Presentation on theme: "Business-Level Strategy"— Presentation transcript:
1 Business-Level Strategy Chapter 5Strategic PositionStrategy into ActionStrategic ChoicesPresent By Group 4Janaka Heenkenda PgiaVipula Jayakody PgiaDilupi Lihinipita PgiaA. Krishnakumar Pgia
2 Brief Content Introduction Identify Strategic Business Units Bases of Competitive Advantage : the “Strategy clock”Sustaining Competitive AdvantageCompetitive Strategy in Hypercompetitive ConditionsCompetition and CollaborationGame TheoryPrice-base strategiesDifferentiation strategiesThe hybrid strategiesFocused differentiationFailure strategiesSustaining price-based advantageSustaining differentiation-based advantageThe delta model and lock-inRepositioningOvercoming competitors’ market-based movesOvercoming competitors’ barriersIngredients of successful hypercompetitive strategiesSimultaneous gamesSequential gamesRepeated gamesChanging the rule of the gamePg. X
3 5.1 Introduction SBU Strategies Ways to Achieving Competitive AdvantageSustainabilityHyper competitionCollaborationGame TheoryBases of CompetitionPriceDifferentiationHybridFocusMore Detailed Choices(Chapter 7)DirectionsMethodsCompletive AdvantageIf gov. Underpin best value in servicePg.240
4 5.2 Strategic Business Unit (SBU) External Criteria :Target same customer types through same channel facing similar competitors.Individual SBUInternal Criteria : Strategic capability – Resources and Competences Similar products/ build in similar technology and share similar resources and competencies. Means cost structure of the ‘units’ is similarEach product and each geographical branch, Diversity of productSBU is part of an organization for which there is a distinct external market for goods or services that is different from another SBU.PitfallPg.241
5 5.3 Bases of Competitive Advantage: Strategy Clock 1: Likely to be segment specific.2 : Risk of price war and low margins/need to be a 'cost leader'.3 : Low cost base and reinvestment in low price and differentiation.4: (a) Without a price premium:perceived added value by user, yielding market share benefits.(b)With a price premium:perceived added value sufficient to bear price premium.Perceived Product/ ServicebenefitsDifferentiation5: Perceived added value to a 'particular segment' warranting a premium price.6: Std Value/ Increased Price : Higher margins if competitors do not value follow/risk of losing market share.‘No frills’Likely Failure7: Low Value/ Increased Price : Only feasible in a monopoly situation.Price8: Low Value/ Std Price : Loss of market share.Pg.242
6 5.3.1 Price Based Strategies (Routes 1 & 2) P&S, Remarko, Fast foodRoute 1: ‘No Frills Strategy’ Combines a low price, low perceived product/ services benefits and a focus on a price sensitive market segment- Like CommoditiesPrice Sensitive CustomersBuyer have high power and/ low switching costSmall number of providers with similar market shareAvoid Major competitorsRoute 2 : ‘Low Price Strategy’Seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product / service benefits to those offered by competitors- Margin ReductionInability to reinvestLow cost base
7 5.3.2 Differentiation Strategies (Route 4) Anchor, Raththi, Nespray, Highland, LuksprayRoute 4: ‘Differentiation Strategy’ Seeks to provide product or service benefits that are different from those of competitors and that are widely value by buyers- Who is the strategic customer ?What is valued ?Who are the competitors ?
8 5.3.3 The Hybrid Strategy (Route 3) IKEARoute 3: ‘Hybrid Strategy’ Seeks simultaneously to achieve differentiation and a price lower that of competitorsGreater volumes than competitorsEntry strategy with established competitors, Ensures overall low cost baseFollow-through strategy
9 5.3.4 Focused Differentiation (Route 5) Jaguar, Mercedes, BMWRoute 5: ‘Focus Differentiation Strategy’ Seeks to provide high perceived product/service benefits justifying a substantial price premium, usually to a selected market segment (niche)- Choice between focus or differentiationDifficult when it is part org org. st.May conflict with stakeholder expectationNew ventures often starts focus wayMarket situation may change
10 5.3.5 Failure Strategies (Routes 6,7 & 8 ) Guess !!Route 6,7& 8 : ‘Failure Strategy’ That does not provide perceived value-for-money in terms of product features, price or both- Suggest withdrawal from the market6 to increase the price without improving the product/ service7 & 8 to increase price even when the product/ service value is low
11 5.4 Competitive Advantage Price Based StrategiesAccept reduced marginWin a price warReduce costsFocus on specific segmentsDifferentiationCreate Difficulties of imitationAchieve imperfect mobility (of resources/ competencies)Reinvest MarginSustainingCompetitiveAdvantageLock InAchieve size/market dominanceFirst-mover advantageReinforcementRegional enforcementPg.252
12 5.4.1 Sustaining Price Based Advantage Reduce marginWin a price warCost advantage through organisationally specific capabilities – low cost producer in the industryFocusing on market segment where low price values – associate low price with low product/ service benefits (route 2 strategy slipping to route 1)
13 5.4.2 Sustaining Differentiation – based Advantage Create difficulties of imitatingImperfect mobilityIntangible AssetsSwitchingCo-specialization
14 5.4.3 The Delta Model and Lock-In E.g. : Microsoft, IBM, Intel, BataLock in is where an organisation achieves a proprietary position in its industry; it becomes an industry standardSize or market dominanceEarly in life cycles of marketsSelf-reinforcingInsistence on the preservation
15 5.5 Competitive Strategy in Hypercompetitive Conditions RepositioningCompeting successfullyPre-empt competition (New Strategies)Do not attack competitors weaknessesDisrupt the marketBe unproductiveMislead competitorsA series of smaller movesOvercoming competitors‘ barriersShorter life cyclesUndermine strongholdsCounter ‘deep pocket’ advantagesCompetitive strategies in hypercompetitive conditionOvercoming competitors‘ Market-based movesBlock first move advantageImitate Product/ Market movesPg.258
16 5.5.1 Repositioning Repositioning without changing price Position 1 or 2 move to Position 3
17 5.5.2 Overcoming Competitors'’ Market Based Moves Blocking first-mover advantage.Eliminate the market dominant of the competitor byLaunching product with enhanced features (not to be an imitated product.)Attack a particular market segmentErode the market power of 1st moverCapture down markets first with a cheaper product and move into the main market of the 1st mover. (No frills)Imitate competitors' product/market moves.Competitors seek the advantages by developing new markets or new products. This can be easily imitated & competitor face problem of sustaining in the original product/market.
18 5.5.3 Overcoming Competitors’ Barriers Build competitive barriers to prevent other organizations entering their domainsBy short life cyclesCompetitive advantage through strengthof their resources & competences.Rapid outdating of technological advance & knowledge advantage.Undermining competitors' strongholdsEconomics of scale e.g. PromotionsCountering competitors' deep pocketsSurplus resources (deep pockets).Recourses to preserve the interest of the company or to tackle the competition.
19 5.5.4 Ingredients of Successful Hypercompetitive Strategies Pre-empt imitation by othersSustaining in old advantages is a distraction for developing new strategies.Do not attack competitors' weaknessesCompetitor learn strengths & weaknessesDisrupt the marketA series of smaller movesMore effective than a bigger one-off changeFlexibility and gives a series of temporary advantages.Be unpredictableCurrent behavior would help to predict the next move.It'll let them to imitate or outflank the organization.Mislead competitorsThis is the strategy of “Game Theory”.
20 5.6 Competition and Collaboration Increased selling powerIncreased baying powerStakeholder expectationCompetitiveness might be improved by collaboration to achieveIncreased barrier to enterShared work with customerDecreased risk of substitutionEntry to new marketPg.261
21 5.6 Competition and Collaboration Increased selling power – Manufacture build close link with customers.Eg: Aerospace Industry – High level of product qualityIncreased baying power - Tying suppliers to into their “Enterprise Resource Planning”.Eg: Collaboration with doctors & Government.Increased barrier to enter of substitution- – Threatened entry or substitute products.Eg: Trade associations promoting industry's generic features like safety standards/technical specifications.Entry to new market – When developing beyond their traditional boundaries they need collaboration.Eg: Entering to a new segmentShared work with customer- When comes to public services like assessment like income taxes, to gain cost efficiency/quality & reliability need the corporation.Stakeholder expectation- To raise overall standards or to address public issue like drugs or community safety
22 5.7 Game TheoryIs concerned with the interrelationships between moves of a set of competitorsSource:Game theory is concerned with interrelationships between the competitive move of a set of competitors.Game theory more popular because the application have been developed for situations in which competing players are business organization, teams, political candidates , armies, and contract bidders.The central idea is that the strategist has to anticipate the reaction of competitors.Pg.264
23 5.7.1 Simultaneous Games A Prisoner’s Dilemma Competitor A Heavy MarketingspentLow MarketingHeavy MarketingspentLow MarketingB= A=5L/UB= A=2R/UB= A=12L/LB= A=9R/LCompetitor BCompetitors don’t know each others strategy in a competitive moveR/L- both spending low-get mutual benefitR/U & L/L- one take advantage over the other by spending moreL/U- both spend more but return is less
24 5.7.1 Simultaneous GamesA dominant strategy is one that outperforms all strategies whatever rivals chooseA dominated Strategy is a competitive strategy that, pursued by the competitors, is bound to outperform the company.Equilibrium is a situation where each competitor contrives to get the best possible strategic situation for themselves given the response from the other.
25 5.7.1 A Simultaneous move game DOLLA investmentLowHighLowA DOLLA=3INNOVA=4B DOLLA=4INNOVA=2C DOLLA =2INNOVA=3D DOLLA=1INNOV=1INNOVAinvestmentHighA- Innova dominant strategy – low investment pay- off moreB- Dolla- dominated strategy – pay-off moreInnova- equilibrium
26 5.7.2 Sequential Games Guiding Principle: -Thing forwards and then reason backwards.-Start by trying to think through the sequence of moves that competitors might make based on reasonable assumption about what that competitors desires as the outcome.The key strategic component to be considered when making assumption :-Identifying dominant and Dominated strategies.-The timing in strategic moves.-The careful weighing of risk,-Establishing credibility and commitment
27 5.7.2 Sequential Games Pay off INNVA DOLLA 1 3 2 4 A High DOLLA Low BINNOVAHighCLowDOLLALow-Innova’s dominant strategy is RD-Dolla’s Dominated strategy is FinnanceD
28 5.7.3 Repeated GamesCompetitors interact repeatedly and the equilibrium outcome is much more likely to favor cooperation/ accommodation of both parties’ best interest ExperienceImplicit cooperation depends onNumber of competitionsSize of the competitorsSubstantial differencesTransparency
29 5.7.4 Changing the Rule of the Game Competitor might find difficult to compete with in the rules of the gameGo for alternativese.g – instead of heavy marketing expenditure/ investmentBase differentiationMaking price more transparentIncentive for customer loyalty
30 Learning OutcomesHow to identify Strategic Business Units (SBUs) in organisations.Different bases of achieving competitive advantage in terms of ‘routes’ on the strategy clock:price-based strategies;differentiation strategies;hybrid and focus strategies.The factors influencing the sustainability of competitive advantage.The relationship between competition and collaboration.The principles of game theory in relation to competitive strategy.