Business-Level Strategy

Business-level strategy: an integrated and

coordinated set of commitments and actions the
firm uses to gain a competitive advantage by
exploiting core competencies in specific product
markets
The Central Role of Customers

In selecting a business-level strategy,

the firm determines
1. who it will serve
2. what needs those target customers
have that it will satisfy
3. how those needs will be satisfied
 Managing Relationships With
Customers
• Customer relationships are strengthened by
offering them superior value
– help customers to develop a new competitive
advantage
– enhance the value of existing competitive
advantages
Five Generic Strategies
Competitive Advantage
Cost Uniqueness
Cost Differentiation
Leadership
Competitive Scope
Broad
target
Integrated Cost
Leadership/
Differentiation
Narrow
target

Focused Cost Focused

Leadership Differentiation
 Cost Leadership Strategy

An integrated set of actions designed to

produce or deliver goods or services at the
lowest cost, relative to competitors with features
that are acceptable to customers
– relatively standardized products
– features acceptable to many customers
– lowest competitive price
 Cost Leadership Strategy
Cost saving actions required by this strategy:
– building efficient scale facilities
– tightly controlling production costs and
overhead
– minimizing costs of sales, R&D and service
– building efficient manufacturing facilities
– monitoring costs of activities provided by
outsiders
– simplifying production processes
 Differentiation Strategy

An 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
– price for product can exceed what the firm’s target
customers are willing to pay
– nonstandardized products
– customers value differentiated features more than
they value low cost
 Differentiation Strategy

• Value provided by unique features and value

characteristics
• Command premium price
• High customer service
• Superior quality
• Prestige or exclusivity
• Rapid innovation
 Differentiation Strategy

Differentiation actions required by this

strategy:
– developing new systems and processes
– shaping perceptions through advertising
– quality focus
– capability in R&D
– maximize human resource contributions
through low turnover and high motivation
 Focused Business-Level
Strategies
A focus strategy must exploit a narrow
target’s differences from the balance of the
industry by:
– isolating a particular buyer group
– isolating a unique segment of a product
line
– concentrating on a particular geographic
market
– finding their “niche”
Advantages of Integrated Strategy

A firm that successfully uses an integrated

cost leadership/differentiation strategy should
be in a better position to:
– adapt quickly to environmental changes
– learn new skills and technologies more
quickly
– effectively leverage its core competencies
while competing against its rivals
 Benefits of Integrated Strategy

• Successful firms using this strategy have

above-average returns
• Firm offers two types of values to customers
– some differentiated features (but less than
a true differentiated firm)
– relatively low cost (but not as low as the
cost leader’s price)
 Corporate-Level Strategy
What is Corporate Level Strategy?

Definition: Action taken to gain a

competitive advantage through the
selection and management of a mix of
businesses competing in several
industries or product markets.
Key Questions of Corporate Strategy

1. What businesses should the corporation

be in?

2. How should the corporate office manage

the array of business units?

Corporate Strategy is what makes the corporate whole

add up to more than the sum of its business unit parts
 Levels and Types of Diversification
Low Levels of Diversification
Single business > 95% of revenues from a single A
business unit
Dominant business Between 70% and 95% of A
revenues from a single business
B
unit
Moderate to High Levels of Diversification
A
Related constrained < 70% of revenues from dominant
business; all businesses share product, B C
technological and distribution linkages

Related linked (mixed) < 70% of revenues from dominant A

business, and only limited links exist
B C

Very High Levels of Diversification A

Unrelated-Diversified Business units not closely related B C
 Strategic Leadership

Strategic Leadership involves:

The ability to anticipate, envision, maintain flexibility

and empower others to create strategic change

Multi-functional work that involves working

through others
Consideration of the entire enterprise rather than
just a sub-unit

A managerial frame of reference

Strategic Leadership Effective
Effective
and the Strategic Strategic
Strategic Leadership
Leadership
Management Process shapes the formulation of

Strategic and
Strategic Intent
Intent Strategic
Strategic Mission
Mission
influence

Successful
Successful
Strategic
Strategic Actions
Actions

Formulation
Formulation Implementation
Implementation
of
of Strategies
Strategies of
of Strategies
Strategies

Strategic
Strategic Competitiveness
Competitiveness
Above-Average
Above-Average Returns
Returns
Factors Affecting Managerial Discretion
External Environment Organizational
Industry Structure Characteristics
Rate of market growth Size and age
# and type of competitors Culture
Political/Legal constraints Resource availability
Product differentiation Employee interaction

Managerial
Managerial Discretion
Discretion

Characteristics of the Manager

Tolerance for ambiguity Aspiration level
Commitment to the firm Self-confidence
Interpersonal skills
 Exercise of Effective Strategic
Leadership
Determining
Establishing strategic Exploiting and
balanced direction maintaining
organizational core
controls competencies
Effective Strategic
Leadership
Emphasizing Developing
ethical Sustaining human
practice an effective capital
organizational
culture
 Determining Strategic Direction
• Strategic direction means the development of
a long-term vision of a firm’s strategic intent
• A charismatic leader can help achieve
strategic intent
• It is important not to lose sight of the strengths
of the organization when making changes
required by a new strategic direction
• Executives must structure the firm effectively
to help achieve the vision
Exploiting and Maintaining Core
Competencies
• Core competencies are resources and
capabilities that serve as a source of
competitive advantage for a firm over its rivals
• Strategic leaders must verify that the firm’s
competencies are emphasized in strategy
implementation efforts
Exploiting and Maintaining Core
Competencies
• In many large firms, and certainly in related-
diversified ones, core competencies are
exploited effectively when they are developed
and applied across different organizational
units
• Core competencies cannot be developed or
exploited effectively without developing the
capabilities of human capital
 Developing Human Capital
• Human capital refers to the knowledge and skills of
the firm’s entire workforce
• Employees are viewed as a capital resource that
requires investment
• No strategy can be effective unless the firm is able to
develop and retain good people to carry it out
• The effective development and management of the
firm’s human capital may be the primary determinant
of a firm’s ability to formulate and implement
strategies successfully
 Sustaining an Effective
Organizational Culture
• An organizational culture consists of a
complex set of ideologies, symbols, and core
values that is shared throughout the firm and
influences the way it conducts business
• Shaping the firm’s culture is a central task of
effective strategic leadership
 Sustaining an Effective
Organizational Culture
• An appropriate organizational culture
encourages the development of an
entrepreneurial orientation among employees
and an ability to change the culture as
necessary
• Reengineering can facilitate this process
Changing Culture and Reengineering
The benefits of business reengineering are
maximized when employees believe that:
• Every job in the company is essential and
important
• All employees must create value through their
work
• Constant learning is a vital part of every person’s
job
• Teamwork is essential to implementation
success
• Problems are solved only when teams accept
the responsibility for the solution.
 Emphasizing Ethical Practices
• Ethical practices increase the effectiveness of
strategy implementation processes
• Ethical companies encourage and enable
people at all organizational levels to exercise
ethical judgment
 Emphasizing Ethical Practices
• To properly influence employee judgment and
behavior, ethical practices must shape the
firm’s decision-making process and be an
integral part of an organization’s culture
• Leaders set the tone for creating an
environment of mutual respect, honesty and
ethical practices among employees
 Establishing Balanced
Organizational Controls
• Organizational controls provide the
parameters within which strategies are to be
implemented and corrective actions taken
• Financial controls are often emphasized in
large corporations and focus on short-term
financial outcomes
• Strategic control focuses on the content of
strategic actions, rather than their outcomes
 Establishing Balanced
Organizational Controls
• Successful strategic leaders balance strategic
control and financial control (they do not
eliminate financial control) with the intent of
achieving more positive long-term returns
 Why do a situation analysis?
Situation analysis concentrates on
generating solid answers to a well-
defined set of strategic questions and
using these answers to:
– Appraise the company’s strategic situation
and business position

– Craft a suitable strategy

Situation analysis focuses on:

–EXTERNAL FACTORS – the firm’s

MACRO-environment (industry and
competitive conditions)

–INTERNAL FACTORS – the firm’s

immediate MICRO-environment (its
own internal situation and
competitive position)
 The Key Questions in
Company Situation Analysis
1. How well is the company’s present strategy
working?
2. What are the company’s strengths,
weaknesses, opportunities, and threats?
3. Are the company’s prices and costs
competitive?
4. How strong is the company’s competitive
position?
5. What strategic issues does the company face?
 SWOT Analysis
• SWOT represents the first letter in
Strengths, Weaknesses, Opportunities,
and Threats.
• SWOT analysis
– Involves sizing-up a company’s INTERNAL
strengths and weaknesses and its
EXTERNAL opportunities and threats
– Is an easy to use tool for getting a quick
overview of a company’s strategic situation
Why SWOT Analysis is Important

It is the basis for matching strategy to the

company’s situation –
– To its internal strengths and weaknesses
– To its external threats and opportunities

A winning strategy must always fit the

company’s situation.
 Strengths
• What is a company Strength?
– Something a company is good at doing or
a characteristic that gives it an important
capability.
 Weaknesses
• What are company weaknesses?
– Something a company lacks or does poorly
(in comparison to others) or a condition
that puts it at a disadvantage.
 Opportunities
• What are company opportunities?
– Those that offer important avenues for
profitable growth, those where a company
has the most potential for competitive
advantage, and those which the company
has the financial resources to pursue.
 Threats
• What are company Threats?
– Certain factors in a company’s external
environment that pose a threat to its well-
being.
 Some questions to consider once the
SWOT listings have been compiled are:
• Does the company have internal strengths or
core competencies an attractive strategy can
be built around?

• Do company weaknesses make a company

vulnerable and does it disqualify a company
from pursuing industry opportunities?

• Which weaknesses does a company need to

correct?
 Some questions to consider once the
SWOT listings have been compiled are:
• Which opportunities does the company have
the skills and resources to pursue with a real
chance for success? Which opportunities are
the best from the company’s standpoint?
(Remember: Opportunity without the means
to capture is only an illusion.)

• What external threats should management be

worried most about and what strategic moves
need to be made to craft a good defense?