Strategic Management T 5 Business level strategy Business administration Prof.Dr. E.Vatchkova

Contents J&Sh, Forces, influencing BS 2.The “strategy clock” 3.Sustaining competitive advantage 4.Competition and collaboration 5.Game theory 6.Competitive strategy under hypercompetitive conditions

Bases of strategic choice at the business level 1.The influence of:1.The influence of: The forces at work in the business environment,the internal capabilities of organizations and the expectations and influences of stakeholders.These factors are potentially important in developing business strategy.The forces at work in the business environment,the internal capabilities of organizations and the expectations and influences of stakeholders.These factors are potentially important in developing business strategy.

2.The bases of competitive advantage-is the bases on which a business unit might achieve competitive advantage in its market.2.The bases of competitive advantage-is the bases on which a business unit might achieve competitive advantage in its market. 2.1.Price-based strategy(routes1 &2)2.1.Price-based strategy(routes1 &2) 1.”no frills”strategy-combines a low price,low perceived add value & a focus on a price-sensitive market segment.1.”no frills”strategy-combines a low price,low perceived add value & a focus on a price-sensitive market segment.

2. The Low price strategy-seeks to achieve a lower price than competitors whilst trying to maintain similar value of product or service to that offered by competitors.2. The Low price strategy-seeks to achieve a lower price than competitors whilst trying to maintain similar value of product or service to that offered by competitors.

2.3.The hybrid strategy(route 3)2.3.The hybrid strategy(route 3) It seeks simultaneously to achieve differentiation & a price lower than that of competition.It seeks simultaneously to achieve differentiation & a price lower than that of competition.

2.4. add value,or differentiation strategy(route 4)2.4. add value,or differentiation strategy(route 4) It seeks to provide products or services unique,different from those of competitors in terms of dimensions widely valued by buyers.It seeks to provide products or services unique,different from those of competitors in terms of dimensions widely valued by buyers.

2.5.Focused differentiation(route5)2.5.Focused differentiation(route5) This strategy seeks to provide high perceived value justifying a substantial price premium, usually to a selected market segment.This strategy seeks to provide high perceived value justifying a substantial price premium, usually to a selected market segment.

2.6.Failure strategy(route 6,7 & 8)2.6.Failure strategy(route 6,7 & 8) Route 6-reflects on increasing price without increasing value to the buyer.Route 6-reflects on increasing price without increasing value to the buyer. Route 7-it involves the reduction in value of the product or service,whilst increasing relative price.Route 7-it involves the reduction in value of the product or service,whilst increasing relative price. Route 8-reduction in value whilst maintaining price.Route 8-reduction in value whilst maintaining price.

1. “No frills” 2. Low price 3. Hybrid 4. Differentiation 5. Focused Differentiation f ailure

3.Sustaining competitive advantage3.Sustaining competitive advantage The issue of sustainability is important.A competitive advantage can be achieved in such way that it can be preserved over time.Some believe that it can be achieved & other don’t.The issue of sustainability is important.A competitive advantage can be achieved in such way that it can be preserved over time.Some believe that it can be achieved & other don’t.

3.1 Sustaining low price advantage3.1 Sustaining low price advantage It is mentioned earlier that achieving the S.C.A through low price is dependent on low cost that is difficult to sustain.It is mentioned earlier that achieving the S.C.A through low price is dependent on low cost that is difficult to sustain. How might it be achieved & what are the problems?How might it be achieved & what are the problems?

Such case can be an organization to seek to sustain reduced price over competition on the basis on having the lowest cost base such that competitors can’t hope to imitate it of being e cost leader.Such case can be an organization to seek to sustain reduced price over competition on the basis on having the lowest cost base such that competitors can’t hope to imitate it of being e cost leader.

Porter actually defines cost leadership as the low - cost producer in its industry…a low - cost producer must find & exploit all sources of cost advantage.Porter actually defines cost leadership as the low - cost producer in its industry…a low - cost producer must find & exploit all sources of cost advantage.

3.2 Sustaining differentiation-based advantage3.2 Sustaining differentiation-based advantage Sustainable differentiation needs to be based on less imitable aspects of competitive advantage.Most of the cases it usually means “being different”.Sustainable differentiation needs to be based on less imitable aspects of competitive advantage.Most of the cases it usually means “being different”.

Conditions to sustain differentiation include the following:Conditions to sustain differentiation include the following: The difficulties of imitation based on core competence's.The reasons for this include:The difficulties of imitation based on core competence's.The reasons for this include:

Complexity-the competence's upon which successful strategy is based are too complex for competitors to comprehend.Complexity-the competence's upon which successful strategy is based are too complex for competitors to comprehend. Intangible assets-such as brand image or reputation are difficult for a competitor to obtain.Intangible assets-such as brand image or reputation are difficult for a competitor to obtain.

Switching cost- are the actual or perceived cost for a buyer of changing the source of supply of a product or service.The buyer might be dependent on the supplier for particular components,such as service or skills or the benefits of switching may simply not be worth the cost or risk.Switching cost- are the actual or perceived cost for a buyer of changing the source of supply of a product or service.The buyer might be dependent on the supplier for particular components,such as service or skills or the benefits of switching may simply not be worth the cost or risk.

3.3 The delta model and lock-in3.3 The delta model and lock-in Another approach of sustainability is the idea of the “lock - in”.Another approach of sustainability is the idea of the “lock - in”.

Here an organization has achieved it’s position in its industry,it has become an industry standard.Here an organization has achieved it’s position in its industry,it has become an industry standard. IBMIBM MicrosoftMicrosoft

4.Competition and collaboration4.Competition and collaboration Collaboration between organizations may be a crucial ingredient in achieving advantage or avoiding competition.They might compete in some markets & collaborate in others or even at the same time compete & collaborate.Collaboration between organizations may be a crucial ingredient in achieving advantage or avoiding competition.They might compete in some markets & collaborate in others or even at the same time compete & collaborate.

Five forces of the framework.Five forces of the framework. 1.Buyer-seller collaboration.1.Buyer-seller collaboration. 2.Collaboration to increase buyer power.2.Collaboration to increase buyer power. 3.Collaboration to build barriers to entry or avoid substitution.3.Collaboration to build barriers to entry or avoid substitution.

4. Collaboration to gain entry & competitive power.4. Collaboration to gain entry & competitive power. 5.Collaboration to share work with customers.5.Collaboration to share work with customers.

5.Game theory5.Game theory The center idea is that the strategist,has to anticipate the reaction of others.The center idea is that the strategist,has to anticipate the reaction of others. GeneralGeneral EnemyEnemy ManagerManager CompetitorsCompetitors

The assumption in game theory is that to a greater or lesser extent competitors are aware of the interdependencies that exist & of the sorts of move that competitors could take.The assumption in game theory is that to a greater or lesser extent competitors are aware of the interdependencies that exist & of the sorts of move that competitors could take.

The key there for the strategist as game theorist is the need to put themselves in the position of their competitors as to take a rational view of point about what the competitors are likely to do,& therefore choose their best course of action.The key there for the strategist as game theorist is the need to put themselves in the position of their competitors as to take a rational view of point about what the competitors are likely to do,& therefore choose their best course of action.

Guiding principles of Game theory :Guiding principles of Game theory : 5.1 Simultaneous games-Is one of the most famous G.theory. There the players are involved.Ex.The competitors are faced with making decisions at a point in time.5.1 Simultaneous games-Is one of the most famous G.theory. There the players are involved.Ex.The competitors are faced with making decisions at a point in time.

The game theory suggests that there are 3-main principles:The game theory suggests that there are 3-main principles: 1.Dominant strategy-is one that outperforms all other strategies whatever rivals choose.1.Dominant strategy-is one that outperforms all other strategies whatever rivals choose. 2.Dominated strategy2.Dominated strategy 3.Equilibrium-is a situation where each competitor contrives to get the best possible strategic solution for itself given the response from the others3.Equilibrium-is a situation where each competitor contrives to get the best possible strategic solution for itself given the response from the others

5.2 Sequential games - General it is to think forward & reason backwards5.2 Sequential games - General it is to think forward & reason backwards

5.3 Repeated game - here competitors interact repeatedly & it has been shown that in such circumstances the equilibrium outcome is much more likely to favour co-operation5.3 Repeated game - here competitors interact repeatedly & it has been shown that in such circumstances the equilibrium outcome is much more likely to favour co-operation

5.4Changing the rules of the game5.4Changing the rules of the game By thinking through the logic of the game a competitors might find that they are simply not able to compete effectively within the rules as they exist.An alternative approach for a competitor who decides they can’t win on such bases is to price-change the rules of the game.By thinking through the logic of the game a competitors might find that they are simply not able to compete effectively within the rules as they exist.An alternative approach for a competitor who decides they can’t win on such bases is to price-change the rules of the game.

6.Competitive strategy in Hypercompetitive conditions- the idea of strategy in hypercompetitive situation is considered unlike the game theory. Hypercompetitive environment require organizations to acknowledge that advantages may be temporary.6.Competitive strategy in Hypercompetitive conditions- the idea of strategy in hypercompetitive situation is considered unlike the game theory. Hypercompetitive environment require organizations to acknowledge that advantages may be temporary.

6.1 Overcoming traditional bases of competitive advantage.6.1 Overcoming traditional bases of competitive advantage. -Advantage bases on price or differentiation.-Advantage bases on price or differentiation. -Seeking advantage through market- based strategic moves-Seeking advantage through market- based strategic moves - Seeking advantage by building barriers- so to provide competitors entering their domains.- Seeking advantage by building barriers- so to provide competitors entering their domains.

6.2 Escalating bases of competition6.2 Escalating bases of competition 1.Differentiation Imitation 2.Resource-based barriers Imitation 3.New markets Imitation 5.Build stronghold 4.Hybrid strategy Imitation or overcome 6.Build scale 7.Perfect competition

6.3 Successful hypercompetitive strategies:6.3 Successful hypercompetitive strategies: SpeedSpeed flexibilityflexibility innovationinnovation willingnesswillingness capacity to changecapacity to change