Slide strategic management 6e by harrison chapter 5 business level strategies

Learning ObjectivesTo understand: • generic competitive strategies and the way they are executed • the elements of a business model • how competitive dynamics influence industries and

Chapter 5 Business-level Strategies

Learning Objectives

To understand:

• generic competitive strategies and the way they

are executed

• the elements of a business model

• how competitive dynamics influence industries

and the companies they contain

• the most common competitive tactics

• strategies in an international context and over

time

Direction

Strategy Formulation (corporate and business level)

Strategy Implementation

and Control

External and Internal

Analysis Strategic Management Process

Business-Level Strategy Formulation Responsibilities

• Direction setting—Mission, vision, ethics, goals

• Situation analysis—Compilation and assessment of

information

• Selection of strategies—Generic strategy (cost

leadership, differentiation, best cost, focus) and

competitive tactics, including growth strategy

• Management of resources—Acquisition and/or

development of resources leading to competitive advantage

Business-Level Strategies

• Generic Strategies - how the firm intends to

position itself to create value for its

customers in ways that are different from

those of competitors

• Competitive Tactics - the competitive

actions firms take to grow and increase the

strength of or protect their competitive

positions

Generic Strategies

Value propositions associated with generic competitive

strategies

Differentiation: Offer value to customers by providing

them with a preferred product or service

Low-cost leadership: Offer value to customers by providing them with a standard product or service produced at

lower cost (and typically offered at a lower price)

Best cost: A combination of the first two options.

Note: these strategies assume that the firm is seeking a

broad customer base If the firm is pursuing a particular market segment it is using a “focus” strategy.

Create value through some type of

uniqueness, such as:

• Product innovations

• Superior quality or service

• Creative advertising

• Speed and Flexibility

• Reputation and Brand Name

Customers must be willing to pay more for

the uniqueness

• Added costs vs incremental price

Differentiation

Low-Cost Leadership

Common ways to pursue low-cost leadership:

•Accurate demand forecasting and high capacity utilization

•Economies of scale

•Technological advances

•Experience effects

Typical Experience Curve

unit

cost

• Combination of low-cost leadership and

differentiation

• The reasons it works:

The same resources/activities that allow cost

reductions may also allow differentiation

(e.g., automation that lowers costs and

improves speed and service)

Profits from cost reductions may be used to

invest in differentiating features, and vice

versa

Best Cost

• The firm serves the needs of a particular

market segment

• In combination with one of the other three

generic strategies:

focus through differentiation

focus through low-cost leadership

focus through best cost

Focus

Business Models

• Important elements:

› Identifying market segments to be targeted

› Determining unique sources of value for customers

(differentiating features, low cost, or a balance)

› Selecting unique features and technologies for products

› Determining how to capture value, incl pricing

› Verifying sufficient demand exists

• Decisions regarding assets:

› Types of assets sold (physical, service, financial, intangible)

› Rights given to consumers (complete transfer, distribution,

temporary use, fee for matching buyers/sellers)

Defining a Business Model

Market segments

targeted:

•Broad market

•Focus on a

particular market

segment or

segments

Market(s)

Assets sold:

•Physical products

•Services

•Financial assets

•Intangible assets

Rights to assets provided:

•Complete transfer

•Distribution of

assets created by others

•Rights to use

assets for a time

•Broker (match

Assets

Unique sources of value:

•Differentiation:

unique features and technologies embedded in assets

•Low cost: Basic

products/services

or assets at a low price

•Best cost: high

value to cost ratio

Value Creation

Determination of approach for capturing revenues and profits

(financial feasibility)

Determination of demand for products, services,

or other assets as defined and at a particular price

Value Capture

Competitive Tactics

• Internal Growth Strategies

• External Growth Strategies

Competitive Tactics

International Growth Tactics

• Exporting

• Licensing

• Franchising

• Joint Venture

• Greenfield Venture

Note: Moving down the list entails not only greater cost and

Approach to International Markets

products/services for individual

international markets

the world

The Industry Life Cycle

A

B

C Introduction

Growth

Maturity

Commodity

or Decline

Unit

Sales

Volume