Business Level Strategy

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Business Level

Strategy

Exploration and Production,


Refining,
Petrochemicals,
Retail,
Telecommunications

Levels of Strategy
Corporate level
Business Level
Functional/Departmental
level

Levels of
Strategy
Corporate
Strategy

Definition
Market Definition

Business Strategy Market Navigation

Functional
Strategy

Example
Diversification into new
product or geographic
market
Secure competitive
advantage in existing
product/geographic market

Support of
Information Systems.
Business/Corporate Human Resource Practices
and Production Processes

Business Level
Strategy

Business-Level Strategies
It is 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.

Source: Hitt et al (2012), Strategic Management: A South-Asian Perspective

Purpose-Business-Level (BL) Strategies


Two types of competitive advantage firms must
choose between
Cost (Are we LOWER than others?)
Uniqueness (Are we DIFFERENT? How?)

Two types of competitive scope firms must


choose between
Broad target
Narrow target

These combine to yield 5 different BL strategies

Five Business-Level Strategies

Source: Hitt et al (2012), Strategic Management: A South-Asian Perspective

Types of Competitive Advantage


Willingness to Pay
Supplier Opportunity
Cost

Industry
Average
competitor

Successful
Differentiated
competitor

Successful
Low-cost
competitor

Competitor
with dual
advantage

1. Cost Leadership

Cost Leadership

Economies of Scale
Learning and Experience
Proprietary Knowledge
Lower Input Costs
Unique/Different Business Model

Cost Leadership (CL)


Competitive advantage
The low-cost leader operates with
margins greater than competitors
Competitive scope
Broad (industry-Wide)

A firm that successfully implements a


cost leadership strategy can earn
above-average returns even when the
five competitive forces are strong.

Cost Leadership (CL) - FIVE Forces:

Rivalry against existing


competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of Suppliers
Potential Entrants
Product Substitutes

Cost Leadership (CL) - FIVE Forces:


Rivalry against existing competitors

Bargaining Power of
Buyers (Customers)
Bargaining Power of Suppliers
Potential Entrants
Product Substitutes

Cost Leadership (CL) - FIVE Forces:


Rivalry against existing competitors
Bargaining Power of Buyers
(Customers)

Bargaining Power of
Suppliers
Potential Entrants
Product Substitutes

Cost Leadership (CL) - FIVE Forces:


Rivalry against existing competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of Suppliers

Potential Entrants
Product Substitutes

Cost Leadership (CL) - FIVE Forces:


Rivalry against existing competitors
Bargaining Power of Buyers
(Customers)
Bargaining Power of Suppliers
Potential Entrants

Product Substitutes

Competitive Risks-Cost leadership


Strategy
Source of cost advantage becomes
obsolete
Focus on cost may cause the firm to
overlook important customer
preferences
Imitation

2. Differentiation

Differentiation

Product Features
Reliability/Quality
Convenience
Brand

2. Differentiation
Competitive advantage
Differentiated product with a higher WTP

Competitive scope
Broad (Industry-Wide)

A firm that successfully implements a


differentiation strategy can earn
above-average returns even when the
five competitive forces are strong.

Differentiation - Five Forces


1. Rivalry against existing competitors

Differentiation - Five Forces


2. Bargaining Power of Buyers
(Customers)

Differentiation - Five Forces


3. Bargaining Power of Suppliers

Differentiation - Five Forces


4. Potential Entrants

Differentiation - Five Forces

5. Product Substitutes

Competitive Risks of the


differentiation strategy
Customers determine that the
cost of differentiation is too great
The means of differentiation may
cease to provide value for which
customers are willing to pay

Focus Strategies

Focus Strategies
Why???
May lack resources to compete in the broader
market
May be able to more effectively serve a narrow
market segment than larger industry-wide
competitors
Large firms may overlook small niches

3. Focused Cost
Leadership

3. Focused Cost Leadership


Competitive advantage: Lowcost
Competitive scope: Narrow
industry segment

4. Focused
Differentiation

4. Focused Differentiation
Competitive advantage:
Differentiation
Competitive scope: Narrow industry
segment

Risk of using Focus strategies


A competitor may be able to focus on a more
narrowly defined competitive segment and
"outfocus the focuser
A company competing on an industry-wide
basis may decide that the market segment
served by the focus strategy firm is attractive
and worthy of competitive pursuit
Customer needs within a narrow competitive
segment may become more similar to those of
industry-wide customers as a whole

5. Integrated Cost
Leadership and
Differentiation

5. Integrated CL/Differentiation
Efficiently produce products with differentiated
attributes
Efficiency: Sources of low cost
Differentiation: Source of unique value

Can adapt to new technology and rapid changes in


external environment
Three sources of flexibility useful for this strategy

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