Chapter 4 Business Level Strategy Only to be

Contents Introduction The issue of competitive advantage The paradox of markets and resources Perspectives on business level strategy Managing the paradox of markets and resources • Business level strategy in international perspective • Readings and Case 4 • • • Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage • A business model is the configuration of resources, activities and product/service offerings intended to create value for customers – the way a firm conducts its business • Competitive advantage can be achieved if a business model creates superior value for buyers • A firm must be able to: § supply a product or service more closely fitted to client needs than rival firms § develop and supply the superior product Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Components of a business model Only to be used

The issue of competitive advantage • Value chain – R&D, production, logistics, marketing and sales • Resource base – stock of assets to create the product know-how, patents, facilities, money, brands and relationships Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Product offering • The key question is which products should be developed and which markets should be served • Companies that do not focus on a limited set of productmarked combinations risk: § § § low economies of scale slow organizational learning unclear brand image unclear corporate image high organizational complexity limits to flexibility Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Delineating industries • The simplest way to draw an industry boundary is to use product similarity e. g. British Airways is in the airline industry • Industry can also be defined on value chain similarity, e. g. Swatch is in the watch industry but also in the fashion industry Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Alternative industry categorizations Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Segmenting markets • A market is a group of customers with similar needs • Market for transportation between London and Paris, customers can travel by air or substitute rail travel for air travel, air transportation is a market segment • Market can be divided by § buyer attributes § buyer criteria needs, or § buyer behavior/actions Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Alternative market categorizations Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Industries, markets and businesses Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Positioning within a business • Where to compete? • How to compete? • Bases of competitive advantage: price, features, bundling, quality, availability, image and relations • Three generic competitive advantages: operational excellence, product leadership, customer intimacy Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Determining competitive scope Only to be used with Strategy

The issue of competitive advantage Value chain • A value chain is an integrated set of value creation processes leading to the supply of product or service offerings • Value chains differ significantly but primary activities are: inbound logistics, operations, outbound logistics, marketing and sales, and service • For service industries each firm also needs: procurement, technology development, human resource management, and firm infrastructure Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage The generic value chain (Porter, 1985) Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Resource base • All means at the disposal of the organization for the performance of value-adding activities • Also called assets • The following major distinctions are made: § tangible vs. intangible resources § relational resources vs. competences Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Types of firm resources Only to be used with

The issue of competitive advantage Sustaining competitive advantage • A competitive advantage is said to be sustainable if it cannot be copied, substituted or eroded by the actions of rivals, and is not made redundant by developments in the environment • Sustainability depends on two main factors: § competitive defendability § environmental consonance Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The paradox of markets and resources • The tension arising from the partially conflicting demands of market adaptation and resource leveraging is referred to as the paradox of markets and resources • Read carefully Exhibit 4. 1 Yakult: Message in a tiny bottle Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

Perspectives on business level strategy The outside-in perspective • Firms should take their environment as the starting point when determining their strategy – externally oriented and marketdriven • Strategy begins with an analysis of the environment to identify market opportunities • Insights into markets and industries is essential • Firms that are market-driven are often the first to realize that new resources and/or activities need to be developed ‘first mover advantage’ • Read carefully Exhibit 4. 2 Sony-Microsoft battle goes to E 3 as tables dent consoles Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

Perspectives on business level strategy The inside-out perspective • Strategy should be built around a company’s strengths • Successful companies build up a strong resource base which offers them access to unfolding market opportunities in the medium and short term • The starting point is which resource base it wants to have • Importance of a firm’s competences over its physical assets • But – companies with competence specialization may be locked in by past choices and cannot adapt to a changing market • Read carefully Exhibit 4. 3 Dyson: Blown by the wind Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

The issue of competitive advantage Two perspectives on shaping the business model Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

Managing the paradox of markets and resources Parallel processing • Company separates demands over different organizational units, e. g. sales managers focus on market demands, R&D managers focus on resource leveraging Juxtaposing • Juxtaposing is the continuous process of creating and maintaining a dynamic equilibrium between markets and resources Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

Managing the paradox of markets and resources Outside-in versus inside-out perspective Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683

Business level strategy in international perspective Mobility Barriers • Industry and market positions of more value if there are high mobility barriers within the environment • Some mobility barriers are national in origin e. g. government regulation, union’s resistance to change, high customer loyalty, or powerful groups or families • Strategists think primarily in terms of market position Resource mobility • Different types of resources across countries • In nations where the dominant industries are populated by firms using simple and abundant resources, market positions are more important as the acquisition of resources is less of an issue Only to be used with Strategy : An International Perspective 5 th edn by Bob de Wit © 2014, Cengage Learning EMEA, ISBN 97814082683