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Chapter 6. Supplementing the Chosen Competitive Strategy. Cooperative Strategies. Strategic Alliance – formal agreement between two or more companies in which there is a strategically relevant collaboration. Advantages of Alliances. Gain access to new global markets
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Chapter 6 Supplementing the Chosen Competitive Strategy
Cooperative Strategies • Strategic Alliance – formal agreement between two or more companies in which there is a strategically relevant collaboration.
Advantages of Alliances • Gain access to new global markets • Gain knowledge about unfamiliar markets or cultures • Gain access or master new technologies • Gain access to complementary resources
Keys to Alliance Success • Picking the right partner • Sensitivity to cultural differences • Must be win-win • Mutual commitment • Swift decision making structures • Managing the learning process • Maintaining flexibility
Who Makes a Geo? Geo Storm was actually manufactured by Isuzu. The Storm is the Isuzu Impulse. Geo Prizm = Toyota Corolla Geo Tracker = Suzuki Sidekick Geo Metro = Suzuki Esteem or Swift w/hatchback No Geo cars were actually made by General Motors. They were all imported from foreign manufacturers.
Vertical Integration Operating in more than one stage of the industry value chain • partial/taper or full integration • forward or backward Benefits • can not be held hostage – reduces buyer/supplier power • greater control over operations • access to new business/technologies • reduce procurement and sales efforts Risks • increased overhead, capital and administrative costs • loss of flexibility • different competencies may be requires • unbalanced capacities and increased risk • reaction of competitors
Vertical Integration • Will add value when: • Enhance critical activities that lower costs or increase differentiation • Benefits exceed the costs • Enhances competitive capabilities
Outsourcing • Farming out specific activities to others, allowing the firm to focus on more critical activities and core competencies
Outsourcing Works When: • Others can do it better and cheaper • Not a core competency • Reduces the companies’ risk to technology changes • Improves the company’s innovation • Streamlines operations and increases flexibility • Assemble diverse expertise
Mergers and Acquisitions Reasons of Acquisitions Cost Efficiencies Geographic Expansion Product/Market Extensions Increased Speed Lower Risk New Technologies Invest in New Industry or Create Convergence
Mergers and Acquisitions Problems with Acquisitions Integration of two firms Overpayment/Debt Overestimation of Synergy Overdiversification Managerial energy absorption Become too large Substitute for innovation
Failures of Acquisitions 30 - 40% average acquisition premium Acquiring firm’s value drops 4% in the 3 months following acquisitions 30 - 50% of acquisitions are later divested Acquirers underperform S&P by 14%, peers by 4% 3 month performance before and after • 30% substantial losses, 20% some losses, 33% marginal returns, 17% substantial returns
Why, then, do executives acquire? Often, for personal reasons Firm size and executive compensation are related When do executives loss their jobs? • 1) Acquired - larger firms harder to acquire • 2) Performing poorly - employment risk is reduced as returns are less volatile
Offensive Strategies Successful offensive strategies require: • Relentless focus on advantages • Element of surprise • Apply resources where rivals have limitations • Swift and decisive actions to break the status quo
Offensive Options • Equal or better product at a lower price • First mover or next generation • Continuous product innovation • Adopting and improving on a rivals idea • Attacking rival’s high margin segments • Attacking rival’s weaknesses • Tapping uncontested markets • Guerrilla warfare tactics • Pre-emptive strikes – tying up distribution, location, suppliers, or acquiring distressed rivals
Blue Ocean Strategy • Inventing new industry/segment that renders existing competitors irrelevant and helps create new demand • Ebay • Cirque du Soleil • Netflix
Competitive Dynamics • Competitive action within an industry • Strategic and tactical action does not occur within a vacuum • What industries have high competitive dynamics? • What sort of actions/tactics are taken?
Types of Competitive Responses • First Movers - initial competitive action • advantages and disadvantages • Fast Followers or Capable Competitors- respond quickly to first movers • Late Entrants - day late and a dollar short