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quality Improved scheduling Reasons against vertical integration Cost disadvantages Technological change Demand uncertainty Strategic managers need to consider the trade-off between value creation and the costs associated in this process Vertical integration strategies (cont’d) The viability of vertical integration as a strategic option depends on its Ability to lower cost, build expertise, increase differentiation, or enhance performance of strategy-critical activities Impact on investment cost, flexibility, and administrative overhead Contribution to enhancing a firm’s competitiveness Many companies are finding thatde-integrating value chain activities is amore flexible and economic strategic option! Outsourcing strategiesOutsourcing involves withdrawing from certain value chain activities and relying on outsiders to supply needed products, support services, or functional activities Activities can be performed better or more efficiently by outside specialists Activity is not crucial to achieving a sustainable competitive advantage Activity is not a core competency Risk exposure to changing technology and/or changing buyer preferences is reduced Firm can concentrate on “core” value chain activities that best suit its resource strengths Strategic advantages of outsourcing Obtain high quality and cheaper components or services Innovate by interacting with “best-practice” suppliers Enhances firm’s flexibility Acquire diverse kinds of expertise speedily and efficiently Firms can concentrate their resources on performing those activities internally which they can perform better than outsiders Offensive and defensive strategies Offensive Strategies Used to build a new or stronger market position and/or create a competitive advantage Defensive Strategies Used to protect a competitive advantage (rarely used to create advantage) Types of offensive strategies 1. Initiatives to match or exceed competitor strengths 2. Initiatives to capitalize on competitor weaknesses 3. Simultaneous initiatives on many fronts - price cuts, increased advertising, additional performance features 4. End-run offensives - capture unoccupied or less contested markets, change rules of competition etc. 5. Guerrilla offensives - use principles of surprise and hit-and-run (suitable for small challengers) 6. Preemptive strikes - moving first to secure anadvantageous position Using offensive strategy to achieve competitive advantage A firm’s strategic offensives should be tied to what it does best such as An important core competence A unique competitive capability Much-improved performance features An innovative new product Technological superiority A cost advantage in manufacturing or distribution Some type of differentiation advantage Defensive strategy Objectives Lessen risk of being attacked Weaken the impact of any attack that occurs Influence challengers to aim attacks at other rivals Approaches Block avenues open to challengers Signal challengers that vigorous retaliation is likely Strategies for using the internet Use company web site solely to disseminate product information as a minor distribution channel for making sales as one of several important distribution channels for generating sales to end users as primary distribution channel for accessing buyers and making sales as the exclusive channel for accessing customers Using the internet to disseminate p