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169
Strengthening a Company’s
Competitive Position: Strategic Moves,
Timing, and Scope of Operations
Chapter Summary
Chapter6discussesthatonceacompanyhassettledonwhichofthefivegenericstrategiestoemploy,attention
must turn to what other strategic actions can be taken in order to complement the choice of its basic competitive
strategy. The three dimensions discussed include oensive and defensive competitive actions, competitive
dynamics and the timing of strategic moves, and the breadth of a company’s activities. These are explored
throughsevenbroadcategories:(1)Whetherandwhentogoontheoensive,(2)Whetherandwhentoemploy
defensive strategies, (3) When to undertake strategic moves, (4) Whether to integrate backward or forward into
morestagesoftheindustryvaluechainsystem,(5)Whethertointegratethevaluechainbackwardorforward,
(6) Whether to outsource certain value chain activities, and (7) Whether to enter into strategic alliances.
Lecture Outline
I. Launching Strategic Oensives to Improve a Company’s Market Position
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Regardless of which of the five generic competitive strategies the firm is pursuing, there are times
whenthecompanymustgoontheoensive.Thebestoensivemovestendtoincorporateseveralkey
principles:
a. Focusing relentlessly on building competitive advantage and then striving to convert it into a
sustainable advantage.
A. Choosing the Basis for Competitive Attack
1. Strategic oensives should, as a general rule should be based on exploiting a company’s strongest
strategic assets.
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CHAPTER 6
Chapter 6 Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations
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2. Theprincipaloensivestrategyoptionsincludethefollowing:
a. Oeringanequallygoodorbetterproductatalowerprice.
b. Leapfroggingcompetitorsbybeingfirsttomarketwithnext-generationproducts.
c. Pursuing continuous product innovation to draw sales and market share away from less innovative
rivals
3. How long it takes for an oensive to yield good results varies with the competitive circumstances
including buyer response to the initiative and whether market rivals recognize the threat and begin a
counter-response.
B. Choosing Which Rivals to Attack
1. Oensive-mindedfirmsneedtoanalyzewhichoftheirrivalstochallengeaswellashowtomountthe
challenge.Thefollowingarethebesttargetsforoensiveattacks:
a. Market leaders that are vulnerable.
C. Blue Ocean Strategy—A Special Kind of Oensive
1. BlueOceanStrategiesseektogainadramaticanddurablecompetitiveadvantagebyabandoningeort
to beat out competitors in existing markets and, instead, inventing a new industry or distinctive market
segment that renders existing competitors largely irrelevant and allows a company to create and capture
altogether new demand.
CORE CONCEPT
A blue-ocean strategy offers growth in revenues and profits by discovering or
inventing new industry segments that create altogether new demand.
2. This strategy views the business universe as consisting of two distinct types of market space:
a. Industryboundariesaredefinedandaccepted,thecompetitiverulesofthegamearewellunderstood
by all industry members, and companies try to outperform rivals by capturing a bigger share of
existing demand.
Chapter 6 Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations
171
3. Blue-ocean strategies provide a company with a great opportunity in the short run. Long term success
advantage.
4. Illustration Capsule 6.1, Bonobos’s Blue-Ocean Strategy in the U.S. Men’s Fashion Retail Industry
gives a clear example of how such a strategy might be employed in the fashion industry.
ILLUSTRATION CAPSULE 6.1
Bonobos’s Blue-Ocean Strategy in the U.S. Men’s Fashion Retail Industry
Discussion Question: Did Bonobo’s pursue their Blue Ocean strategy in an industry with well-
defined boundaries and competitive rules or did they pioneer a new industry? What was the
fundamental nature of their competitive advantage?
Answer: The student should point out that Bonobo’s started out by offering athletic-fit men’s clothing
in a time where most companies were focused on innovations in women’s clothing and athletic-fit
men’s clothing was difficult to find. They went a step further and exclusively offered their clothing
II. Defensive Strategies—Protecting Market Position and Competitive Advantage
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Allfirmsinacompetitivemarketaresubjecttotheoensivechallengescreatedbyrivalfirms.Defensive
strategies counter these challenges by:
A. Blocking the Avenues Open to Challengers
1. The most frequently employed approach to defending a company’s present position is to block an attack.
2. Methods can include:
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172
B. Signaling Challengers That Retaliation is Likely
1. The goal is to discourage challengers from attacking, or diverting their attack to another rival.
2. Methods can include:
a. Publiclyannouncingmanagement’scommitmenttomaintainingthefirm’spresentmarketshare.
III. Timing a Company’s Oensive and Defensive Strategic Moves
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. When to make a strategic move is often as crucial to success as what strategic move to make. This is
especiallyimportantwhenfirstmoveadvantageordisadvantagesexist.
CORE CONCEPT
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.
A. The Potential for First-Mover Advantages
1. ThePotentialforfirst-moveradvantagesisgreathowever,first-moverstypicallybeargreaterrisksand
developmentcoststhanfirmsthatmovelater
2. Therearefiveconditionswherefirst-movershaveanadvantage:
a. Whenpioneeringhelpsbuildafirm’sreputationwithbuyersandcreatesbrandloyalty.
b. Whenafirstmover’scustomerswillthereafterfacesignificantswitchingcosts.
3. Illustration Capsule 6.2, Uber’s First-Mover Advantage in Mobile Ride-Hailing Services describes
howUberachievedafirst-moveradvantageinride-hailingservices.
Chapter 6 Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations
173
ILLUSTRATION CAPSULE 6.2
Uber’s First-Mover Advantage in Mobile Ride-Hailing Services
Discussion Question: Discuss the basis for Uber’s competitive advantage and how they
leveraged first-mover advantages.
Answer: The student should identify that Uber was able to gain rapid market acceptance via a
simple and fast app-based ride hailing solution for customers that selects the nearest driver, gives
them all the direction information automatically, and handles payment after drop off. They were able
to gain significant first mover advantage by aggressively moving into new geographic areas with
ACTIVITY
Consider adding a File Attachment assignment requiring the student to fully explore and explain the
first mover strategy employed by Uber in the Ride-Hailing Services market and how that developed
as the foundation of their competitive advantage. The student could also explain how Uber has used
this advantage to expand its service mix and fend o competition. You can send the student to the
following link to begin their research: www.uber.com/our-story.
B. The Potential for Late-Mover Advantages or First-Mover Disadvantages
1. The Potential for Late-mover advantages (or first-mover disadvantages ) arise in four instances:
a. When pioneering is more costly than imitative following, and only negligible learning-curve
benefitsaccruetotheleader—aconditionthatallowsafollowertoendupwithlowercoststhanthe
first-mover.
e. Whencustomerloyaltytothepioneerislowandafirstmover’sskills,know-how,andactionsare
C. To Be a First Mover or Not
1. Inweighingtheprosandconsoffirst-moverversusfast-follower,itmatterwhethertheracetomarket
leadership in a particular industry is a marathon or a sprint. In a marathon a slow-mover is not unduly
penalized—firstmoveradvantagecanbeeeting.
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174
2. The lesson is that there is a market-penetration curve for every emerging opportunity; typically the
curvehasaninectionpointatwhichallthepiecesofthebusinessmodelfallintoplace:
3. Anycompanythatseekscompetitive advantagebybeingafirst-mover thusneedstoasksomehard
questions:
a. Does market takeo depend on the development of complementary products of services that
currently are not available?
4. When the answer to any of these questions is yes, then a company must be careful not to pour too many
resources into getting ahead of the market.
IV. Strengthening A Company’s Market Position Via Its Scope Of Operations
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Separate from competitive moves and timing, managers must also carefully consider the scope of a
company’soperations.Thesedecisionsessentiallydeterminewheretheboundariesofthefirmlieand
the degree to which the operations within the boundaries are common.
CORE CONCEPT
The scope of the firm refers to the range of activities which the firm performs internally,
the breadth of its product and service offerings, the extent of its geographic market
presence, and its mix of businesses.
2. Thereareseveraldimensionsoffirmscopethatarerelevanttobusinesslevelstrategy.Thetwoprimary
dimensions are horizontal and vertical scope:
a. Horizontalscopeistherangeofproductandservicesegmentsthatafirmserveswithinitsfocal
market.
b. Verticalscopeistheextenttowhichafirm’sinternalactivitiesencompassone,some,many,orall
of the activities that make up an industry’s entire value chain system
CORE CONCEPT
Horizontal scope is the range of product and service segments that a firm serves within
its focal market.
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175
CORE CONCEPT
Vertical scope is the extent to which a firm’s internal activities encompass one, some,
many, or all of the activities that make up an industry’s entire value chain system,
ranging from raw-material production to final sales and service activities.
V. Horizontal Merger and Acquisition Strategies
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Mergers and acquisitions are a much-used strategic plan. They are especially suited for situations where
alliances and partnerships do not go far enough in providing a company with access to the needed
resources and capabilities.
2. Combining the operations of two companies within the same industry, via merger or acquisition, is an
attractive strategic option for achieving operating economies, strengthening the resulting company’s
competencies and competitiveness, and opening up avenues of new market opportunity:
3. Many horizontal mergers and acquisitions are driven by strategies to achieve one of five strategic
objectives:
a. Creatingamorecost-ecientoperationoutofthecombinedcompanies.
b. Expanding a company’s geographic coverage.
and new market opportunities.
4. Horizontalmergersandacquisitionscanstrengthenafirm’scompetitivenessinfiveways:
a. Byimprovingtheeciencyofitsoperations
b. Byheighteningitsproductdierentiation
5. Illustration Capsule 6.3, Bristol-Myers Squibb’s “String-of-Pearls” HorizontalAcquisition Strategy
describeshowthecompanydevelopeditshorizontalacquisitionstrategytofillinitspharmaceutical
product development gaps.
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176
ILLUSTRATION CAPSULE 6.3
Bristol-Myers Squibb’s “String-of-Pearls” Horizontal Acquisition Strategy
Discussion Question: How did Bristol-Meyer Squibb use a horizontal acquisition strategy to gain
competitive advantage in the pharmaceutical industry?
Answer: In examining their competitive position in 2007, the firm realized that several key
pharmaceutical patents were about to expire and they did not have new patented drugs in their
6. Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results - Many mergers and
acquisitions do not always produce the hoped for outcomes, reasons include:
a. Cost savings may prove smaller than expected.
b. Gains in competitive capabilities may take substantially longer to realize or, worse, may never
materialize at all.
disagree with newly instituted changes.
e. Dierencesinmanagementstylesandoperatingprocedurescanprovehardtoresolve.
VI. Vertical Integration Strategies
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Vertical integration extends a firm’s competitive and operating scope within the same industry. It
involvesexpandingthefirm’srangeofactivitiesbackwardintosourcesofsupplyand/orforwardtoward
end users.
2. Vertical integration strategies can aim at full integration or partial integration.
A. The Advantages of a Vertical Integration Strategy
1. Thetwobestreasonsforinvestingcompanyresourcesinverticalintegrationaretostrengthenthefirm’s
competitivepositionand/orboostitsprofitability,
CORE CONCEPT
A vertically integrated firm is one that performs value chain activities along more than
one stage of an industry’s value chain system.
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177
2. Integrating Backward to Achieve Greater Competitiveness: For backward integration to be a viable
andprofitablestrategy,acompanymustbeableto:
CORE CONCEPT
Backward integration involves performing industry value chain activities previously
performed by suppliers or other enterprises engaged in earlier stages of the industry
value chain; forward integration involves performing industry value chain activities
closer to the end user.
3. Backward integration is most likely to reduce costs when:
4. Backward vertical integration can produce a dierentiation-based competitive advantage when a
company, by performing activities in-house that were previously outsourced, ends up with a better
5. Integrating Forward to Enhance Competitiveness: The strategic impetus for forward integration is
to gain better access to end-users and better market visibility.
B. The Disadvantages of a Vertical Integration Strategy
1. Verticalintegrationhassomesubstantialdrawbacksbeyondthepotentialforchannelconict:
a. Itraisesafirm’scapitalinvestmentintheindustry,increasingbusinessrisk
b. Vertically integrated companies are often slow to embrace technological advances
C. Weighing the Pros and Cons of Vertical Integration
1. A strategy of vertical integration can have both important strengths and weaknesses. The tip of the
scales depends on:
a. Whether vertical integration can enhance the performance of strategy-critical activities in ways that
lowercost,buildexpertise,orincreasedierentiation
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178
b. The impact of vertical integration on investments costs, exibility and response time, and
administrative costs of coordinating operations across more value chain activities
2. Illustration Capsule—6.4 Kaiser Permanente’sVertical Integration Strategy illustrates how the firm
made vertical integration a central part of its corporate strategy
ILLUSTRATION CAPSULE 6.4
Kaiser Permanente’s Vertical Integration Strategy
Discussion Question: In what way has Kaiser Permanente used vertical integration to gain
competitive advantage in the healthcare industry?
Answer: Kaiser Permanente has implemented a two part strategy. Operationally, its physicians and
healthcare providers are paid a salary in contrast with the industry standard of ‘per-procedure or
service’ pay. This removes the incentives to be procedure and service focused, and increases the
VII. Outsourcing Strategies: Narrowing the Scope of Operations
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
CORE CONCEPT
Outsourcing involves farming out certain value chain activities to outside vendors.
1. When Outsourcing Value Chain Activities Makes Sense:
a. An activity can be performed better or more cheaply by outside specialist
b. Anactivityisnotcrucialtothefirm’sabilitytoachievesustainablecompetitiveadvantageandwill
not hollow out its core competencies.
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179
2. The Risk of Outsourcing Value Chain Activities
a. The biggest danger of outsourcing is that a company will farm out too many or the wrong types of
activities and thereby hollow out its own capabilities.
VIII. Strategic Alliances and Partnerships
ACTIVITY
Consider adding a LearnSmart assignment requiring the student to review this section of the chapter as
an interactive question and answer review. The assignment can be graded and posted automatically.
1. Strategicalliancesandcooperativepartnershipsprovideonewaytogainsomeofthebenefitsoered
by vertical integration, outsourcing, and horizontal mergers and acquisitions while minimizing the
associated problems.
2. Cooperative strategies are an alternative to vertical integration or horizontal mergers and acquisitions.
Companies are increasingly employing strategic alliances and partnerships to extend their scope of
operationsviainternationalexpansionanddiversificationstrategies
3. Strategic alliances and cooperative arrangements are now a common means of narrowing a company’s
scope of operations as well, serving as a useful way to manage outsourcing
4. A strategic alliance is a formal agreement between two or more separate companies in which they agree
to work collaboratively toward some strategically relevant objective.
CORE CONCEPT
Astrategic alliance is a formal agreement between two or more separate companies in
which they agree to work cooperatively toward some common objective.
CORE CONCEPT
A joint venture is a type of strategic alliance in which the partners set up an
independent corporate entity that they own and control jointly, sharing in its revenues
and expenses.
4. An alliance becomes “strategic,” as opposed to just a convenient business arrangement, when it serves
any of the following purposes:
a. 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).
b. It helps build, sustain, or enhance a core competence or competitive advantage.
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2. Capturing the Benefits of Strategic Alliances—Theextenttowhichcompaniesbenefitfromentering
into alliances and collaborative partnerships seem to be a function of six factors:
a. Picking a good partner
b. Beingsensitivetoculturaldierences
3. Alliances are more likely to be long lasting when:
a. They involve collaboration with partners that do not compete.
4. The Drawbacks of Strategic Alliances and Partnerships
a. Anticipated gains may fail to materialize due to an overly optimistic view of the synergies or a poor
fitintermsofthecombinationofresourcesandcapabilities.
5. Theprincipleadvantagesofstrategicalliancesoververticalintegrationorhorizontalmergers/acquisitions
are threefold:
a. They lower investment costs and risks for each partner.
6. They key advantages to using strategic alliances are:
a. The increased ability to exercise control over the partner’s activities
7. How to Make Strategic Alliances Work—The success of an alliance depends on how well the partners
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181
8. Companies that have greater success in managing their strategic alliances and partnerships often credit
the following factors:
a. They create a system for managing their alliances.
9. Managers must realize that alliance management is an organizational capability and develop it over time
to become another source of competitive advantage.
