• Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets
• the core strategy that the firm forms to describe how it intends to compete in a product market

1-effectively managing relationships with customers

2-reach, richness, affiliation

3-who: determining the customer to serve

4-what: determining which customer needs to satisfy

5-how: determining core competencies needed to satisfy customer needs

How do you effectively manage relationships with customers?

-deliver superior value

-strong interactive relationship is foundation

• Reach=access and connection to customers
• Richness=two-way flow of information between customers and firm
• Affiliation=facilitating useful interactions between customers

1-cost (are we lower priced than others?)

2-uniqueness (are we different?)

Broad Target

Narrow Target

1-cost leadership

2-differentiation

3-focused cost leadership

4-focused differentiation

5-integrated CL/Differentiation

• focus is on being low cost
• CA = the low cost leader (operates with margins greater than competitors)
• competitive scope - broad
• reduce costs of value chain activities

• focus is on being unique
• CA - differentiation
• competitive scope - broad
• customized products

• CA - low cost
• competitive scope - narrow industry segment

• CA - differentiation
• Competitive scope - narrow industry segment

• efficiently product products with differentiated attributes
• adapts to new technology and rapid change in external environment

• computer controlled, produces variety of products at moderate rate, flexible quantities, minimal manual intervention
• goal: eliminate low-cost vs product variety tradeoff

Competitive Behavior

Competitor Analysis

• how to analyze competition
• the first step taken to predict the extent and nature of its rivalry with each competitor
• consists of:
• -market commonality
• -resource similarity

Market Commonality

• Number of markets firms compete in with each other
• Each industry comprised of various markets which can be divided into segments based on common traits

• extent to which firm's tangible/intangible resources are comparable to competitors in type and amount

1. awareness
2. motivation
3. ability

• prerequisite to any competitive action or response taken by a firm
• extent to which competitors recognize the degree of their mutual interdependence that results from commonality and resource similarity
• awareness is highest when firms have very similar resources
• extent to which firm understands the consequences of its competitive actions and responses

   

• firms incentive to take action or respond to competitor's attack
• firms are more likely to attach a rival with whom it compete has low market commonality

• firm's resources that allow competitive action and flexibility in responsiveness

1. first mover incentive
2. organizational size
3. quality

• firm that takes initial competitive action to build or defend is CA (competitive advantage) to improve its market position
• must have readily available sources
• has to spend a lot on research and development to make a successful first move
• agressive and willing to take risk or experiment
• liquid resources needed (slack)

• responds to first mover through imitation
• more cautious
• learns from mistakes of first mover

• moves into market after considerable time has passed
• has less risk and returns

• nimble and flexible
• relies on speed and surprise to defend competitive advantage
• has greater variety of competitive beahvior options available

• have greater slack (liquid resources)
• more likely to initiate competitive and strategic action
• rely on limited variety of competitive beahviors -- can reduce competitive success

• customer perception that the firm's goods or services perform in ways that are imporant to customers, meet or exceed expectations
• necessary but not a sufficient condition for competitive success
• quality affects competitive rivalry

single business diversification strategy

• corporate level strategy
• 95% of revenue from core business area

dominant business diversification strategy

• 70-95% revenue from core business 

related constrained diversity strategy

• >70% revenue from core business
• direct links between firms businesses

related linked diversity strategy

• >70% revenue from core business
• mixed links between business 

unrelated diversification strategy

• firms using this strategy are often called conglomerates
• >70% revenue from core business
• no relationship between businesses

1. value creating
2. value neutralizing
3. value reducing

• economies of scope
• operational relatedness = sharing activities between businesses
• corporate relatedness = transfer of core competency to businesses
• market power
• financial ecomies

• desire to match and neutralize competitor's market power

• greedy CEO buying to increase salary
• diversify managerial employment risk

• sharing activities between businesses
• gain economic scope
• share primary or seconday activities in value chain
• firms with closely related businesses have lower risk

• transfer of Core Competency to businesses
• value created by
• transfer of CC versus creating new ones
• resource intangibility - acquiring a company's intangible resources leads to gain of competitive advantage

• complex sets of resources and capabilities linking different businesses through managerial and technological knowledge, experience, and expertise

• antitrust regulation and tax laws - regulation
• low performance
• uncertain future cash flows
• synergy and firm risk reduction
• resource diversification

• intent: increase firm's strategic competitiveness and value
• can be used because of uncertainty in competitive landscape

two firms agree to integrte operations on relatively equal basis

one firm buys controlling interest in another firm with intent of making acquired firm a subsidiary of business within its portfolio

• special type of acquision strategy wherein target firm did not solicit acquiring firm's bid
• HOSTILE TAKEOVER - unfriendly takover that's unexpected and undesired by target firm

• increase market power (main reason)
• horizontal - acquisition of a firm in same industry
• vertical - acquision of a supplier or distributor
• related acquisions - acquiring a firm in related industry
• overcome entry barriers
• costly to develop new product and increase speed to market
• less risky than developing new product
• increase diversification
• reshape firm's competitive advantage
• learn and develop new capabilities

• integration difficulties (ex: integrating culture)
• inadequate evaluation of target (ineffective due diligence--acquision overpriced)
• large debt (increased likelihood of bankruptcy)
• inability to achieve synergy
• too much diversification (leads to unrelated diversification -- too much risk)
• managers overly focused on acquisition
• too large (costs to manage large firm exceed beenfit of economies of scale obtained through acquisitions)

• interaction of two or more organizations/departments
• synergy is achieved by sharing resources across business in the merged firm