STRATEGY Process, Content, Context Chapter 5 Business Level Strategy

Agenda The Issue of Competitive Advantage The Product Offering The Activity System The Resource Base The Paradox of Markets and Resources The Demand for Market Adaptation The Demand for Resource Leveraging Perspectives on Business Level Strategy The Outside-in Perspective The Inside-out Perspective The Debate and Readings

I. Competitive Advantage The Business System The Issue of Competitive Advantage How can a company be successful? Business System The configuration of resources, activities and product/service offering intended to create value for the customers Product offering The firm supplies goods or performs services for clients in the market place Activity System An integrated set of value creation processes leading to the supply of product and/ or service offerings Resource Base All means at the disposal of the organization for the performance of value-adding activities

Competitive Advantage Components of a Business System

The Product Offering The Risk of an Unfocused Approach Low economies of scale The less specialized the company, the lower the opportunity to leverage the resource base Slow organizational learning Being involved in a multitude of products slows down the ability to build up specific knowledge and capabilities Unclear brand image In general, companies that stand for everything tend to stand out in nothing Unclear corporate identity Unfocused companies will have difficulty explaining why its people are together in the same company High organizational complexity Highly diverse products and customers also create an exponential increase in organizational complexity Limits to flexibility Less specialized firms are often forced into certain choices due to operational necessity

The Product Offering Alternative Industry Categorization

The Product Offering Alternative Market Segmentation

The Product Offering Defining and Selecting Businesses Companies must focus in two ways: Firms need to analyze the structural characteristics of interesting businesses to be able to judge whether they are attractive enough (Porters 5-forces analysis) Selecting a limited number of business Firms need to determine what they want to be and what they want to leave aside.To be competitive firms should choose distinct market segments and target specific product offerings Focusing within each selected business

The Product Offering Industries, Markets and Businesses

The Product Offering Determining Competitive Scope

The Product Offering Product Bases for Competitive Advantage Price For a firm wanting to compete on price the most important point is that it should have a low cost product offering, activity system and resource base Features Firms can distinguish their product offering by having different intrinsic functional characteristics than competing offerings Bundling Selling a package of products/ services ‘wrapped together’ Quality A firm’s product offering doesn’t necessarily have to be different, it can just be better Distribution Having the product available at the right place, at the right moment and in the right way is sometimes the most important aspect for customers Image Firms can gain advantage in the competition for customers’ preference by having a more appealing image than competitors Relations In general, customers prefer to know their suppliers well, as this gives them a more intimate knowledge of the product offering being provided

The Activity System Value Chain An activity system is an integrated set of value creation processes leading to the supply of product and/ or service offerings. This activity system is frequently referred to as the value chain (Porter, 1985).

The Activity System Primary and Support Activities Primary Activities Inbound Logistics Activities associated with receiving, storing, and disseminating inputs Operations Activities associated with transforming inputs into final products Outbound Logistics Collecting, storing, and physically distributing products/ services to buyers Marketing & Sales Providing a means by which buyers can purchase the product Service Providing service to enhance or maintain the value of products Support Activities Procurement Purchasing of inputs to facilitate all other activities Technology Development The improvement of technologies throughout the firm HRM Activities associated with the management of personnel Firm Infrastructure All general activities that support the entire value chain

The Resource Base Types of Firm Resources

Competitive Advantage Sustaining Competitive Advantage A competitive advantage is said to be sustainable if it cannot be copied, substituted or eroded by the actions of rivals, and is not made redundant by developments in the environment (Porter, 1980). So sustainability depends on two main factors: Some competitive advantages are intrinsically easier to defend because they are difficult for rivals to imitate, or because rivals find it almost impossible to find an alternative route to attack Competitive defendability All kind of environmental influences can undermine the fit between the firm’s competitive advantage and the environment itself Environmental consonance

II. Markets & Resources Dealing with the Paradox Market Adaptation The ability to understand ‘the rules of the game’ in the market where one is operating Resource Leveraging Creating value by controlling, disseminating assets across the business and organizational system

III. Business Level Strategy Two Perspectives on shaping the Business System

Overview of the Perspectives Outside-in versus Inside-out OUTSIDE-IN PERSPECTIVE Markets over resources Opportunity-driven (external potential) Market demand & industry structure Adaptation to environment Attaining advantageous position External positioning Acquiring necessary resources Bargaining power & mobility barriers INSIDE-OUT PERSPECTIVE Resources over markets Strength-driven (internal potential) Resource base & activity system Adaptation of environment Attaining distinctive resources Building resource base External position Superior resources & imitation barriers