Provide an example of a vertical or horizontal integration strategy that a firm applied it based on the reading from our Thompson text and the associated other material. How did the integration aid the company in building competitive advantage? Explain what the advantages and disadvantages of applying that integration strategy are in the context of the company and given our course work during the week.
Attached Thompson text(Chapter 6) and summary
associated other material:
Rules:
You must have at least one course (Thompson text) source and
one non-course scholarly/peer reviewed source in the post.
Sources require in-text citations and must be incorporated into the body of the post in addition to a full APA citation at the end of the post.
CHAPTER 6 Strengthening a Company’s Competitive Position: Strategic Moves, Timing, and Scope of Operations
©alice-photo/Shutterstock.com
©McGraw-Hill Education. All rights reserved. Authorized only for instructor use in the classroom. No reproduction or further distribution permitted without the prior written consent of McGraw-Hill Education.
Copyright © McGraw-Hill Education. Permission required for reproduction or display.
Chapter 6 discusses that once a company has settled on which of the five generic competitive strategies to employ, attention turns to what other strategic actions it can take to complement its competitive approach and maximize the power of its overall strategy.
© McGraw-Hill Education
6–1
Learning Objectives
This chapter will help you understand:
How and when to deploy offensive or defensive strategic moves.
When being a first mover, a fast follower, or a late mover is most advantageous.
The strategic benefits and risks of expanding a firm’s horizontal scope through mergers and acquisitions.
The advantages and disadvantages of extending the company’s scope of operations via vertical integration.
The conditions that favor outsourcing certain value chain activities to outside parties.
How to capture the benefits and minimize the drawbacks of strategic alliances and partnerships.
© McGraw-Hill Education.
The chapter presents the pros and cons of taking strategy-enhancing measures to strengthen a company’s competitive position.
© McGraw-Hill Education
6–2
Maximizing the Power of a Strategy
Making choices that complement a competitive approach and maximize the power of strategy
Offensive and defensive competitive actions
Competitive dynamics and the timing of strategic moves
Scope of operations along the industry’s value chain
© McGraw-Hill Education.
To maximize the power of a strategy, a company must make choices about its competitive actions, how and when to take those actions, and increasing or decreasing the scope of its operations.
© McGraw-Hill Education
6–3
Considering Strategy-Enhancing Measures
Whether and when to go on the offensive strategically
Whether and when to employ defensive strategies
When to undertake strategic moves—first mover, a fast follower, or a late mover
Whether to merge with or acquire another firm
Whether to integrate backward or forward into more stages of the industry’s activity chain
Which value chain activities, if any, should be outsourced
Whether to enter into strategic alliances or partnership arrangements
© McGraw-Hill Education.
Whether to go on the offensive and initiate aggressive strategic moves to improve the company’s market position
Whether to employ defensive strategies to protect the company’s market position
When to undertake new strategic initiatives—whether advantage or disadvantage lies in being a first mover, a fast follower, or a late mover
Whether to bolster the company’s market position by merging with or acquiring another company in the same industry
Whether to integrate backward or forward into more stages of the industry value chain system
Which value chain activities, if any, should be outsourced
Whether to enter into strategic alliances or partnership arrangements
© McGraw-Hill Education
6–4
Launching Strategic Offensives to Improve a Company’s Market Position
Strategic offensive principles
Focusing relentlessly on building competitive advantage and then striving to convert it into sustainable advantage
Applying resources where rivals are least able to defend themselves
Employing the element of surprise as opposed to doing what rivals expect and are prepared for
Displaying a capacity for swift, decisive, and overwhelming actions to overpower rivals
© McGraw-Hill Education.
Sometimes a company’s best strategic option is to seize the initiative, go on the attack, and launch a strategic offensive to improve its market position. No matter which of the five generic competitive strategies a firm employs, there are times when a company should go on the offensive to improve its market position and performance.
© McGraw-Hill Education
6–5
Choosing the Basis For Competitive Attack
Avoid directly challenging a targeted competitor where it is strongest.
Use the firm’s strongest strategic assets to attack a competitor’s weaknesses.
The offensive may not yield immediate results if market rivals are strong competitors.
Be prepared for the threatened competitor’s counter-response.
© McGraw-Hill Education.
The best offensives use a company’s most powerful resources and capabilities to attack rivals in the areas where they are competitively weakest. Strategic offensives 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 rival’s competitive advantage.
© McGraw-Hill Education
6–6
Principal Offensive Strategy Options
Offering an equally good or better product at a lower price
Leapfrogging competitors by being first to market with next-generation products
Pursuing continuous product innovation to draw sales and market share away from less innovative rivals
Pursuing disruptive product innovations to create new markets
Adopting and improving on the good ideas of other companies (rivals or otherwise)
Using hit-and-run or guerrilla marketing tactics to grab market share from complacent or distracted rivals
Launching a preemptive strike to secure an industry’s limited resources or capture a rare opportunity
© McGraw-Hill Education.
How long it takes for an offensive move to improve a company’s market standing—and whether the move will prove successful—depends in part on whether market rivals recognize the threat and begin a counter-response. Whether rivals will respond depends on whether they are capable of making an effective response and if they believe that a counterattack is worth the expense and the distraction.
© McGraw-Hill Education
6–7
Choosing Which Rivals to Attack
Best Targets for Offensive Attacks
Market leaders that are in vulnerable competitive positions
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
© McGraw-Hill Education.
Offensive-minded firms need to analyze which of their rivals to challenge as well as how to mount the challenge.
© McGraw-Hill Education
6–8
Blue-Ocean Strategy—A Special Kind of Offensive
The business universe is divided into:
An existing market with boundaries and rules in which rival firms compete for advantage.
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.
© McGraw-Hill Education.
A blue-ocean strategy offers growth in revenues and profits by discovering or inventing new industry segments that create altogether new demand. The “blue ocean” represents wide-open opportunity, offering smooth sailing in uncontested waters for the company first to venture out upon it.
© McGraw-Hill Education
6–9
Bonobos’s Blue-Ocean Strategy in the U.S. Men’s Fashion Retail Industry
Given the rapidity with which most first-mover advantages based on Internet technologies can be overcome by competitors, what has Bonobos done to retain its competitive advantage?
Is Bonobos’s unique focused-differentiation entry into brick-and-mortar retailing a sufficiently strong strategic move?
What would you predict is the likelihood of long-term success for Bonobos in the retail clothing sector?
© McGraw-Hill Education.
Blue-ocean strategies provide a company with a great opportunity in the short run. But they don’t guarantee a company’s long-term success, which depends more on whether a company can protect the market position it created and sustain its early advantage.
© McGraw-Hill Education
6–10
Defensive Strategies—Protecting Market Position and Competitive Advantage
Purposes of Defensive Strategies
Lower the firm’s risk of being attacked
Weaken the impact of an attack that does occur
Influence challengers to aim their efforts at other rivals
© McGraw-Hill Education.
In a competitive market, all firms are subject to offensive challenges from rivals. The purposes of defensive strategies are to lower the risk of being attacked, weaken the impact of any attack that occurs, and induce challengers to aim their efforts at other rivals. While defensive strategies usually don’t enhance a firm’s competitive advantage, they can help fortify the firm’s competitive position, protect its most valuable resources and capabilities from imitation, and defend whatever competitive advantage it has.
© McGraw-Hill Education
6–11
Forms of Defensive Strategies
Defensive strategies can take either of two forms:
Actions to block challengers.
Actions to signal the likelihood of strong retaliation.
© McGraw-Hill Education.
Good defensive strategies can help protect a competitive advantage but rarely are the basis for creating one. Defensive strategies can take either of two forms: actions to block challengers or actions to signal the likelihood of strong retaliation.
© McGraw-Hill Education
6–12
Blocking the Avenues Open to Challengers
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.
Offer support and special inducements to current customers to reduce the attractiveness of switching.
Challenge quality and safety of competitor’s products.
Grant discounts or better terms to intermediaries who handle the firm’s product line exclusively.
© McGraw-Hill Education.
There are many ways to throw obstacles in the path of would-be challengers. The most frequently employed approach to defending a company’s present position involves actions that restrict a challenger’s options for initiating a competitive attack.
© McGraw-Hill Education
6–13
Signaling Challengers That Retaliation Is Likely
Signaling is an effective defensive strategy when the 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.
Making a strong counter-response to the moves of weaker rivals to enhance its tough defender image.
© McGraw-Hill Education.
The goal of signaling challengers that strong retaliation is likely in the event of an attack is either to dissuade challengers from attacking at all or to divert them to less threatening options.
To be an effective defensive strategy, signaling needs to be accompanied by a credible commitment to follow through.
© McGraw-Hill Education
6–14
Timing a Company’s Strategic Moves
Timing’s importance:
Knowing when to make a strategic move is as crucial as knowing what move to make.
Moving first is no guarantee of success or competitive advantage.
The risks of moving first to stake out a monopoly position versus being a fast follower or even a late mover must be carefully weighed.
© McGraw-Hill Education.
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.
© McGraw-Hill Education
6–15
Conditions that Lead to First-Mover Advantages
When pioneering helps build a firm’s reputation and creates strong brand loyalty
When a first mover’s customers will thereafter face significant switching costs
When property rights protections thwart rapid imitation of the initial move
When an early lead enables movement down the learning curve ahead of rivals
When a first mover can set the industry’s technical standards
When strong network effects compel increasingly more consumers to choose the first mover’s product or service
© McGraw-Hill Education.
There are six conditions in which first-mover advantages are likely to arise.
© McGraw-Hill Education
6–16
Tinder Swipes Right for First-Mover Success
Which first-mover advantages contributed to Tinder’s gaining over a million monthly active users in less than a year?
How long can Tinder protect its first-mover advantages?
How has Tinder monetized its success while its rivals are having to play catch-up?
© McGraw-Hill Education.
Illustration Capsule 6.2 describes how Tinder’s fast start had much to do with its ease of use, no questionnaires and fun game-like addictive aspects. Tinder targeted college campuses using viral marketing techniques to quickly gain acceptance among social circles, where “key influencers” boosted its popularity to a critical mass.
Its sustained success has enabled Tinder to reap a substantial first-mover advantage as the first major entrant into the field of mobile dating.
And while other apps have been trying to play catch-up, Tinder has been introducing new subscription products and other paid features to turn its market share advantage into a profitability advantage.
© McGraw-Hill Education
6–17
The Potential for Late-Mover Advantages or First-Mover Disadvantages
When pioneering is more costly than imitating and offers negligible experience or learning-curve benefits
When the products of an innovator are somewhat primitive and do not live up to buyer expectations
When rapid market evolution allows fast followers to leapfrog first- mover products with more attractive next-version products
When market uncertainties make it difficult to ascertain what will eventually succeed
When customer loyalty is low and first mover’s skills, know-how, and actions are easily copied or surpassed
When the first mover must make a risky investment in complementary assets or infrastructure (and these are available at low cost or risk by followers)
© McGraw-Hill Education.
In some instances there are advantages to being an adept follower rather than a first mover. Late-mover advantages (or first-mover disadvantages) arise in the five instances listed on this slide.
© McGraw-Hill Education
6–18
To Be a First Mover or Not
Does market takeoff depend on complementary products or services that currently are 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?
Are there influential competitors in a position to delay or derail the efforts of a first mover?
© McGraw-Hill Education.
In weighing the pros and cons of being a first mover, a fast follower, or a late mover, it matters whether the race to market leadership in a particular industry is a marathon or a sprint. First-mover advantages can be fleeting, and there’s ample time for fast followers and sometimes even late movers to catch up.
© McGraw-Hill Education
6–19
Strengthening a Firm’s Market Position via Its Scope of Operations
Defining the Scope of the Firm’s Operations
Range of its activities performed internally
Breadth of its product and service offerings
Extent of its geographic market presence and its mix of business
Size of its competitive footprint on its market or industry
© McGraw-Hill Education.
The scope of the firm refers to the range of activities that the firm performs internally, the breadth of its product and service offerings, the extent of its geographic market presence, and its mix of businesses.
Scope issues are at the very heart of corporate-level strategy.
Horizontal scope is the range of product and service segments that a firm serves within its focal market.
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.
© McGraw-Hill Education
6–20
Horizontal Merger and Acquisition Strategies
Merger:
Is the combining of two or more firms into a single corporate entity that often takes on a new name.
Acquisition:
Is a combination in which one firm, the “acquirer,” purchases and absorbs the operations of another firm, the “acquired.”
© McGraw-Hill Education.
Mergers and acquisitions are much-used strategic options to strengthen a company’s market position. A merger is the combining of two or more companies into a single corporate entity, with the newly created company often taking on a new name. An acquisition is a combination in which one company, the acquirer, purchases and absorbs the operations of another, the acquired.
© McGraw-Hill Education
6–21
Strategic Objectives for Horizontal Mergers and Acquisitions
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
© McGraw-Hill Education.
Merger and acquisition strategies typically set the company’s sights on achieving any of five objectives.
© McGraw-Hill Education
6–22
Walmart’s Expansion into E-commerce via Horizontal Acquisition
Which strategic transformation outcomes did Walmart expect to gain through its acquisition strategy?
Why did Walmart choose to pursue an acquisition strategy that was ahead of its brick and mortar competitors?
How will increasing the horizontal scope of Walmart through acquisitions strengthen its competitive position and profitability?
© McGraw-Hill Education.
Illustration Capsule 6.3 describes how Walmart developed its horizontal acquisition strategy to continue its growth as an omni-channel retailer (i.e. bricks and mortar, online, or mobile).
© McGraw-Hill Education
6–23
Why Mergers and Acquisitions Sometimes Fail to Produce Anticipated Results
Strategic issues
Cost savings may prove smaller than expected.
Gains in competitive capabilities take longer to realize or never materialize at all.
Organizational issues
Cultures, operating systems and management styles fail to mesh due to resistance to change from organization members.
Key employees at the acquired firm are lost.
Managers overseeing integration make mistakes in melding the acquired firm into their own.
© McGraw-Hill Education.
Despite many successes, mergers and acquisitions do not always produce the hoped-for competitive and financial outcomes.
© McGraw-Hill Education
6–24
Vertical Integration Strategies
Vertically integrated firm
One that participates in multiple segments or stages of an industry’s overall value chain
Vertical integration strategy
Can expand the firm’s range of activities backward into its sources of supply or forward toward end users of its products
© McGraw-Hill Education.
A vertically integrated firm is one that performs value chain activities along more than one stage of an industry’s value chain system.
© McGraw-Hill Education
6–25
Types of Vertical Integration Strategies
Full integration
A firm participates in all stages of the vertical activity chain.
Partial integration
A firm builds positions only in selected stages of the vertical chain.
Tapered integration
A firm uses a mix of in-house and outsourced activity in any stage of the vertical chain.
© McGraw-Hill Education.
Vertical integration strategies can aim at full integration (participating in all stages of the vertical chain) or partial integration (building positions in selected stages of the vertical chain). Firms can also engage in tapered integration strategies, which involve a mix of in-house and outsourced activity in any given stage of the vertical chain.
© McGraw-Hill Education
6–26
The Advantages of a Vertical Integration Strategy
Potential Benefits of Vertical Integration
Add materially to a firm’s technological capabilities
Strengthen the firm’s competitive position
Boost the firm’s profitability
© McGraw-Hill Education.
Under the right conditions, a vertical integration strategy can add materially to a company’s technological capabilities, strengthen the firm’s competitive position, and boost its profitability.
But it is important to keep in mind that vertical integration has no real payoff strategy-wise or profit-wise unless the extra investment can be justified by compensating improvements in company costs, differentiation, or competitive strength.
© McGraw-Hill Education
6–27
Integrating Backward to Achieve Greater Competitiveness
Integrating backward by:
Achieving same scale economies as outside suppliers: low-cost based competitive advantage
Matching or beating suppliers’ production efficiency with no drop-off in quality: differentiation-based competitive advantage
Reasons for integrating backwards
Reduction of supplier power
Reduction in costs of major inputs
Assurance of the supply and flow of critical inputs
Protection of proprietary know-how
© McGraw-Hill Education.
Backward integration involves entry into activities previously performed by suppliers or other enterprises positioned along earlier stages of the industry value chain system.
© McGraw-Hill Education
6–28
Integrating Forward to Enhance Competitiveness
Reasons for integrating forward:
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
© McGraw-Hill Education.
Forward integration involves entry into value chain system activities closer to the end user.
© McGraw-Hill Education
6–29
Disadvantages of a Vertical Integration Strategy
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
Efficient production of internally-produced components and parts hampered by capacity matching problems
New or different resources and capabilities requirements
© McGraw-Hill Education.
Vertical integration has some substantial drawbacks beyond the potential for channel conflict. The most serious drawbacks to vertical integration are listed on this slide.
© McGraw-Hill Education
6–30
Weighing the Pros and Cons of Vertical Integration
Will vertical integration enhance the performance of strategy-critical activities in ways that lower cost, build expertise, protect proprietary know-how, or increase differentiation?
What impact will vertical integration have on investment costs, flexibility, and response times?
What administrative costs are incurred by coordinating operations across more vertical chain activities?
How difficult will it be for the firm to acquire the set of skills and capabilities needed to operate in another stage of the vertical chain?
© McGraw-Hill Education.
Vertical integration strategies have merit according to which capabilities and value-adding activities truly need to be performed in-house and which can be performed better or cheaper by outsiders.
Absent solid benefits, integrating forward or backward is not likely to be an attractive strategy option.
© McGraw-Hill Education
6–31
Tesla’s Vertical Integration Strategy
What are the most important strategic benefits that Tesla derives from its vertical integration strategy?
Over the long term, how could the vertical scope of Tesla’s operations threaten its competitive position and profitability?
Why is a vertical integration strategy more appropriate in some industries than in others?
© McGraw-Hill Education.
ILLUSTRATION CAPSULE 6.4 discusses that, unlike many vehicle manufacturers, Tesla embraces vertical integration from component manufacturing all the way through vehicle sales and servicing. Most of the company’s $11.8 billion in 2017 revenue came from electric vehicle sales and leasing, with the remainder coming from servicing those vehicles and selling residential battery packs and solar energy systems.
© McGraw-Hill Education
6–32
Outsourcing Strategies: Narrowing the Scope of Operations
Outsource an activity if it:
Can be performed better or more cheaply by outside specialists.
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 concentration on core businesses, leverages key resources, and is more successful outsourced.
© McGraw-Hill Education.
Outsourcing involves contracting out certain value chain activities that are normally performed in-house to outside vendors. The conditions that favor farming out certain value chain activities to outside parties are listed on this slide.
© McGraw-Hill Education
6–33
The Risk of Outsourcing Value Chain Activities
Hollowing out resources and capabilities that the firm needs to be a master of its own destiny
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
© McGraw-Hill Education.
A company must guard against outsourcing activities that hollow out the resources and capabilities, lead to loss of control of key activities, and discourage investment in the company.
© McGraw-Hill Education
6–34
Strategic Alliances and Partnerships
Strategic Alliance
A formal agreement between two or more separate companies in which they agree to work cooperatively toward some common objective
Joint Venture
A partnership involving the establishment of an independent corporate entity that the partners own and control jointly, sharing in its revenues and expenses
© McGraw-Hill Education.
Strategic alliances and cooperative partnerships provide a way to gain benefits offered by vertical integration, outsourcing, and horizontal mergers and acquisitions, while minimizing the associated problems.
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.
If a strategic alliance is not working out, a partner can choose at any time to simply walk away or reduce its commitment to collaborating.
© McGraw-Hill Education
6–35
Factors that Make an Alliance “Strategic”
A strategic alliance:
Facilitates achievement of an important business objective.
Helps build, sustain, or enhance a core competence or competitive advantage.
Helps remedy an important resource deficiency or competitive weakness.
Helps defend against a competitive threat or mitigates a significant risk to a company’s business.
Increases the bargaining power over suppliers or buyers.
Helps create important new market opportunities.
Speeds development of new technologies or product innovations.
© McGraw-Hill Education.
An alliance becomes “strategic,” as opposed to just a convenient business arrangement, when it serves any of the purposes listed in the slide.
© McGraw-Hill Education
6–36
Benefits of Strategic Alliances and Partnerships
Minimize the problems associated with vertical integration, outsourcing, and mergers and acquisitions
Are useful in extending the scope of operations via international expansion and diversification strategies
Reduce the need to be independent and self-sufficient when strengthening the firm’s competitive position
Offer greater flexibility should a firm’s resource requirements or goals change over time
Are useful when industries are experiencing high-velocity technological advances simultaneously
© McGraw-Hill Education.
The best alliances are highly selective, focusing on particular value chain activities and on obtaining a specific competitive benefit. They enable a firm to build on its strengths and to learn.
© McGraw-Hill Education
6–37
Why and How Strategic Alliances Are Advantageous
Strategic Alliances:
Expedite development of promising new technologies or products.
Help overcome deficits in technical and manufacturing expertise.
Bring together the personnel and expertise needed to create new skill sets and capabilities.
Improve supply chain efficiency.
Help partners allocate venture risk sharing.
Allow firms to gain economies of scale.
Provide new market access for partners.
© McGraw-Hill Education.
Companies that have formed a host of alliances need to manage their alliances like a portfolio.
© McGraw-Hill Education
6–38
Capturing the Benefits of Strategic Alliances
Strategic Alliance Factors
Being sensitive to cultural differences
Recognizing that the alliance must benefit both sides
Picking a good partner
Ensuring both parties keep their commitments
Adjusting the agreement over time to fit new circumstances
Structuring the decision-making process for swift actions
© McGraw-Hill Education.
The best alliances are highly selective, focusing on particular value chain activities and on obtaining a specific competitive benefit. Alliances enable a firm to learn and to build on its strengths.
© McGraw-Hill Education
6–39
Achieving Long-Lasting Strategic Alliance Relationships
Factors Influencing the Longevity of Alliances
Collaborating with partners that do not compete directly
Establishing a permanent trusting relationship
Continuing to collaborate is in the parties’ mutual interest
© McGraw-Hill Education.
Alliances are more likely to be long-lasting when (1) they involve collaboration with partners that do not compete directly, such as suppliers or distribution allies; (2) a trusting relationship has been established; and (3) both parties conclude that continued collaboration is in their mutual interest, perhaps because new opportunities for learning are emerging.
© McGraw-Hill Education
6–40
The Drawbacks of Strategic Alliances and Their Relative Advantages
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
© McGraw-Hill Education.
While strategic alliances provide a way of obtaining the benefits of vertical integration, mergers and acquisitions, and outsourcing, they also suffer from some of the same drawbacks.
© McGraw-Hill Education
6–41
Principal Advantages of Strategic Alliances over Vertical Integration or Horizontal Mergers And Acquisitions
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 a more adaptive response to changing conditions.
They are more rapidly deployed—a critical factor when speed is of the essence.
© McGraw-Hill Education.
While the track record for strategic alliances is poor on average, many companies have learned how to manage strategic alliances successfully and routinely defy this average.
Companies that have greater success in managing their strategic alliances and partnerships often credit these factors.
© McGraw-Hill Education
6–42
How to Make Strategic Alliances Work
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.
© McGraw-Hill Education.
A successful alliance requires real in-the-trenches collaboration, not merely an arm’s-length exchange of ideas. Unless partners place a high value on the contribution each brings to the alliance and the cooperative arrangement results in valuable win–win outcomes, it is doomed to fail.
© McGraw-Hill Education
6–43
Concepts and Cases
22e
Thompson
Peteraf
Gamble
Strickland
The Quest for Competit ive Advantage
STRATEGY Crafting & Executing
"Looking for a Similar Assignment? Get Expert Help at an Amazing Discount!"
