Slide strategic management 6e by harrison chapter 5 business level strategies

Chapter Business-level Strategies Learning Objectives To understand: • generic competitive strategies and the way they are executed • the elements of a business model • how competitive dynamics influence industries and the companies they contain • the most common competitive tactics • strategies in an international context and over time Strategic Management Process External and Internal Analysis Strategic Direction Strategy Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring Business-Level Strategy Formulation Responsibilities • Direction setting—Mission, vision, ethics, goals • Situation analysis—Compilation and assessment of information • Selection of strategies—Generic strategy (cost leadership, differentiation, best cost, focus) and competitive tactics, including growth strategy • Management of resources—Acquisition and/or development of resources leading to competitive advantage Business-Level Strategies • Generic Strategies - how the firm intends to position itself to create value for its customers in ways that are different from those of competitors • Competitive Tactics - the competitive actions firms take to grow and increase the strength of or protect their competitive positions Generic Strategies Value propositions associated with generic competitive strategies Differentiation: Offer value to customers by providing them with a preferred product or service Low-cost leadership: Offer value to customers by providing them with a standard product or service produced at lower cost (and typically offered at a lower price) Best cost: A combination of the first two options Note: these strategies assume that the firm is seeking a broad customer base If the firm is pursuing a particular market segment it is using a “focus” strategy Differentiation Create value through some type of uniqueness, such as: • • • • • Product innovations Superior quality or service Creative advertising Speed and Flexibility Reputation and Brand Name Customers must be willing to pay more for the uniqueness • Added costs vs incremental price Low-Cost Leadership Common ways to pursue low-cost leadership: •Accurate demand forecasting and high capacity utilization •Economies of scale •Technological advances •Experience effects Typical Experience Curve unit cost total cumulative output Best Cost • Combination of low-cost leadership and differentiation • The reasons it works: The same resources/activities that allow cost reductions may also allow differentiation (e.g., automation that lowers costs and improves speed and service) Profits from cost reductions may be used to invest in differentiating features, and vice versa 10 Focus • The firm serves the needs of a particular market segment • In combination with one of the other three generic strategies: focus through differentiation focus through low-cost leadership focus through best cost 11 Business Models • Important elements: › Identifying market segments to be targeted › Determining unique sources of value for customers (differentiating features, low cost, or a balance) › Selecting unique features and technologies for products › Determining how to capture value, incl pricing › Verifying sufficient demand exists • Decisions regarding assets: › Types of assets sold (physical, service, financial, intangible) › Rights given to consumers (complete transfer, distribution, temporary use, fee for matching buyers/sellers) 12 Defining a Business Model Market(s) Market segments targeted: •Broad market •Focus on a particular market segment or segments Assets Assets sold: •Physical products •Services •Financial assets •Intangible assets Rights to assets provided: •Complete transfer •Distribution of assets created by others •Rights to use assets for a time •Broker (match buyers & sellers) Value Creation Value Capture Unique sources of value: •Differentiation: unique features and technologies embedded in assets •Low cost: Basic products/services or assets at a low price •Best cost: high value to cost ratio Determination of approach for capturing revenues and profits (financial feasibility) Determination of demand for products, services, or other assets as defined and at a particular price 13 Competitive Tactics • Internal Growth Strategies › Market penetration › Market development › Product/service development › Vertical integration • External Growth Strategies › Alliances/joint ventures › Acquisitions › Horizontal integration 14 Competitive Tactics • Offensive Tactics › Aggressive Competition › First-Mover Advantages • Defensive Tactics › Threat of Retaliation › Barriers to Imitation • • • • Collaborative Tactics Political Tactics Avoidance (Blue Ocean) Tactics Strategic Flexibility 15 International Growth Tactics • Exporting • Licensing • Franchising • Joint Venture • Greenfield Venture Note: Moving down the list entails not only greater cost and financial risk, but also greater profit potential and control 16 Approach to International Markets • Multidomestic – custom tailoring products/services for individual international markets • Global – one product/service for the world • Transnational – a hybrid approach 17 The Industry Life Cycle A Growth B Unit Sales Volume Maturity C Introduction Commodity or Decline Time 18 ... tactics • strategies in an international context and over time Strategic Management Process External and Internal Analysis Strategic Direction Strategy Formulation (corporate and business level) ... resources—Acquisition and/or development of resources leading to competitive advantage Business- Level Strategies • Generic Strategies - how the firm intends to position itself to create value for its customers... Formulation (corporate and business level) Strategy Implementation and Control Strategic Restructuring Business- Level Strategy Formulation Responsibilities • Direction setting—Mission, vision,