Companies pursue a business- level strategy to gain a competitive advantage

that enables them to outperform rivals and achieve above- average returns.
Explain thoroughly.

Solution:

They can choose from three basic generic

1. competitive approaches:
2. cost leadership, differentiation,
3. and focus,

These strategies are called generic because all businesses or industries can pursue
them, regardless of whether they are manufacturing, service, or nonprofit t enterprises.

Cost- Leadership Strategy

A company’s goal in pursuing a cost-leadership strategy is to outperform competitors by

doing everything it can to produce goods or services at a cost lower than those
competitors. Two advantages accrue from a cost-leadership strategy. First, because the
company has lower costs, it will be more profitable than its closest competitors. Second,
if rivalry within the industry increases and companies start to compete on price, the cost
leader will be able to withstand competition better than the other companies.

Differentiation Strategy

The objective of the generic differentiation strategy is to achieve a competitive

advantage by creating a product that is perceived by customers to be unique in some
important way. The differentiated company’s ability to satisfy a customer’s need in a
way that its competitors cannot means that it can charge a premium price— a price
considerably above the industry average.

Focus Strategy

The third generic competitive strategy, the focus strategy, differs from the other two
chiefly in that it is directed toward serving the needs of a limited customer group or
segment.
Explain four major benefits due them Profitability increases when horizontal
integration is used by the managers?

Solution:

Profitability increases when horizontal integration results in four major benefits:

1. lowers operating costs,

2. increases product differentiation,
3. reduces rivalry within an industry, and/or
4. Increases a company’s bargaining power over suppliers and buyers.

Lower Operating Costs

Horizontal integration lowers a company’s operating costs when it results in increasing

economies of scale. Achieving economies of scale is very important in industries that
have high fixed costs, because large- scale production allows a company to spread its
fixed costs over a large volume, which drives down average operating costs.

Increased Product Differentiation

Horizontal integration may also boost profitability when it increases product

differentiation, for example, by allowing a company to combine the product lines of
merged companies in order to offer customers a wider range of products that can be
bundled together.

Reduced Industry Rivalry

Horizontal integration can help to reduce industry rivalry in two ways. First, acquiring or
merging with a competitor helps to eliminate excess capacity in an industry, which often
triggers price wars. By taking excess capacity out of an industry, horizontal integration
creates a more benign environment in which prices might stabilize or even increase.

Increased Bargaining Power

A final reason for a company to use horizontal integration is to achieve more bargaining
power over suppliers.By using horizontal integration to consolidate its industry, a
company becomes a much larger buyer of a supplier’s product; it can use this buying
power as leverage to bargain down the price it pays for inputs, and this also lowers its
costs.
To avoid pitfalls and make successful acquisitions, companies need to take a
structured approach with which three main components?

Solution:

To avoid pitfalls and make successful acquisitions, companies need to take a structured
approach with three main components:

1. target identification and pre-acquisition screening,

2. bidding strategy,
3. Integration.

Screening

Thorough pre-acquisition screening increases a company’s knowledge about potential

takeover targets and lessens the risk of purchasing a problem company—one with a
weak business model.

The screening should begin with a detailed assessment of the strategic rationale for
making the acquisition and with identification of the kind of enterprise that would make
an ideal acquisition candidate.

Bidding Strategy

The objective of bidding strategy is to reduce the price that a company must pay for an
acquisition candidate. The essential element of a good bidding strategy is timing.

Integration

Despite good screening and bidding, an acquisition will fail unless positive steps are
taken to integrate the acquired company into the organizational structure of the
acquiring one. Integration should center on the source of the potential strategic
advantages of the acquisition— for instance, opportunities to share marketing,
manufacturing, procurement, R&D, fi nancial, or management resources. Integration
should also be accompanied by steps to eliminate any duplication of facilities or
functions.
Explain thoroughly Problems with Tall Structures?

As a company grows and diversifies the number of levels in its hierarchy of authority
increases to allow it to monitor and coordinate employee activities efficiently. Research
shows that the number of hierarchical levels relative to company size is predictable as
the size increases

Coordination Problems

Having too many hierarchical levels impedes communication and coordination between
employees and functions and also raises costs. Communication between the top and
the bottom of the hierarchy takes much longer as the chain of command lengthens.

Information Distortion

More subtle, but just as important, are the problems of information distortion that occur
as the hierarchy of authority lengthens. Going down the hierarchy, managers at different
levels (for example, divisional or corporate managers) may misinterpret information,
either through accidental garbling of messages or on purpose to suit their own interests.

Motivational Problems

As the number of levels in the hierarchy increases, the amount of authority possessed
by managers at each hierarchical level diminishes. For example, consider the situation
of two organizations of identical size, one of which has three levels in its hierarchy and
the other seven. Managers in the flat structure have much more authority, and greater
authority increases their motivation to perform effectively and take responsibility for the
organization’s performance.