Chapter 6: Strengthening a Company's Competitive Position Flashcards
Strategic offensive principles to improve a firm’s market position
1) Applying cost advantage to attack competitors in terms of cost and value
2) Overtaking competitors by being the first adopter of new techno product
3) Continuous product innovation
4) Improving good ideas of rivals
5) Guerrilla warfare attacks
6) Initiating a pro-active move
Strategic defensive principles to protect market position and competitive advantage
1) Broaden product lines (new features, modules)
2) Counteract moves
3) Patent protection
4) Liaise with the forwarded value chain members
5) Public announcements
Which rivals should be chosen to attack?
1) Market leaders that are vulnerable
2) Runner-up firms
3) Struggling enterprises
4) Small local and regional firms with limited capabilities
2 ways the business universe is divided into:
1) An existing market with boundaries and rules in which rival firms compete for advantage
2) A “blue ocean” market space, where the industry has not yet taken shape, with no rivals and wide-open long-term growth and profit potential for a firm that can create demand for new types of products. Eg. AirAsia, Wii, eBay
Although first movers bear greater risks and greater development costs, the pioneer will benefit from a monopoly position that enables it to recover its investment costs and make an attractive profit. However, to what extend can they enjoy this?
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 prevent 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.
When will the fast follower or even late mover be more advantageous?
1) When pioneering is more costly than imitative following – allows followers to end up with lower costs than the first-mover
2) When the products of an innovator are somewhat primitive and do not live up to buyer expectation, thus allowing a follower with better-performing products to win disenchanted buyers away from the leader.
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.
What is the difference between a company operation’s horizontal scope and vertical scope?
Horizontal scope
1) The range of product and service segments that the firm serves within its product or service market
2) Merger and acquisition involving other market participants provide a means for a company to expand its horizontal scope
Vertical scope
1) The extent to which the firm engages in the various activities that make up the industry’s entire value chain system - from raw materials -> after-sales service activities
2) To outsource or not?
What are the strategic objectives for horizontal mergers and acquisitions?
1) Forming more cost-efficient operation
2) Expanding the firm’s geographic coverage.
3) Extending the firm’s business into new product lines.
4) Gaining quick access to new technologies or complementary resources and capabilities
5) Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities
Do mergers and acquisitions always produce anticipated results?
Not always because:
1) Cost savings may be smaller than expected
2) Gains in competitive capabilities may take longer to realise or never happen
3) Combining corporate culture may meet heavy resistance
4) Change may be resisted
5) Difference in management styles and operating procedures can be hard to resolve
What are the 3 types of vertical integration?
1) Full integration - participating in all stages of the vertical chain
2) Partial integration - building positions in selected stages of the vertical chain
3) Tapered integration - involves a mix of in-house and outsourced activity in any given stage of the vertical chain. eg. Oil companies supplying their refineries from their own wells as well as with oil they purchase from other producers
How do you integrate backwards to achieve greater competitiveness? and Why would you do so?
Integrating backwards by (in order to be a cost-saving and profitable strategy):
1) Achieving same scale economies as outside suppliers - low-cost based competitive advantage
2) Matching or beating suppliers’ production efficiency with no drop-off in quality - differentiation-based competitive advantage
Reasons for integrating backwards:
1) Reduction of supplier power
2) Assurance of the major supply and flow of critical inputs
3) Reduction in costs of major input
4) Protection in proprietary know-how
What are the reasons to integrating forward?
1) To lower overall costs by increasing channel activity efficiencies relative to competitors.
2) To increase bargaining power through control of channel activities.
3) To gain better access to end users by offering product differentiation and wider markets.
4) To strengthen and reinforce brand awareness.
5) Make end user’s purchasing experience a differentiating feature
What are the disadvantages of a vertical strategy?
1) Raises a firm’s capital investment in the industry – increasing business risk
2) Often slow to embrace technological advances or more efficient production methods when they are saddled with older technology/ facilities
3) Can result in less flexibility in accommodating shifting buyer preferences
4) May not enable a company to realize economies of scale if its production levels are below minimum efficient scale
5) Poses all kind of capacity matching problems – e.g. integrating across several production stages in ways to achieving the lowest feasible costs can be a big challenge
6) Often calls for developing radical new types of resources (skills) and capabilities.
What are the factors to consider when weighing the pros and cons of vertical integration?
1) Whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect propriety know-how or increase differentiation
2) Impact of vertical integration in investment costs, flexibility and response times
3) The administrative costs of 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
Under what circumstances would adopting outsourcing strategies be advantageous?
1) If an activity can be performed better or cheaper by external specialists
2) If it allows company to concentrate on its core business
3) If the activities are not crucial to the firm’s core competencies and ability to achieve sustainable competitive advantage
4) If it reduces the risk exposure to changing technology and/or buyer preferences
