabilities to build and maintain its competitive
advantage.

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