BUSINESSLEVEL STRATEGY

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BUSINESS-LEVEL STRATEGY

• Business 189
• Spring 2007
• Dr. Mark Fruin

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WHAT IS BUSINESS-LEVEL STRATEGY?

• A FIRM-SPECIFIC PLAN OF ACTION FOR GAINING
  COMPETITIVE ADVANTAGE IN A MARKET OR INDUSTRY
  (TAKE BUSINESS AWAY FROM RIVALS)
• IMPLEMENT B-L STRATEGIES THAT MAKE FULL USE OF
  FUNCTIONAL LEVEL STRATEGIES
• INDUSTRIES PRODUCT/MARKET SEGMENTS
• BASED ON
• PRODUCT DIFFERENCES
• CUSTOMER GROUPS OR MARKET SEGMENTS
• LOCATION (SEGMENTS OFTEN DIFFER BY LOCATION)
• HAVING DISTINCTIVE COMPETENCES
• FOLLOWING PORTER, EITHER COST LEADERSHIP OR
  DIFFERENTIATION ADVANTAGES/THESE ARE PRODUCT STRAT

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BL FL STRATEGIES

• DISTINGUISH BETWEEN BUSINESS LEVEL FUNCTIONAL
  LEVEL STRATEGIES
• IS ONE TYPE OF STRATEGY MORE APPROPRIATE AT
  CERTAIN TIMES STAGES?
• CAN BOTH BE PURSUED SIMULTANEOUSLY?
• IS THE COMPETITION BETWEEN GM TOYOTA TO BE THE
  LARGEST AUTO MAKER IN THE WORLD, A BL OR FL
  COMPETITON?

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COMPETITIVE POSITIONING

• TO BE IN A POSITION OF COMPETITIVE ADVANTAGE, A
  FIRM MUST MAKE CHOICES
• WHAT PRODUCT FEATURES?
• WHAT CUSTOMER CHARACTERISTICS OR CUSTOMER
  GROUPINGS
• WHERE (WHEN HOW)
• WILL PRODUCT BE COMPETITIVELY POSITIONED
  ACCORDING TO
• COST LEADERSHIP?
• DIFFERENTIATION?

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SEGMENTATION STRATEGIES

• FIGURE 5.2 (SEE FIGURE 5.1 AS WELL)
• NO MARKET SEGMENTATION - THE MARKET TAKEN AS AN
  UNDIFFERENTIATED WHOLE
• HIGH MARKET SEGMENTATION - LOTS OF DIFFERENT
  PRODUCT/MARKET SEGMENTS
• FOCUSED MARKET SEGMENTATION - A FEW SEGMENTS ARE
  SELECTIVELY TARGETED

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SEGMENTATION AND THE BUSINESS MODEL

• CHAPTER TALKS A LOT ABOUT BUSINESS MODELS RATHER
  THAN STRATEGIES
• WHATS THE DIFFERENCE AGAIN?
• BM IS HOW ARE WE GOING TO MAKE MONEY
• STRATEGY IS HOW ARE WE GOING TO IMPLEMENT/EFFECT
  BM

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WAL-MARTS BUSINESS MODEL

• WAL-MARTS BUSINESS MODEL ON P. 157, FIGURE 5.3
• BALOONS ARE ACTIVITIES/CAPABILITIES THAT
  DISTINGUISH W-MS BUSINESS MODEL AND PROD/MKT
  SEGMENTATION
• HOW ARE W-MS CAPABILITIES IMPLEMENTED/PUT INTO
  PLAY???
• FUNCTIONAL LEVEL STRATEGIES
• GENERIC COMPETITIVE STRATEGIES

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FIGURES 5.5, 5.6, 5.8, 5.9 5.10

• ILLUSTRATE WHAT WE HAVE JUST SAID
• BUSINESS-LEVEL STRATEGIES REQUIRE
• TARGET SEGMENTS (MAKE CHOICES)
• CARRY OUT FUNCTIONAL LEVEL STRATEGIES (STRATEGY
  STACK IN ACTION)
• DEVELOP ACTIVITIES/CAPABILITIES THAT IMPLEMENT
  TARGETED SEGMENTS
• EXCEL IN ONE OR ANOTHER GENERIC COMPETITIVE
  STRATEGY (MAKE CHOICES)

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GENERIC STRATEGIES

• COST LEADERSHIP (VALUE PROPOSITION STRATEGY)
• BROAD
• NARROW
• DIFFERENTIATION (PRICE PREMIUM STRATEGY)
• BROAD
• NARROW (FOCUS DIFFERENTIATION)

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CUSTOMER GROUPS MARKET SEGMENTATION

• HOW MUCH ARE CUSTOMERS WILLING TO PAY VERSUS WHAT
  CUSTOMERS ARE BEING SERVED?
• THREE ALTERNATIVE STRATEGIES
• FOCUS ON AVERAGE CUSTOMER
• SEGMENT MARKET INTO MANY DIFFERENT
  CONSTITUENCIES/CLUSTERS
• CONCENTRATE ON NICHES ONLY
• WHY DO THIS?

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CAN A FIRM OFFER TOO MANY PRODUCTS?

• HOW MANY PRODUCTS ARE THE RIGHT NUMBER OF
  PRODUCTS?
• INDUSTRY CYCLE EFFECTS
• MACROECONOMIC EFFECTS
• SIGNALS SIGNS OF TOO FEW OR TOO MANY PRODUCTS?

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ADVANTAGES DISADVANTAGES OF C.L.

• ADVANTAGES
• USING 5 FORCES MODEL COST LEADER HAS
• MORE POWER RELATIVE TO SUPPLIERS
• MORE POWER RELATIVE TO BUYERS
• BETTER ABLE TO DETER ENTRY OF NEW COMPETITORS
  BATTLE SUBSTITUTE PRODUCTS (BY LOWERING PRICES)
• DISADVANTAGES
• MORE LIKELY STUCK IN PARTICULAR TECH/SEGMNT
• WHY?
• MORE LIKELY TO BE IMITATED
• WHY?
• MORE LIKELY STUCK IN C.L. STRATEGY (AND POSSIBLY
  LOSE SIGHT OF CHANGING CUST. TASTES)
• DISCONTINUOUS INNOVATION (CLAY CHRISTENSEN)

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BROAD V NARROW COST LEADER

• BROAD COST LEADERSHIP MEANS TAKING ADVANTAGE OF
  ECONOMIES OF SCALE SCOPE ON NATIONAL LEVEL
• NARROW COST LEADERSHIP MEANS BEING A LEADER
  LOCALLY OR IN JUST ONE OR ANOTHER PRODUCT FEATURE
• LOCAL PIZZA VS. NATIONAL CHAIN
• CARBON FIBER VS. STEEL, ALUMINUM TITANIUM
  MOUNTAIN BIKING FRAMES

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ADVANTAGES DISADVAN-TAGES OF DIFFERENTIATION

• ADVANTAGES
• DIFFERENTIATORS TRY TO DIFFERENTIATE IN MANY
  DIFFERENT WAYS
• HARD TO IMITATE (IF DONE WELL)
• BRAND LOYALTY HIGH IF CONVINCE BUYERS OF
  UNIQUENESS, UNUSUALNESS, SPECIALNESS
• DISADVANTAGES
• DIFFERENTIATION IS EXPENSIVE
• MANY DIFFERENTIATION FACTORS EASILY IMITATED
• FOR HOW LONG CAN UNIQUENESS BE
  SUSTAINED/PROTECTED

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FOCUSED DIFFERENTIATION

• FD MEANS CONCENTRATING ON
• A PARTICULAR AREA (GEOGRAPHICALLY)
• A PARTICULAR CUSTOMER (WELL EDUCATED, PART.
  HOUSEHOLD INCOME, ETC.
• PARTICULAR MARKET SEGMENT, SUCH AS DESIGNER
  CLOTHES, FAST CARS, SMALL FOOTPRINT APPLIANCES,
  ETC.

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GENERIC STRATEGIES

• REQUIRE CAREFUL ATTENTION TO PRODUCT/TECH/MARKET
  CHOICES
• LOOKING FOR THE SWEET SPOTS
• CAN PROTECT FIRMS FROM 5 FORCES RIVALRIES - WHY?
• REQUIRE CONTINUOUS UPGRADING OF INVESMENT CHOICES
  - WHY?
• CREATE STRATEGIC GROUPINGS (OF FIRMS FOLLOWING
  SIMILAR STRATEGIES)

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STRATEGIC GROUPS

• WITHIN MOST INDUSTRIES, STRATEGIC GROUP EMERGE
• A STRATEGIC GROUP IS DEFINED BY COMPANIES
  PURSUING THE SAME GENERIC STRATEGY
• MOBILITY BARRIERS INHIBIT THE MOVEMENT OF
  COMPANIES FROM ONE STRATEGIC GROUP TO ANOTHER

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COMPETITIVE ADVANTAGE INVESTMENT STRATEGY

• WHAT TYPE OF INVESTMENTS MUST FIRMS MAKE TO
  SUSTAIN COMPETITIVE ADVANTAGE?
• OBVIOUS
• HUMAN RESOURCES
• FUNCTIONAL-LEVEL STRATEGIES
• PURSUIT OF FINANCIAL ADVANTAGE
• GLOBALIZATION OUTSOURCING
• NOT SO OBVIOUS?
• INTANGIBLE RESOURCES
• TACIT CAPABILITIES
• SOCIAL PROCESSES
• HIGHER LEVEL HR INVESTMENTS

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QUESTIONS

• WHY DOES EACH GENERIC STRATEGY REQUIRE DIFFERENT
  SETS OF PRODUCT/MARKET/DISTINCTIVE COMPETENCY
  CHOICES?
• EXAMPLES OF FIRM PAIRS MAKING DIFFERENT CHOICES
  ARE THEY IN SAME STRATEGIC GROUP?
• HOW SHOULD DIFFERENTIATION INVESTMENT CHOICES
  VARY IF YOU ARE IN STRONG OR WEAK COMPETITIVE
  POSITION?

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STUDY GROUP QUESTIONS

• WHICH FIRM (OF THE PAIR) PERFORMS BEST IN TERMS
  OF FUNCTIONAL-LEVEL STRATEGIES?
• FL STRATEGIES INDIVIDUALLY TOGETHER
• DO THE TWO FIRMS BELONG TO THE SAME STRATEGIC
  GROUP IN THE INDUSTRY?
• DO BOTH FIRMS PURSUE THE SAME BL STRATEGIES?
  (TARGET THE SAME CUSTOMERS WITH SIMILAR
  PRODUCTS?)
• WHICH FIRM IS MORE PROFITABLE WHY?
• ARE FL OR BL STRATEGIES MORE IMPORTANT?

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MORE QUESTIONS?

• HOW SHOULD HP/COMPAQ ATTACK DELL - WITH FL OR BL
  STRATEGIES?
• IN WHAT WAYS ARE FL AND BL STRATEGIES
  INTERRELATED?
• OF MODELS
• PRODUCT DEVELOPMENT LEAD TIMES
• DEGREE OF VERTICAL INTEGRATION VS. OUTSOURCING
• OTHER??

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IN SUM

• WHAT CUSTOMERS WANT IS CHANGING ALL THE TIME
  SEGMENTS ARE DYNAMIC, NOT STATIC
• TO COMPETE, FIRMS MUST MAKE CHOICES, NOT ONLY
  ABOUT B-L STRATEGIES BUT ALSO ABOUT F-L STRAT
• ULTIMATELY, IN MANY CASES, COMPETITIVE SUCCESS IS
  SHORT-LASTING
• WHICH FIRM HAS BEST RESOURCES CAPABILITIES FOR
  CUSTOMER NEEDS TODAY