STRATEGIC MANAGEMENT AND BUSINESS POLICY Business-level strategies (c) Dr. Azhar Kazmi 2008

Major Type of Corporate strategies . (c) Dr. Azhar Kazmi 2008

Learning objectives Examine how corporate-level strategies, business definition, and business model act as the foundations for business strategies Observe how industry structure and positioning of the firm in the industry help to determine the competitive advantage Discuss and exemplify achieving cost leadership, differentiation, and focus generic business strategies, conditions under which each of these are used, their benefits and risks Describe the two types of tactics used for business strategies: timing and market location Explain business strategies for four different industry conditions Deliberate on leveraging home country advantages and organisation-specific advantages for international business strategies Discuss the role of digitalisation for cost leadership, differentiation, and focus business strategies (c) Dr. Azhar Kazmi 2008

Foundations of business Level strategies Business strategies are the courses of action adopted by an organisation for each of its businesses separately to serve identified customer groups and provide value to the customer by satisfaction of their needs. Corporate-level strategies lay down the framework in which business strategies operate. The function of corporate-level strategy is to deal with a portfolio of businesses in such a manner that the overall returns are optimised. Business definition is at the core of business strategies. (c) Dr. Azhar Kazmi 2008

Choice of competitive strategy Industry structure based on five competitive forces: 1-Threat of new entrants; 2-Threat of substitute products or services; 3- Bargaining power of suppliers; 4-Bargaining power of buyers; 5-Rivalry among the existing competitors in an industry Positioning of firm in the industry Competitive advantage-mass production, mass distb, low cost Competitive scope-breadth of target with industry (c) Dr. Azhar Kazmi 2008

Porter,s Generic business strategies 1-Cost leadership 2-Differentiation Broad target COMPETITIVE SCOPE 3-Focussed Cost leadership Narrow target 3-Focussed differentiation Low-cost products/services Differentiated products/services COMPETITIVE ADVANTAGE (c) Dr. Azhar Kazmi 2008

Cost leadership business strategy When the competitive advantage of an organisation lies in lower cost of products or services relative to what the competitors have to offer, it is termed as cost leadership. Achieving cost leadership Conditions under which cost leadership strategy is used Benefits and risks of cost leadership strategy (c) Dr. Azhar Kazmi 2008

Conditions where cost leadership is used (c) Dr. Azhar Kazmi 2008

Question for class discussion What are benefits of cost leadership What are risks of cost leadership (c) Dr. Azhar Kazmi 2008

Benefits of Cost leadership (c) Dr. Azhar Kazmi 2008

Cost Leadership Risks (c) Dr. Azhar Kazmi 2008

How to Achieve low cost leadership Accurate demand forecasting; Hi Capacity utilization Economy of scale- large factory Standardization of pars, packaging and services Aim at average customer- high volume Investment in cost saving technologies Withhold differentiation till essential (c) Dr. Azhar Kazmi 2008

Differentiation business strategy When the competitive advantage of an organisation lies in special features incorporated into the product / service which is demanded by the customers who are willing to pay for it then the strategy adopted is the differentiation business strategy. Achieving differentiation Conditions under which differentiation is used Benefits and risks of differentiation strategy (c) Dr. Azhar Kazmi 2008

How to Achieve Differential ? Incorporate a feature in product that- Matches taste and preference of target user Reduces over all cost to buyer Raises performance of product Increases tangible or intangible satisfaction Offers promise of higher quality product or service Enhances status or prestige in buyer group Offer full range of products/services for customer satisfaction (c) Dr. Azhar Kazmi 2008

Conditions where differentiation strategy can be used Very large market, few cos. with standard products Customer needs too diversified Possible to charge premium from valued customers Brand loyalty possible for the Product Differentiation can increase sales (c) Dr. Azhar Kazmi 2008

Benefits of differentiation strategy Customer loyalty as safeguard against competition Better pricing possible Makes new entry difficult Less threat from substitute products Customers less sensitive to prices variations (c) Dr. Azhar Kazmi 2008

Risks of differentiation strategy (c) Dr. Azhar Kazmi 2008

Focus business strategy Focus business strategies essentially rely on either cost leadership or differentiation but cater to a narrow segment of the total market. Achieving focus Conditions under which focus strategies are used Benefits and risks of focus strategies (c) Dr. Azhar Kazmi 2008

How to implement focused Strategy Choose niche, identify gaps in other two strategies Create Superior skills to cater to niche Create superior efficiencies for serving niche Develop innovative value chain (c) Dr. Azhar Kazmi 2008

Tactics for business strategies Timing tactics First movers and late movers Advantages and disadvantages of being a first mover Market location tactics Market leader Market challenger Market follower Market nichers (c) Dr. Azhar Kazmi 2008

Business strategies under different industry conditions MARKET SIZE Embryonic Growth Maturity Decline TIME (c) Dr. Azhar Kazmi 2008

Business strategies Business strategies and internationalisation Leveraging home country advantages for businesses Leveraging organisation specific advantages for businesses Business strategies and digitalisation Digitalisation and competitive advantage Digitalisation and cost leadership Digitalisation and differentiation Digitalisation and focus (c) Dr. Azhar Kazmi 2008

Next Session Strategic Analysis of Choice Reading: Chapter-9 Case Study: Bajaj Allianze (c) Dr. Azhar Kazmi 2008