1. Business-Level Strategy
Chapter 7

2. Learning Objectives Compare business-level strategies.
Describe how each type of business-level strategy creates competitive advantage.
Examine the underlying drivers for each type of business-level strategy.
Analyze when outsourcing makes sense.

3. Two Important Dimensions
Strategic Approach
Low Cost Leadership – lower costs while providing competitive level of benefits
Differentiation – increasing benefits while providing competitive level of cost / price
Scope
Broad – multiple segments or geographies
Narrow – tailored to specific segments or areas

4. Five Business-Level Strategies

5. Connecting Strategy to Superior Performance (Above Average Profits)

6. Caveats for Business Strategy
Parity on other conditions valued by the market
Low cost – cost is not the only factor
Differentiation – price / value relationship
Evolution of customer expectations
Evolution of competition

7. Low Cost Leadership - Drivers
Economies of scale
Capacity utilization
Experience curve
Product / service design
Process innovation (value chain design)
Internal value chain coordination

9. Low Cost Leadership - Risks
Not owning low cost leadership position
Price is not a strategy
Price is tactical & immediate; low cost requires strategic investments over the long run
Customers no longer value benefits derived from low costs
Cost position can be imitated over time

10. Differentiation – Drivers
Product and service features
Respond to customer needs
Integrity of product / service
Use of quality inputs
Psychographic and cognitive benefits
Marketing and advertising
Perceived responsiveness to customers
Corporate reputation
Process innovation (value chain design)
Internal value chain coordination

12. Differentiation – Risks
Product differentiation is not strategy (Value Chain differentiation is)
Customers no longer value benefits derived from differentiation
Differentiation positions can be imitated over time

13. Variations on Business Strategy
Focus
Subset of industry's products / services
Segmenting customers or customer needs
Targeting narrow geography or customer access
Integrated Low Cost / Differentiation Strategy
Seeking to address both dimensions
Runs risk of becoming "stuck in the middle"

15. Strategy and Outsourcing
Enhance position in the market
Joint ventures for R&D
Offloading non-essential activities
No particular internal competence
Does not contribute to strategic position

16. Outsourcing Risks Loss of control over costs or differentiation values
Disruption of coordination and linkages across internal value chain
"Hollowing out the core"
Possible cumulative effect of sets of activities that are outsourced
Competitive learning
Competitors can more easily observe "what remains" after the outsourcing