Chapter Five

Business-Level Strategy

Multimedia Slides by Peter J. McAliney Chenery & Company

Chapter Overview

Business-level strategy Business-level strategy and competitive performance Generic business-level strategies Combining business-level strategy choices Strategic choices for differing industry conditions

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Strategy
Strengths necessary and appropriate to overcome hurdles Strong market position Exceptional internal capabilities

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Characteristics of Business-Level Strategy

1. Strategy for a single business

2. Main focus is competitive threats 3. Achieves business goals by building and nurturing competitive advantage

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Business-Level Strategy Choices

Firm Competencies

Firm Strengths

Needs of External Environment

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Porters Model of Strategy (I)

Two Themes
Do what competition does but do it differently Do entirely different activities compared to competition

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Porters Model of Strategy (II)

Source: Adapted with the permission of The Free Press, A Division of Simon & Schuster Adult Publishing Group, from Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright 1980, 1998 by The Free Press.

Competitive Strategy:

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Cost Leadership
Lowest possible cost position, industry wide
Industry Retail Auto Steel Watches Company Wal-Mart Hyundai Nucor Timex

Banking Restaurant

ING McDonalds

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Requirements to Pursue Cost Leadership

Standard product designs
Economies of scale Standard processes Automation Work standardization

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Differentiation
Industry Auto Service Auto Clothing Fast Food Machinery Computers Company Jiffy Lube BMW Ralph Lauren Dominos Caterpillar Apple

Most unique and differentiated product, industry wide

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Requirements to Pursue Differentiation

Continuous improvement Product variety Differentiated strengths R&D Defect-free manufacturing Marketing and branding Innovation Service
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Cost Focus
Narrow product line or market segment, differentiated on cost Industry Electrical Fixtures Golf Accessories Pharmaceuticals Computer Supply Consumer Electronics
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Company Thomas & Betz golftees.com Marion Labs CompUSA Best Buy
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Differentiation Focus
Narrow product line or market segment, differentiated on features
Industry Watches Company Rolex

Jewelry Auto Food

Restaurant

Cartier Maserati Dean & DeLuca

In & Out Burger

Clothing
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Versace
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Requirements to Pursue Focus Strategies

Flexibility
Cost control Minimized product variety

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Porters Generic Strategies One tool in a strategists toolkit

- Advantages

- Disadvantages

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Conditions Driving Strategy Choice

Differentiation

Cost

Focus

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Combined Strategies
Cost

Product-cost-service offerings Drivers

Changing consumer values Dynamic industry conditions Search for competitive advantages

Differentiation

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Miles and Snow Generic Strategies

Prospector Defender Analyzer

Reactor

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Prospector
Explore and exploit new products or market opportunities for high growth Industry Retail Company Amazon

Electronics Consumer Products Communication

Security
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Sony 3M
Research in Motion Taser
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Defender
Maintain current market positions, prevent competitor encroachment Effectively serve existing customers
Industry Company

Electronics
Auto

Airline
Computer Software

Lincoln Electric General Motors United

Microsoft

Computer Hardware

IBM

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Analyzer
Combined prospector and defender
Industry BeverageTheme Parks Company Anheuser Busch

BeverageMusic Retail- Service Airlines Music

Starbucks
Home Depot

Virgin

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Reactor
No coherent strategy
Industry Retail Computer Hardware Computer Software Auto
Airline

Company * Kmart Digital Equipment Visicalc

American Motors Pan Am

* All companies in this list either entered bankruptcy and/or were acquired
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Strategy and the Industry Life Cycle

Demand
Emergence

Growth

Maturity

Decline

Time
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Strategy in the Emergence Stage

Survival Limited quantities, high prices Add features Invest in R&D and marketing Product differentiation
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Demand

Time

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Strategy in the Growth Stage

Rapid growth/market share Top line growth Prevent new entry Improve product, expand service Differentiation

Demand

Time

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Strategy in the Mature Stage

Retain market share Bottom line growth Standardization Best at executing selected generic strategy Cost Differentiation Focus
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Demand

Time

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Strategy in the Decline Stage

Maintain in a shrinking market Reduce asset base Acquire exiting firms Cost strategy Focus strategy
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Demand

Time

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Chapter Summary

Business-level strategy Business-level strategy and competitive performance Generic business-level strategies Combining business-level strategy choices Strategic choices for differing industry conditions

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