1. Management, Organizational Policies & Practices
Lecture 24
Dr. Amna Yousaf
PhD (HRM)
University of Twente, the Netherlands

2. Recap Lecture 23 Explain what is meant by ethical behavior at work.
Discuss important factors that shape ethical behavior at work.
Describe at least four specific ways in which management can influence ethical behavior at work.
Employ fair disciplinary practices.
List at least four important factors in managing dismissals effectively.
© 2007

3. Business level strategy
CHAPTER THREE
Business level strategy
Lecture 24

4. LEARNING OUTCOMES Porter’s strategy clock Integration Strategies
Diversification Strategies
Intensive Strategies

5. IDENTIFYING STRATEGIC BUSINESS UNITS
Distinct external market for goods or services that is different from another SBU.
If each product and each geographical branch is considered to be an independent SBU such immense variety of competitive strategies for a single organization would create a lack of focus and inefficiency.
The concept of the SBU is important in properly reflecting the diversity of products and markets that actually exist

6. IDENTIFYING STRATEGIC BUSINESS UNITS
Following two broad criteria which can help in avoiding these two pitfalls
External criteria
Two parts of an organization should only be regarded as the same SBU if they are targeting the same customer types, through the same sorts of channels and facing similar competitors.
Internal criteria
Two parts of an organization should only be regarded as the same SBU if they have similar products/services built on similar technologies and sharing a similar set of strategic capability
Kodak-film based and digital products

7. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’
Assuming that there are a number of providers customers will choose which offering to accept on their perception of value-for-money.
This consists of the combination of price and customer-perceived product/service benefits of each offering.

8. The strategy clock: competitive strategy options

9. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’
1. Price-based strategies (routes 1 and 2)
Route 1 : A ‘no frills’ strategy combines a low price, low perceived product/service benefits.
Customers do not value differences in the offering of different suppliers. So price becomes the key competitive issue.
Emphasis on functionality over service or more aesthetic issues such as design or packaging
focus on a price-sensitive market segment
The customers have low switching costs so building customer loyalty is difficult.

10. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’
Route 2: A low-price strategy seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or service benefits to those offered by competitors
Potential pitfalls when competing on price:
Margin reduction
Inability to reinvest
In the long run, a low-price strategy cannot be pursued without a low-cost base.

11. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’
2. Differentiation strategies (route 4) seek to provide products or services benefits that are different from those of competitors and that are widely valued by buyers.
Success depends on:
Has the organization clearly identified who is the strategic customer? What is valued ?
It is important to be clear who are the competitors. Broad based market serving masses or narrow market? Automobile mass market – reliability key issue

12. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’
3. The hybrid strategy (route 3) :seeks simultaneously to achieve differentiation and a price lower than that of competitors.
The success of the strategy depends on the ability to deliver enhanced benefits to customers together with low prices whilst achieving sufficient margins for reinvestment to maintain and develop the bases of
The hybrid strategy could be advantageous in the following circumstances:
lf much greater volumes can be achieved than competitors then margins may still be better because of a low cost base
If an organization is clear about the activities on which differentiation can be built (i.e. potential core competences) it may then be able to reduce costs on other activities.

13. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK’
As an entry strategy in a market with established competitors, to fill strategy gaps – poorly captured global markets
The overall cost base is such that low margins can be sustained
A clear follow-through strategy has been considered after entry has been achieved

14. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK
4. Focused differentiation (route 5) : seeks to provide high perceived product / service benefits justifying a substantial price premium, usually to a selected market segment (niche)
Focused differentiation raises some important issues
Pursuing a focus strategy may be difficult when it is only part of an organization's overall strategy
The market situation may change such that differences between segments may be eroded, customers not for price premium

15. BASES OF COMPETITIVE ADVANTAGE: THE ‘STRATEGY CLOCK
5. Failure strategies (routes 6, 7 and 8) : that do not provide perceived value-for-money in terms of product features, price or both.
Route 6 suggests increasing price without increasing product/service benefits to the customer – if competitors do not follow risk of loss in share
Route 7 involves the reduction in product/service benefits whilst increasing relative price – Monopoly situations
Route 8 is categorized by reduction in benefits whilst maintaining price, is also dangerous, though firms have tried to follow it – loss of share

16. SUSTAINING COMPETITIVE ADVANTAGE
Price-based
strategies
Differentiation
Sustainable
competitive
advantage
Lock-in

17. SUSTAINING COMPETITIVE ADVANTAGE
1.Sustaining price based advantage
Organization must accept reduced margin
An organization may be prepared to sustain and win a price war with competitors from deep pockets to sustain short term losses or low cost base.
An organization has cost advantages through organizationally specific capabilities driving down cost throughout the value chain.
Low cost raw material
Efficiency in processes
Low cost labor locations
Distribution cost advantages
Low cost by outsourcing
Innovation in cost reduction – Mcdonald’s and Easy jet

18. SUSTAINING COMPETITIVE ADVANTAGE
2. Sustaining differentiation-based advantage
Conditions to sustain advantage through differentiation include the following
Create difficulties of imitation
Imperfect mobility of the resources and/or competences
Brand and reputation
Lower cost position - reinvest to sustain – kallog’s and Mars

19. SUSTAINING COMPETITIVE ADVANTAGE
3. The delta model and lock-in (Hax and Wilde): An organization becomes an industry standard
The achievement of lock-in:
Size or market dominance in the eyes of others
first mover advantages
Once this position is achieved, it may be self-reinforcing and escalating – more firms come on board
Microsoft industry standard though not best product

20. COMPETITIVE STRATEGY IN HYPERCOMPETITIVE CONDITIONS
Hypercompetitive environment :turbulent, fast-changing, uncertain business environments and increased levels of competition.
In slower-moving environments competitive strategy may be primarily concerned with building and sustaining competitive advantages that are difficult to imitate.
In hyper-competitive environments organizations advantage will be temporary.

21. Horizontal Integration Vertical Integration Strategies
Forward Integration
Backward Integration
Horizontal Integration
Vertical Integration Strategies

22. Integration Strategies
Forward Integration
Gaining ownership or increased control over distributors or retailers

23. Integration Strategies
Guidelines for Forward Integration
Present distributors are expensive, unreliable, or incapable of meeting firm’s needs
Availability of quality distributors is limited
When firm competes in an industry that is expected to grow markedly
Organization has both capital and human resources needed to manage new business of distribution
Advantages of stable production are high
Present distributors have high profit margins

24. Integration Strategies
Backward Integration
Seeking ownership or increased control of a firm’s suppliers

25. Integration Strategies
Guidelines for Backward Integration
Suppliers are expensive
Number of suppliers is small and number of competitors large
High growth in industry sector
Capital and human resources to manage new business
Advantages of stable prices are important
Present supplies have high profit margins

26. Integration Strategies
Horizontal Integration
Seeking ownership or increased control over competitors

27. Integration Strategies
Guidelines for Horizontal Integration
Firm can gain monopolistic characteristics without being challenged by federal government
Competes in growing industry
Increased economies of scale provide major competitive advantages

28. Intensive Strategies Market Penetration Market Development
Product Development
Intensive Strategies

29. Intensive Strategies Intensive strategies
Require intensive efforts to improve a firm’s competitive position with existing /new products and markets

30. Intensive Strategies Build/Protect Consolidation
Part of restructuring process
Allows companies to reduce operations to meet lower consumer demand, liquidate certain operations that do generate sales or to avoid bankruptcy.

31. Intensive Strategies Guidelines for Market Penetration
Seeking increased market share for present products or services in present markets through greater marketing efforts
Guidelines for Market Penetration
Current markets not saturated
Usage rate of present customers
Increased economies of scale provide major competitive advantages

32. Intensive Strategies Market Development
Introducing present products or services into new geographic area

33. Intensive Strategies Guidelines for Market Development
New channels of distribution that are reliable, inexpensive, and good quality
Firm is very successful at what it does
Untapped or unsaturated markets
Capital and human resources necessary to manage expanded operations
Basic industry rapidly becoming global

34. Intensive Strategies Product Development
Seeking increased sales by improving present products or services or developing new ones

35. Intensive Strategies Guidelines for Product Development
Products in maturity stage of life cycle
Competes in industry characterized by rapid technological developments
Major competitors offer better-quality products at comparable prices
Compete in high-growth industry
Strong research and development capabilities

36. Diversification Strategies
Concentric Diversification
Conglomerate Diversification
Horizontal Diversification
Diversification Strategies

37. Diversification Strategies
Becoming less popular as organizations are finding it more difficult to manage diverse business activities

38. Diversification Strategies
Related Diversification
Adding new, but related, products or services
P&G and Unilever range of consumer goods
Forward and backward integration to diversify
Diversify within strategic capabilities and value network
Car manufacturers forward integrated to repairs and service but failed
Synergies may be harder to identify – built around economies of scope

39. Diversification Strategies
Ownership of more activities
No guarantee of enhanced performance
Good relationships with distributors and retailers may be more beneficial

40. Diversification Strategies
Guidelines for Related Diversification
Competes in no- or slow-growth industry
Adding new & related products increases sales of current products
New & related products offered at competitive prices
Current products are in decline stage of the product life cycle
Strong management team

41. Diversification Strategies
Unrelated Diversification
Adding new, unrelated products or services

42. Diversification Strategies
Guidelines for Conglomerate Diversification
Declining annual sales and profits
Capital and managerial talent to compete successfully in a new industry
Exiting markets for present products are saturated