Key Points Chapter 4 BusinessLevel Strategy Generic BusinessLevel

Key Points: Chapter 4: Business-Level Strategy • Generic Business-Level Strategies • Differentiate between the five generic strategies • For each strategy: • Explain its aims and how these aims can be achieved • Understand the competitive risks • Advantages and disadvantages of first and second movers • Understand how external and internal analysis are used by firms as they decide which generic strategy to use Norman, MGT 5885

Strategy • Strategy: an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage • Business-level strategy: an integrated and coordinated set of commitments and actions designed to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets Norman, MGT 5885

Business-Level Strategy • How should I compete in a particular business? • Use existing or develop new core competencies to gain a competitive advantage • Consider the general environment, the state of my industry, what my competitors are doing, and my position in the industry • Create a position that is defensible in the long run so that I can outperform my competitors • Customers • Who? What needs? How? Norman, MGT 5885

Figure 4. 1: Four Generic Strategies Source of Competitive Advantage Cost Breadth of Competitive Scope Broad Target Narrow Target Differentiation Cost Leadership Differentiation Focused Low Cost Focused Differentiation Norman, MGT 5885

Cost Leadership • Integrated set of actions aimed at attaining low cost (relative to competitors) with acceptable features • Usually characterized by: • Standardized products aimed at typical customer • Techniques • • Efficient-scale facilities Vigorous pursuit of cost reductions Tight cost and overhead control Minimize costs in areas such as R&D, service, sales, advertising, etc. BUT, these areas cannot be ignored Norman, MGT 5885

Figure 4. 2 Simplified Planning Practices to Reduce Planning Costs Firm Infrastructure Cost Effective MIS Systems Human Res. Management Consistent Policies to Reduce Turnover Costs Relatively Few Management Layers to Reduce Overhead Effective Training Programs to Improve Worker Efficiency and Effectiveness Technology Development Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Procurement Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Located in Close Proximity with Suppliers Policy Choice of Efficient Order Plant Technology Sizes National Scale Advertising Inbound Logistics Organizational Learning Interrelationships with Sister Units Operations Outbound Logistics Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume Marketing and Sales Service Norman, MGT 5885

Risks of a Cost Leadership Strategy • Technological innovations by competitors will render manufacturing equipment obsolete • Miss significant changes in customer needs or competitor moves because too focused on cost savings • Imitation by other firms Norman, MGT 5885

Differentiation • Integrated set of actions aimed at producing products that customers view as different in way(s) that are significant to them • Usually characterized by: • Ability to charge a premium • Serve several market segments • Products with unique attributes that provide value • Design, brand name, features, technology, customer service, dealer network • Strongest when unique on several dimensions Norman, MGT 5885

Figure 4. 3 Firm Infrastructure Highly Developed Information Systems to better understand customers’ purchasing preferences Human Res. Management Compensation programs intended to encourage worker creativity and productivity Extensive use of subjective rather than objective performance measures Technology Development Coordination among R&D, product development and marketing Investments in technologies that will allow the firm to consistently produce highly differentiated products Procurement Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Inbound Logistics A companywide emphasis on producing high quality products Superior personnel training Purchase of highest quality replacement parts Strong Coordination among functions in R&D, Marketing and Product Development Consistent manufacturing of attractive products Accurate and responsive order processing procedures Rapid responses to customers unique manufacturing specifications Extensive Rapid and timely personal product deliveries relationships to customers with buyers Operations Strong capability in basic research Complete field stocking of replacement parts Premium Pricing Outbound Logistics Marketing and Sales Service Norman, MGT 5885

Risks of a Differentiation Strategy • Customers decide price premium is too great • Means of differentiation no longer adds value • Customer learning narrows perception of the value of differentiated features • Counterfeiting Norman, MGT 5885

Focus (Focused Low-Cost and Focused Differentiation) • Integrated set of actions aimed at meeting the needs of a particular competitive segment • Usually characterized by: • Having a competitive advantage in one particular segment of the market, but not others • Serve segment more efficiently or effectively • Serve segments with unique needs or that are poorly served by others Norman, MGT 5885

Risks of a Focus Strategy • All those applicable to cost leader or differentiator PLUS • Another firm outfocuses by concentrating on an even more narrow segment • Firms serving the entire industry begin to compete heavily in the focuser’s market segment • Needs of customers in the segment become more similar to the needs of other segments Norman, MGT 5885

Integrated Low-Cost/Differentiation • Integrated set of actions aimed at attaining both low cost and products that customers view as different in way(s) that are significant to them • Usually characterized by • Differentiated features (not as many as differentiator) • Relatively low cost (not a low as cost leader) • Multiple sources of competitive advantage • Techniques • Flexible manufacturing systems • Information networks within and across firms • TQM Norman, MGT 5885

Risks of an Integrated Low Cost/Differentiation Strategy? • Offers great potential for above-average returns • BUT, high risk of failure • Firms may become “stuck in the middle” Norman, MGT 5885

Advantages Disadvantages First Mover Second Mover Late Mover Norman, MGT 5885