Business-Level

Strategy
 Responsibilities Key issues

•Establish mission, ethics, long term goals of single business unit

Direction setting •Creation and communication of short term goals

•Broad environment analysis,

Analysis of •Internal and external analysis of resources and capabilities
business situation •Identify Strength, weakness, opportunities and threats
•Indentify sources of sustainable competitive advantage

Selection of •Generic Approach

strategy •Strategic posture

•Acquisition of resources
Management of •Ensuring development of functional strategies
resources •Development of organizational design
•Development of organizational control system

survival,survival,survival
create entry barriers
Turbulence & fragmented
quality at its most superior
So much R&D
difficult to differentiate
dominant design prevails
others either exit or adapt
price can only match with level
of service
cost reduction

commodity
Unit nos of competitors increase decline
Sales era of differentiation
volume
price competition
bankruptcy, buyouts sell off

TIME
performance
conformance to specification
features
customer support Quality Dimensions
process quality
aesthetic design
 Risks
firm will preoccupied with cost and lose sight of the market

technological breakthrough will make process –cost saving obsolete

competitors will quickly imitate any sources of cost advantage

firm will spend more to differentiate than it can recover in its

selling price

source of differentiations can be quickly imitated

differentiation then will no longer be a differentiation

 Market Source of
Strategy What they do
Size advantage

firms attempt to manufacture

Low cost of
Low-cost leadership Broad production
a product or provide a service
at low cost.
Features, benefits,
firms attempt to provide
colors, shape,
products that are preferred
Differentiation Broad brand, after sales,
above other competing
personality
products

firms attempt to provide

Low cost and
Best Value Broad preferred product
product that is attractive and
also produce at a low cost

Focus through low Low cost of

cost Narrow production
niche marketing

Focus through
differentiation Narrow Preferred product niche marketing

Focus through best Low cost and

value Narrow preferred product
niche marketing
 Rationales for Outsourcing
 Improve business focus
 Lets a company focus on broader business issues by having outside
experts handle various operational details

 Provide access to world-class capabilities

 The specialized resources of outsourcing providers makes world-
class capabilities available to firms in a wide range of applications

 Sharing risks
 Reduces investment requirements and makes firm more flexible,
dynamic and better able to adapt to changing opportunities

 Frees resources for other purposes

 Redirects efforts from non-core activities toward those that serve
customers more effectively
 Don’ts of outsourcing
Do Not outsource to firms that do not possess a core
competence in terms of performing the primary
or supporting the outsourced activity
Do not outsource activities in which the firm itself can
create and capture value
Do not outsource primary and support activities that
are used to neutralize environmental threats or to
complete necessary ongoing organizational tasks
Do not outsource capabilities that are critical to the
firm’s success, even though the capabilities are not
actual sources of competitive advantage
Do not outsource activities that stimulate the
development of new capabilities and competencies
 Offensive
Frontal attack –direct, head on attack on competitors with the same product line,
price, promotion, attack on strength rather than weakness

Flanking attack – build a position to launch an attack later. Identify markets

where competitors are performing poorly.

Encirclement attack – confront and Impede the retaliatory strength of

competitors
Tactics most sought are Product proliferation, expanding the products into all
segments and all distribution channels.

Bypass attack – Avoid targeting competitors directly by focusing on areas yet

unexploited. Focus on building product lines, brand extensions, diversify in new
markets,

Guerilla warfare – brief and concise assaults on competitors and destabilize their
strengths
 Defensive
Secure Position
 Defend your position
 Consolidate resources
 Robust Position of the product
 Feed and service inputs to maintain such position
Maintain mobility: Do not stay at one place, constantly develop markets,
products diminish the chances of localizing the defense

Pre-emptive : Obstruct, block, prevent before the competitor strikes

anticipate an attack

Flank position: Deny a position to competitor by occupying a position before hand,

Counter offensive : immediate counter attack tit-for-tat response,

without a retaliatory lag at the same space on which the company is being
targeted

Withdrawal : pull out of a market completely.

 Strategies that reflect competitive
dynamics

first mover advantages

aggressive strategy
collaboration
government intervention
threat of retaliation
barriers to imitation
strategic flexibility
avoidance strategy
Actions and Responses
drivers of competitive behavior

Awareness

Motivation

Ability

Dissimilarity
 Erosion of a SCA

Exploitation

Returns from a
Sustainable
Competitive Launch Counterattack
Advantage

Time (Years)
 Remain Afloat

firm has already

moved to next
advantage
exploitation

returns from launch

counterattack
a series of
replicable
actions

time (years)
Route to Superior Profitability
Value Creation ~ the most ideal route
U-P
U-P
U = Utility to consumer
U P= Price
C= Costs of production
P-C
U-P = Consumer Surplus
P P-C = Profit Margin
U-C = Value Created

C c There is a dynamic
relationship among utility,
pricing, demand, and costs.
 Basic Principle

the more utility that consumers

get from a company’s products
or services, the more pricing
options the company has
 Creating Value
• by exploiting their core competencies or competitive
advantages, firms create value

• value is measured by
– a product’s performance characteristics
– the product’s attributes for which customers are
willing to pay

• firms create value by innovatively bundling and leveraging

their resources and capabilities
Creating Competitive Advantage
• Core competencies, in combination with product-
market positions, are the firm’s most important
sources of competitive advantage

• Core competencies of a firm, in addition to its

analysis of its general, industry, and competitor
environments, should drive its selection of strategies
 BEWARE !!!
• Never take for granted that core competencies will continue to
provide a source of competitive advantage

• All core competencies have the potential to become core

rigidities

• Core rigidities are former core competencies that now generate

inertia and stifle innovation

• Determining what the firm can do through continuous and

effective analyses of its internal environment increases the
likelihood of long-term competitive success
 Causes of Profitability
• The fundamental unit of strategic analysis is the industry
− Defining the relevant industry is essential to strategy

• Company economic performance results from two distinct causes:

Relative
Relative Position
Position
Industry
Industry Within
Within the
the
Structure
Structure Industry
Industry

- Overall Rules of Competition - Sources of Competitive Advantage

• Strategy must encompass both

 Economic Performance versus
Shareholder Value

Economic
Economic Performance
Performance Shareholder
Shareholder Value
Value

• Sustained ROIC • Stock Price

• Sustainable Revenue • EPS
Growth • EPS Growth

• Shareholder value is the result of creating real economic value

• Pleasing today’s shareholders is not the goal