Transcript Document 7498904

Strategy Formulation
Business Unit Level
Strategies (Competitive
Strategies)
Strategy Formulation
A Business Unit is defined as an
organizational subsystem that has its own
market, a set of competitors, and a
mission distinct from those of the other
subsystems in the organization
Strategy Formulation
Competition amounts to the efforts of
multiple organizations that are offering a
similar product or service in obtaining
desired customers, market share, ranking
or resources
Strategy Formulation
Strategic Group amounts to a set of firms
competing within an industry that have
similar strategies and resources.
Strategy Formulation
Potential Dimensions Used in Defining Strategic Groups
Price
Quality
Level of vertical
integration
Geographic scope
Level of diversification
R&D expenditures
Market Share
Profits
Product
characteristics
Any other relevant
strategic factor
Strategy Formulation
VIRO Framework for defining a Sustainable
Competitive Advantage
Value - does it provide a comp advantage?
Rareness - do other competitors have it?
Imitability - Is it costly for others to imitate?
Organization - is the firm organized to exploit
the resource?
Porter’s Generic Competitive
Business Unit Strategies
It is critical to envision org’s that are
determined to both:
Serve a narrow or focused market niche
versus a broad market (in terms of
customers or product).
Elect to to compete on the basis of having
the lowest costs (not price) or by being
distinctively different (or differentiated).
Generic Strategies for
Small Businesses
Niche-Low Cost
Niche-Differentiation
Niche-Low Cost/Differentiation
Geographical
Organization
Strategy
Customer
Product
Generic Strategies for
Small Businesses
Niche-Low Cost
Emphasizes keeping overall costs low
while serving a narrow or focused
segment (niche) of the market.
Niche-Low Cost
Differentiation
Jet Blue
Generic Strategies for
Small Businesses
Niche-Low Cost Vulnerabilities
Technological obsolescence and thus
lose sight of shifting cust preferences
Low cost competencies imitated
Competition intense in no frill
environments & competition may
successfully lower their costs more
Generic Strategies for
Small Businesses
Niche-Differentiation
Emphasizes offering customers highly
differentiated, need fulfilling products
or services for a narrow or focused
segment (niche) of the market.
Niche-Differentiation
Differentiation
Mikimoto
Generic Strategies for
Small Businesses
Niche-Differentiation Vulnerability
Org must seek to remain unique
despite efforts by competitors to copy
Competitors who also emphasize
lowering of costs may be able to offer
similar products at predatory prices.
Generic Strategies for
Small Businesses
Niche-Low Cost/Differentiation
Emphasizes offering customers highly
differentiated, need fulfilling
products or services for a narrow or
focused segment (niche) of the
market while keeping costs low.
Generic Strategies for
Small Businesses
Niche-Low Cost/Differentiation
Dedication to quality
Process innovations
Product innovations
Leverage through org’l expertise &
image
Niche LowCost/Differentiation
Differentiation
Red
Hook
Boston
Brewing
Generic Strategies for
Large Businesses
Low Cost
Differentiation
Low Cost/Differentiation
Generic Strategies for
Large Businesses
Low Cost
Emphasizes keeping overall costs low
while serving a broad market
industrywide.
Low Cost Strategy
Differentiation
NeimanMarcus
Wal Mart
Generic Strategies for
Large Businesses
Low Cost Vulnerabilities
Remain vulnerable to price
competition pressuring margins
further aggravated by price wars
Technological stability causing firms
to avoid responding to new mrkt &
product opportunities may become
obsolete
Generic Strategies for
Large Businesses
Differentiation
Emphasizes offering customers
industrywide highly differentiated,
need fulfilling products or services.
Differentiation Strategy
Differentiation
Apple
Generic Strategies for
Large Businesses
Low Cost Vulnerabilities
New competitors with similar
products at lower costs (and prices)
Remaining unique in customer’s eyes
Generic Strategies for
Large Businesses
Multiple Strategies
The use by an organization of more
than one of the previously mentioned
strategies
Mid Size Firms Perform
Poorly
“Stuck in the Middle”
Don’t possess the advantages of either
their smaller or larger competitors
Best they can hope for is to expand their
operations over time & take advantage of
economies of scale or retrench and
become smaller
Selecting a Generic
Strategy
Industry Life Cycle
Embryonic
Growth
Shakeout Maturity Decline
Getting “Stuck in the
Middle”
Finding oneself between a niche strategy
and a broad target market strategy is a
recipe for disaster . . . No competitive
advantage and thus “below average”
performance is the best that one can
expect