busines unitlevel strategy

8/3/2019 Busines Unitlevel Strategy

http://slidepdf.com/reader/full/busines-unitlevel-strategy 1/42

©2003 Southwestern Publishing Company 1

BusinessBusiness--Level StrategyLevel Strategy

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

Chapter 4Chapter 4



2

Strategy ImplementationStrategy Implementation

Chapter 11Chapter 11

OrganizationalOrganizational

Structure andStructure and

ControlsControls


CorporateCorporate

GovernanceGovernance


StrategicStrategicLeadershipLeadership

Strategy FormulationStrategy Formulation

Chapter 4Chapter 4

BusinessBusiness--LevelLevel

StrategyStrategy

StrategicStrategic

CompetitivenessCompetitiveness

AboveAbove--AverageAverage

ReturnsReturns

Strategic IntentStrategic Intent

Strategic MissionStrategic Mission

Chapter 2Chapter 2

The ExternalThe External

EnvironmentEnvironment

Chapter 3Chapter 3

The InternalThe Internal

EnvironmentEnvironment

The StrategicThe Strategic

ManagementManagementProcessProcess

Feedback Feedback

S t r a t e g i c I n p u t s

S t r a t e g i c I n p u t s

S t r a t e g i c A c t i o n s

S t r a t e g i c A c t i o n s

S t r a t e g i c O u t c o m e s

S t r a t e g i c O u t c o m e s


StrategicStrategicEntrepreneurshipEntrepreneurship



3

BusinessBusiness--Level StrategyLevel StrategyBusinessBusiness--level strategylevel strategy: an integrated and: an integrated and

coordinated set of commitments and actions coordinated set of commitments and actions

the f irm uses to gain a competitivethe f irm uses to gain a competitiveadvantage by exploiting core competencies advantage by exploiting core competencies

in specif ic product marketsin specif ic product markets



4

Core

Competencies and Strategy

Core

Competencies and Strategy

The resources and capabilities that have

been determined to be a source of

competitive advantage for a firm over its

rivals

An integrated and coordinated set of

actions taken to exploit core competencies

and gain a competitive advantage

An integrated and coordinated set of

actions taken to exploit core competencies

and gain a competitive advantage

Actions taken to provide value to customers

and gain a competitive advantage by

exploiting core competencies in specific,

individual product markets

BusinessBusiness--levellevel

strategystrategy

StrategyStrategy

CoreCore

competenciescompetencies



5

K ey Issues of BusinessK ey Issues of Business--LevelLevel

StrategyStrategy What good or service to offer customer sWhat good or service to offer customer s

How to manufacture or create the good or How to manufacture or create the good or

serviceservice How to distr ibute the good or service in How to distr ibute the good or service in

the marketplacethe marketplace



6

TheC

entral Role of C

ustomersTheC

entral Role of C

ustomersIn selecting a businessIn selecting a business--level level

strategy, the f irm determinesstrategy, the f irm determines

1. 1. whowho it will serveit will serve2.2. what what needs those target customer s needs those target customer s

have that it will satisfyhave that it will satisfy

3.3. how how those needs will be satisf iedthose needs will be satisf ied



7

Managing Relationships WithManaging Relationships With

CustomersCustomers Customer relationships are strengthenedCustomer relationships are strengthened

by offer ing them super ior valueby offer ing them super ior value

± ±

help customer s to develop a new competitivehelp customer s to develop a new competitiveadvantageadvantage

± ± enhance the value of existing competitiveenhance the value of existing competitive

advantagesadvantages



8

Managing Relationships WithManaging Relationships With

CustomersCustomers Establish a competitive advantage alongEstablish a competitive advantage along

these dimensions:these dimensions:

ReachReach ± ± the f irm¶s access and connection to customer sthe f irm¶s access and connection to customer s

RichnessRichness

± ± the depth and detail of the twothe depth and detail of the two--way f low of way f low of

information between the f irm and customer sinformation between the f irm and customer s

Aff iliationAff iliation

± ± facilitating usef ul interactions with customer sfacilitating usef ul interactions with customer s



9

CustomersCustomers

Market SegmentationMarket Segmentation

ConsumerConsumer

MarketsMarkets

IndustrialIndustrial

MarketsMarkets



10

Market Segmentation:Market Segmentation:C

onsumer MarketsC

onsumer Markets

Demographic factorsDemographic factors

ConsumerConsumer

MarketsMarkets

Socioeconomic factorsSocioeconomic factorsGeographic factorsGeographic factors

Psychological factorsPsychological factors

Consumption patternsConsumption patterns

Perceptual factorsPerceptual factors

Dem.

Soc.

Geo.Psy.

Con.

Per.



11

Market Segmentation:Market Segmentation: Industrial MarketsIndustrial Markets

IndustrialIndustrial

MarketsMarkets

EndEnd--use segmentsuse segments

Product segmentsProduct segmentsGeographic segmentsGeographic segments

Common buying factor Common buying factor

segmentssegments

Customer size segmentsCustomer size segments

End

Pro.

Geo.

Buy.

Size



12

Types of BusinessTypes of Business--Level StrategiesLevel Strategies BusinessBusiness--level strategies are intended tolevel strategies are intended to

create differences between the f irm¶s create differences between the f irm¶s

posi

tio

nre

lat

ive to tho

se of

its

r iva

lspo

sitio

nre

lat

ive to tho

se of

its

r iva

ls

To position itself, the f irm must decideTo position itself, the f irm must decide

whether it intends to perform activities whether it intends to perform activities

differently or to perform different activities differently or to perform different activities

as compared to its r ivalsas compared to its r ivals



13

Five Generic StrategiesFive Generic Strategies

Competitive AdvantageCompetitive Advantage

C o m p e

t i t i v e S c o p e

C o m p e

t i t i v e S c o p e

CostCost UniquenessUniqueness

B r o a d

B r o a d

t a r g

e t

t a r g

e t

N a r r o w

N a r r o w

t a r g e t

t a r g e t

CostCost

LeadershipLeadership

DifferentiationDifferentiation

Focused CostFocused Cost

LeadershipLeadership

FocusedFocused


Integrated CostIntegrated Cost

Leadership/Leadership/




14

Cost Leadership Strategy


An integrated set of actions designed toAn integrated set of actions designed to

produce or deliver goods or services at theproduce or deliver goods or services at the

lowest costlowest cost,, relative to competitor srelative to competitor s withwith

features that are acceptable to customer sfeatures that are acceptable to customer s

± ± relatively standardized productsrelatively standardized products

± ± features acceptable to many customer sfeatures acceptable to many customer s

± ± lowest competitive pr icelowest competitive pr ice



15



Cost saving actions required by this strategy:Cost saving actions required by this strategy:

± building eff icient scale facilities

± tightly controlling production costs andoverhead

± minimizing costs of sales, R&D and service

± building eff icient manufactur ing facilities

± monitor ing costs of activities provided by

outsider s

± simplifying production processes



16

How to Obtain aC

ost AdvantageHow to Obtain aC

ost Advantage

Cost DriversCost Drivers Value ChainValue Chain

Determine andDetermine and

controlcontrolReconfigure, if Reconfigure, if

neededneeded

Alter production process Alter production process

Change in automation Change in automation

New distribution channel New distribution channel

Direct sales in place of indirect sales

Direct sales in place of indirect sales

New advertising media New advertising media

New raw material New raw material

Backward integration Backward integration

Forward integration Forward integration

Change locationrelative to suppliers or buyers

Change locationrelative to suppliers or buyers



17

Product features

Performance

Mix & var iety of

products Service levels

Small vs. large buyer s

Process technology

Wage levels

Product features

Hir ing, training,

motivation

Factors That DriveC

ostsFactors That DriveC

osts Economies of scale

Asset utilization

Capacity utilization

patter n Seasonal, cyclical

Interrelationships Order processing

and distr ibution Value chain linkages

Advertising & sales

Logistics &

operations



18

Questions Leading to Lower C

ostsQuestions Leading to Lower C

osts1.1. How can an activity be performedHow can an activity be performed

differently or even eliminated?differently or even eliminated?

2.2. How can a group of linked value activities How can a group of linked value activities be regrouped or reordered?be regrouped or reordered?

3.3. How might coalitions with other f irms How might coalitions with other f irms

lower or eliminate costs?lower or eliminate costs?



19

Cost Leadership Strategy and theCost Leadership Strategy and the

Five Forces of CompetitionFive Forces of CompetitionRivalry Among CompetingRivalry Among Competing

FirmsFirms

Can use cost leadershipCan use cost leadershipstrategy to advantage since:strategy to advantage since:

competitors avoid pricecompetitors avoid price

wars with cost leaders,wars with cost leaders,

creating higher profits forcreating higher profits forthe entire industrythe entire industry

Bargaining PowerBargaining Power

of Suppliersof Suppliers

Five Forces of Five Forces of

CompetitionCompetition



20


Five Forces of CompetitionFive Forces of CompetitionBargaining Power of Bargaining Power of

BuyersBuyers

Can mitigate buyers¶ power by:Can mitigate buyers¶ power by: driving prices far belowdriving prices far below

competitors, causing themcompetitors, causing them

to exit and shifting powerto exit and shifting power

with buyers back to thewith buyers back to thefirmfirm







21



SuppliersSuppliers

Can mitigate suppliers¶ powerCan mitigate suppliers¶ powerby:by:

being able to absorb costbeing able to absorb cost

increases due to low costincreases due to low cost

positionposition being able to make very largebeing able to make very large

purchases, reducing chancepurchases, reducing chance

of supplier using powerof supplier using power







22


Five Forces of CompetitionFive Forces of Competition





Threat of New EntrantsThreat of New Entrants

Can frighten off new entrantsCan frighten off new entrants

due to:due to:

their need to enter on a largetheir need to enter on a large

scale in order to be costscale in order to be cost

competitivecompetitive

the time it takes to movethe time it takes to movedown the learning curvedown the learning curve



23


Five Forces of CompetitionFive Forces of CompetitionThreat of SubstituteThreat of Substitute

ProductsProducts

Cost leader is well positionedCost leader is well positioned

to:to:

make investments to bemake investments to be

first to create substitutesfirst to create substitutes

buy patents developed bybuy patents developed bypotential substitutespotential substitutes

lower prices in order tolower prices in order to

maintain value positionmaintain value position







24

Major Risks of Cost LeadershipMajor Risks of Cost Leadership

StrategyStrategy Dramatic technological change could takeDramatic technological change could take

away your cost advantageaway your cost advantage

Competitor s may lear n how to imitateCompetitor s may lear n how to imitatevalue chainvalue chain

Focus on eff iciency could cause costFocus on eff iciency could cause cost

leader to over look changes in customer leader to over look changes in customer

preferencespreferences



25

Differentiation StrategyDifferentiation StrategyAn integrated set of actions designed by aAn integrated set of actions designed by a

f irm to produce or deliver goods or services f irm to produce or deliver goods or services

(at an acceptable cost) that customer s (at an acceptable cost) that customer s

perceive as being different in ways that areperceive as being different in ways that are

important to themimportant to them

± ± pr ice for product can exceed what the f irm¶s pr ice for product can exceed what the f irm¶s

target customer s are willing to paytarget customer s are willing to pay

± ± nonstandardized productsnonstandardized products

± ± customer s value differentiated features morecustomer s value differentiated features more

than they value low costthan they value low cost



26

Differentiation StrategyDifferentiation Strategy Value provided byValue provided by unique features andunique features and

value character isticsvalue character istics

Command premium pr iceCommand premium pr ice High customer serviceHigh customer service

Super ior qualitySuper ior quality

Prestige or exclusivityPrestige or exclusivity

Rapid innovationRapid innovation



27

Differentiation StrategyDifferentiation StrategyDifferentiation actions required by this Differentiation actions required by this

strategy:strategy:

± ±

developing new systems and processesdeveloping new systems and processes ± ± shaping perceptions throughshaping perceptions through

advertisingadvertising

± ± quality focusquality focus

± ± capability in R&Dcapability in R&D

± ± maximize human resource contr ibutions maximize human resource contr ibutions

through low tur nover and highthrough low tur nover and high

motivationmotivation



28

How to Obtain a DifferentiationHow to Obtain a Differentiation

AdvantageAdvantage

Cost DriversCost Drivers Value ChainValue Chain

Control if Control if

neededneededReconfigure toReconfigure to

maximizemaximize

customer perceptions of uniquenesscustomer perceptions of uniquenesscustomer perceptions of uniquenesscustomer perceptions of uniqueness

customer reluctance to switch to noncustomer reluctance to switch to non--unique productunique productcustomer reluctance to switch to noncustomer reluctance to switch to non--unique productunique product

Raise performance of product or serviceRaise performance of product or service

Lower buyers¶ costsLower buyers¶ costs

Create sustainability through:Create sustainability through:



29

Factors That Drive DifferentiationFactors That Drive Differentiation Unique product featuresUnique product features

Unique product performanceUnique product performance

Exceptional services Exceptional services New technologiesNew technologies

Quality of inputsQuality of inputs

Exceptional skill or exper ienceExceptional skill or exper ience

Detailed informationDetailed information



30

Differentiation Strategy and theDifferentiation Strategy and the

Five Forces of CompetitionFive Forces of CompetitionRivalry Among CompetingRivalry Among Competing

FirmsFirms

Can defend againstCan defend against

competition because:competition because:

brand loyalty tobrand loyalty to

differentiated productdifferentiated product

offsets price competitionoffsets price competition







31


Five Forces of CompetitionFive Forces of CompetitionBargaining Power of BuyersBargaining Power of Buyers

Can mitigate buyer powerCan mitigate buyer power

because:because:

well differentiated productswell differentiated products

reduce customer sensitivityreduce customer sensitivity

to price increasesto price increasesBargaining PowerBargaining Power






32



SuppliersSuppliers

Can mitigate suppliers¶ powerCan mitigate suppliers¶ power

by:by:

absorbing price increasesabsorbing price increases

due to higher marginsdue to higher margins

passing along higherpassing along highersupplier prices becausesupplier prices because

buyers are loyal tobuyers are loyal to

differentiated branddifferentiated brand







33


Five Forces of CompetitionFive Forces of CompetitionThreat of New EntrantsThreat of New Entrants

Can defend against newCan defend against new

entrants because:entrants because:

new products must surpassnew products must surpass

proven products or,proven products or,

new products must be atnew products must be at

least equal to performanceleast equal to performance

of proven products, butof proven products, but

offered at lower pricesoffered at lower prices







34


Five Forces of CompetitionFive Forces of CompetitionThreat of SubstituteThreat of Substitute

ProductsProducts

Well positioned relative toWell positioned relative to

substitutes because:substitutes because:

brand loyalty to abrand loyalty to a

differentiated product tendsdifferentiated product tends

to reduce customers¶ testingto reduce customers¶ testingof new products orof new products or

switching brandsswitching brands







35

Major Risks of DifferentiationMajor Risks of Differentiation

StrategyStrategy Customer s may decide that the pr iceCustomer s may decide that the pr ice

differential between the differentiateddifferential between the differentiated

product and the cost leader¶s product is product and the cost leader¶s product is

too largetoo large

Means of differentiation may cease toMeans of differentiation may cease to

provide value for which customer s areprovide value for which customer s are

willing to paywilling to pay



36

Major Risks of DifferentiationMajor Risks of Differentiation

StrategyStrategy Exper ience may narrow customer¶s Exper ience may narrow customer¶s

perceptions of the value of differentiatedperceptions of the value of differentiated

features of the f irm¶s productsfeatures of the f irm¶s products

Maker s of counterfeit goods may attemptMaker s of counterfeit goods may attempt

to replicate differentiated features of theto replicate differentiated features of the

f irm¶s productsf irm¶s products



37

Focused BusinessFocused Business--Level StrategiesLevel StrategiesA focus strategy must exploit a narrowA focus strategy must exploit a narrow

target¶s differences from the balance of target¶s differences from the balance of

the industry by:the industry by:

± ± isolating a particular buyer groupisolating a particular buyer group

± ± isolating a unique segment of a productisolating a unique segment of a product

lineline

± ± concentrating on a particular concentrating on a particular geographic marketgeographic market

± ± f inding their ³niche´f inding their ³niche´



38

Factors That May Drive FocusedFactors That May Drive Focused

StrategiesStrategies Large f irms may over look small nichesLarge f irms may over look small niches

Firm may lack resources to compete in theFirm may lack resources to compete in the

broader marketbroader market May be able to serve a narrow marketMay be able to serve a narrow market

segment more effectively than can larger segment more effectively than can larger

industryindustry--wide competitor swide competitor s

Focus may allow the f irm to directFocus may allow the f irm to directresources to certain value chain activities resources to certain value chain activities

to build competitive advantageto build competitive advantage



39

Major Risks of Focused StrategiesMajor Risks of Focused Strategies Firm may be ³outfocused´ by competitor sFirm may be ³outfocused´ by competitor s

Large competitor may set its sights on Large competitor may set its sights on

your niche marketyour niche market Preferences of niche market may changePreferences of niche market may change

to match those of broad marketto match those of broad market



40

Advantages of Integrated StrategyAdvantages of Integrated StrategyA f irm that successf ully uses an A f irm that successf ully uses an

integrated cost leader ship/differentiation integrated cost leader ship/differentiation

strategy should be in a better position to:strategy should be in a better position to:

± ± adapt quickly to environmental changesadapt quickly to environmental changes

± ± lear n new skills and technologies morelear n new skills and technologies more

quicklyquickly

± ± effectively leverage its coreeffectively leverage its corecompetencies while competing againstcompetencies while competing against

its r ivalsits r ivals



41

Benefits of Integrated StrategyBenefits of Integrated Strategy Successf ul f irms using this strategy haveSuccessf ul f irms using this strategy have

aboveabove--average retur nsaverage retur ns

Firm offer s two types of values toFirm offer s two types of values tocustomer scustomer s

± ± some differentiated features (but less some differentiated features (but less

than a tr ue differentiated f irm)than a tr ue differentiated f irm)

± ± relatively low cost (but now as low as relatively low cost (but now as low as the cost leader¶s pr ice)the cost leader¶s pr ice)



42

Major Risks of Integrated StrategyMajor Risks of Integrated Strategy An integrated cost/differentiation business An integrated cost/differentiation business

level strategy often involves compromises level strategy often involves compromises

(neither the lowest cost nor the most(neither the lowest cost nor the most

differentiated f irm)differentiated f irm)

The f irm may become ³stuck in theThe f irm may become ³stuck in the

middle´ lacking the strong commitmentmiddle´ lacking the strong commitment

and expertise that accompanies f irms and expertise that accompanies f irms following either a cost leader ship or afollowing either a cost leader ship or a

differentiated strategydifferentiated strategy

busines unitlevel strategy

Documents