Intangible interrelationships among business units

Intangible interrelationships  lead   to   competitive   advantage through the transfer of skills among separate value chains. Through operating one business unit, a firm gains know-how that  allows it to improve the way another  generically   similar business   unit competes. The transference of skills can go in either direction— e.g., from existing business units   to   a new  

Competitor interrelationships among business units

Competitor  interrelationships  are   present  when   a firm actually or potentially competes with diversified rivals in more than one business unit. Any action taken against multipoint  competitors  must consider the entire range of jointly contested businesses. In addition, a firm’s competitive advantage vis-a-vis a m ultipoint  competitor  depends  in part on the interrelationships that both

The need for explicit horizontal strategy of the firm

Organizational structure in most firms works against achieving interrelationships. However, organizational impediments alone do not explain why related business units, proceeding  independently,  will rarely optimize the competitive position of the firm as a whole. Without a horizontal strategy, business units may well act in ways that reduce rather than enhance their ability to exploit

Formulating horizontal strategy of the firm

Formulating horizontal strategy involves a number  of analytical steps that flow from the framework described in Chapter 9: Identify all tangible The starting point in formulating horizontal  strategy is   to   identify   systematically   all   the tangible   interrelationships   that   are    actually    or   potentially    present among a firm’s business units. The first step in doing so is

Interrelationships and diversification strategy of the firm

Diversification based on interrelationships is the form of diversifi­ cation with the greatest  likelihood   of increasing competitive advantage in existing   industries   or   leading   to   sustainable  competitive   advan­ tage in new industries. Both tangible and intangible interrelationships have an im portant role in diversification strategy. Tangible interrela­ tionships should be the starting point for formulating 

Pitfalls in horizontal strategy of the firm

Although substantial competitive advantages can be gained from harnessing interrelationships, pitfalls exist in implementing horizontal strategy. The most serious pitfall is to ignore interrelationships  alto­ gether. Strategic planning  solely done by business units is not enough. At the same time, however, it can be an equally big mistake to assume that every relationship should

Impediments to achieving interrelationships among Firms

Achieving tangible interrelationships  requires a business unit to share activities in its value chain with other units while remaining  a separate entity that acts independently in other value activities and maintains profit responsibility. Similarly, achieving intangible interrela­ tionships requires the   transfer  of  know-how  among  business   units. The pursuit of interrelationships may  well lead to

Organizational mechanisms for achieving interrelationships among Firms

A purely vertical corporate  organizational  structure is insufficient to assure that beneficial interrelationships  will be recognized and achieved. The  impediments  to achieving interrelationships  not  only get in the way of interrelationships  at the working  level, but  also provide business unit  managers  with   a set of arguments  with   which to counter efforts by group or

Managing horizontal organization

Achieving interrelationships  is a function  of instituting   an   array of horizontal practices. As many companies have discovered, organiza­ tional structure alone is not sufficient. Merely grouping related busi-nesses together will not guarantee the exploitation of interrelationships. Structure must be reinforced by group and sector executives who un­ derstand their roles as horizontal strategists, as

Control over complementary products of the firm

In nearly every industry, products are used by the buyer in con­ junction with other  complementary  products.  Computers  are used with software packages  and programmers,  for example, and mobile homes are often used in mobile home parks— plots of land specially designed as permanent sites for mobile homes, complete with streets, electricity, and sewer

Bundling complementary products of the firm

Bundling is selling separable products  or services to buyers only as a package, or “bundle.” For example, IBM bundled computer hard­ ware, software, and service support for many years, while the manufac­ turers of antiknock additives for gasoline have traditionally  provided various technical services along with their product all at a single price. Bundling

Cross subsidization over products of the firm

When a firm offers products  that  either  are complementary  in the strict sense of being used together  or are purchased  at the same time, pricing can potentially exploit the relatedness among  them. The idea is to deliberately sell one product  (which  I term   the base good) at a low profit or even a loss

Complements and competitive strategy of the firm

Complements are pervasive in industries. A firm must know what complementary products it depends on, and how they affect its com­ petitive advantage  and  the structure  of the industry  as a whole. A firm must  decide which complements  it should  produce  itself, and how to package and price them.  Bundling  and unbundling of comple­

Industry Scenarios and Competitive Strategy under Uncertainty

How does a firm choose a competitive strategy when it faces major uncertainties about the future? Oil field suppliers currently  are agoniz­ ing, for example, over how long the drop  in drilling activity will last; the estimates range from less than  a year to the rest of the decade. Industry structure is not static,

Constructing industry scenarios

An industry scenario is an internally consistent view of an indus­ try’s future structure.  It is based on a set of plausible assumptions about the im portant uncertainties that might influence industry struc­ ture, carried through to the implications for creating and sustaining competitive advantage. An industry scenario is not a forecast but one

Industry scenarios and competitive strategy of the firm

Having developed and analyzed  a set of industry  scenarios, the next task is to use them to formulate  competitive  strategy. Scenarios are not an end in themselves. M any companies  falter in translating scenarios into strategy. The bulk of attention  is often placed on develop­ ing scenarios and not on determining their implications. There

Scenarios and the planning process of the firm

Every plan is based on an industry scenario in one form or another, though the process is frequently an implicit one. The  use of explicit industry scenarios brings the uncertainty in planning out into the open, and bases strategy on a conscious and complete  understanding  of the likely significance of uncertainty for competition. The

The process of entry or repositioning of the firm

Defensive strategy rests on an acute understanding of how a chal­ lenger views the firm and on the perceived profitability of the challeng­ er’s various options  for improving  position. The formulation  of defensive strategy must begin by recognizing  that an attack by either a new or an established competitor is a time-phased  sequence of

Defensive tactics of the firm

Defensive   strategy    aims    to    influence   a   challenger’s   calculation of the expected return  from entry or repositioning, causing the chal­ lenger to conclude that the move is unattractive or to opt for a strategy that is less threatening. To do this, a defender  invests in defensive tactics. Most defensive tactics are costly and reduce short-term 

Evaluating defensive tactics of the firm

The defensive tactics described above differ greatly in their charac­ teristics and in their appropriateness for a firm. A firm must  decide which tactics will be most effective in its industry in view of the poten­ tial challengers it faces. A number of im portant  tests can be used to assess defensive tactics: Value