HI6006

Competitive Strategy

Lecture 4: Business Strategy

An Overview
 Business-Level Strategy

Definition: An integrated and coordinated set of

commitments and actions a firm uses to gain a
competitive advantage by exploiting core
competencies in specific product markets

 In essence, it constitutes how a firm will compete

 Every firm must form and use a business-level
strategy for each one of its businesses
 Business-level strategy choices matter because
long-term performance is linked to a firm’s
strategies
 3 Key Questions in developing a business strategy

1. How will a firm compete within its industry ?

2. What can the firm do to provide improved
customer-value?
3. How can our firm use its core competencies to
get a competitive advantage over its competitors?

Business-level
Strategy
 Every Business needs a Strategy

ONE
BUSINESS- • A single-product market/single
geographic location firm develops
LEVEL one business-level strategy
STRATEGY

SEVERAL • A diversified firm develops a

separate business-level strategy
BUSINESS- for each business within the
LEVEL company

STRATEGIES
 THE PURPOSE OF A BUSINESS-LEVEL STRATEGY

• A business-level strategy is intended to create

differences in a firm’s position relative to its
rivals.
Positioning

Perform Activities OR Perform Different

Differently Activities

• This is commonly referred to as ‘Differentiation’

 Key Questions

Who will be e.g. consumer mkt

or
served? Industrial mkt

Key questions
underpinning What needs will
Business Strategy be satisfied?
Design products &
services accordingly

How will those

needs be satisfied?
By our core
competencies
(& more)
Five Generic Strategies
 Positioning differently (the X axis)
Cost-base
• Achieving lower overall costs than rivals
• Processing more efficiently
• Providing a lower-priced product that customers
deem acceptable

Differentiation-base
• Possessing the capability to differentiate the firm’s
product or service as having added-value, thereby
commanding a premium price

Activity: Consider current examples of

companies where differentiation is apparent.
 • seek to use their
capabilities to
create value for
customers on an
industry-wide
basis, by

BROAD
competing in
many segments.

NARROW
Competitive Scope (the Y axis)

• the firm intends to serve the needs of a

narrow customer group, tailoring its strategy
to serving that group and excluding
others.
Five Generic Strategies
 Cost Leadership Strategy
• An integrated set of actions taken to produce
goods or services with features that are
acceptable to customers at the lowest cost,
relative to that of competitors with features that are
acceptable to customers.

• Products:
– are relatively standardised
– have features acceptable to many customers
– offer the lowest competitive price.
 Value Chain Analysis identifies processes that creat
value as opposed to business activities that don’t
directly create customer value
 Value Creation for a Cost-leadership Strategy

RECONFIGURE THE VALUE CHAIN FOR COST ADVANTAGE

 Source low-cost raw materials  Supply Chain Management

 Few management layers
 Efficient production
 Consistent policies
 Effective training
 Easy-to-use manufacturing
technologies, including low-
cost automation
 Streamline production
processes
Activity A: Consider the above
and brainstorm what could be
done to improve cost-
leadership
 Inventory controls
 Economies of scale
 Low-cost transportation
 High performance sales force
 Disintermediation (horizontal
integration – backward and/or
forward)
 Cost-effective MIS
Activity B: Consider the above
and provide examples of firms
that have had success with
any
 Differentiation Strategy

Definition: An integrated set of actions taken to

produce goods or services that customers
perceive as being different in ways that are
important to them (and still affordable)

• Focus is on innovative or customized (non-

standard) products.
• Its an appropriate strategy when customers
value differentiated features more than they
value low cost.
• Firms seek to be different from competitors
on as many dimensions as possible
 Value Creation for a Differentiation Strategy

RECONFIGURE THE VALUE CHAIN FOR DISTINCTIVENESS

– Unusual or unique product features

– Highly-developed customer service
– Rapid innovation of new products
– Technology monopoly
– Branding for (perceived) prestige/status
– Catering to different tastes/preferences
– Advanced engineering design and/or
performance
Activity: Discuss well-known brands that have
succeeded with a Differentiation Strategy
 Differentiation Strategy - Potential Pitfalls

• The price differential between the

differentiator’s and the cost leader’s products
becomes too large; new entrants enter the gap.
• Experience narrows customers’ perceptions of
the value of differentiated features
• Value is diminished when the differentiation
ceases to provide sufficient perceived value for
which customers are willing to pay the price
premium.
• Counterfeit goods may replicate the
differentiated features of the firm’s products.
Activity: Discuss brands whose Value now
appears to be diminishing or has already been
diminished
 Tutorial Activity – option 1

 Consider the 5Forces Model and list the ways in

which a business strategy based on cost-
leadership could lead to a firm gaining
competitive advantage over rival firms in the
same industry.

 How would your firm compete against a rival firm

that was using a cost-leadership based business
strategy?
 Tutorial Activity – option 2

 Consider the 5Forces Model and list the ways in

which a business strategy based on
Differentiation could lead to a firm gaining
competitive advantage over rival firms in the
same industry.

 How would your firm compete against a rival firm

that was using a differentiation-based business
strategy?
 Focus Strategy
• Definition: an integrated set of actions taken to
produce goods or services that serve the needs
of a particular competitive segment
• Target markets include:
– a particular buyer group (e.g. youths or senior
citizens)
– different segment of a product line (e.g.
products for professional painters or the do-it-
yourself group)
– unique geographic market

Also referred to as a ‘Niche’

 Rationale for Focused Strategy (or Niche Market focus)

• Large firms may overlook small niches.

• A firm may lack the resources needed to compete

in the broader market.

• A firm is able to serve a narrow market segment

more effectively than its larger industry-wide
competitors can.

• Focusing allows the firm to direct its resources to

certain value chain activities to build competitive
advantage
 Focus Strategy may be Cost-based or Differentiation Based

Cost-based Focus Strategy:

A firm focuses on a niche market, adding value by
leveraging value chain activities that allow value
creation through the cost leadership strategy.
• Competitive advantage: low cost
• Competitive scope: narrow industry segment

Differentiation-based Focus Strategy:

A firm focuses on a niche market, adding value by
creating distinctiveness.
• Competitive Advantage: innovative, unique
• Competitive Scope: narrow industry segment
 Focus Strategy – Potential Pitfalls

• You may be ‘out-focussed’ by a rival firm, i.e. they beat you at your
own game

• A large player in the industry may see your success and do the
same (with greater resources at their disposal) [if you have
established core competencies this is sometimes an opportunity to
gain from being acquired by the larger company]

• Customer preferences do change over time and the firm must

continuously adapt (or sales will decline)

Activity:
1. Name a company that did well by using a Focus Strategy
2. Did that firm sustain a competitive advantage or not?
3. If so, how? If not, what happened and how could it have been
negated?
 Integrated Strategy

Combine low-cost and differentiation

Essentially this strategy entails being able to innovate

unique products on an ongoing basis AND to produce
and distribute them at low cost.

The firm needs a set of capabilities that have been

honed to core competencies, which allows it to
concentrate concurrently on cost and differentiation

Activity: Consider the current state of competition

between well-known supermarket chains ?
 Introduction to Case Analysis

 Read the Case – looking to identify (highlight)

key strategic issues
 Decide which Strategy Model or theoretical
concepts are relevant to this case
 Use the model as your ‘template’ to summarise
the key issues identified in the case
 Form a picture of how this company (case)
applies the strategy model or theoretical
concepts
 Evaluate how well the company (case) has
applied Strategy Theory
 Tutorial Activity in small groups

Examine the Apple vs Samsung mini-case (p123) and

evaluate the business strategy used by each
 Case Study

Analyse the Sydney Symphony Orchestra (Case 1,

p423) to determine what business strategy fits best
with what they are hoping to achieve