The document discusses business-level strategy and cost leadership strategy. It defines business-level strategy and core competency. It explains that a cost leadership strategy focuses on achieving competitive advantage through low costs. The key activities to support a cost leadership strategy include efficient procurement, logistics, production processes, sales force, and technology investments to minimize costs.

1. Business-Level Strategy Chapter Five © 2006 by Nelson, a division of Thomson Canada Limited.

2. The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness

3. Business Level Strategy Knowledge Objectives: Define business-level strategies. Discuss the relationship between customers & business-level strategies in terms of who, what and how. Explain the differences among business-level strategies. Use the five forces of competition model to explain how above average returns can be earned through each business-level strategy. Describe the risks of using each of the business-level strategies.

4. Core Competency, Strategy and Business Level Strategy Strategy Business Level Strategy Core Competency An integrated & coordinated set of actions taken to exploit core competencies & gain a competitive advantage. Actions taken to provide customers value and gain a competitive advantage by exploiting core competencies in specific, individual product markets. The resources and capabilities that are determined to be a source of competitive advantage for a firm over its rivals.

5. Key Issues of Business-level Strategy What good or service to offer customers. How to manufacture or create the good or service. How to distribute the good or service in the marketplace.

6. The Central Role of Customers In selecting a business-level strategy, the firm determines 1. Who it will serve. 2. What needs those target customers have that it will satisfy. 3. How those needs will be satisfied.

7. Basis for Customer Segmentation 1. Demographic factors (age, income, gender, etc.) 2. Socioeconomic factors (social class, stage in the family life cycle) 3. Geographic factors (culture, region or country differences) 4. Psychological factors (lifestyle, personality traits) Consumer Markets 5. Consumption patterns (heavy, moderate, and light users) 6. Perceptual factors (benefit segmentation, perceptual mapping) 7. Brand loyalty patterns

8. Basis for Customer Segmentation 1. End use segments (identified by NAIC code) 2. Product segments (based on technological differences or production economics) 3. Geographic segments (defined by boundaries between countries or by regional differences within them) Industrial Markets 4. Common buying factor segments (cut across product/market and geographic segments) 5. Customer size segments

9. Generic Business Level Strategies Focused Differentiation Cost Leadership Differen-tiation Focused Cost Leadership Breadth of Competitive Scope Broad Target Market Narrow Target Market Source of Competitive Advantage Cost Uniqueness

10. Generic Business Level Strategies Cost Leadership Breadth of Competitive Scope Broad Target Market Narrow Target Market Source of Competitive Advantage Cost Uniqueness

11. Value Creating Activities Common to a Cost Leadership Business Level Strategy Primary Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Support Activities

12. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Procurement Inbound Logistics Operations Inbound Logistics Inbound Logistics Highly efficient systems to link suppliers’ prod.s with the firm’s production processes Primary Activities

13. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Inbound Logistics MARGIN MARGIN Cost Effective MIS Systems Consistent Policies to Reduce Turnover Costs Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Located in Close Proximity with Suppliers Support Activities Procurement Inbound Logistics Operations Outbound Logistics Service Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Timing of Asset Purchases Efficient Plant Scale to Minimize Manufacturing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Frequent Evaluation Processes to Monitor Suppliers’ Performances Policy Choice of Plant Technology Organizational Learning Efficient Order Sizes Operations Operations Economies of scale to reduce production costs Construction of efficient-scale production facilities Primary Activities

14. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Policies to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Outbound Logistics Service Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Frequent Evaluation Processes to Monitor Suppliers’ Performances Efficient Order Sizes Interrelationships with Sister Units Outbound Logistics Outbound Logistics Selection of low cost transport carriers Delivery schedule that reduces costs Efficient order sizes Primary Activities

15. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Service Marketing & Sales Products priced to generate sales volume Small, highly trained sales force Marketing & Sales Primary Activities

16. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Service Service Effective product installations to reduce recalls Service Primary Activities

17. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service Procurement Systems and procedures to find the lowest cost products to purchase raw materials Frequent evaluation processes to monitor suppliers’ performances Procurement Primary Activities

18. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Technological Development Procurement Service Technological Development Technological Development Easy-to-Use manufacturing technologies Investments in technology in order to reduce costs associated with manufacturing processes Primary Activities

19. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Support Activities Technological Development Human Resource Management Procurement Human Resource Management Human Resource Management Consistent policies to reduce turnover costs Intense & effective training programs to improve worker efficiency and effectiveness Primary Activities

20. Value Creating Activities common to a Cost Leadership Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Pol. to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Prod-ucts with the Firm’s Produc-tion Processes Timing of Asset Purchases Efficient Plant Scale to Minim- ize Manufactur- ing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Tech. Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Support Activities Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Firm Infrastructure Firm Infrastructure Cost effective MIS systems Simplified planning policies to reduce planning costs Relatively few managerial layers to reduce overhead costs Primary Activities

21. How to Obtain a Cost Advantage 1 Determine and Control Cost Drivers New distribution channel New advertising media Direct sales in place of indirect sales Alter production process Change in automation New raw material Forward integration Backward integration Alter location relative to suppliers or buyers 2 Reconfigure the as needed Value Chain

22. Cost Leadership & the 5 Forces of Competition Can frighten off new entrants due to: Their need to enter on a large scale in order to be cost competitive The time it takes to move down the learning curve Threat of New Entrants Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Rivalry Among Competing Firms Five Forces of Competition

23. Cost Leadership & the 5 Forces of Competition Can mitigate buyers’ power by: Driving prices far below competitors, cause exit & shift power back to firm. Bargaining Power of Buyers (Customers) Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Rivalry Among Competing Firms Five Forces of Competition

24. Cost Leadership & the 5 Forces of Competition Can mitigate suppliers’ power by being able to: Absorb cost increases, due to low cost position Make large purchases, reducing chance of supplier using power Bargaining Power of Suppliers Bargaining Power of Suppliers Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Rivalry Among Competing Firms Five Forces of Competition

25. Cost Leadership & the 5 Forces of Competition Well positioned relative to substitutes because: Threat of Substitute Products Threat of Substitute Products Bargaining Power of Buyers Threat of New Entrants Bargaining Power of Suppliers Rivalry Among Competing Firms Five Forces of Competition Buy patents developed by potential substitutes  Lower prices to maintain value position  Make investments to create substitutes first 

26. Cost Leadership & the 5 Forces of Competition Can use cost leadership strategy to advantage since: Competitors avoid price wars with cost leaders, creating higher profits for the entire industry Rivalry with Existing Competitors Rivalry Among Competing Firms Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Five Forces of Competition

27. Major Risks of Cost Leadership Business Level 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.

28. Generic Business Level Strategies Cost Leadership Differen-tiation Breadth of Competitive Scope Broad Target Market Narrow Target Market Source of Competitive Advantage Cost Uniqueness

29. Differentiation strategy “ An integrated set of actions designed by a firm to produce or deliver goods or services that customers perceive as being different in ways that are important to them.”

30. How to Obtain a Differentiation Advantage - customer perceptions of uniqueness - customer reluctance to switch to non-unique product Raise performance of product or service Lower buyers’ costs Create sustainability through: Cost Drivers Value Chain Control if needed Reconfigure to maximize

31. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Inbound Logistics Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Inbound Logistics Support Activities Primary Activities

32. Value Creating Activities common to a Differentiation Business Level Strategy Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Systems and procedures used to find the highest quality raw materials Rapid and timely product deliveries to customers Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Operations Operations Consistent manufacturing of attractive products Rapid responses to customers unique manufacturing specifications Support Activities Primary Activities

33. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Outbound Logistics Outbound Logistics Accurate and responsive order processing procedures Rapid and timely product deliveries to customers Support Activities Primary Activities

34. Value Creating Activities common to a Differentiation Business Level Strategy Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Marketing & Sales Marketing & Sales Extensive personal relationships with buyers Strong coordination among functions in R&D, marketing & product development Premium pricing Support Activities Primary Activities

35. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Service Service Complete field stocking of replacement parts Systems and procedures used to find the highest quality raw materials Support Activities Primary Activities

36. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Primary Activities Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Procurement Procurement Located in Close Proximity with Suppliers Systems & procedures used to find the highest quality raw materials Purchase of highest quality replacement parts

37. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emphasis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Technological Development Technological Development Strong capability in basic research Investments in technol-ogies to produce highly differentiated products Coordination among R&D, marketing and product development Support Activities Primary Activities

38. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Support Activities Human Resource Management Compensation programs which encourage worker creativity & productivity Extensive use of subjective perform-ance measures Superior personnel training Primary Activities Human Resource Management

39. Value Creating Activities common to a Differentiation Business Level Strategy Support Activities Support Activities Technological Development Human Resource Management Firm Infrastructure Procurement Inbound Logistics Operations Outbound Logistics Marketing & Sales Service MARGIN MARGIN A companywide emph-asiis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity & prod. Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in tech. that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin-ation among functions in R&D, Marketing and Product Development Premium Pricing Support Activities Firm Infrastructure Firm Infrastructure A company-wide emphasis on producing high quality products Highly developed info. systems to better understand customers’ purchasing preferences Primary Activities

40. Differentiation & the 5 Forces of Competition Can defend against new entrants since new products: Must surpass proven products or, Must be at least equal to performance of proven products, but offered at lower prices Threat of New Entrants Threat of New Entrants Bargaining Power of Buyers Threat of Substitute Products Bargaining Power of Suppliers Rivalry Among Competing Firms Five Forces of Competition

41. Differentiation & the 5 Forces of Competition Can mitigate buyers’ power because: Well differentiated products reduce buyer sensitivity to price increases Bargaining Power of Buyers (Customers) Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Rivalry Among Competing Firms Five Forces of Competition

42. Differentiation & the 5 Forces of Competition Can mitigate suppliers’ power by being able to: Absorb price increases due to higher margins Pass along higher supplier prices since buyers are loyal to differentiated brand Bargaining Power of Suppliers Bargaining Power of Suppliers Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Rivalry Among Competing Firms Five Forces of Competition

43. Differentiation & the 5 Forces of Competition Well positioned relative to substitutes because: Brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands. Threat of Substitute Products Threat of Substitute Products Bargaining Power of Buyers Threat of New Entrants Bargaining Power of Suppliers Rivalry Among Competing Firms Five Forces of Competition

44. Differentiation & the 5 Forces of Competition Can defend against new entrants because: brand loyalty to differentiated product offsets price competition Rivalry with Existing Competitors Rivalry Among Competing Firms Bargaining Power of Buyers Threat of New Entrants Threat of Substitute Products Bargaining Power of Suppliers Five Forces of Competition

45. Major Risks of a Differentiation Business Level Strategy Customers may decide that the differentiation between the differentiator’s product and the cost leaders price is too large. A firm’s means of differentiation may cease to provide value for which customers are willing to pay. The means of uniqueness may no longer be valued by customers.

46. Generic Business Level Strategies Focused Differen- tiation Cost Leadership Differen- tiation Focused Cost Leadership Breadth of Competitive Scope Broad Target Market Narrow Target Market Source of Competitive Advantage Cost Uniqueness

47. Focus Strategies Focus strategies are an integrated set of actions designed to produce or deliver goods or services that serve the needs of a particular competitive segment.

48. Firm may lack resources to compete industry wide. Large firms may overlook small niches. The firm may be able to serve a narrow market segment more effectively than industry wide competitors. Focus can allow you to direct resources to certain value chain activities to build competitive advantage. Focused Business Level Strategies * However... Opportunities may exist because: Focused Business Level Strategies involve the same basic approach as Broad Market Strategies.

49. Focused Business Level Strategies - Purdy’s Chocolates High quality chocolates Minimize R&D costs by copying innovators * Differentiated features with low cost products * Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. - Ikea Good design & function at low prices

50. Focused Business Level Strategies an * Focused Differentiators may thrive by selecting a small market that is underserved by large players. * Focused Business Level Strategies involve the same basic approach as Broad Market Strategies.

51. Major Risks Involved With a Focused Differentiation Business Level Strategy Firm may be “out focused” by competitors. Large competitor may set its sights on your niche market. Preferences of niche market may change to match those of broad market.

52. Generic Business Level Strategies Focused Differen- tiation Cost Leadership Differen- tiation Focused Cost Leadership Breadth of Competitive Scope Broad Target Market Narrow Target Market Source of Competitive Advantage Cost Uniqueness Integrated Low Cost/ Differentiation

53. Integrated Low Cost/Differentiation Firms using an Integrated Strategy may: Information networks Total Quality Management Systems Adapt more quickly Learn new skills and technologies May utilize Flexible Manufacturing Systems to create differentiated products at low costs via Leverage core competencies while competing against it’s rivals

54. Total Quality Management - TQM Meeting customer expectations while striving to exceed them. Focusing on work activities to drive out waste. Focus on “Continuous Improvement”. Develop the flexibility to spot opportunities to simultaneously increase differentiation and /or drive out costs. An Integrated Strategy will also call for TQM:

55. Integrated Low Cost/Differentiation Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise. The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy.

56. The Strategic Management Process Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics Chapter 7: Corp.-Level Strategy Chapter 8: Acquisition & Restructuring Chapter 9: International Strategy Chapter 10: Cooperative Strategy Strategy Formulation Strategic  Actions  Chapter 3: The External Environment Strategic Competitiveness Strategic Mission & Strategic Intent Strategic Objectives & Inputs Chapter 1: Strategic Management Ch. 2: Strat. Mgmt . & Performance Chapter 3: The External Environment Chapter 3: The External Environment Chapter 4: The Internal Environment Chapter 5: Bus.-Level Strategy Chapter 11: Corporate Governance Ch. 12: Org. Structure & Controls Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategy Implementation Strategic Competitiveness