31-May-16

BRAC University
BRAC Business School

MGT 601; Sec. 1

Strategic Management
Summer Semester, 2016
Lecture 5

Todays lecture outline

Generic Competitive Strategies
Operational/Functional Strategy
Business-level Strategy

Levels of strategy
Generic Competitive Strategies

Operational/Functional Strategy
Business/Competitive Strategy
Corporate Strategy

Functional-Level Strategies
...aimed at improving the effectiveness of a companys
operations... operational methods & value adding
activities that you choose for your business

BUILDING COMPETITIVE ADVANTAGE

THROUGH FUNCTIONAL-LEVEL STRATEGY

Aim to give a firm superior:

Efficiency
Quality
Innovation
Customer responsiveness
This leads to a competitive advantage and superior
profitability & profit growth.

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Building Blocks
Efficiency
Quality
Innovation
Customer Responsiveness

BUILDING COMPETITIVE ADVANTAGE

THROUGH BUSINESS-LEVEL STRATEGY

Business-level strategy
Business-level strategy is a plan of
action which focus on the direct
utilisation of resources, strengths and
core/distinctive competencies in the
search for sustainable competitive
advantage (SCA) over rivals in a
particular industry/market

Identifying Customer Groups & Market Segments

Firms must decide/evaluate:

Customer needs WHAT is to be satisfied
Customer groups WHO is to be satisfied
Distinctive competencies HOW
customers are to be satisfied

Business-level Strategy
Key issues
Which good or
service to offer
customers?

Businesslevel
strategy

How to
manufacture or
create it?

How to
distribute it?

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Generic business strategies

Porter (1980) argued that there are :
3 basic generic competitive strategies attempt
to gain SCA through:
Cost-leadership: Being the lowest cost
producer/supplier in the industry
Differentiation: The consumer perception of
uniqueness in product/service
Focus/Niche: Finding a market segment &
concentrate activities there

Value-creating activities for cost leadership

Cost-effective MIS
Few management layers
Simplified planning
Consistent policies
Effecting training
Easy-to-use manufacturing
technologies
Investments in
technologies
Finding low cost raw
materials

Monitor suppliers
performances
Link suppliers products to
production processes
Economies of scale
Efficient-scale facilities
Effective delivery
schedules
Low-cost transportation
Highly trained sales force
Proper pricing

Low-Cost Leadership
Pitfalls of Low-Cost Strategies
1.
2.
3.
4.
5.
6.

Low-Cost Leadership
Make achievement of low-cost relative to
rivals the theme of firms business strategy
Find ways to drive costs out of business yearafter-year

Low-Cost Leadership
Advantages
Protected from competitors by cost advantage
Less affected by increased prices of inputs if there
are powerful suppliers
Less affected by a fall in price of inputs if there are
powerful buyers
Purchases in large quantities increase bargaining
power over suppliers
Ability to reduce price to compete with substitute
products
Low costs and prices are a barrier to entry

Differentiation strategy
A differentiation strategy is an
integrated set of actions
designed to produce goods or
services that customers perceive
as being different in ways that
are important to them

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Differentiation strategy
Preconditions
Quality
R&D
Capital
Market research
Differentiated skills
Complex supply chain

Types of Differentiation Themes

Superior service -- FedEx, Ritz-Carlton
Spare parts availability -- Caterpillar
More for your money -- McDonalds, Wal-Mart
Engineering design and performance -- Mercedes
Prestige -- Rolex
Quality manufacture -- Honda , Toyota
Technological leadership -- 3M Corporation, Intel
Top-of-the-line image -- Ralph Lauren, Chanel

Value-creating activities for differentiation

Highly developed MIS
Emphasis on quality
Worker compensation for
creativity/productivity
Use of subjective
performance measures
Basic research capability
Technology
High quality raw materials
Delivery of products

High quality replacement

parts
Superior handling of
incoming raw materials
Attractive products
Rapid response to
customer specifications
Order-processing
procedures
Customer credit
Personal relationships

Differentiation strategy
Advantages
Protected from industry competitors & new entrants by
brand loyalty (Customers develop brand loyalty).
Less vulnerable to moderate increases in cost of inputs (Can
pass price increases on to loyal customers)
Less vulnerable to powerful buyers because of unique
products (Powerful buyers not problem because product
distinct)
Powerful suppliers not problem because company geared
more toward price it can charge than costs.
Differentiation & brand loyalty = barriers to entry.
Threat of substitute products depends on competitors
ability to meet customer needs.

Differentiation strategy

Focus/Niche Strategy
Pitfalls of Differentiation Strategies
1.
2.
3.
4.

A focus strategy is an integrated set of actions

designed to produce or deliver goods or
services that serve the needs of a particular
competitive segment

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Focus/Niche Strategies
Involve concentrated attention on a narrow piece of
the market
Serve niche buyers better than rivals
Choose a market niche where buyers have
distinctive preferences, special requirements, or
unique needs
Develop unique capabilities to serve that target
buyer segment

Approach 1
Achieve lower costs than rivals in serving a welldefined buyer segment
Focused low-cost strategy

Approach 2
Offer a product appealing to unique preferences
of a well-defined buyer segment
Focused differentiation strategy

Advantages of Focus Strategies

Focuser protected from rivals to extent can
provide a product /service they cannot.
Focuser has power over buyers because they
cannot get same thing elsewhere.
Threat of new entrants limited by customer loyalty
to focuser.
Customer loyalty lessens threat from substitutes.
Focuser stays close to customers and changing
needs.

Focus/Niche Strategy
Involve concentrated attention on a
narrow piece of the total market.
Market share
Profit margin
Product range
Market research
R&D capability

Focus/Niche Strategy
What Makes a Niche Attractive for Focusing?
When?
Is it possible?
Size
Rivals attitude
Uniqueness

Pitfalls of Focus Strategies

Focuser at disadvantage to powerful suppliers
because it buys in small volume (but may pass costs
to loyal customers).
Because of low volume, focuser may have higher
costs than low-cost company.
Focusers niche may disappear because of
technological change or changes in customers
tastes.
Differentiators will compete for focusers niche.

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Why Focus Strategies Are Different

Best Cost Provider Strategies

Combine

When is a Best-Cost Provider Strategy Appealing?

When buyer diversity makes product

differentiation the norm
When many buyers are also sensitive to
price and value

Mid-term Exam Briefing

Date: 11 June; Saturday
Time: 4:30pm-6:30pm
Venue: Lecture room

a strategic emphasis on low-cost with a

strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money

Risk of a Best-Cost Provider Strategy

A best-cost provider may get squeezed
between strategies of firms using low-cost &
differentiation strategies
Low-cost leaders may be able to siphon
customers away with a lower price
High-end differentiators may be able to
steal customers away with better product
attributes

Exam Briefing
The examination is worth 25% of
total marks and you will have two
hours for the paper.
MGT 601: Strategic Management is
a closed book examination.

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Exam Briefing
This examination consists of two sections:
Section A
Section B
You are required to answer 3 (three) questions
in total.
You answer 1 (one) question from Section A
(13 marks)
You answer 2 (two) questions from Section B
( 6x2=12 Marks)

Exam Briefing
Read your questions very carefully and provide
answers that are relevant and as far as possible
provide examples to demonstrate that you
understand the concepts.
The best source of examples is your prescribed
textbook and the cases you have
presented/discussed in lectures.
Use examples from cases as much as you can.
You can also illustrate your answers with cases found
in other textbooks or from your own practical
experience.
Make sure that your case references are contextually
relevant.

Strategic Management
Topics covered
Lecture 3: External Environment Analysis
Importance
The macro-environment
Industry structure
Strategic group mapping
Competitors analysis
Critical success factors
Lecture 4: Internal Environment Analysis
Importance
Resources
Capabilities
Core competencies
Competitive advantage
Value chain analysis
SWOT analysis

Exam Briefing
Marks allocated to the questions have been
indicated on the right side.
You do not need to provide references for
your answers to exam questions.
Please do not try to memorise answers.
I would like to see the degree of your
understanding of strategic management
issues not your capacity to memorise them.

Strategic Management
Topics covered
Lecture 1 & 2
Strategic management:
Define & discuss
Strategy
Strategic management
Strategy is partly proactive and partly reactive
Strategic vision & strategic mission
Strategic management process
Importance of SM
Challenges of SM

Strategic Management
Topics covered

Lecture 5: Strategy Formulation

Generic competitive strategies
Functional level strategies
Business level strategies
Cost-leadership strategy
Differentiation strategy
Focus strategy

Best cost provider strategy