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- 1. PRESENTED BY: RENU APURVA BUSINESS LEVEL STRATEGY
- 2. Business level strategies are intended to create diffrence between the firms position relative to those of its rivals. to position itself the firms must decide whether it intends to perform different activities as compared to its rivals. WHAT IS BUSINESS LEVEL STRATEGIES
- 3. Purpose of Business-Level (BL) Strategies • Two types of competitive advantage firms must choose between – Cost (Are we LOWER than others?) – Uniqueness (Are we DIFFERENT? How?) • Two types of ‘competitive scope’ firms must choose between – Broad target – Narrow target • These combine to yield 5 different BL strategies
- 4. BUSINESS LEVEL STRATEGIES
- 5. Types of business level strategies Cost leadership strategy Differentiation strategy Focused low cost strategy Focused differentiation strategy Using an integrated strategy
- 6. Firms must offer relatively standard product with features or characteristic that are acceptable to customers at the lowest competitive price. Firms must consider their value chain of primary and secondary activities and link those activities to implement a cost leadership strategy. COST LEADERSHIP
- 7. MC. DONALDS PROVIDES BASIC FAST FOODS MEALS AT THE LOWEST PRICE THROGH DIVISION OF LABOUR THEY ARE ABLE TO PROVIDE LOW PRICE OF THE PRODUCT. EXAMPLE
- 8. GOAL IS TO PROVIDE VALUE TO CUSTOMERS THROUGH UNIQUE FEATURES AND CHARACTERISTICS OF A FIRM’S PRODUCTS. DIFFERENTIATION FOCUS ON PRODUCT INNOVATION AND DEVELOPING PRODUCT FEATURES THAT CUSTOMERS VALUE. PRODUCTS GENERALLY COST MORE. DIFFERENTIATION STRATEGY
- 9. ROLEX QUALITY PERFORMANCE INNOVATION STABILITY these all are the four pillars that rolex has built its brand and it differeentiate itself from other same products. EXAMPLE
- 10. NARROW TARGET MARKET: Companies narrow their target markets to better reach their core customers. These are the customers who use their products most often and spend the most money. BROAD TARGET MARKET: Much emphasis in marketing is given to segmentation strategies that break down large audiences into smaller target markets.
- 11. FOCUS STRATEGY The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation. The premise is that the needs of the group can be better serviced by focusing entirely on it.
- 12. Objective Involves concentrated attention on a narrow piece of the total market. Serve niche buyers better than rivals. Keys to Success Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs. Develop unique capabilities to serve needs of target buyer segment Characteristics Achieve LOWER COSTS than rivals in serving the segment -- A low-cost strategy. Offer niche buyers SOMETHING DIFFERENT from rivals -- A differentiation strategy
- 13. Two primary focused strategies Focused differentiation Strategy: Requirements for usage similar to differentiation strategies. Defense against the five forces similar to differentiation strategies. Examples: Rolls Royce, Fort Howard Paper. - Rolls Royce (prestige, quality, engineering design).
- 14. Focused Cost Leadership strategies: Requirements for usage similar to low-cost strategies. Defense against the five forces similar to differentiation strategies. Examples: Rally’s, Martin Brower White Castle Rally’s (no frills service, limited menu, no dine-in). Martin Brower- 3rd largest food supplier, serves fast food chains.
- 15. FOCUS STRATEGY FAILS WHEN Competitors find effective ways to match a focuser’s capabilities in serving niche Niche buyers’ preferences shift towards product attributes desired by majority of buyers--the niche becomes part of the overall market Segment becomes so attractive it becomes crowded with rivals, causing segment profits to be destroyed
- 16. Integrated Cost Leadership/ Differentiation Strategy A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to: Adapt quickly to environmental changes. Learn new skills and technologies more quickly.
- 17. Risks of Integrated Strategies Harder to implement than other strategies Must simultaneously reduce costs while increasing differentiation Can get ‘stuck in the middle’ resulting in no advantages and poor performance
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Business-Level Strategy
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Chapter 4 – Business-Level Strategy
©2004 by South-Western/Thomson Learning 1 Business-Level Strategy Robert E. Hoskisson Michael A. Hitt R. Duane Ireland Chapter 5.
BUSINESS-LEVEL STRATEGY
©2003 Southwestern Publishing Company 1 Business-Level Strategy Michael A. Hitt R. Duane Ireland Robert E. Hoskisson Chapter 4.
THE MANAGEMENT OF STRATEGY
Business-Level Strategy (Defined)
Competitive Strategy.
Business-Level Strategy: How do we compete? Business-Level Strategy: How do we compete?
Building Competitive Advantage Through Business-Level Strategy
Competing For Advantage
5-1© 2006 by Nelson, a division of Thomson Canada Limited. Business-Level Strategy Chapter Five.
Chapter 4 Business Level Strategy Pages
Chapter 4: Business-Level Strategy
Robert E. Hoskisson Michael A. Hitt R. Duane Ireland
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Chapter 4: Business-Level Strategy - PowerPoint PPT Presentation
Chapter 4: Business-Level Strategy
6. business-level strategies. two types of competitive advantage firms must choose ... motel 6. focused differentiation. competitive advantage: differentiation ... – powerpoint ppt presentation.
- Defining business-level strategy
- Risks of business-level strategies
- Differences in business-level strategies
- Relationship between customers and strategy
- Strategy Increasingly important to a firms success and concerned with making choices among two or more alternatives. Choices dictated by
- External environment (O and T)
- Internal resources, capabilities and core competencies (S and W)
- Business level-strategy Integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets/industry
- How we intend to compete in a specific industry
- Purpose To create differences between position of a firm and its competitors
- Firm must make a deliberate choice to
- Perform activities differently
- Perform different activities
- How value chain activities will be performed to create unique value
- No strategy better than others
- Contingent on internal and external environment
- Two types of competitive advantage firms must choose between
- Cost (Are our costs LOWER than rivals costs?)
- Uniqueness (Are we DIFFERENT than rivals? How?)
- Two types of competitive scope firms must choose between
- Broad target
- Narrow target
- These combine to yield 5 different generic business level strategies
- Can potentially be used by any organization competing in any industry
- Cost Leadership Strategy
- Competitive advantage THE low-cost leader and operates with margins greater than competitors
- Competitive scope Broad
- Integrated set of actions designed to produce or deliver goods or services with features that are acceptable to customers at the lowest cost, relative to competitors
- No-frills, standardized or commodity-like product
- Must have competitive levels of quality, service, and other features and lowest overall costs
- Continuously reduce costs of value chain activities
- In relationship to the 5 Forces
- Existing Rivalry
- Rivals hesitate to compete on the basis of price
- Bargaining Power of Buyers (Customers)
- Powerful buyers can force cost leader to reduce prices up to a point
- Bargaining Power of Suppliers
- Cost leaders can absorb suppliers price increases
- Potential Entrants
- Efficiency can serve as a barrier to entry
- Product Substitutes
- Can reduce prices when faced with substitutes
- Thus built in defense against all 5 forces
- Competitive Risks
- Innovations by competitors can quickly eliminate cost advantage
- Too much focus on cost reduction versus competitive levels of differentiation
- Competitors may learn how to successfully imitate a cost leaders strategy
- Differentiation
- Competitive advantage Differentiation/uniqueness
- Integrated set of actions designed by a firm to produce or deliver goods or services at an acceptable cost that customers perceive as being different/unique in ways that are important to them
- Targeted customers perceive product value
- Customized products differentiating on as many features as possible
- Can differentiate in many ways and in many value chain areas
- Customers are loyal purchasers of differentiated products
- Uniqueness and loyalty reduces customers sensitivity to price increases
- Provide high quality components, driving up firms costs
- Cost may be passed on to customer
- Substantial barriers (see above) and would require significant resource investment
- Customer loyalty effectively positions firm against product substitutes
- Can charge too high of a price premium
- Differentiation theme no longer valuable to customers
- Over-differentiating
- Customer experience shows differentiation not worth the cost
- Counterfeiting
- Focus strategies
- In general, the firms core competencies used to serve the need of a particular industry segment or niche to the exclusion of others.
- May lack resources to compete in the broader market
- May be able to more effectively serve a narrow market segment than larger industry-wide competitors
- Firms may direct resources to certain value chain activities to build competitive advantage
- Large firms may overlook small niches
- Focus strategy examples
- Buyer groups
- Youths/senior citizens
- Product line segments
- Professional painter groups
- Geographic markets
- West vs. East coast
- Definition An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment
- Focused Cost Leadership
- Competitive advantage Low-cost
- Competitive scope Narrow industry segment
- Motel 6, Kia
- Focused Differentiation
- Competitive advantage Differentiation
- Ritz-Carlton, Apple, Rolls Royce
- Same basic risks as broad cost leadership or broad differentiation plus
- A competitor may be able to focus on a more narrowly defined competitive segment and "outfocus the focuser
- A company competing on an industry-wide basis may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit
- Customer needs within a narrow competitive segment may become more similar to those of industry-wide customers as a whole
- Integrated Cost Leadership/Differentiation
- Efficiently produce products with differentiated attributes
- Efficiency Sources of low cost
- Differentiation Source of unique value
- Involves engaging in primary and support activities that allow a firm to simultaneously pursue low cost and differentiation
- Low price with somewhat highly differentiated features
- More value for the money
- Often called best-cost strategy
- Example Toyota
- Risks of Integrated Strategies
- Harder to implement than other strategies
- Must simultaneously reduce costs while increasing differentiation
- Can get stuck in the middle resulting in no advantages and poor performance
- Strategic Alliances and Partnerships
- Mergers and Acquisitions
- Vertical Integration
- Outsourcing
- Offensive and Defensive Strategies
- Web Site Strategies
- First-Mover Advantages and Disadvantages
- Business Model
- Functional-Area Strategies
- Strategic competitiveness results when firm can satisfy customers by using its competitive advantages
- Five components in customer relationships
- Effectively managing relationships w/ customers
- Deliver superior value and build customer loyalty
- Reach, richness and affiliation
- Access and connection to customers, depth and detail of information, and facilitating interactions with customers
- Who Determining the customers to serve
- What Determining which customer needs to satisfy
- How Determining core competencies necessary to satisfy customer needs
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CHAPTER 4: BUSINESS-LEVEL STRATEGY
IRELAND | HOSKISSON | HITT THE MANAGEMENT OF STRATEGY CONCEPTS AND CASES 10E. CHAPTER 4: BUSINESS-LEVEL STRATEGY. THE STRATEGIC MANAGEMENT PROCESS. KNOWLEDGE OBJECTIVES. BUSINESS–LEVEL STRATEGY: HOW TO COMPETE IN A SPECIFIC INDUSTRY.
- Eolande Orcoran
- cost leadership
- competitive advantage
- ost leadership strategy
- business level strategy effectiveness
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Presentation Transcript
IRELAND | HOSKISSON | HITT THE MANAGEMENT OF STRATEGY CONCEPTS AND CASES 10E CHAPTER 4:BUSINESS-LEVEL STRATEGY
THE STRATEGIC MANAGEMENT PROCESS
KNOWLEDGE OBJECTIVES
BUSINESS–LEVEL STRATEGY: HOW TO COMPETE IN A SPECIFIC INDUSTRY ■ An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets ■ It is the core strategy ■ Every firm must form and use a business-level strategy for each one of its businesses ■ Business-level strategy choices matter because long-term performance is linked to a firm’s strategies IMPORTANT DEFINITION
BUSINESS-LEVEL STRATEGY
CORE COMPETENCIES AND STRATEGY Core Competencies Strategy Business-level Strategy Resources and superior capabilities that are sources of competitive advantage over a firm’s rivals An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage Providing value to customers and gaining competitive advantage by exploiting core competencies in individual product markets
CUSTOMERS: THEIR RELATIONSHIP TO BUSINESS-LEVEL STRATEGIES How will those needs be satisfied? What needs will be satisfied? Who will be served? KEY ISSUESinBUSINESS- LEVEL STRATEGY
CUSTOMERS: THEIR RELATIONSHIP TO BUSINESS-LEVEL STRATEGIES Quickly and successfully adapt products/services to meet those needs Adept at identifying customer needs across cultures and geography EFFECTIVE GLOBAL COMPETITORS
BUSINESS-LEVEL STRATEGIES VALUE CHAIN ACTIVITIES RISKS for each Strategy Effective STRUCTURE for each Strategy FIVE COMPETITIVE FORCES GENERIC: Applicable to any organization in any industry
CUSTOMERS: THEIR RELATIONSHIP TO BUSINESS-LEVEL STRATEGIES • SATISFYING CUSTOMERS IS THE FOUNDATION OF SUCCESSFUL BUSINESS STRATEGIES • Managing relationships with customers • Reach, richness, affiliation • Who will be served • What needs will be satisfied • How those needs will be satisfied
CUSTOMERS: THEIR RELATIONSHIP TO BUSINESS-LEVEL STRATEGIES AFFILIATION Facilitating Useful Interactions With Customers RICHNESS Depth and Detail of Two-Way Flow of Information Between the Firm and Customer REACH Access and Connection to Customers EFFECTIVELY MANAGING RELATIONSHIPS WITH CUSTOMERS
MARKET SEGMENTATIONA process used to cluster people with similar needs into individual and identifiable groups WHO: DETERMINING THE CUSTOMERS TO SERVE Industrial Markets Consumer Markets
MARKET SEGMENTATION: CONSUMER MARKETS DEMOGRAPHIC FACTORS (age, income, sex, etc.) 2. SOCIOECONOMIC FACTORS (social class, stage in the family life cycle) 3. GEOGRAPHIC FACTORS (cultural, regional, and national differences) 4. PSYCHOLOGICAL FACTORS (lifestyle, personality traits) 5. CONSUMPTION PATTERNS (heavy, moderate, and light users) 6. PERCEPTUAL FACTORS (benefit segmentation, perceptual mapping)
WHAT: DETERMINING WHICH CUSTOMER NEEDS TO SATISFY ■ Customer needs are related to a product’s benefits and features ■ Customer needs are neither right nor wrong, good nor bad • ■ Customer needs represent desires in terms of features and performance capabilities • ■ Successful firms learn how to deliver to customers what they want, when they want it • Customers are the lifeblood of a firm
CUSTOMERS: HOW ● WHAT ● WHO WHO: Target Group of Customers WHAT: Satisfy Customer Needs
BUSINESS-LEVEL STRATEGY PURPOSE BUSINESS-LEVEL STRATEGIES are intended to create differences between the firm’s position relative to those of its rivals To position itself, the firm must decide whether it intends to: ● Perform activities differently, or ● Perform different activities as compared to its rivals
BUSINESS-LEVEL STRATEGY PURPOSE BUSINESS-LEVEL STRATEGY • is a deliberate choice about how the firm will perform the value chain activities to create unique value • Southwest’s Competitive Advantages (rivals unable to imitate): • ● Tight integration among activities • ● Cost leadership strategy • ● Unique culture and customer service
BUSINESS-LEVEL STRATEGY PURPOSE Southwest Airlines Activity System
SOURCES OF COMPETITIVE ADVANTAGE ■Achieving LOWER OVERALL COSTS than rivals ■Performing activities differently (reducing process costs) ■ Providing a low cost product that customers deem as ACCEPTABLE ■ Possessing the capability TO DIFFERENTIATE the firm’s product or service and command a premium price • ■Performing MORE HIGHLY VALUED activities
FIVE GENERIC BUSINESS-LEVEL STRATEGIES Five Business Level Strategies
TARGET MARKETS
BUSINESS-LEVEL STRATEGY EFFECTIVENESS • ■None of the five business-level strategies is inherently or universally superior to the others • ■The effectiveness of each strategy is contingent upon: • ● External opportunities/threats • ● Internal strengths/weaknesses • ■KEY: A successful business-level strategy must match external opportunities/threats with internal strengths, i.e., its core competencies
COST LEADERSHIP STRATEGY An integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that are acceptable to customers • ■ Relatively standardized products • ■ Features acceptable to many customers • ■ Lowest competitive price
COST LEADERSHIP STRATEGY: VALUE CHAIN ACTIVITIES • ■ Value chain analysis identifies the parts of a firm’s operations that create value and those that do not • ■ A competitive advantage in logistics creates more value for a cost leadership strategy than for a differentiation strategy • Inbound logistics [materials handling, warehousing, and inventory control] • Outbound logistics [collecting, storing, and distribution]
COST LEADERSHIP STRATEGY: VALUE CHAIN ACTIVITIES Examples of Value-Creating Activities Associated with the Cost-Leadership Strategy
Cost-effective MIS Few management layers Simplified planning Consistent policies Effecting training Easy-to-use manufacturing technologies Investments in technologies Finding low cost raw materials Monitor suppliers’ performances Link suppliers’ products to production processes Economies of scale Efficient-scale facilities Effective delivery schedules Low-cost transportation Highly trained sales force Proper pricing VALUE-CREATING ACTIVITIES FOR COST LEADERSHIP RECONFIGURE THE VALUE CHAIN FOR COST ADVANTAGE
VALUE-CREATING ACTIVITIES FOR COST LEADERSHIP RECONFIGURE THE VALUE CHAIN FOR A COST ADVANTAGE • Alter production process • New raw material • Change in automation • Forward integration • New distribution channel • Backward integration • Change location relative to suppliers or buyers • New advertising media • Direct sales in place of indirect sales
COST LEADERSHIP STRATEGY: RISKS • COMPETITIVE RISKS • OBSOLESCENCE: processes used to produce and distribute goods/services may become obsolete due to competitors’ innovations • COST REDUCTIONS: too much focus on cost reductions may occur at expense of customers’ perceptions of differentiation • IMITATION: competitors, using their own core competencies, may successfully imitate the cost leader’s strategy
DIFFERENTIATION STRATEGY • An integrated set of actions taken to produce goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them • ■ Focus is on non-standardized products • ■ Appropriate when customers value differentiated features more than they value low cost • ■ Firms must still be able to produce differentiated products at competitive costs to reduce upward pressure on the price that customers pay
DIFFERENTIATION STRATEGY: DISTINCTIVE ACTIONS • Firms seek to be different from competitors on as many dimensions as possible • Differentiation approaches • ■ Unusual features • ■ Responsive customer service • ■ Rapid product innovations • ■ Technological leadership • ■ Perceived prestige and status • ■ Different tastes • ■ Engineering design and performance
DIFFERENTIATION STRATEGY: VALUE CHAIN ACTIVITIES Examples of Value-Creating Activities Associated with the Differentiation Strategy
Highly developed MIS Emphasis on quality Worker compensation for creativity/productivity Use of subjective performance measures Basic research capability Technology High quality raw materials Delivery of products High quality replacement parts Superior handling of incoming raw materials Attractive products Rapid response to customer specifications Order-processing procedures Customer credit Personal relationships VALUE-CREATING ACTIVITIES FOR DIFFERENTIATION RECONFIGURE THE VALUE CHAIN FOR DISTINCTIVENESS
VALUE-CREATING ACTIVITIES FOR DIFFERENTIATION RECONFIGURE THE VALUE CHAIN FOR DISTINCTIVENESS • Whereas cost leadership targets a specific industry, differentiation creates value by distinguishing products/services • A firm must consistently upgrade differentiated features that customers value and/or create new valuable features (innovate) without significant cost increases • Create sustainability through: • Customer perceptions of distinctiveness • Customer reluctance to switch to non-distinctive products
DIFFERENTIATION STRATEGY: RISKS • COMPETITIVE RISKS • PRICE DIFFERENTIAL: between the differentiator’s and the cost leader’s products becomes too large • VALUE DIMINISHED: Differentiation ceases to provide value for which customers are willing to pay • EXPERIENCE: narrows customers’ perceptions of the value of differentiated features • COUNTERFEIT: goods replicate differentiated features of the firm’s products
FOCUSED STRATEGIES • An integrated set of actions taken to produce goods or services that serve the needs of a particular competitive segment • Target markets include: • ■a Particular buyer group (e.g., youths or senior citizens) • ■ Different segment of a product line (e.g., products for professional painters or the do-it-yourself group) • ■ Different geographic market (e.g., northern or southern Italy by using a foreign subsidiary)
FOCUSED STRATEGIES Types of focused strategies: ■Focused cost leadership strategy ■ Focused differentiation strategy To implement a focus strategy, firms must be able to: Complete various value chain activities in a competitively superior manner in order to develop and sustain a competitive advantage and earn above-average returns
FACTORS THAT DRIVE FOCUSED STRATEGIES ■Large firms may overlook small niches ■A firm may lack the resources needed to compete in the broader market ■A firm is able to serve a narrow market segment more effectively than its larger industry-wide competitors can ■Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage
FOCUSED COST LEADERSHIP STRATEGY • A firm focuses on a niche market, adding value by leveraging value chain activities that allow value-creation through the cost leadership strategy • ■Competitive advantage: low-cost • ■ Competitive scope: narrow industry segment
FOCUSED DIFFERENTIATION STRATEGY • The value chain may be analyzed to determine if a firm is able to link the activities required to create value by using the focused differentiation strategy • ■ Competitive advantage: differentiation • ■ Competitive scope: narrow industry segment
FOCUS STRATEGIES: RISKS • COMPETITIVE RISKS • OUTFOCUSED: a focusing firm may be “outfocused” by its competitors • COMPETITION: a large competitor may decide that the market segment served by the focus strategy firm is attractive and worthy of competitive pursuit • CHANGING PREFERENCES:customer preferences in the niche market may change to more closely resemble those of the broader market
INTEGRATED COST LEADERSHIP/ DIFFERENTIATION STRATEGY Efficiently produce products with differentiated attributes: • EFFICIENCY: SOURCES OF LOW COST • DIFFERENTIATION: SOURCE OF UNIQUE VALUE • ■ Readilyadapts to external environmental changes • ■ Concentrates simultaneously on TWO sources of competitive advantage: cost and differentiation • ■ Competence and flexibility required in several value chain activities
INTEGRATED COST LEADERSHIP/ DIFFERENTIATION STRATEGY • Three sources of flexibility useful for this strategy: • ■ Flexible manufacturing systems (FMS) • ■ Information networks • ■ Total quality management (TQM) systems
INFORMATION NETWORKS • Links companies electronically with their suppliers, distributors, and customers • ■ Facilitates efforts to satisfy customer expectations in terms of product quality and delivery speed • ■ Improves flow of work among employees in the firm and their counterpart suppliers and distributors • ■ Requires customer relationship management (CRM)
Business Level Strategy
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