1. BUSINESS-LEVEL STRATEGIC ALTERNATIVES
Payne
(5)

2. Which businesses should we be in?
INDUSTRY
ATTRACTIVENESS
Which businesses should we be in?
CORPORATE STRATEGY
RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL
How do we make money?
COMPETITIVE ADVANTAGE
How should we compete?
BUSINESS STRATEGY

3. The Decision Logic of Strategy Formulation
May be Corporate or Business
Strategic Decisions
Establishment of mission, vision, values, objectives
-- the Directional Strategies
Identification, evaluation, and selection of
-- the Adaptive Strategies
Identification, evaluation, and selection of
-- the Market Entry Strategies
Identification, evaluation, and selection of
-- the Positioning Strategies
Implementation through development of
-- the Functional & Operational Strategies

5. Adaptive Strategies
Delineate how the organization will adapt to changes in the environment or competitive landscape:
Expansion
Diversification
Vertical Integration
Market Development
Product Development
Penetration
Contraction
Divestiture
Liquidation
Harvesting
Retrenchment
Outsourcing
Stabilization
Enhancement
Status Quo
Corporate Strategy Decisions Only

6. Remember Ansoff’s Matrix?

7. Business-Level Strategy
Business-level strategy: an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.
Key Issues:
What product/service to offer customers?
How to manufacture or create the product or service?
How to distribute the product/service in the marketplace?

9. RBV: Core Competencies and Strategy
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals
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

10. Competitive Advantage
“The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.” - Gary Hamel and C.K. Prahalad
COMPETITIVE ADVANTAGE exists when a firm’s strategy gives it an edge in:
Defending against competitive forces and
Securing customers
…such that the firm earns (or has the potential to earn) a persistently higher rate of profit.

11. Gaining of Competitive Advantage
“The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.”
- Gary Hamel and C.K. Prahalad
COMPETITIVE ADVANTAGE comes with the offering of SUPERIOR VALUE through:
Offering buyers a good product at a lower price
Offering a better product/service buyers think is worth a premium price

12. Adaptive: Expansion-Market/Product Development & Penetration
Market Development -- expand geographic service area or by targeting new market segments within the present area.
Building new store near high-growth residential areas
Product Development -- introduction of new product/services in present markets, through product/service enhancement and line expansion.
Penetration -- centered on promotional, distribution, and pricing strategies with current products or services.
1 in 12 wins Coca-Cola or “buy one, get one free” for Tinactin.

13. The BCG Portfolio Matrix
18%
16%
10%
22% 2% 4% 6% 8%
20%
14%
12%
Business Growth Rate
Stars
Cash Cows
Dogs
Question Marks
Relative Market Share

14. Adaptive: Stabilization Strategies
When past strategies have been viewed as appropriate and few changes are required:
Enhancement - when organization just “needs to do things better;” takes forms of CQI, TQM programs, speeding delivery, adding flexibility to service design
Status Quo - maintenance of services at the current levels, defending against competitors

15. Market Entry Strategies
Carry out the expansion (and stabilization) strategies through:
Purchase Strategies:
Acquisition – purchase of new product, unit or organization
Licensing – lease technology, product or service
Venture Capital Investment – “try out” investment option
Cooperation Strategies:
Mergers – two organizations come together as one
Strategic Alliance – long-term agreement to work together
Joint Venture – combined resources to work on common issue of interest
Developmental Strategies:
Internal Development – uses existing resources or structures
Internal Ventures – establishes new entity for developmental purposes
May be Corporate Decision if in Different Market

16. Positioning Strategies
Business Level Positioning:
Position the organization vis-à-vis other organizations within the market
These are market-oriented and best articulate the competitive advantage within the market
May be market-wide (or broad-based) or directed at a particular segment (or niche-focused)
Based largely on Generic Business Strategies:
Low-Cost Leadership Strategy
Broad Differentiation Strategy
Focused Low-Cost Strategy
Focused Differentiation Strategy

17. Porter’s Generic Strategies

19. A Low-Cost Leadership Strategy
Objective: Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis either to:
Under-price rivals and reap market share gains OR
Earn higher profit margin selling at going price
Keys to Success:
Make achievement of low-cost relative to rivals the THEME of firm’s business strategy
Find ways to drive costs out of business year-after-year
Characteristics
Cost conscious corporate culture
Efficient scale facilities
Tightly controlled production costs and
overhead
Minimized costs of sales, R&D and
service
Efficient manufacturing facilities
Simplified production processes
Intensive scrutiny of budget
requests

20. Drivers of Cost Advantage
Product Design
Design for Automation
Designs to Economize on Materials
Input Costs
Location Advantages
Ownership of Low-Cost Inputs
Bargaining Power
Supplier Cooperation
Capacity Utilization
Ratio of Fixed to Variable Costs
Costs of Installing and Closing Capacity
Managerial / Organizational Efficiency
Organizational Slack
Economies of Scale
Indivisibilities
Specialization and Division of Labor
Economies of Learning
Increased Dexterity
Improved Coordination and Organization
Process Technology and Process Design
Mechanization and Automation
Efficient Utilization of Materials
Increased Precision

21. Common Structure for Cost Leadership
Operations is main function
Process engineering is emphasized over R&D
Large centralized staff
Formalized procedures
Structure is mechanical, job roles highly structured
Office of the President
Centralized Staff
Engineering
Operations
Accounting
Marketing
Personnel

22. A Differentiation Strategy
Objective
Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals
Find ways to differentiate that CREATE VALUE for buyers and that are NOT EASILY MATCHED or CHEAPLY COPIED by rivals
Not spending more to achieve differentiation than the price premium that can be charged
Uniqueness is achieved in ways that:
Buyers perceive as valuable
Rivals find hard to match or copy
Can be incorporated at a cost well below the price premium that buyers will pay
Keys to Success
Characteristics

23. Differentiation Strategy
Differentiation actions required:
Developing new systems and processes
Shaping perceptions through advertising
Quality focus
Capability in R&D
Maximize human resource contributions through low turnover and high motivation
Differentiation Strategy (cont.)
• Minimize risk. Don’t put your company at risk by introducing all new products all the
time. Let proven products carry you. LMVH made only several thousand innovative
Dior handbags ($1,800/each). The rest of the product line was less radical in fabric
and design, but the company made more of them and sold them for less, thus encouraging
creativity while minimizing risk.
• Give star brands time to grow. Star brands need great talent and heritage. Use incubation
time to learn. Although the highly creative Christian Lacroix fashion house
hasn’t been profitable since its 1991 launch, LMVH uses it as a laboratory, learning
how to start a brand from scratch and nurturing it until it has some history.
(Continued on next slide.)
Factors Driving Differentiation:
Unique product features
Unique product performance
Exceptional services
New technologies
Quality of inputs
Exceptional skill or experience
Detailed information
Extensive personal relationships with buyers and suppliers

24. Common Structure for Differentiation
President and
Limited Staff
R&D
Marketing
New Product
R&D
Marketing
Finance
Operations
Human
Resources
Organizational Structure & Business-level strategy (p. 142)
Structure and Product Differentiation
Which structure is most efficient for multi-product line company like GM?
Which structure is most effective? Consider the automobile industry.
General Motors
GM uses an M-Form Structure, which includes 12 automobile divisions
1. Buick
• Geographic reach: U.S., Canada, Israel, and China
• Six models: midsize and luxury cars and SUVs emphasizing style and substance
• Logo/Slogan: The Spirit of American Style
2. Chevrolet
• Geographic reach: U.S., Canada, Mexico, Europe, Middle East (Israel, Saudi Arabia, etc.), Far East (Japan, Taiwan and
China)—Most global brand
• 22 models: Ranges from small and midsize cars, trucks, vans, and SUVs emphasizing style and substance
• Logo/Slogan: Full Throttle—Charging Ahead
3. Cadillac
• Geographic reach: U.S., Canada, Mexico, Europe, Middle East (Israel, Saudi Arabia, etc.), Far East (Japan, Taiwan, and
China)
• Six models: luxury cars and SUV emphasizing luxury and performance
• Logo/Slogan: Heritage Reborn
4. EV1
• Geographic reach: U.S., California and Arizona only
• One model: Electric car emphasizing fuel efficiency and environment
• Logo/Slogan: An exceptional car. A different driving experience.
5. GMC Trucks
• Geographic reach: U.S., Canada, and Brazil
• Eight models: Trucks, vans, and SUVs emphasizing engineering strength
• Logo/Slogan: Discover the Advantages of Professional Grade Engineering
(Continued on next slide.)
Marketing is the main function for tracking new product ideas
New product R&D is emphasized
Most functions are decentralized
Formalization is limited to foster change and promote new ideas
Overall structure is organic; job roles are less structured

25. Best Cost Provider/Integrative Strategy
Objective
Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation
Make an upscale product at a lower cost
Give customers more value for the money
Create superior value by MEETING OR EXCEEDING buyer expectations on product attributes and BEATING their price expectations
Be the low-cost producer of a product with GOOD-TO-EXCELLENT product attributes, then use cost advantage to UNDERPRICE comparable brands
Keys to Success

26. Major Risk of Integrated Strategy
An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm)
The firm may become “stuck in the middle” lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy

27. A Focus / Niche Strategy
Involves concentrated attention on a narrow piece of the total market
Serve niche buyers better than rivals
Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs
Develop unique capabilities to serve needs of target buyer segment
Achieve LOWER COSTS than rivals in serving the segment-- A low-cost strategy
Offer niche buyers SOMETHING DIFFERENT from rivals-- A differentiation strategy
Objective
Keys to Success
Two Types

29. IKEA