Business level strategy

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  • 1. Business Level Strategy
  • 2. Business Level Strategy
    • A Business Level Strategy is an integrated and coordinated set of commitments & actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific individual product markets
    • Three Issues:
      • Whom it will serve
      • What needs target customers have that it will satisfy
      • How those needs will be satisfied through implementation of given strategy
  • 3. Types of Business-Level Strategies
    • Business-level strategies are intended to create differences between the firm’s position relative to those of its rivals
    • To position itself, the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals
  • 4. Five Generic Strategies Competitive Advantage Competitive Scope Cost Uniqueness Broad target Narrow target Cost Leadership Differentiation Focused Cost Leadership Focused Differentiation Integrated Cost Leadership/ Differentiation
  • 5. Types of Business Level Strategies
    • Cost Leadership
    • Differentiation
    • Focus Strategy
    • Cost Leadership:
      • Integrated set of actions designed to produce or deliver goods or services at lower cost
      • Focus on driving costs lower relative to competitors cost
      • Features that are acceptable to customers
  • 6. Cost Leadership Strategy
    • Cost saving actions required by this strategy:
      • building efficient scale facilities
      • tightly controlling production costs and overhead
      • minimizing costs of sales, R&D and service
      • building efficient manufacturing facilities
      • monitoring costs of activities provided by outsiders
      • simplifying production processes
  • 7. How to Obtain a Cost Advantage Cost Drivers Value Chain Determine and control Reconfigure, if needed
    • Alter production process
    • Change in automation
    • New distribution channel
    • Direct sales in place of indirect sales
    • New advertising media
    • New raw material
    • Backward integration
    • Forward integration
    • Change location relative to suppliers or buyers
  • 8. Major Risks of Cost Leadership Strategy
    • Dramatic technological change could take away your cost advantage
    • Competitors may learn how to imitate value chain
    • Focus on efficiency could cause cost leader to overlook changes in customer preferences
  • 9. Differentiation
    • Unique attributes & characteristics of a firm’s product provide value to customers
    • Premium prices due to unique need satisfaction
    • Firms must be truly be unique at something to be perceived as unique
    • Unusual Features, Responsive Customer Service, Rapid Product Innovations, Different Status , Engineering Designs, Prestige & Status
    • Anything to create real or perceived value
    • Challenge to identify features that create value for customers
  • 10. Factors That Drive Differentiation
    • Unique product features
    • Unique product performance
    • Exceptional services
    • New technologies
    • Quality of inputs
    • Exceptional skill or experience
    • Detailed information
  • 11. Focus Strategy
    • Integrated set of actions designed to produce goods or services that serve the needs of a particular competitive segment
    • A particular Buyer group, A different segment of a product line, different geographic market
    • Focused Cost Leadership or focused Differentiation
    • Firms have the core competencies required to provide value to a narrow competitive segment that exceeds the value available from firms serving customers on industry wide basis
  • 12. Focused Business-Level Strategies
    • A focus strategy must exploit a narrow target’s differences from the balance of the industry by:
      • isolating a particular buyer group
      • isolating a unique segment of a product line
      • concentrating on a particular geographic market
      • finding their “niche”
  • 13. Factors That May Drive Focused Strategies
    • Large firms may overlook small niches
    • Firm may lack resources to compete in the broader market
    • May be able to serve a narrow market segment more effectively than can larger industry-wide competitors
    • Focus may allow the firm to direct resources to certain value chain activities to build competitive advantage
  • 14. Major Risks of Focused Strategies
    • Firm may be “outfocused” by competitors
    • Large competitor may set its sights on your niche market
    • Preferences of niche market may change to match those of broad market
  • 15. Advantages of Integrated Strategy
    • A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to:
      • adapt quickly to environmental changes
      • learn new skills and technologies more quickly
      • effectively leverage its core competencies while competing against its rivals
  • 16. Benefits of Integrated Strategy
    • Successful firms using this strategy have above-average returns
    • Firm offers two types of values to customers
      • some differentiated features (but less than a true differentiated firm)
      • relatively low cost (but now as low as the cost leader’s price)
  • 17. Major Risks of Integrated Strategy
    • An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm)
    • The firm may become “stuck in the middle” lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy
  • 18. Functional Strategies
    • The short-term goal-directed decisions and actions of an organization’s functional departments.
    • All organizations perform 3 basic functions as they create and deliver goods and services:
    • Marketing (to assess and establish product demand then market and deliver the product after production)
    • Production and operations (to create the product/service)
    • Financial and accounting ( to get payment for the product/service and information on performance results)
    • These three basic functions typically expand into:
    • Production-Operations-Manufacturing Strategies
    • Marketing Strategies
    • Human Resource Management Strategies
    • Research and Development Strategies
    • Information System Strategies
    • Financial-Accounting Strategies
    • Building Customer Satisfaction, Value, & Retention
    • Market Oriented Strategic Planning
    • Analyzing Consumer Markets and Buying Behavior
    • Setting the Product & Branding Strategy
    • Developing Price Strategies & Programs
    • Designing & Managing Value Networks and Marketing Channels
    • Managing Integrated Marketing Communications
    • Managing Advertising, Sales Promotion, & PR
    • Direct Marketing Fundamentals
  • 20. Financial Management
    • Acceptable cost of capital
    • Desired proportion of short term & long term debt; Preferred & common equity
    • Balance b/w Internal & External Funding
    • Appropriate Risk & Ownership structures
    • Levels & Forms of leasing for providing assets
  • 21. Financial Management
    • Priorities for Capital Allocation Projects
    • Final selection of Projects
    • Capital Allocation by operating Managers w/o approval
    • Proportion of earnings as dividends
    • Importance of dividend stability
    • Cash Flow Requirements; Minimum & Maximum Cash balances
    • Liberal/ Conservative Credit Policies
    • Payment timings & Procedures
  • 22. Financial Management
    • Optimal Capital Structure
    • Debt & Equity Ratio
    • External vs. Internal Financing
    • Cash Flow Statements
  • 23. Functional Strategies in the R & D Area
    • Research vs. Commercial Development:
    • Emphasis on Innovation & Break Through
    • Emphasis on product development, Refinement & modification
    • Time Horizon:
    • Short Term or Long Term
    • Orientation to support business strategy
  • 24. Functional Strategies in Personnel
    • Development of Managerial Talent:
      • Employee Recruitment, Selection & Orientation
      • Career Development & Counseling, Training & Development
    • Compensation & Regulatory Concerns:
      • Compensation, Labor/Union Relations
    • Competent & Well Motivated:
      • Discipline, Control & Evaluation
      • Performance Appraisal, 360 degree Feedback