Chapter 6

Question 1

What are Strategic Offensives?

Answer 1

Strategic offensives 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 whittle away at a strong rival’s competitive advantage.

Question 2

The best strategic offensives tend to incorporate 4 principles. What are they?

Answer 2

1 – Focusing relentlessly on building competitive advantage and then striving to convert it into a 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 and decisive actions to overwhelm rivals.

Question 3

The principal offensive strategy options include what?

Answer 3

1 – Offering an equally good or better product at a lower price.

2 – Leapfrogging competitors by being first to market the 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 (rivals or otherwise).

6 – Using hit-and-run or guerrilla warfare tactics to grab market share from complacent or distracted rivals.

7 – Launching a pre-emptive strike to secure an industry’s limited resources or capture a rare opportunity.

Question 4

What rivals are the best targets for offensive attacks?

Answer 4

• Market leaders that are vulnerable: Offensive attacks make good sense when a company that leads in terms of market share is not a true leader in terms of serving the market well.
• 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.

Question 5

What’s a blue-ocean strategy?

Answer 5

A blue-ocean strategy seeks to gain a dramatic competitive advantage by abandoning efforts to beat out competitors in existing markets and, instead, inventing a new market segment that allows a company to create and capture altogether new demand.

Question 6

A blue-ocean strategy views the business universe as consisting of 2 distinct types of market space.
What are they?

Answer 6

1 – Where industries boundaries are well defined, the competitive rules of the game are understood, and companies try to outperform rivals by capturing a bigger share of existing demand. Intense competition constraints a company’s prospects for rapid growth and superior profitability since rivals move quickly to either imitate or counter the successes of competitors.

2 – The second type of market space is a “blue ocean” 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. Offers smooth sailing in uncontested waters for the company first to venture out upon it.

Question 7

Defensive strategies can take 2 forms. What are they?

Answer 7

1 – actions to block challengers

2 – actions to signal the likelihood of strong retaliation

Question 8

6 conditions exist in which first-mover advantages are most likely to arise. What are they?

Answer 8

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 to first mover to reap scale economies or more down the learning curve ahead of rivals.

5 – When a first mover can set the technical standard for the industry.

6 – When strong network effects compel increasingly more consumers to choose the first mover’s product or service.

Question 9

Late-mover advantages (or first-mover disadvantages) arise in 4 instances. What are they?

Answer 9

1 – When the costs of pioneering are high relative to the benefits accrued and imitative followers can achieve similar benefits with far lower costs,

2 – When an innovator’s products are somewhat primitive and do not live up to buyer expectations.

3 – When rapid market evolution gives second movers the opening to leapfrog a first mover’s products with more attractive next-version products.

4 – When market uncertainties make it difficult to ascertain what will eventually succeed, allowing late movers to wait until these needs are clarified.

5 – When customer loyalty to the pioneer is low and a first mover’s skills, know-how, and actions are easily copied or surpassed.

6 – When the first mover must make a risky investment in complementary assets or infrastructure (and these may be enjoyed at low cost or risk by followers).

Question 10

Any company that seeks competitive advantage by being a first mover needs to ask?

Answer 10

• Does market take off depend on the development of complementary products/services that aren’t currently available.
• Is new infrastructure required before buyer demand can surge?
• Will buyers need to learn new skills or adopt new behaviours?
• Will buyers encounter high switching costs in moving to the newly introduced product or service?
• Are there influential competitors in a position to delay or derail the efforts of a first mover?

Question 11

What is the scope of the firm?

Answer 11

The scope of the firm 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 12

What is the Horizontal scope?

Answer 12

Horizontal scope is the range of product and service segments that a firm serves within its focal market.

Question 13

What is the Vertical Scope?

Answer 13

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 14

Merger and acquisition strategies typically set sights on achieving any of what 5 objectives?

Answer 14

1 – Creating a more cost-efficient operation out of the combined companies.

2 – Expanding a company’s geographic coverage.

3 – Extending the company’s business into new product categories.

4 – Gaining quick access to new technologies or other resources and capabilities.

5 – Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Question 15

What’s a vertically integrated firm?

Answer 15

A vertically integrated firm is one that participates in multiple stages of an industry’s value chain system.

Question 16

What is:
Full integration?
Partial integration?
Tapered integration?

Answer 16

Full integration - (participating in all stages of the vertical chain)

Partial integration - (building positions in selected stages of the vertical chain).

Tapered integration - (which involves a mix of in-house and outsourced activity in any given stage of the vertical chain)

Question 17

What is backward integration?

What is forward integration?

Answer 17

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

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

Question 18

For backward integration to be a cost-saving and profitable strategy it must?

Answer 18

1 – Achieve the same scale economies as outside suppliers

2 – Match or beat suppliers’ production efficiency with no drop-off in quality.

Question 19

What are the disadvantages of a vertical integration strategy?

Answer 19

• Increases business risk by raising a firm’s capital investment.
• Vertically integrated companies are often slow to adopt technological advances or more efficient production methods when they are saddled with older technology or facilities.
• Vertical integration can result in less flexibility in accommodating shifting buyer preferences.
• Vertical integration may not enable a company to realize economies of scale.
• Integrating forward/backward typically requires developing new types of resource and capabilities which are expensive

Question 20

What are the Pros and Cons of vertical integration?

Answer 20

1 – whether vertical integration can enhance the performance of strategy-critical activities

2 – what impact vertical integration will have on investment costs, flexibility and response times

3 – what administrative costs will be incurred by coordinating operations across more vertical chain activities

4 – 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 21

What is outsourcing?

Answer 21

Outsourcing involves contracting out certain value chain activities that are normally performed in-house to outside vendors.

Question 22

When does outsourcing make strategic sense?

Answer 22

Outsourcing certain value chain activities makes strategic sense whenever:

• An activity can be performed better or more cheaply by outside specialists.
• The activity is not crucial to the firm’s ability to achieve sustainable competitive advantage.
• The outsourcing improves organizational flexibility and speeds time to market.
• It reduces the company’s risk exposure to changing technology and buyer preferences.
• It allows a company to concentrate on its core business, leverage its key resources, and do even better what it already does best.

Question 23

What are the risk of outsourcing?

Answer 23

The biggest danger of outsourcing is that a company will farm out the wrong types of activities and thereby hollow out its own capabilities.

Another risk of outsourcing comes from the lack of direct control.

Question 24

What’s a strategic alliance?

Answer 24

A strategic alliance is a formal agreement between 2 or more separate companies in which they agree to work cooperatively toward some common objective.

Question 25

What’s a joint venture?

Answer 25

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 26

When does an alliance become “strategic” as opposed to just a convenient business arrangement?

Answer 26

1 – It facilitates achievement of an important business objective (like lowering costs or delivering more value to customers in the form of better quality, added features, and greater durability).

2 – It helps build, strengthen, or sustain a core competence or competitive advantage.

3 – It helps remedy an important resource deficiency or competitive weakness.

4 – It helps defend against a competitive threat, or mitigates a significant risk to a company’s business.

5 – It increases bargaining power over suppliers or buyers.

6 – It helps open up important new market opportunities.

7 – It speeds the development of new technologies and/or product innovations.

Question 27

The extent to which companies benefit from entering into alliances and partnerships seems to be a function what 6 factors.

Answer 27

1 – Picking a good partner.

2 – Being sensitive to cultural differences.

3 – Recognizing that the alliance must benefit both sides.

4 – Ensuring that both parties live up to their commitments.

5 – Structuring the decision-making process so that actions can be taken swiftly when needed.

6 – Managing the learning process and then adjusting the alliance agreement over time to fit new circumstances.

Question 28

Alliances are more likely to be long-lasting when:

Answer 28

1 – they involve collaboration with partners that do not compete directly, such as suppliers or distribution allies

2 – a trusting relationship has been established

3 – both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging.

Question 29

The principal advantages of strategic alliances over vertical integration or horizontal mergers and acquisitions are what?

Answer 29

1 – They lower investment costs and risk for each partner by facilitating resource pooling and risk sharing.

2 – They are more flexible organizational forms and allow for a more adaptive response to changing conditions.

3 – They are more rapidly deployed – a critical factor when speed is of the essence (race down a steep experience curve)

Question 30

What are the drawbacks of strategic alliances?

Answer 30

Anticipated gains may fail to materialize due to an overly optimistic view of the potential or a poor fit in terms of the combination of resources and capabilities.

It may create dependencies. Risk of a partner gaining access to a company’s proprietary knowledge base.

Question 31

How can a company make strategic alliances work?

Answer 31

• They create a system for managing their alliances
• They build relationships with their partners and establish trust
• They protect themselves from the threat of opportunism by setting up safeguards
• They make commitments to their partners and see that their partners do the same
• They make learning a routine part of the management process