1. Competitive or Business Level Strategy
Management Analysis
Summer 2001

2. Competitive/Business Level Strategy
All the actions a strategic business unit (SBU) takes to
Attract and keep customers
Fulfill customers’ expectations (needs)
Withstand competitive pressures
Strengthen competitive position
Actions to strengthen the company’s resource base and competitive capabilities

3. Competitive Strategy
Actions to respond to changing industry conditions
Shifting customer preferences
New government regulations
Globalization of competition
Exchange rate instability
Entry or exit of new competitors

4. Competitive Strategy
Efforts to change the product or service offered to customers
Broaden or narrow the product line
Improve product design
Alter product quality
Alter performance features
Modify customer service
Uncover new opportunities in the consumption chain to serve customers

5. Competitive Strategy Efforts to change Form strategic alliances
Geographic coverage (scope)
Level of vertical integration
Industry position
Form strategic alliances
Collaborate with rivals

6. Competitive Strategy Actions to capitalize on new opportunities
New technologies
Product innovation
New trade agreements that open up foreign markets

7. Competitive Strategy
Moves that signal how the company manages various value creating activities
Research and Development
Manufacturing
Marketing
Finance
Other key activities

8. Securing Competitive Advantage
Utilizing resources/capabilities in a way that is
Valuable
Rare
Costly to imitate
Nonsubstitutable
Boosts performance

9. Securing Competitive Advantage
Develop product that becomes industry standard
Manufacture the best-made product on the market
Deliver superior customer service
Achieve lower costs than rivals
Have a more convenient geographic location

10. Securing Competitive Advantage
Develop proprietary technology
Incorporate product features and styling that meet customer needs better than rivals
Bring new products to market faster than rivals
Have greater technological expertise than rivals

11. Securing Competitive Advantage
Develop unique competencies in customized mass production techniques
Do a better job of managing supply-chain than competitors
Build a better known brand name and reputation than rivals

12. Securing Competitive Advantage
Provide buyers more value than rivals
Combination of good quality, good service, acceptable price
Investing aggressively in creating sustainable competitive advantage is a company’s SINGLE MOST DEPENDABLE contributor to above-average profitability

13. Securing Competitive Advantage
Five Basic Competitive Strategies
Low cost leadership
Broad differentiation
Best cost provider
Focused, market niche strategy based on low cost
Focused, market niche strategy based on differentiation

14. Low Cost Leadership Strategic Objective
Establish a sustainable cost (not price) advantage over rivals
Provide products/services that include features that buyers consider ESSENTIAL, but do it at a lower cost relative to competitors
Can use cost advantage to underprice rivals
Or earn higher profit margins

15. Achieving Low Cost Leadership
Firm’s CUMULATIVE costs along the value chain must be lower than competitors
Identify and control cost drivers

16. Notes on Competitive/Business Level Strategy
Examples of Value-Creating Activities Associated with the Cost Leadership Strategy
Cost effective Relatively few Simplified
management managerial layers in order planning practices
information systems to reduce overhead costs to reduce planning costs
Firm Infrastructure
Human Resource Management
Consistent policies to Intense and effective training programs to improve
reduce turnover costs worker efficiency and effectiveness
Technology Development
Easy-to-use manufacturing Investments in technologies in order to reduce costs associated
technologies with a firm’s manufacturing processes
MARGIN
Systems and procedures to Frequent evaluation processes to monitor suppliers’ performance
find the lowest cost (with
acceptable quality) products
to purchase as raw materials
Procurement
Highly
efficient
systems to
link suppliers’
products with
the firm’s
production
processes.
Use of
economies of scale to
reduce production
costs.
Construction of efficient-scale production facilities.
A delivery schedule that reduces costs.
Selection of low-cost transportation carriers.
A small. highly trained sales force.
Products priced so as to generate significant sales volume.
Efficient and proper product installation in order to reduce the frequency and severity of recalls.
MARGIN
Inbound Logistics
Operations
Outbound Logistics
Marketing
and Sales
Service
BUS 550 Management Analysis

17. Control Cost Drivers Economies or diseconomies of scale
Learning and experience curve effects
Cost of key resource inputs
Union vs nonunion labor
Bargaining power with suppliers
Locational variables

18. Control Cost Drivers
Linkages with other activities in the company or industry value chain
Sharing opportunities with other organizational or business units within the enterprise
Benefits of vertical integration versus outsourcing

19. Control Cost Drivers Timing considerations Capacity utilization
First mover advantages and disadvantages
Capacity utilization
Strategic choices and operating decisions
Revamp the value chain

20. Strategic Choices to Control Costs
Increase/decrease the number of products or varieties offered
Add/Cut services provided to buyers
Incorporate more/fewer performance and quality features into the product
Pay higher/lower wages and benefits

21. Strategic Choices to Control Costs
Increase/decrease the number of distribution channels
Lengthen/shorten delivery times to customers
Put more/less emphasis on incentive compensation to motivate employees
Raise/lower specifications for purchased materials

22. Revamping the Value Chain
Simplify the product design
Offer a basic, no-frills product or service
Shift to a simpler, less capital intensive, more streamlined or flexible technological process

23. Revamping the Value Chain
Find ways to bypass the use of high-cost raw materials or component parts
Use direct-to-end user sales and marketing approaches that cut out the often large costs and margins of wholesalers and retailers

24. Revamping the Value Chain
Relocate facilities closer to suppliers, customers, or both to reduce inbound and outbound logistics costs
Drop the “something for everyone” approach and focus on a limited product/service to meet a special need

25. Revamping the Value Chain
Re-engineer core business processes to consolidate work steps and cut out low value-added activities

26. Revamping the Value Chain
Use electronic communication technologies to
Eliminate paperwork
Reduce printing and copying costs
Speed communications via
Curtail travel costs via teleconferencing
Distribute information
Establish relationships with customers

27. When Will Low Cost Work? Price competition is vigorous
Buyers are price sensitive
Industry’s product/service is standardized, readily available, commodity-like
Few ways to achieve product differentiation

28. When Will Low Cost Work? Buyers use the product in the same way
Low switching costs
Buyers are large and have significant power to negotiate for lower prices

29. Pitfalls of Low Cost Leadership
Getting carried away with overly aggressive price-cutting and eating away profitability
Cutting costs in ways that are easily imitated or not sustainable means that any cost advantage will be short-lived
Over-fixation on cost reduction

30. Pitfalls of Low Cost Leadership
Over-fixation on cost reduction can cause company to miss important changes in customer needs
Technological breakthroughs may make the low cost leader’s cost advantage become obsolete
Heavy investment might lock firm into using present technology/strategy

31. Differentiation Strategic Objective
Add features to products/services that customers value and for which they are willing to pay a premium price
Try to find ways to make your products/services stand out when compared to competitors’ products/ services
Increase unit sales
Gain buyer loyalty to brand

32. Differentiation
Try to differentiate in ways that add value for the customer AND provide a competitive advantage
Valuable
Rare
Costly to imitate
Nonsubstitutable
Boost financial performance

33. Differentiation Challenges
Identifying features that add value for customers
Selecting the right price premium
Cover costs of differentiating
Don’t alienate customers
Changing buyer needs
Substitutes

34. Notes on Competitive/Business Level Strategy
Examples of Value-Creating Activities Associated with the Differentiation Strategy
Highly developed information A company-wide emphasis on the
systems to better understand importance of producing high-quality
customers’ purchasing preferences. products.
Firm Infrastructure
Compensation programs intended Somewhat extensive use of subjective
to encourage worker creativity and rather than objective performance measures.
productivity. Superior personnel training.
Human Resource Management
Technology Development
Strong capability in basic research. Investments in technologies that will allow the
firm to produce highly differentiated products.
MARGIN
Systems and procedures used to Purchase of highest quality replacement parts.
find the highest quality raw
materials.
Procurement
Superior handling of incoming raw materials so as to minimize damage and improve the quality of the final product.
Consistent manufacturing of attractive products.
Rapid responses to customers’ unique manufacturing specifications.
Accurate and responsive order-processing procedures.
Rapid and timely product deliveries to customers.
Extensive granting of credit buying arrangements for customers.
Extensive personal relationships with buyers and suppliers.
Extensive buyer training to assure high-quality product installations.
Complete field stocking of replacement parts.
MARGIN
Inbound Logistics
Operations
Outbound Logistics
Marketing
and Sales
Service
BUS 550 Management Analysis

35. Best Cost Producer Strategic Objective
Match the features provided by other differentiators, but do so with lower internal costs
Provide a product that has greater quality and better features than the low cost leader’s product AND a better price than products offered by other differentiators

36. Best Cost Producer Challenges
Finding appropriate ways to add value to products/services
Drive out cost disadvantages
Charge appropriate price premium
Changing customer needs
Substitutes
Entry of lower cost differentiators