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Strategic Management: Concepts and Cases

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Title: Strategic Management: Concepts and Cases


1
Strategic Management Concepts and Cases
  • Part II Strategic Actions Strategy
    Formulation
  • Chapter 4 Business-Level Strategy

2
The Strategic Management Process
3
Chapter 4 Business-Level Strategy
  • Overview Five content areas
  • Defining business-level strategy
  • Relationship between customers and strategy
  • Differences in business-level strategies
  • 5-Forces
  • Risks of business-level strategies

4
From Pet Food to PetSmart
  • PetSmart remained on top of the pet care industry
    despite fierce competition from PETCO (2) and
    major retailers including Wal-Mart and Target
  • Focus Customer service
  • Strategy
  • Opened doors in 1987 and named PetFood
    Warehouse (warehouse format)
  • 1989 changed warehouse strategy to become MART
    for PETs thats SMART about PETs
  • Focus Providing best selection of products at
    the best prices
  • Market research indicated average dog owner could
    spend gt 15,000 over the lifetime of a pet --
    so, by 2000 developed.
  • a new strategy Engaging the Enthusiast and
  • a new vision to provide Total Lifetime Care
    for every pet, every parent, every time.

5
From Pet Food to PetSmart
  • 2001 Began extensive customer training program
    for associates
  • By 2005 new focus
  • Top executives decided to leave behind the mart
    concept
  • Move to providing Smart solutions and
    information
  • Change name to PetSmart and create new logo

6
Chapter 4 Business-Level Strategy
  • Overview Five content areas
  • Defining business-level strategy
  • Relationship between customers and strategy
  • Differences in business-level strategies
  • 5-Forces
  • Risks of business-level strategies

7
Introduction
  • Strategy Increasingly important to a firms
    success and concerned with making choices among
    two or more alternatives. Choices dictated by
  • External environment
  • Internal resources, capabilities and core
    competencies
  • Business level-strategy Integrated and
    coordinated set of commitments and actions the
    firm uses to gain a competitive advantage by
    exploiting core competencies in specific product
    markets

8
Introduction (Contd)
  • Customers are the foundation of successful
    business strategies
  • Who will be served by the firm
  • What needs those target customers have that firm
    will satisfy
  • How those needs will be satisfied by the firm
  • Five (5) generic business level strategies
  • Generic can be used in any organization
    competing in any industry
  • Follows the discussion of customers

9
Customers Their Relationship with
Business-Level Strategies
  • Strategic competitiveness results when firm can
    satisfy customers by using its competitive
    advantages
  • Returns earned are the lifeblood of firm
  • Most successful companies satisfy current
    customers and/or meet needs of new customers

10
Customers Their Relationship with
Business-Level Strategies (Contd)
  • Five components in customer relationships
  • 1. Effectively managing relationships w/
    customers
  • Deliver superior value
  • Strong interactive relationships is foundation
  • 2. Reach, richness and affiliation
  • Access and connection to customers
  • Depth and detail of two-way flow of information
    between firm and customer
  • Facilitating useful interactions with customers

11
Customers Their Relationship with
Business-Level Strategies (Contd)
  • Five components in customer relationships
  • 3. Who Determining the customers to serve
  • Market segmentation
  • Dividing customers into groups based on
    differences in needs
  • Process used to cluster people with similar needs
    into individual and identifiable groups
  • For example, consumer and industrial markets

12
Customers Their Relationship with
Business-Level Strategies (Contd)
  • Five components of customer relationships
  • 4. What Determining which customer needs to
    satisfy
  • What Needs
  • Related to a products benefits and features
  • Must anticipate and be prepared (I.e.,
    High-quality? Low price?)
  • Translate into features and performance
    capabilities of products
  • 5. How Determining core competencies necessary
    to satisfy customer needs
  • Core competencies resources and capabilities
    that serve as source of competitive advantage for
    firm over its rivals
  • How core competencies

13
Chapter 4 Business-Level Strategy
  • Overview Five content areas
  • Defining business-level strategy
  • Relationship between customers and strategy
  • Differences in business-level strategies
  • 5-Forces
  • Risks of business-level strategies

14
Purpose of Business-Level (BL) Strategies
  • Purpose To create differences between position
    of a firm and its competitors
  • Firm must make a deliberate choice to
  • Perform activities differently
  • Perform different activities
  • Activity map exemplifies a firms
  • Activities
  • How they are integrated
  • Southwest Airlines activity map Note the
    primary (N6) and secondary nodes/activities and
    the connectedness or fit
  • Fit is key to the sustainability of competitive
    advantage

15
Southwest Airlines Activity System
16
Purpose of Business-Level (BL) Strategies (cont)
  • 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

17
Five Business-Level Strategies
18
Types of Business-Level Strategies (N5)
  • 1. Cost Leadership (CL)
  • Competitive advantage THE low-cost leader and
    operates with margins greater than competitors
  • Competitive scope Broad
  • Integrated set of actions designed to produce or
    deliver goods or services with features that are
    acceptable to customers at the lowest cost,
    relative to competitors
  • No-frill, standardized goods
  • Continuously reduce costs of value chain
    activities
  • Inbound/outbound logistics account for
    significant cost
  • Low-cost position is a valuable defense against
    rivals
  • Powerful customers can demand reduced prices

19
Types of Business-Level Strategies (N5) (Contd)
  • 1. Cost Leadership (CL) (Contd)
  • Cost leaders are in a position to
  • Absorb supplier price increases and relationship
    demands
  • Force suppliers to hold down their prices
  • Continuously improving levels of efficiency and
    cost reduction
  • Can be difficult to replicate and
  • serve as significant entry barriers to potential
    competitors
  • Cost leaders hold an attractive position in terms
    of product substitutes, with the flexibility to
    lower prices to retain customers
  • Examples Greyhound Bus, Big Lots Inc., Wal-Mart

20
Examples of Value-Creating Activities Associated
with the Cost Leadership Strategy
21
Types of Business-Level Strategies (N5) (Contd)
  • 1. Cost Leadership (CL) (Contd)
  • In relationship to the 5 Forces
  • Rivalry against existing competitors Rivals
    hesitate to compete on the basis of price
  • Bargaining Power of Buyers (Customers)
  • Bargaining Power of Suppliers
  • Potential Entrants
  • Product Substitutes

22
Types of Business-Level Strategies (N5) (Contd)
  • 2. Differentiation
  • Competitive advantage Differentiation
  • Competitive scope Broad
  • Integrated set of actions designed by a firm to
    produce or deliver goods or services at an
    acceptable cost that customers perceive as being
    different in ways that are important to them
  • Target customers perceive product value
  • Customized products differentiating on as many
    features as possible
  • Examples Apples iPod

23
Examples of Value-Creating Activities Associated
with the Differentiation Strategy
24
Types of Business-Level Strategies (N5) (Contd)
  • 2. Differentiation (Contd)
  • In relationship to the 5 Forces
  • Rivalry against existing competitors
  • Customers are loyal purchasers of differentiated
    products
  • I.e., Bose
  • Bargaining Power of Buyers (Customers)
  • Inverse relationship between loyalty/product As
    loyalty increases, price sensitivity decreases
  • I.e., Callaway golf clubs
  • Bargaining Power of Suppliers
  • Provide high quality components, driving up
    firms costs
  • Cost may be passed on to customer
  • Potential Entrants
  • Substantial barriers (see above) and would
    require significant resource investment
  • Product Substitutes
  • Customer loyalty effectively positions firm
    against product substitutes

25
Types of Business-Level Strategies (N5) (Contd)
  • There are two Focus strategies ( 3 and 4)
  • In general, the firms core competencies used to
    serve the need of a particular industry segment
    or niche to the exclusion of others.
  • 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
  • Firms may direct resources to certain value chain
    activities to build competitive advantage
  • Large firms may overlook small niches

26
Types of Business-Level Strategies (N5) (Contd)
  • Focus strategy examples
  • Buyer groups
  • Youths/senior citizens
  • Product line segments
  • Professional painter groups
  • Geographic markets
  • West vs. East coast

27
Types of Business-Level Strategies (N5) (Contd)
  • 3. Focused Cost Leadership
  • Competitive advantage Low-cost
  • Competitive scope Narrow industry segment
  • I.e., IKEA Good design (furniture) at low
    prices
  • NOTE Also has some differentiated features
    (I.e.,
  • furniture design) with its low-cost products

28
Types of Business-Level Strategies (N5) (Contd)
  • 4. Focused Differentiation
  • Competitive advantage Differentiation
  • Competitive scope Narrow industry segment
  • I.e., IKEA Good design (furniture) at low
    prices
  • NOTE Also has some differentiated features
    (I.e.,
  • Furniture design) with its low-cost products
  • I.e., Casket furniture (products that can also be
    converted into caskets)

29
Types of Business-Level Strategies (N5) (Contd)
  • 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

30
Types of Business-Level Strategies (N5) (Contd)
  • 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
  • Simultaneously concentrate on TWO sources of
    competitive advantage cost and differentiation
    consequently
  • must be competent in many of the primary and
    support activities
  • Three sources of flexibility useful for this
    strategy

31
Types of Business-Level Strategies (N5) (Contd)
  • Three flexible sources include
  • Flexible manufacturing systems (FMS)
  • Computer controlled process used to produce a
    variety of products in moderate, flexible
    quantities with a minimum of manual intervention
  • Goal eliminate low cost vs. product variety,
    tradeoff inherent in traditional manufacturing
    technologies
  • Information networks
  • Using technology to link suppliers, distributors
    and customers
  • Total Quality Management (TQM) systems
  • Emphasizes firms total commitment to the
    customer and continuous improvement of every
    process through data-driven, problem-solving
    approaches based on empowering employees

32
Chapter 4 Business-Level Strategy
  • Overview Five content areas
  • Defining business-level strategy
  • Relationship between customers and strategy
  • Differences in business-level strategies
  • 5-Forces
  • Risks of business-level strategies

33
Types of Business-Level Strategies (N5) (Contd)
  • Competitive Risks of Integrated Strategies
  • Although becoming more popular the RISK is
    getting stuck in the middle
  • Cost structure is not low enough for attractive
    pricing of products and products not sufficiently
    differentiated to create value for target
    customer therefore, fail to successfully
    implement either low cost or differentiation
    strategy
  • Result Dont earn above-average returns
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