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Copyright © 2014 by The McGraw-Hill Education All rights reserved.
19e Global Edition
THOMPSON | PETERAF | GAMBLE | STRICKLAND
CHAPTER 6
STRENGTHENING A COMPANY’S STRENGTHENING A COMPANY’S
COMPETITIVE POSITION: STRATEGIC COMPETITIVE POSITION: STRATEGIC
MOVES, TIMING, AND SCOPE OF MOVES, TIMING, AND SCOPE OF
OPERATIONSOPERATIONS
MANAGEMENT POLICIES & CORPORATE STRATEGY
19e Global Edition
THOMPSON | PETERAF | GAMBLE | STRICKLAND
CHAPTER 6
STRENGTHENING A COMPANY’S STRENGTHENING A COMPANY’S
COMPETITIVE POSITION: STRATEGIC COMPETITIVE POSITION: STRATEGIC
MOVES, TIMING, AND SCOPE OF MOVES, TIMING, AND SCOPE OF
OPERATIONSOPERATIONS
MANAGEMENT POLICIES & CORPORATE STRATEGY
6–2
1.Learn whether and when to pursue offensive or defensive
strategic moves to improve a firm’s market position.
2.Recognize when being a first mover or a fast follower or a late
mover is most advantageous.
3.Become aware of the strategic benefits and risks of expanding
a firm’s horizontal scope through mergers and acquisitions.
4.Learn the advantages and disadvantages of extending the
firm’s scope of operations via vertical integration.
5.Become aware of the conditions that favor farming out certain
value chain activities to outside parties.
6.Understand when and how strategic alliances can substitute
for horizontal mergers and acquisitions or vertical integration
and how they can facilitate outsourcing.
1.Learn whether and when to pursue offensive or defensive
strategic moves to improve a firm’s market position.
2.Recognize when being a first mover or a fast follower or a late
mover is most advantageous.
3.Become aware of the strategic benefits and risks of expanding
a firm’s horizontal scope through mergers and acquisitions.
4.Learn the advantages and disadvantages of extending the
firm’s scope of operations via vertical integration.
5.Become aware of the conditions that favor farming out certain
value chain activities to outside parties.
6.Understand when and how strategic alliances can substitute
for horizontal mergers and acquisitions or vertical integration
and how they can facilitate outsourcing.
MAXIMIZING THE POWER MAXIMIZING THE POWER
OF A STRATEGYOF A STRATEGY
Offensive and Offensive and
Defensive Defensive
Competitive Competitive
ActionsActions
Competitive
Dynamics and the
Timing of Strategic
Moves
Scope of
Operations along
the Industry’s
Value Chain
Making choices that complement Making choices that complement
a competitive approach anda competitive approach and
maximize the power of strategymaximize the power of strategy
6–3
OF A STRATEGYOF A STRATEGY
Offensive and Offensive and
Defensive Defensive
Competitive Competitive
ActionsActions
Competitive
Dynamics and the
Timing of Strategic
Moves
Scope of
Operations along
the Industry’s
Value Chain
Making choices that complement Making choices that complement
a competitive approach anda competitive approach and
maximize the power of strategymaximize the power of strategy
6–3
CONSIDERING STRATEGY-ENHANCING CONSIDERING STRATEGY-ENHANCING
MEASURESMEASURES
Whether and when to go on the offensive.Whether and when to go on the offensive.
Whether and when to employ defensive strategies.Whether and when to employ defensive strategies.
When to undertake strategic moves—first mover, When to undertake strategic moves—first mover,
a fast follower, or a late mover.a fast follower, or a late mover.
Whether to merge with or acquire another firm.Whether to merge with or acquire another firm.
Whether to integrate backward or forward into more Whether to integrate backward or forward into more
stages of the industry’s activity chain.stages of the industry’s activity chain.
Which value chain activities, if any, should be outsourced.Which value chain activities, if any, should be outsourced.
Whether to enter into strategic alliances or Whether to enter into strategic alliances or
partnership arrangements.partnership arrangements.
6–4
MEASURESMEASURES
Whether and when to go on the offensive.Whether and when to go on the offensive.
Whether and when to employ defensive strategies.Whether and when to employ defensive strategies.
When to undertake strategic moves—first mover, When to undertake strategic moves—first mover,
a fast follower, or a late mover.a fast follower, or a late mover.
Whether to merge with or acquire another firm.Whether to merge with or acquire another firm.
Whether to integrate backward or forward into more Whether to integrate backward or forward into more
stages of the industry’s activity chain.stages of the industry’s activity chain.
Which value chain activities, if any, should be outsourced.Which value chain activities, if any, should be outsourced.
Whether to enter into strategic alliances or Whether to enter into strategic alliances or
partnership arrangements.partnership arrangements.
6–4
GOING ON THE OFFENSIVE—GOING ON THE OFFENSIVE—
STRATEGIC OPTIONS TO IMPROVE STRATEGIC OPTIONS TO IMPROVE
A FIRM’S MARKET POSITIONA FIRM’S MARKET POSITION
Strategic Offensive Principles:Strategic Offensive Principles:
●Focus on relentlessly building competitive advantage Focus on relentlessly building competitive advantage
and then converting it into sustainable advantage.and then converting it into sustainable advantage.
●Apply resources where rivals are least able to defend Apply resources where rivals are least able to defend
themselves.themselves.
●Employ the element of surprise as opposed to doing Employ the element of surprise as opposed to doing
what rivals expect and are prepared for.what rivals expect and are prepared for.
●Display a strong bias for swift, decisive, and Display a strong bias for swift, decisive, and
overwhelming actions to overpower rivals.overwhelming actions to overpower rivals.
6–5
STRATEGIC OPTIONS TO IMPROVE STRATEGIC OPTIONS TO IMPROVE
A FIRM’S MARKET POSITIONA FIRM’S MARKET POSITION
Strategic Offensive Principles:Strategic Offensive Principles:
●Focus on relentlessly building competitive advantage Focus on relentlessly building competitive advantage
and then converting it into sustainable advantage.and then converting it into sustainable advantage.
●Apply resources where rivals are least able to defend Apply resources where rivals are least able to defend
themselves.themselves.
●Employ the element of surprise as opposed to doing Employ the element of surprise as opposed to doing
what rivals expect and are prepared for.what rivals expect and are prepared for.
●Display a strong bias for swift, decisive, and Display a strong bias for swift, decisive, and
overwhelming actions to overpower rivals.overwhelming actions to overpower rivals.
6–5
CHOOSING THE BASIS FOR CHOOSING THE BASIS FOR
COMPETITIVE ATTACKCOMPETITIVE ATTACK
Avoid directly challenging a targeted competitor Avoid directly challenging a targeted competitor
where it is strongest.where it is strongest.
Use the firm’s strongest strategic assets to Use the firm’s strongest strategic assets to
attack a competitor’s weaknesses.attack a competitor’s weaknesses.
The offensive may not yield immediate results The offensive may not yield immediate results
if market rivals are strong competitors.if market rivals are strong competitors.
Be prepared for the threatened competitor’s Be prepared for the threatened competitor’s
counter-response.counter-response.
6–6
COMPETITIVE ATTACKCOMPETITIVE ATTACK
Avoid directly challenging a targeted competitor Avoid directly challenging a targeted competitor
where it is strongest.where it is strongest.
Use the firm’s strongest strategic assets to Use the firm’s strongest strategic assets to
attack a competitor’s weaknesses.attack a competitor’s weaknesses.
The offensive may not yield immediate results The offensive may not yield immediate results
if market rivals are strong competitors.if market rivals are strong competitors.
Be prepared for the threatened competitor’s Be prepared for the threatened competitor’s
counter-response.counter-response.
6–6
PRINCIPAL OFFENSIVE STRATEGY PRINCIPAL OFFENSIVE STRATEGY
OPTIONSOPTIONS
Offer an equally good or better value product at a lower Offer an equally good or better value product at a lower
price as a cost-based advantage to attack competitors.price as a cost-based advantage to attack competitors.
Leapfrog competitors by being first to market with next-Leapfrog competitors by being first to market with next-
generation products.generation products.
Pursue continuous product innovation to draw sales and Pursue continuous product innovation to draw sales and
market share away from less innovative rivals.market share away from less innovative rivals.
Adopt and improve on the good ideas of any other firms.Adopt and improve on the good ideas of any other firms.
Use hit-and-run or guerrilla warfare tactics to grab sales Use hit-and-run or guerrilla warfare tactics to grab sales
and market share from complacent or distracted rivals.and market share from complacent or distracted rivals.
Launch a preemptive strike to secure an advantageous Launch a preemptive strike to secure an advantageous
market position that rivals cannot easily duplicate.market position that rivals cannot easily duplicate.
6–7
OPTIONSOPTIONS
Offer an equally good or better value product at a lower Offer an equally good or better value product at a lower
price as a cost-based advantage to attack competitors.price as a cost-based advantage to attack competitors.
Leapfrog competitors by being first to market with next-Leapfrog competitors by being first to market with next-
generation products.generation products.
Pursue continuous product innovation to draw sales and Pursue continuous product innovation to draw sales and
market share away from less innovative rivals.market share away from less innovative rivals.
Adopt and improve on the good ideas of any other firms.Adopt and improve on the good ideas of any other firms.
Use hit-and-run or guerrilla warfare tactics to grab sales Use hit-and-run or guerrilla warfare tactics to grab sales
and market share from complacent or distracted rivals.and market share from complacent or distracted rivals.
Launch a preemptive strike to secure an advantageous Launch a preemptive strike to secure an advantageous
market position that rivals cannot easily duplicate.market position that rivals cannot easily duplicate.
6–7
CHOOSING WHICH RIVALS CHOOSING WHICH RIVALS
TO ATTACKTO ATTACK
Market leaders Market leaders
that are in that are in
vulnerable vulnerable
competitive competitive
positionspositions
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
Best Targets for
Offensive Attacks
6–8
TO ATTACKTO ATTACK
Market leaders Market leaders
that are in that are in
vulnerable vulnerable
competitive competitive
positionspositions
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
Best Targets for
Offensive Attacks
6–8
BLUE-OCEAN STRATEGY—BLUE-OCEAN STRATEGY—
A SPECIAL KIND OF OFFENSIVEA SPECIAL KIND OF OFFENSIVE
The business universe is divided into:The business universe is divided into:
●An existing market with boundaries and rules in which An existing market with boundaries and rules in which
rival firms compete for advantage.rival firms compete for advantage.
●A “blue ocean” market space, where the industry has A “blue ocean” market space, where the industry has
not yet taken shape, with no rivals and wide-open not yet taken shape, with no rivals and wide-open
long-term growth and profit potential for a firm that long-term growth and profit potential for a firm that
can create demand for new types of products. can create demand for new types of products.
6–9
A SPECIAL KIND OF OFFENSIVEA SPECIAL KIND OF OFFENSIVE
The business universe is divided into:The business universe is divided into:
●An existing market with boundaries and rules in which An existing market with boundaries and rules in which
rival firms compete for advantage.rival firms compete for advantage.
●A “blue ocean” market space, where the industry has A “blue ocean” market space, where the industry has
not yet taken shape, with no rivals and wide-open not yet taken shape, with no rivals and wide-open
long-term growth and profit potential for a firm that long-term growth and profit potential for a firm that
can create demand for new types of products. can create demand for new types of products.
6–9
CORE CONCEPTCORE CONCEPT
♦A A blue-ocean strategy blue-ocean strategy offers growth in offers growth in
revenues and profits by discovering or revenues and profits by discovering or
inventing new industry segments that create inventing new industry segments that create
altogether new demand.altogether new demand.
6–10
♦A A blue-ocean strategy blue-ocean strategy offers growth in offers growth in
revenues and profits by discovering or revenues and profits by discovering or
inventing new industry segments that create inventing new industry segments that create
altogether new demand.altogether new demand.
6–10
DEFENSIVE STRATEGIES—DEFENSIVE STRATEGIES—
PROTECTING MARKET POSITION PROTECTING MARKET POSITION
AND COMPETITIVE ADVANTAGEAND COMPETITIVE ADVANTAGE
Lower the firm’s risk Lower the firm’s risk
of being attackedof being attacked
Weaken the impact
of an attack
that does occur
Influence challengers
to aim their efforts
at other rivals
Purposes of Defensive Strategies
6–11
PROTECTING MARKET POSITION PROTECTING MARKET POSITION
AND COMPETITIVE ADVANTAGEAND COMPETITIVE ADVANTAGE
Lower the firm’s risk Lower the firm’s risk
of being attackedof being attacked
Weaken the impact
of an attack
that does occur
Influence challengers
to aim their efforts
at other rivals
Purposes of Defensive Strategies
6–11
BLOCKING THE AVENUES BLOCKING THE AVENUES
OPEN TO CHALLENGERSOPEN TO CHALLENGERS
Adopt alternative technologies as a hedge against rivals Adopt alternative technologies as a hedge against rivals
attacking with a new or better technology.attacking with a new or better technology.
Introduce new features and models to broaden product Introduce new features and models to broaden product
lines to close gaps and vacant niches.lines to close gaps and vacant niches.
Maintain economy-pricing to thwart lower price attacks.Maintain economy-pricing to thwart lower price attacks.
Discourage buyers from trying competitors’ brands.Discourage buyers from trying competitors’ brands.
Make early announcements about new products or price Make early announcements about new products or price
changes to induce buyers to postpone switching.changes to induce buyers to postpone switching.
Challenge quality and safety of competitor’s products.Challenge quality and safety of competitor’s products.
Grant discounts or better terms to intermediaries who Grant discounts or better terms to intermediaries who
handle the firm’s product line exclusively.handle the firm’s product line exclusively.
6–12
OPEN TO CHALLENGERSOPEN TO CHALLENGERS
Adopt alternative technologies as a hedge against rivals Adopt alternative technologies as a hedge against rivals
attacking with a new or better technology.attacking with a new or better technology.
Introduce new features and models to broaden product Introduce new features and models to broaden product
lines to close gaps and vacant niches.lines to close gaps and vacant niches.
Maintain economy-pricing to thwart lower price attacks.Maintain economy-pricing to thwart lower price attacks.
Discourage buyers from trying competitors’ brands.Discourage buyers from trying competitors’ brands.
Make early announcements about new products or price Make early announcements about new products or price
changes to induce buyers to postpone switching.changes to induce buyers to postpone switching.
Challenge quality and safety of competitor’s products.Challenge quality and safety of competitor’s products.
Grant discounts or better terms to intermediaries who Grant discounts or better terms to intermediaries who
handle the firm’s product line exclusively.handle the firm’s product line exclusively.
6–12
SIGNALING CHALLENGERS THAT SIGNALING CHALLENGERS THAT
RETALIATION IS LIKELYRETALIATION IS LIKELY
Signaling is an effective defensive strategy Signaling is an effective defensive strategy
if the firm follows through by:if the firm follows through by:
●Publicly announcing its commitment to maintaining Publicly announcing its commitment to maintaining
the firm’s present market share.the firm’s present market share.
●Publicly committing to a policy of matching Publicly committing to a policy of matching
competitors’ terms or prices.competitors’ terms or prices.
●Maintaining a war chest of cash and marketable Maintaining a war chest of cash and marketable
securities.securities.
●Making a strong counter-response to the moves of Making a strong counter-response to the moves of
weaker rivals to enhance its tough defender image. weaker rivals to enhance its tough defender image.
6–13
RETALIATION IS LIKELYRETALIATION IS LIKELY
Signaling is an effective defensive strategy Signaling is an effective defensive strategy
if the firm follows through by:if the firm follows through by:
●Publicly announcing its commitment to maintaining Publicly announcing its commitment to maintaining
the firm’s present market share.the firm’s present market share.
●Publicly committing to a policy of matching Publicly committing to a policy of matching
competitors’ terms or prices.competitors’ terms or prices.
●Maintaining a war chest of cash and marketable Maintaining a war chest of cash and marketable
securities.securities.
●Making a strong counter-response to the moves of Making a strong counter-response to the moves of
weaker rivals to enhance its tough defender image. weaker rivals to enhance its tough defender image.
6–13
CORE CONCEPTCORE CONCEPT
♦Because of Because of first-mover advantages and first-mover advantages and
disadvantagesdisadvantages, competitive advantage can , competitive advantage can
spring from when a move is made as well as spring from when a move is made as well as
from what move is made.from what move is made.
6–14
♦Because of Because of first-mover advantages and first-mover advantages and
disadvantagesdisadvantages, competitive advantage can , competitive advantage can
spring from when a move is made as well as spring from when a move is made as well as
from what move is made.from what move is made.
6–14
TIMING A FIRM’S OFFENSIVE AND TIMING A FIRM’S OFFENSIVE AND
DEFENSIVE STRATEGIC MOVESDEFENSIVE STRATEGIC MOVES
Timing’s Importance:Timing’s Importance:
●Knowing when to make a strategic move is as Knowing when to make a strategic move is as
crucial as knowing what move to make.crucial as knowing what move to make.
●Moving first is no guarantee of success or Moving first is no guarantee of success or
competitive advantage.competitive advantage.
●The risks of moving first to stake out a monopoly The risks of moving first to stake out a monopoly
position must be carefully weighed.position must be carefully weighed.
6–15
DEFENSIVE STRATEGIC MOVESDEFENSIVE STRATEGIC MOVES
Timing’s Importance:Timing’s Importance:
●Knowing when to make a strategic move is as Knowing when to make a strategic move is as
crucial as knowing what move to make.crucial as knowing what move to make.
●Moving first is no guarantee of success or Moving first is no guarantee of success or
competitive advantage.competitive advantage.
●The risks of moving first to stake out a monopoly The risks of moving first to stake out a monopoly
position must be carefully weighed.position must be carefully weighed.
6–15
CONDITIONS THAT LEAD TO CONDITIONS THAT LEAD TO
FIRST-MOVER ADVANTAGESFIRST-MOVER ADVANTAGES
When pioneering helps build a firm’s reputation When pioneering helps build a firm’s reputation
and creates strong brand loyalty.and creates strong brand loyalty.
When a first mover’s customers will thereafter When a first mover’s customers will thereafter
face significant switching costs.face significant switching costs.
When property rights protections thwart rapid When property rights protections thwart rapid
imitation of the initial move.imitation of the initial move.
When an early lead enables movement down When an early lead enables movement down
the learning curve ahead of rivals.the learning curve ahead of rivals.
When a first mover can set the technical When a first mover can set the technical
standard for the industry.standard for the industry.
6–16
FIRST-MOVER ADVANTAGESFIRST-MOVER ADVANTAGES
When pioneering helps build a firm’s reputation When pioneering helps build a firm’s reputation
and creates strong brand loyalty.and creates strong brand loyalty.
When a first mover’s customers will thereafter When a first mover’s customers will thereafter
face significant switching costs.face significant switching costs.
When property rights protections thwart rapid When property rights protections thwart rapid
imitation of the initial move.imitation of the initial move.
When an early lead enables movement down When an early lead enables movement down
the learning curve ahead of rivals.the learning curve ahead of rivals.
When a first mover can set the technical When a first mover can set the technical
standard for the industry.standard for the industry.
6–16
THE POTENTIAL FOR LATE-MOVER THE POTENTIAL FOR LATE-MOVER
ADVANTAGES OR FIRST-MOVER ADVANTAGES OR FIRST-MOVER
DISADVANTAGESDISADVANTAGES
When pioneering is more costly than imitating and offers When pioneering is more costly than imitating and offers
negligible experience or learning-curve benefits.negligible experience or learning-curve benefits.
When the products of an innovator are somewhat When the products of an innovator are somewhat
primitive and do not live up to buyer expectations.primitive and do not live up to buyer expectations.
When rapid market evolution allows fast followers to When rapid market evolution allows fast followers to
leapfrog a first mover’s products with more attractive leapfrog a first mover’s products with more attractive
next-version products.next-version products.
When market uncertainties make it difficult to ascertain When market uncertainties make it difficult to ascertain
what will eventually succeed.what will eventually succeed.
6–17
ADVANTAGES OR FIRST-MOVER ADVANTAGES OR FIRST-MOVER
DISADVANTAGESDISADVANTAGES
When pioneering is more costly than imitating and offers When pioneering is more costly than imitating and offers
negligible experience or learning-curve benefits.negligible experience or learning-curve benefits.
When the products of an innovator are somewhat When the products of an innovator are somewhat
primitive and do not live up to buyer expectations.primitive and do not live up to buyer expectations.
When rapid market evolution allows fast followers to When rapid market evolution allows fast followers to
leapfrog a first mover’s products with more attractive leapfrog a first mover’s products with more attractive
next-version products.next-version products.
When market uncertainties make it difficult to ascertain When market uncertainties make it difficult to ascertain
what will eventually succeed.what will eventually succeed.
6–17
TO BE A FIRST MOVER OR NOTTO BE A FIRST MOVER OR NOT
Does market takeoff depend on complementary Does market takeoff depend on complementary
products or services that currently are not available?products or services that currently are not available?
Is new infrastructure required before buyer demand Is new infrastructure required before buyer demand
can surge?can surge?
Will buyers need to learn new skills or adopt new Will buyers need to learn new skills or adopt new
behaviors? behaviors?
Will buyers encounter high switching costs in moving Will buyers encounter high switching costs in moving
to the newly introduced product or service?to the newly introduced product or service?
Are there influential competitors in a position to delay Are there influential competitors in a position to delay
or derail the efforts of a first mover?or derail the efforts of a first mover?
6–18
Does market takeoff depend on complementary Does market takeoff depend on complementary
products or services that currently are not available?products or services that currently are not available?
Is new infrastructure required before buyer demand Is new infrastructure required before buyer demand
can surge?can surge?
Will buyers need to learn new skills or adopt new Will buyers need to learn new skills or adopt new
behaviors? behaviors?
Will buyers encounter high switching costs in moving Will buyers encounter high switching costs in moving
to the newly introduced product or service?to the newly introduced product or service?
Are there influential competitors in a position to delay Are there influential competitors in a position to delay
or derail the efforts of a first mover?or derail the efforts of a first mover?
6–18
STRENGTHENING A FIRM’S STRENGTHENING A FIRM’S
MARKET POSITION VIA ITS SCOPE MARKET POSITION VIA ITS SCOPE
OF OPERATIONSOF OPERATIONS
Range of its Range of its
activities activities
performed performed
internallyinternally
Breadth of its
product and
service offerings
Extent of its
geographic
market
presence and
its mix of
businesses
Size of its
competitive
footprint on
its market
or industry
Defining the Scope of
the Firm’s Operations
6–19
MARKET POSITION VIA ITS SCOPE MARKET POSITION VIA ITS SCOPE
OF OPERATIONSOF OPERATIONS
Range of its Range of its
activities activities
performed performed
internallyinternally
Breadth of its
product and
service offerings
Extent of its
geographic
market
presence and
its mix of
businesses
Size of its
competitive
footprint on
its market
or industry
Defining the Scope of
the Firm’s Operations
6–19
CORE CONCEPTSCORE CONCEPTS
♦Horizontal scope Horizontal scope is the range of product and is the range of product and
service segments that a firm serves within its service segments that a firm serves within its
focal market.focal market.
♦Vertical scope Vertical scope is the extent to which a firm’s is the extent to which a firm’s
internal activities encompass one, some, many, internal activities encompass one, some, many,
or all of the activities that make up an industry’s or all of the activities that make up an industry’s
entire value chain system, ranging from raw-entire value chain system, ranging from raw-
material production to final sales material production to final sales
and service activities.and service activities.
6–20
♦Horizontal scope Horizontal scope is the range of product and is the range of product and
service segments that a firm serves within its service segments that a firm serves within its
focal market.focal market.
♦Vertical scope Vertical scope is the extent to which a firm’s is the extent to which a firm’s
internal activities encompass one, some, many, internal activities encompass one, some, many,
or all of the activities that make up an industry’s or all of the activities that make up an industry’s
entire value chain system, ranging from raw-entire value chain system, ranging from raw-
material production to final sales material production to final sales
and service activities.and service activities.
6–20
HORIZONTAL MERGER ANDHORIZONTAL MERGER AND
ACQUISITION STRATEGIESACQUISITION STRATEGIES
MergerMerger
●Is the combining of two or more firms into a single Is the combining of two or more firms into a single
corporate entity that often takes on a new name.corporate entity that often takes on a new name.
AcquisitionAcquisition
●Is a combination in which one firm, the acquirer, Is a combination in which one firm, the acquirer,
purchases and absorbs the operations of another purchases and absorbs the operations of another
firm, the acquired.firm, the acquired.
6–21
ACQUISITION STRATEGIESACQUISITION STRATEGIES
MergerMerger
●Is the combining of two or more firms into a single Is the combining of two or more firms into a single
corporate entity that often takes on a new name.corporate entity that often takes on a new name.
AcquisitionAcquisition
●Is a combination in which one firm, the acquirer, Is a combination in which one firm, the acquirer,
purchases and absorbs the operations of another purchases and absorbs the operations of another
firm, the acquired.firm, the acquired.
6–21
BENEFITS OF INCREASING BENEFITS OF INCREASING
HORIZONTAL SCOPEHORIZONTAL SCOPE
Increasing a firm’s horizontal scope strengthens Increasing a firm’s horizontal scope strengthens
its business and increases its profitability by:its business and increases its profitability by:
●Improving the efficiency of its operationsImproving the efficiency of its operations
●Heightening its product differentiationHeightening its product differentiation
●Reducing market rivalryReducing market rivalry
●Increasing the firm’s bargaining power over Increasing the firm’s bargaining power over
suppliers and buyerssuppliers and buyers
●Enhancing its flexibility and dynamic capabilitiesEnhancing its flexibility and dynamic capabilities
6–22
HORIZONTAL SCOPEHORIZONTAL SCOPE
Increasing a firm’s horizontal scope strengthens Increasing a firm’s horizontal scope strengthens
its business and increases its profitability by:its business and increases its profitability by:
●Improving the efficiency of its operationsImproving the efficiency of its operations
●Heightening its product differentiationHeightening its product differentiation
●Reducing market rivalryReducing market rivalry
●Increasing the firm’s bargaining power over Increasing the firm’s bargaining power over
suppliers and buyerssuppliers and buyers
●Enhancing its flexibility and dynamic capabilitiesEnhancing its flexibility and dynamic capabilities
6–22
STRATEGIC OJECTIVES FOR STRATEGIC OJECTIVES FOR
HORIZONTAL MERGERS AND HORIZONTAL MERGERS AND
ACQUISITIONSACQUISITIONS
Creating a more cost-efficient operation out Creating a more cost-efficient operation out
of the combined companies.of the combined companies.
Expanding the firm’s geographic coverage.Expanding the firm’s geographic coverage.
Extending the firm’s business into new Extending the firm’s business into new
product categories.product categories.
Gaining quick access to new technologies or Gaining quick access to new technologies or
complementary resources and capabilities.complementary resources and capabilities.
Leading the convergence of industries whose Leading the convergence of industries whose
boundaries are being blurred by changing boundaries are being blurred by changing
technologies and new market opportunities.technologies and new market opportunities.
6–23
HORIZONTAL MERGERS AND HORIZONTAL MERGERS AND
ACQUISITIONSACQUISITIONS
Creating a more cost-efficient operation out Creating a more cost-efficient operation out
of the combined companies.of the combined companies.
Expanding the firm’s geographic coverage.Expanding the firm’s geographic coverage.
Extending the firm’s business into new Extending the firm’s business into new
product categories.product categories.
Gaining quick access to new technologies or Gaining quick access to new technologies or
complementary resources and capabilities.complementary resources and capabilities.
Leading the convergence of industries whose Leading the convergence of industries whose
boundaries are being blurred by changing boundaries are being blurred by changing
technologies and new market opportunities.technologies and new market opportunities.
6–23
WHY MERGERS AND ACQUISITIONS WHY MERGERS AND ACQUISITIONS
SOMETIMES FAIL TO PRODUCE SOMETIMES FAIL TO PRODUCE
ANTICIPATED RESULTSANTICIPATED RESULTS
Strategic Issues:Strategic Issues:
●Cost savings may prove smaller than expected.Cost savings may prove smaller than expected.
●Gains in competitive capabilities take longer to Gains in competitive capabilities take longer to
realize or never materialize at all.realize or never materialize at all.
Organizational IssuesOrganizational Issues
●Cultures, operating systems and management Cultures, operating systems and management
styles fail to mesh due to resistance to change styles fail to mesh due to resistance to change
from organization members.from organization members.
●Loss of key employees at the acquired firm.Loss of key employees at the acquired firm.
●Managers overseeing integration make mistakes Managers overseeing integration make mistakes
in melding the acquired firm into their own.in melding the acquired firm into their own.
6–24
SOMETIMES FAIL TO PRODUCE SOMETIMES FAIL TO PRODUCE
ANTICIPATED RESULTSANTICIPATED RESULTS
Strategic Issues:Strategic Issues:
●Cost savings may prove smaller than expected.Cost savings may prove smaller than expected.
●Gains in competitive capabilities take longer to Gains in competitive capabilities take longer to
realize or never materialize at all.realize or never materialize at all.
Organizational IssuesOrganizational Issues
●Cultures, operating systems and management Cultures, operating systems and management
styles fail to mesh due to resistance to change styles fail to mesh due to resistance to change
from organization members.from organization members.
●Loss of key employees at the acquired firm.Loss of key employees at the acquired firm.
●Managers overseeing integration make mistakes Managers overseeing integration make mistakes
in melding the acquired firm into their own.in melding the acquired firm into their own.
6–24
CORE CONCEPTCORE CONCEPT
♦A A vertically integrated firm vertically integrated firm is one that is one that
performs value chain activities along more than performs value chain activities along more than
one stage of an industry’s value chain system.one stage of an industry’s value chain system.
6–25
♦A A vertically integrated firm vertically integrated firm is one that is one that
performs value chain activities along more than performs value chain activities along more than
one stage of an industry’s value chain system.one stage of an industry’s value chain system.
6–25
VERTICAL INTEGRATION STRATEGIESVERTICAL INTEGRATION STRATEGIES
Vertically Integrated FirmVertically Integrated Firm
●Is one that participates in multiple segments or Is one that participates in multiple segments or
stages of an industry’s overall value chain.stages of an industry’s overall value chain.
Vertical Integration StrategyVertical Integration Strategy
●Can expand the firm’s range of activities backward Can expand the firm’s range of activities backward
into its sources of supply and/or forward toward end into its sources of supply and/or forward toward end
users of its products.users of its products.
6–26
Vertically Integrated FirmVertically Integrated Firm
●Is one that participates in multiple segments or Is one that participates in multiple segments or
stages of an industry’s overall value chain.stages of an industry’s overall value chain.
Vertical Integration StrategyVertical Integration Strategy
●Can expand the firm’s range of activities backward Can expand the firm’s range of activities backward
into its sources of supply and/or forward toward end into its sources of supply and/or forward toward end
users of its products.users of its products.
6–26
TYPES OF VERTICAL TYPES OF VERTICAL
INTEGRATION STRATEGIESINTEGRATION STRATEGIES
Full Full
IntegrationIntegration
Partial Partial
IntegrationIntegration
Tapered
Integration
Vertical Integration
Choices
6–27
INTEGRATION STRATEGIESINTEGRATION STRATEGIES
Full Full
IntegrationIntegration
Partial Partial
IntegrationIntegration
Tapered
Integration
Vertical Integration
Choices
6–27
TYPES OF VERTICAL INTEGRATION TYPES OF VERTICAL INTEGRATION
STRATEGIESSTRATEGIES
Full IntegrationFull Integration
●A firm participates in all stages A firm participates in all stages
of the vertical activity chain.of the vertical activity chain.
Partial IntegrationPartial Integration
●A firm builds positions only in selected A firm builds positions only in selected
stages of the vertical chain.stages of the vertical chain.
Tapered IntegrationTapered Integration
●Involves a mix of in-house and outsourced Involves a mix of in-house and outsourced
activity in any stage of the vertical chain.activity in any stage of the vertical chain.
6–28
STRATEGIESSTRATEGIES
Full IntegrationFull Integration
●A firm participates in all stages A firm participates in all stages
of the vertical activity chain.of the vertical activity chain.
Partial IntegrationPartial Integration
●A firm builds positions only in selected A firm builds positions only in selected
stages of the vertical chain.stages of the vertical chain.
Tapered IntegrationTapered Integration
●Involves a mix of in-house and outsourced Involves a mix of in-house and outsourced
activity in any stage of the vertical chain.activity in any stage of the vertical chain.
6–28
THE ADVANTAGES OF A THE ADVANTAGES OF A
VERTICAL INTEGRATION VERTICAL INTEGRATION
STRATEGYSTRATEGY
Add materially
to a firm’s
technological
capabilities
Strengthen
the firm’s
competitive
position
Boost
the firm’s
profitability
Benefits of a Vertical
Integration Strategy
6–29
VERTICAL INTEGRATION VERTICAL INTEGRATION
STRATEGYSTRATEGY
Add materially
to a firm’s
technological
capabilities
Strengthen
the firm’s
competitive
position
Boost
the firm’s
profitability
Benefits of a Vertical
Integration Strategy
6–29
CORE CONCEPTSCORE CONCEPTS
♦Backward integration Backward integration involves entry into involves entry into
activities previously performed by suppliers or activities previously performed by suppliers or
other enterprises positioned along earlier other enterprises positioned along earlier
stages of the industry value chain systemstages of the industry value chain system
♦Forward integration Forward integration involves entry into value involves entry into value
chain system activities closer to the end userchain system activities closer to the end user
6–30
♦Backward integration Backward integration involves entry into involves entry into
activities previously performed by suppliers or activities previously performed by suppliers or
other enterprises positioned along earlier other enterprises positioned along earlier
stages of the industry value chain systemstages of the industry value chain system
♦Forward integration Forward integration involves entry into value involves entry into value
chain system activities closer to the end userchain system activities closer to the end user
6–30
INTEGRATING BACKWARD TO ACHIEVE INTEGRATING BACKWARD TO ACHIEVE
GREATER COMPETITIVENESSGREATER COMPETITIVENESS
Integrating Backwards By:Integrating Backwards By:
●Achieving same scale economies as outside suppliers—Achieving same scale economies as outside suppliers—
low-cost based competitive advantage.low-cost based competitive advantage.
●Matching or beating suppliers’ production efficiency with no Matching or beating suppliers’ production efficiency with no
drop-off in quality—differentiation-based competitive advantage.drop-off in quality—differentiation-based competitive advantage.
Reasons for Integrating Backwards:Reasons for Integrating Backwards:
●Reduction of supplier powerReduction of supplier power
●Reduction in costs of major inputsReduction in costs of major inputs
●Assurance of the supply and flow of critical inputsAssurance of the supply and flow of critical inputs
●Protection of proprietary know-howProtection of proprietary know-how
6–31
GREATER COMPETITIVENESSGREATER COMPETITIVENESS
Integrating Backwards By:Integrating Backwards By:
●Achieving same scale economies as outside suppliers—Achieving same scale economies as outside suppliers—
low-cost based competitive advantage.low-cost based competitive advantage.
●Matching or beating suppliers’ production efficiency with no Matching or beating suppliers’ production efficiency with no
drop-off in quality—differentiation-based competitive advantage.drop-off in quality—differentiation-based competitive advantage.
Reasons for Integrating Backwards:Reasons for Integrating Backwards:
●Reduction of supplier powerReduction of supplier power
●Reduction in costs of major inputsReduction in costs of major inputs
●Assurance of the supply and flow of critical inputsAssurance of the supply and flow of critical inputs
●Protection of proprietary know-howProtection of proprietary know-how
6–31
INTEGRATING FORWARD TO ENHANCE INTEGRATING FORWARD TO ENHANCE
COMPETITIVENESSCOMPETITIVENESS
Reasons for Integrating Forward:Reasons for Integrating Forward:
●To lower overall costs by increasing channel To lower overall costs by increasing channel
activity efficiencies relative to competitors.activity efficiencies relative to competitors.
●To increase bargaining power through control To increase bargaining power through control
of channel activities.of channel activities.
●To gain better access to end users.To gain better access to end users.
●To strengthen and reinforce brand awareness.To strengthen and reinforce brand awareness.
●To increase product differentiation.To increase product differentiation.
6–32
COMPETITIVENESSCOMPETITIVENESS
Reasons for Integrating Forward:Reasons for Integrating Forward:
●To lower overall costs by increasing channel To lower overall costs by increasing channel
activity efficiencies relative to competitors.activity efficiencies relative to competitors.
●To increase bargaining power through control To increase bargaining power through control
of channel activities.of channel activities.
●To gain better access to end users.To gain better access to end users.
●To strengthen and reinforce brand awareness.To strengthen and reinforce brand awareness.
●To increase product differentiation.To increase product differentiation.
6–32
DISADVANTAGES OF A VERTICAL DISADVANTAGES OF A VERTICAL
INTEGRATION STRATEGYINTEGRATION STRATEGY
Increased business risk due to large capital investment.Increased business risk due to large capital investment.
Slow acceptance of technological advances or more Slow acceptance of technological advances or more
efficient production methods.efficient production methods.
Less flexibility in accommodating shifting buyer Less flexibility in accommodating shifting buyer
preferences that require non-internally produced parts.preferences that require non-internally produced parts.
Internal production levels may not be of sufficient Internal production levels may not be of sufficient
volumes to allow for economies of scale.volumes to allow for economies of scale.
Capacity matching problems for efficient production of Capacity matching problems for efficient production of
internally-produced components and parts.internally-produced components and parts.
Requirements for different resources and capabilities.Requirements for different resources and capabilities.
6–33
INTEGRATION STRATEGYINTEGRATION STRATEGY
Increased business risk due to large capital investment.Increased business risk due to large capital investment.
Slow acceptance of technological advances or more Slow acceptance of technological advances or more
efficient production methods.efficient production methods.
Less flexibility in accommodating shifting buyer Less flexibility in accommodating shifting buyer
preferences that require non-internally produced parts.preferences that require non-internally produced parts.
Internal production levels may not be of sufficient Internal production levels may not be of sufficient
volumes to allow for economies of scale.volumes to allow for economies of scale.
Capacity matching problems for efficient production of Capacity matching problems for efficient production of
internally-produced components and parts.internally-produced components and parts.
Requirements for different resources and capabilities.Requirements for different resources and capabilities.
6–33
WEIGHING THE PROS AND CONS WEIGHING THE PROS AND CONS
OF VERTICAL INTEGRATIONOF VERTICAL INTEGRATION
Can vertical integration enhance the performance of Can vertical integration enhance the performance of
strategy-critical activities in ways that lower cost, build strategy-critical activities in ways that lower cost, build
expertise, protect proprietary know-how, or increase expertise, protect proprietary know-how, or increase
differentiation?differentiation?
What is the impact of vertical integration on investment What is the impact of vertical integration on investment
costs, flexibility and response times, and administrative costs, flexibility and response times, and administrative
costs of coordinating operations across more vertical costs of coordinating operations across more vertical
chain activities?chain activities?
How difficult it will be for the firm to acquire the set of How difficult it will be for the firm to acquire the set of
skills and capabilities needed to operate in another skills and capabilities needed to operate in another
stage of the vertical chain?stage of the vertical chain?
6–34
OF VERTICAL INTEGRATIONOF VERTICAL INTEGRATION
Can vertical integration enhance the performance of Can vertical integration enhance the performance of
strategy-critical activities in ways that lower cost, build strategy-critical activities in ways that lower cost, build
expertise, protect proprietary know-how, or increase expertise, protect proprietary know-how, or increase
differentiation?differentiation?
What is the impact of vertical integration on investment What is the impact of vertical integration on investment
costs, flexibility and response times, and administrative costs, flexibility and response times, and administrative
costs of coordinating operations across more vertical costs of coordinating operations across more vertical
chain activities?chain activities?
How difficult it will be for the firm to acquire the set of How difficult it will be for the firm to acquire the set of
skills and capabilities needed to operate in another skills and capabilities needed to operate in another
stage of the vertical chain?stage of the vertical chain?
6–34
CORE CONCEPTCORE CONCEPT
♦OutsourcingOutsourcing involves contracting out certain involves contracting out certain
value chain activities to outside vendors.value chain activities to outside vendors.
6–35
♦OutsourcingOutsourcing involves contracting out certain involves contracting out certain
value chain activities to outside vendors.value chain activities to outside vendors.
6–35
OUTSOURCING STRATEGIES: OUTSOURCING STRATEGIES:
NARROWING THE SCOPE OF OPERATIONSNARROWING THE SCOPE OF OPERATIONS
OutsourcingOutsourcing
●Involves farming out value chain activities to outside vendors.Involves farming out value chain activities to outside vendors.
Outsource an activity if it:Outsource an activity if it:
●Can be performed better or more cheaply by outside specialists.Can be performed better or more cheaply by outside specialists.
●Is not crucial to achieving sustainable competitive advantage.Is not crucial to achieving sustainable competitive advantage.
●Improves organizational flexibility and speeds time to market.Improves organizational flexibility and speeds time to market.
●Reduces risks due to new technology and/or buyer preferences.Reduces risks due to new technology and/or buyer preferences.
●Assembles diverse kinds of expertise speedily and efficiently.Assembles diverse kinds of expertise speedily and efficiently.
●Allows the firm to concentrate on its core business, leverage key Allows the firm to concentrate on its core business, leverage key
resources, and do even better what it does best.resources, and do even better what it does best.
6–36
NARROWING THE SCOPE OF OPERATIONSNARROWING THE SCOPE OF OPERATIONS
OutsourcingOutsourcing
●Involves farming out value chain activities to outside vendors.Involves farming out value chain activities to outside vendors.
Outsource an activity if it:Outsource an activity if it:
●Can be performed better or more cheaply by outside specialists.Can be performed better or more cheaply by outside specialists.
●Is not crucial to achieving sustainable competitive advantage.Is not crucial to achieving sustainable competitive advantage.
●Improves organizational flexibility and speeds time to market.Improves organizational flexibility and speeds time to market.
●Reduces risks due to new technology and/or buyer preferences.Reduces risks due to new technology and/or buyer preferences.
●Assembles diverse kinds of expertise speedily and efficiently.Assembles diverse kinds of expertise speedily and efficiently.
●Allows the firm to concentrate on its core business, leverage key Allows the firm to concentrate on its core business, leverage key
resources, and do even better what it does best.resources, and do even better what it does best.
6–36
THE BIG RISKS OF OUTSOURCING THE BIG RISKS OF OUTSOURCING
VALUE CHAIN ACTIVITIESVALUE CHAIN ACTIVITIES
Hollowing out resources and capabilities that Hollowing out resources and capabilities that
the firm needs to be a master of its own destiny.the firm needs to be a master of its own destiny.
Loss of control when monitoring, controlling, Loss of control when monitoring, controlling,
and coordinating activities of outside parties by and coordinating activities of outside parties by
means of contracts and arm’s-length means of contracts and arm’s-length
transactions.transactions.
Lack of incentives for outside parties to make Lack of incentives for outside parties to make
investments specific to the needs of the investments specific to the needs of the
outsourcing firm’s value chain.outsourcing firm’s value chain.
6–37
VALUE CHAIN ACTIVITIESVALUE CHAIN ACTIVITIES
Hollowing out resources and capabilities that Hollowing out resources and capabilities that
the firm needs to be a master of its own destiny.the firm needs to be a master of its own destiny.
Loss of control when monitoring, controlling, Loss of control when monitoring, controlling,
and coordinating activities of outside parties by and coordinating activities of outside parties by
means of contracts and arm’s-length means of contracts and arm’s-length
transactions.transactions.
Lack of incentives for outside parties to make Lack of incentives for outside parties to make
investments specific to the needs of the investments specific to the needs of the
outsourcing firm’s value chain.outsourcing firm’s value chain.
6–37
FACTORS THAT MAKE AN ALLIANCE FACTORS THAT MAKE AN ALLIANCE
“STRATEGIC”“STRATEGIC”
1.1.It facilitates achievement of an important business It facilitates achievement of an important business
objective.objective.
2.2.It helps build, sustain, or enhance a core competence It helps build, sustain, or enhance a core competence
or competitive advantage.or competitive advantage.
3.3.It helps block a competitive threat.It helps block a competitive threat.
4.4.It helps remedy an important resource deficiency or It helps remedy an important resource deficiency or
competitive weakness.competitive weakness.
5.5.It increases the bargaining power of alliance members It increases the bargaining power of alliance members
over suppliers or buyers.over suppliers or buyers.
6.6.It helps open up important new market opportunities.It helps open up important new market opportunities.
7.7.It mitigates a significant risk to a firm’s business.It mitigates a significant risk to a firm’s business.
6–38
“STRATEGIC”“STRATEGIC”
1.1.It facilitates achievement of an important business It facilitates achievement of an important business
objective.objective.
2.2.It helps build, sustain, or enhance a core competence It helps build, sustain, or enhance a core competence
or competitive advantage.or competitive advantage.
3.3.It helps block a competitive threat.It helps block a competitive threat.
4.4.It helps remedy an important resource deficiency or It helps remedy an important resource deficiency or
competitive weakness.competitive weakness.
5.5.It increases the bargaining power of alliance members It increases the bargaining power of alliance members
over suppliers or buyers.over suppliers or buyers.
6.6.It helps open up important new market opportunities.It helps open up important new market opportunities.
7.7.It mitigates a significant risk to a firm’s business.It mitigates a significant risk to a firm’s business.
6–38
BENEFITS OF STRATEGIC ALLIANCES BENEFITS OF STRATEGIC ALLIANCES
AND PARTNERSHIPSAND PARTNERSHIPS
Minimizes the problems associated with vertical Minimizes the problems associated with vertical
integration, outsourcing, and mergers and acquisitions.integration, outsourcing, and mergers and acquisitions.
Useful in extending to extend the scope of operations Useful in extending to extend the scope of operations
via international expansion and diversification via international expansion and diversification
strategies.strategies.
Reduces the need to be independent and self-sufficient Reduces the need to be independent and self-sufficient
when strengthening the firm’s competitive position.when strengthening the firm’s competitive position.
Offers greater flexibility should a firm’s resource Offers greater flexibility should a firm’s resource
requirements or goals change over time.requirements or goals change over time.
Are useful when industries are experiencing high-Are useful when industries are experiencing high-
velocity technological advances simultaneously.velocity technological advances simultaneously.
6–39
AND PARTNERSHIPSAND PARTNERSHIPS
Minimizes the problems associated with vertical Minimizes the problems associated with vertical
integration, outsourcing, and mergers and acquisitions.integration, outsourcing, and mergers and acquisitions.
Useful in extending to extend the scope of operations Useful in extending to extend the scope of operations
via international expansion and diversification via international expansion and diversification
strategies.strategies.
Reduces the need to be independent and self-sufficient Reduces the need to be independent and self-sufficient
when strengthening the firm’s competitive position.when strengthening the firm’s competitive position.
Offers greater flexibility should a firm’s resource Offers greater flexibility should a firm’s resource
requirements or goals change over time.requirements or goals change over time.
Are useful when industries are experiencing high-Are useful when industries are experiencing high-
velocity technological advances simultaneously.velocity technological advances simultaneously.
6–39
WHY AND HOW STRATEGIC ALLIANCES WHY AND HOW STRATEGIC ALLIANCES
ARE ADVANTAGEOUSARE ADVANTAGEOUS
They expedite the development of promising They expedite the development of promising
new technologies or products.new technologies or products.
They help overcome deficits in technical and They help overcome deficits in technical and
manufacturing expertise.manufacturing expertise.
They bring together the personnel and expertise They bring together the personnel and expertise
needed to create new skill sets and capabilities.needed to create new skill sets and capabilities.
They improve supply chain efficiency.They improve supply chain efficiency.
They help partners allocate venture risk sharing.They help partners allocate venture risk sharing.
They allow firms to gain economies of scale.They allow firms to gain economies of scale.
They provide new market access for partners.They provide new market access for partners.
6–40
ARE ADVANTAGEOUSARE ADVANTAGEOUS
They expedite the development of promising They expedite the development of promising
new technologies or products.new technologies or products.
They help overcome deficits in technical and They help overcome deficits in technical and
manufacturing expertise.manufacturing expertise.
They bring together the personnel and expertise They bring together the personnel and expertise
needed to create new skill sets and capabilities.needed to create new skill sets and capabilities.
They improve supply chain efficiency.They improve supply chain efficiency.
They help partners allocate venture risk sharing.They help partners allocate venture risk sharing.
They allow firms to gain economies of scale.They allow firms to gain economies of scale.
They provide new market access for partners.They provide new market access for partners.
6–40
REASONS FOR ENTERING INTO REASONS FOR ENTERING INTO
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
When seeking global market leadership:When seeking global market leadership:
●Enter into critical country markets quickly.Enter into critical country markets quickly.
●Gain inside knowledge about unfamiliar markets and cultures Gain inside knowledge about unfamiliar markets and cultures
through alliances with local partners.through alliances with local partners.
●Provide access to valuable skills and competencies Provide access to valuable skills and competencies
concentrated in particular geographic locations.concentrated in particular geographic locations.
When staking out a strong industry position:When staking out a strong industry position:
●Establish a stronger beachhead in target industry.Establish a stronger beachhead in target industry.
●Master new technologies and build expertise and competencies.Master new technologies and build expertise and competencies.
●Open up broader opportunities in the target industry.Open up broader opportunities in the target industry.
6–41
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
When seeking global market leadership:When seeking global market leadership:
●Enter into critical country markets quickly.Enter into critical country markets quickly.
●Gain inside knowledge about unfamiliar markets and cultures Gain inside knowledge about unfamiliar markets and cultures
through alliances with local partners.through alliances with local partners.
●Provide access to valuable skills and competencies Provide access to valuable skills and competencies
concentrated in particular geographic locations.concentrated in particular geographic locations.
When staking out a strong industry position:When staking out a strong industry position:
●Establish a stronger beachhead in target industry.Establish a stronger beachhead in target industry.
●Master new technologies and build expertise and competencies.Master new technologies and build expertise and competencies.
●Open up broader opportunities in the target industry.Open up broader opportunities in the target industry.
6–41
CAPTURING THE BENEFITS OF CAPTURING THE BENEFITS OF
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
Picking a good Picking a good
partnerpartner
Being sensitive
to cultural
differences
Recognizing that
the alliance must
benefit both sides
Adjusting the
agreement over
time to fit new
circumstances
Structuring the
decision-making
process for swift
actions
Ensuring both
parties keep their
commitments
Strategic Strategic
Alliance FactorsAlliance Factors
6–42
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
Picking a good Picking a good
partnerpartner
Being sensitive
to cultural
differences
Recognizing that
the alliance must
benefit both sides
Adjusting the
agreement over
time to fit new
circumstances
Structuring the
decision-making
process for swift
actions
Ensuring both
parties keep their
commitments
Strategic Strategic
Alliance FactorsAlliance Factors
6–42
THE DRAWBACKS OF STRATEGIC THE DRAWBACKS OF STRATEGIC
ALLIANCES AND PARTNERSHIPSALLIANCES AND PARTNERSHIPS
Culture clash and integration problems due to different Culture clash and integration problems due to different
management styles and business practices.management styles and business practices.
Anticipated gains do not materialize due to an overly Anticipated gains do not materialize due to an overly
optimistic view of the synergies or a poor fit of partners’ optimistic view of the synergies or a poor fit of partners’
resources and capabilities.resources and capabilities.
Risk of becoming dependent on partner firms for Risk of becoming dependent on partner firms for
essential expertise and capabilities.essential expertise and capabilities.
Protection of proprietary technologies, knowledge Protection of proprietary technologies, knowledge
bases, or trade secrets from partners who are rivals.bases, or trade secrets from partners who are rivals.
6–43
ALLIANCES AND PARTNERSHIPSALLIANCES AND PARTNERSHIPS
Culture clash and integration problems due to different Culture clash and integration problems due to different
management styles and business practices.management styles and business practices.
Anticipated gains do not materialize due to an overly Anticipated gains do not materialize due to an overly
optimistic view of the synergies or a poor fit of partners’ optimistic view of the synergies or a poor fit of partners’
resources and capabilities.resources and capabilities.
Risk of becoming dependent on partner firms for Risk of becoming dependent on partner firms for
essential expertise and capabilities.essential expertise and capabilities.
Protection of proprietary technologies, knowledge Protection of proprietary technologies, knowledge
bases, or trade secrets from partners who are rivals.bases, or trade secrets from partners who are rivals.
6–43
PRINCIPLE ADVANTAGES OF PRINCIPLE ADVANTAGES OF
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
1.1.They lower investment costs and risks for each They lower investment costs and risks for each
partner by facilitating resource pooling and risk partner by facilitating resource pooling and risk
sharing.sharing.
2.2.They are more flexible organizational forms They are more flexible organizational forms
and allow for a more adaptive response to and allow for a more adaptive response to
changing conditions.changing conditions.
3.3.They are more rapidly deployed—a critical They are more rapidly deployed—a critical
factor when speed is of the essence.factor when speed is of the essence.
6–44
STRATEGIC ALLIANCESSTRATEGIC ALLIANCES
1.1.They lower investment costs and risks for each They lower investment costs and risks for each
partner by facilitating resource pooling and risk partner by facilitating resource pooling and risk
sharing.sharing.
2.2.They are more flexible organizational forms They are more flexible organizational forms
and allow for a more adaptive response to and allow for a more adaptive response to
changing conditions.changing conditions.
3.3.They are more rapidly deployed—a critical They are more rapidly deployed—a critical
factor when speed is of the essence.factor when speed is of the essence.
6–44
STRATEGIC ALLIANCES STRATEGIC ALLIANCES
VERSUS OUTSOURCINGVERSUS OUTSOURCING
Key Advantages of Strategic Alliances:Key Advantages of Strategic Alliances:
●The increased ability to exercise control over the The increased ability to exercise control over the
partners’ activities.partners’ activities.
●A greater commitment and willingness of the partners A greater commitment and willingness of the partners
to make relationship-specific investments as opposed to make relationship-specific investments as opposed
to arm’s-length outsourcing transactions.to arm’s-length outsourcing transactions.
6–45
VERSUS OUTSOURCINGVERSUS OUTSOURCING
Key Advantages of Strategic Alliances:Key Advantages of Strategic Alliances:
●The increased ability to exercise control over the The increased ability to exercise control over the
partners’ activities.partners’ activities.
●A greater commitment and willingness of the partners A greater commitment and willingness of the partners
to make relationship-specific investments as opposed to make relationship-specific investments as opposed
to arm’s-length outsourcing transactions.to arm’s-length outsourcing transactions.
6–45
HOW TO MAKE STRATEGIC ALLIANCES HOW TO MAKE STRATEGIC ALLIANCES
WORKWORK
Create a system for managing the alliance. Create a system for managing the alliance.
Build trusting relationships with partners.Build trusting relationships with partners.
Set up safeguards to protect from the threat of Set up safeguards to protect from the threat of
opportunism by partners.opportunism by partners.
Make commitments to partners and see that Make commitments to partners and see that
partners do the same.partners do the same.
Make learning a routine part of the Make learning a routine part of the
management process.management process.
6–46
WORKWORK
Create a system for managing the alliance. Create a system for managing the alliance.
Build trusting relationships with partners.Build trusting relationships with partners.
Set up safeguards to protect from the threat of Set up safeguards to protect from the threat of
opportunism by partners.opportunism by partners.
Make commitments to partners and see that Make commitments to partners and see that
partners do the same.partners do the same.
Make learning a routine part of the Make learning a routine part of the
management process.management process.
6–46
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