1. Business-Level Strategy
Chapter Five

2. Strategic Management Process The Strategy Formulation
Chapter 4
Internal
Environment
Chapter 3
External
Strat
. Intent
. Mission
Strategic
Inputs
Strategic
The .
Management .
Process
Strategy Formulation
Strategy Implementation
Strategic
Actions
Chapter 5
Bus. – Level
Strategy
Chapter 5
Chapter 6
Chapter 7
Chapter 11
Chapter 12
Bus. -
Level
Competitive
Corp. -
Level
Corporate
Structure
Strategy
Dynamics
Strategy
Governance
& Control
Chapter 8
Chapter 9
Chapter 10
Chapter 13
Chapter 14
Acquisitions
&
International
Cooperative
Strategic
Entrepreneurship
Restructuring
Strategy
Strategies
Leadership
& Innovation
Strategic
Outcomes
Feedback
Above Average
Returns
Chapter 2
Strategic
Competitiveness
Chapter 1
Strategic
Competitiveness
Chapter 1

3. The Central Role of Customers
In selecting a business-level strategy, the firm determines
1. Who it will serve.
2. What needs those target customers have that it will satisfy.
3. How those needs will be satisfied.
© 2006 by Nelson, a division of Thomson Canada Limited.

4. Core Competency, Strategy and Business Level Strategy
The resources and capabilities that are determined to be a source of competitive advantage for a firm over its rivals.
An integrated & coordinated set of actions taken to exploit core competencies & gain a competitive advantage.
Strategy
Actions taken to provide customers value
and gain a competitive advantage by
exploiting core competencies in specific, individual product markets.
Business Level Strategy 7

5. Three Generic Strategies
Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

6. Competitive Advantage and Business Performance
Differentiation and Cost
Differentiation Focus
Cost Focus
Stuck in the Middle
Differentiation
Cost
Performance
Return on
investment (%)
Sales Growth (%)
Gain in Market
Share (%)
Sample Size
Adapted from Exhibit5.2 Competitive advantage and business performance
McGraw-Hill/Irwin
Strategic Management, 3/e
Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

7. How to Obtain a Cost Advantage1
Determine and Control Cost Drivers 2
Reconfigure the as needed
Value Chain
Alter production process
Change in automation
New raw material
New distribution channel
New advertising media
Direct sales in place of indirect sales
Forward integration
Backward integration
Alter location relative to suppliers or buyers 36

8. Value-Chain Activities: Overall Cost Leadership
Exhibit 5.3 Value-Chain Activities: Examples of Overall Cost Leadership
Source: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.
McGraw-Hill/Irwin
Strategic Management, 3/e
Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

9. Cost Leadership Strategy and the Five Forces of Competition
Rivalry with Existing Competitors
Can use cost leadership strategy to advantage since:
competitors avoid price wars with cost leaders, creating higher profits for the entire industry
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition

10. Cost Leadership Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition
Bargaining Power of Buyers (Customers)
Can mitigate buyers’ power by:
Driving prices far below competitors and cause exit and
shift power back to firm.

11. Cost Leadership Strategy and the Five Forces of Competition
Bargaining Power of Suppliers
Can mitigate suppliers’ power by:
being able to absorb cost increases due to low cost position
being able to make very large purchases, reducing chance of supplier using power
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition

12. Cost Leadership Strategy and the Five Forces of Competition
Threat of New Entrants
Can frighten off new entrants due to:
their need to enter on a large scale in order to be cost competitive
the time it takes to move down the learning curve
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition

13. Value-Chain Activities: Differentiation
Exhibit 5.5 Value-Chain Activities: Examples of Differentiation
Source: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.
McGraw-Hill/Irwin
Strategic Management, 3/e
Copyright © The McGraw-Hill Companies, Inc. All rights reserved.

14. Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition
Threat of Substitute Products
Well positioned relative to substitutes because:
brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands.

15. Major Risks of Cost Leadership Business Level Strategy
Dramatic technological change could take away your cost advantage.
Competitors may learn how to imitate Value Chain.
Focus on efficiency could cause Cost Leader to overlook changes in customer preferences.

16. Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Breadth of Competitive Scope
Broad
Target
Market
Narrow
Cost
Leadership
Differentiation 52

17. Differentiation strategy
“An integrated set of actions designed by a firm to produce or deliver goods or services that customers perceive as being different in ways that are important to them.”

18. How to Obtain a Differentiation Advantage
Control if needed
Reconfigure to maximize
Cost Drivers
Value Chain
Lower buyers’ costs
Raise performance of product or service
Create sustainability through:
- customer perceptions of uniqueness
- customer reluctance to switch to non-unique product

19. Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Can defend against competition because:
brand loyalty to differentiated product offsets price competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition

20. Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition
Bargaining Power of Buyers
Can mitigate buyer power because:
well differentiated products reduce customer sensitivity to price increases

21. Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition
Bargaining Power of Suppliers
Can mitigate suppliers’ power by:
absorbing price increases due to higher margins
passing along higher supplier prices because buyers are loyal to differentiated brand

22. Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition
Threat of New Entrants
Can defend against new entrants because:
new products must surpass proven products or,
new products must be at least equal to performance of proven products, but offered at lower prices

23. Differentiation Strategy and the Five Forces of Competition
Rivalry Among Competing Firms
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Substitute Products
Threat of
Five Forces of
Competition
Threat of Substitute Products
Well positioned relative to substitutes because:
brand loyalty to a differentiated product tends to reduce customers’ testing of new products or switching brands

24. Major Risks of a Differentiation Business Level Strategy
Customers may decide that the differentiation between the differentiator’s product and the cost leaders price is too large.
A firm’s means of differentiation may cease to provide value for which customers are willing to pay.
The means of uniqueness may no longer be valued by customers.

25. Focus Strategies
Focus strategies are an integrated set of actions designed to produce or deliver goods or services that serve the needs of a particular competitive segment.