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Competing For Advantage

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Competing For Advantage Part III Creating Competitive Advantage Chapter 5 Business-Level Strategy The Strategic Management Process Business-Level Strategy Key ... – PowerPoint PPT presentation

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Title: Competing For Advantage


1
Competing For Advantage
  • Part III Creating Competitive Advantage
  • Chapter 5 Business-Level Strategy

2
The Strategic Management Process
3
Business-Level Strategy
  • Key Terms
  • 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


4
Types of Business-Level Strategy
5
Features of the Five Business-Level Strategies
  • Generic, can be used across industries
  • Two distinct types of competitive advantage
  • Low Cost
  • Differentiation
  • Choice of scope
  • Broad
  • Narrow (niche)
  • Effectiveness depends upon external environment
    and internal resources and capabilities

6
Serving Customers
  • Key Terms
  • Market Segmentation process of clustering
    people with similar needs into individual and
    identifiable groups to determine which customer
    segments to target

7
Decisions About Serving Customers
  • Who (which customers) will be served Market
    segmentation
  • What customer needs will be satisfied Low cost
    vs. differentiation
  • How those needs will be satisfied Core
    competencies

8
Strategy and Structure
  • Key Terms
  • Organizational Structure specifies the firm's
    formal reporting relationships, procedures,
    controls, and authority and decision-making
    processes

9
Strategy and Structure
  • Key Terms (cont.)
  • Simple Structure owner-manager makes all major
    decisions and monitors all activities, while
    staff acts as extension of manager's supervisory
    authority
  • Functional Structure CEO and a limited
    corporate staff make all decisions, with
    functional line managers in dominant
    organizational areas
  • Multidivisional Structure operating divisions
    each represent a separate business or profit
    center in which the top corporate officer
    delegates responsibilities for day-to-day
    operations and business-unit strategies to
    division managers

10
Cost Leadership Strategy
  • Key Terms
  • Cost Leadership Strategy 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

11
Cost Leadership Strategy Implementation
  • No-frill, standardized goods
  • Continuously reduce costs of value chain
    activities

12
Value-Creating Activities Associated with Cost
Leadership Strategy
13
Cost Leadership Strategy and the Five Forces of
Competition
  • Low-cost position is a valuable defense against
    rivals
  • Powerful customers can demand reduced prices
  • Costs leaders are in a position to absorb
    supplier price increases and relationship
    demands, and to 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

14
Strategy and Organizational Structure
  • Specialization
  • Centralization
  • Formalization

15
Cost Leadership Strategy and the Functional
Structure
16
Cost Leadership Strategy and the Functional
Structure
  • Simple reporting relationships
  • Few decision-making and authority layers
  • Centralized corporate staff
  • Strong operational focus on process improvements
  • Low-cost culture
  • Centralized staff decision-making authority
  • Jobs specialization
  • Highly formalized rules and procedures

17
Risks of Cost Leadership Strategy
  • Processes can become obsolete
  • Focus on cost reductions can come at the expense
    of understanding customer perceptions and needs
  • Strategy could be imitated, requiring the firm to
    increase the value offered to retain customers

18
Differentiation Strategy
  • Key Terms
  • Differentiation Strategy 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

19
Differentiation Strategy Implementation
  • Target customers perceived product value
  • Customized products differentiating on as many
    features as possible

20
Differentiation Strategy Implementation (cont.)
  • Perceived prestige and status
  • Different tastes
  • Engineering design
  • Performance
  • Unusual features
  • Responsive customer service
  • Rapid product innovations
  • Technological leadership

21
Value-Creating Activities Associated with the
Differentiation Strategy
22
Differentiation Strategy and the Five Forces of
Competition
  • Customer loyalty provides the most valuable
    defense against rivals
  • Uniqueness products reduce customer sensitivity
    to raised prices
  • High margins (for differentiated products)
    insulate from supplier influence
  • Customer loyalty and product uniqueness serve as
    significant entry barriers
  • Firms with customers loyal to their products are
    positioned effectively against product
    substitutes

23
Differentiation Strategy and the Functional
Structure
24
Differentiation Strategy and the Functional
Structure
  • Complex and flexible reporting relationships
  • Cross-functional product development teams
  • Strong focus on marketing and product RD
  • Development-oriented culture
  • Decentralized decision making
  • Broad job descriptions
  • Informal rules and procedures

25
Risks of Differentiation Strategy
  • Price differential for the differentiated product
    may be perceived as too large
  • Firm's means of differentiation may cease to
    provide value for which customers are willing to
    pay (successful rival imitation)
  • Experience can narrow customers' perceptions of
    the value of a product's differentiated features
  • Counterfeit goods might appear in the marketplace

26
Focus Strategy
  • Key Terms
  • Focus Strategy integrated set of actions
    designed to produce or deliver goods or services
    to a narrow target consumer based on specific
    differences in the market

27
Focus Strategy Market Segments
  • Buyer group
  • Product line segment
  • Geographic market

28
Focus Strategy Reasons
  • Large firms may overlook small niches
  • Firms may lack resources to compete in the
    broader market
  • Firms may be able to serve a narrow market
    segment more effectively than larger,
    industry-wide competitors
  • Firms may direct resources to certain value chain
    activities to build competitive advantage

29
Focus Strategy Types
  • Focused cost leadership strategy
  • Focused differentiation strategy

30
Value-Creating Activities Associated with the
Focus Strategy
  • Focused cost leadership strategy
  • Activities required to use the focused cost
    leadership strategy are identical to those shown
    in Figure 5.2 (slide 13)
  • Focused differentiation strategy
  • Activities required to use the focused
    differentiation strategy are identical to those
    shown in Figure 5.4 (slide 22)

31
Focus Strategy and the Five Forces of Competition
  • Focused cost leadership strategy
  • Refer to cost leadership Five Forces Analysis
    (slide 14)
  • Focused differentiation strategy
  • Refer to differentiation Five Forces Analysis
    (slide 23)

32
Differentiation Strategy and the Simple Structure
  • A firm using a focus strategy may choose a simple
    organizational structure
  • A simple structure is matched with focus
    strategies when a firm offers a single product
    line in a single geographic market
  • Refer to Figure 5.3 (slide 16)

33
Differentiation Strategy and the Simple Structure
  • A firm using a focus strategy may choose a
    functional organizational structure
  • As a business grows and expands, a functional
    structure is required
  • Depending on its focused cost leadership or
    focused differentiation strategy, the functional
    structures presented in Figures 5.3 and 5.5 apply
  • Refer to Figure 5.5 (slide 24)

34
Risks of Differentiation Strategy
  • 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
  • The needs of customers within a narrow
    competitive segment may become more similar to
    those of industry-wide customers as a whole

35
Integrated Cost Leadership/Differentiation
Strategy
  • Key Terms
  • Integrated Cost Leadership/ Differentiation
    Strategy 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

36
Integrated Strategy Advantages
  • Improved speed of adapting to environmental
    changes
  • Improved speed of learning new skills and
    technologies
  • Improved leverage of core competencies while
    competing against rivals

37
Integrated Strategy Implementation Benefits
  • Evidence suggests a relationship between use of
    an integrated strategy and achieving
    above-average returns
  • Businesses that combine multiple forms of
    competitive advantage in low-profit-potential
    industries are shown to outperform businesses
    that compete with a single form

38
Value-Creating Activities Associated with the
Integrated Strategy
  • Integrating cost leadership and differentiation
    strategies (which emphasize different primary
    and support activities) requires a balance when
    selecting the activities to perform
  • A flexible organizational structure is required

39
Integrated Strategy and the Flexible Structure
  • Commitment to strategic flexibility
  • Flexible decision-making patterns, with partial
    centralization
  • Less specialized jobs than in a traditional
    functional structureworkers are more sensitive
    to balancing cost and differentiation
  • Modular structures to produce modular goods
    create differentiation and simultaneously hold
    down costs

40
Balancing Mixed Objectives
  • Flexible manufacturing systems
  • Information networks
  • Total Quality Management (TQM) systems

41
Risks of Integrated Strategy
  • Failure to establish a leadership position can
    result in a firm being "stuck in the middle,"
    unable to create value, and unable to earn
    above-average returns

42
Ethical Questions
  • Can a commitment to ethical conduct on issues
    such as the environment, product quality, and
    fulfilling contractual agreements affect a firms
    competitive advantage? If so, how?

43
Ethical Questions
  • Is there more incentive for differentiators or
    for cost leaders to pursue stronger ethical
    conduct?

44
Ethical Questions
  • Can an overemphasis on cost leadership or
    differentiation lead to ethical challenges?

45
Ethical Questions
  • A brand image can help differentiate goods or
    services. However, concerns exist about the
    effect of brand images on consumer behavior (for
    example, the effects of brand images managed by
    tobacco firms on teenage smoking). Should firms
    be concerned about how they form and use brand
    images? Why or why not?

46
Ethical Questions
  • To what extent should a manager be concerned
    about the accuracy of the firms claims about its
    products in its advertisements?
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