Business Strategy Chapter 6 Quiz

Study Notes

Chapter 6: Strengthening a Company's Competitive Position

This chapter explores strategic moves, timing, and scope of operations to improve a company's competitive position.
Learning objectives cover offensive and defensive strategic moves, first mover/fast follower/late mover strategies, scope expansion via mergers and acquisitions/vertical integration, outsourcing, and strategic alliances.
Offensive and defensive competitive actions are key elements in maximizing a strategy's power. A competitor's weaknesses should be the focus of an offensive strategy
Companies' scope of operations can be expanded through mergers and acquisitions or vertical integration.
Offensive strategies should focus on building competitive advantage and converting it to a sustainable advantage.
Competitive advantage can spring from both the what move is made, as well as when the move is made.
Timing of a strategic move is crucial; moving first doesn't guarantee success. Risks of a first-mover advantage must be considered.
Defensive strategies protect competitive advantage. Defense typically is not the foundation for creating advantage.
Companies often use horizontal or vertical integration to expand scope. Horizontal scope refers to the range of product and service segments a firm serves within its focal market. Vertical scope refers to the extent of a firm's internal activities encompassing one, some, many, or all of the activities in an industry's value chain, ranging from raw materials to final sales.
Mergers combine two or more firms into a single entity. Acquisitions involve one firm purchasing another. Strategic objectives for horizontal mergers and acquisitions typically include creating cost efficiency, expanding geographical coverage, extending into new product categories, quickly gaining access to new technologies or resources, and supporting industry convergence.
Advantages of increasing horizontal scope in a company include improved operational efficiency; heightened product differentiation, reduced market rivalry, increased bargaining power for suppliers/buyers, and enhanced flexibility.
Factors that make an alliance "strategic": facilitates a company's objective, helps build/sustain/enhance a core competence, remedies a resource deficiency, defends against threats, or increases bargaining power.
Outsourcing strategics allow companies to concentrate on core business functions, leverage key resources, and do even better at existing functions. Risks of outsourcing include hollowing out core resources and capabilities, and potential loss of control over outsourced activities.

Blue Ocean Strategy

The business universe is divided into existing markets or blue ocean markets. Existing markets are defined by existing rules and competition; blue ocean markets are untapped and potentially lucrative with room for long-term growth and profit.
A blue ocean market involves discovering or inventing new industry segments that create wholly new demand.

Strategic Offensive Principles

Focusing relentlessly on building competitive advantage.
Applying resources where rivals are least able to defend
Employing the element of surprise as opposed to doing what rivals expect
Displaying a capacity for swift, decisive, and overwhelming action to overpower rivals.

Defensive Strategies - Protecting Market Position

Lowering the firm's risk of attack
Weakening the impact of an attack
Influencing challengers to aim at other rivals

Types of Vertical Integration

Full Integration: A firm participates in all stages of the vertical activity chain.
Partial Integration: A firm builds positions only in selected stages of the vertical chain.
Tapered Integration: A mix of in-house and outsourced activities at any stage / point of the value chain.

Key Advantages of Strategic Alliances

Lower investment costs and risks.
More flexible corporate organizational forms & more adaptive responses to changing conditions.
Faster deployments when speed is crucial.
Greater control over partnered activities and willingness to make relationship investments instead of arms-length dealings.