Ch4 Chapter 4 Business-Level Strategy Dr. Mubarak Ali
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Ch4-1
Chapter 4Chapter 4
Business-Level StrategyBusiness-Level Strategy
Dr. Mubarak AliDr. Mubarak Ali
Ch4-2
Chapter 3Chapter 3InternalInternal
EnvironmentEnvironment
Chapter 2Chapter 2ExternalExternal
EnvironmentEnvironmentThe StrategicThe StrategicManagementManagement
ProcessProcess
The StrategicThe StrategicManagementManagement
ProcessProcess
Strategic IntentStrategic Intent
Strategic MissionStrategic Mission
StrategicStrategicCompetitivenessCompetitivenessAbove AverageAbove Average
ReturnsReturnsFeedback
Strategy FormulationStrategy Formulation
Chapter 4Chapter 4Business-LevelBusiness-Level
StrategyStrategy
Chapter 5Chapter 5CompetitiveCompetitiveDynamicsDynamics
Chapter 6Chapter 6Corporate-LevelCorporate-Level
StrategyStrategy
Chapter 8Chapter 8InternationalInternational
StrategyStrategy
Chapter 9Chapter 9CooperativeCooperative
StrategiesStrategies
Chapter 7Chapter 7Acquisitions &Acquisitions &RestructuringRestructuring
Strategy ImplementationStrategy Implementation
Chapter 10Chapter 10CorporateCorporate
GovernanceGovernance
Chapter 11Chapter 11StructureStructure& Control& Control
Chapter 12Chapter 12StrategicStrategic
LeadershipLeadership
Chapter 13Chapter 13Entrepreneurship & InnovationEntrepreneurship & Innovation
Str
ateg
icIn
puts
Str
ateg
icA
ctio
ns
Str
ateg
ic
Ou
tcom
es
Ch4-3
Chapter 4Chapter 4
Business LevelBusiness LevelStrategyStrategy
SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage
Chapter 2Chapter 2
External EnvironmentExternal Environment
Chapter 3Chapter 3Internal EnvironmentInternal Environment
Ch4-4
CoreCoreCompetencCompetencyy
CoreCoreCompetencCompetencyy
The The resourcesresources and and capabilitiescapabilities that have been determined to that have been determined to be a source of competitive be a source of competitive advantage for a firm over its advantage for a firm over its rivals.rivals.
The The resourcesresources and and capabilitiescapabilities that have been determined to that have been determined to be a source of competitive be a source of competitive advantage for a firm over its advantage for a firm over its rivals.rivals.
Ch4-5
StrategStrategyyStrategStrategyy
An integrated and coordinated An integrated and coordinated set of actions taken to exploit set of actions taken to exploit core competencies and gain a core competencies and gain a competitive advantage.competitive advantage.
An integrated and coordinated An integrated and coordinated set of actions taken to exploit set of actions taken to exploit core competencies and gain a core competencies and gain a competitive advantage.competitive advantage.
CoreCompetency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Ch4-6
StrategyAn integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Business Business Level Level StrategyStrategy
Business Business Level Level StrategyStrategy
Actions taken to provide value to Actions taken to provide value to customers and gain a competitive customers and gain a competitive advantage by exploiting core advantage by exploiting core competencies in specific, competencies in specific, individual product markets.individual product markets.
Actions taken to provide value to Actions taken to provide value to customers and gain a competitive customers and gain a competitive advantage by exploiting core advantage by exploiting core competencies in specific, competencies in specific, individual product markets.individual product markets.
CoreCompetency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Ch4-7
Basis for Customer SegmentationBasis for Customer SegmentationConsumer Markets1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors (social class, stage in the family life cycle)
3. Geographic factors (culture, region or country differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns (heavy, moderate, and light users)
6. Perceptual factors (benefit segmentation, perceptual mapping)
7. Brand loyalty patterns
Ch4-8
Basis for Customer SegmentationBasis for Customer SegmentationIndustrial Markets
1. 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
Ch4-9
Generic Business Level StrategiesGeneric Business Level Strategies
CostCost UniquenessUniqueness
Source of Competitive AdvantageSource of Competitive Advantage
Breadth of Breadth of Competitive Competitive
ScopeScope
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
Focused Differen-
tiation
Focused Differen-
tiation
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Focused Low CostFocused
Low Cost
CostCostLeadershipLeadership
Ch4-10
Key Criteria:Key Criteria:
Cost Leadership Business Level StrategyCost Leadership Business Level Strategy
Relatively standardized productsRelatively standardized products
Features acceptable to many customersFeatures acceptable to many customers
Lowest competitive priceLowest competitive price
Ch4-11
Requirements:Requirements:Constant effort to reduce costs through:Constant effort to reduce costs through:
Building efficient scale facilitiesBuilding efficient scale facilities
State of the art manufacturing facilitiesState of the art manufacturing facilities
Simplification of processesSimplification of processes
Minimizing costs of sales, R&D and serviceMinimizing costs of sales, R&D and service
Monitoring costs of activities provided by outsidersMonitoring costs of activities provided by outsiders
Tight control of production costs and overheadTight control of production costs and overhead
Cost Leadership Business Level StrategyCost Leadership Business Level Strategy
Ch4-12Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-13Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-14
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Inb
oun
d
Log
isti
cs
Inbound LogisticsInbound LogisticsHighly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Located in Close Proximity with Suppliers
Located in Close Proximity with Suppliers
Ch4-15
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Op
erat
ion
s
OperationsOperationsEfficient Plant Scale to Minimize Mfg. Costs
Efficient Plant Scale to Minimize Mfg. Costs
Timing of Asset PurchasesTiming of Asset Purchases
Policy Choice of Plant TechnologyPolicy Choice of Plant Technology
Organizational LearningOrganizational Learning
Ch4-16
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Ou
tbou
nd
Log
isti
cs
Outbound Logistics
Outbound Logistics
Selection of Low Cost Transport Carriers
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces CostsDelivery Schedule that Reduces Costs
Efficient Order SizesEfficient Order Sizes
Interrelationships with Sister Units
Interrelationships with Sister Units
Ch4-17
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Mar
ket
ing
& S
ales
National Scale AdvertisingNational Scale Advertising
Products Priced to Generate Sales Volume
Products Priced to Generate Sales Volume
Small, Highly Trained Sales ForceSmall, Highly Trained Sales Force
Marketing & Sales
Marketing & Sales
Ch4-18Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Ser
vice
ServiceServiceEffective Product Installations to Reduce Recalls
Effective Product Installations to Reduce Recalls
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-19Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Procurement
Systems and Procedures to Find the Lowest Cost Products to Purchase Raw Materials
Systems and Procedures to Find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Frequent Evaluation Processes to Monitor Suppliers’ Performances
ProcurementProcurement
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-20Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Technological Development
Technological DevelopmentTechnological DevelopmentEasy-to-Use Manufacturing Technologies
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-21Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Human Resource Management
Human Resource ManagementHuman Resource ManagementConsistent Policies to Reduce Turnover CostsConsistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-22Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Firm Infrastructure
Firm InfrastructureFirm InfrastructureCost Effective MIS SystemsCost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Simplified Planning Practices to Reduce Planning Costs
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Ch4-23
How to Obtain a Cost AdvantageHow to Obtain a Cost Advantage
1. Determine and Control Cost Drivers1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain as needed2. Reconfigure the Value Chain as needed
Alter production processAlter production process
Change in automationChange in automationNew distribution channelNew distribution channel
Direct sales in place of indirect salesDirect sales in place of indirect sales
New advertising mediaNew advertising media
New raw materialNew raw material
Backward integrationBackward integrationForward integrationForward integration
Change location relative to suppliers or buyersChange location relative to suppliers or buyers
Ch4-24
Reconfiguring the Value Chainof Iowa Beef Packers (IBP)
Reconfiguring the Value Chainof Iowa Beef Packers (IBP)
Ranch Ranch CattleCattleRanch Ranch CattleCattle
Ship “on the Ship “on the Hoof” to Rail Hoof” to Rail
Center Center (Chicago)(Chicago)
Ship “on the Ship “on the Hoof” to Rail Hoof” to Rail
Center Center (Chicago)(Chicago)
Slaughter Slaughter into sides into sides
of beefof beef
Slaughter Slaughter into sides into sides
of beefof beef
““Boxed Boxed Cuts” at Cuts” at MarketsMarkets
““Boxed Boxed Cuts” at Cuts” at MarketsMarkets
Old Way:Old Way:
Save on shipping and cattle weight lossSave on shipping and cattle weight loss
Utilize cheaper non-union rural laborUtilize cheaper non-union rural labor
NewWayNew Way:New Way:
Locate large Locate large automated automated plants near plants near
ranchesranches
Locate large Locate large automated automated plants near plants near
ranchesranches
Process into Process into “Boxed Cuts” at “Boxed Cuts” at
plantsplants
Process into Process into “Boxed Cuts” at “Boxed Cuts” at
plantsplants
Ship cuts Ship cuts already already
“Boxed” to “Boxed” to MarketsMarkets
Ship cuts Ship cuts already already
“Boxed” to “Boxed” to MarketsMarkets
Ch4-25
Choices That Drive CostsChoices That Drive Costs
Economies of scaleEconomies of scale
Asset utilizationAsset utilization
Capacity utilization patternCapacity utilization pattern
Value chain linkagesValue chain linkages
InterrelationshipsInterrelationships
- Advertising & Sales- Advertising & Sales- Logistics & Operations- Logistics & Operations
- Seasonal, cyclical- Seasonal, cyclical
- Order processing - Order processing and distributionand distribution
Product featuresProduct features
Product featuresProduct features
PerformancePerformance
Mix & variety of productsMix & variety of products
Service levelsService levels
Small vs. large buyersSmall vs. large buyers
Process technologyProcess technology
Wage levelsWage levels
Hiring, training, motivationHiring, training, motivation
Ch4-26
Three Key QuestionsThree Key Questions
2.2. How can a group of linked value How can a group of linked value activities be regrouped or reordered?activities be regrouped or reordered?
3.3. How might coalitions with other How might coalitions with other firms lower or eliminate costs?firms lower or eliminate costs?
Gallo sold wine through grocery stores rather than liquor stores because they were more efficient distributorsGallo sold wine through grocery stores rather than liquor stores because they were more efficient distributors
1.1. How can an activity be performed How can an activity be performed differently or even eliminated?differently or even eliminated?
Ch4-27
Effective Cost Leaders can remain profitable even when the
Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when the
Five Forces appear unattractive
Ch4-28
Can frighten off Can frighten off New Entrants New Entrants due to the need to: due to the need to:
Enter at large scale to Enter at large scale to be Cost Competitivebe Cost Competitive
**
Take time to move down Take time to move down the “Learning Curve”the “Learning Curve”
**
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New
Entrants
Threat of New
Entrants
Ch4-29
Can frighten off New Entrants due to the need to:
Enter at Large Scale to be Cost Competitive
*
Take time to move down the “Learning Curve”
*
Bargaining Power of Buyers
Bargaining Power of Buyers
Threat of New
Entrants
Can mitigate Buyer Power by:Can mitigate Buyer Power by:
** Driving prices far below competitors may cause exit and shift power back to firm
Driving prices far below competitors may cause exit and shift power back to firm
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Ch4-30
Can frighten off New Entrants due to the need to:
Enter at Large Scale to be Cost Competitive
*
Take time to move down the “Learning Curve”
*
Can mitigate Buyer Power by:
Threat of New
Entrants
Bargaining Power of Buyers
Driving prices far below competitors which may cause exit and shift power back to firm
Well positioned relative toWell positioned relative to SubstitutesSubstitutes in order to: in order to:Well positioned relative toWell positioned relative to SubstitutesSubstitutes in order to: in order to:
Make investments to create Make investments to create substitutes firstsubstitutes firstMake investments to create Make investments to create substitutes firstsubstitutes first
****
Buy patents developed by Buy patents developed by potential substitutespotential substitutesBuy patents developed by Buy patents developed by potential substitutespotential substitutes
****
Lower prices to maintain Lower prices to maintain value positionvalue positionLower prices to maintain Lower prices to maintain value positionvalue position
****
Threat of Substitute Products
Threat of Substitute Products
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Ch4-31
Can frighten off New Entrants due to the need to:
Enter at Large Scale to be Cost Competitive
*
Take time to move down the “Learning Curve”
*
Well positioned relative to Substitutes in order to:
Make investments to create substitutes*
Can buy patents developed by potential substitutes
*
Lower prices to maintain value position
*
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Threat of New
Entrants
Threat of Threat of Substitute Substitute ProductsProducts
Can mitigate Buyer Power by:
Bargaining Power of Buyers
Driving prices far below competitors which may cause exit and shift power back to firm
Can mitigate Supplier Power by:Can mitigate Supplier Power by:
Low cost position makes them better able to absorb cost increasesLow cost position makes them better able to absorb cost increases
**
More likely to make very large purchases which reduces chance of supplier powerMore likely to make very large purchases which reduces chance of supplier power
**
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Ch4-32
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New
Entrants
Bargaining Power of Suppliers
Threat of Substitute Products
Can frighten off New Entrants due to the need to:
Enter at Large Scale to be Cost Competitive
*
Take time to move down the “Learning Curve”
*
Well positioned relative to Substitutes in order to:
Make investments to create substitutes*
Can buy patents developed by potential substitutes
*
Lower prices to maintain value position
*
Competitors avoid Competitors avoid price wars with Cost price wars with Cost Leaders, which Leaders, which creates higher profits creates higher profits for entire industryfor entire industry
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Can mitigate Buyer Power by:
Bargaining Power of Buyers
Driving prices far below competitors which may cause exit and shift power back to firm
Can mitigate Supplier Power by:
Low cost position makes them better able to absorb cost increases
*
More likely to make very large purchases which reduces chance of supplier power
*
Ch4-33
Major Risks of Cost LeadershipMajor Risks of Cost LeadershipBusiness Level StrategyBusiness Level Strategy
Major Risks of Cost LeadershipMajor Risks of Cost LeadershipBusiness Level StrategyBusiness Level Strategy
DramaticDramatic technological change technological change could take could take away your cost advantageaway your cost advantage
Competitors may learn how toCompetitors may learn how to imitate imitate Value ChainValue Chain
Focus on efficiency could cause Cost Leader Focus on efficiency could cause Cost Leader toto overlookoverlook changes in customer preferences changes in customer preferences
Ch4-34
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership
Uniqueness
Generic Business Level StrategiesGeneric Business Level Strategies
Ch4-35
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Uniqueness
Ch4-36
Key Criteria:Key Criteria:
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Command premium priceCommand premium price
Superior qualitySuperior quality
Rapid innovationRapid innovation
Prestige or exclusivityPrestige or exclusivity
High customer serviceHigh customer service
Ch4-37
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Requirements:Requirements:
Constant effort to differentiate products through:Constant effort to differentiate products through:
Developing new systems and processesDeveloping new systems and processes
Quality focusQuality focus
Maximize Human Resource contributions Maximize Human Resource contributions through low turnover and high motivationthrough low turnover and high motivation
Capability in R&DCapability in R&D
Shaping perceptions through advertisingShaping perceptions through advertising
Ch4-38Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-39
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Primary Activities
Su
pp
ort
Act
ivit
ies
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-40
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Inb
oun
d
Log
isti
cs
Inbound LogisticsInbound Logistics
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Ch4-41
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Op
erat
ion
s
OperationsOperations
Rapid responses to customers unique manufacturing specifications
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Consistent manufacturing of attractive products
Ch4-42
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Ou
tbou
nd
Log
isti
cs
Outbound Logistics
Outbound LogisticsAccurate and responsive order processing procedures
Accurate and responsive order processing procedures
Rapid and timely product deliveries to customers
Rapid and timely product deliveries to customers
Ch4-43
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Mar
ket
ing
& S
ales
Marketing & Sales
Marketing & Sales
Extensive personal relationships with buyers
Extensive personal relationships with buyers
Strong Coordination among functions in R&D, Marketing and Product Development
Strong Coordination among functions in R&D, Marketing and Product Development
Premium PricingPremium Pricing
Ch4-44
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Ser
vice
ServiceServiceComplete field stocking of replacement parts
Complete field stocking of replacement parts
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-45
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Procurement
ProcurementProcurementLocated in Close Proximity with Suppliers
Located in Close Proximity with Suppliers
Systems and procedures used to find the highest quality raw materials
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Purchase of highest quality replacement parts
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-46
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Technological Development
Technological DevelopmentTechnological DevelopmentStrong capability in basic research
Strong capability in basic research
Investments in technol-ogies to produce highly differentiated products
Investments in technol-ogies to produce highly differentiated products
Coordination among R&D, marketing and product development
Coordination among R&D, marketing and product development
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-47
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Human Resource Management
Human Resource ManagementHuman Resource ManagementCompensation programs which encourage worker creativity and productivity
Compensation programs which encourage worker creativity and productivity
Extensive use of subjective performance measures
Extensive use of subjective performance measures
Superior personnel training
Superior personnel training
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-48
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Inb
oun
d
Log
isti
cs
Op
erat
ion
s
Ou
tbou
nd
Log
isti
cs
Mar
ket
ing
& S
ales
Ser
vice
MARG
IN
MARGIN
Primary Activities
Su
pp
ort
Act
ivit
ies
A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Firm Infrastructure
Firm InfrastructureFirm InfrastructureA companywide emphasis on producing high quality products
A companywide emphasis on producing high quality products
Highly developed Information Systems to better understand customers’ purchasing preferences
Highly developed Information Systems to better understand customers’ purchasing preferences
Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Ch4-49
Effectiveness with DifferentiationDifferentiation grows out of Value ChainValue Chain activities activitiesEffectiveness with DifferentiationDifferentiation
grows out of Value ChainValue Chain activities activities
Examples:Examples:
Heineken beerHeineken beer Raw materialsRaw materials
Caterpillar tractorsCaterpillar tractors Service buyers’ needs quickly anywhere in the worldService buyers’ needs quickly anywhere in the world
Intel microprocessorsIntel microprocessors Technological superiorityTechnological superiority
Steinway pianosSteinway pianos Raw materials & Workmanship Raw materials & Workmanship
Mercedes Benz autosMercedes Benz autos Technology and WorkmanshipTechnology and Workmanship
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Ch4-50
• Creating barriers by perceptions of uniqueness• Creating barriers by perceptions of uniqueness
• Creating switching costs through differentiation• Creating switching costs through differentiation
Raising Buyers’ PerformanceRaising Buyers’ Performance
Lowering Buyers’ CostsLowering Buyers’ Costs
Creating Sustainability through:Creating Sustainability through:
Create Value with Differentiation by:Create Value with Differentiation by:
Ch4-51
Drivers of DifferentiationDrivers of DifferentiationDrivers of DifferentiationDrivers of Differentiation
Unique product featuresUnique product features
Unique product performanceUnique product performance
Exceptional servicesExceptional services
Quality of inputsQuality of inputs
New technologiesNew technologies
Exceptional skill or experienceExceptional skill or experience
Detailed informationDetailed information
Examples:Examples:
Ch4-52
Effective Differentiators can remain profitable even when the
Five Forces appear unattractive
Effective Differentiators can remain profitable even when the
Five Forces appear unattractive
Ch4-53
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New
Entrants
Threat of New
Entrants
Can fend off Can fend off New Entrants New Entrants because: because:
New products must New products must surpass proven productssurpass proven products
*
Or be equal to performance Or be equal to performance at lower pricesat lower prices
*
Ch4-54
Can mitigate Buyer Power because:Can mitigate Buyer Power because:
Well differentiated products reduce customer sensitivity to price increases Well differentiated products reduce customer sensitivity to price increases
Bargaining Power of
Buyers
Bargaining Power of
Buyers
Threat of New
Entrants
Can fend off New Entrants because:
New products must surpass proven products
*
Or be equal to performance at lower prices
*
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Ch4-55
Threat of New
Entrants
Can fend off New Entrants because:
New products must surpass proven products
*
Or be equal to performance at lower prices
*
Bargaining Power of Suppliers
Well positioned relative to Substitutes because:Well positioned relative to Substitutes because:
Brand loyalty tends to reduce new product trial and brand switching
Brand loyalty tends to reduce new product trial and brand switching
**
Threat of Substitute Products
Threat of Substitute Products
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Ch4-56
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Threat of New
Entrants
Can fend off New Entrants because:
New products must surpass proven products
*
Or be equal to performance at lower prices
*
Bargaining Bargaining Power of Power of SuppliersSuppliers
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of Substitute Products
Well positioned relative to Substitutes because:
Brand loyalty tends to reduce new product trial and brand switching
*
Can mitigate Supplier Power by:Can mitigate Supplier Power by:
Absorbing price increases due to higher marginsAbsorbing price increases due to higher margins
**
Passing on higher supplier prices because buyers are brand loyalPassing on higher supplier prices because buyers are brand loyal
**
Ch4-57
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Threat of New
Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products
Well positioned relative to Substitutes because:
Brand loyalty tends to reduce new product trial and brand switching
*
Can mitigate Supplier Power by:
*
*
Absorbing price increases due to higher margins
Passing on higher supplier prices because buyers are brand loyal
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Can fend off New Entrants because:
New products must surpass proven products
*
Or be equal to performance at lower prices
*
Brand loyalty overcomes much price competition
Brand loyalty overcomes much price competition
Ch4-58
Customers may decide that the cost of “uniqueness” is too greatCustomers may decide that the cost of “uniqueness” is too great
The means of uniqueness may no longer be valued by customersThe means of uniqueness may no longer be valued by customers
Competitors may learn how to imitate Value ChainCompetitors may learn how to imitate Value Chain
Major Risks of a DifferentiationBusiness Level Strategy
Major Risks of a DifferentiationBusiness Level Strategy
Ch4-59
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Uniqueness
Generic Business Level StrategiesGeneric Business Level Strategies
Ch4-60
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
Uniqueness
Generic Business Level StrategiesGeneric Business Level Strategies
Ch4-61
Focused Business Level Strategies involve the same basic Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. approach as Broad Market Strategies.
However, opportunities may exist because:However, opportunities may exist because:
Focused Business Level StrategiesFocused Business Level Strategies
Large firms may overlook small nichesLarge firms may overlook small niches
Firm may lack resources to compete industry-wideFirm may lack resources to compete industry-wide
May be able to serve a narrow market segment more effectively than industrywide competitorsMay be able to serve a narrow market segment more effectively than industrywide competitors
Focus can allow you to direct resources to certain value chain activities to build competitive advantageFocus can allow you to direct resources to certain value chain activities to build competitive advantage
Ch4-62
Bang & OlufsenBang & Olufsen Upscale electronic componentsUpscale electronic components
Iams CompanyIams Company Premium pet foodsPremium pet foods
Snap-on toolsSnap-on tools High quality mechanics’ toolsHigh quality mechanics’ tools
Focused Business Level StrategiesFocused Business Level StrategiesFocused Business Level Strategies involve the same basic Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. approach as Broad Market Strategies.
However, opportunities may exist because:However, opportunities may exist because:
Examples:Examples:
May be able to retrofit old factories to keep costs downMay be able to retrofit old factories to keep costs down
Minimize R&D costs by copying innovatorsMinimize R&D costs by copying innovators
Ch4-63
Custom manufacturers of parts forCustom manufacturers of parts for
Harley-DavidsonHarley-Davidson motorcyclesmotorcycles
Focused Business Level StrategiesFocused Business Level StrategiesFocused Business Level Strategies involve the same basic Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. approach as Broad Market Strategies.
However, opportunities may exist because:However, opportunities may exist because:
Example:Example:
Focused Differentiators may thrive by selecting a small market that is underserved by large playersFocused Differentiators may thrive by selecting a small market that is underserved by large players
Ch4-64
Firm may be “outfocused” by competitorsFirm may be “outfocused” by competitors
Large competitor may set its sights on your niche marketLarge competitor may set its sights on your niche market
Preferences of niche market may change to match those of broad marketPreferences of niche market may change to match those of broad market
Major Risks Involved With a FocusedDifferentiation Business Level StrategyMajor Risks Involved With a FocusedDifferentiation Business Level Strategy
Ch4-65
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
Integrated Low Cost/
Differentiation
Integrated Low Cost/
Differentiation
Uniqueness
Ch4-66
Firms using an Integrated Strategy may:Firms using an Integrated Strategy may:
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Utilize Flexible Manufacturing Systems to create differentiated products at low costsUtilize Flexible Manufacturing Systems to create differentiated products at low costs
Adapt more quicklyAdapt more quickly
Learn new skills and technologiesLearn new skills and technologies
Leverage core competencies through Information Networks across multiple business unitsLeverage core competencies through Information Networks across multiple business units
Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
Ch4-67
Recognize that the Integrated Low Cost/ Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Differentiation business level strategy involves a CompromiseCompromise
Recognize that the Integrated Low Cost/ Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Differentiation business level strategy involves a CompromiseCompromise
The risk is that the firm may become The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or lacking a strong commitment to or expertise with either type of generic strategyexpertise with either type of generic strategy
The risk is that the firm may become The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or lacking a strong commitment to or expertise with either type of generic strategyexpertise with either type of generic strategy
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Ch4-68
Southwest AirlinesSouthwest Airlines
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Use a single aircraft modelUse a single aircraft model(Boeing 737)(Boeing 737)
Use secondary airportsUse secondary airports
Fly short routesFly short routes
15 minute turnaround time15 minute turnaround time
No mealsNo meals
No reserved seatsNo reserved seats
No travel agent reservationsNo travel agent reservations
Low CostLow Cost
Focus on customer satisfactionFocus on customer satisfaction
New flight services for business travelers(phones and faxes)
New flight services for business travelers(phones and faxes)
High level of employee dedicationHigh level of employee dedication
DifferentiationDifferentiation
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