Вы находитесь на странице: 1из 10

Chapter

Five

Business-Level Strategy:
Creating and Sustaining
Competitive Advantages

TRANSPARENCY-41

Learning
Objectives

After studying this chapter, you should have


a good understanding of:

The central role of competitive advantage in the study of strategic


management
The three generic strategiesoverall cost leadership, differentiation,
and focus
How the successful attainment of generic strategies can improve a
firms relative power vis vis the five forces that determine an
industrys average profitability
The pitfalls managers must avoid in striving to attain generic strategies
How firms can effectively combine the generic strategies of overall cost
leadership and differentiation
The importance of considering the industry life cycle to determine a
firms business-level strategy and its relative emphasis on functional
area strategies and value creating activities

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-42

Exhibit 5.1

Three Generic Strategies

STRATEGIC TARGET

COMPETITIVE ADVANTAGE

Industrywide

Uniqueness Perceived
By the Customer

Low Cost Position

Differentiation

Overall
Cost Leadership

Particular
Segment Only

Focus

Source: Adapted from Porter, M.E. 1980. Competitive Strategy, New York: Free Press, page 39.

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-43

Exhibit 5.2

Competitive Advantage and Business


Performance
Competitive Advantage
Cost
Focus

Stuckin-theMiddle

17.0

23.7

17.8

13.5

16.4

17.5

12.2

5.5

6.1

6.3

4.4

Differentiation
and Cost

Differentiation

Return on Investment

35.5

32.9

30.2

Sales Growth

15.1

13.5

5.3

5.3

Cost

Differentiation
Focus

Performance

Gain in Market Share


Sample Size

123

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

160

100

141

86

105

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-44

Exhibit 5.3

Value Chain Activities: Examples of Overall


Cost Leadership
Standardized accounting practices
to minimize personnel required

Human
Resource
Management

Minimize costs associated


with employee turnover
through effective policies

Effective orientation and training


programs to maximize employee
productivity

Technology
development

Effective use of automated


technology to reduce scrappage
rates

Expertise in process engineering to


reduce manufacturing costs

Procurement

Effective policy guidelines to


ensure low cost raw materials
(with acceptable quality levels)

Shared purchasing operations


with other business units

Source: Adapted
from Porter, M.E.
1985. Competitive
Advantage, New
York: Free Press.

Effective
use of
quality
control
inspectors
to
minimize
rework on
the final
product

Inbound Operations
Logistics

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Effective
utilization
of
delivery
fleets

Outbound
Logistics

Purchase of
media in
large blocks

Thorough service
repair guidelines
to minimize repeat
maintenance calls

Sales force
utilization is
maximized
by territory
management

Use of single
type of repair
vehicle to
minimize
maintenance
costs

Marketing
and Sales

Mar
gi n

Efficient
layout of
receiving
dock
operations

Few management layers to


reduce overhead costs

r gi
Ma

Firm Infrastructure

Service

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-45

Exhibit 5.4

Comparing Experience Curve Effects


$1

Cost per Unit

90
80

81

70

64

60

49

72.9
51.2
34.3

36
21.6

0 units

1 million
units

2 million
units

90% original cost


80% original cost
70% original cost
64% original cost

4 million
units

Cumulative Volume
STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-46

Exhibit 5.5

Value Chain Activities: Examples of


Differentiation
Firm Infrastructure

Superior MIS To integrate value- Facilities that


creating activities to improve quality promote firm image

Human Resource
Management
Technology
Development

Superior material handling and


sorting technology

Excellent applications engineering


support

Procurement

Purchase of high quality components to enhanceUse of most prestigious outlets


product image

Quick trans- Low defect rates


fer of inputs to to improve quality
manufacturing
process

Inbound
Logistics

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

Operations

CHAPTER
5

Accurate and
responsive
order
processing

Creative and
innovative
advertising
programs

Effective
product
replenishment
to reduce
customers
inventory

Fostering of
personal
relationship with
key customers

Outbound
Logistics

Marketing
and Sales

Rapid response to
customers service
requests

Complete inventory
of replacement parts
and supplies

Mar
gin

Flexibility and
speed in
responding to
changes in
manufacturing
specifications

in

Provide training and incentives to ensure a


strong customer service orientation

rg
Ma

Programs to attract talented


engineers and scientists

Superior
material
handling
operations to
minimize
damage

Source: Adapted
from Porter, M.E.
1985. Competitive
Advantage, New
York: Free Press.

Widely respected CEO


enhances firm reputation

Service

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-47

Exhibit 5.6

The Erosion of Product and Service


Differentiation
What are the raw commodities?
Now

Next?

Personal computers

Servers

Hotel rooms

Car rentals

Legal services

Credit

Police cars

Generic drugs

Ocean shipping

Insurance

Bandwidth

Pharmacy Services

Network hosting

Data-storage capacity

Manufacturing capacity

Multibillion-dollar
infrastructure projects

Source: Adapted from Colvin, G. 2000. You could be selling soybeans. Fortune: November 13:80.

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-48

Exhibit 5.7

The U.S. Auto Industrys Profit Pool


Operating margin

25%

20

15

10

0
0 Auto manufacturing

Used car dealers Auto loans

New car dealers

Auto insurance
Service repair
Gasoline

Leasing

100%
Auto rental

Aftermarket parts

Warranty

Share of industry revenue


Source: Gadiesh, O. & Gilbert, J.L. 1998. Profit pools: A fresh look at strategy. Harvard Business Review, 76(3): 144.

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights

TRANSPARENCY-49

Stages of the Industry Life Cycle

Exhibit 5.8

Unit Sales
Profits

STAGE

INTRODUCTION

GROWTH

MATURITY

DECLINE

FACTOR
Generic Strategies

Differentiation

Differentiation

Differentiation
Overall Cost
Leadership

Overall Cost Leadership


Focus

Market growth rate

Low

Very Large

Low to Moderate

Negative

Number of segments

Very Few

Some

Many

Few

Intensity of
competition

Low

Increasing

Very Intense

Changing

Emphasis on product
design

Very High

High

Low to Moderate

Low

Emphasis on process
design

Low

Low to Moderate

High

Low

Major functional
area(s) of concern

Research and
Development

Sales and Marketing

Production

General Management
and Finance

Overall objective

Increase Market
Awareness

Create Consumer
Demand

Defend Market
Share and Extend
Product Life Cycles

Consolidate, Maintain,
Harvest, or Exit

STRATEGIC MANAGEMENT
McGraw-Hill/Irwin

CHAPTER
5

Gregory G. Dess and G. T. Lum

Copyright 2003 by The McGraw-Hill Companies, Inc. All rights