Block 5

Question 1

When are strategic offences used?

Answer 1

Strategic offences 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 rivals’ competitive advantage.

Question 2

What are the four strategic offensive principles?

Answer 2

1. Focusing relentlessly on building competitive advantage and then striving to convert it into sustainable advantage.
2. Applying resources where rivals are least able to defend themselves.
3. Employing the element of surprise as opposed to doing what rivals expect and are prepared for.
4. Displaying a capacity for swift, decisive, and overwhelming actions to overpower rivals.

Question 3

Name and explain the seven strategic offence options:

Answer 3

1. Offering an equally good or better product at a lower price.
2. Leapfrogging competitors by being first to market with next generation products.
3. Pursuing continuous product innovation to draw sales and market share away from less innovative rivals.
4. Pursuing disruptive product innovations to create new markets.
5. Adopting and improving on the good ideas of other companies.
6. Using hit-and-run or guerrilla marketing tactics to grab market share from complacent or distracted rivals by low balling or using intense bursts of promotional activities.
7. Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity. -Strike 1st-

Question 4

Give four examples of companies that are the best targets for offensive attacks:

Answer 4

1. Market leaders that are in vulnerable competitive positions.
2. Runner-up firms with weaknesses in areas where the challenger is strong.
3. Struggling enterprises on the verge of going under.
4. Small local and regional firms with limited capabilities.

Question 5

Name and explain the two market spaces that the business universe is divided into:

Answer 5

1. An existing market with boundaries and rules in which rival firms compete for advantage.
2. A “blue ocean” market space, where the
   industry has not yet taken shape, with no
   rivals and wide-open long-term growth and
   profit potential for a firm that can create
   demand for new types of products.

Question 6

Explain the purpose of Defensive Strategies:

Answer 6

• Lower the risk of the firm being attacked.
• Weaken the impact of an attack that does occur.
• Influence challengers to aim their efforts at other rivals.

Question 7

What are the two forms that a defensive strategy could take?

Answer 7

1. Actions to block challengers.
2. Actions to signal the likelihood of strong retaliation.

Question 8

Explain different ways a company can create obstacles to restrict a competitors’ options to form a competitive attack:

Answer 8

• 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.
• Challenge quality and safety of competitor’s products.

Question 9

Explain how signaling can be an effective defensive strategy and how it’s done: (4)

Answer 9

It can be effective when a 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 (Cash set aside to deal with uncertainties)
- Making a strong counter-response to the moves of weaker rivals to enhance its tough defender image.

Question 10

Give five conditions that lead to first-movers advantage:

Answer 10

1. When pioneering helps build a firm’s reputation and creates strong brand loyalty.
2. When a first mover’s customers will thereafter face significant switching costs.
3. When property rights protections thwart rapid imitation of the initial move.
4. When an early lead enables movement down the learning curve ahead of rivals.
5. When a first mover can set the technical standard for the industry.

Question 11

Give some considerations needed to be asked when deciding if the company should be a first mover, or not:

Answer 11

♦ Does market takeoff depend on complementary products or services that are currently 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?

Question 12

How do you define the scope of a firm’s operations?

Answer 12

You need to look at:
- The range of its activities performed internally.
- The breadth of its product and service offerings.
- The extent of its geographic market presence and its mix of businesses.
- The size of its competitive footprint on its market.

Question 13

Explain a horizontal and vertical scope:

Answer 13

Horizontal scope: The range of product and service segments that a firm serves within its focal market.
Vertical scope: 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.

Question 14

Explain a merger strategy:

Answer 14

Its the combining of two or more firms into a single corporate entity that often takes on a new name.

Question 15

Explain an acquisition strategy:

Answer 15

Its a combination in which one firm (the
acquirer) purchases and absorbs the
operations of another firm (the acquired)

Question 16

Name five objectives that merger and acquisition strategies try to achieve:

Answer 16

• Creating a more cost-efficient operation out of the combined companies.
• Expanding the firm’s geographic coverage.
• Extending the firm’s business into new product categories.
• Gaining quick access to new technologies or other resources and capabilities.
• Leading the convergence of industries whose boundaries are being blurred by changing technologies and new market opportunities.

Question 17

What are the benefits of increasing a firm’s horizonal scope:

Answer 17

● Improving the efficiency of its operations.
● Heightening its product differentiation.
● Reducing market rivalry.
● Increasing the firm’s bargaining power over suppliers and buyers.
● Enhancing its flexibility and dynamic capabilities.

Question 18

Define a vertically integrated firm:

Answer 18

• A firm that participates in multiple segments or stages of an industry’s overall value chain.
• They control more than one stage of supply chain.

Question 19

Explain the vertical integration strategy:

Answer 19

When they can expand the firm’s range of activities backward into its sources of supply, or forward toward end users of its products.

Question 20

Name and explain the three types of vertical integration strategies:

Answer 20

1. Full integration:
   ● A firm participates in all stages of the vertical activity chain.
2. Partial integration:
   ● A firm builds positions only in selected stages of the vertical chain.
3. Tapered integration:
   ● A firm uses a mix of in-house and outsourced activity in any stage of the vertical chain.

Question 21

What are the benefits of a vertical integration strategy?

Answer 21

• Can add materially to a firm’s
  technological capabilities.
• Strengthen the firm’s competitive position.
• Boost the firm’s profitability.

Question 22

Define backward integration:

Answer 22

Backward integration involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system.

Question 23

Define forward integration:

Answer 23

Forward integration involves entry into value chain system activities closer to the end user.

Question 24

Define a ‘blue-ocean’ strategy:

Answer 24

A strategy to beat competitors by inventing a new market segment that renders existing competitors irrelevant and allows a company to create and capture altogether new demand.

Question 25

Explain how a company makes backward integration profitable: (2)

Answer 25

- By achieving same scale economies as outside suppliers (for a low-cost based competitive advantage) - Matching or beating suppliers’ production efficiency with no drop-off in quality (for a differentiation-based competitive advantage)

Question 26

Give reasons for backward integration:

Answer 26

● Reduction of supplier power ● Reduction in costs of major inputs ● Assurance of the supply and flow of critical inputs ● Protection of proprietary know-how

Question 27

Give reasons for forward integration:

Answer 27

●To lower overall costs by increasing channel activity efficiencies relative to competitors. ● To increase bargaining power through control of channel activities. ● To gain better access to end users ● To strengthen and reinforce brand awareness ● To increase product differentiation

Question 28

Explain a few disadvantages of a vertical integration strategy:

Answer 28

♦ Increased business risk due to large capital investment. ♦ Slow acceptance of technological advances or more efficient production methods. ♦ Less flexibility in accommodating shifting buyer preferences that require non-internally produced parts. ♦ Internal production levels may not reach volumes that create economies of scale.

Question 29

Define outsourcing:

Answer 29

Contracting out certain value chain activities that are normally performed in-house to outside vendors.

Question 30

When should outsourcing be an option?

Answer 30

Outsource an activity if it: ● Can be performed better or more cheaply by outside specialists. ● Activity is not crucial to achieving sustainable competitive advantage. ● Improves organizational flexibility and speeds time to market. ● Reduces risk exposure due to new technology or buyer preferences. ● Allows the firm to concentrate on its core business, leverage key resources, and do even better what it already does best.

Question 31

Explain the risks of outsourcing:

Answer 31

♦ Hollowing out resources and capabilities that are critical to the business' value chain. ♦ Loss of direct control when monitoring, controlling, and coordinating activities of outside parties by means of contracts and arm’s-length transactions. ♦ Lack of incentives for outside parties to make investments specific to the needs of the outsourcing firm’s value chain.

Question 32

Define a strategic alliance:

Answer 32

A strategic alliance is a formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective.

Question 33

Define a joint venture:

Answer 33

A joint venture is a partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses.

Question 34

Explain what needs to be taken into account when weighing the pros and cons of Vertical Integration:

Answer 34

The tip of the scale depends on: 1. Whether vertical integration can enhance the performance of strategy-critical activities in ways that lower cost, build expertise or increase differentiation. 2. What impact vertical integration will have on investment costs, flexibility and response times. 3. What administrative costs will be incurred by coordinating operations across more vertical chain activities. 4. How difficult it will be for the company to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain.

Question 35

Explain what factors makes an alliance become 'strategic': (7)

Answer 35

When it serves any of the following purposes: 1. Facilitates achievement of an important business objective. 2. Helps build, sustain, or enhance a core competence or competitive advantage. 3. Helps remedy an important resource deficiency or competitive weakness. 4. Helps defend against a competitive threat, or mitigates a significant risk to a company’s business. 5. Increases the bargaining power over suppliers or buyers. 6. Helps open up important new market opportunities 7. Speeds development of new technologies or product innovations.

Question 36

Name the principal advantages of a strategic alliance and partnerships: (3)

Answer 36

♦ They lower investment costs and risks for each partner by facilitating resource pooling and risk sharing. ♦ They are more flexible organizational forms and allow for more adaptive response to changing conditions. ♦ They are more rapidly deployed-a critical factor when speed is of essence.

Question 37

Explain how a company can capture the benefits of a strategic alliance:

Answer 37

♦ Picking a good partner- Complementary strengths, understand vision. Shared objectives. ♦ Being sensitive to cultural differences-Understand and respect the cultural differences in organization. ♦ Recognizing that the alliance must benefit both sides-Not one sided. Beneficial to both sides. ♦ Ensure that both parties keep to their commitments-Just as other functions are managed. There must be a systematic way to manage alliance. ♦ Structuring the decision making process for swift actions. ♦ Managing the learning process- Learning routine part of management process.

Question 38

Explain the drawbacks of a strategic alliance:

Answer 38

♦ Culture clash and integration problems due to different management styles and business practices. ♦ Anticipated gains not materializing due to an overly optimistic view of the potential for synergies or the unforeseen poor fit of partners’ resources and capabilities. ♦ Risk of becoming dependent on partner firms for essential expertise and capabilities. ♦ Protection of proprietary technologies, knowledge bases, or trade secrets from partners who are rivals.

Question 39

Explain how to make a strategic alliance work: (5)

Answer 39

♦ Create a system for managing the alliance. ♦ Build trusting relationships with partners. ♦ Set up safeguards to protect from the threat of opportunism by partners. ♦ Make commitments to partners and see that partners do the same. ♦ Make learning a routine part of the management process.