Block 5

Question 1

Define Offensive Strategic Moves?

Answer 1

Offensive Strategic Moves are called for when a company spots opportunities to gain profitable market share at its rivals’ expense or when a company has no choice but to try to whittle away at a strong rivals’ competitive advantage.

Question 2

What are the four strategic offensive principles?

Answer 2

1. Focusing relentlessly on building competitive advantage and then striving to convert it into sustainable advantage.
2. Applying resources where rivals are least able to defend themselves.
3. Employing the element of surprise as opposed to doing what rivals expect and are prepared for.
4. Displaying a capacity for swift, decisive, and overwhelming actions to overpower rivals.

Question 3

Name and explain the seven strategic offence options:

Answer 3

1. Offering an equally good or better product at a lower price.
2. Leapfrogging competitors by being first to market with next generation products.
3. Pursuing continuous product innovation to draw sales and market share away from less innovative rivals.
4. Pursuing disruptive product innovations to create new markets.
5. Adopting and improving on the good ideas of other companies.
6. Using hit-and-run or guerrilla marketing tactics to grab market share from complacent or distracted rivals by low balling or using intense bursts of promotional activities.
7. Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity. -Strike 1st-

Question 4

Give four examples of companies that are the best targets for offensive attacks:

Answer 4

1. Market leaders that are in vulnerable competitive positions.
2. Runner-up firms with weaknesses in areas where the challenger is strong.
3. Struggling enterprises on the verge of going under.
4. Small local and regional firms with limited capabilities.

Question 5

Define Blue-Ocean Strategy?

Answer 5

seeks to gain a dramatic and durable competetive advantage by abandoning efforts to beat competitors in existing markets and instead inventing a new market segment that renders existing competitors irrelevant and allows a cimpany to create and capture new demand.

Question 6

Name and explain the two market spaces that the business universe is divided into:

Answer 6

• A market whre industry boundries are well-defined, the competetive rules of the game are understood, and companies try to outperform rivals by capturing a bigger share of existing demand.
• A market where the industry does not really exist yet, is untainted by competition, and offers wide-open opportunity for profitable and rapid growth if a company can create new demand with a new type of product offering. (Blue-ocean Strategy)

Question 7

Define Defensive Strategic Moves:

Answer 7

are used to lower the risk of the firm being attacked, weaken the impact of an attack that does occur and influence challengers to aim their efforts at other rivals.

Question 8

What are the two forms that a defensive strategy could take?

Answer 8

1. Actions to block challengers.
2. Actions to signal the likelihood of strong retaliation.

Question 9

Explain different ways a company can create obstacles to block a competitors’ options to form a competitive attack:

Answer 9

• Introduce new features and models to broaden product lines, to close off gaps and vacant niches.
• Maintain economy-priced options to prevent lower price attacks.
• Discourage buyers from trying competitors’ brands by lengthening warranties, making early announcements about impeding new products etc.
• Challenge quality and safety of competitor’s products.
• Grant volume discounts or better financing terms.
• Convince dealers and distributors to handle its product line exclusively and force competitors to use other distribution outlets.

Question 10

Which signals can a defender give to challengers? (4)

Answer 10

• Publicly announcing its commitment to maintaining the firm’s present market share.
• Publicly committing to a policy of matching
  competitors’ terms or prices.
• Maintaining a war chest of cash and marketable securities (Cash set aside to deal with uncertainties)
• Making a strong counter-response to the moves of weaker rivals to enhance its tough defender image.

Question 11

Give five conditions that lead to first-movers advantage:

Answer 11

1. When pioneering helps build a firm’s reputation and creates strong brand loyalty.
2. When a first mover’s customers will thereafter face significant switching costs.
3. When property rights protections thwart rapid imitation of the initial move.
4. When an early lead enables movement down the learning curve ahead of rivals.
5. When a first mover can set the technical standard for the industry.

Question 12

What are late mover advantages or first mover disadvantages?

Answer 12

►when the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs
►when an innovator’s products are somewhat primitive and do not live up to buyer expectations, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader
►when rapid market evolution (due to fast-paced changes in either technology or buyer needs) gives second movers the opening to leapfrog a first mover’s products with more attractive next-version products
►when customer loyalty to the pioneer is low and a first mover’s skills, know-how, and actions are easily copied or even surpassed
►when market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified

Question 13

Give some considerations needed to be asked when deciding if the company should be a first mover, or not:

Answer 13

• Does market takeoff depend on complementary products or services that are currently not 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 in moving to the newly introduced product or service?
• Are there influential competitors in a position to delay o derail the efforts of a first mover?

Question 14

Define the scope of a firm?

Answer 14

refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.

Question 15

Explain a horizontal and vertical scope:

Answer 15

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 the range of activities that make up an industry’s entire value chain system, from raw material production to final sales and service activities.

Question 16

Define a merger:

Answer 16

is the combining of two or more companies into a single corporate entity, with the newly created company often taking on a new name.

Question 17

Explain an acquisition strategy:

Answer 17

is a combination in which one company (the acquirer) purchases and absorbs the operations of another (the acquired).

Question 18

Name five objectives that merger and acquisition strategies try to achieve:

Answer 18

• Creating a more cost-efficient operation out of the combined companies.
• Expanding the firm’s geographic coverage.
• Extending the firm’s business into new product categories.
• Gaining quick access to new technologies or other resources and capabilities.
• Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Question 19

What are the benefits of increasing a firm’s horizonal scope:

Answer 19

• 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.

Question 20

Define a vertically integrated firm:

Answer 20

is when a firm participates in multiple segments or stages of an industry’s value chain system.

Question 21

Explain the vertical integration strategy:

Answer 21

When they can expand the firm’s range of activities backward into its sources of supply, or forward toward end users of its products.A firm can pursue vertical integration by starting its own operations in other stages of the vertical activity chain or by acquiring a company already performing the activities it wants to bring in-house

Question 22

Name and explain the three types of vertical integration strategies:

Answer 22

1. Full integration:
   A firm participates in all stages of the vertical activity chain.
2. Partial integration:
   A firm builds positions only in selected stages of the vertical chain.
3. Tapered integration:
   A firm uses a mix of in-house and outsourced activity in any stage of the vertical chain.

Question 23

What are the benefits of a vertical integration strategy?

Answer 23

• Can add materially to a firm’s technological capabilities.
• Strengthen the firm’s competitive position.
• Boost the firm’s profitability.

Question 24

Define backward integration:

Answer 24

Backward integration involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system.

Question 25

Explain how a company makes backward integration profitable: (2)

Answer 25

• By achieving same scale economies as outside
  suppliers (for a low-cost based competitive advantage)
• Matching or beating suppliers’ production efficiency with no drop-off in quality (for a differentiation-based competitive advantage)

Question 26

Give reasons for backward integration:

Answer 26

● Reduction of supplier power
● Reduction in costs of major inputs
● Assurance of the supply and flow of critical inputs
● Protection of proprietary know-how

Question 27

Define forward integration:

Answer 27

Forward integration involves entry into value chain system activities closer to the end user.

Question 28

Give reasons for forward integration:

Answer 28

• To lower overall costs by increasing channel activity efficiencies relative to competitors.
• To increase bargaining power through control of channel activities.
• To gain better access to end users
• To strengthen and reinforce brand awareness
• To increase product differentiation

Question 29

Name Advantages of a vertical integration strategy:

Answer 29

• it can add materially to a company’s technological capabilities
• it can strengthen the firm’s competitive position
• it can boost its profitability
• when there are few suppliers and when the item being supplied is a major component, vertical integration can lower costs by limiting supplier power
• it can lower costs by facilitating the coordination of production flows and avoiding bottlenecks and delays that disrupt production schedules

Question 30

Explain a few disadvantages of a vertical integration strategy:

Answer 30

• Increased business risk due to large capital investment.
• Slow acceptance of technological advances or more efficient production methods.
• Less flexibility in accommodating shifting buyer preferences that require non-internally produced parts.
• Internal production levels may not reach volumes that create economies of scale.
• it poses all kinds of capacity-matching problems
• integration forward or backward typically calls for developing new types of resources and capabilities

Question 31

Weighing the pros and cons of vertical integration depends on

Answer 31

• whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect proprietary know-how, or increase differentiation
• what impact vertical integration will have on investment costs, flexibility, and response times
• what administrative costs will be incurred by coordinating operations across more vertical chain activities
• how difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain

Question 32

Define outsourcing:

Answer 32

involves contracting out certain value chain activities that are normally performed in-house to outside vendors. Outsourcing strategies help narrow the scope of a business’s operations in terms of what activities are performed internally.

Question 33

When should outsourcing be an option?

Answer 33

Outsource an activity if it:

• Can be performed better or more cheaply by outside specialists.
• Activity is not crucial to achieving sustainable competitive advantage.
• Improves organizational flexibility and speeds time to market.
• Reduces risk exposure due to new technology or buyer preferences.
• Allows the firm to concentrate on its core business, leverage key resources, and do even better what it already does best.

Question 34

Explain the risks of outsourcing:

Answer 34

• a company will farm out the wrong types of activities and thereby hollow out its own capabilities
• the lack of direct control because it may be difficult to monitor, control, and coordinate the activities of outside parties via contracts and arm’s-length transactions alone
• lack of incentives for outside parties to make investments specific to the needs of the outsourcing firm’s value chain.

Question 35

Define a strategic alliance:

Answer 35

A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.

Question 36

Define a joint venture:

Answer 36

A joint venture is a partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses.

Question 37

Explain what factors makes an alliance become ‘strategic’: (7)

Answer 37

When it serves any of the following purposes:

1. Facilitates achievement of an important business objective.
2. Helps build, sustain, or enhance a core competence or competitive advantage.
3. Helps remedy an important resource deficiency or competitive weakness.
4. Helps defend against a competitive threat, or mitigates a significant risk to a company’s business.
5. Increases the bargaining power over suppliers or buyers.
6. Helps open up important new market opportunities
7. Speeds development of new technologies or product innovations.

Question 38

What are some benefits of strategic alliances and partnerships?

Answer 38

• minimizes the problems associated with vertical integration, outsourcing, and mergers and acquisitions
• are useful in extending the scope of operations via international expansion and diversification strategies
• reduces the need to be independent and self-sufficient when strengthening the firm’s competitive position
• offers greater flexibility should a firm’s resource requirements or goals change over time
• are useful when industries are experiencing high velocity technological advances simultaneously

Question 39

Why and how strategic alliances are advantageous:

Answer 39

Strategic Alliances:

• expedite development of promising new technologies or products
• help overcome deficits in technical and manufacturing expertise
• bring together the personnel and expertise needed to create new skill sets and capabilities
• improve supply chain efficiency
• help partners allocate venture risk sharing
• allow firms to gain economies of scale
• provide new market access for partners

Question 40

Strategic Alliance Factors:

Answer 40

1. Picking a good partner - Complementary strengths, understand vision. Shared objectives.
2. Being sensitive to cultural differences - Understand and respect the cultural differences in organization.
3. Recognizing that the alliance must benefit both sides - Not one sided. Beneficial to both sides.
4. Ensure that both parties keep to their commitments - Just as other functions are managed. There must be a systematic way to manage alliance.
5. Structuring the decision making process for swift actions.
6. Managing the learning process and adjusting alliance agreement over time - Learning routine part of management process.

Question 41

What are some reasons for entering into strategic alliances?

Answer 41

• When Seeking global market leadership
• When staking out a strong industryposition

Question 42

Alliances are more likely to be long-lasting when

Answer 42

• they involve collaboration with partners that do not compete directly, such as suppliers or distribution allies
• a trusting relationship has been established
• both parties conclude that continued collaboration is in their mutual interest

Question 43

Explain the drawbacks of a strategic alliance:

Answer 43

• Culture clash and integration problems due to different management styles and business practices.
• Anticipated gains not materializing due to an overly optimistic view of the potential for synergies or the unforeseen poor fit of partners’ resources and capabilities.
• Risk of becoming dependent on partner firms for essential expertise and capabilities.
• Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals.

Question 44

The advantages of strategic alliances over vertical integration or horizontal mergers and acquisitions are: (3)

Answer 44

• They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing.
• They are more flexible organizational forms and allow for more adaptive response to changing conditions.
• They are more rapidly developed.

Question 45

Explain how to make a strategic alliance work: (5)

Answer 45

• Create a system for managing the alliance.
• Build trusting relationships with partners.
• Set up safeguards to protect from the threat of opportunism by partners.
• Make commitments to partners and see that partners do the same.
• Make learning a routine part of the management process.