Strengthening a Company's Competitive Position PDF

STRENGTHENING A COMPANY’S COMPETITIVE POSITION STRENGTHENING A FIRM’S MARKET POSITION VIA ITS SCOPE OF OPERATIONS Defining the Scope of the Firm’s Operations Extent of its...

STRENGTHENING A COMPANY’S COMPETITIVE POSITION STRENGTHENING A FIRM’S MARKET POSITION VIA ITS SCOPE OF OPERATIONS Defining the Scope of the Firm’s Operations Extent of its Size of its Range of its geographic Breadth of its competitive footprint activities market product and on performed presence and service offerings its market internally its mix of or industry businesses Vertical Integrati on Horizont al Integrati on CORE CONCEPTS 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. 6–5  Merger Is the combining of two or more firms into a HORIZONTAL single corporate entity that often takes on a MERGER AND new name. Acquisition ACQUISITION Is a combination in STRATEGIES which one firm, the acquirer, purchases and absorbs the operations of another firm, the acquired. BENEFITS OF INCREASING HORIZONTAL SCOPE Increasing a firm’s horizontal scope strengthens its business and increases its profitability by: Improving the efficiency of its operations Heightening its product differentiation Reducing market rivalry Increasing the firm’s bargaining power over suppliers and buyers Enhancing its flexibility and dynamic capabilities STRATEGIC OBJECTIVES FOR HORIZONTAL MERGERS AND ACQUISITIONS Creating a more cost-efficient operation out Creating of the combined companies. Expanding Expanding the firm’s geographic coverage. Extending Extending the firm’s business into new product categories. Gaining Gaining quick access to new technologies or complementary resources and capabilities. Leading the convergence of industries whose boundaries are being blurred by changing Leading technologies and new market opportunities. VERTICAL INTEGRATION STRATEGIES Vertically Integrated Firm Is one that participates in multiple segments or stages of an industry’s overall value chain. Vertical Integration Strategy Can expand the firm’s range of activities backward into its sources of supply and/or forward toward end users of its products.  TYPES OF VERTICAL INTEGRATION STRATEGIES Vertical Integration Choices Full Integration Tapered Integration Partial Integration  Full Integration A firm participates in all stages TYPES OF of the vertical activity chain. VERTICAL INTEGRATIO Partial Integration N A firm builds positions only in STRATEGIES selected stages of the vertical chain. Tapered Integration Involves a mix of in-house and outsourced activity in any stage of the vertical chain.  THE ADVANTAGES OF A VERTICAL INTEGRATION STRATEGY Benefits of a Vertical Integration Strategy Add materially to a firm’s technological capabilities Strengthen Boost the firm’s competitive the firm’s profitability position  DISADVANTAGES OF A VERTICAL INTEGRATION STRATEGY Less flexibility in Slow acceptance of accommodating Increased business technological shifting buyer risk due to large advances or more preferences that capital investment. efficient production require non- methods. internally produced parts. Capacity matching Internal production problems for levels may not be of efficient production Requirements for sufficient volumes to of internally- different resources allow for economies produced and capabilities. of scale. components and parts. OUTSOURCING STRATEGIES: NARROWING THE SCOPE OF OPERATIONS Outsourcing Involves farming out value chain activities to outside vendors. Outsource an activity if it: Can be performed better or more cheaply by outside specialists. Is not crucial to achieving sustainable competitive advantage. Improves organizational flexibility and speeds time to market. Reduces risks due to new technology and/or buyer preferences. Assembles diverse kinds of expertise speedily and efficiently. Allows the firm to concentrate on its core business, leverage key resources, and do even better what it does best. THE BIG RISKS OF OUTSOURCING VALUE CHAIN ACTIVITIES Hollowing out resources and capabilities that the firm needs to be a master of its own destiny. Loss of control when monitoring, controlling, and coordinating activities of outside parties by means of contracts and arm’s-length transactions. Lack of incentives for outside parties to make investments specific to the needs of the outsourcing firm’s value chain.