BUSINESS-LEVEL STRATEGIC ALTERNATIVES

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BUSINESS-LEVEL STRATEGIC ALTERNATIVES

• Payne
• (5)

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INDUSTRY ATTRACTIVENESS
Which businesses should we be in?
CORPORATE STRATEGY
RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL
How do we make money?
COMPETITIVE ADVANTAGE
How should we compete?
BUSINESS STRATEGY
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The Decision Logic of Strategy Formulation
Establishment of mission, vision, values,
objectives -- the Directional Strategies
May be Corporate or Business Strategic Decisions
Identification, evaluation, and selection of --
the Adaptive Strategies
Identification, evaluation, and selection of --
the Market Entry Strategies
Identification, evaluation, and selection of --
the Positioning Strategies
Implementation through development of -- the
Functional Operational Strategies
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Adaptive Strategies

• Delineate how the organization will adapt to
  changes in the environment or competitive
  landscape

• Expansion
• Diversification
• Vertical Integration
• Market Development
• Product Development
• Penetration

• Stabilization
• Enhancement
• Status Quo

• Contraction
• Divestiture
• Liquidation
• Harvesting
• Retrenchment
• Outsourcing

Corporate Strategy Decisions Only
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Remember Ansoffs Matrix?
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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.
• Key Issues
• What product/service to offer customers?
• How to manufacture or create the product or
  service?
• How to distribute the product/service in the
  marketplace?

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RBV 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
Actions taken to provide value to customers and
gain a competitive advantage by exploiting core
competencies in specific, individual product
markets
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Competitive Advantage

• The essence of strategy lies in creating
  tomorrows competitive advantages faster than
  competitors mimic the ones you possess today. -
  Gary Hamel and C.K. Prahalad
• COMPETITIVE ADVANTAGE exists when a firms
  strategy gives it an edge in
• Defending against competitive forces and
• Securing customers
• such that the firm earns (or has the potential
  to earn) a persistently higher rate of profit.

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Gaining of Competitive Advantage
The essence of strategy lies in creating
tomorrows competitive advantages faster than
competitors mimic the ones you possess today.
- Gary Hamel and C.K. Prahalad

• COMPETITIVE ADVANTAGE comes with the offering
  of SUPERIOR VALUE through
• Offering buyers a good product at a lower price
• Offering a better product/service buyers think is
  worth a premium price

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Adaptive Expansion-Market/Product Development
Penetration

• Market Development -- expand geographic service
  area or by targeting new market segments within
  the present area.
• Building new store near high-growth residential
  areas
• Product Development -- introduction of new
  product/services in present markets, through
  product/service enhancement and line expansion.
• Penetration -- centered on promotional,
  distribution, and pricing strategies with current
  products or services.
• 1 in 12 wins Coca-Cola or buy one, get one free
  for Tinactin.

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The BCG Portfolio Matrix
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Adaptive Stabilization Strategies

• When past strategies have been viewed as
  appropriate and few changes are required
• Enhancement - when organization just needs to do
  things better takes forms of CQI, TQM programs,
  speeding delivery, adding flexibility to service
  design
• Status Quo - maintenance of services at the
  current levels, defending against competitors

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Market Entry Strategies

• Carry out the expansion (and stabilization)
  strategies through
• Purchase Strategies
• Acquisition purchase of new product, unit or
  organization
• Licensing lease technology, product or service
• Venture Capital Investment try out investment
  option
• Cooperation Strategies
• Mergers two organizations come together as one
• Strategic Alliance long-term agreement to work
  together
• Joint Venture combined resources to work on
  common issue of interest
• Developmental Strategies
• Internal Development uses existing resources or
  structures
• Internal Ventures establishes new entity for
  developmental purposes

May be Corporate Decision if in Different Market
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Positioning Strategies

• Business Level Positioning
• Position the organization vis-à-vis other
  organizations within the market
• These are market-oriented and best articulate the
  competitive advantage within the market
• May be market-wide (or broad-based) or directed
  at a particular segment (or niche-focused)
• Generic Business Strategies
• Low-Cost Leadership Strategy
• Broad Differentiation Strategy
• Focused Low-Cost Strategy
• Focused Differentiation Strategy
• Miles and Snow Strategic Posturing

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Porters Generic Strategies
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A Low-Cost Leadership Strategy

• Objective Open up a sustainable cost advantage
  over rivals, using lower-cost edge as a basis
  either to
• Under-price rivals and reap market share gains
  OR
• Earn higher profit margin selling at going price
• Keys to Success
• Make achievement of low-cost relative to rivals
  the THEME of firms business strategy
• Find ways to drive costs out of business
  year-after-year

Characteristics

• Cost conscious corporate culture
• Efficient scale facilities
• Tightly controlled production costs and
• overhead
• Minimized costs of sales, RD and
• service

• Efficient manufacturing facilities
• Simplified production processes
• Intensive scrutiny of budget
• requests

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Common Structure for Cost Leadership

• Operations is main function
• Process engineering is emphasized over RD
• Large centralized staff
• Formalized procedures
• Structure is mechanical, job roles highly
  structured

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A Differentiation Strategy
Objective

• Incorporate differentiating features that cause
  buyers to prefer firms product or service over
  the brands of rivals
• Find ways to differentiate that CREATE VALUE for
  buyers and that are NOT EASILY MATCHED or
  CHEAPLY COPIED by rivals
• Not spending more to achieve differentiation than
  the price premium that can be charged
• Uniqueness is achieved in ways that
• Buyers perceive as valuable
• Rivals find hard to match or copy
• Can be incorporated at a cost well below the
  price premium that buyers will pay

Keys to Success
Characteristics
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Common Structure for Differentiation

• Marketing is the main function for tracking new
  product ideas
• New product RD is emphasized
• Most functions are decentralized
• Formalization is limited to foster change and
  promote new ideas
• Overall structure is organic job roles are less
  structured

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Best Cost Provider/Integrative Strategy
Objective

• Combine a strategic emphasis on low-cost with a
  strategic emphasis on differentiation
• Make an upscale product at a lower cost
• Give customers more value for the money
• Create superior value by MEETING OR EXCEEDING
  buyer expectations on product attributes and
  BEATING their price expectations
• Be the low-cost producer of a product with
  GOOD-TO-EXCELLENT product attributes, then use
  cost advantage to UNDERPRICE comparable brands

Keys to Success
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A Focus / Niche Strategy

• Involves concentrated attention on a narrow piece
  of the total market
• Serve niche buyers better than rivals
• Choose a market niche where buyers have
  distinctive preferences, special requirements, or
  unique needs
• Develop unique capabilities to serve needs of
  target buyer segment
• Achieve LOWER COSTS than rivals in serving the
  segment-- A low-cost strategy
• Offer niche buyers SOMETHING DIFFERENT from
  rivals-- A differentiation strategy

Objective
Keys to Success
Two Types
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MS Key Problems
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MS Examples