Business-Level Strategy: How do we compete?
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Business-Level Strategy: How do we compete? How do we compete?
description
Business-Level Strategy: How do we compete?. Generic Business Level Strategies. Source of Competitive Advantage. Cost. Uniqueness. Cost Leadership. Broad Target Market. Breadth of Competitive Scope. Narrow Target Market. Generic Business Level Strategies. - PowerPoint PPT Presentation
Transcript of Business-Level Strategy: How do we compete?
Business-Level Strategy:
How do we compete?How do we compete?Business-Level Strategy:
How do we compete?How do we compete?
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Generic Business Level StrategiesGeneric Business Level Strategies
UniquenessUniqueness
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
Cost Leadership
Cost Leadership DifferentiationDifferentiation
Generic Business Level StrategiesGeneric Business Level Strategies
Uniqueness
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership DifferentiationDifferentiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differentiation
Focused Differentiation
Focused Low Cost
Focused Low Cost
Uniqueness
Breadth of Competitive
Scope
Source of Competitive Advantage
BroadTargetMarket
NarrowTargetMarket
Cost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
Integrated Low Cost/
Differentiation
Integrated Low Cost/
Differentiation
Uniqueness
Profit = (P – C) × Q
The Experience CurveThe Experience Curve
The “Law of Experience”
The unit cost value added to a standard product declines by a constant %
(typically 20-30%) each time cumulative output doubles.
Cost per unit of output
Cumulative Output
1994
1995
1996
1997
19981999 2000
Examples of Experience CurvesExamples of Experience Curves
100K 200K 500K 1,000K 5 10 50 Accumulated unit production Accumulated units
(millions) (millions)
1960
Yen
15K
20K
30
K
Pri
ce In
dex
50
100
20
0 3
00
70% slope
75%
Japanese clocks & watches, 1962-72 UK refrigerators, 1957-71
Choices that Drive CostsChoices that Drive Costs
Economies of scaleEconomies of scale
Asset utilizationAsset utilization
Capacity utilization patternCapacity utilization pattern
Value chain linkagesValue chain linkages
Product featuresProduct features
InterrelationshipsInterrelationships
- Advertising & Sales- Advertising & Sales
- Logistics & Operations- Logistics & Operations
- Seasonal, cyclical- Seasonal, cyclical
- Order processing and distribution- Order processing and distribution
Product featuresProduct features
PerformancePerformance
Mix & variety of productsMix & variety of products
Service levelsService levels
Small vs. large buyersSmall vs. large buyers
Process technologyProcess technology
Wage levelsWage levels
Hiring, training, motivationHiring, training, motivation
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Value Chain of Firm ActivitiesValue Chain of Firm Activities Value Chain of Firm ActivitiesValue Chain of Firm Activities
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Inb
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isti
cs
Inbound LogisticsInbound LogisticsHighly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Located in Close Located in Close Proximity with Proximity with SuppliersSuppliers
Located in Close Located in Close Proximity with Proximity with SuppliersSuppliers
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Op
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s
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vice
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Relatively Few Management Layers to Reduce Overhead
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Timing of Asset Purchases
Efficient Plant Scale to Minimize Manufacturing Costs
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces Costs
Products Priced to Generate Sales Volume
Small, Highly Trained Sales Force
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Policy Choice of Plant Technology
Organizational Learning
Efficient Order SizesO
per
atio
ns
OperationsOperationsEfficient Plant Efficient Plant Scale to Minimize Scale to Minimize Mfg. CostsMfg. Costs
Efficient Plant Efficient Plant Scale to Minimize Scale to Minimize Mfg. CostsMfg. Costs
Timing of Asset PurchasesTiming of Asset Purchases
Policy Choice of Plant TechnologyPolicy Choice of Plant Technology
Organizational Organizational LearningLearningOrganizational Organizational LearningLearning
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
Ou
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Log
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cs
Mar
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& S
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Ser
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IN
MARGIN
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
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Efficient Order Sizes
Interrelationships with Sister Units
Ou
tbou
nd
Log
isti
cs
Outbound Logistics
Outbound Logistics
Selection of Low Cost Transport Carriers
Selection of Low Cost Transport Carriers
Delivery Schedule that Reduces CostsDelivery Schedule that Reduces Costs
Efficient Order SizesEfficient Order Sizes
InterrelationshipInterrelationships with Sister s with Sister UnitsUnits
InterrelationshipInterrelationships with Sister s with Sister UnitsUnits
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
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Act
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Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Mar
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National Scale National Scale AdvertisingAdvertisingNational Scale National Scale AdvertisingAdvertising
Products Priced to Generate Sales Volume
Products Priced to Generate Sales Volume
Small, Highly Trained Sales ForceSmall, Highly Trained Sales Force
Marketing & Sales
Marketing & Sales
Primary Activities
Su
pp
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Act
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Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Ser
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ServiceServiceEffective Product Effective Product Installations to Installations to Reduce Reduce RecallsRecalls
Effective Product Effective Product Installations to Installations to Reduce Reduce RecallsRecalls
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
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Act
ivit
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Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Procurement
Systems and Procedures to Find Systems and Procedures to Find the Lowest Cost Products to the Lowest Cost Products to Purchase Raw MaterialsPurchase Raw Materials
Systems and Procedures to Find Systems and Procedures to Find the Lowest Cost Products to the Lowest Cost Products to Purchase Raw MaterialsPurchase Raw Materials
Frequent Evaluation Processes to Monitor Suppliers’ Performances
Frequent Evaluation Processes to Monitor Suppliers’ Performances
ProcurementProcurement
Value Creating Activities common to a Cost Leadership Business Level Strategy
Value Creating Activities common to a Cost Leadership Business Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Op
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Log
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Mar
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& S
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Ser
vice
MARG
IN
MARGINTechnological Development
Technological DevelopmentTechnological DevelopmentEasy-to-Use Manufacturing Technologies
Easy-to-Use Manufacturing Technologies
Investments in Technology in Investments in Technology in order to Reduce Costs order to Reduce Costs Associated with Manufacturing Associated with Manufacturing ProcessesProcesses
Investments in Technology in Investments in Technology in order to Reduce Costs order to Reduce Costs Associated with Manufacturing Associated with Manufacturing ProcessesProcesses
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Op
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MARG
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MARGIN
Human Resource Management
Human Resource ManagementHuman Resource ManagementConsistent Policies to Consistent Policies to Reduce Turnover CostsReduce Turnover CostsConsistent Policies to Consistent Policies to Reduce Turnover CostsReduce Turnover Costs
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Primary Activities
Su
pp
ort
Act
ivit
ies
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Op
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Log
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Mar
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& S
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Ser
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MARG
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MARGIN
Firm Infrastructure
Firm InfrastructureFirm InfrastructureCost Effective MIS SystemsCost Effective MIS Systems
Relatively Few Relatively Few Management Layers Management Layers to Reduce Overheadto Reduce Overhead
Relatively Few Relatively Few Management Layers Management Layers to Reduce Overheadto Reduce Overhead
Simplified Planning Practices to Reduce Planning Costs
Simplified Planning Practices to Reduce Planning Costs
Value Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level StrategyValue Creating ActivitiesValue Creating Activities common to a common to a
Cost Leadership Cost Leadership Business Level StrategyBusiness Level Strategy
Threat of Threat of New New
EntrantsEntrants
Bargaining Bargaining Power of Power of SuppliersSuppliers
Threat of Threat of Substitute Substitute ProductsProducts
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractiveEffective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Rivalry Among Rivalry Among Competing Firms Competing Firms
in Industryin Industry
Rivalry Among Rivalry Among Competing Firms Competing Firms
in Industryin Industry
Bargaining Bargaining Power of Power of BuyersBuyers
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractiveEffective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New
Entrants
Threat of New
Entrants
Can frighten off New Entrants due to the need to: Can frighten off New Entrants due to the need to:
Enter at large scale to be Cost CompetitiveEnter at large scale to be Cost Competitive
**
Take time to move down the “Learning Curve”Take time to move down the “Learning Curve”
**
Bargaining Power of Buyers
Bargaining Power of Buyers
Can mitigate Buyer Power by:Can mitigate Buyer Power by:
**
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractiveEffective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of Threat of New New
EntrantsEntrants
Driving prices far below competitors may cause exit and shift power back to firm
Driving prices far below competitors may cause exit and shift power back to firm
Threat of Substitute Products
Threat of Substitute Products
Well positioned relative to Substitutes in order to:Well positioned relative to Substitutes in order to:
Make investments to create substitutes firstMake investments to create substitutes first
**
Buy patents developed by potential substitutesBuy patents developed by potential substitutes
**
Lower prices to maintain value positionLower prices to maintain value position
**
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractiveEffective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of Threat of New New
EntrantsEntrants
Bargaining Bargaining Power of Power of BuyersBuyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractiveEffective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of Threat of New New
EntrantsEntrants
Threat of Threat of Substitute Substitute ProductsProducts
Bargaining Bargaining Power of Power of BuyersBuyers
Can mitigate Supplier Power by:Can mitigate Supplier Power by:
Low cost position makes them better able to absorb cost increasesLow cost position makes them better able to absorb cost increases
**
More likely to make very large purchases which reduces chance of supplier powerMore likely to make very large purchases which reduces chance of supplier power
**
Threat of Threat of New New
EntrantsEntrants
Bargaining Bargaining Power of Power of SuppliersSuppliers
Threat of Threat of Substitute Substitute ProductsProducts
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractiveEffective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Competitors avoid price wars with Cost Leaders, which creates higher profits for entire industry
Competitors avoid price wars with Cost Leaders, which creates higher profits for entire industry
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Bargaining Bargaining Power of Power of BuyersBuyers
The Major The Major Risks involved Risks involved with a with a Cost Leadership Cost Leadership Business Level Business Level StrategyStrategy
The Major The Major Risks involved Risks involved with a with a Cost Leadership Cost Leadership Business Level Business Level StrategyStrategy
Dramatic technological change could take away your cost advantage
Dramatic technological change could take away your cost advantage
Focus on efficiency could cause Cost Leader to overlook changes in customer preferences
Focus on efficiency could cause Cost Leader to overlook changes in customer preferences
Competitors may learn how to imitate Value ChainCompetitors may learn how to imitate Value Chain
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
UniquenessUniqueness
Value provided by unique features and value characteristicsValue provided by unique features and value characteristics
Command premium priceCommand premium price
Superior qualitySuperior quality
Key CriteriaKey Criteria
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Rapid innovationRapid innovation
Prestige or exclusivityPrestige or exclusivity
High customer serviceHigh customer service
Drivers 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
Some Examples:
Primary Activities
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Technological Development
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Procurement
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Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
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Primary Activities
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Inb
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Inbound LogisticsInbound Logistics
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
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Primary Activities
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Op
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OperationsOperations
Rapid responses to customers unique manufacturing specifications
Rapid responses to customers unique manufacturing specifications
Consistent manufacturing of attractive products
Consistent manufacturing of attractive products
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
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Primary Activities
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Outbound Logistics
Outbound LogisticsAccurate and responsive order processing procedures
Accurate and responsive order processing procedures
Rapid and timely product deliveries to customers
Rapid and timely product deliveries to customers
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
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Primary Activities
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Act
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Mar
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Marketing & Sales
Marketing & Sales
Extensive personal relationships with buyers
Extensive personal relationships with buyers
Strong Coordination among functions in R&D, Marketing and Product Development
Strong Coordination among functions in R&D, Marketing and Product Development
Premium PricingPremium Pricing
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Primary Activities
Su
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Ser
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ServiceServiceComplete field stocking of replacement parts
Complete field stocking of replacement parts
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
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Primary Activities
Su
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Procurement
ProcurementProcurementLocated in Close Proximity with Suppliers
Located in Close Proximity with Suppliers
Systems and procedures used to find the highest quality raw materials
Systems and procedures used to find the highest quality raw materials
Purchase of highest quality replacement parts
Purchase of highest quality replacement parts
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Primary Activities
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Technological Development
Technological DevelopmentTechnological DevelopmentStrong capability in basic research
Strong capability in basic research
Investments in technol-ogies to produce highly differentiated products
Investments in technol-ogies to produce highly differentiated products
Coordination among R&D, marketing and product development
Coordination among R&D, marketing and product development
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
Procurement
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Primary Activities
Su
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Human Resource Management
Human Resource ManagementHuman Resource ManagementCompensation programs which encourage worker creativity and productivity
Compensation programs which encourage worker creativity and productivity
Extensive use of subjective performance measures
Extensive use of subjective performance measures
Superior personnel training
Superior personnel training
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Technological Development
Human Resource Management
Firm Infrastructure
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Primary Activities
Su
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Firm Infrastructure
Firm InfrastructureFirm InfrastructureA companywide emphasis on producing high quality products
A companywide emphasis on producing high quality products
Highly developed Information Systems to better understand customers’ purchasing preferences
Highly developed Information Systems to better understand customers’ purchasing preferences
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Value Creating Activities common to a common to a Differentiation Business Level StrategyBusiness Level Strategy
Differentiation Business Level StrategyDifferentiation Business Level Strategy
Effectiveness with DifferentiationDifferentiation grows out of Value ChainValue Chain activities activities
Effectiveness with DifferentiationDifferentiation grows out of Value ChainValue Chain activities activities
Heineken beerHeineken beer Raw materials – brand nameRaw materials – brand name
Caterpillar tractorsCaterpillar tractors Service buyers’ needs quickly anywhere in the worldService buyers’ needs quickly anywhere in the world
Steinway pianosSteinway pianos Raw materials & Workmanship Raw materials & Workmanship
Examples:
Intel microprocessorsIntel microprocessors Technological superiorityTechnological superiority
Mercedes Benz autosMercedes Benz autos Technology and WorkmanshipTechnology and Workmanship
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New
Entrants
Threat of New
Entrants
Can fend off New Entrants because: Can fend off New Entrants because:
New products must surpass proven productsNew products must surpass proven products
**
Or be equal to performance at lower pricesOr be equal to performance at lower prices
**
Bargaining Power of
Buyers
Bargaining Power of
Buyers
Can mitigate Buyer Power because:Can mitigate Buyer Power because:
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of Threat of New New
EntrantsEntrants
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Well differentiated products reduce customer sensitivity to price increases Well differentiated products reduce customer sensitivity to price increases
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of Threat of New New
EntrantsEntrants
Bargaining Bargaining Power of Power of SuppliersSuppliers
Well positioned relative to Substitutes because:Well positioned relative to Substitutes because:
Brand loyalty tends to reduce new product trial and brand switching
Brand loyalty tends to reduce new product trial and brand switching
**
Threat of Substitute Products
Threat of Substitute Products
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of Threat of Substitute Substitute ProductsProducts
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of Threat of New New
EntrantsEntrants
Well positioned relative to Substitutes because:
Brand loyalty tends to reduce new product trial and brand switching
*
Bargaining Bargaining Power of Power of SuppliersSuppliers
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
Can mitigate Supplier Power by:Can mitigate Supplier Power by:
Absorbing price increases due to higher marginsAbsorbing price increases due to higher margins
**
Passing on higher supplier prices because buyers are brand loyalPassing on higher supplier prices because buyers are brand loyal
**
Can fend off New Entrants because:
New products must surpass proven products
*
Or be equal to performance at lower prices
*
Brand loyalty overcomes much price competition
Brand loyalty overcomes much price competition
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Threat of Threat of New New
EntrantsEntrants
Bargaining Bargaining Power of Power of SuppliersSuppliers
Bargaining Bargaining Power of Power of BuyersBuyers
Threat of Threat of Substitute Substitute ProductsProducts
Effective Differentiators can remain profitable even when the Five Forces appear unattractiveEffective Differentiators can remain profitable even when the Five Forces appear unattractive
The Major Risks involved with a Differentiation Business Level Strategy
The Major Risks involved with a Differentiation Business Level Strategy
Customers may decide that the cost of “uniqueness” is too great
Customers may decide that the cost of “uniqueness” is too great
The means of uniqueness may no longer be valued by customers
The 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
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
UniquenessUniqueness
Firm may lack resources to compete industry wideFirm may lack resources to compete industry wide
Large firms may overlook small nichesLarge firms may overlook small niches
However.....However.....Opportunities may exist because:Opportunities may exist because:
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Focused Business Level StrategiesFocused Business Level Strategies
May be able to serve a narrow market segment more effectively than industry-wide competitorsMay be able to serve a narrow market segment more effectively than industry-wide competitors
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
- Bang & Olufsen- Bang & Olufsen Upscale electronic componentsUpscale electronic components
- IAMS- IAMS Premium pet foodsPremium pet foods
- Snap-On tools- Snap-On tools High quality mechanics’ toolsHigh quality mechanics’ tools
May be able to retrofit old factories to keep costs downMay be able to retrofit old factories to keep costs down
Minimize R&D costs by copying innovatorsMinimize R&D costs by copying innovators**
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Focused Business Level StrategiesFocused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Differentiators may thrive by selecting a small market that is underserved by large players
Focused Differentiators may thrive by selecting a small market that is underserved by large players
Custom manufacturers of parts forCustom manufacturers of parts for
Harley-DavidsonHarley-Davidson motorcyclesmotorcycles
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Focused Business Level StrategiesFocused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies
The Major Risks involved with a FocusedDifferentiation Business Level Strategy
The Major Risks involved with a FocusedDifferentiation Business Level Strategy
Firm may be “outfocused” by competitorsFirm may be “outfocused” by competitors
Preferences of niche market may change to match those of broad market
Preferences of niche market may change to match those of broad market
Large competitor may set its sights on your niche market
Large competitor may set its sights on your niche market
Breadth of Breadth of Competitive Competitive
ScopeScope
Source of Competitive AdvantageSource of Competitive Advantage
BroadBroadTargetTargetMarketMarket
NarrowNarrowTargetTargetMarketMarket
CostCost
CostLeadership
CostLeadership
Differen-tiation
Differen-tiation
Generic Business Level StrategiesGeneric Business Level Strategies
Focused Differen-
tiation
Focused Differen-
tiation
Focused Low CostFocused
Low Cost
Integrated Low Cost/
Differentiation
Integrated Low Cost/
Differentiation
UniquenessUniqueness
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
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
Low CostLow Cost
Use a single aircraft model(Boeing 737)Use a single aircraft model(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
Southwest AirlinesSouthwest Airlines
Integrated Low Cost/Differentiation StrategyIntegrated Low Cost/Differentiation Strategy
DifferentiationDifferentiationLow CostLow Cost
Use a single aircraft model(Boeing 737)Use a single aircraft model(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
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
Southwest AirlinesSouthwest Airlines
What is the Strategy?
FriendlyFriendly Robotics
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