1 Business-Level Strategy Chapter Five
1 Business-Level Strategy Chapter Five. 2 Chapter 5 Bus.-Level Strategy Chapter 6 Competitive Dynamics Chapter 9 International Strategy Chapter 10 Cooperative.
Dec 19, 2015
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1
Business-Level Strategy
Chapter Five
2
Chapter 5Bus. - Level
Strategy
Chapter 6Competitive
Dynamics
Chapter 9International
Strategy
Chapter 10CooperativeStrategies
Chapter 8Acquisitions &Restructuring
Chapter 11Corporate
Governance
Chapter 12Structure& Control
Chapter 13Strategic
Leadership
Chapter 14Entrepreneurship& Innovation
Str
ateg
icIn
pu
ts
Str
ateg
icA
ctio
ns
Str
ateg
icO
utc
om
esChapter 4Internal
Environment
Chapter 3External
Environment Strat . Intent
Strat . Mission
The Strategic .
Management .
Process
Strategy Formulation Strategy Implementation
Strategic Competitiveness
Chapter 1
Above Average Returns
Chapter 2 Feedback
Strategic Competitiveness
Chapter 1
Chapter 7Corp. - Level
Strategy
Chapter 5Bus. – Level Strategy
5-3© 2006 by Nelson, a division of Thomson Canada Limited.
The Central Role of Customers
In selecting a business-level strategy, the firm In selecting a business-level strategy, the firm determinesdetermines
1. 1. WhoWho it will serve. it will serve.
2.2. WhatWhat needs those target customers have needs those target customers have that it will satisfy.that it will satisfy.
3.3. HowHow those needs will be satisfied. those needs will be satisfied.
4
Strategy
Business Level Strategy
CoreCompetency
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.
Core Competency, Strategy and Business Level Strategy
5
Three Generic Strategies
Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Competitive Advantage and Business Performance
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Performance
Competitive Advantage
Return oninvestment (%) 35.5 32.9 30.2 17.0 23.7 17.8
Sales Growth (%) 15.1 13.5 13.5 16.4 17.5 12.2
Gain in MarketShare (%) 5.3 5.3 5.5 6.1 6.3 4.4
Sample Size 123 160 100 141 86 105
Differentiation and Cost Differentiation Cost
Differentiation Focus
Cost Focus
Stuck in the Middle
Adapted from Exhibit5.2 Competitive advantage and business performance
7
1 Determine and Control Cost Drivers
New distribution channelNew advertising media
Direct sales in place of indirect sales
Alter production processChange in automationNew raw material
Forward integrationBackward integrationAlter location relative to suppliers or buyers
2 Reconfigure the as neededValue Chain
How to Obtain a Cost Advantage
Value-Chain Activities: Overall Cost Leadership
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Exhibit 5.3 Value-Chain Activities: Examples of Overall Cost LeadershipSource: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.
9
Cost Leadership Strategy and the Five Forces of Competition
Rivalry with Existing Rivalry with Existing CompetitorsCompetitorsCan use cost leadership strategy Can use cost leadership strategy to advantage since:to advantage since:
competitors avoid price wars with cost leaders, creating higher profits for the entire industry
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
10
Cost Leadership Strategy and the Five Forces of Competition
Bargaining Power of Buyers Bargaining Power of Buyers (Customers)(Customers)
Can mitigate buyers’ power by:Can mitigate buyers’ power by:Driving prices far below competitors and cause exit and shift power back to firm.
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
11
Cost Leadership Strategy and the Five Forces of Competition
Bargaining Power of SuppliersBargaining Power of Suppliers
Can mitigate suppliers’ power by:Can mitigate suppliers’ power by: being able to absorb cost
increases due to low cost position
being able to make very large purchases, reducing chance of supplier using power
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
12
Cost Leadership Strategy and the Five Forces of Competition
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
Threat of New EntrantsThreat of New Entrants
Can frighten off new entrants due to: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
Value-Chain Activities: Differentiation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Exhibit 5.5 Value-Chain Activities: Examples of DifferentiationSource: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.
14
Differentiation Strategy and the Five Forces of Competition
Threat of Substitute ProductsThreat of Substitute Products
Well positioned relative to substitutes Well positioned relative to substitutes because:because:
brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands.
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
15
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.
Major Risks of Cost LeadershipBusiness Level Strategy
16
Breadth of Competitive
Scope
BroadTargetMarket
NarrowTargetMarket
CostLeadership
Differentiation
Source of Competitive Advantage
Cost Uniqueness
Generic Business Level Strategies
17
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.”
18
How to Obtain a Differentiation Advantage
Cost DriversCost Drivers Value ChainValue Chain
Control if neededControl if needed Reconfigure to Reconfigure to maximizemaximize
- customer perceptions of uniqueness- customer perceptions of uniqueness- customer perceptions of uniqueness- customer perceptions of uniqueness
- customer reluctance to switch to non-unique product- customer reluctance to switch to non-unique product- customer reluctance to switch to non-unique product- customer reluctance to switch to non-unique product
• Raise performance of product or serviceRaise performance of product or service
• Lower buyers’ costsLower buyers’ costs
• Create sustainability through:Create sustainability through:
19
Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms Rivalry Among Competing Firms
Can defend against competition because:Can defend against competition because: brand loyalty to differentiated product
offsets price competition
Rivalry Among
Rivalry Among
Competing Firms
Competing FirmsB
arga
inin
g P
ower
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
20
Differentiation Strategy and the Five Forces of Competition
Bargaining Power of BuyersBargaining Power of Buyers
Can mitigate buyer power because:Can mitigate buyer power because: well differentiated products
reduce customer sensitivity to price increases
Rivalry Among
Rivalry Among
Competing Firms
Competing FirmsB
arga
inin
g P
ower
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
21
Differentiation Strategy and the Five Forces of Competition
Bargaining Power of SuppliersBargaining Power of Suppliers
Can mitigate suppliers’ power by:Can mitigate suppliers’ power by: absorbing price increases due to higher
margins passing along higher supplier prices
because buyers are loyal to differentiated brand
Rivalry Among
Rivalry Among
Competing Firms
Competing FirmsB
arga
inin
g P
ower
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
22
Differentiation Strategy and the Five Forces of Competition
Threat of New EntrantsThreat of New Entrants
Can defend against new entrants Can defend against new entrants because:because:
new products must surpass proven products or,
new products must be at least equal to performance of proven products, but offered at lower prices
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
23
Differentiation Strategy and the Five Forces of Competition
Threat of Substitute ProductsThreat of Substitute Products
Well positioned relative to Well positioned relative to substitutes because:substitutes because:
brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands
Rivalry Among
Rivalry Among
Competing Firms
Competing Firms
Bar
gain
ing
Pow
er
Bar
gain
ing
Pow
er
of B
uyer
sof
Buy
ers
Bargaining Power Bargaining Power of Suppliersof Suppliers
Threat of N
ew
Threat of N
ew
Entrants
Entrants
Threat o
f
Threat o
f
Substitute
Products
Substitute
Products
Five Forces ofFive Forces ofCompetitionCompetition
24
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.
Major Risks of a DifferentiationBusiness Level Strategy
25
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.
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