Business-Level Strategy

Business-level strategyBusiness-level strategy: an integrated and : an integrated and coordinated set of commitments and actions the coordinated set of commitments and actions the firm uses to gain a competitive advantage by firm uses to gain a competitive advantage by exploiting core competencies in specific product exploiting core competencies in specific product marketsmarkets

The Central Role of Customers

In selecting a business-level strategy, In selecting a business-level strategy, the firm determinesthe firm determines1. 1. whowho it will serve it will serve

2.2. whatwhat needs those target customers needs those target customers have that it will satisfyhave that it will satisfy

3.3. howhow those needs will be satisfied those needs will be satisfied

Managing Relationships With Customers

• Customer relationships are strengthened by Customer relationships are strengthened by offering them superior valueoffering them superior value– help customers to develop a new competitive help customers to develop a new competitive

advantageadvantage– enhance the value of existing competitive enhance the value of existing competitive

advantagesadvantages

Five Generic Strategies

Competitive AdvantageCompetitive Advantage

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CostCost UniquenessUniqueness

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Cost Cost LeadershipLeadership

DifferentiationDifferentiation

Focused Cost Focused Cost LeadershipLeadership

Focused Focused DifferentiationDifferentiation

Integrated CostIntegrated CostLeadership/Leadership/

DifferentiationDifferentiation

Cost Leadership Strategy

An integrated set of actions designed to An integrated set of actions designed to produce or deliver goods or services at the produce or deliver goods or services at the lowest costlowest cost, , relative to competitorsrelative to competitors with features with features that are acceptable to customersthat are acceptable to customers

– relatively standardized productsrelatively standardized products– features acceptable to many customersfeatures acceptable to many customers– lowest competitive pricelowest competitive price

Cost Leadership Strategy

Cost saving actions required by this strategy:Cost saving actions required by this strategy:– building efficient scale facilities– tightly controlling production costs and

overhead– minimizing costs of sales, R&D and service– building efficient manufacturing facilities– monitoring costs of activities provided by

outsiders– simplifying production processes

Differentiation Strategy

An integrated set of actions designed by a firm An integrated set of actions designed by a firm to produce or deliver goods or services (at an to produce or deliver goods or services (at an acceptable cost) that customers perceive as acceptable cost) that customers perceive as being different in ways that are important to being different in ways that are important to themthem

– price for product can exceed what the firm’s target price for product can exceed what the firm’s target customers are willing to paycustomers are willing to pay

– nonstandardized productsnonstandardized products– customers value differentiated features more than customers value differentiated features more than

they value low costthey value low cost

Differentiation Strategy

• Value provided by Value provided by unique features and value unique features and value characteristicscharacteristics

• Command premium priceCommand premium price• High customer serviceHigh customer service• Superior qualitySuperior quality• Prestige or exclusivityPrestige or exclusivity• Rapid innovationRapid innovation

Differentiation Strategy

Differentiation actions required by this Differentiation actions required by this strategy:strategy:– developing new systems and processesdeveloping new systems and processes– shaping perceptions through advertisingshaping perceptions through advertising– quality focusquality focus– capability in R&Dcapability in R&D– maximize human resource contributions maximize human resource contributions

through low turnover and high motivationthrough low turnover and high motivation

Focused Business-Level Strategies

A focus strategy must exploit a narrow A focus strategy must exploit a narrow target’s differences from the balance of the target’s differences from the balance of the industry by:industry by:– isolating a particular buyer groupisolating a particular buyer group– isolating a unique segment of a product isolating a unique segment of a product

lineline– concentrating on a particular geographic concentrating on a particular geographic

marketmarket– finding their “niche”finding their “niche”

Advantages of Integrated Strategy

A firm that successfully uses an integrated A firm that successfully uses an integrated cost leadership/differentiation strategy should cost leadership/differentiation strategy should be in a better position to:be in a better position to:– adapt quickly to environmental changesadapt quickly to environmental changes– learn new skills and technologies more learn new skills and technologies more

quicklyquickly– effectively leverage its core competencies effectively leverage its core competencies

while competing against its rivalswhile competing against its rivals

Benefits of Integrated Strategy

• Successful firms using this strategy have Successful firms using this strategy have above-average returnsabove-average returns

• Firm offers two types of values to customersFirm offers two types of values to customers– some differentiated features (but less than some differentiated features (but less than

a true differentiated firm)a true differentiated firm)– relatively low cost (but not as low as the relatively low cost (but not as low as the

cost leader’s price)cost leader’s price)

Corporate-Level Strategy

What is Corporate Level Strategy?

Definition: Action taken to gain a competitive advantage through the selection and management of a mix of businesses competing in several industries or product markets.

1. What businesses should the corporation 1. What businesses should the corporation be in?be in?

2. How should the corporate office manage 2. How should the corporate office manage the array of business units?the array of business units?

Corporate StrategyCorporate Strategy is what makes the corporate whole is what makes the corporate whole add up to more than the sum of its business unit partsadd up to more than the sum of its business unit parts

Key Questions of Corporate StrategyKey Questions of Corporate Strategy

Levels and Types of DiversificationLevels and Types of DiversificationLow Levels of DiversificationLow Levels of Diversification

Moderate to High Levels of DiversificationModerate to High Levels of Diversification

Very High Levels of DiversificationVery High Levels of Diversification

Related linked (mixed)Related linked (mixed) < 70% of revenues from dominant < 70% of revenues from dominant business, and only limited links existbusiness, and only limited links exist

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Single businessSingle business > 95% of revenues from a single > 95% of revenues from a single business unitbusiness unit

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Dominant businessDominant business Between 70% and 95% of Between 70% and 95% of revenues from a single business revenues from a single business unitunit BBBB

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Unrelated-DiversifiedUnrelated-Diversified Business units not closely related Business units not closely related

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< 70% of revenues from dominant < 70% of revenues from dominant business; all businesses share product, business; all businesses share product, technological and distribution linkagestechnological and distribution linkages

Related constrainedRelated constrainedAAAA

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Strategic Leadership involves:Strategic Leadership involves:

Strategic LeadershipStrategic Leadership

The ability to anticipate, envision, maintain flexibility The ability to anticipate, envision, maintain flexibility and empower others to create strategic changeand empower others to create strategic change

Multi-functional work that involves working Multi-functional work that involves working through othersthrough others

Consideration of the entire enterprise rather than Consideration of the entire enterprise rather than just a sub-unitjust a sub-unit

A managerial frame of referenceA managerial frame of reference

Strategic CompetitivenessStrategic CompetitivenessAbove-Average ReturnsAbove-Average Returns

Strategic CompetitivenessStrategic CompetitivenessAbove-Average ReturnsAbove-Average Returns

EffectiveEffectiveStrategic LeadershipStrategic Leadership

EffectiveEffectiveStrategic LeadershipStrategic Leadership

influenceinfluence

shapes the formulation of

andandStrategic IntentStrategic IntentStrategic IntentStrategic Intent Strategic MissionStrategic MissionStrategic MissionStrategic Mission

SuccessfulSuccessfulStrategic ActionsStrategic Actions

SuccessfulSuccessfulStrategic ActionsStrategic Actions

FormulationFormulationof Strategiesof StrategiesFormulationFormulationof Strategiesof Strategies

ImplementationImplementationof Strategiesof Strategies

ImplementationImplementationof Strategiesof Strategies

Strategic LeadershipStrategic Leadershipand the Strategic and the Strategic Management ProcessManagement Process

Managerial DiscretionManagerial DiscretionManagerial DiscretionManagerial Discretion

External EnvironmentExternal EnvironmentIndustry StructureIndustry StructureRate of market growthRate of market growth# and type of competitors# and type of competitorsPolitical/Legal constraintsPolitical/Legal constraintsProduct differentiationProduct differentiation

Factors Affecting Managerial DiscretionFactors Affecting Managerial Discretion

Interpersonal skillsInterpersonal skills

Tolerance for ambiguityTolerance for ambiguityCommitment to the firmCommitment to the firm

Aspiration levelAspiration levelSelf-confidenceSelf-confidence

Characteristics of the ManagerCharacteristics of the Manager

Employee interactionEmployee interaction

Organizational Organizational CharacteristicsCharacteristics

Resource availabilityResource availability

Size and ageSize and ageCultureCulture

Exercise of Effective Strategic Leadership

EstablishingEstablishingbalancedbalancedorganizationalorganizationalcontrolscontrols

EmphasizingEmphasizingethicalethicalpracticepractice

DevelopingDevelopinghumanhumancapitalcapital

Exploiting andExploiting andmaintainingmaintainingcorecorecompetenciescompetencies

SustainingSustainingan effectivean effectiveorganizationalorganizationalcultureculture

DeterminingDeterminingstrategicstrategicdirectiondirection

Effective StrategicEffective StrategicLeadershipLeadership

Determining Strategic Direction

• Strategic direction means the development of Strategic direction means the development of a long-term vision of a firm’s strategic intenta long-term vision of a firm’s strategic intent

• A charismatic leader can help achieve A charismatic leader can help achieve strategic intentstrategic intent

• It is important not to lose sight of the strengths It is important not to lose sight of the strengths of the organization when making changes of the organization when making changes required by a new strategic directionrequired by a new strategic direction

• Executives must structure the firm effectively Executives must structure the firm effectively to help achieve the visionto help achieve the vision

Exploiting and Maintaining Core Competencies

• Core competencies are resources and Core competencies are resources and capabilities that serve as a source of capabilities that serve as a source of competitive advantage for a firm over its rivalscompetitive advantage for a firm over its rivals

• Strategic leaders must verify that the firm’s Strategic leaders must verify that the firm’s competencies are emphasized in strategy competencies are emphasized in strategy implementation effortsimplementation efforts

Exploiting and Maintaining Core Competencies

• In many large firms, and certainly in related-In many large firms, and certainly in related-diversified ones, core competencies are diversified ones, core competencies are exploited effectively when they are developed exploited effectively when they are developed and applied across different organizational and applied across different organizational unitsunits

• Core competencies cannot be developed or Core competencies cannot be developed or exploited effectively without developing the exploited effectively without developing the capabilities of human capitalcapabilities of human capital

Developing Human Capital

• Human capital refers to the knowledge and skills Human capital refers to the knowledge and skills of the firm’s entire workforceof the firm’s entire workforce

• Employees are viewed as a capital resource that Employees are viewed as a capital resource that requires investmentrequires investment

• No strategy can be effective unless the firm is No strategy can be effective unless the firm is able to develop and retain good people to carry it able to develop and retain good people to carry it outout

• The effective development and management of The effective development and management of the firm’s human capital may be the primary the firm’s human capital may be the primary determinant of a firm’s ability to formulate and determinant of a firm’s ability to formulate and implement strategies successfullyimplement strategies successfully

Sustaining an Effective Organizational Culture

• An organizational culture consists of a An organizational culture consists of a complex set of ideologies, symbols, and core complex set of ideologies, symbols, and core values that is shared throughout the firm and values that is shared throughout the firm and influences the way it conducts businessinfluences the way it conducts business

• Shaping the firm’s culture is a central task of Shaping the firm’s culture is a central task of effective strategic leadershipeffective strategic leadership

Sustaining an Effective Organizational Culture

• An appropriate organizational culture An appropriate organizational culture encourages the development of an encourages the development of an entrepreneurial orientation among employees entrepreneurial orientation among employees and an ability to change the culture as and an ability to change the culture as necessarynecessary

• Reengineering can facilitate this processReengineering can facilitate this process

The benefits of The benefits of business reengineeringbusiness reengineering are are maximized when employees believe that:maximized when employees believe that:

Changing Culture and ReengineeringChanging Culture and Reengineering

• Every job in the company is essential and important

• All employees must create value through their work

• Constant learning is a vital part of every person’s job

• Teamwork is essential to implementation success

• Problems are solved only when teams accept the responsibility for the solution.

Emphasizing Ethical Practices

• Ethical practices increase the effectiveness of Ethical practices increase the effectiveness of strategy implementation processesstrategy implementation processes

• Ethical companies encourage and enable Ethical companies encourage and enable people at all organizational levels to exercise people at all organizational levels to exercise ethical judgmentethical judgment

Emphasizing Ethical Practices

• To properly influence employee judgment and To properly influence employee judgment and behavior, ethical practices must shape the behavior, ethical practices must shape the firm’s decision-making process and be an firm’s decision-making process and be an integral part of an organization’s cultureintegral part of an organization’s culture

• Leaders set the tone for creating an Leaders set the tone for creating an environment of mutual respect, honesty and environment of mutual respect, honesty and ethical practices among employeesethical practices among employees

Establishing Balanced Organizational Controls

• Organizational controls provide the Organizational controls provide the parameters within which strategies are to be parameters within which strategies are to be implemented and corrective actions takenimplemented and corrective actions taken

• Financial controls are often emphasized in Financial controls are often emphasized in large corporations and focus on short-term large corporations and focus on short-term financial outcomesfinancial outcomes

• Strategic control focuses on the content of Strategic control focuses on the content of strategic actions, rather than their outcomesstrategic actions, rather than their outcomes

Establishing Balanced Organizational Controls

• Successful strategic leaders balance strategic Successful strategic leaders balance strategic control and financial control (they do not control and financial control (they do not eliminate financial control) with the intent of eliminate financial control) with the intent of achieving more positive long-term returnsachieving more positive long-term returns

Why do a situation analysis?

Situation analysis concentrates on generating solid answers to a well-defined set of strategic questions and using these answers to:

– Appraise the company’s strategic situation and business position

– Craft a suitable strategy

Situation analysis focuses on:

–EXTERNAL FACTORS – the firm’s MACRO-environment (industry and competitive conditions)

–INTERNAL FACTORS – the firm’s immediate MICRO-environment (its own internal situation and competitive position)

The Key Questions inCompany Situation Analysis

1. How well is the company’s present strategy working?

2. What are the company’s strengths, weaknesses, opportunities, and threats?

3. Are the company’s prices and costs competitive?

4. How strong is the company’s competitive position?

5. What strategic issues does the company face?

SWOT Analysis• SWOT represents the first letter in

Strengths, Weaknesses, Opportunities, and Threats.

• SWOT analysis

– Involves sizing-up a company’s INTERNAL strengths and weaknesses and its EXTERNAL opportunities and threats

– Is an easy to use tool for getting a quick overview of a company’s strategic situation

Why SWOT Analysis is Important

It is the basis for matching strategy to the company’s situation –– To its internal strengths and weaknesses– To its external threats and opportunities

A winning strategy must always fit the company’s situation.

Strengths

• What is a company Strength?– Something a company is good at doing or

a characteristic that gives it an important capability.

Weaknesses

• What are company weaknesses?– Something a company lacks or does poorly

(in comparison to others) or a condition that puts it at a disadvantage.

Opportunities

• What are company opportunities?– Those that offer important avenues for

profitable growth, those where a company has the most potential for competitive advantage, and those which the company has the financial resources to pursue.

Threats

• What are company Threats?– Certain factors in a company’s external

environment that pose a threat to its well-being.

Some questions to consider once the SWOT listings have been compiled are:

• Does the company have internal strengths or core competencies an attractive strategy can be built around?

• Do company weaknesses make a company vulnerable and does it disqualify a company from pursuing industry opportunities?

• Which weaknesses does a company need to correct?

• Which opportunities does the company have the skills and resources to pursue with a real chance for success? Which opportunities are the best from the company’s standpoint? (Remember: Opportunity without the means to capture is only an illusion.)

• What external threats should management be worried most about and what strategic moves need to be made to craft a good defense?

Some questions to consider once the SWOT listings have been compiled are: