November 30, 2009 Ppt of YRR

DM 2 -Str Mngmnt-30 Nov 09 1

IMDR - PGDM 2Strategic Management - 2009

November 30 ppt

Part III on Strategic Choices

Chapters 5 : Business level Strategy


We Now Switch Over to - -

Strategic Choices


Strategic Choice

• Concerned with ways to respond to influences identified in Strategic Analysis

• Concerned with decisions about an organization’s future

• The framework helps to promote a wider consideration of strategy

• It also helps to decide on appropriateness and consequences of options available


Strategic Choice (Contd)• Discussion divided into three mutually

consistent elements to develop a strategy

– Business Level Strategy ( Chapter 5)

– Corporate Level Strategy and international Strategy (Chapter 6)

– Choices of Directions and Methods for Development (Chapter 7)


Outline for Discussion• Concept of Strategic Business Units• Alternatives for Competitive Advantage (Strategy

Clock) for each SBU– Price Based– Differentiation– Hybrid & Focus

• Work for Sustainability of Competitive Advantage• Recourse to Co-operation to maintain Competitive

Advantage• So, we first discuss Strategy Choices at SBU level


SBUs – Definition and Basics

• A SBU Definition: “A SBU is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU”

• Opposing pitfalls in identifying SBUs

– Too many different products/markets means lack of focus

– Too few means not reflecting diversity of products/markets


Criteria for Identifying SBUs

External Internal

Same customer types Similar products/services

Same channels Similar technologies

Similar competitors Similar resources and competences


Bases of Competitive Advantage• Competitive strategy

– The bases for achieving competitive advantage – The bases for providing best value

• Porter’s generic strategies– Cost leadership– Differentiation – Focus

• Bowman and D’Aveni’s market facing strategies– Provide customer needs better or more

effectively than competitors– The strategy clock (Enlarging Porter’s three)


The Strategy Clock


The Strategy Clock - Needs & Risks

Price Based Strategies

Needs/Risks

1. No Frills More Likely to be segment specific

2. Low Price Entails price wars and low margins, hence, need to

be cost leader


Need & Risks - - - Continued

Differentiation-based Strategies3. Hybrid - - - Achieve Low Cost Base and need for

reinvestment in low price and differentiation

4. Differentiation(a) Without price premium - - - Through perceived

added value by user to yield market share benefits

(a) With price premium - - - - Through perceived added value sufficient to bear price premium

5. Focused Differentiation - - - Perceived added value to a particular segment, warranting price premium


Need & Risks - - - Continued

Strategies Likely to be Failure ( 6,7,8)

Increased Price/Standard Value - - - When higher margins are realized if competitors do not follow immediately; nut, risk losing market share

Increased Price/Low Value - - - Only feasible in monopoly situation

Low Value/Standard Price - - - Risk Loosing of Market Share


“””“No Frills” StrategyLow price

Low perceived product/service benefitsFocus on price-sensitive market segment

Low price

Low perceived product/service benefits

Focus on price-sensitive market segment

• For Commodity-like products or services• For non-affording Price Sensitive Customers• When buyer power is or when switching costs are low; generally, if customer loyalty is difficult• When number of providers are small, and if market shares & cost structures are almost same• For low-price segment If major competitors are on non-prise basis


Low Price Strategy- Lower price than competitors

- Maintain similar product/service benefits

• Pitfalls of low price strategy- Margin reduction (Competitor reaction)- Inability to reinvest to develop the product, leading to loss of perceived benefit of product

• Hence, Low Cost Base is essential- Low cost by itself may not be a basis for advantage since it could be imitated. Hence,- Low cost achieved in ways that competitors cannot match to give sustainable advantage


Differentiation Strategies1. Offering benefits different from competitors

2. Widely valued by buyers3. Better products/services at same/higher prices

• Success depends on Identification of Strategic Customers and knowing what they value, • And, on Knowing the Competitors

- Adopt Focused differentiation if competitor base is small/narrow

- If competitor base is wide, address on “what parameters differentiate” for value to customers


Hybrid StrategySimultaneously achieving differentiation & lower price

Could be advantageous in the following cases:

• If much greater greater volumes can be achieved than competitors, thus decreasing costs to enlarge margins

• If there is clarity about activities on which differentiation can be built (core competences)

– And, be able to reduce costs on other activities

• Use the Hybrid Strategy to enter a market where there are already established competitors


Focused Differentiation High perceived product/service benefits to niche market segments & Premium branded products

• First, Choice to be made between focused differentiation (5) and broad differentiation (4)

• Difficult when the focus strategy is applicable only for part of an organization’s overall strategy

• Possible conflicts with stakeholder expectations, when the focused benefits are not uniform

• New ventures usually start off this way, but it may be difficult to grow with focused approach

• Market situation may change, making focus irrelevant, if differences in segments get reduced


Failure Strategies Results if perceived value-for-money does

not get provided in terms of product features or price, or both

• For example, Increase price without increasing benefits in products or services

• Or, Reduce benefits whilst maintaining price


Sustaining Competitive Advantage

When the Strategies are price based:

• Be ready to accept reduced margin (either because higher volumes or by cross-subsidies)

• Get ready to sustain and Win a Price War

• Reduce Costs through organization specific strategic capabilities

• Focus on Specific Segments that value price


Sustaining Competitive Advantage- (Continued)

If the Strategies are differentiation-based:

• Create Difficulties of imitation

• Achieve imperfect mobility (of resources/competences e.g. key R & D personnel)– Many intangible assets such as brand, image

or reputation are difficult for imitation


Sustaining Competitive Advantage- (Continued)

Derive sustenance by achieving “Lock-in” Status - - - - achieving proprietary position in the industry by creating the industry’s standard - - like what IBM, or Microsoft, Xerox, Intel had achieved

• By Achieving Size/Market Dominance• By deriving First Mover Advantage• Reinforcement• Rigorous Enforcement thorough insistence on

conformities to standards thus seeing off competitors


Competitive Strategies in Hyper-competitive Conditions

To compete Successfully in hyper-competitive situations (turbulent/uncertain environment, and/or increased levels of competition)

Successful ingredients for such strategies are:

• Preempt competition (new strategies for competing)

• May be unwise to attack competitors’ weaknesses, since they get prepared for it

• Become unpredictable; predictability is dangerous

• Keep sending Misleading Signals to Competitors


Competitive Strategies in Hyper-competitive Conditions - Continued

To overcome competitors’ barriers

• Practice Shorter life cycles

• Undermine Competitors’ strongholds

• Find ways to counter competitors’ deep-pocket advantages (when they have surplus resources to withstand your competing)



To overcome competitors’ market-based moves

• Block potential first mover advantages, say by leapfrogging into a superior product

• Imitate product/market moves of competitors so that all of you have same issues on sustenance of advantage



Or, else

• Reposition on the Strategy Clock

• This is feasible even to think only if the organization is extremely agile

• Still, such repositioning has to be safeguarded against imitation


Competition and CollaborationCollaboration may help to achieve

advantage or avoid competition

• Using Five-force model concepts, Collaboration can be– Between potential competitors– Or, between buyers and sellers

• Can help build switching costs


Competition and Collaboration - Continued

Competitiveness might be improved by collaboration to achieve (Use 5-force model):

• Increased selling power• Increased buying power• Increased barriers to entry• Decreased risks of substitution• Entry to new markets• Shared work with customers• Stakeholder expectations

November 30, 2009 Ppt of YRR

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