1. Business Level- Strategy: Creating and Sustaining Competitive Advantages Chapter Five McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Learning Objectives After reading this chapter, you should have a good understanding of: LO5.1 The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus. LO5.2 How the successful attainment of generic strategies can improve a firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability. LO5.3 The pitfalls managers must avoid in striving to attain generic strategies. LO5.4 How firms can effectively combine the generic strategies of overall cost leadership and differentiation. 5-2

3. Learning Objectives (cont.) LO5.5 What factors determine the sustainability of a firm’s competitive advantage. LO5.6 How Internet-enabled business models are being used to improve strategic positioning. LO5.7 The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities. LO5.8 The need for turnaround strategies that enable a firm to reposition its competitive position in an industry. 5-3

4. Three Generic Strategies 5-4 Exhibit 5.1

5. Competitive Advantage and Business Performance 5-5 Exhibit 5.2

6. Overall Cost Leadership  Experience curve  refers to how business “learns” to lower costs as it gains experience with production processes  with experience, unit costs of production decline as output increases in most industries 5-6

7. 5-7 Comparing Experience Curve Effects Exhibit 5.4

8. Differentiation  Differentiation strategy  a firm’s generic strategy based on creating differences in the firm’s product or service offering by creating something that is perceived industry-wide as unique and valued by customers. 5-8

9. U.S. Automobile Industry’s Profit Pool 5-9 Exhibit 5.8

10. Internet-Enabled Low Cost Leader Strategies 5-10 Exhibit 5.9

11. Internet-Enabled Differentiation Strategies 5-11 Exhibit 5.10

12. Internet-Enabled Focus Strategies 5-12 Exhibit 5.11

13. Stages of the Industry Life Cycle 5-13 Exhibit 5.12

14. Industry Life-Cycle Strategies  Maturity stage  The third stage of the product life cycle, characterized by (1) slowing demand growth, (2) saturated markets, (3) direct competition, (4) price competition, and (5) strategic emphasis on efficient operations.  Reverse positioning, breakaway positioning 5-14

15. Turnaround Strategies in the Life Cycle  Turnaround strategy  a strategy that reverses a firm’s decline in performance and returns it to growth and profitability.  Asset and cost surgery  Selective product and market pruning  Piecemeal productivity improvements 5-15