SIB-429 D: Strategic Management Russell Seidle Monday February 23rd, 2015 Coordinating Activities: Business-Level Strategy * Monday February 23rd, 2015 - * - Learning Objectives After reviewing your class notes from this session and studying the corresponding chapter, you should be able to: Describe and contrast the two generic business-level strategies and their respective goals from the firm’s perspective Discuss the distinction between value drivers and cost drivers, and identify the relevant generic strategy applicable to each Analyze the benefits and risks of each business-level strategy from the perspective of the Five Forces framework Clarify the potential pitfalls associated with pursuing an integration strategy * Monday February 23rd, 2015 - * - Business-Level Strategy Analysis of “the actions managers take in their quest for competitive advantage when competing in a single product market” (Rothaermel, 2013: 140. Emphasis added) Key question: How should we compete? Competitive advantage is realized by either: Performing similar activities differently Performing different activities altogether * Business-Level Strategy Source: Rothaermel, 2013: Exhibit 1.3 (p. 10) Corporate executives SBU General Managers Functional managers Recall from our January 28th class … * Business-Level Strategy Source: Rothaermel, 2013: Exhibit 6.1 (p. 141) Performance determined by value and cost positions as assessed with regard to competitors February 4th class February 9th class Today’s class * Monday February 23rd, 2015 - * - Business-Level Strategy Differentiation strategy: “create higher value for customers […] by delivering products or services with unique features while keeping cost at the same or similar levels” (Rothaermel, 2013: 142. Emphasis added) Cost-leadership strategy: “create the same or similar value for customers by delivering products or services at a lower cost” (Rothaermel, 2013: 142. Emphasis added) Additional consideration is scope of the market targeted by the firm * Business-Level Strategy Source: Rothaermel, 2013: Exhibit 6.2 (p. 143) Mass market Targeted niche segment * Monday February 23rd, 2015 - * - Differentiation Strategy Competitive focus is on unique product features, customer service, marketing, and promotion Price tends to be de-emphasized Cost control is nevertheless an important consideration Differentiation strategy ‘calculus’: Unique product or service + controlled costs = Greater value at similar price Unique product or service + higher costs = Greater value at higher price A B * Differentiation Strategy Source: Rothaermel, 2013: Exhibit 6.3 (p. 144) A B * Monday February 23rd, 2015 - * - Differentiation Strategy Importance of value drivers Product features Premium pricing associated with differentiated offe.

1. SIB-429 D: Strategic Management
Russell Seidle
Monday February 23rd, 2015
Coordinating Activities: Business-Level Strategy
*
Monday February 23rd, 2015
- * -
Learning Objectives
After reviewing your class notes from this session and studying
the corresponding chapter, you should be able to:
Describe and contrast the two generic business-level strategies
and their respective goals from the firm’s perspective
Discuss the distinction between value drivers and cost drivers,
and identify the relevant generic strategy applicable to each
Analyze the benefits and risks of each business-level strategy
from the perspective of the Five Forces framework
Clarify the potential pitfalls associated with pursuing an
integration strategy

2. *
Monday February 23rd, 2015
- * -
Business-Level Strategy
Analysis of “the actions managers take in their quest for
competitive advantage when competing in a single product
market” (Rothaermel, 2013: 140. Emphasis added)
Key question: How should we compete?
Competitive advantage is realized by either:
Performing similar activities differently
Performing different activities altogether
*
Business-Level Strategy
Source: Rothaermel, 2013: Exhibit 1.3 (p. 10)
Corporate executives
SBU General Managers
Functional managers
Recall from our January 28th class …

3. *
Business-Level Strategy
Source: Rothaermel, 2013: Exhibit 6.1 (p. 141)
Performance determined by value and cost positions as assessed
with regard to competitors
February 4th class
February 9th class
Today’s class
*
Monday February 23rd, 2015
- * -
Business-Level Strategy
Differentiation strategy: “create higher value for customers […]
by delivering products or services with unique features while
keeping cost at the same or similar levels” (Rothaermel, 2013:
142. Emphasis added)
Cost-leadership strategy: “create the same or similar value for
customers by delivering products or services at a lower cost”
(Rothaermel, 2013: 142. Emphasis added)
Additional consideration is scope of the market targeted by the
firm

4. *
Business-Level Strategy
Source: Rothaermel, 2013: Exhibit 6.2 (p. 143)
Mass market
Targeted niche segment
*
Monday February 23rd, 2015
- * -
Differentiation Strategy
Competitive focus is on unique product features, customer
service, marketing, and promotion
Price tends to be de-emphasized
Cost control is nevertheless an important consideration
Differentiation strategy ‘calculus’:
Unique product or service + controlled costs = Greater value at
similar price
Unique product or service + higher costs = Greater value at
higher price
A
B

5. *
Differentiation Strategy
Source: Rothaermel, 2013: Exhibit 6.3 (p. 144)
A
B
*
Monday February 23rd, 2015
- * -
Differentiation Strategy
Importance of value drivers
Product features
Premium pricing associated with differentiated offerings
Customer service
Satisfying unmet customer needs
Exceeding expectations
Customization
Tailoring products for specific customers
Complements
Products that add value when consumed in combination with the
main offering
*

6. Monday February 23rd, 2015
- * -
Cost Leadership Strategy
Competitive focus is on staking out the lowest-cost position in
the industry
Product prestige or uniqueness tends to be de-emphasized
Acceptable value is nevertheless an important consideration
Cost leadership strategy ‘calculus’:
Differentiation parity + lower costs = Greater value at lower
price
Lower consumer value + lower costs = Similar value at lower
price
A
B
*
Cost Leadership Strategy
Source: Rothaermel, 2013: Exhibit 6.4 (p. 147)
A
B
*

7. Monday February 23rd, 2015
- * -
Cost Leadership Strategy
Importance of cost drivers
Cost of input factors
Access to preferentially priced raw materials and other
production inputs
Economies of scale
Decreases in per-unit costs as volumes increase
Learning curve
Benefits achieved as familiarity is gained with a process
Experience curve
Economies of scale and learning → Movement to a steeper
learning curve
*
Business-Level Strategy and Five Forces
Source: Rothaermel, 2013: Exhibit 6.7 (p. 153)
*
Monday February 23rd, 2015
- * -

8. Business-Level Strategy and Five Forces
Key risks for firms pursuing a cost-leadership strategy
Competitive disadvantage resulting from need to learn new
capabilities in response to a new entrant
Shift in competitive focus from price to product attributes
Key risks for firms pursuing a differentiation strategy
Shift in competitive focus from product attributes to price
Tendency to incorporate costly features that do not add to
product value for consumers
*
Monday February 23rd, 2015
- * -
Integration Strategy
Reconciling the trade-offs between differentiation and low cost
Complexity inherent in attempting to balance competing
requirements of each generic strategy
Integration strategy approaches to pricing:
Higher price than cost leader → Greater profit margins
Lower price than differentiator → Greater market share and
sales volume

9. *
Monday February 23rd, 2015
- * -
Integration Strategy
Importance of value and cost drivers
Quality
Durability and reliability of the product offering
Economies of scope
Savings from producing multiple outputs together as opposed to
individually
Innovation
Means of resolving existing trade-offs
Structure, culture, and routines
Building of organizational ambidexterity
*
SIB-429 (Sections D and AE): Strategic Management
Homework Assignment #2
Spring 2015
Instructions:
· Responses are due via e-mail by 12:30 p.m. (for students in
Section D) or 4:00 p.m. (for students in Section AE) on Monday
March 30th

10. · When submitting your work, please include an e-mail Subject
line of “Strategic Management – LastName_Homework #2”
· Please use full-sentence format when writing up your
submission
· As a guideline, aim for approximately two pages of single-
spaced text for your answer
Assignment:
Read Chapter Case 6 (“Trimming Fat at Whole Foods Market”:
pp. 139-140 and 163 in the textbook) on strategic initiatives
currently underway at Whole Foods.
Using information from the case and from any other published
works you deem appropriate, identify the specific business-level
strategy that Whole Foods and Costco, respectively, are
pursuing. For each company, discuss two particular value or
cost drivers that could (or should) be used to improve each
firm’s strategic position. Be sure to properly cite and reference
all outside sources used to support your analyses.
Based on your analysis, which of these two organizations do
you believe is best positioned for continued success in the
supermarket industry? Explain briefly.