1. Norman, MGT 5885 Key Points: Chapter 4: Business-Level Strategy Generic Business-Level Strategies Differentiate between the five generic strategies For each strategy: Explain its aims and how these aims can be achieved Understand the competitive risks Advantages and disadvantages of first and second movers Understand how external and internal analysis are used by firms as they decide which generic strategy to use

2. Norman, MGT 5885 Strategy Strategy: an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage Business-level strategy: an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets

3. Norman, MGT 5885 Business-Level Strategy How should I compete in a particular business? Use existing or develop new core competencies to gain a competitive advantage Consider the general environment, the state of my industry, what my competitors are doing, and my position in the industry Create a position that is defensible in the long run so that I can outperform my competitors Customers Who?What needs?How?

4. Norman, MGT 5885 Source of Competitive Advantage DifferentiationCost Breadth of Competitive Scope Narrow Target Broad Target Cost Leadership Focused Low Cost Focused Differentiation Figure 4.1: Four Generic Strategies

5. Norman, MGT 5885 Cost Leadership Integrated set of actions aimed at attaining low cost (relative to competitors) with acceptable features Usually characterized by: Standardized products aimed at typical customer Techniques Efficient-scale facilities Vigorous pursuit of cost reductions Tight cost and overhead control Minimize costs in areas such as R&D, service, sales, a dvertising, etc. BUT, these areas cannot be ignored

6. Norman, MGT 5885 Cost Effective MIS Systems Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Consistent Policies to Reduce Turnover Costs Effective Training Programs to Improve Worker Efficiency and Effectiveness Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset Purchases Efficient Plant Scale to Minimize Manufacturing Costs Selection of Low Cost Transport Carriers Delivery Schedule that Reduces Costs National Scale Advertising Products Priced to Generate Sales Volume Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Located in Close Proximity with Suppliers Policy Choice of Plant Technology Organizational Learning Efficient Order Sizes Interrelationships with Sister Units Figure 4.2 Firm Infrastructure Human Res. Management Technology Development Procurement Inbound Logistics OperationsOutbound Logistics Marketing and Sales Service

7. Norman, MGT 5885 Risks of a Cost Leadership Strategy Technological innovations by competitors will render manufacturing equipment obsolete Miss significant changes in customer needs or competitor moves because too focused on cost savings Imitation by other firms

8. Norman, MGT 5885 Differentiation Integrated set of actions aimed at producing products that customers view as different in way(s) that are significant to them Usually characterized by: Ability to charge a premium Serve several market segments Products with unique attributes that provide value Design, brand name, features, technology, customer service, dealer network Strongest when unique on several dimensions

9. Norman, MGT 5885 Figure 4.3 Firm Infrastructure Human Res. Management Technology Development Procurement Inbound Logistics OperationsOutbound Logistics Marketing and Sales Service A companywide emphasis on producing high quality products Highly Developed Information Systems to better understand customers’ purchasing preferences Compensation programs intended to encourage worker creativity and productivity Extensive use of subjective rather than objective performance measures Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Rapid responses to customers unique manufacturing specifications Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Strong capability in basic research Investments in technologies that will allow the firm to consistently produce highly differentiated products Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Rapid and timely product deliveries to customers Superior personnel training Coordination among R&D, product development and marketing Extensive personal relationships with buyers Strong Coordin- ation among functions in R&D, Marketing and Product Development Premium Pricing

10. Norman, MGT 5885 Risks of a Differentiation Strategy Customers decide price premium is too great Means of differentiation no longer adds value Customer learning narrows perception of the value of differentiated features Counterfeiting

11. Norman, MGT 5885 Focus (Focused Low-Cost and Focused Differentiation) Integrated set of actions aimed at meeting the needs of a particular competitive segment Usually characterized by: Having a competitive advantage in one particular segment of the market, but not others Serve segment more efficiently or effectively Serve segments with unique needs or that are poorly served by others

12. Norman, MGT 5885 Risks of a Focus Strategy All those applicable to cost leader or differentiator PLUS Another firm outfocuses by concentrating on an even more narrow segment Firms serving the entire industry begin to compete heavily in the focuser’s market segment Needs of customers in the segment become more similar to the needs of other segments

13. Norman, MGT 5885 Integrated Low-Cost/Differentiation Integrated set of actions aimed at attaining both low cost and products that customers view as different in way(s) that are significant to them Usually characterized by Differentiated features (not as many as differentiator) Relatively low cost (not a low as cost leader) Multiple sources of competitive advantage Techniques Flexible manufacturing systems Information networks within and across firms TQM

14. Norman, MGT 5885 Risks of an Integrated Low Cost/Differentiation Strategy? Offers great potential for above-average returns BUT, high risk of failure Firms may become “stuck in the middle”

15. Norman, MGT 5885 Advantages Disadvantages First Mover Second Mover Late Mover