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Chapter 6

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  • 1. Chapter Six Business Unit Strategies
  • 2. Chapter 6: Key Issues
    • Generic strategies & strategic groups
    • Porter’s generic strategy typology
    • Miles & Snow’s generic strategy typology
    • Knowledge management & strategy
    • Business size & strategy
  • 3. Business Strategies: Fundamental Concepts
    • Business unit: an organizational entity with its own mission, set of competitors, and industry.
    • Competitive advantage: a state whereby a business’ successful strategies cannot easily be duplicated by competitors.
    • Generic strategies: A simple categorization of competitive strategies available to businesses.
    • Strategic group: Businesses employing the same generic strategy.
  • 4. Porter’s Generic Strategy Typology Multiple Strategies Focus-Low-Cost-Differentiation Strategy Focus-Differentiation Strategy Focus-Low-Cost Strategy Niche Multiple Strategies Low-Cost-Differentiation Strategy Differentiation Strategy Low-Cost Strategy Entire Market Emphasis on Various Factors Based on Market Emphasis on Low Costs & Differenia-tion Emphasis on Differentia- tion Emphasis on Low Costs Emphasis on Entire Market or Niche
  • 5. Low-Cost Strategy
    • Produce basic, no-frills products and services for a mass market of price-sensitive customers
    • Often (but not always) build market share through low prices
    • Low initial investment and low operating costs
    • Often outsource to reduce costs
    • Vulnerable to price competition
  • 6. Focus-Low-Cost Strategy
    • Emphasizes low costs while serving a narrow segment of the market, producing no-frills products or services for price-sensitive customers in a market niche.
    • Compete only in a niche where cost advantages relative to large competitors can be enjoyed.
    • Vulnerable to price competition.
  • 7. Differentiation Strategy
    • Produce and market to the entire industry products or services that are readily distinguished from those of their competitors.
    • Emphasize scientific breakthroughs, technology, and flexibility.
    • Differentiation can be based on the product’s physical characteristics or other factors such as quality, marketing, or service.
  • 8. Focus-Differentiation Strategy
    • Produce and market highly differentiated products or services for the specialized needs of a market niche.
    • Customers in a niche might be willing to pay higher prices for specialized products or services.
  • 9. Low-Cost-Differentiation Strategy
    • Emphasize both low costs and differentiation.
    • Combination strategy debate: According to Porter, low cost and differentiation are not compatible in the long run, as efforts to differentiate generally increase a business’ relative cost position. Others argue that the two may be compatible, although combining strategies is usually more difficult to accomplish.
  • 10. Focus-Low-Cost-Differentiation Strategy
    • Produce highly differentiated products or services for the specialized needs of a select group of customers while keeping costs low.
    • This strategy combines all of the facets of low costs, differentiation, and focus.
  • 11. Multiple Strategies
    • Employ more than one strategy simultaneously.
    • “Multiple strategies” is not synonymous with the “combination strategy,” as the former involves the execution of two or more generic strategies, each tailored to the needs of a distinct market or class of customers. A common example in airlines offering both first-class and coach seating.
  • 12. Miles & Snow Generic Strategy Typology
    • Prospectors seek first mover advantages by introducing new products and services.
    • Defenders seek stability and only compete in a predictable segment of the market.
    • Analyzers represent a middle ground between prospectors and defenders and emphasize flexibility and second mover advantages.
    • Reactors lack consistency and perform poorly.
  • 13. Case Analysis Step 10: Business-Level Strategy
    • Apply both the Porter and Miles & Snow typologies.
    • Discuss the uniqueness of the strategy, including how it differs from competitors that might employ the same generic strategy.
    • Provide details.
  • 14. Knowledge & Competitive Advantage
    • When employees are viewed as expenses, organizations tend to minimize their costs. When they are viewed as investments, organizations tend to maximize their value.
    • According to the knowledge management perspective, people and their skills and abilities represent the only resource that cannot readily be reproduced by a firm’s competitors if it is deemed to be a source of competitive advantage.
  • 15. Business Strategy & Size
    • Small businesses tend to enjoy the advantages of speed, flexibility, and lower initial investment.
    • Large businesses tend to enjoy benefits associated with economies of scale.
    • Mid-size businesses often (but not always) struggle in terms of performance because they may lack either set of advantages.
  • 16. Case Analysis Step 11: Business-Level Strategies of Competitors
    • Utilize at least one of the generic strategy typologies (i.e. Porter or Miles & Snow) to describe the strategies of competitors.
    • Draw a picture to illustrate the clustering of businesses in an industry along several generic strategy approaches.
  • 17. Global Concerns
    • Common advice: “Think globally, but act locally.”
    • Key question: Should a business vary its strategy considerably from one country to another, or should consistency be emphasized?