Business level strategyCompetitive strategy and

industry environmentSession 11

Business level strategy• How to compete?• Generic business strategies• Choice of business strategy• Investment strategies

Business level strategy• Cost Leadership• 5-Forces model (protected

through low costs)• Disadvantages

– Cost competition from competitors– Imitation – Focus exclusively on efficiency

Business level strategy• Differentiation• 5-Forces model (protected through

differentiation, brand loyalty)• Disadvantages

– Need to maintain uniqueness– Imitation– Changes in consumer tastes and

demands

Business level strategy• Focus strategy• 5-Forces model (Protected by

either low costs or differentiation)• Disadvantages

– Smaller volumes, higher costs– Changes in technology or consumer

taste– Competition from differentiators

Business level strategy• Cost leadership and differentiation

– Production and process technology– Flexible manufacturing systems

• Stuck in the middle– Importance of FIT – capabilities and

strategy– Align product/technology/market

choices with strategy

Investment strategy• Supports competitive strategy (FIT)• Cost of strategy

– Resources required• Returns from strategy

– Firm competitive position– Stage of industry life cycle

We don’t like their sound, and guitarmusic is on the way out.

-Decca Recording Co., rejecting the Beatles, 1962

Investment Strategy• Strength of company competitive

position– Market share– Distinctive competency

• Industry life cycle– Opportunities– Threats

Competitive Strategy & Industry Environment• Managing industry environment

(FIT)• Fragmented Industries• Embryonic & Growth Industries• Mature Industries• Declining Industries

Fragmented Industries• Characteristics

– Many small/medium sized companies– Few economies of scale, High transport costs

• Strategic Focus– Niche, customization

• Consolidation Strategies– Chaining– Franchising– Horizontal Merger

Embryonic & Growth Industries• Characteristics

– Created by pioneers– Attract imitators

• Strategic focus– Exploit innovation

• Strategies– Go it alone– Enter into alliance– License innovation

Mature Industries• Characteristics

– Consolidated– Competitive interdependence

• Strategic focus– Deter entry– Manage rivalry– Supply and distribution strategy

Mature Industry• Deter entry

– Product proliferation/ Filling niches– Price cutting– Maintaining excess capacity

• Manage Rivalry– Price signaling– Price leadership– Product differentiation– Controlling industry capacity

• Preemptive• Co-ordination

Declining Industry• Characteristics

– Falling demand – Intense competition

• Strategic Focus– Dealing with decline

Strategies– Leadership– Niche– Harvest– Divestment