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BUSINESS-LEVEL STRATEGIES
Chapter 5
BUSINESS-LEVEL STRATEGIES
Defines an organization’s approach to growth and competition in its chosen business segments
Company Situation Analysis
Core
Competencies
Core
Incompetencies
S’s
W’s
Goals
Issues
Issues
O’s
T’s
Issues
BUSINESSLEVEL
STRATEGY
and
IMPLEMENTATION
- Set of
recommendations
and action plans
Goals
Goals
DF’s, CF’s & KSF’s
VISION
(GROWTH)
GENERIC BUSINESS-LEVEL STRATEGIES
Meant to establish a competitive position that distinguishes the organization from
competitors and creates value for customers (customer value proposition).
Types of generic competitive strategies:
•Differentiation
•Low-Cost leadership
•Best Cost
DIFFERENTIATION
•Create value through sustainable
uniqueness
•Customers must be willing to pay more
(price premium) for the product/service
uniqueness than the firm paid to create it
•Controlling costs in non-competencerelated activities is key to maintain
acceptable price premium
•Requires constant product/service
innovation to stay ahead of competition
and to keep up with customers’
perceived value
WHEN DOES DIFFERENTIATION WORK BEST?
IN GENERAL, WHEN CFs ARE WEAK
Examples:
•Several ways to differentiate product
•High buyer switching costs
CF
•Substitute products cannot satisfy the
same needs as the industry’s products
•Many suppliers are available
•Information about sellers’ products
are not readily available
LOW-COST LEADERSHIP
•Create value by lowering cost and
passing on savings to customers
•Sustainable low price for product or
service without becoming unprofitable
•Product or service must meet
performance requirements – safety,
quality, innovation
•Requires constant drive toward efficiency
– high capacity utilization, economies of
scale, cost-savings technologies,
experience effects
WHEN DOES LOW-COST LEADERSHIP WORK BEST?
IN GENERAL, WHEN CFs ARE STRONG
Examples:
•High fixed costs
•Low levels of product differentiation
CF
•Substitute products are reasonably
priced
•Suppliers can easily integrate
forward into sellers’ industry
•Low switching costs for customers
BEST COST
•Create value by lowering cost and
passing on savings to customers in some
areas while sustaining uniqueness in
others.
•Combination of differentiation and lostcost approaches
•Requires emphasis on both product or
service innovation, and efficiency
WHEN DOES BEST COST WORK BEST?
IN CASES, WHEN SOME CFs ARE
STRONG, AND SOME ARE WEAK
CF
CF
Example:
•Customers develop high switching costs
(brand loyalty) due to the uniqueness of
the product, allowing for economies of
scale for firms, which could increase
price competition among rivals. Savings
from economies of scale are then passed
on to customers.
TYPES OF GROWTH STRATEGIES
Meant to establish growth posture in terms of scope of the firm’s business.
Internal Growth Strategies:
•Market penetration – increase market share in current segments
•Market development – identify new market segments for existing products
•Product/service development – modify existing products/services or develop
new products/services to current and new market segments
•Vertical integration – move backward or forward along the value chain
External Growth Strategies (Corporate Strategy – Chapter 6)
TYPES OF GROWTH STRATEGIES
International Growth Strategies:
•Exporting – transfer goods to other countries for sale
•Licensing – sell the right to produce or sell a product to another firm in a
foreign market
•Franchising – sell the right to use the name and operating methods to another
firm in a foreign market
•Joint Venture – cooperative agreement (through shared ownership of a new
company) among two or more firms to pursue common business objectives in
foreign countries
•Greenfield Venture – creation of a wholly-owned foreign subsidiary