Chapter 4 Harrison

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Chapter 4 Harrison St. JohnChapter 2 Porter

• Business-Unit-Level Strategy

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(No Transcript)
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Markides Three Questions Approach to Strategy
Development
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The Product-Market Matrix(Ansoff Matrix)
Product
Existing
New
Low Risk Market Penetration Do Nothing
Moderate Risk Product Development
Existing
Market
Moderate Risk Market Development
High Risk Entrepreneurship Intrepreneurship
External
New
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Generic Business Unit Level Strategies
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Cost Leadership Business Level Strategy
Key Criteria
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Cost Leadership Business Level Strategy
Success Factors
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Cost Leadership Business Level Strategy
Requirements
Constant effort to reduce costs through
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Support Activities
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Inbound Logistics
Highly Efficient Systems to Link Suppliers
Products with the Firms Production Processes
Support Activities
Located in Close Proximity with Suppliers
Inbound Logistics
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Operations
Relatively Few Management Layers to Reduce
Overhead
Simplified Planning Practices to Reduce Planning
Costs
Firm Infrastructure
Cost Effective MIS Systems
Effective Training Programs to Improve Worker
Efficiency and Effectiveness
Human Resource Management
Consistent Policies to Reduce Turnover Costs
Support Activities
MARGIN
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce
Costs Associated with Manufacturing Processes
Technological Development
Systems and Procedures to find the Lowest Cost
Products to Purchase Raw Materials
Procurement
Frequent Evaluation Processes to Monitor
Suppliers Performances
Highly Efficient Systems to Link Suppliers
Products with the Firms Production Processes
Efficient Plant Scale to Minimize Manufacturing
Costs
Delivery Schedule that Reduces Costs
Small, Highly Trained Sales Force
Effective Product Installations to Reduce
Frequency and Severity of Recalls
Service
Selection of Low Cost Transport Carriers
Products Priced to Generate Sales Volume
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Timing of Asset Purchases
Operations
MARGIN
National Scale Advertising
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Efficient Order Sizes
Organizational Learning
Interrelationships with Sister Units
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Outbound Logistics
Relatively Few Management Layers to Reduce
Overhead
Simplified Planning Practices to Reduce Planning
Costs
Firm Infrastructure
Cost Effective MIS Systems
Delivery Schedule that Reduces Costs
Effective Training Programs to Improve Worker
Efficiency and Effectiveness
Human Resource Management
Consistent Policies to Reduce Turnover Costs
Support Activities
Selection of Low Cost Transport Carriers
MARGIN
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce
Costs Associated with Manufacturing Processes
Technological Development
Efficient Order Sizes
Systems and Procedures to find the Lowest Cost
Products to Purchase Raw Materials
Procurement
Frequent Evaluation Processes to Monitor
Suppliers Performances
Highly Efficient Systems to Link Suppliers
Products with the Firms Production Processes
Efficient Plant Scale to Minimize Manufacturing
Costs
Delivery Schedule that Reduces Costs
Small, Highly Trained Sales Force
Effective Product Installations to Reduce
Frequency and Severity of Recalls
Interrelationships with Sister Units
Service
Outbound Logistics
Selection of Low Cost Transport Carriers
Products Priced to Generate Sales Volume
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
Timing of Asset Purchases
MARGIN
National Scale Advertising
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Efficient Order Sizes
Organizational Learning
Interrelationships with Sister Units
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Marketing Sales
Firm Infrastructure
Small, Highly Trained Sales Force
Human Resource Management
Support Activities
Products Priced to Generate Sales Volume
MARGIN
Technological Development
Procurement
National Scale Advertising
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Marketing Sales
Operations
MARGIN
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Service
Firm Infrastructure
Effective Product Installations to Reduce Recalls
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Procurement
Service
Procurement
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Systems and Procedures to Find the Lowest Cost
Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor
Suppliers Performances
Primary Activities
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Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Technological Development
Procurement
Technological Development
Service
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce
Costs Associated with Manufacturing Processes
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
18
Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Firm Infrastructure
Human Resource Management
Human Resource Management
Support Activities
MARGIN
Technological Development
Human Resource Management
Procurement
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker
Efficiency and Effectiveness
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
19
Value Creating Activities Common to a Cost
Leadership Business Level Strategy
Firm Infrastructure
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Firm Infrastructure
Technological Development
Cost Effective MIS Systems
Relatively Few Management Layers to Reduce
Overhead
Simplified Planning Practices to Reduce Planning
Costs
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
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How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain as needed
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Reconfiguring the Value Chain of Iowa Beef
Packers (IBP)
Save on shipping and cattle weight loss
Utilize cheaper non-union rural labor
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Choices That Drive Costs
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Three Key Questions
How can an activity be performed differently or
even eliminated?
1.
2.
How can a group of linked value activities be
regrouped or reordered?
3.
How might coalitions with other firms lower or
eliminate costs?
Gallo sold wine through grocery stores rather
than liquor stores because they were more
efficient distributors
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Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
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Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
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Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Buyers
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Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Buyers
Can mitigate Buyer Power by
Driving prices far below competitors which may
cause exit and shift power back to firm
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Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Can mitigate Supplier Power by
Bargaining Power of Buyers
Low cost position makes them better able to
absorb cost increases

Can mitigate Buyer Power by
More likely to make very large purchases which
reduces chance of supplier power

Driving prices far below competitors which may
cause exit and shift power back to firm
Threat of Substitute Products
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Effective Cost Leaders can remain profitable even
when the Five Forces appear unattractive
Threat of New Entrants
Rivalry Among Competing Firms in Industry
Bargaining Power of Suppliers
Bargaining Power of Buyers
Can mitigate Buyer Power by
Driving prices far below competitors which may
cause exit and shift power back to firm
Threat of Substitute Products
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Major Risks of Cost Leadership Business Level
Strategy
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Broad Target Market
Breadth of Competitive Scope
Narrow Target Market
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Narrow Target Market
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Differentiation Business Level Strategy
Key Criteria
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Differentiation Business Level Strategy
Requirements
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Human Resource Management
Support Activities
MARGIN
Technological Development
Procurement
Service
Inbound Logistics
Outbound Logistics
Marketing Sales
Operations
MARGIN
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Inbound Logistics
Superior handling of incoming raw materials to
minimize damage and improve the quality of the
final product
Support Activities
Inbound Logistics
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Operations
Consistent manufacturing of attractive products
Support Activities
Rapid responses to customers unique manufacturing
specifications
Operations
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Outbound Logistics
Accurate and responsive order processing
procedures
Support Activities
Rapid and timely product deliveries to customers
Outbound Logistics
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Marketing Sales
Strong Coordination among functions in RD,
Marketing and Product Development
Support Activities
Extensive personal relationships with buyers
Premium Pricing
Marketing Sales
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Service
Complete field stocking of replacement parts
Support Activities
Service
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Support Activities
Procurement
Procurement
Located in Close Proximity with Suppliers
Systems and procedures used to find the highest
quality raw materials
Purchase of highest quality replacement parts
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Support Activities
Technological Development
Technological Development
Strong capability in basic research
Investments in technol-ogies to produce highly
differentiated products
Coordination among RD, marketing and product
development
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Support Activities
Human Resource Management
Compensation programs which encourage worker
creativity and productivity
Extensive use of subjective performance measures
Superior personnel training
Primary Activities
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Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Support Activities
Firm Infrastructure
A companywide emphasis on producing high quality
products
Highly developed Information Systems to better
understand customers purchasing preferences
Primary Activities
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Differentiation Business Level Strategy
Effectiveness with Differentiation grows out of
Value Chain activities
Examples
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Create Value with Differentiation by
Lowering Buyers Costs
Raising Buyers Performance
Creating Sustainability through

• Creating barriers by perceptions of uniqueness

• Creating switching costs through differentiation

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Drivers of Differentiation
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Can mitigate Buyer Power because well
differentiated products reduce customer
sensitivity to price increases
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Can mitigate Buyer Power because well
differentiated products reduce customer
sensitivity to price increases
Threat of Substitute Products
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Effective Differentiators can remain profitable
even when the Five Forces appear unattractive
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Can mitigate Buyer Power because well
differentiated products reduce customer
sensitivity to price increases
Threat of Substitute Products
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Major Risks of a Differentiation Business Level
Strategy
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Narrow Target Market
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Focused Differen- tiation
Focused Low Cost
Narrow Target Market
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Focused Business Level Strategies
Focused Business Level Strategies involve the
same basic approach as Broad Market Strategies.
However, opportunities may exist because
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Focused Business Level Strategies
Focused Business Level Strategies involve the
same basic approach as Broad Market Strategies.
However, opportunities may exist because
Examples
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Focused Business Level Strategies
Focused Business Level Strategies involve the
same basic approach as Broad Market Strategies.
However, opportunities may exist because
Example
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Major Risks Involved With a Focused Differentiatio
n Business Level Strategy
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Basis for Market Segmentation

• Consumer Markets
• 1. Demographic factors (age, income, sex, etc.)
• 2. Socioeconomic factors (social class, stage
  in the family life cycle)
• 3. Geographic factors (culture, region or
  country differences)
• 4. Psychological factors (lifestyle, personality
  traits)
• 5. Consumption patterns (heavy, moderate, and
  light users)
• 6. Perceptual factors (benefit segmentation,
  perceptual mapping)
• 7. Brand loyalty patterns

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Basis for Market Segmentation
Industrial Markets 1. End use segments
(identified by SIC code) 2. Product segments
(based on technological differences or production
economics) 3. Geographic segments (defined by
boundaries between countries or by regional
differences within them) 4. Common buying factor
segments (cut across product/market and
geographic segments) 5. Customer size segments
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Generic Business Level Strategies
Source of Competitive Advantage
Cost
Uniqueness
Cost Leadership
Differen- tiation
Broad Target Market
Breadth of Competitive Scope
Focused Differen- tiation
Focused Low Cost
Narrow Target Market
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Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may
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Integrated Low Cost/Differentiation Strategy
Recognize that the Integrated Low Cost/
Differentiation business level strategy involves
a Compromise
The risk is that the firm may become Stuck in
the Middle lacking a strong commitment to or
expertise with either type of generic strategy
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Integrated Low Cost/Differentiation Strategy
Tootsie Roll Industries