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Business-Level Strategy: How do we compete?. Generic Business Level Strategies. Source of Competitive Advantage. Cost. Uniqueness. Cost Leadership. Broad Target Market. Breadth of Competitive Scope. Narrow Target Market. Generic Business Level Strategies.

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Business level strategy how do we compete l.jpg

Business-Level Strategy:

How do we compete?


Slide2 l.jpg

Generic Business Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost

Leadership

Broad

Target

Market

Breadth of Competitive Scope

Narrow

Target

Market


Slide3 l.jpg

Generic Business Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost Leadership

Broad

Target

Market

Differentiation

Breadth of Competitive Scope

Narrow

Target

Market


Slide4 l.jpg

Generic Business Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost

Leadership

Broad

Target

Market

Differentiation

Breadth of Competitive Scope

Focused Differentiation

Focused Low Cost

Narrow

Target

Market


Slide5 l.jpg

Generic Business Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost

Leadership

Differen-

tiation

Broad

Target

Market

Integrated Low Cost/

Differentiation

Breadth of Competitive Scope

Focused Differen-

tiation

Focused Low Cost

Narrow

Target

Market



The experience curve l.jpg
The Experience Curve

The “Law of Experience”

The unit cost value added to a standard product declines by a constant % (typically 20-30%) each time cumulative output doubles.

1994

1995

Cost per unit of output

1996

1997

1998

1999

2000

Cumulative Output


Examples of experience curves l.jpg
Examples of Experience Curves

Japanese clocks & watches, 1962-72

UK refrigerators, 1957-71

1960 Yen

15K 20K 30K

Price Index

50 100 200 300

75%

70% slope

100K 200K 500K 1,000K 5 10 50

Accumulated unit production Accumulated units

(millions) (millions)


Slide9 l.jpg

Choices that Drive Costs

Economies of scale

Product features

Asset utilization

Performance

Capacity utilization pattern

Mix & variety of products

- Seasonal, cyclical

Service levels

Interrelationships

Small vs. large buyers

- Order processing

and distribution

Process technology

Value chain linkages

Wage levels

- Advertising & Sales

Product features

- Logistics & Operations

Hiring, training, motivation


Slide10 l.jpg

Value Chain of Firm Activities

Firm Infrastructure

Human Resource Management

MARGIN

Technological Development

Procurement

Service

Inbound

Logistics

Marketing

& Sales

Outbound

Logistics

Operations

MARGIN


Slide11 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Inbound Logistics

Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes

Support

Activities

Located in Close Proximity with Suppliers

Inbound

Logistics

Primary Activities


Slide12 l.jpg

Efficient Plant Scale to Minimize Mfg. Costs

Timing of Asset Purchases

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Policy Choice of Plant Technology

Organizational Learning

Operations

Relatively Few Management Layers to Reduce Overhead

Firm Infrastructure

Effective Training Programs to Improve Worker Efficiency and Effectiveness

Human Resource Management

Support

Activities

MARGIN

Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes

Technological Development

Procurement

Frequent Evaluation Processes to Monitor Suppliers’ Performances

Efficient Plant Scale to Minimize Manufacturing Costs

Delivery Schedule that Reduces Costs

Small, Highly Trained Sales Force

Service

Inbound

Logistics

Selection of Low Cost Transport Carriers

Products Priced to Generate Sales Volume

Outbound

Logistics

Timing of Asset Purchases

Operations

Operations

MARGIN

Policy Choice of Plant Technology

Efficient Order Sizes

Organizational Learning

Primary Activities


Slide13 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Outbound Logistics

Firm Infrastructure

Delivery Schedule that Reduces Costs

Human Resource Management

Support

Activities

Selection of Low Cost Transport Carriers

MARGIN

Technological Development

Efficient Order Sizes

Procurement

Frequent Evaluation Processes to Monitor Suppliers’ Performances

Interrelationships with Sister Units

Delivery Schedule that Reduces Costs

Small, Highly Trained Sales Force

Effective Product Installations to Reduce Frequency and Severity

of Recalls

Service

Outbound

Logistics

Selection of Low Cost Transport Carriers

Products Priced to Generate Sales Volume

Outbound

Logistics

Marketing

& Sales

MARGIN

Efficient Order Sizes

National Scale Advertising

Interrelationships with Sister Units

Primary Activities


Slide14 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Marketing & Sales

Firm Infrastructure

Small, Highly Trained Sales Force

Human Resource Management

Support

Activities

Products Priced to Generate Sales Volume

MARGIN

Technological Development

Procurement

National Scale Advertising

Service

Outbound

Logistics

Marketing

& Sales

Marketing & Sales

Inbound

Logistics

Operations

MARGIN

Primary Activities


Slide15 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Service

Firm Infrastructure

Effective Product Installations to Reduce

Recalls

Human Resource Management

Support

Activities

MARGIN

Technological Development

Procurement

Service

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Primary Activities


Slide16 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Firm Infrastructure

Human Resource Management

Support

Activities

MARGIN

Technological Development

Procurement

Procurement

Service

Procurement

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Frequent Evaluation Processes to Monitor Suppliers’ Performances

Systems and Procedures to Find the Lowest Cost Products to Purchase Raw Materials

Primary Activities


Slide17 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Firm Infrastructure

Human Resource Management

Support

Activities

MARGIN

Technological Development

Technological Development

Procurement

Technological Development

Service

Easy-to-Use Manufacturing Technologies

Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes

Outbound

Logistics

Inbound

Logistics

Marketing

& Sales

Operations

MARGIN

Primary Activities


Slide18 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Firm Infrastructure

Human Resource Management

Human Resource Management

Support

Activities

MARGIN

Technological Development

Human Resource Management

Procurement

Consistent Policies to Reduce Turnover Costs

Effective Training Programs to Improve Worker Efficiency and Effectiveness

Service

Outbound

Logistics

Inbound

Logistics

Marketing

& Sales

Operations

MARGIN

Primary Activities


Slide19 l.jpg

Value Creating Activities common to a

Cost Leadership Business Level Strategy

Firm Infrastructure

Firm Infrastructure

Human Resource Management

Support

Activities

MARGIN

Firm Infrastructure

Technological Development

Cost Effective MIS Systems

Simplified Planning Practices to Reduce Planning Costs

Relatively Few Management Layers to Reduce Overhead

Procurement

Service

Marketing

& Sales

Outbound

Logistics

Inbound

Logistics

Operations

MARGIN

Primary Activities


Slide20 l.jpg

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Bargaining Power of Suppliers

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Threat of Substitute Products


Slide21 l.jpg

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Can frighten off New Entrants due to the need to:

Enter at large scale to be Cost Competitive

*

*

Take time to move down the “Learning Curve”


Slide22 l.jpg

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Can mitigate Buyer Power by:

Bargaining Power of Buyers

Driving prices far below competitors may cause exit and shift power back to firm

*


Slide23 l.jpg

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Threat of Substitute Products

Well positioned relative toSubstitutes in order to:

Bargaining Power of Buyers

Make investments to create substitutes first

*

Buy patents developed by potential substitutes

*

Lower prices to maintain value position

*


Slide24 l.jpg

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Bargaining Power of Suppliers

Can mitigate Supplier Power by:

Bargaining Power of Buyers

Low cost position makes them better able to absorb cost increases

*

More likely to make very large purchases which reduces chance of supplier power

*

Threat of Substitute Products


Slide25 l.jpg

Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive

Competitors avoid price wars with Cost Leaders, which creates higher profits for entire industry

Threat of New Entrants

Rivalry Among Competing Firms in Industry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitute Products


Slide26 l.jpg

Dramatic technological change could take away your cost advantage

The Major Risks involved with a

Cost Leadership Business Level Strategy

Competitors may learn how to imitate Value Chain

Focus on efficiency could cause Cost Leader to overlook changes in customer preferences


Slide27 l.jpg

Generic Business Level Strategies

Source of Competitive Advantage

Cost

Uniqueness

Cost

Leadership

Differen-

tiation

Broad

Target

Market

Breadth of Competitive Scope

Narrow

Target

Market


Slide28 l.jpg

Differentiation Business Level Strategy

Key Criteria

Value provided by unique features and value characteristics

Command premium price

High customer service

Superior quality

Prestige or exclusivity

Rapid innovation


Slide29 l.jpg

Drivers of Differentiation

Some Examples:

Unique product features

Unique product performance

Exceptional services

New technologies

Quality of inputs

Exceptional skill or experience

Detailed information


Slide30 l.jpg

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Firm Infrastructure

Human Resource Management

Support

Activities

MARGIN

Technological Development

Procurement

Service

Marketing

& Sales

Inbound

Logistics

Outbound

Logistics

Operations

MARGIN

Primary Activities


Slide31 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Operations

MARGIN

Inbound Logistics

Superior handling of incoming raw materials to minimize damage and improve the quality of the final product

Support

Activities

Inbound

Logistics

Primary Activities


Slide32 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Operations

MARGIN

Operations

Consistent manufacturing of attractive products

Support

Activities

Rapid responses to customers unique manufacturing specifications

Operations

Primary Activities


Slide33 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Outbound Logistics

Accurate and responsive order processing procedures

Support

Activities

Rapid and timely product deliveries to customers

Outbound

Logistics

Primary Activities


Slide34 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Marketing & Sales

Strong Coordination among functions in R&D, Marketing and Product Development

Support

Activities

Extensive personal relationships with buyers

Premium Pricing

Marketing & Sales

Primary Activities


Slide35 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Service

Complete field stocking of replacement parts

Support

Activities

Service

Primary Activities


Slide36 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Support

Activities

Procurement

Procurement

Systems and procedures used to find the highest quality raw materials

Purchase of highest quality replacement parts

Located in

Close Proximity with Suppliers

Primary Activities


Slide37 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Support

Activities

Technological Development

Technological Development

Coordination among

R&D, marketing and product development

Investments in technol-ogies to produce highly differentiated products

Strong capability in basic research

Primary Activities


Slide38 l.jpg

Firm Infrastructure

Human Resource Management

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Support

Activities

Human Resource Management

Compensation programs which encourage worker creativity and productivity

Extensive use of subjective performance measures

Superior personnel training

Primary Activities


Slide39 l.jpg

Firm Infrastructure

Human Resource Management

MARGIN

Value Creating Activitiescommon to a

Differentiation Business Level Strategy

Technological Development

Procurement

Service

Inbound

Logistics

Outbound

Logistics

Marketing

& Sales

Operations

MARGIN

Firm Infrastructure

Support

Activities

Firm Infrastructure

Highly developed Information Systems to better understand customers’ purchasing preferences

A companywide emphasis on producing high quality products

Primary Activities


Slide40 l.jpg

Differentiation Business Level Strategy

Effectiveness with Differentiation grows out of Value Chain activities

Examples:

Heineken beer

Raw materials – brand name

Steinway pianos

Raw materials & Workmanship

Mercedes Benz autos

Technology and Workmanship

Intel microprocessors

Technological superiority

Service buyers’ needs quickly anywhere in the world

Caterpillar tractors


Slide41 l.jpg

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Can fend off New Entrants because:

New products must surpass proven products

*

Or be equal to performance at lower prices

*


Slide42 l.jpg

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Can mitigate Buyer Power because:

Bargaining Power of Buyers

Well differentiated products reduce customer sensitivity to price increases


Slide43 l.jpg

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Threat of New Entrants

Threat of Substitute Products

Well positioned relative toSubstitutes because:

Bargaining Power of Suppliers

Brand loyalty tends to reduce new product trial and brand switching

*


Slide44 l.jpg

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Can mitigate Supplier Power by:

Absorbing price increases due to higher margins

*

Well positioned relative toSubstitutes because:

Passing on higher supplier prices because buyers are brand loyal

*

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

Bargaining Power of Suppliers

Bargaining Power of Suppliers

Threat of Substitute Products


Slide45 l.jpg

Can fend off New Entrants because: the

New products must surpass proven products

*

Or be equal to performance at lower prices

*

Effective Differentiators can remain profitable even when the Five Forces appear unattractive

Brand loyalty overcomes much price competition

Threat of New Entrants

Rivalry Among Competing Firms in Industry

Bargaining Power of Buyers

Bargaining Power of Suppliers

Threat of Substitute Products


Slide46 l.jpg

Customers may decide that the the cost of “uniqueness” is too great

The Major Risks involved with a

Differentiation Business Level Strategy

Competitors may learn how to imitate Value Chain

The means of uniqueness may no longer be valued by customers


Slide47 l.jpg

Generic Business Level Strategies the

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


Slide48 l.jpg

Focused the 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 industry wide

*

*

May be able to serve a narrow market segment more effectively than industry-wide competitors


Slide49 l.jpg

Focused the Business Level Strategies

FocusedBusiness Level Strategies involve the same basic approach as Broad Market Strategies

*

May be able to retrofit old factories to keep costs down

*

Minimize R&D costs by copying innovators

- Bang & Olufsen

Upscale electronic components

High quality mechanics’ tools

- Snap-On tools

Premium pet foods

- IAMS


Slide50 l.jpg

Focused the Business Level Strategies

FocusedBusiness Level Strategies involve the same basic approach as Broad Market Strategies

*

Focused Differentiators may thrive by selecting a small market that is underserved by large players

Custom manufacturers of parts for

Harley-Davidson

motorcycles


Slide51 l.jpg

Firm may be the “outfocused” by competitors

The Major Risks involved with a Focused

Differentiation Business Level Strategy

Large competitor may set its sights on your niche market

Preferences of niche market may change to match those of broad market


Slide52 l.jpg

Generic Business Level Strategies the

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


Slide53 l.jpg

Integrated Low Cost/Differentiation Strategy the

Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise

The risk is that the firm may become “Stuck in the Middle”lacking a strong commitment to or expertise with either type of generic strategy


Slide54 l.jpg

Integrated Low Cost/Differentiation Strategy the

Southwest Airlines

Low Cost

Use a single aircraft model

(Boeing 737)

Use secondary airports

Fly short routes

No meals

15 minute turnaround time

No reserved seats

No travel agent reservations


Slide55 l.jpg

Integrated Low Cost/Differentiation Strategy the

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


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What is the Strategy? the

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