Managing horizontal organization

Achieving interrelationships is a function of instituting an array of horizontal practices. As many companies have discovered, organizational 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 understand their roles as horizontal strategists, as well as

Control over complementary products of the firm

In nearly every industry, products are used by the buyer in conjunction 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 hookups. Tennis

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 hardware, software, and service support for many years, while the manufacturers of antiknock additives for gasoline have traditionally provided various technical services along with their product all at a single price. Bundling in some

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 competitive 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 complements is

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 agonizing, 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, and

Constructing industry scenarios

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

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. Many companies falter in translating scenarios into strategy. The bulk of attention is often placed on developing scenarios and not on determining their implications. There is also

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 challenger views the firm and on the perceived profitability of the challenger’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 decisions and

Defensive tactics of the firm

Defensive strategy aims to influence a challenger’s calculation of the expected return from entry or repositioning, causing the challenger 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 profitability

Evaluating defensive tactics of the firm

The defensive tactics described above differ greatly in their characteristics and in their appropriateness for a firm. A firm must decide which tactics will be most effective in its industry in view of the potential challengers it faces. A number of important tests can be used to assess defensive tactics: Value to Buyers. A

Defensive strategy of the firm

Combined with an offensive strategy to increase a firm’s competitive advantage, an explicit defensive strategy can raise the sustainability of whatever competitive advantages a firm possesses. The ideal of defensive strategy is usually deterrence—preventing a challenger from initiating a move in the first place or deflecting it to become less threatening. The other type

Conditions for attacking an industry leader

The cardinal rule in offensive strategy is not to attack head-on with an imitative strategy, regardless of the challenger’s resources or staying power. The built-in advantages inherent in a leader’s position will usually overcome such a challenge and the leader will in all likelihood retaliate vigorously. The ensuing battle will almost inevitably exhaust the

Avenues for attacking industry leaders

Successfully attacking a leader always requires some kind of strategic insight. A challenger must usually find a different strategy in order to neutralize the leader’s natural advantages, and recognize or create impediments to leader retaliation. While the strategies that have succeeded against leaders differ widely from industry to industry, three avenues of attack emerge

Impediments to leader retaliation

A successful challenger must also discover or create impediments to leader retaliation. This serves to blunt the natural advantages of the leader and reduces the cost of mounting an attack. A variety of factors can inhibit a leader’s retaliation to a challenger: Mixed Motives. If a challenger’s strategy creates mixed motives for a leader,

Signals of leader vulnerability

The preceding discussion suggests a variety of signals that can indicate that a leader is vulnerable. These fall into two groups—industry signals and signals based on leader traits. 1. Industry Signals Structural change provides perhaps the strongest signal that an industry leader might be vulnerable. Structural change emanating from outside an industry is a

Attacking leaders and industry structure

A final test for attacking a leader is to weigh the effect on overall industry structure. A challenger’s attack on a leader is unwise if it destroys industry structure. Challengers must find a new way of competing compared to the leader’s to succeed. However, the new way of competing, in some cases, may undercut

The problem of collective goals in organization

If we wish to develop a theory that predicts and explains business decision-making behavior, we face a problem that can be paraphrased in terms of the following: People (i.e., individuals) have goals; collectivities of people do not. To define a theory of organizational decision making, we seem to need something analogous — at the

The organizational goal formation process

In the theory to be outlined here, we consider three major ways in which the objectives of a coalition are determined. These are: the bargaining process by which the composition and general terms of the coalition are fixed; the internal organizational process of control by which objectives are stabilized and elaborated; the process of