Supplementing the Chosen Competitive Strategy

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Chapter 6

• Supplementing the Chosen Competitive Strategy

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Cooperative Strategies

• Strategic Alliance formal agreement between two
  or more companies in which there is a
  strategically relevant collaboration.

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Advantages of Alliances

• Gain access to new global markets
• Gain knowledge about unfamiliar markets or
  cultures
• Gain access or master new technologies
• Gain access to complementary resources

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Keys to Alliance Success

• Picking the right partner
• Sensitivity to cultural differences
• Must be win-win
• Mutual commitment
• Swift decision making structures
• Managing the learning process
• Maintaining flexibility

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Who Makes a Geo?

• Geo Storm was actually manufactured by Isuzu. The
  Storm is the Isuzu Impulse.
• Geo Prizm Toyota Corolla
• Geo Tracker Suzuki Sidekick
• Geo Metro Suzuki Esteem or Swift w/hatchback
• No Geo cars were actually made by General Motors.
  They were all imported from foreign manufacturers.

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Vertical Integration

• Operating in more than one stage of the industry
  value chain
• partial/taper or full integration
• forward or backward
• Benefits
• can not be held hostage reduces buyer/supplier
  power
• greater control over operations
• access to new business/technologies
• reduce procurement and sales efforts
• Risks
• increased overhead, capital and administrative
  costs
• loss of flexibility
• different competencies may be requires
• unbalanced capacities and increased risk
• reaction of competitors

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Vertical Integration

• Will add value when
• Enhance critical activities that lower costs or
  increase differentiation
• Benefits exceed the costs
• Enhances competitive capabilities

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Outsourcing

• Farming out specific activities to others,
  allowing the firm to focus on more critical
  activities and core competencies

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Outsourcing Works When

• Others can do it better and cheaper
• Not a core competency
• Reduces the companies risk to technology changes
• Improves the companys innovation
• Streamlines operations and increases flexibility
• Assemble diverse expertise

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Mergers and Acquisitions
Reasons of Acquisitions Cost Efficiencies Geogra
phic Expansion Product/Market Extensions Increas
ed Speed Lower Risk New Technologies Invest in
New Industry or Create Convergence
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Mergers and Acquisitions
Problems with Acquisitions Integration of two
firms Overpayment/Debt Overestimation of
Synergy Overdiversification Managerial energy
absorption Become too large Substitute for
innovation
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Mergers and Acquisitions
Results
Poor Performance
Who Wins? Acquired Firm Shareholders
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Monday October 27th WSJ

• Bank of American Boston Fleet Financial
• BoA down 8.29, or 10, BFF rose 23
• Anthem WellPoint Health Networks
• Anthem down 8.2, WellPoint up 8.8
• United Health MidAtlantic Med Services
• UH down 4.9, MAMS up 9.7

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Failures of Acquisitions

• 30 - 40 average acquisition premium
• Acquiring firms value drops 4 in the 3 months
  following acquisitions
• 30 - 50 of acquisitions are later divested
• Acquirers underperform SP by 14, peers by 4
• 3 month performance before and after
• 30 substantial losses, 20 some losses, 33
  marginal returns, 17 substantial returns

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Why, then, do executives acquire?

• Often, for personal reasons
• Firm size and executive compensation are related
• When do executives loss their jobs?
• 1) Acquired - larger firms harder to acquire
• 2) Performing poorly - employment risk is reduced
  as returns are less volatile

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Offensive Strategies

• Successful offensive strategies require
• Relentless focus on advantages
• Element of surprise
• Apply resources where rivals have limitations
• Swift and decisive actions to break the status quo

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Offensive Options

• Equal or better product at a lower price
• First mover or next generation
• Continuous product innovation
• Adopting and improving on a rivals idea
• Attacking rivals high margin segments
• Attacking rivals weaknesses
• Tapping uncontested markets
• Guerrilla warfare tactics
• Pre-emptive strikes tying up distribution,
  location, suppliers, or acquiring distressed
  rivals

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Blue Ocean Strategy

• Inventing new industry/segment that renders
  existing competitors irrelevant and helps create
  new demand
• Ebay
• Cirque du Soleil
• Netflix

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Competitive Dynamics

• Competitive action within an industry
• Strategic and tactical action does not occur
  within a vacuum
• What industries have high competitive dynamics?
• What sort of actions/tactics are taken?

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Drivers of Competitive Dynamics

• numerous/equally balanced competitors
• slow growth
• high fixed/storage costs
• lack of differentiation/switching costs
• high exit barriers
• Etc

Competitive Dynamics
Rivalry
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Competition in the Pharmaceutical Industry

• Reps quadrupled to 120K last 10-15 years
• 12B on sales force, 2.76B on ads
• Managed care bet Pfizer from 14th to 1st
• 529 visits yearly, average length 2.5 min
• 8 remember
• Glaxo can reach 80 of the Drs in a week
• Is this necessary. No, but if my competitors do
  it and I cant, then Im at a disadvantage. This
  has been an arms race in the worst possible
  manner.

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Types of Competitive Responses

• First Movers - initial competitive action
• advantages and disadvantages
• Fast Followers or Capable Competitors- respond
  quickly to first movers
• Late Entrants - day late and a dollar short