Which of the following companies are the best targets for offensive-minded firms to challenge?

CHAPTER 6 Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations

©alice-photo/Shutterstock.com

©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.

Copyright © McGraw-Hill Education. Permission required for reproduction or display.

Chapter 6 discusses that once a company has settled on which of the five generic competitive strategies to employ, attention turns to what other strategic actions it can take to complement its competitive approach and maximize the power of its overall strategy.

© McGraw-Hill Education

6–1

Learning Objectives

This chapter will help you understand:

How and when to deploy offensive or defensive strategic moves.

When being a first mover, a fast follower, or a late mover is most advantageous.

The strategic benefits and risks of expanding a firm’s horizontal scope through mergers and acquisitions.

The advantages and disadvantages of extending the company’s scope of operations via vertical integration.

The conditions that favor outsourcing certain value chain activities to outside parties.

How to capture the benefits and minimize the drawbacks of strategic alliances and partnerships.

© McGraw-Hill Education.

The chapter presents the pros and cons of taking strategy-enhancing measures to strengthen a company’s competitive position.

© McGraw-Hill Education

6–2

Maximizing the Power of a Strategy

Making choices that complement a competitive approach and maximize the power of strategy

Offensive and defensive competitive actions

Competitive dynamics and the timing of strategic moves

Scope of operations along the industry’s value chain

© McGraw-Hill Education.

To maximize the power of a strategy, a company must make choices about its competitive actions, how and when to take those actions, and increasing or decreasing the scope of its operations.

© McGraw-Hill Education

6–3

Considering Strategy-Enhancing Measures

Whether and when to go on the offensive strategically

Whether and when to employ defensive strategies

When to undertake strategic moves—first mover, a fast follower, or a late mover

Whether to merge with or acquire another firm

Whether to integrate backward or forward into more stages of the industry’s activity chain

Which value chain activities, if any, should be outsourced

Whether to enter into strategic alliances or partnership arrangements

© McGraw-Hill Education.

Whether to go on the offensive and initiate aggressive strategic moves to improve the company’s market position

Whether to employ defensive strategies to protect the company’s market position

When to undertake new strategic initiatives—whether advantage or disadvantage lies in being a first mover, a fast follower, or a late mover

Whether to bolster the company’s market position by merging with or acquiring another company in the same industry

Whether to integrate backward or forward into more stages of the industry value chain system

Which value chain activities, if any, should be outsourced

Whether to enter into strategic alliances or partnership arrangements

© McGraw-Hill Education

6–4

Launching Strategic Offensives to Improve a Company’s Market Position

Strategic offensive principles

Focusing relentlessly on building competitive advantage and then striving to convert it into sustainable advantage

Applying resources where rivals are least able to defend themselves

Employing the element of surprise as opposed to doing what rivals expect and are prepared for

Displaying a capacity for swift, decisive, and overwhelming actions to overpower rivals

© McGraw-Hill Education.

Sometimes a company’s best strategic option is to seize the initiative, go on the attack, and launch a strategic offensive to improve its market position. No matter which of the five generic competitive strategies a firm employs, there are times when a company should go on the offensive to improve its market position and performance.

© McGraw-Hill Education

6–5

Choosing the Basis For Competitive Attack

Avoid directly challenging a targeted competitor where it is strongest.

Use the firm’s strongest strategic assets to attack a competitor’s weaknesses.

The offensive may not yield immediate results if market rivals are strong competitors.

Be prepared for the threatened competitor’s counter-response.

© McGraw-Hill Education.

The best offensives use a company’s most powerful resources and capabilities to attack rivals in the areas where they are competitively weakest. 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 to whittle away at a strong rival’s competitive advantage.

© McGraw-Hill Education

6–6

Principal Offensive Strategy Options

Offering an equally good or better product at a lower price

Leapfrogging competitors by being first to market with next-generation products

Pursuing continuous product innovation to draw sales and market share away from less innovative rivals

Pursuing disruptive product innovations to create new markets

Adopting and improving on the good ideas of other companies (rivals or otherwise)

Using hit-and-run or guerrilla marketing tactics to grab market share from complacent or distracted rivals

Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity

© McGraw-Hill Education.

How long it takes for an offensive move to improve a company’s market standing—and whether the move will prove successful—depends in part on whether market rivals recognize the threat and begin a counter-response. Whether rivals will respond depends on whether they are capable of making an effective response and if they believe that a counterattack is worth the expense and the distraction.

© McGraw-Hill Education

6–7

Choosing Which Rivals to Attack

Best Targets for Offensive Attacks

Market leaders that are in vulnerable competitive positions

Runner-up firms with weaknesses in areas where the challenger is strong

Struggling enterprises on the verge of going under

Small local and regional firms with limited capabilities

© McGraw-Hill Education.

Offensive-minded firms need to analyze which of their rivals to challenge as well as how to mount the challenge.

© McGraw-Hill Education

6–8

Blue-Ocean Strategy—A Special Kind of Offensive

The business universe is divided into:

An existing market with boundaries and rules in which rival firms compete for advantage.

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.

© McGraw-Hill Education.

A blue-ocean strategy offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand. The "blue ocean" represents wide-open opportunity, offering smooth sailing in uncontested waters for the company first to venture out upon it.

© McGraw-Hill Education

6–9

Bonobos’s Blue-Ocean Strategy in the U.S. Men’s Fashion Retail Industry

Given the rapidity with which most first-mover advantages based on Internet technologies can be overcome by competitors, what has Bonobos done to retain its competitive advantage?

Is Bonobos’s unique focused-differentiation entry into brick-and-mortar retailing a sufficiently strong strategic move?

What would you predict is the likelihood of long-term success for Bonobos in the retail clothing sector?

© McGraw-Hill Education.

Blue-ocean strategies provide a company with a great opportunity in the short run. But they don’t guarantee a company’s long-term success, which depends more on whether a company can protect the market position it created and sustain its early advantage.

© McGraw-Hill Education

6–10

Defensive Strategies—Protecting Market Position and Competitive Advantage

Purposes of Defensive Strategies

Lower the firm’s risk of being attacked

Weaken the impact of an attack that does occur

Influence challengers to aim their efforts at other rivals

© McGraw-Hill Education.

In a competitive market, all firms are subject to offensive challenges from rivals. The purposes of defensive strategies are to lower the risk of being attacked, weaken the impact of any attack that occurs, and induce challengers to aim their efforts at other rivals. While defensive strategies usually don’t enhance a firm’s competitive advantage, they can help fortify the firm’s competitive position, protect its most valuable resources and capabilities from imitation, and defend whatever competitive advantage it has.

© McGraw-Hill Education

6–11

Forms of Defensive Strategies

Defensive strategies can take either of two forms:

Actions to block challengers.

Actions to signal the likelihood of strong retaliation.

© McGraw-Hill Education.

Good defensive strategies can help protect a competitive advantage but rarely are the basis for creating one. Defensive strategies can take either of two forms: actions to block challengers or actions to signal the likelihood of strong retaliation.

© McGraw-Hill Education

6–12

Blocking the Avenues Open to Challengers

Introduce new features and models to broaden product lines to close off gaps and vacant niches.

Maintain economy-pricing to thwart lower price attacks.

Discourage buyers from trying competitors’ brands.

Make early announcements about new products or price changes to induce buyers to postpone switching.

Offer support and special inducements to current customers to reduce the attractiveness of switching.

Challenge quality and safety of competitor’s products.

Grant discounts or better terms to intermediaries who handle the firm’s product line exclusively.

© McGraw-Hill Education.

There are many ways to throw obstacles in the path of would-be challengers. The most frequently employed approach to defending a company’s present position involves actions that restrict a challenger’s options for initiating a competitive attack.

© McGraw-Hill Education

6–13

Signaling Challengers That Retaliation Is Likely

Signaling is an effective defensive strategy when the firm follows through by:

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.

Making a strong counter-response to the moves of weaker rivals to enhance its tough defender image.

© McGraw-Hill Education.

The goal of signaling challengers that strong retaliation is likely in the event of an attack is either to dissuade challengers from attacking at all or to divert them to less threatening options.

To be an effective defensive strategy, signaling needs to be accompanied by a credible commitment to follow through.

© McGraw-Hill Education

6–14

Timing a Company’s Strategic Moves

Timing’s importance:

Knowing when to make a strategic move is as crucial as knowing what move to make.

Moving first is no guarantee of success or competitive advantage.

The risks of moving first to stake out a monopoly position versus being a fast follower or even a late mover must be carefully weighed.

© McGraw-Hill Education.

Because of first-mover advantages and disadvantages, competitive advantage can spring from when a move is made as well as from what move is made.

© McGraw-Hill Education

6–15

Conditions that Lead to First-Mover Advantages

When pioneering helps build a firm’s reputation and creates strong brand loyalty

When a first mover’s customers will thereafter face significant switching costs

When property rights protections thwart rapid imitation of the initial move

When an early lead enables movement down the learning curve ahead of rivals

When a first mover can set the industry’s technical standards

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

© McGraw-Hill Education.

There are six conditions in which first-mover advantages are likely to arise.

© McGraw-Hill Education

6–16

Tinder Swipes Right for First-Mover Success

Which first-mover advantages contributed to Tinder’s gaining over a million monthly active users in less than a year?

How long can Tinder protect its first-mover advantages?

How has Tinder monetized its success while its rivals are having to play catch-up?

© McGraw-Hill Education.

Illustration Capsule 6.2 describes how Tinder’s fast start had much to do with its ease of use, no questionnaires and fun game-like addictive aspects. Tinder targeted college campuses using viral marketing techniques to quickly gain acceptance among social circles, where “key influencers” boosted its popularity to a critical mass.

Its sustained success has enabled Tinder to reap a substantial first-mover advantage as the first major entrant into the field of mobile dating.

And while other apps have been trying to play catch-up, Tinder has been introducing new subscription products and other paid features to turn its market share advantage into a profitability advantage.

© McGraw-Hill Education

6–17

The Potential for Late-Mover Advantages or First-Mover Disadvantages

When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits

When the products of an innovator are somewhat primitive and do not live up to buyer expectations

When rapid market evolution allows fast followers to leapfrog first- mover products with more attractive next-version products

When market uncertainties make it difficult to ascertain what will eventually succeed

When customer loyalty is low and first mover’s skills, know-how, and actions are easily copied or surpassed

When the first mover must make a risky investment in complementary assets or infrastructure (and these are available at low cost or risk by followers)

© McGraw-Hill Education.

In some instances there are advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in the five instances listed on this slide.

© McGraw-Hill Education

6–18

To Be a First Mover or Not

Does market takeoff depend on complementary products or services that currently are 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 or derail the efforts of a first mover?

© McGraw-Hill Education.

In weighing the pros and cons of being a first mover, a fast follower, or a late mover, it matters whether the race to market leadership in a particular industry is a marathon or a sprint. First-mover advantages can be fleeting, and there’s ample time for fast followers and sometimes even late movers to catch up.

© McGraw-Hill Education