Offensive and Defensive Strategies
There are several ways an organisation can deal with competitive threats and develop strategies to deal with them. These strategies complement their competitive approach depending on which of the 5 core competitive strategies they have chosen. The first decision is whether to take an offensive or defensive strategy and how this will be timed. Thompson et al. (2022, p. 157)[^1] lists the following measures for an organisation to consider:
- 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 with other enterprises.
Offensive strategies will have a greater prospect of success when you attack a competitor’s weaknesses as opposed to its strengths (Thompson et al. 2022)^1. They go on to say that when attacking a competitor’s weakness it should utilise the organisation’s strongest and most competitive assets in doing so.
Organisations can select from a number of options for an offensive strategy including (Thompson et al. 2022, p. 182)^1:
- using a cost based advantage to challenge a competitor on price or value;
- being innovative and continuously improving product with next generation technology;
- using innovation and technology to create blue ocean markets with new products;
- using the ideas of competitors but in an improved manner to create more value;
- hit and run offensive with a drop in prices or special promotions to attract new customers;
- pre-emptive strike where the organisation takes speedy advantage of situations such as acquiring competitors at reduced market cost, gain exclusive products, favourable supplier negotiations and exclusive distributorships.
Organisations should also be alert to offensive strategies from competitors and put defensive strategies in place. These could include by creating impediments blocking challenges from deploying an offensive strategy. An alternative is sending clear signals to competitors that any challenge to the organisation’s market will be met with retaliation.
Horizontal Merger and Acquisition Strategies
Horizontal mergers and acquisitions involve the joining of two organisations operating in the same product market. Mergers and acquisitions are a long used strategy to strengthen an organisation’s position in a market and provide access to greater resources. A merger is deemed to be a combining of two organisations into a new one, often with a new name. An acquisition on the other hand is the absorption of an organisation into an existing one where rationalisation may create advantage.
Thompson et al. (2022 pp. 168-169)^1 contend that organisation use mergers and acquisitions for:
- Creating more cost-efficient operations through combination;
- Expanding an organisation’s geographical reach;
- Extending an organisation’s product lines to fill gaps in its own range;
- Gaining rapid access to new technologies, resources or capabilities;
- Leading convergence of industries whose boundaries are being blurred as a result of changing technology and new market opportunities.
Capron (2013)[^2] and Leavy (2013)[^3] discuss how organisations can use the build-borrow-buy framework that is also known as the resource pathways framework so they may grow, diversify and gain access to resources and capabilities:
Build: the organisation develops the needed resources and capabilities in-house using innovation;
Borrow: obtain access to resources and capabilities by means of contracts, joint ventures and strategic alliances;
Buy: gain access to the required resources and capabilities via merger or acquisition.
Although there can be many advantages of mergers and acquisitions, there can be problems. Cost benefits may not materialise to the levels expected, differing cultures may clash, due diligence when acquisition was being considered may have missed something. Boyd (2021)[^4] suggests failure is often caused because of the size of the deals and that the acquiring organisation is moving outside its core business. Additionally, he says that the rate of failure on a cross border basis had a higher risk of failure for cultural reasons, different operating environment and regulations and also customer requirements.
Vertical Integration Strategies
Vertical integration refers to the protection of the organisation’s value chain from supply through to sales (Thompson et al. 2022)^1. The main reason relating to vertical integration is the protection of the organisation’s competitive position. It does this by having much greater control over costs and also supplies. Supply sources qualify as backward integration whereas distribution and points of sale are forward integration.
According to Thompson et al. (2022), vertical integration tends to work more effectively when there is minimal complexity in the value chain.
Outsourcing
Outsourcing strategy is the opposite of vertical integration where elements of the value chain are outsourced to other organisations. Outsourcing has become more prominent with globalisation but proved to threaten supply chains during Covid. Most computer and phone manufacturers outsource their parts, many organisations outsource payroll and bookkeeping services, call centres for customer service and transport are also common. Dinu (2015)[^5] considers that the main factors leading to a trend of outsourcing are:
- lower operational and labor costs are among the main reasons why firms decide on outsourcing;
- lack of employees that are specialized in some parts of the business process;
- accessibility to cheaper labor, without comprising the quality;
- ability and possibility to concentrate on the other profitable business process;
- share risks with a partner company;
- by delegating responsibilities to external agencies companies can wash their hands of functions that are difficult to manage and control while still realizing their benefits.
Thompson et al. (2022, p. 176) consider that it makes sense to outsource when:
- An activitiy can be performed better or cheaper by outside specialists;
- The activity is not critical to the firm maintaining or achieving sustainable competitive advantage;
- The outsourcing improves organisational flexibility and speeds up the time to market;
- It reduces the organisation’s risk exposure to changing technology and buyer preferences.
They add that there are risks in outsourcing because:
- The organisation may outsource the wrong activities and impact adversely on its own abilities;
- It can result in a loss of control in areas of supply, quality and possibly costs.
Strategic Alliances
Strategic alliances are where two or more organisations work together in a co-operative manner for the benefit of the alliance members. Thompson et al. (2022, p. 217) considers that there are several common reasons why organisations would enter strategic alliances:
- collaborate on technology or product development;
- balance deficiencies in technical and manufacturing expertise;
- gain new competencies;
- improve the supply chain;
- gain economies in production and/or marketing;
- boost distribution effectiveness (market access), and
- improving bargaining power over buyers or suppliers.
These arrangements can be useful when organisations are looking to expand their markets into different areas and it can identify organisations there with specific expertise in that market that will benefit all parties. As discussed by Serrat (2017), many strategic alliances are driven by a keenness to learn to promote success and for the mutual benefit of all parties. Serrat (2017, p. 639)[^6] contends “Successful strategic alliances manage the partnership, not just the agreement, for collaborative advantage. Above all, they also pay attention to learning priorities in alliance evolution”
Summary
This module has considered offensive and defensive strategies an organisation may deploy to protect their competitive advantage. In addition, the concepts of horizontal and vertical integration were examined, as were the benefits of outsourcing, mergers and acquisitions and strategic alliances. The module also examined the impact Covid has had on many organisations and how they have responded, particularly their inability to take advantage of various integration strategies.
References
[^1]: Thompson, A, Peteraf, M, Gamble, J & Strickland, A 2022, Crafting and executing strategy: The quest for competitive advantage, concepts and cases, 23rd edn, McGraw-Hill, New York.
[^2]: Capron, L 2013, ‘Cisco’s corporate development portfolio: a blend of building, borrowing and buying’, Strategy & Leadership, vol. 41, no. 2, pp. 27–30.
[^3]: Leavy, B 2013, ‘Laurence Capron analyzes corporate development’s build, borrow and buy options’, Strategy & Leadership, vol. 41, no. 2, pp. 18–26.
[^4]: Boyd, T 2021, Why most M&A deals fail, Australian Financial Review, viewed 24 May 2023, <https://www.afr.com/chanticleer/why-most-m-and-a-deals-fail-20210721-p58bpf>.
[^5]: Dinu, A-M 2015, ‘The Risks and Benefits of Outsourcing’, Knowledge Horizons. Economics, vol. 7, no. 2, pp. 103–104.
[^6]: Serrat, O 2017, ‘Learning in Strategic Alliances’, in Knowledge Solutions, pp. 639–647.
