1. Business level strategy
MGMT 619
Prof. Sanjay Jain

2. Where we are... External Analysis Internal Analysis
Competitive Positioning
(Business-level strategy formulation)

3. Business level strategy
Actions taken to provide value to customers and gain a competitive advantage (playing offense and defense)
How should we compete effectively in the businesses that we are in?

4. The Distribution of Economic Contribution between a Firm & a Buyer
Value V
Buyer’s
Surplus
In competitive markets, buyers capture part of the overall economic contribution a firm
produces.
A Firm’s Total
Economic
Contribution
Price P
Firm’s
Surplus
or Profit
Cost C
Value = Willingness to Pay = price a buyer is willing to pay in the absence of a competing product and in the context of other purchasing opportunities.
The buyer always determines a product’s value.
Buyer’s surplus = Product’s Value to the Buyer - Market Price
Firm’s surplus = Market Price - Unit Cost

5. Value drivers Technology Quality Service Customization
Brand/Reputation
Complements
Delivery

6. Cost Drivers Economies of scale Economies of scope Learning Curve
Low input costs
Organizational practices
Vertical integration

7. Human Resource Management MARGIN Technological Development
Value Chain Analysis
helps to identify which resources and capabilities can add value
Firm Infrastructure
Human Resource Management
Support
Activities
MARGIN
Technological Development
Procurement
Service
Inbound
Logistics
Outbound
Logistics
Marketing
& Sales
MARGIN
Operations
Primary Activities

8. Isolating mechanisms Property rights Dedicated assets
Causal ambiguity (organization specific practices)
Switching costs

9. Creating new market space
Typically in an industry, strategies tend to converge along the same basic dimensions of competition
Creating new market space involves identifying unoccupied territory that represents a real breakthrough in value (capturing the “best of both worlds”)

10. Creating new market space
From Head-to-head competition to creating new market space
Strategy
Look Across Substitutes
Look Across Strategic Groups
Look Across Buyers
Look Across Complements
Look Across Emotional/Functional Appeal
Look Across Time
New Market Space
Old Market
Old Market

11. Four actions framework: The value curve
Reduce
The key to discovering a new value curve lies in answering four basic questions
What factors should be reduced well below the industry standard?
Eliminate
What factors that the industry has taken for granted should be eliminated?
Create/Add
What factors that the industry has never offered should be created or added?
Creating new
markets:
A new value curve
Raise
What factors should be raised well above the industry standard?
Source: Adapted from W.C. Kim and R. Mauborgne, “Blue Ocean Strategy,”

12. Conventional vs. new market creation strategic mindsets
Dimensions of competition
Head-to-Head competition
New-market creation
Emphasizes competitive position within group and segments
Emphasizes rivalry
Emphasizes better buyer service
Emphasizes efficient operation of the model
Emphasizes adaptation and capabilities that support competitive retaliation
Emphasizes product or service value and offerings within industry definition
Looks across groups and segments
Emphasizes substitutes across industries
Emphasizes redefinition of the buyer and buyer’s preferences
Emphasizes rethinking of the industry business model
Emphasizes strategic intent-seeking to shape the external environment over time
Emphasizes complementary products and services within and across industries
Industry
Strategic group and industry segments
Buyers
Product and service offerings
Business model
Time

13. Creating shared value
Companies are trapped in a narrow vision of value creation
- optimize short term financial performance
- ignore broader influences of long-term success
Assumed tradeoff between economic efficiency and social progress (Friedman view)

14. Creating shared value Reconceiving products and services
Redefining productivity in the value chain
Enabling local cluster development

15. Create a Win-Win for Business and Society
Choose which social issues to address
Create a social dimension to the
company’s value proposition
Orchestrate heightened forms of collaboration
A more sophisticated form of capitalism

16. Take-away points
Competitive positioning as a synthesis of external/internal analysis; provides an economic logic for organizing firm activities
Creating new market-spaces (positions)
Creating shared value (economic and social positions)