1. SIB-429 D: Strategic Management
Coordinating Activities: Business-Level Strategy
Russell Seidle
Monday February 23rd, 2015

2. Learning Objectives
After reviewing your class notes from this session and studying the corresponding chapter, you should be able to:
Describe and contrast the two generic business-level strategies and their respective goals from the firm’s perspective
Discuss the distinction between value drivers and cost drivers, and identify the relevant generic strategy applicable to each
Analyze the benefits and risks of each business-level strategy from the perspective of the Five Forces framework
Clarify the potential pitfalls associated with pursuing an integration strategy

3. Business-Level Strategy
Analysis of “the actions managers take in their quest for competitive advantage when competing in a single product market” (Rothaermel, 2013: 140. Emphasis added)
Key question: How should we compete?
Competitive advantage is realized by either:
Performing similar activities differently
Performing different activities altogether

4. Business-Level Strategy
Recall from our January 28th class …
Corporate executives
SBU General Managers
Functional managers
Source: Rothaermel, 2013: Exhibit 1.3 (p. 10)

5. Business-Level Strategy
Performance determined by value and cost positions as assessed with regard to competitors
February 4th class
Today’s class
February 9th class
Source: Rothaermel, 2013: Exhibit 6.1 (p. 141)

6. Business-Level Strategy
Differentiation strategy: “create higher value for customers […] by delivering products or services with unique features while keeping cost at the same or similar levels” (Rothaermel, 2013: 142. Emphasis added)
Cost-leadership strategy: “create the same or similar value for customers by delivering products or services at a lower cost” (Rothaermel, 2013: 142. Emphasis added)
Additional consideration is scope of the market targeted by the firm

7. Business-Level Strategy
Mass market
Targeted niche segment
Source: Rothaermel, 2013: Exhibit 6.2 (p. 143)

8. Differentiation Strategy
Competitive focus is on unique product features, customer service, marketing, and promotion
Price tends to be de-emphasized
Cost control is nevertheless an important consideration
Differentiation strategy ‘calculus’:
Unique product or service + controlled costs = Greater value at similar price
Unique product or service + higher costs = Greater value at higher price A B

9. Differentiation StrategyB
Source: Rothaermel, 2013: Exhibit 6.3 (p. 144)

10. Differentiation Strategy
Importance of value drivers
Product features
Premium pricing associated with differentiated offerings
Customer service
Satisfying unmet customer needs
Exceeding expectations
Customization
Tailoring products for specific customers
Complements
Products that add value when consumed in combination with the main offering

11. Cost Leadership Strategy
Competitive focus is on staking out the lowest-cost position in the industry
Product prestige or uniqueness tends to be de-emphasized
Acceptable value is nevertheless an important consideration
Cost leadership strategy ‘calculus’:
Differentiation parity + lower costs = Greater value at lower price
Lower consumer value + lower costs = Similar value at lower price A B

12. Cost Leadership StrategyB
Source: Rothaermel, 2013: Exhibit 6.4 (p. 147)

13. Cost Leadership Strategy
Importance of cost drivers
Cost of input factors
Access to preferentially priced raw materials and other production inputs
Economies of scale
Decreases in per-unit costs as volumes increase
Learning curve
Benefits achieved as familiarity is gained with a process
Experience curve
Economies of scale and learning → Movement to a steeper learning curve

14. Business-Level Strategy and Five Forces
Source: Rothaermel, 2013: Exhibit 6.7 (p. 153)

15. Business-Level Strategy and Five Forces
Key risks for firms pursuing a cost-leadership strategy
Competitive disadvantage resulting from need to learn new capabilities in response to a new entrant
Shift in competitive focus from price to product attributes
Key risks for firms pursuing a differentiation strategy
Shift in competitive focus from product attributes to price
Tendency to incorporate costly features that do not add to product value for consumers

16. Integration Strategy
Reconciling the trade-offs between differentiation and low cost
Complexity inherent in attempting to balance competing requirements of each generic strategy
Integration strategy approaches to pricing:
Higher price than cost leader → Greater profit margins
Lower price than differentiator → Greater market share and sales volume

17. Integration Strategy Importance of value and cost drivers Quality
Durability and reliability of the product offering
Economies of scope
Savings from producing multiple outputs together as opposed to individually
Innovation
Means of resolving existing trade-offs
Structure, culture, and routines
Building of organizational ambidexterity