2. Learning Outcomes
At the end of this session students should be able to
• identify and describe various Business level strategic options
available to a single business corporate entities
• identify and describe various Business level strategic options
available to a multiple business corporate entities
5/26/2015 2BUS 4320 Strategic Management
5. Strategic
Analysis &
Synthesis
Strategy
Direction
Strategy
Development
Strategy Review
and Control
Strategy
Evaluation &
Selection
Strategy
Implementation
Corporate
Strategic Options Business
Strategic Options Functional
Strategic Options(Lynch, 2010)
Operational
Strategic Options
Strategic
Leadership
Strategy Formulation
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BUS 4320 Strategic Management
6. Corporate Level
Strategic Options
Corporate
Strategic
Aims
Where do we want to be? How do we get at there?
Operational Level
Strategic Aims
Functional Level
Strategic Aims
Business Unit
(SBU) Strategic
Aims
Business Level
Strategic Options
Functional Level
Strategic Options
Operational Level
Strategic Options
Hierarchy of End results Hierarchy of Means
MEANSEND
1 2
3 4
5 6
7 8
8 - Steps Cascading Strategy Formulation Process
Strategy Formulation at
Corporate Level
Strategy Formulation at
Business Level
Strategy Formulation at
Functional Level
Strategy Formulation at
Operational Level
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BUS 4320 Strategic Management
7. Identifying Strategic Business Units
A strategic business unit (SBU) is a part of an organisation
for which there is a distinct external market for goods or
services that is different from another SBU.
generally engages in a single business with a single or multiple
products.
has its own set of competitors, suppliers & buyers
operate as an independent profit or a investment centre
has an independent management and strategy formulation
Virgin Group Hemas Group
Virgin Travels Hemas Hospitals5/26/2015 7BUS 4320 Strategic Management
8. Identifying Strategic Business Units cont….
There are external and internal criteria that can help in
identifying appropriate SBUs:
• Market-based criteria.
• Capabilities-based criteria
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9. Strategy formulation at SBU level
Business Level Strategies focus on how a Strategic
Business Unit or a Single Business organisation
enhances its competitive position by delivering
customer value and gain & retaining competitive
advantage by managing the nature and extent of its
product portfolio in a particular industry.
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10. Foundations of Business Level Strategy
• Directly focusing to achieve the Long-term business
goals of the SBU and the Mission of the Group.
• Focuses on gaining and retaining competitive advantage
and superior performance in a particular selected
business or industry.
• Emphasize on current customer needs, Products,
Markets and Technologies at SBU level
• Emphasize on distinctive competencies and how to gain
and retain competitive advantages
• Concerned with how to provide higher value for
customers better than its competitors
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11. Choosing a generic competitive strategy at business level
According to Michael E. Porter, to gain
competitive advantage and to achieve above
average returns in a particular industry, SBU
could adopt three generic competitive
strategies:
Cost-leadership Strategy
Differentiation Strategy
Focus Strategy
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13. Cost Leadership Strategy
• The cost leader chooses a low level of product
differentiation (In other words a cost leader likes to
focus on a standard product)
• Ignores the different market segments (in other words a
cost leader mostly engages in mass marketing and mass
production)
• Development of core competencies in manufacturing
and materials management.
• This strategy involves the organisation aiming to be the
lowest cost producer and/or distributor within their
industry. The organisation aims to drive cost down for
all production elements from the sourcing of materials,
to labour costs.
• More focus on enhancing the operational and
organizational efficiency and productivity
Eg. Maruti, Wal-Mart, Southwest Airlines, Morrisons etc.5/26/2015 13BUS 4320 Strategic Management
14. The Sources of Cost Advantages
• Scale
• Experience
• Capacity Utilization
• Product Design/Process Fit
• Location
• Integration/Purchasing
• Organizational Skills
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15. Drivers of Cost Advantages
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ECONOMIES OF SCALE -Indivisibilities
-Specialization & division of labor
ECONOMIES OF LEARNING -Increased dexterity
-Improved coordination/organization
CAPACITY UTIIZATION -Ratio of fixed to variable costs
PRODUCTION TECHNIQUES -Mechanization and automation
-Efficient utilization of materials
-Increased precision
PRODUCT DESIGN -Design for automation
-Designs to economize on materials
INPUT COSTS -Location advantages
-Ownership of low-cost inputs
-Bargaining power
-Supplier cooperation
MANAGERIAL EFFICIENCY -Organizational slack
16. Cost Leadership Strategy
Ways of ensuring total costs across value
chain are lower than competitors’ total
costs
1. Perform value chain activities more
efficiently than rivals and control factors that
drive costs
2. Revamp the firm’s overall value chain to
eliminate waste and delays or bypass some
cost-producing activities
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17. Cost Leadership
Can be especially effective when:
1. Price competition among rivals is vigorous
2. Rival’s products are identical and supplies are
readily available
3. There are few ways to achieve differentiation
4. Most buyers use the product in the same way
5. Buyers have low switching costs
6. Buyers are large and have significant power
7. Industry newcomers use low prices to attract
buyers
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18. Differentiation Strategy
• The differentiator chooses a high level of product
differentiation (In other words a differentiator likes
to focus on a variety of products)
• Considers different market segments (in other words
a differentiator engages in multiple targeting or
differentiated marketing and differentiated
production)
• Development of core competencies in research and
development and HRM.
• Always looking ways and means to increase the
variety, quality and flexibility of the products.5/26/2015 18
BUS 4320 Strategic Management
19. Differentiation Strategy
• When differentiation strategy is applied
customers tend to perceive uniqueness in the
products of the organization in relation to
other similar competitors Eg. Kellogg's, Dialog,
Maliban, Nesle, Arpico etc.
• Differentiation could take place in the product,
place, promotion, procedures, people, physical
environment leading to actual or perceived
value difference.
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20. • Understanding customer needs and preferences
• Commitment to customers
• Knowledge of company's capabilities
• Innovation
Source: Robert M. Grant, Contemporary Strategy Analysis , Basil Blackwell, 1991.
Keys to Successful Differentiation
21. TANGIBLE
DIFFERENTIATION
Observable product characteristics:
• size, color, materials, etc.
• performance
• packaging
• complementary services
INTANGIBLE
DIFFERENTIATION
Unobservable and subjective
characteristics relating to image
status, exclusively, identity.
TOTAL CUSTOMER RESPONSIVENESS: Differentiation not just
about the product, it embraces the whole relationship between the
supplier and the customer.
The Nature of Differentiation
“Differentiation means providing something unique that is valuable
to the buyer beyond simply offering a low price.” ( Porter, 2000)
THE KEY IS CREATING VALUE FOR THE CUSTOMER
22. Differentiation Strategy
Can be especially effective when:
1. There are many ways to differentiate and many
buyers perceive the value of the differences
2. Buyer needs and uses are diverse
3. Few rival firms are following a similar
differentiation approach
4. Technology change is fast paced and
competition revolves around evolving product
features
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23. Focus strategy
• Serving the needs of a limited customer group/or
a unique market segment (niche)
• The focuser generally engages in niche and
customized marketing and production.
• Creates a very unique products at a very low or
high premium price
• The focuser is very concern about the unique
customer requirement of its niche market .
Eg. BMW cars, Rolex Watches, Sampath gold credit
cards, Farley's Rusk Biscuits etc.
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24. Focused Strategy
Can be especially effective when:
1. The target market niche is unique, profitable,
and growing
2. Industry leaders do not consider the niche as
crucial
3. Industry leaders consider the niche too costly or
difficult to meet
4. The industry has many different niches and
segments
5. Few, if any, other rivals are attempting to
specialize in the same target segment
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25. Cost leadership Differentiation Focus
Product
differentiation
Low
(principally by
price)
High
(principally by
product)
Low to high
(By having a
uniqueness)
Market
segmentation
Low
(mass market)
High
(many market
segments)
One or a few
segments)
Distinctive
competency
Manufacturing
and material
management
Research and
development,
sales and,
marketing
Any kind of
distinctive
competency
Product/Market/Distinctive-Competency
Choices and Generic Competitive Strategies
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26. Hybrid Strategies
1. Low cost focus strategy
Eg. Ryan Air
2. Focused Differentiation strategy
Eg. Apple
3. Low cost differentiation strategy
Eg. Toyota
4. Cost Focused Differentiation strategy
Eg. BMW
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27. Combining differentiation with Low Cost
• Flexible manufacturing technologies allow firms to
pursue a differentiation at a low cost
• Economies of scale by standardizing many of the
components parts used in its end products (there are
different appearances, but all products are based on a
common platform)
• Limiting number of models (can reduce production and
marketing costs)
• QC, JIT, TQM help to reduce cost and increase the
quality of the product simultaneously.
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28. Strategy Clock
Looking at Porter's strategies in a different
perspective, in 1996, Cliff Bowman David
Faulkner developed the Strategy Clock. This
business strategy analytical model extends
Porter's three competitive strategies into
eight and explains how the cost and
perceived value combinations could be
effectively adopted in different time
periods and competitive situations for
strategic success.5/26/2015 28BUS 4320 Strategic Management
30. 1. Low price/low added
value/no frills
Likely to be segment specific
2. Low price Risk of price war and low margins/need to
be cost leader
3. Hybrid Low cost base and reinvestment in low
price and differentiation
4. Differentiation: without price
premium; with price premium
Perceived added value by user, yielding
market share benefits
Perceived added value to sufficient to
bear price premium
5. Focused differentiation Perceived added value to a particular
segment, warranting price premium
6. Increased price/standard
value
Higher margins if competitors do not
follow/risk of losing market share
7. Increased price/low value Only feasible in monopoly situation
8. Low value/standard price Loss of market
Needs/Risks
5/26/2015 30BUS 4320 Strategic Management
31. The Hybrid Strategy (Route 3)
• Providing added value in the eyes of the customer
while keeping prices down.
• Success depends on;
– Understand and deliver against customer needs.
– Low cost base that acts as a barrier to entry.
• Advantageous when;
– Much greater volume sales can be achieved.
– Used as an entry strategy ‘ Loose brick approach’.
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32. Strategies Destined to Fail (Routes 6, 7 & 8)
• Reducing value while maintaining or
increasing price is difficult to sustain in normal
business.
• Exceptional situations include Legislation to
protect newly privatised ventures, monopoly
situations etc.
• Generally to do so would reduce market
share.
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33. Blue Ocean Strategy
Here the SBU try to find an uncompetitive
market space where there is no initial
competitors thereby prevent compete in the
conventional competitive markets.
Blue Ocean Strategy take place when a
particular SBU tries to come out with a
innovative product using a novel technology.
Examples: Apple iPad, Sony Play Station etc.
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34. Cloning strategy
Imitation Strategy
Innovative Imitation Strategy
Innovation Strategy (Blue Ocean Strategy)
Blue Ocean Strategy
Blue ocean strategy is to innovate
completely new products, processes,
Positions, Practices and Paradigms.
5/26/2015 34BUS 4320 Strategic Management
35. Evaluation of Business Level Strategies based on
Product Portfolio Analysis
(BCG Matrix or Growth Share Matrix)
High Low
High
Low
Market
Growth
Rate
Relative Market Share
Product 1
Product 5
Product 4
Product 3
Product 2
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36. The Product Life Cycle (PLC) Strategies
Product Type QM Star CC Dog
Grand Strategy Build Hold Harvest Divest
Product Strategy Basic Product Differentiate Modify Scrap
Price Strategy Skimming - HP Penetrate - LP Discrimination Cut price
Place Strategy Selective Intensive Wide Coverage Selective
Promotion Strategy Awareness Interest Persuasive De-promotion
5/26/2015 36BUS 4320 Strategic Management
