Strategy

1. The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals. Core Competency An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage. Strategy Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets. Business Level Strategy

2. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Cost Leadership Differen- tiation Broad Target Market Breadth of Competitive Scope Focused Differen- tiation Focused Low Cost Narrow Target Market

3. Cost Leadership Business Level Strategy Requirements Relatively standardized products Constant effort to reduce costs through: Features acceptable to many customers Lowest competitive price Building efficient scale facilities * Monitoring costs of activities provided by outsiders Tight control of production costs and overhead * * Minimizing costs of sales, R&D and service * * Simplification of processes “State of the Art” manufacturing facilities *

4. Relatively Few Management Layers to Reduce Overhead Simplified Planning Practices to Reduce Planning Costs Cost Effective MIS Systems Effective Training Programs to Improve Worker Efficiency and Effectiveness Consistent Policies to Reduce Turnover Costs MARGIN Value Creating Activities common to a Cost Leadership Business Level Strategy Easy-to-Use Manufacturing Technologies Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to PurchasRaw Materials Frequent Evaluation Processes to Monitor Suppliers’ Performances Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes Efficient Plant Scale to Minimize Manufacturing Costs Delivery Schedule that Reduces Costs Small, Highly Trained Sales Force Effective Product Installations to Reduce Frequency and Severity of Recalls Selection of Low Cost Transport Carriers Products Priced to Generate Sales Volume Timing of Asset Purchases MARGIN Located in Close Proximity with Suppliers Policy Choice of Plant Technology Efficient Order Sizes National Scale Advertising Organizational Learning Interrelationships with Sister Units Support Activities Primary Activities

5. Reconfigure the as needed Value Chain How to obtain a Cost Advantage 1 Determine and Control Cost Drivers 2 Alter production process New raw material Change in automation Forward integration New distribution channel Backward integration New advertising media Change location relative to suppliers or buyers Direct sales in place of indirect sales

6. Example of Reconfiguring the Value Chain Ship “on the Hoof” to Rail Center (Chicago) Slaughter into sides of beef Old Way: Ranch Cattle “Boxed Cuts” at Markets Iowa Beef Packers Locate large automated plants near ranches Ship cuts already “Boxed” to Markets New Way: New Way: Process into “Boxed Cuts” at plants Save on shipping and cattle weight loss Utilize cheaper non-union rural labor

7. Can mitigate Supplier Power by: Can frighten off New Entrants due to the need to: Low cost position makes them better able to absorb cost increases * Enter at Large Scale to be Cost Competitive * More likely to make very large purchases which reduces chance of supplier power * Take time to move down the “Learning Curve” * Well positioned relative to Substitutes in order to: Make investments to create substitutes * Can buy patents developed by potential substitutes * Lower prices to maintain value position * Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive Threat of New Entrants Competitors avoid price wars with Cost Leaders, which creates higher profits for entire industry Rivalry Among Competing Firms in Industry Bargaining Power of Suppliers Bargaining Power of Buyers Can mitigate Buyer Power by: Driving prices far below competitors which may cause exit and shift power back to firm Threat of Substitute Products

8. Differentiation Business Level Strategy Requirements Value provided by unique features and value characteristics Constant effort to differ-entiate products through: Developing new systems and processes Command premium price * High customer service * Shaping perceptions through advertising Superior quality * Quality focus Prestige or exclusivity Capability in R&D * Maximize Human Resource contributions through low turnover and high motivation * Rapid innovation

9. Highly Developed Information Systems to better understand customers’ purchasing preferences A companywide emphasis on producing high quality products Compensation programs intended to encourage worker creativity and productivity Extensive use of subjective rather than objective performance measures Superior personnel training Value Creating Activitiescommon to a Differentiation Business Level Strategy Coordination among R&D, product development and marketing Investments in technologies that will allow the firm to consistently produce highly differentiated products Strong capability in basic research Systems and procedures used to find the highest quality raw materials Purchase of highest quality replacement parts Strong Coordin-ation among functions in R&D, Marketing and Product Development Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products Accurate and responsive order processing procedures Complete field stocking of replacement parts Rapid responses to customers unique manufacturing specifications Extensive personal relationships with buyers Rapid and timely product deliveries to customers Premium Pricing Support Activities MARGIN MARGIN Primary Activities

10. Create Value with Differentiation by: 1 Lowering Buyers’ Costs Raising Buyers’ Performance 2 3 Sustainability is created through: Creating barriers by perceptions of uniqueness Creating switching costs through differentiation

11. Can fend off New Entrants because: Can mitigate Supplier Power by: New products must surpass proven products Absorbing price increases due to higher margins * * Or be equal to performance at lower prices * * Passing on higher supplier prices because buyers are brand loyal Well positioned relative toSubstitutes because: Brand loyalty tends to reduce new product trial and brand switching * Effective Differentiators can remain profitable even when the Five Forces appear unattractive Threat of New Entrants Brand loyalty overcomes much price competition Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases Threat of Substitute Products

12. Focused Business Level Strategies FocusedBusiness Level Strategies involve the same basic approach as Broad Market Strategies However..... Opportunities may exist because: Large firms may overlook small niches * Firm may lack resources to compete industrywide * * May be able to serve a narrow market segment more effectively than industrywide competitors Focus can allow you to direct resources to certain value chain activities to build competitive advantage *

13. Generic Business Level Strategies Source of Competitive Advantage Cost Uniqueness Cost Leadership Differen- tiation Broad Target Market IntegratedLow Cost/ Differentiation Breadth of Competitive Scope Focused Differen- tiation Focused Low Cost Narrow Target Market

14. Integrated Low Cost/Differentiation Strategy Firms using an Integrated Strategy may: Adapt more quickly Learn new skills and technologies May utilize Flexible Manufacturing Systems to create differentiated products at low costs Leverage core competencies through Information Networks across multiple business units May utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs

15. Integrated Low Cost/Differentiation Strategy Southwest Airlines Low Cost Differentiation Use a single aircraft model (Boeing 737) Focus on customer satisfaction Use secondary airports High level of employee dedication Fly short routes No meals New flight services for business travelers (Phones and faxes) 15 minute turnaround time No reserved seats No travel agent reservations