Chapter 4:  Business-Level Strategy <ul><li>Overview: </li></ul><ul><ul><li>Defining business-level strategy  </li></ul></...
The Strategic Management Process
Introduction <ul><li>Strategy:  Increasingly important to a firm’s success and concerned with making choices among two or ...
Business-Level Strategies <ul><li>Purpose: To create differences between position  of a firm and its competitors </li></ul...
Business-Level Strategies <ul><li>Two types of  competitive advantage  firms must choose between </li></ul><ul><ul><li>Cos...
Five Business-Level Strategies
Types of Business-Level Strategies <ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>Competitive advantage:  THE low-...
Examples of Value-Creating Activities Associated with the Cost Leadership Strategy
Types of Business-Level Strategies <ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>In relationship to the 5 Forces:...
Types of Business-Level Strategies <ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul...
Types of Business-Level Strategies <ul><li>Differentiation </li></ul><ul><ul><li>Competitive advantage:  Differentiation/u...
Examples of Value-Creating Activities Associated with the Differentiation Strategy
Types of Business-Level Strategies <ul><li>Differentiation </li></ul><ul><ul><li>In relationship to the 5 Forces: </li></u...
Types of Business-Level Strategies <ul><li>Differentiation </li></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul><li>Can ...
Types of Business-Level Strategies <ul><li>Focus strategies </li></ul><ul><ul><li>In general, the firms’  core competencie...
Types of Business-Level Strategies <ul><li>Focus strategy examples </li></ul><ul><ul><li>Buyer groups </li></ul></ul><ul><...
Types of Business-Level Strategies <ul><li>Focused Cost Leadership </li></ul><ul><ul><li>Competitive advantage: Low-cost <...
Types of Business-Level Strategies <ul><li>Focus strategies </li></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul><li>Sam...
Types of Business-Level Strategies <ul><li>Integrated Cost Leadership/Differentiation </li></ul><ul><ul><li>Efficiently pr...
Types of Business-Level Strategies <ul><li>Integrated Cost Leadership/Differentiation </li></ul><ul><ul><li>Risks of Integ...
Customers:  Their Relationship with Business-Level Strategies <ul><li>Strategic competitiveness results when firm can sati...
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Chapter 4

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Chapter 4

  1. 1. Chapter 4: Business-Level Strategy <ul><li>Overview: </li></ul><ul><ul><li>Defining business-level strategy </li></ul></ul><ul><ul><li>Risks of business-level strategies </li></ul></ul><ul><ul><li>Differences in business-level strategies </li></ul></ul><ul><ul><li>5-Forces </li></ul></ul><ul><ul><li>Relationship between customers and strategy </li></ul></ul>
  2. 2. The Strategic Management Process
  3. 3. Introduction <ul><li>Strategy: Increasingly important to a firm’s success and concerned with making choices among two or more alternatives. Choices dictated by </li></ul><ul><ul><li>External environment (O and T) </li></ul></ul><ul><ul><li>Internal resources, capabilities and core competencies (S and W) </li></ul></ul><ul><li>Business level-strategy: Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets/industry </li></ul><ul><li>How we intend to compete in a specific industry </li></ul>
  4. 4. Business-Level Strategies <ul><li>Purpose: To create differences between position of a firm and its competitors </li></ul><ul><li>Firm must make a deliberate choice to </li></ul><ul><ul><li>Perform activities differently </li></ul></ul><ul><ul><li>Perform different activities </li></ul></ul><ul><li>How activities will be performed to create value </li></ul><ul><li>No strategy better than others </li></ul><ul><li>Contingent on internal and external environment </li></ul>
  5. 5. Business-Level Strategies <ul><li>Two types of competitive advantage firms must choose between </li></ul><ul><ul><li>Cost (Are we LOWER than others?) </li></ul></ul><ul><ul><li>Uniqueness (Are we DIFFERENT ? How?) </li></ul></ul><ul><li>Two types of ‘ competitive scope’ firms must choose between </li></ul><ul><ul><li>Broad target </li></ul></ul><ul><ul><li>Narrow target </li></ul></ul><ul><li>These combine to yield 5 different generic business level strategies </li></ul><ul><ul><li>Can be used by any organization competing in any industry </li></ul></ul>
  6. 6. Five Business-Level Strategies
  7. 7. Types of Business-Level Strategies <ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>Competitive advantage: THE low-cost leader and operates with margins greater than competitors </li></ul></ul><ul><ul><li>Competitive scope: Broad </li></ul></ul><ul><ul><li>Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors </li></ul></ul><ul><ul><li>No-frills, standardized or commodity-like product </li></ul></ul><ul><ul><li>Must have competitive levels of quality, service, and other features </li></ul></ul><ul><ul><li>Continuously reduce costs of value chain activities </li></ul></ul>
  8. 8. Examples of Value-Creating Activities Associated with the Cost Leadership Strategy
  9. 9. Types of Business-Level Strategies <ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>In relationship to the 5 Forces: </li></ul></ul><ul><ul><ul><li>Existing Rivalry </li></ul></ul></ul><ul><ul><ul><ul><li>Rivals hesitate to compete on the basis of price </li></ul></ul></ul></ul><ul><ul><ul><li>Bargaining Power of Buyers (Customers) </li></ul></ul></ul><ul><ul><ul><ul><li>Powerful buyers can force cost leader to reduce prices up to a point </li></ul></ul></ul></ul><ul><ul><ul><li>Bargaining Power of Suppliers </li></ul></ul></ul><ul><ul><ul><ul><li>Cost leaders can absorb suppliers price increases </li></ul></ul></ul></ul><ul><ul><ul><li>Potential Entrants </li></ul></ul></ul><ul><ul><ul><ul><li>Efficiency can serve as a barrier to entry </li></ul></ul></ul></ul><ul><ul><ul><li>Product Substitutes </li></ul></ul></ul><ul><ul><ul><ul><li>Can reduce prices when faced with substitutes </li></ul></ul></ul></ul><ul><ul><li>Built in defense against all 5 forces </li></ul></ul>
  10. 10. Types of Business-Level Strategies <ul><li>Cost Leadership Strategy </li></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul><li>Innovations by competitors can quickly eliminate cost advantage </li></ul></ul></ul><ul><ul><ul><li>Too much focus on cost reduction versus competitive levels of differentiation </li></ul></ul></ul><ul><ul><ul><li>Competitors may learn how to successfully imitate a cost leader’s strategy </li></ul></ul></ul>
  11. 11. Types of Business-Level Strategies <ul><li>Differentiation </li></ul><ul><ul><li>Competitive advantage: Differentiation/uniqueness </li></ul></ul><ul><ul><li>Competitive scope: Broad </li></ul></ul><ul><ul><li>Integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different/unique in ways that are important to them </li></ul></ul><ul><ul><li>Targeted customers perceive product value </li></ul></ul><ul><ul><li>Customized products – differentiating on as many features as possible </li></ul></ul><ul><ul><li>Can differentiate in many value chain areas </li></ul></ul>
  12. 12. Examples of Value-Creating Activities Associated with the Differentiation Strategy
  13. 13. Types of Business-Level Strategies <ul><li>Differentiation </li></ul><ul><ul><li>In relationship to the 5 Forces: </li></ul></ul><ul><ul><ul><li>Existing Rivalry </li></ul></ul></ul><ul><ul><ul><ul><li>Customers are loyal purchasers of differentiated products </li></ul></ul></ul></ul><ul><ul><ul><li>Bargaining Power of Buyers (Customers) </li></ul></ul></ul><ul><ul><ul><ul><li>Uniqueness and loyalty reduces customer’s sensitivity to price increases </li></ul></ul></ul></ul><ul><ul><ul><li>Bargaining Power of Suppliers </li></ul></ul></ul><ul><ul><ul><ul><li>Provide high quality components, driving up firm’s costs </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cost may be passed on to customer </li></ul></ul></ul></ul><ul><ul><ul><li>Potential Entrants </li></ul></ul></ul><ul><ul><ul><ul><li>Substantial barriers (see above) and would require significant resource investment </li></ul></ul></ul></ul><ul><ul><ul><li>Product Substitutes </li></ul></ul></ul><ul><ul><ul><ul><li>Customer loyalty effectively positions firm against product substitutes </li></ul></ul></ul></ul>
  14. 14. Types of Business-Level Strategies <ul><li>Differentiation </li></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul><li>Can charge too high of a price premium </li></ul></ul></ul><ul><ul><ul><li>Differentiation theme no longer valuable to customers </li></ul></ul></ul><ul><ul><ul><li>Over-differentiating </li></ul></ul></ul><ul><ul><ul><ul><li>Customer experience shows differentiation not worth the cost </li></ul></ul></ul></ul><ul><ul><ul><li>Counterfeiting </li></ul></ul></ul>
  15. 15. Types of Business-Level Strategies <ul><li>Focus strategies </li></ul><ul><ul><li>In general, the firms’ core competencies used to serve the need of a particular industry segment or niche to the exclusion of others . </li></ul></ul><ul><ul><ul><li>May lack resources to compete in the broader market </li></ul></ul></ul><ul><ul><ul><li>May be able to more effectively serve a narrow market segment than larger industry-wide competitors </li></ul></ul></ul><ul><ul><ul><li>Firms may direct resources to certain value chain activities to build competitive advantage </li></ul></ul></ul><ul><ul><li>Large firms may overlook small niches </li></ul></ul>
  16. 16. Types of Business-Level Strategies <ul><li>Focus strategy examples </li></ul><ul><ul><li>Buyer groups </li></ul></ul><ul><ul><ul><li>Youths/senior citizens </li></ul></ul></ul><ul><ul><li>Product line segments </li></ul></ul><ul><ul><ul><li>Professional painter groups </li></ul></ul></ul><ul><ul><li>Geographic markets </li></ul></ul><ul><ul><ul><li>West vs. East coast </li></ul></ul></ul><ul><li>Definition: An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment </li></ul>
  17. 17. Types of Business-Level Strategies <ul><li>Focused Cost Leadership </li></ul><ul><ul><li>Competitive advantage: Low-cost </li></ul></ul><ul><ul><li>Competitive scope: Narrow industry segment </li></ul></ul><ul><ul><ul><li>Motel 6 </li></ul></ul></ul><ul><li>Focused Differentiation </li></ul><ul><ul><li>Competitive advantage: Differentiation </li></ul></ul><ul><ul><li>Competitive scope: Narrow industry segment </li></ul></ul><ul><ul><ul><li>Ritz-Carlton </li></ul></ul></ul>
  18. 18. Types of Business-Level Strategies <ul><li>Focus strategies </li></ul><ul><ul><li>Risks </li></ul></ul><ul><ul><ul><li>Same basic risks as broad cost leadership or broad differentiation plus: </li></ul></ul></ul><ul><ul><ul><li>A competitor may be able to focus on a more narrowly defined competitive segment and &quot;outfocus” the focuser </li></ul></ul></ul><ul><ul><ul><li>A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit </li></ul></ul></ul><ul><ul><ul><li>Customer needs within a narrow competitive segment may become more similar to those of industry-wide customers as a whole </li></ul></ul></ul>
  19. 19. Types of Business-Level Strategies <ul><li>Integrated Cost Leadership/Differentiation </li></ul><ul><ul><li>Efficiently produce products with differentiated attributes </li></ul></ul><ul><ul><ul><li>Efficiency: Sources of low cost </li></ul></ul></ul><ul><ul><ul><li>Differentiation: Source of unique value </li></ul></ul></ul><ul><ul><li>Can adapt to new technology and rapid changes in external environment </li></ul></ul><ul><ul><li>Simultaneously concentrate on TWO sources of competitive advantage: cost and differentiation – consequently… </li></ul></ul><ul><ul><li>… must be competent in many of the primary and support activities </li></ul></ul>
  20. 20. Types of Business-Level Strategies <ul><li>Integrated Cost Leadership/Differentiation </li></ul><ul><ul><li>Risks of Integrated Strategies </li></ul></ul><ul><ul><ul><li>Harder to implement than other strategies </li></ul></ul></ul><ul><ul><ul><li>Must simultaneously reduce costs while increasing differentiation </li></ul></ul></ul><ul><ul><ul><li>Can get ‘ stuck in the middle’ resulting in no advantages and poor performance </li></ul></ul></ul>
  21. 21. Customers: Their Relationship with Business-Level Strategies <ul><li>Strategic competitiveness results when firm can satisfy customers by using its competitive advantages </li></ul><ul><li>Five components in customer relationships </li></ul><ul><ul><li>Effectively managing relationships w/ customers </li></ul></ul><ul><ul><ul><ul><li>Deliver superior value and build customer loyalty </li></ul></ul></ul></ul><ul><ul><li>Reach, richness and affiliation </li></ul></ul><ul><ul><ul><ul><li>Access and connection to customers, depth and detail of information, and facilitating interactions with customers </li></ul></ul></ul></ul><ul><ul><li>Who: Determining the customers to serve </li></ul></ul><ul><ul><li>What: Determining which customer needs to satisfy </li></ul></ul><ul><ul><li>How: Determining core competencies necessary to satisfy customer needs </li></ul></ul>
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