Lecture 5 - Business Level Stratey Read-Only

PART 2:
STRATEGIC ACTIONS:
ACTIONS
STRATEGY
FORMULATION
UNIT 4:
BUSINESS-LEVEL
STRATEGY
Authored by:
Marta Szabo White, Ph.D
Georgia State University
THE STRATEGIC MANAGEMENT
PROCESS
©2013 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as
permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
KNOWLEDGE OBJECTIVES
● Define business-level strategy.
Discuss the relationship between customers

and 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.
OPENING CASE
MORNING JOE IN THE AFTERNOON IN CHINA, INDIA, & BEYOND:
THE NEW STARBUCKS
With the 2008 global financial crisis and

competitors, e.g., McDonald’s gaining
market share, consumers were less willing
to pay the high prices for premium coffee,
leading to a reduction in store sales for the
first time in Starbucks’ history.
■ Starbucks appeared to be unable to control
the quality of the “experience” and began
losing its differentiation advantage.
OPENING CASE
MORNING JOE IN THE AFTERNOON IN CHINA, INDIA, & BEYOND:
THE NEW STARBUCKS (cont’d)
CEO Howard Schultz closed 900 poorly performing

stores in the United States and refocused on
innovation.
By 2011, with its 40th anniversary, a new logo,

innovation such as VIA and customers paying for
their purchases with their iPhones, environmental
consciousness, employee health insurance, and a
global focus on emerging markets such as China
and India, Starbucks was once again differentiating
itself.
IMPORTANT DEFINITION
BUSINESS–
BUSINESS–LEVEL STRATEGY: HOW
TO COMPETE IN A SPECIFIC INDUSTRY
An integrated and coordinated set of
commitments and actions the firm uses to gain
a competitive advantage by exploiting core
competencies in specific product markets
■ It is the core strategy
■ Every firm must form and use a business-level
strategy for each one of its businesses
■ Business-level strategy choices matter because
long-term performance is linked to a firm’s
strategies
BUSINESS-
BUSINESS-LEVEL STRATEGY
ONE
•A single-product market/single
BUSINESS-
BUSINESS- geographic location firm employs one
business-level strategy and one
LEVEL corporate-level strategy identifying what
or which industry the firm will compete
STRATEGY in
SEVERAL •A diversified firm employs a separate

business-level strategy for each product
BUSINESS-
BUSINESS-LEVEL market area in which it competes and
one or more corporate-level strategies
STRATEGIES dealing with product and/or geographic
diversity
CORE COMPETENCIES AND
STRATEGY
Resources and superior capabilities that
Core are sources of competitive advantage
Competencies
over a firm’s rivals
An integrated and coordinated set of

actions taken to exploit core competencies
Strategy
and gain competitive advantage
Providing value to customers and gaining

Business--level
Business competitive advantage by exploiting core
Strategy competencies in individual product
markets
CUSTOMERS:
THEIR RELATIONSHIP TO BUSINESS-
BUSINESS-LEVEL
STRATEGIES
KEY ISSUES Who will be

served?
in
BUSINESS-
BUSINESS-
What needs will
LEVEL be satisfied?
STRATEGY
How will those
needs be satisfied?
CUSTOMERS:
BUSINESS-LEVEL
STRATEGIES
Adept at identifying
customer needs across
cultures and geography
EFFECTIVE
GLOBAL
COMPETITORS Quickly and successfully
adapt products/services
to meet those needs
BUSINESS-
BUSINESS-LEVEL STRATEGIES
FIVE COMPETITIVE FORCES
GENERIC:
Applicable VALUE CHAIN
ACTIVITIES
to any
organization in
any RISKS for each Strategy
industry
Effective STRUCTURE
for each Strategy
CUSTOMERS:
BUSINESS-LEVEL
STRATEGIES
SATISFYING CUSTOMERS IS THE

FOUNDATION OF SUCCESSFUL
BUSINESS STRATEGIES
• Managing relationships with customers
• Reach, richness, affiliation
• Who will be served
• What needs will be satisfied
• How those needs will be satisfied
CUSTOMERS: THEIR RELATIONSHIP
TO BUSINESS-
REACH
Access and Connection
EFFECTIVELY to Customers
MANAGING RICHNESS
RELATIONSHIPS Depth and Detail of Two-
Two-Way Flow
of Information Between
WITH the Firm and Customer
CUSTOMERS
AFFILIATION
Facilitating Useful Interactions
With Customers
WHO: DETERMINING THE
CUSTOMERS TO SERVE
MARKET SEGMENTATION
A PROCESS USED TO CLUSTER PEOPLE
WITH SIMILAR NEEDS INTO INDIVIDUAL
AND IDENTIFIABLE GROUPS
Consumer Industrial
Markets Markets
MARKET SEGMENTATION:
CONSUMER MARKETS
1. DEMOGRAPHIC FACTORS
- age,
age, income, sex, etc.
etc.
2. SOCIOECONOMIC FACTORS
- social class, stage in the family life cycle
3. GEOGRAPHIC FACTORS
- cultural, regional, and national differences
4. PSYCHOLOGICAL FACTORS
- lifestyle, personality traits
5. CONSUMPTION PATTERNS
- heavy, moderate, and light users
6. PERCEPTUAL FACTORS
- benefit segmentation, perceptual mapping
MARKET SEGMENTATION:
INDUSTRIAL MARKETS
1. END
END--USE SEGMENTS
• identified by SIC 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
4. COMMON BUYING FACTOR SEGMENTS
• cut across product market and
geographic segments
5. CUSTOMER SIZE SEGMENTS
WHAT: DETERMINING WHICH
CUSTOMER NEEDS TO SATISFY
Customer needs are related to a
product’s benefits and features
Customer needs are neither right nor
wrong, good nor bad
■ Customer needs represent desires in
terms of features and performance
capabilities
■ Successful firms learn how to deliver to
customers what they want, when they
want it
Customers are the lifeblood of a firm
HOW: DETERMINING CORE COMPETENCIES
NECESSARY TO SATISFY CUSTOMER NEEDS
Firms use core competencies to implement value

creating strategies that satisfy customers’ needs
Value means goods or services that provide
either low cost with acceptable features or highly
differentiated features with acceptable costs
■ Only firms with capacity to continuously improve,
innovate,
innovate, and upgrade their competencies can
expect to meet and/or exceed customer
expectations across time
CUSTOMERS:
HOW WHAT WHO
WHAT: WHO:
Satisfy Customer Target Group
Needs of Customers
BUSINESS-
PURPOSE
BUSINESS-
are intended to create differences
between the firm’s position relative to
those of its rivals
To position itself, the firm must decide
whether it intends to:
● Perform activities differently, or
● Perform different activities as
compared to its rivals
BUSINESS-
PURPOSE
BUSINESS-
iss a deliberate choice about how the firm
will perform the value chain activities to
create unique value
Southwest’s Competitive Advantages
(rivals unable to imitate):
● Tight integration among activities
● Cost leadership strategy
● Unique culture and customer service
BUSINESS-
PURPOSE
FIGURE 4.1
Southwest
Airlines Activity
System
SOURCES OF COMPETITIVE
ADVANTAGE
Achieving LOWER OVERALL COSTS than rivals

Performing activities differently (reducing
process costs)
Providing a low cost product that customers
deem as ACCEPTABLE
■ Possessing the capability TO DIFFERENTIATE
the firm’s product or service and command a
premium price
■ Performing MORE HIGHLY VALUED activities
FIVE GENERIC BUSINESS-
BUSINESS-LEVEL
FIGURE 4.2
STRATEGIES
Five Business
Level
Strategies
TARGET MARKETS
•Firms serving a broad market seek

BROAD to use their capabilities to create
value for customers on an
industry-wide basis; competing in
many customer segments
•A narrow market segment means

that the firm intends to serve the
needs of a narrow customer
NARROW group; tailoring its strategy to
serving them at the exclusion of
others
BUSINESS-
EFFECTIVENESS
None of the five business-level strategies is
inherently or universally superior to the others
The effectiveness of each strategy is contingent
upon:
● External opportunities/threats
● Internal strengths/weaknesses
■ KEY:
KEY A successful business-level strategy must
match external opportunities/threats with
internal strengths, i.e., its core competencies
COST LEADERSHIP STRATEGY
An integrated set of actions taken to produce

goods or services with features that are
acceptable to customers at the lowest cost,
relative to that of competitors with features
that are acceptable to customers
■ Relatively standardized products

■ Features acceptable to many customers
■ Lowest competitive price
COST LEADERSHIP STRATEGY:
VALUE CHAIN ACTIVITIES
Value chain analysis identifies the parts of a
firm’s operations that create value and those
that do not
A competitive advantage in logistics creates
more value for a cost leadership strategy than
for a differentiation strategy
Inbound logistics [materials handling,

warehousing, and inventory control]
Outbound logistics [collecting, storing, and
distribution]
COST SAVING ACTIONS
Employing process innovations that facilitate
efficient production and distribution methods
Building efficient scale facilities
Tightly controlling production costs and
overhead
■ Minimizing costs of sales, R&D, and service
■ Building efficient manufacturing facilities
■ Monitoring costs of activities provided by
outsiders
■ Simplifying production processes
FIGURE 4.3
Examples of
Value-Creating
Activities
Associated
with the Cost-
Leadership
Strategy
VALUE-
VALUE-CREATING ACTIVITIES FOR
COST LEADERSHIP
RECONFIGURE THE VALUE CHAIN FOR COST ADVANTAGE
• Cost-
Cost-effective MIS • Monitor suppliers’ performances
• Few management layers • Link suppliers’ products to
production processes
• Simplified planning
• Economies of scale
• Consistent policies
• Efficient-
Efficient-scale facilities
• Effecting training
• Effective delivery schedules
• Easy-
Easy-to-
to-use manufacturing
technologies • Low-
Low-cost transportation
• Investments in technologies • Highly trained sales force
• Finding low cost raw materials • Proper pricing
VALUE-
COST LEADERSHIP
Alter production process New raw material

Change in automation Forward integration
New distribution channel Backward integration
New advertising media Change location relative to
Direct sales in place of suppliers or buyers
indirect sales
STRATEGIC FOCUS
WALMART, DOLLAR STORES, AND AMAZON:
WHO IS BUYING WHOSE LUNCH?
■ Walmart deviated from its cost-leadership strategy
designed to take market share away from Target by
introducing organic foods, remodeling some stores,
and reducing the variety of products offered,
thereby increasing prices on some goods.
■ Recognizing its mistake, Walmart has re-focused on
low costs and prices, increased its product diversity,
and is opening 40 new express stores.
■ Will Walmart will be able to recapture its cost
leadership position in the market after giving it up to
rivals?
COMPETITORS
RIVALRY WITH • Due to cost leader’s
EXISTING advantageous position:
COMPETITORS – Rivals hesitate to compete
on basis of price
Threat of new
entrants
– Lack of price competition
Rivalry
Bargaining
leads to greater profits
among
competing firms power of
suppliers – Rivalry may be based on
factors such as size,
Threat of Bargaining
substitute power of
resources, location,
products buyers market dependence, and
prior competitive
interactions
BUYERS (CUSTOMERS)
BARGAINING • Can mitigate buyers’ power
POWER OF by:
BUYERS – Driving prices far below
competitors, causing them
Threat of new to exit, thus shifting power
entrants
away from buyers back to
Rivalry
Bargaining
the firm
among
power of
competing firms
suppliers
– Powerful customers can
force a cost leader to reduce
Threat of Bargaining its prices, but not below the
substitute power of
products buyers
level where the next-most-
efficient industry competitor
can earn average returns
SUPPLIERS
BARGAINING • Can mitigate suppliers’ power
POWER OF by:
SUPPLIERS
– Being able to absorb cost
increases due to low cost
Threat of new
entrants
position
Rivalry – Being able to make very large

Bargaining
among
competing firms power of purchases, reducing chance
suppliers
of supplier using power
Threat of Bargaining – Outsourcing, to reduce costs
substitute power of
products buyers may also require relationship-
building (Guanxi), particularly
to a foreign supplier
NEW ENTRANTS
THREAT OF • Barriers to potential
POTENTIAL entrants:
ENTRANTS
– Their need to enter on a large
scale in order to be cost
Threat of new competitive
entrants
Rivalry – The time it takes to move up

Bargaining
among
competing firms power of the learning curve
suppliers
– Efficiency of cost leaders
Threat of Bargaining through continuous efforts to
substitute power of
products buyers reduce costs enhances profit
margins and serves as a
significant entry barrier
SUBSTITUTES
PRODUCT • Cost leader is well
SUBSTITUTES positioned to:
– Make investments to be
first to create substitutes
Threat of new
entrants
– Buy patents developed by
Rivalry
Bargaining
potential substitutes
among
suppliers – Lower prices in order to
maintain value position
substitute power of – Be more flexible than its
products buyers
differentiated competitors
RISKS
• COMPETITIVE RISKS
– OBSOLESCENCE: processes used to produce
and distribute goods/services may become
obsolete due to competitors’ innovations
– COST REDUCTIONS: too much focus on cost
reductions may occur at expense of customers’
perceptions of differentiation
– IMITATION: competitors, using their own core
competencies, may successfully imitate the cost
leader’s strategy
DIFFERENTIATION STRATEGY
An integrated set of actions taken to produce
goods or services (at an acceptable cost)
that customers perceive as being different in
ways that are important to them
Focus is on non-standardized products

■ Appropriate when customers value
differentiated features more than they value
low cost
■ Firms must still be able to produce
differentiated products at competitive costs to
reduce upward pressure on the price that
customers pay
DIFFERENTIATION STRATEGY:
DISTINCTIVE ACTIONS
Firms seek to be different from competitors on as
many dimensions as possible
Differentiation approaches
Unusual features
■ Responsive customer service
■ Rapid product innovations
■ Technological leadership
■ Perceived prestige and status
■ Different tastes
■ Engineering design and performance
FIGURE 4.4
Examples of
Value-Creating
Activities
Associated
with the
Differentiation
Strategy
VALUE-
DIFFERENTIATION
• Highly developed MIS • High quality replacement parts

• Emphasis on quality • Superior handling of incoming
raw materials
• Worker compensation for
creativity/productivity • Attractive products
• Use of subjective • Rapid response to customer
performance measures specifications
• Basic research capability • Order-
Order-processing procedures
• Technology • Customer credit
• High quality raw materials • Personal relationships
• Delivery of products
VALUE-
DIFFERENTIATION
RECONFIGURE THE VALUE CHAIN FOR DISTINCTIVENESS
Whereas cost leadership targets a specific industry,

differentiation creates value by distinguishing
products/services
A firm must consistently upgrade differentiated features
that customers value and/or create new valuable features
(innovate) without significant cost increases
Create sustainability through:
Customer perceptions of distinctiveness
Customer reluctance to switch to non-
non-distinctive
products
COMPETITORS
RIVALRY WITH • The relationship
EXISTING between brand loyalty
COMPETITORS and price sensitivity
insulates a firm from
Threat of new
entrants competitive rivalry
Rivalry
among Bargaining
suppliers
• Reputation can also
sustain the competitive
Threat of Bargaining advantage of firms
substitute
products
power of
buyers
following a
differentiation strategy
BUYERS (CUSTOMERS)
BARGAINING • Can mitigate buyers’ power
POWER OF because well differentiated
BUYERS products reduce customer
sensitivity to price increases
Threat of new
entrants • Customers are willing to
Rivalry
accept a price increase
Bargaining
among
power of when a product satisfies
competing firms
suppliers their perceived unique
needs, as long as they do
substitute power of not think that an acceptable
products buyers product alternative exists
SUPPLIERS
BARGAINING • Can mitigate suppliers’ power
POWER OF by:
SUPPLIERS – Absorbing price increases
due to higher margins from
high-quality components
Threat of new
entrants
– Alternatively, considering
Rivalry
Bargaining
buyers’ relative
among
competing firms power of insensitivity to price
suppliers
increases and their brand
loyalty, firms may pass
substitute power of along higher supplier
products buyers prices to the buyer
DIFFERENTIATION STRATEGY: NEW
ENTRANTS
THREAT OF • Substantial barriers to
POTENTIAL potential entrants:
ENTRANTS – Customer loyalty and the
need to overcome the
uniqueness of a
Threat of new
entrants differentiated product
Rivalry
Bargaining
– New products must surpass
among
competing firms power of proven products
suppliers
– New products must be at
Threat of Bargaining least equal to the
substitute power of
products buyers
performance of proven
products, but offered at
lower prices
SUBSTITUTES
PRODUCT • Well-positioned relative to
SUBSTITUTES substitutes because:
– Brand loyalty to a
Threat of new
entrants differentiated product
Rivalry
tends to reduce:
among Bargaining
competing firms power of – customers’ testing of
suppliers
new products
Threat of Bargaining – switching brands
substitute power of
products buyers
RISKS
– PRICE DIFFERENTIAL: between the
differentiator’s and the cost leader’s products
becomes too large
– VALUE DIMINISHED: Differentiation ceases to

provide value for which customers are willing to pay
– EXPERIENCE: narrows customers’ perceptions of

the value of differentiated features
– COUNTERFEIT: goods replicate differentiated

features of the firm’s products
FOCUSED STRATEGIES
An integrated set of actions taken to
produce goods or services that serve the
needs of a particular competitive segment
Target markets include:
Particular buyer group (e.g., youths or
a
senior citizens)
■ Different segment of a product line (e.g.,
products for professional painters or the do-it-
yourself group)
■ Different geographic market (e.g., northern
or southern Italy by using a foreign subsidiary)
FOCUSED STRATEGIES
Types of focused strategies:

Focused cost leadership strategy
Focused differentiation strategy
To implement a focus strategy,
firms must be able to:
Complete various value chain activities in a
competitively superior manner in order to
develop and sustain a competitive advantage
and earn above-average returns
FACTORS THAT DRIVE
FOCUSED STRATEGIES
Large firms may overlook small niches

A firm may lack the resources needed to
compete in the broader market
■ A firm is able to serve a narrow market
segment more effectively than its larger
industry-wide competitors can
■ Focusing allows the firm to direct its
resources to certain value chain activities
to build competitive advantage
FOCUSED COST LEADERSHIP
STRATEGY
A firm focuses on a niche market,

adding value by leveraging value
chain activities that allow value-
creation through the cost
leadership strategy
■ Competitive advantage: low-cost
■ Competitive scope: narrow industry
segment
FOCUSED DIFFERENTIATION
STRATEGY
The value chain may be analyzed to

determine if a firm is able to link the
activities required to create value by
using the focused differentiation
strategy
■ Competitive advantage:
differentiation
■ Competitive scope: narrow industry
segment
FOCUS STRATEGIES: RISKS
– OUTFOCUSED: a focusing firm may be “out-
focused” by its competitors
– COMPETITION: a large competitor may
decide that the market segment served by the
focus strategy firm is attractive and worthy of
competitive pursuit
– CHANGING PREFERENCES: customer
preferences in the niche market may change
to more closely resemble those of the broader
market
INTEGRATED COST LEADERSHIP/
Efficiently produce products with differentiated
attributes:
• EFFICIENCY: SOURCES OF LOW COST
• DIFFERENTIATION: SOURCE OF UNIQUE
VALUE
■ Readily adapts to external environmental changes
■ Concentrates simultaneously on TWO sources of
competitive advantage: cost and differentiation
■ Competence and flexibility required in several value
chain activities
Three sources of flexibility useful

for this strategy:
■ Flexible manufacturing systems (FMS)
■ Information networks
■ Total quality management (TQM) systems
FLEXIBLE MANUFACTURING
SYSTEMS
Computer-controlled processes used to

produce a variety of products in
moderate, flexible quantities with a
minimum of manual intervention
■ Goal is to eliminate the “low cost versus

wide product variety” tradeoff
■ Allows firms to produce large variety of
products at relatively low costs
INFORMATION NETWORKS
Links companies electronically with their

suppliers, distributors, and customers
Facilitates efforts to satisfy customer
expectations in terms of product quality and
delivery speed
■ Improves flow of work among employees in
the firm and their counterpart suppliers and
distributors
■ Requires customer relationship management
(CRM)
TOTAL QUALITY MANAGEMENT
[TQM] SYSTEMS
Emphasize total commitment to the customer
through continuous improvement using:
Problem-solving approaches based on employee
empowerment
Benefits
■ Increased customer satisfaction
■ Lower costs
■ Reduced time-to-market for innovative products
TQM systems help firms maintain competitive
parity, but by itself, rarely will it lead to a
competitive advantage
DIFFERENTIATION STRATEGY: RISKS
“STUCK in the MIDDLE”

Strategy is gaining in popularity…
but is RISKY
Products do not offer sufficient value in terms
of either low cost or differentiation
DIFFERENTIATION STRATEGY: RISKS
“STUCK
STUCK in the MIDDLE”
MIDDLE
Cost structure is not low enough for
attractive pricing of products; products not
sufficiently differentiated to create value for
target customer
RESULT:
RESULT DO NOT EARN ABOVE-
ABOVE-AVERAGE
RETURNS

Lecture 5 - Business Level Stratey Read-Only

Caricato da

Informazioni sul documento

Copyright

Formati disponibili

Condividi questo documento

Condividi o incorpora il documento

Opzioni di condivisione

Hai trovato utile questo documento?

Questo contenuto è inappropriato?

Copyright:

Formati disponibili

Lecture 5 - Business Level Stratey Read-Only

Caricato da

Copyright:

Formati disponibili

PART 2:

● Define business-level strategy.

Discuss the relationship between customers

● Explain the differences among business-level

● Use the five forces of competition model to

● Describe the risks of using each of the

With the 2008 global financial crisis and

CEO Howard Schultz closed 900 poorly performing

By 2011, with its 40th anniversary, a new logo,

SEVERAL •A diversified firm employs a separate

An integrated and coordinated set of

Providing value to customers and gaining

KEY ISSUES Who will be

SATISFYING CUSTOMERS IS THE

Firms use core competencies to implement value

Achieving LOWER OVERALL COSTS than rivals

•Firms serving a broad market seek

•A narrow market segment means

An integrated set of actions taken to produce

■ Relatively standardized products

Inbound logistics [materials handling,

Alter production process New raw material

Rivalry – Being able to make very large

Rivalry – The time it takes to move up

Focus is on non-standardized products

• Highly developed MIS • High quality replacement parts

RECONFIGURE THE VALUE CHAIN FOR DISTINCTIVENESS

Whereas cost leadership targets a specific industry,

– VALUE DIMINISHED: Differentiation ceases to

– EXPERIENCE: narrows customers’ perceptions of

– COUNTERFEIT: goods replicate differentiated

Types of focused strategies:

Large firms may overlook small niches

A firm focuses on a niche market,

The value chain may be analyzed to

Three sources of flexibility useful

Computer-controlled processes used to

■ Goal is to eliminate the “low cost versus

Links companies electronically with their

“STUCK in the MIDDLE”

Potrebbero piacerti anche