Transcript Strategic Management

Business-Level Strategy
BUSI 7130/7136
Chris Shook
Agenda
• Overview of Business Level Strategy
• What is Strategy
• Geometry of Competition
Business-Level Strategy
• How to create competitive advantage in
each business in which the company
competes.
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Uniqueness
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Cost
Uniqueness
Cost
Leadership
Differentiation
Focused
Low Cost
Focused
Differentiation
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Cost
Leadership
Uniqueness
Cost Leadership Business Level Strategy
Key Criteria
Relatively standardized
products
Cost Leadership Business Level Strategy
Key Criteria
Relatively standardized
products
Features acceptable to
many customers
Cost Leadership Business Level Strategy
Key Criteria
Relatively standardized
products
Features acceptable to
many customers
Lowest competitive
price
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Cost
Uniqueness
Cost
Leadership
Differentiation
Differentiation Business Level Strategy
Key Criteria
Value provided by unique
features and value characteristics
Differentiation Business Level Strategy
Key Criteria
Value provided by unique
features and value characteristics
Command premium price
Differentiation Business Level Strategy
Key Criteria
Value provided by unique
features and value characteristics
Command premium price
High customer service
Differentiation Business Level Strategy
Key Criteria
Value provided by unique
features and value characteristics
Command premium price
High customer service
Superior quality
Differentiation Business Level Strategy
Key Criteria
Value provided by unique
features and value characteristics
Command premium price
High customer service
Superior quality
Prestige or exclusivity
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Cost
Uniqueness
Broad
Target
Market
Cost
Leadership
Differentiation
Narrow
Target
Market
Focused
Low Cost
Focused
Differentiation
Focused Business Level Strategies
Focused Business
Level Strategies
involve the same
basic approach as
Broad Market
Strategies
Focused Business Level Strategies
Focused
Business Level
Strategies
involve the
same basic
approach as
Broad Market
Strategies
However.....
Opportunities may exist because:
*
Large firms may
overlook small niches
Focused Business Level Strategies
Focused
Business Level
Strategies
involve the
same basic
approach as
Broad Market
Strategies
However.....
Opportunities may exist because:
*
Large firms may
overlook small niches
*
Firm may lack resources
to compete industrywide
Focused Business Level Strategies
Focused
Business Level
Strategies
involve the
same basic
approach as
Broad Market
Strategies
*
However.....
Opportunities may exist because:
*
Large firms may
overlook small niches
*
Firm may lack resources
to compete industrywide
May be able to serve a narrow market segment more
effectively than industrywide competitors
Focused Business Level Strategies
Focused
Business Level
Strategies
involve the
same basic
approach as
Broad Market
Strategies
*
Focused Differentiators
may thrive by selecting a
small market that is
underserved by large
players
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Cost
Uniqueness
Broad
Target
Market
Cost
Leadership
Differentiation
Narrow
Target
Market
Focused
Low Cost
Focused
Differentiation
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Uniqueness
Cost
DifferenLeadership
tiation
Integrated
Low Cost/
Differentiation
Focused
Focused
DifferenLow Cost
tiation
What is Strategy?
Porter, 1996
What does the article say about OE ?
What does it say about unique
activities?
What about trade-offs?
Is Growth Always Good?
Fit
Type of Fit
Definition
Goal
First-Order
Simple
Consistency
Single
Mindedness
Second-Order
Reinforcing
Activities
Synergy
Optimization of Optimization
Effort
Elimination of
Activities
Geometry of Competition
Summary
• Competitive advantage is very rare.
– Most competitors don’t have a competitive
advantage
• Despite
– Good products
– Good customer relations
– Excellent capabilities
• Competitive position is very real.
Alternate Paths to Outperforming Industry Average
Ind Avg Price
Ind Ave Cost
Percent of Industry Average
Revenue and Cost
Operating Results Masquerading as Strategic
Advantage
140
120
100
80
60
40
20
0
Cost Leadership
Differentiation
• Low cost producers have a cost savings
greater than its price reduction
• Differentiated producer commands a price
premium in excess of its added costs
Geometry of Competition
• Where are you in relation to your
competitors?
• Two types of multidimensional positioning
– Positioning related to capabilities
– Positions related to offerings
Positioning Related to Capabilities
• Capabilities drive offerings
• Assets & Activities
->Capabilities
->Offerings
A firm must have
– Competitive offerings
– Frontier capabilities
– A fit between the two
Advantage Curve for Steinway and Yamaha
Steinway
Yamaha
Stuck in the Middle
A
B
C
Win in the Middle
A
B
C
A Guide to Action
• Change the offerings (i.e. move the dot)
• Create new capabilities (i.e. shift the
curve)
• Influence customer preferences
• Change dimensions of competition
(change the axis)