strategic management concepts and cases. strategy at the business levels
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Strategic Management Concepts and Cases
• Strategy at the Business Levels
CoreCoreCompetencCompetencyy
CoreCoreCompetencCompetencyy
The The resourcesresources and and capabilitiescapabilities that have been determined to that have been determined to be a source of competitive be a source of competitive advantage for a firm over its advantage for a firm over its rivals.rivals.
The The resourcesresources and and capabilitiescapabilities that have been determined to that have been determined to be a source of competitive be a source of competitive advantage for a firm over its advantage for a firm over its rivals.rivals.
StrategStrategyyStrategStrategyy
An integrated and coordinated An integrated and coordinated set of actions taken to exploit set of actions taken to exploit core competencies and gain a core competencies and gain a competitive advantage.competitive advantage.
An integrated and coordinated An integrated and coordinated set of actions taken to exploit set of actions taken to exploit core competencies and gain a core competencies and gain a competitive advantage.competitive advantage.
CoreCompetency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
StrategyAn integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Business Business Level Level StrategyStrategy
Business Business Level Level StrategyStrategy
Actions taken to provide value to Actions taken to provide value to customers and gain a competitive customers and gain a competitive advantage by exploiting core advantage by exploiting core competencies in specific, competencies in specific, individual product markets.individual product markets.
Actions taken to provide value to Actions taken to provide value to customers and gain a competitive customers and gain a competitive advantage by exploiting core advantage by exploiting core competencies in specific, competencies in specific, individual product markets.individual product markets.
CoreCompetency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Basis for Customer SegmentationBasis for Customer SegmentationConsumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors (social class, stage in the family life cycle)
3. Geographic factors (culture, region or country differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns (heavy, moderate, and light users)
6. Perceptual factors (benefit segmentation, perceptual mapping)
7. Brand loyalty patterns
Basis for Customer SegmentationBasis for Customer SegmentationIndustrial Markets
1. End use segments (identified by SIC code)
2. Product segments (based on technological differences or production economics)
3. Geographic segments (defined by boundaries between countries or by regional differences within them)
4. Common buying factor segments (cut across product/market and geographic segments)
5. Customer size segments
Table 5.1 Basis for customer segmentation
The Purpose of a Business-Level Strategy
Southwest Airlines’Activity SystemSouthwest Airlines’Activity System
• The purpose of a business-level strategy is to create differences between the firm’s position
and those of its competitors. To position itself differently from competitors, a firm must decide whether it intends to perform activities differently or to perform differentactivities.
Figure 5.1 Southwest Airlines’Activity System
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
Focused Differen-
tiation
Focused Differen-
tiation
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Focused Low CostFocused
Low Cost
CostCostLeadershipLeadership
Key Criteria:Key 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
Requirements:Requirements:Constant effort to reduce costs through:Constant effort to reduce costs through:
Building efficient scale facilitiesBuilding efficient scale facilities
State of the art manufacturing facilitiesState of the art manufacturing facilities
Simplification of processesSimplification of processes
Minimizing costs of sales, R&D and serviceMinimizing costs of sales, R&D and service
Monitoring costs of activities provided by outsidersMonitoring costs of activities provided by outsiders
Tight control of production costs and overheadTight control of production costs and overhead
Cost Leadership Business Level StrategyCost Leadership Business Level Strategy
Primary Activities
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Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
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Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Cost Effective MIS Systems
Relatively Few Management Layers to Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Consistent Policies to Reduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Timing of Asset
Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
National Scale Advertising
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity of Recalls
Easy-to-Use Manufacturing Technologies
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Located in Close Proximity with Suppliers
Policy Choice of Plant Technology
Organizational Learning
Efficient Order Sizes
Interrelationships with Sister Units
Value Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities Common to a Common to a
Cost LeadershipCost Leadership Business Level StrategyBusiness Level Strategy
Key Criteria:Key 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
Superior qualitySuperior quality
Rapid innovationRapid innovation
Prestige or exclusivityPrestige or exclusivity
High customer serviceHigh customer service
Differentiation Business Level StrategyDifferentiation Business Level StrategyRequirements:Requirements:Constant effort to differentiate products through:Constant effort to differentiate products through:
Developing new systems and processesDeveloping new systems and processes
Quality focusQuality focus
Maximize Human Resource contributions Maximize Human Resource contributions through low turnover and high motivationthrough low turnover and high motivation
Capability in R&DCapability in R&D
Shaping perceptions through advertisingShaping perceptions through advertising
Primary Activities
Su
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Act
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Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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A companywide emphasis on producing high quality products
Highly Developed Information Systems to better understand customers’ purchasing preferences
Compensation programs intended to encourage worker creativity and productivity
Extensive use of subjective rather than objective performance measures
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Complete field stocking of replacement parts
Strong capability in basic research
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Rapid and timely product deliveries to customers
Superior personnel training
Coordination among R&D, product development and marketing
Extensive personal relationships with buyers
Strong Coordin-ation among functions in R&D, Marketing and Product Development
Premium Pricing
Primary Activities
Su
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Act
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Value Creating ActivitiesValue Creating Activities Common to a Common to a
DifferentiationDifferentiation Business Level StrategyBusiness Level Strategy
Effectiveness with DifferentiationDifferentiation grows out of Value ChainValue Chain activities activitiesEffectiveness with DifferentiationDifferentiation
grows out of Value ChainValue Chain activities activitiesExamples:Examples:
Heineken beerHeineken beer Raw materialsRaw materials
Caterpillar tractorsCaterpillar tractors Service buyers’ needs quickly anywhere in the worldService buyers’ needs quickly anywhere in the world
Intel microprocessorsIntel microprocessors Technological superiorityTechnological superiority
Steinway pianosSteinway pianos Raw materials & Workmanship Raw materials & Workmanship
Mercedes Benz autosMercedes Benz autos Technology and WorkmanshipTechnology and Workmanship
Differentiation Business Level StrategyDifferentiation Business Level Strategy
• Creating barriers by perceptions of uniqueness• Creating barriers by perceptions of uniqueness
• Creating switching costs through differentiation• Creating switching costs through differentiation
Raising Buyers’ PerformanceRaising Buyers’ Performance
Lowering Buyers’ CostsLowering Buyers’ Costs
Creating Sustainability through:Creating Sustainability through:
Create Value with Differentiation by:Create Value with Differentiation by:
Drivers of DifferentiationDrivers of DifferentiationDrivers of DifferentiationDrivers of Differentiation
Unique product featuresUnique product features
Unique product performanceUnique product performance
Exceptional servicesExceptional services
Quality of inputsQuality of inputs
New technologiesNew technologies
Exceptional skill or experienceExceptional skill or experience
Detailed informationDetailed information
Examples:Examples:
Customers may decide that the cost of “uniqueness” is too greatCustomers may decide that the cost of “uniqueness” is too great
The means of uniqueness may no longer be valued by customersThe means of uniqueness may no longer be valued by customers
Competitors may learn how to imitate Value ChainCompetitors may learn how to imitate Value Chain
Major Risks of a DifferentiationBusiness Level Strategy
Major Risks of a DifferentiationBusiness Level Strategy
Firms using an Integrated Strategy may:Firms using an Integrated Strategy may:Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Utilize Flexible Manufacturing Systems to create differentiated products at low costsUtilize Flexible Manufacturing Systems to create differentiated products at low costs
Adapt more quicklyAdapt more quickly
Learn new skills and technologiesLearn new skills and technologies
Leverage core competencies through Information Networks across multiple business unitsLeverage core competencies through Information Networks across multiple business units
Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
Recognize that the Integrated Low Cost/ Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Differentiation business level strategy involves a CompromiseCompromise
Recognize that the Integrated Low Cost/ Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Differentiation business level strategy involves a CompromiseCompromise
The risk is that the firm may become The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or lacking a strong commitment to or expertise with either type of generic strategyexpertise with either type of generic strategy
The risk is that the firm may become The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or lacking a strong commitment to or expertise with either type of generic strategyexpertise with either type of generic strategy
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Southwest AirlinesSouthwest Airlines
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Use a single aircraft modelUse a single aircraft model(Boeing 737)(Boeing 737)
Use secondary airportsUse secondary airports
Fly short routesFly short routes
15 minute turnaround time15 minute turnaround time
No mealsNo meals
No reserved seatsNo reserved seats
No travel agent reservationsNo travel agent reservations
Low CostLow Cost
Focus on customer satisfactionFocus on customer satisfaction
New flight services for business travelers(phones and faxes)
New flight services for business travelers(phones and faxes)
High level of employee dedicationHigh level of employee dedication
DifferentiationDifferentiation