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

Defensive strategy of the firm

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

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 likeli­ hood retaliate vigorously. The ensuing  battle  ill almost  inevitably exhaust

Avenues for attacking industry leaders

Successfully attacking a leader always requires some kind of strate­ gic 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. W hile the strategies that  have suc­ ceeded against leaders differ widely from industry  to industry,  three avenues

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:6 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— indus­ try 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

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 com­ peting compared  to the   leader’s to   succeed.   However,  the   new   way of competing, in some cases, may

Toward a new institutional economics: Some Antecedents

The materials in this section are in no sense a survey. They merely indi­cate an early concern among some members of the profession of the types of institutional issues that I deal with in this treatise. With the exception of the market failure literature, which is examined briefly in Section 1.4, there is little