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Companies sometimes use

strategic alliances or

collaborative partnerships to

complement their own strategicinitiatives and strengthen their

competitiveness. Such

cooperative strategies go beyond

normal company-to-company

dealings but fall short of merger

or full joint venture partnership.

Collaborative Strategies:Alliances and Partnerships



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Characteristics of a Strategic Alliance

Strategic alliance – A formal agreement between two ormore separate companies where there is Strategically relevant collaboration of some sort

Joint contribution of resources

Shared risk

Shared control

Mutual dependence

Alliances often involve Joint marketing

Joint sales or distribution Joint production

Design collaboration

Joint research

Projects to jointly develop new technologies or products



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To collaborate on technology development or newproduct development

To fill gaps in technical or manufacturing expertise

To create new skill sets and capabilities

To improve supply chain efficiency

To gain economies of scale inproduction and/or marketing

To acquire or improve market access

via joint marketing agreements

Why Are Strategic Alliances Formed?



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Capturing the Benefitsof Strategic Alliances

Benefits from forming partnerships are a function of Picking a good partner

Being sensitive to cultural differences

Recognizing an alliancemust benefit both parties

Ensuring both parties liveup to their commitments

Structuring the decision-making processso actions can be taken swiftly when needed

Managing the learning process and then adjusting thealliance agreement over time to fit new circumstances


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Why Alliances Fail

Ability of an alliance to endure depends on How well partners work together

Success of partners in respondingand adapting to changing conditions

Willingness of partners torenegotiate the bargain

Reasons for alliance failure

Diverging objectives and priorities of partners

Inability of partners to work well together

Changing conditions rendering purpose of alliance obsolete

Emergence of more attractive technological paths

Marketplace rivalry between one or more allies



Merger – Combination and pooling of equals, withnewly created firm often taking on a new name

Acquisition – One firm, the acquirer, purchases

and absorbs operations of another, the acquiredMerger-acquisition strategy

Much-used strategic option

Especially suited for situations wherealliances do not provide a firm with neededcapabilities or cost-reducing opportunities

Ownership allows for tightly integrated operations,

creating more control and autonomy than alliances

Merger and Acquisition Strategies



Combining operations may result in

Resistance from rank-and-file employees

Hard-to-resolve conflicts in management styles and

corporate cultures

Tough problems of integration

Greater-than-anticipated difficulties in

Achieving expected cost-savings

Sharing of expertise

Achieving enhanced competitive capabilities

Pitfalls of Mergers and Acquisitions



Vertical Integration Strategies

Extend a firm’s competitive scope withinsame industry

Backward into sources of supply

Forward toward end-users of final product

Can aim at either full or partial integration

InternallyPerformedActivities,Costs, &Margins

Activities,Costs, &

Margins ofSuppliers

Buyer/UserValue

Chains

Activities, Costs,& Margins of

Forward ChannelAllies &

Strategic Partners



Strategic Advantagesof Backward Integration

Generates cost savings only if volume needed isbig enough to capture efficiencies of suppliers

Potential to reduce costs exists when

Suppliers have sizable profit margins

Item supplied is a major cost component

Resource requirements are easily met

Can produce a differentiation-based competitiveadvantage when it results in a better quality part

Reduces risk of depending on suppliers of crucial

raw materials / parts / components



Strategic Advantagesof Forward Integration

To gain better access to end usersand better market visibility

To compensate for undependable distributionchannels which undermine steady operations

To offset the lack of a broad product line, a firmmay sell directly to end users

To bypass regular distribution channels in favor of

direct sales and Internet retailing which may

Lower distribution costs

Produce a relative cost advantage over rivals

Enable lower selling prices to end users



Strategic Disadvantagesof Vertical Integration

Boosts resource requirements

Locks firm deeper into same industry

Results in fixed sources of supply and

less flexibility in accommodating buyerdemands for product variety

Poses all types of capacity-matching problems

May require radically different skills / capabilities

Reduces flexibility to make changes in componentparts which may lengthen design time and ability tointroduce new products



Outsourcing Strategies

Outsourcing involves withdrawing fromcertain value chain activities and relying

on outsiders to supply needed products,support services, or functional activities

Concept

InternallyPerformedActivities

Suppliers

SupportServices

Functional

Activities

Distributorsor Retailers



Activity can be performed better ormore cheaply by outside specialists

Activity is not crucial to achieve asustainable competitive advantage

Risk exposure to changing technology and/orchanging buyer preferences is reduced

It improves firm’s ability to innovate

Operations are streamlined to Improve flexibility

Cut time to get new products into the market It increases firm’s ability to assemble diverse kinds of

expertise speedily and efficiently

Firm can concentrate on “core” value chain activities that

best suit its resource strengths

When Does OutsourcingMake Strategic Sense?



Farming out too many or the wrong activities, thus

Hollowing out capabilities

Losing touch with activities and expertise thatdetermine overall long-term success

Risk of an Outsourcing Strategy



Offensive and Defensive Strategies

Used to build new or stronger market

position and/or create competitive advantage

Used to protect competitive advantage

(rarely lead to creatingadvantage)

Offensive Strategies Defensive Strategies



What Is a Blue Ocean Strategy?

Seeks to gain a dramatic, durablecompetitive advantage by

Abandoning efforts to beat out competitors in existing markets and

Inventing a new industry or distinctive market segment to render existingcompetitors largely irrelevant and

Allowing a company to create andcapture altogether new demand



Type of Markets: Blue Ocean Strategy

Typical Market Space

Industry boundaries aredefined and accepted

Competitive rules are wellunderstood by all rivals

Companies try to outperformrivals by capturing a biggershare of existing demand

Blue Ocean Market Space

Industry does not exist yet

Industry is untainted bycompetition

Industry offers wide-openopportunities if a firm has aproduct and strategy allowingit to

Create new demand and

Avoid fighting over existingdemand



Choosing Rivals to Attack

Four types of firms can be the target of a freshoffensive

Vulnerable market leaders

Runner-up firms with weaknesseswhere challenger is strong

Struggling rivals onverge of going under

Small local or regionalfirms with limited capabilities



Publicly announce management’s strong

commitment to maintain present market share

Publicly commit firm to policy ofmatching rivals’ terms or prices

Maintain war chest of cash reserves

Make occasional counter-responseto moves of weaker rivals

Signal Challengers Retaliation Is Likely



Involves strategic choices about how functional areas are managed to support competitive strategy and other strategic moves

Functional strategies include

Research and development

Production

Human resources

Sales and marketing Finance

Tailoring functional-area strategies to

support key business-level strategies is critical!

Choosing AppropriateFunctional-Area Strategies



When to make a strategic move is often as crucialas what move to make

First-mover advantages arise when

Pioneering helps build firm’s image and reputation

Early commitments to new technologies,new-style components, and distribution

channels can produce cost advantage

Loyalty of first time buyers is high

Moving first can be a preemptive strike

First-Mover Advantages



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First-Mover Disadvantages

Moving early can be a disadvantage (or fail toproduce an advantage) when

When costs of pioneering are more than being animitative follower and only negligible learning/experiencecurve benefits accrue to the leader

Innovator’s products are primitive, not living up to buyer

expectations

Demand side of the market is skeptical about thebenefits of new technology/product of a first-mover

Rapid technological change allows followers to leapfrogpioneers



Strategic Issues:To Be a First-Mover or Not

Key issue – Is the race to market leadership in anindustry a marathon or a sprint?

Seeking a competitive advantage by being a first-mover involves addressing several questions

Does market takeoff depend on development ofcomplementary products or services not currently available?

Is new infrastructure required before buyer demand cansurge?

Will buyers need to learn new skills or adopt new behaviors?

Will buyers encounter high switching costs?

Are there influential competitors in a positionto delay or derail the efforts of a first-mover?

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