1. Chapter 4 – Business-Level Strategy1

2. The Strategic Management Process
Strategy Implementation
Chapter 10 Corporate Governance
Chapter 11 Organizational Structure and Controls
Chapter 13 Strategic Entrepreneurship

3. Agenda Introduction to Business-Level Strategy
Customers: Who, what, how?
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

4. Core Competencies and Strategy
Resources and superior capabilities that are sources of competitive advantage over a firm’s rivals
Strategy
An integrated and coordinated set of actions taken to exploit core competencies and gain competitive advantage
Business-level Strategy
Providing value to customers and gaining competitive advantage by exploiting core competencies in specific product markets

5. Agenda Introduction to Business-Level Strategy
Customers: Who, what, how?
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

6. Customers: Who, What, How
Who will be served?
Key Issues in Business-level
Strategy
What needs will be satisfied?
How will those needs be satisfied? 6

7. Determining the Customers to Serve
Customer Needs – Who?
Determining the Customers to Serve
All Customers
Consumer
Markets
Industrial
Markets
Market Segmentation
Cluster people with similar needs into individual and identifiable groups 7

8. Customer Needs – What? Customer Needs to Satisfy
Customer needs are related to a product’s benefits and features
Customer needs represent desires in terms of features and performance capabilities
Customer needs are neither right nor wrong, good nor bad

9. Customer Needs – How?
Determining the Core Competencies Necessary to Satisfy Customer Needs
Firms use core competencies to implement value creating strategies that satisfy customers’ needs
Only firms with capacity to continuously improve, innovate, and upgrade their competencies can expect to meet and/or exceed customer expectations across time

10. Purpose of Business-Level (BL) Strategies
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
Activity map exemplifies a firm’s
Activities
How they are integrated
Southwest Airline’s activity map: Note the primary (N=6) and secondary nodes/activities and the ‘connectedness’ or fit
Fit is key to the sustainability of competitive advantage 10

11. Southwest Airlines’ Activity System11

12. Five Business-Level Strategies
Source: Adapted from Porter, M. E. (1985). “Competitive advantage: Creating and sustaining superior performance”, New York, NY: Free Press.

13. Purpose of Business-Level (BL) Strategies (con’t)
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 13

14. Agenda Introduction to Business-Level Strategy
Customers: Who, what, how?
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

15. 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
Relatively standardized products (“no-frills”)
Features acceptable to many customers
Lowest competitive price

16. How to Obtain a Cost Advantage
Determine and control
Reconfigure, if needed
Cost Drivers
Value Chain
Alter production process
New raw material
Change in automation
Forward integration
New distribution channel
Backward integration
New advertising media
Change location relative to suppliers or buyers
Direct sales in place of indirect sales

17. Examples of Value-Creating Activities Associated with the Cost Leadership Strategy
Source: Adapted from Porter, M. E. (1985). “Competitive advantage: Creating and sustaining superior performance”, New York, NY: Free Press.

18. Value-Creating Activities for Cost Leadership
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

19. How to Create Value with a Cost Leadership Strategy?
… assess the cost leader’s position against the Five Forces!

20. Cost Leadership: Competitive Risks
Processes used to produce and distribute good or service may become obsolete due to competitors’ innovations
Too focused on cost reductions may occur at expense of customers’ perceptions of “competitive levels of differentiation” (i.e. value)
Competitors, using their own core competencies, may successfully imitate the cost leader’s strategy

21. Agenda Introduction to Business-Level Strategy
Customers: Who, what, how?
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

22. 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
Nonstandardized products
Attracting customers who value differentiated features more than they value low cost

23. How to Obtain a Differentiation Advantage
Control if needed
Reconfigure to maximize
Cost Drivers
Value Chain
Raise performance of product or service
Create sustainability through:
Customer perceptions of uniqueness
Customer reluctance to switch to non-unique product/service

24. Examples of Value-Creating Activities Associated with the Differentiation Strategy
Source: Adapted from Porter, M. E. (1985). “Competitive advantage: Creating and sustaining superior performance”, New York, NY: Free Press.

25. Value-Creating Activities and Differentiation
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

26. How to Create Value with a Differentiation Strategy?
… assess the differentiator's position against the Five Forces!

27. Differentiation: Competitive Risks
The price differential between the differentiator’s product and the cost leader’s product becomes too large
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

28. Exercise
For each of the listed products, describe at least two ways they are differentiated:
Ben & Jerry’s ice cream
Hummer H3
Apple MacBook Air
Hannah Montana
Taco Bell
Which, if any of these bases for product differentiation are likely to be sources of sustainable competitive advantage, and why?

29. Agenda Introduction to Business-Level Strategy
Customers: Who, what, how?
Cost Leadership Strategies
Differentiation Strategies
Focus Strategies

30. Focus Strategies
An integrated set of actions taken to produce goods or services that address the needs of a particular competitive segment
Particular buyer group (e.g., youths or senior citizens
Different segment of a product line (e.g., professional craftsmen versus do-it-yourselfers)
Different geographic markets (e.g., East Coast vs. West Coast)

31. Factors Driving Focused Strategies
Large firms may overlook small niches A firm is able to serve a narrow market segment more effectively than can its larger, industry-wide competitors A firm may lack the resources needed to compete in the broader market Focusing allows the firm to direct its resources to certain value chain activities to build competitive advantage

32. Focus Strategies: Competitive Risks
A focusing firm may be “outfocused” by its competitors A large competitor may set its sights on a firm’s niche market Customer preferences in niche market may change to more closely resemble those of the broader market