Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Offensive Competitive Strategy

What it is:

Offensive competitive strategy therefore refers to those strategies that companies adopt to stay ahead of the competition rather than react to the competition.

How it works (Example):

As in team sports, companies can play defense or offense, strategically speaking.

For example, let's assume Company XYZ is in the publishing industry. The industry is undergoing significant changes in terms of technology and distribution. An offensive competitive strategy for Company XYZ might involve investing capital in developing and patenting new distribution technology, as well as diversifying into more attractive markets; a defensive competitive strategy, on the other hand, might involve waiting a few years to see "where the chips fall" in terms of readership preferences and then adopting whatever technology is the cheapest or most popular.

Other examples of offensive competitive strategy might include becoming an aggressive low-cost leader or developing substitute products.

Why it Matters:

Though there is always a time and place for defensive competitive strategy, an offensive competitive strategy is generally what separates trend-setters from followers. Above-average technology or research and development expenses are indicators that a company might be pursuing an offensive competitive strategy. Companies that acquire other companies either to create some forward or backward integration or eliminate competitors are often pursuing offensive competitive strategies as well.

One disadvantage of an offensive competitive strategy, however, is that it is expensive. Thus, companies pursuing these strategies are sometimes highly leveraged or low on cash, which can bring more risk to the company and its shareholders.