Strategy a View from the Top: Chapter 6. Formulating Business Unity Strategy. Introduction. Sometimes called, “competitive strategy” business unit strategy’s principal focus is on how a firm should compete in a given competitive setting
Formulating Business Unity Strategy
Sometimes called, “competitive strategy” business unit strategy’s principal focus is on how a firm should compete in a given competitive setting
In contrast, corporate strategy is identification of market arenas where a corporation can compete successfully and how to add value to Strategic Business Units (SBOs)
Nature of the Industry
Company’s Mission, Goals and Objectives
Competitors’ strategic choices
Why has FedEx enjoyed success?
Industry directly accounted for 36% of the explained total variation in aggregate profitability.
Globalization has made the shipping industry a very attractive one
LOW to MODERATE
- FedEx, UPS, DHL
Porter’s Five Forces-Shipping Industry
FedEx and UPS face a very fierce competition, bet they’re the only two firms vying in the global shipping market with large market share.
Large market share is both a reward for providing better value and a means of realizing lower costs
Market share is strongly correlated with ROI
Product quality is key to market leadership
ROI is positively correlated with market growth
High investment intensity tends to depress ROI, as do high inventory levels
Capacity use is critical for businesses with a high level of capital intensity.
Project undertaken by Harvard Business School to ascertain profitability of different market strategies.
Study becoming less and less relevant due to dynamic, technology driven experiences of the last 20 years.
Direct CostsAccounting for costs in ABC
Indirect costs are assigned (traced & allocated) to various pools of activity costs.
The individual products are the final cost objects & direct costs are traced to the individual products.
Activity costs are allocated to products
Any type of task, or function performed by a firm to manufacture a product
Expenses on each activity are
assigned into a distinct cost pool
of overhead costs. Then, expenses
are allocated to products based on
their demand for the activities.
ABC uses the following cost hierarchy to classify overhead costs among five main categories of activities:
With all the choices, which one do you choose?
No strategy is associated with instant success
Firms have to maintain FLEXIBILITY!!
1). Encouragement of innovation.
2). A risk-oriented management style.
3). Recognition that the company’s current success and future prospects lie in its talented product design people.
4). Recognition of need to educate and lead the market regarding the use and benefits of new products.
Philosophy of leadership, teamwork, and problem solving resulting in continuous improvement, by focusing on the needs of the customer and empowering employees.
- This revamping was immediately successful, 4 straight quarters following led Marriott & Hilton
- Increased operating income by 26%
Concentrates on building customer loyalty
Companies that provide customer intimacy:
Product Pyramid Profit Model
Multi-component System Profit Model
Blockbuster Profit Model
Profit Multiplier model