BUSINESS-LEVEL STRATEGIES Chapter 5

Business-level strategies Defines an organization’s approach to growth and competition in its chosen business segments Core Competencies Core Incompetencies Goals BUSINESS- LEVEL STRATEGY and IMPLEMENTATION - Set of recommendations and action plans Company Situation Analysis S’s W’s VISION (GROWTH) Issues Goals Issues O’s T’s Issues Goals DF’s, CF’s & KSF’s

Generic business-level strategies Meant to establish a competitive position that distinguishes the organization from competitors and creates value for customers (customer value proposition). Types of generic competitive strategies: Differentiation Low-Cost leadership Best Cost

differentiation Create value through sustainable uniqueness Customers must be willing to pay more (price premium) for the product/service uniqueness than the firm paid to create it Controlling costs in non-competence- related activities is key to maintain acceptable price premium Requires constant product/service innovation to stay ahead of competition and to keep up with customers’ perceived value

When does differentiation work best? IN GENERAL, WHEN CFs ARE WEAK Examples: Several ways to differentiate product High buyer switching costs Substitute products cannot satisfy the same needs as the industry’s products Many suppliers are available Information about sellers’ products are not readily available CF

Low-cost leadership Create value by lowering cost and passing on savings to customers Sustainable low price for product or service without becoming unprofitable Product or service must meet performance requirements – safety, quality, innovation Requires constant drive toward efficiency – high capacity utilization, economies of scale, cost-savings technologies, experience effects

When does low-cost leadership work best? IN GENERAL, WHEN CFs ARE STRONG Examples: High fixed costs Low levels of product differentiation Substitute products are reasonably priced Suppliers can easily integrate forward into sellers’ industry Low switching costs for customers CF

Best cost Create value by lowering cost and passing on savings to customers in some areas while sustaining uniqueness in others. Combination of differentiation and lost- cost approaches Requires emphasis on both product or service innovation, and efficiency (which makes it more difficult to execute)

When does best cost work best? IN CASES, WHEN SOME CFs ARE STRONG, AND SOME ARE WEAK Example: Customers develop high switching costs (brand loyalty) due to the uniqueness of the product, allowing for economies of scale for firms, which could increase price competition among rivals. Savings from economies of scale are then passed on to customers. CF CF

types of growth strategies Meant to establish growth posture in terms of scope of the firm’s business. Internal Growth Strategies: Market penetration – increase market share in current segments; attractive for dominant firms in an industry to increase economies of scale Market development – identify new market segments for existing products; attractive for firms that follow a differentiation strategy Product/service development – modify existing products/services or develop new products/services to current and new market segments; attractive for prospector firms that want to establish a first-mover advantage Vertical integration – move backward or forward along the value chain External Growth Strategies: Related diversification – move into businesses that have strategic fits along their value chains Unrelated diversification – move into businesses that do not have strategic fits with each other

Types of growth strategies International Growth Strategies: Exporting – transfer goods to other countries for sale Licensing – sell the right to produce or sell a product to another firm in a foreign market Franchising – sell the right to use the name and operating methods to another firm in a foreign market Joint Venture – cooperative agreement (through shared ownership of a new company) among two or more firms to pursue common business objectives in foreign countries Greenfield Venture – creation of a wholly-owned foreign subsidiary