Business level strategy: Creating and Sustaining Competitive Advantages


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  • A firm must attain competitive parity on the basis of differentiation relative to competitors
  • Mass customization a firm’s ability to manufacture unique products in small quantities at low cost. Primary benefit of successful integration of low-cost and differentiation strategies is difficulty it poses for competitors to duplicate or imitate strategy Goal of combination strategy is to provide unique value in an efficient manner
  • Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle
  • Business level strategy: Creating and Sustaining Competitive Advantages

    1. 1. Chapter Five Business-Level Strategy: Creating and Sustaining Competitive Advantages Reporters: Cayude, Jeisa Ferogene Darnayla, Alvie Lim, John Michael Mendez, Ria Beth Rosales, Louie Patrick Teves, Charlston
    2. 2. This chapter focuses on: 5-2
    3. 3. 1st Generic Strategy• Overall cost leadership  Low-cost-position relative to a firm’s peers  Manage relationships throughout the entire value chain 5-3
    4. 4. Overall Cost LeadershipTight set of interrelated tactics that include: •Aggressive construction of efficient-scale facilities • Vigorous pursuit of cost reductions from experience • Tight cost and overhead control • Avoidance of marginal customer accounts • Cost minimizing in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising 4 5-4
    5. 5. Overall Cost Leadership• Experience curve  refers to how business “learns” to lower costs as it gains experience with production processes  with experience, unit costs of production decline as output increases in most industries 5-5
    6. 6. Overall Cost Leadership• Parity on the basis of differentiation  Permits a cost leader to translate cost advantages directly into higher profits than competitors  Allows firm to earn above-average profits 5-6
    7. 7. 7
    8. 8. Overall Cost Leadership Improving Competitive Potential Pitfall Position vis-à-vis the Five Forces  too much focus on one or few value chain-activities  all rivals share a common input or overall low cost-position raw material enables a firm to achieve  the strategy is imitated so easily above-average returns  erosion of cost advantages when despite strong competition the pricing information available to customers increases 5-8
    9. 9. 2nd Generic Strategy• Differentiation  Create products and/or services that are unique and valued  Non-price attributes for which customers will pay a premium 5-9
    10. 10. Differentiation• Prestige or brand image• Technology• Innovation• Features• Customer service• Dealer network  Firms achieve and sustain differentiation advantages and attain above-average performance when their price exceed the extra costs incurred in being unique. 5-10
    11. 11. Value Chain Activities: DifferentiationFirm Infrastructure Superior MIS – to integrate Facilities that Widely respected CEO value-creating activities to promote firm enhances firm improve quality image reputationHuman Resource Programs to attract talented Provide training and incentives to ensure aManagement engineers and scientists strong customer service orientationTechnology Superior material handling and Excellent applications engineeringDevelopment sorting technology support Purchase of high-quality Use of most prestigious outletsProcurement components to enhance product image Superior Flexibility and Accurate and Creative and Rapid response material speed in responsive innovative to customer handling responding to order advertising service operations to changes in processing programs requests. minimize manufacturing damage specifications Effective product Fostering of replenishment to personal Complete Quick transfer Low defect rates reduce customer’ s relationship inventory of of inputs to to improve quality inventory with key replacement manufacturing customers parts and process supplies Inbound Operations Outbound Marketing Service Logistics Logistics Sales
    12. 12. Differentiation Improving Competitive Potential Pitfall Position vis-à-vis the Five Forces  uniqueness that is not valuable  too much differentiation achieving differentiation is  too high price premium a viable strategy for earning  differentiation that is easily above-average returns by imitated creating a defensible  dilution of brand identification position for overcoming through product-line extensions Porter’s five competitive  perceptions of differentiation may vary between buyers and forces sellers 5-12
    13. 13. Potential Pitfalls of Differentiation Strategies1. Uniqueness that is not valuable. A differentiation strategy must provide unique bundles of products and/or services that customers highly value.2. Too much differentiation. Firms may strive for quality or service that is higher than customer’s desire. Thus they are vulnerable to competitors who provide an appropriate level of quality at a lower price.3. Differentiation that is easily imitated. Resources that are easily intimidated cannot lead to sustainable advantages.4. Dilution of brand identification through product line extensions. Firms may erode their quality brand image by adding products or services with lower prices and less quality.5. Perception of differentiation may vary between buyers and sellers. 5-13
    14. 14. 3rd Generic Strategy• Focus Strategy  Narrow product lines, buyer segments, or targeted geographic markets  Attain advantages either through differentiation or cost leadership 14 5-14
    15. 15. Focus• Focus is based on the choice of a narrow competitive scope within an industry  Firm selects a segment or group of segments (niche) and tailors its strategy to serve them  Firm achieves competitive advantages by dedicating itself to these segments exclusively 5-15
    16. 16. FocusCost Focus Differentiation Focus firms strives to create  firm seeks to a cost advantage in its differentiate in its target segment target market 16
    17. 17. FocusImproving Competitive Potential Pitfall Position vis-à-vis the Five Forces  erosion of cost advantages within the narrow segment  even product and service firms pursuing a focus offerings that are highly focused strategy can earn above- are subject to competition from new entrants and from imitation average returns  focusers can become too focused to satisfy buyer needs 5-17
    18. 18. Three Combination Approaches• Automated and flexible manufacturing systems• Exploiting the profit pool concept for competitive advantage• Coordinating the “extended” value chain by way of information technology 5-18
    19. 19. Integrated Overall low cost and Differentiation Strategies Improving Competitive Potential Pitfall Position vis-à-vis the Five Forces  firms that fail to attain both strategies may end up with neither and become “stuck in the middle” create an enviable position  underestimating the challenges and relative to industry forces express associated with coordinating value-creating activities in the serves to erect high entry extended value chain barriers to potential competitors  miscalculating sources of revenue that have neither the financial nor and profit pools in the firm’s industry physical resources to compete head to head 5-19 5-19
    20. 20. Industry Life-Cycle Stages: Strategic Implications• Industry life cycle  refers to the stages of introduction, growth, maturity, and decline that occur over the life of an industry 5-20
    21. 21. Industry Life-Cycle Strategies In the Introduction Stage:• Products are unfamiliar to consumers• Market segments not well defined• Product features not clearly specified• Competition tends to be limited 5-21
    22. 22. Industry Life-Cycle StrategiesThe Growth Stage is:• Characterized by strong increases in sales• Attractive to potential competitors 5-22
    23. 23. Industry Life-Cycle StrategiesFor the Growth Stage:• Brand recognition• Differentiated products• Financial resources to support value-chain activities 5-23
    24. 24. Industry Life-Cycle StrategiesIn the Maturity stage:• Aggregate industry demand slows• Market becomes saturated, few new adopters• Direct competition becomes predominant• Marginal competitors begin to exit 5-24
    25. 25. Industry Life-Cycle StrategiesIn the Decline Stage:• Industry sales and profits begin to fall• Strategic options become dependent on the actions of rivals 5-25
    26. 26. Strategies in the Decline Stage For the Decline Stage • Maintaining • Exiting the market • Harvesting • Consolidation 5-26
    27. 27. Turnaround Strategies It is more likely to occur during the maturity or decline stage Asset and cost surgery Selective product and marketing pruning Piecemeal productivity improvements 5-27
    28. 28. THANK YOU!  28
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