1. Business-Level Strategy1

2. The Strategic Management Process Strategy Formulation
Strategic Intent
External
Environment
Internal Environment
Strategic Mission
The Strategic
Management
Process
Strategic
Outcomes
Actions
Strategic
Inputs
Strategy Formulation
Strategy Implementation
Corporate Governance
Structure & Control
Business-level Strategy
Competitive Dynamics
Corporate-Level Strategy
International Strategy
Strategic
Competitiveness
Above Average
Returns
Feedback 10

3. Sustainable Competitive Advantage Business Level Strategy
External Environment
Sustainable
Competitive
Advantage
Internal Environment
Business Level
Strategy 4

4. The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Core
Competency 5

5. The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Core
Competency
An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Strategy 6

6. Business Level Strategy
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Core
Competency
An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Strategy
Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.
Business Level Strategy 7

7. Basis for Customer Segmentation
Consumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors (social class, stage in the family life cycle)
3. Geographic factors (culture, region or country differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns (heavy, moderate, and light users)
6. Perceptual factors (benefit segmentation, perceptual mapping)
7. Brand loyalty patterns
107

8. Basis for Customer Segmentation
Industrial Markets
1. End use segments (identified by SIC code)
2. Product segments (based on technological differences or production economics)
3. Geographic segments (defined by boundaries between countries or by regional differences within them)
4. Common buying factor segments (cut across product/market and geographic segments)
5. Customer size segments
107

9. Generic Business Level Strategies
Cost
Uniqueness
Source of Competitive Advantage
Breadth of Competitive Scope
Broad
Target
Market
Narrow
Cost
Leadership
Focused Differen-
tiation
Cost
Leadership
Differen-
Focused Low Cost 8

10. Cost Leadership Business Level Strategy
Key Criteria:
Relatively standardized products
Features acceptable to many customers
Lowest competitive price 14

11. Cost Leadership Business Level Strategy
Requirements:
Constant effort to reduce costs through:
Building efficient scale facilities
State of the art manufacturing facilities
Simplification of processes
Minimizing costs of sales, R&D and service
Monitoring costs of activities provided by outsiders
Tight control of production costs and overhead 20

12. How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain as needed
Alter production process
Change in automation
New distribution channel
Direct sales in place of indirect sales
New advertising media
New raw material
Backward integration
Forward integration
Change location relative to suppliers or buyers 36

13. Reconfiguring the Value Chain of Iowa Beef Packers (IBP)
Ranch Cattle
Ship “on the Hoof” to Rail Center (Chicago)
Slaughter into sides of beef
“Boxed Cuts” at Markets
Old
Way:
New
Way
Way:
Locate large automated plants near ranches
Process into “Boxed Cuts” at plants
Ship cuts already “Boxed” to Markets
Save on shipping and cattle weight loss
Utilize cheaper non-union rural labor 40

14. Choices That Drive Costs
Economies of scale
Asset utilization
Capacity utilization pattern
Value chain linkages
Interrelationships
- Advertising & Sales
- Logistics & Operations
- Seasonal, cyclical
- Order processing
and distribution
Product features
Performance
Mix & variety of products
Service levels
Small vs. large buyers
Process technology
Wage levels
Hiring, training, motivation 41

15. Three Key Questions 1.
How can an activity be performed differently or even eliminated? 2.
How can a group of linked value activities be regrouped or reordered? 3.
How might coalitions with other firms lower or eliminate costs?
Gallo sold wine through grocery stores rather than liquor stores because they were more efficient distributors 44

16. Effective Cost Leaders can remain profitable even when the
Five Forces appear unattractive 45

17. Major Risks of Cost Leadership Business Level Strategy
Dramatic technological change could take away your cost advantage
Competitors may learn how to imitate Value Chain
Focus on efficiency could cause Cost Leader to overlook changes in customer preferences 51

18. Generic Business Level Strategies Breadth of Competitive Scope
Source of Competitive Advantage
Cost
Uniqueness
Cost
Leadership
Broad
Target
Market
Breadth of Competitive Scope
Narrow
Target
Market 52

19. Generic Business Level Strategies Breadth of Competitive Scope
Source of Competitive Advantage
Cost
Uniqueness
Cost
Leadership
Differen-
tiation
Broad
Target
Market
Breadth of Competitive Scope
Narrow
Target
Market 53

20. Differentiation Business Level Strategy
Key Criteria:
Value provided by unique features and value characteristics
Command premium price
Superior quality
Rapid innovation
Prestige or exclusivity
High customer service 59

21. Differentiation Business Level Strategy
Requirements:
Constant effort to differentiate products through:
Developing new systems and processes
Quality focus
Maximize Human Resource contributions through low turnover and high motivation
Capability in R&D
Shaping perceptions through advertising 59

22. Differentiation Business Level Strategy
Effectiveness with Differentiation grows out of Value Chain activities
Examples:
Heineken beer
Raw materials
Caterpillar tractors
Service buyers’ needs quickly anywhere in the world
Intel microprocessors
Technological superiority
Steinway pianos
Raw materials & Workmanship
Mercedes Benz autos
Technology and Workmanship 76

23. Create Value with Differentiation by:
Lowering Buyers’ Costs
Raising Buyers’ Performance
Creating Sustainability through:
Creating barriers by perceptions of uniqueness
Creating switching costs through differentiation 79

24. Drivers of Differentiation
Unique product features
Unique product performance
Exceptional services
Quality of inputs
New technologies
Exceptional skill or experience
Detailed information
Examples: 80

25. Effective Differentiators can remain profitable even when the
Five Forces appear unattractive 81

26. Major Risks of a Differentiation Business Level Strategy
Customers may decide that the cost of “uniqueness” is too great
The means of uniqueness may no longer be valued by customers
Competitors may learn how to imitate Value Chain 87

27. Generic Business Level Strategies Breadth of Competitive Scope
Source of Competitive Advantage
Cost
Uniqueness
Cost
Leadership
Differen-
tiation
Broad
Target
Market
Breadth of Competitive Scope
Narrow
Target
Market 88

28. Generic Business Level Strategies Breadth of Competitive Scope
Source of Competitive Advantage
Cost
Uniqueness
Cost
Leadership
Differen-
tiation
Broad
Target
Market
Breadth of Competitive Scope
Focused Differen-
tiation
Focused Low Cost
Narrow
Target
Market 89

29. Focused Business-Level Strategies
A focus strategy must exploit a narrow pocket that is different from the balance of the industry by:
isolating a particular buyer group
isolating a unique segment of a product line
concentrating on a particular geographic market
finding their “niche”
Focused Differentiators may thrive by selecting a small market that is underserved by large players
 Example: Custom manufacturers of parts for Harley-Davidson motorcycles 
Snap-on High quality mechanics’ tools

30. Focused Business Level Strategies
Factors That May Drive Focused Strategies.
Large firms may overlook small niches
Firm may lack resources to compete industry-wide
May be able to serve a narrow market segment more effectively than industrywide competitors
Focus can allow you to direct resources to certain value chain activities to build competitive advantage 94

31. Major Risks Involved With a Focused
Differentiation Business Level Strategy
Firm may be “outfocused” by competitors
Large competitor may set its sights on your niche market
Preferences of niche market may change to match those of broad market
100

32. Generic Business Level Strategies Breadth of Competitive Scope
Source of Competitive Advantage
Cost
Uniqueness
Integrated Low Cost/
Differentiation
Cost
Leadership
Differen-
tiation
Broad
Target
Market
Breadth of Competitive Scope
Focused Differen-
tiation
Focused Low Cost
Narrow
Target
Market
102

33. Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may:
Utilize Flexible Manufacturing Systems to create differentiated products at low costs
Adapt more quickly
Learn new skills and technologies
Leverage core competencies through Information Networks across multiple business units
Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
103

34. Benefits of Integrated Strategy
Successful firms using this strategy have above-average returns
Firm offers two types of values to customers
some differentiated features (but less than a true differentiated firm)
relatively low cost (but now as low as the cost leader’s price)

35. Integrated Low Cost/Differentiation Strategy
Major Risks
Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise
The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy
104

36. Integrated Low Cost/Differentiation Strategy
Southwest Airlines
Use a single aircraft model
(Boeing 737)
Use secondary airports
Fly short routes
15 minute turnaround time
No meals
No reserved seats
No travel agent reservations
Low Cost
Focus on customer satisfaction
New flight services for business travelers
(phones and faxes)
High level of employee dedication
Differentiation
107