Competitive Advantage: Strategic Moves and Scope

Strengthening Competitive Position

• Strategic moves, timing, and scope of operations are key to strengthening a company's competitive position.
• Offensive and defensive strategic moves are pursued to improve a firm's market position.
• Being a first or late mover can lead to a competitive advantage.
• Expanding a company's horizontal scope through mergers and acquisitions can have strategic benefits and risks.
• Extending a firm’s scope of operations via vertical integration has advantages and disadvantages.
• Specific conditions can favor outsourcing certain value chain activities to external parties.
• Alliances and collaborative partnerships impact the firm's resources and capabilities.

Strategy Actions Complementing Competitive Approach

• Decisions on how to strengthen a firm’s market position are key.
• Strategic moves are based on whether it is advantageous to be a first or a late mover.
• It must be determined whether and when to go on the offensive and initiate aggressive strategic moves to improve market position.
• It also must be determined whether and when to employ defensive strategies to protect the market position.
• Decisions need to broaden resources and capabilities, achieve cost efficiencies, or strengthen market position.
• It must be decided whether to strengthen the company's market position by merging with or acquiring another company in the same industry.
• It must be determined whether to integrate backward or forward into more stages of the industry value chain.
• Decisions need to be made regarding which value chain activities, if any, should be outsourced, and whether to enter into strategic alliances or partnership arrangements with other enterprises.

Offensive Strategies

• Aggressive offensives occur when a company spots opportunities to gain profitable market share at the expense of rivals.
• Aggressive offensives also occur when a leading market share, excellent profit margins, and rapid growth occur.
• Effective offensives use a company's resource strengths to attack rivals' weaknesses.
• Offensive strategy options include offering an equally good or better product at a lower price.
• Options also include outperforming competitors by being the first to market with next-generation technology or products.
• Companies can pursue continuous product innovation to draw sales and market share away from less innovative rivals.
• Securing the best distributors in a particular geographic region or country, or securing the most favorable retail locations are also offensive moves.
• Tying up the most reliable, high-quality suppliers via exclusive partnerships, long-term contracts or even acquisition is an offensive choice.
• The best targets for offensive attacks include vulnerable market leaders.
• Attacks can also target runner-up firms with weaknesses in areas where the challenger (offensive company) is strong.
• Other viable targets include struggling enterprises that are on the edge of going under and small local and regional firms with limited capabilities.
• A firm seeks a large and lasting competitive advantage by abandoning existing markets and inventing an exclusive new industry or market segment.
• Uber created a blue ocean by disrupting the traditional taxi model with a mobile app-based ride-sharing platform.
• Blue-ocean strategies offer growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand.

Defensive Strategies

• Defensive strategies help defend against competitive challenges by lowering the risk of being attacked.
• Defensive strategies also weaken the impact of any attack that occurs.
• Additionally, these strategies influence challengers to aim their competitive efforts at other rivals.
• Good defensive strategies help protect competitive advantage but rarely are the basis for creating it.
• Companies might introduce new features to block avenues open to challengers.
• Adding new models or broadening the product line to fill vacant niches are also potential blocks.
• Maintaining economy-priced models and granting volume discounts or better financing terms to dealers and distributors can also deter experimentation with other suppliers.

Timing Strategic Moves

• The right timing to make a strategic move is as crucial as the move itself.
• A first mover can earn an advantage when pioneering builds its reputation and creates strong brand loyalty.
• Advantages also emerge when its customers will later face significant switching costs.
• Property rights protections prevent rapid imitation of its initial move.
• Advantages can also occur when an early lead enables it to move down the learning curve ahead of its rivals or when it can set the technical standard for the industry as first mover.
• Late-mover advantages (or first-mover disadvantages) arise when pioneering leadership is more costly than imitation.
• Late mover also benefit when pioneering innovators' products are primitive and do not live up to buyer expectations.
• They can also benefit when potential buyers are uncertain about the benefits of a first-mover's new technology or product.
• Additional benefits occur when rapid market evolution and technology changes allow fast followers and late movers to advance pioneers with more attractive next-version products.

Scope of Operations

• A firm’s scope of operations describes the range and strength of its activities and the extent of its reach into geographic, product, and service market segments.
• Dimensions of a firm's scope are the range of product and service offerings, the range of activities it performs internally, its geographic market presence, and the mix of businesses.
• Horizontal scope encompasses the range of product and service segments that a firm serves within its industry.
• Vertical scope includes 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.
• Potential integration levels range from raw-material production to final sales and service activities.
• Horizontal integration involves acquiring or merging with industry competitors to achieve the competitive advantage that comes with large size.
• An increase in horizontal integration corresponds to an increased level of concentration in an industry.
• A merger combines of two or more firms into a single entity, with the newly created firm often taking on a new name.
• An acquisition combines firms when one firm, the acquiring, purchases and absorbs the operations of another, the acquired firm.
• Mergers and acquisitions extend the firm's business into new product categories.
• They also create a more cost-efficient operation out of the combined firms.
• They can also expand the firm's geographic coverage, and gain quick access to new technologies or complementary resources and capabilities.
• Mergers and acquisitions also lead the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.
• Cost savings smaller than expected and gains in competitive capabilities that take much longer to realize or may never materialize cause mergers and acquisitions to sometimes fail.
• Failed efforts to merge the corporate cultures stall because of resistance from organization members.
• Failures also occur when the managers and employees acquired continue to do things as they were done prior to the acquisition.
• Dissatisfied key employees of the acquired firm leaving or mistakes made in decisions about which activities to leave alone and which to meld into the acquiring firm's operations and systems can also trigger a failure.
• Vertical integration involves extending a firm's competitive and operating scope within the same industry, both backward into sources of supply and forward toward end users of the final product.
• Vertical integration can aim for full integration where the firm participates in all stages of the vertical chain and tapered integration in which the firm engages in the outsourcing of some activities and in performing other activities internally.
• 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.
• For backward integration to boost profitability, a firm must be able to achieve the same scale economies as outside suppliers.
• It must also match or beat suppliers' production efficiency with no decline in quality.
• Opportunities for cost reduction occur through backward vertical integration when suppliers have large profit margins.
• If the item being supplied is a major cost component, or if the requisite technological skills are easily mastered or acquired, backward integration can be implemented.
• Backward integration can also launch if powerful suppliers are inclined to raise prices at every opportunity.

Vertical Integration Benefits and Disadvantages

• Vertical integration into forward stages of the industry value chain allows manufacturers to gain better access to end users.
• It also improves market visibility and includes the purchasing experience as a differentiating feature.
• Vertical Integration increases a firm's capital investments in its industry.
• It also increases a firm's overall business risk if industry growth and profitability sour.
• It slows adoption of new ways as vertically integrated firms persist in using aging technologies and facilities.
• It can also result 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.
• Additionally, this requires development of new and different skills and business capabilities.
• Outsourcing involves contracting out certain value chain activities to outside specialists and strategic partners.
• A firm should guard against outsourcing activities that are essential to its competitive advantage.
• Outsourcing occurs when activity can be performed better or more cheaply by outside specialists.
• It’s also utilized when activity is not crucial to achieving a sustainable competitive advantage and won't impact negatively the capabilities, core competencies, or technical know-how of the firm.
• Additionally outsourcing when activity improves organizational flexibility and speeds time to market reduces the firm's risk exposure to changing technology and/or buyer preferences.
• It can also allow a firm to concentrate on its core business, leverage its key resources and core competencies, and do even better what it already does best.

Risks of Outsourcing

• Risk includes farming out the wrong types of activities and, hollows out strategically important capabilities.
• Farming out ultimatley leads to reduction of the firm's strategic competitiveness and long-run success in the marketplace, and the firm is no longer a master of its own destiny.
• Strategic alliances create formal contractual agreement in which two or more firms collaborate to achieve mutually beneficial strategic outcomes.
• These are based on strategically relevant collaboration, joint contribution of resources, shared risk, shared control, and mutual dependence.
• Strategic alliances allow firms to complementarily bundle resources and competencies to increase their competitive effects and value.
• 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 Partnerships

• Companies enter strategic alliances to expedite development of new technologies or products.
• Strategic alliances help to overcome technical or manufacturing expertise deficits.
• They also bring together personnel of each partner to create new skill sets and capabilities.
• These partnerships improve supply chain efficiency, gain production and/or marketing economies of scale, and acquire or improve market access through joint marketing agreements.
• Partnerships emerge by picking a good partner, being sensitive to cultural differences, and by recognizing that the alliance must benefit both sides.
• Alliances also require ensuring that both parties live up to their commitments.
• Structuring the decision-making process so that actions can be taken swiftly when needed help strategic alliances.
• Managing the learning process and then adjusting the alliance over time to fit new circumstances is also a factor.
• Alliances and cooperative partnerships present a danger to any company looking to become dependent on other companies for essential expertise and capabilities.
• A firm must develop its own resources and capabilities to protect its competitiveness and capabilities to build and maintain its competitive advantage.