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Business-Level Strategy
BUSI 7130/7136
Chris Shook
Agenda
• Overview of Business Level Strategy
• What is Strategy
• Geometry of Competition
Business-Level Strategy
• How to create competitive advantage in each business in which the company competes.
Generic Business Level StrategiesGeneric Business Level Strategies
CostCost UniquenessUniqueness
Source of Competitive AdvantageSource of Competitive Advantage
Breadth of Breadth of Competitive Competitive
ScopeScope
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
Generic Business Level StrategiesGeneric Business Level Strategies
Source of Competitive AdvantageSource of Competitive Advantage
UniquenessUniqueness
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
Focused Differen-
tiation
Focused Differen-
tiation
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Focused Low CostFocused
Low Cost
Generic Business Level StrategiesGeneric Business Level Strategies
UniquenessUniqueness
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Generic Business Level StrategiesGeneric Business Level Strategies
UniquenessUniqueness
Relatively standardized productsRelatively standardized products
Key CriteriaKey Criteria
Cost Leadership Business Level StrategyCost Leadership Business Level Strategy
Relatively standardized productsRelatively standardized products
Features acceptable to many customersFeatures acceptable to many customers
Key CriteriaKey Criteria
Cost Leadership Business Level StrategyCost Leadership Business Level Strategy
Relatively standardized productsRelatively standardized products
Features acceptable to many customersFeatures acceptable to many customers
Lowest competitive priceLowest competitive price
Key CriteriaKey Criteria
Cost Leadership Business Level StrategyCost Leadership Business Level Strategy
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
UniquenessUniqueness
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Key CriteriaKey Criteria
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Command premium priceCommand premium price
Key CriteriaKey Criteria
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Command premium priceCommand premium price
Key CriteriaKey Criteria
Differentiation Business Level StrategyDifferentiation Business Level Strategy
High customer serviceHigh customer service
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Command premium priceCommand premium price
Superior qualitySuperior quality
Key CriteriaKey Criteria
Differentiation Business Level StrategyDifferentiation Business Level Strategy
High customer serviceHigh customer service
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Command premium priceCommand premium price
Superior qualitySuperior quality
Key CriteriaKey Criteria
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Prestige or exclusivityPrestige or exclusivity
High customer serviceHigh customer service
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
UniquenessUniqueness
Focused Business Level StrategiesFocused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Large firms may overlook small nichesLarge firms may overlook small niches
However.....However.....Opportunities may exist because:Opportunities may exist because:
**
Focused Business Level StrategiesFocused Business Level Strategies
Firm may lack resources to compete industrywideFirm may lack resources to compete industrywide
Large firms may overlook small nichesLarge firms may overlook small niches
However.....However.....Opportunities may exist because:Opportunities may exist because:
**
**
Focused Business Level StrategiesFocused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Firm may lack resources to compete industrywideFirm may lack resources to compete industrywide
Large firms may overlook small nichesLarge firms may overlook small niches
However.....However.....Opportunities may exist because:Opportunities may exist because:
**
**
**
Focused Business Level StrategiesFocused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
May be able to serve a narrow market segment more effectively than industrywide competitorsMay be able to serve a narrow market segment more effectively than industrywide competitors
Focused Differentiators may thrive by selecting a small market that is underserved by large players
Focused Differentiators may thrive by selecting a small market that is underserved by large players
**
Focused Business Level StrategiesFocused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
UniquenessUniqueness
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
Integrated Low Cost/
Differentiation
Integrated Low Cost/
Differentiation
UniquenessUniqueness
What is Strategy?Porter, 1996
What does the article say about OE ?
What does it say about unique activities?
What about trade-offs?
Is Growth Always Good?
Fit
Type of Fit Definition Goal
First-Order Simple Consistency
Single Mindedness
Second-Order Reinforcing Activities
Synergy
Optimization of Effort
Optimization Elimination of Activities
Geometry of Competition
Summary
• Competitive advantage is very rare. – Most competitors don’t have a competitive
advantage• Despite
– Good products– Good customer relations– Excellent capabilities
• Competitive position is very real.
Operating Results Masquerading as Strategic Advantage
0
20
40
60
80
100
120
140
Cost Leadership DifferentiationPer
cen
t o
f In
du
stry
Ave
rag
e R
even
ue
and
Co
st
Ind Avg PriceInd Avg Price
Ind Ave CostInd Ave Cost
Alternate Paths to Outperforming Industry AverageAlternate Paths to Outperforming Industry Average
• Low cost producers have a cost savings greater than its price reduction
• Differentiated producer commands a price premium in excess of its added costs
Geometry of Competition
• Where are you in relation to your competitors?
• Two types of multidimensional positioning– Positioning related to capabilities– Positions related to offerings
Positioning Related to Capabilities
• Capabilities drive offerings
• Assets & Activities
->Capabilities
->OfferingsA firm must have– Competitive offerings– Frontier capabilities– A fit between the two
Advantage Curve for Steinway and Yamaha
YamahaYamaha
SteinwaySteinway
Stuck in the Middle
AA BB CC
Win in the Middle
AA BB CC
A Guide to Action
• Change the offerings (i.e. move the dot)
• Create new capabilities (i.e. shift the curve)
• Influence customer preferences
• Change dimensions of competition (change the axis)