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Anil Verma

BUSINESS LEVEL
STRATEGY
 Corporate level strategies provides broad
direction to the organisation
 Business level strategies individual business
or industry level strategies where most competitive
interaction occurs and where competitive
advantage is ultimately won or lost.

Thus Corporate level strategies lay down the


framework in which business strategies operate
&
Business level strategies deal with a portfolio of
businesses in such a manner that the overall
returns are optimised.
According to Michael E. Porter, the two
dynamic factors that determine the choice of
a competitive business strategy, are –

1. The Industry Structure


2. Positioning of a firm in the Industry
The Industry structure of any industry is
determined by the following five forces –

I. The threat of new entrants


II. The threat of substitute products or services
III. The bargaining power of suppliers
IV. The bargaining power of buyers
V. The rivalry among the existing competitors in
an industry.
(Porter’s Five Forces Model of Competition)
Every industry has a unique structure and these
above factors determine the long term
profitability of organisations in that industry.
As per Porter, Positioning is the overall
approach of the firm towards competing and is
designed to gain a sustainable competitive
advantage.

Positioning of a firm is based on two variables-

I. Competitive advantage
II. Competitive scope
I. Competitive Advantage can arise due to two
factors

Lower cost differentiation

II. Competitive Scope can be in terms of two


factors –

Broad target Narrow target


1. Lower cost approach– one type of positioning
approach is of offering mass-produced
products, distributed through mass marketing,
thereby resulting in lower cost per unit.

2. Differentiation - the other type of positioning


approach could be marketing relatively higher
priced products of a limited variety, but
intensely focussed on identified customer
groups who are willing to pay the higher price.
This is called differentiation.

Any of these approaches is adopted by an


organisation to compete within an industry.
Porter defines Competitive scope as the
breadth of an organisation’s target within its
industry.

Breadth means –
 The range of products
 Distribution channels
 Types of buyers
 The geographic areas served
 The array of related industries in which
the firm would also compete.
1. Market Leaders – Organisations with largest market
share
2. Market Challengers - Organisations that either
challenge the market leaders and choose not to
follow them
3. Market Followers – Organisations that imitate the
market leaders but do not upset the balance of
competitive power in the industry
4. Market Nichers – Organisations that carve out a
distinct niche that is left uncovered by the other
organisations in the industry
1. First Movers – The first company to
manufacture and sell a new product or service
is called the pioneer or the first mover.
2. Late Movers – The organisations which enter
the industry subsequently are late mover
organisations.

A sub strategy is called as Tactic .


 Four Stages of Industry Life Cycle –
1. Embryonic (Introduction) Stage – Investment and
capital needs are highest and the returns are low
and uncertain. E.g. Biotech, Drug development,
Organic foods, etc.
2. Growth Stage – Investment and capital needs
decrease but gradually. Returns are high. E.g.
Automobile, Mobile telephony, Pharmaceutical, etc.
3. Maturity Stage – Investment and capital decrease
significantly. Returns are slower and stabilise. E.g.
Steel, Textiles, Oil & Gas, etc.
4. Decline Stage – Investment and capital practically
cease. Returns decline. E.g. Agriculture, Mining, Print
media, Tobacco, etc.
Growth
Maturity Decline

Embryonic
Market Size

0 Time
STAGES IN INDUSTRY LIFE CYCLE
 The concept of the experience curve is akin to a
learning curve, which explains that efficiency increases
as learning is gained by workers through repetitive
productive work. The experience curve is based on the
commonly observed phenomenon that unit cost
declines as a firm accumulates experience in terms of
the cumulative volume of production.
 In simple terms, the more a company produces, the
more experience it accumulates. The implication is that
larger firms in an industry would tend to have lower
unit costs as compared to smaller companies, thereby
gaining a competitive cost advantage.
 An experience curve results from a variety of factors
such as learning effects, economies of scale, product
redesign and technological improvements in
production.
 Campbell, Goold and Alexander suggest that two
issues must be addressed by the diversified
corporation: (a) What businesses should a
diversified corporation own and why and (b) What
organisational structure, management processes
and philosophy will foster superior performance
from the corporation’s individual business units?
 They proposed the concept of corporate parenting
to consider the role of the corporate headquarters
in managing a set of businesses in a portfolio. A
diversified corporation or a multi-business
company is often viewed as consisting of a
corporate headquarter or centre with SBUs acting
as satellites. The manner in which the centre
manages and nurtures the individual businesses is
termed as corporate parenting.
 The total corporation is viewed in terms of
resources and capabilities that can be used to build
individual businesses as well as create synergies
across these businesses. In this manner, corporate
parenting attempts to do away with one major
drawback of the corporate portfolio techniques.
 While portfolio techniques consider the industry
attractiveness of various industries and focusses
on the cash contributions that each business could
make to the overall portfolio of businesses,
corporate parenting views the organisation in its
totality as a diversified corporation and focuses on
the value created from the relationship between
the parent and its businesses.