Key Points:

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Key Points Chapter 4 Business-Level Strategy

• Generic Business-Level Strategies
• Differentiate between the five generic strategies
  
• For each strategy
• Explain its aims and how these aims can be
  achieved
• Understand the competitive risks
• Advantages and disadvantages of first and second
  movers
• Understand how external and internal analysis are
  used by firms as they decide which generic
  strategy to use

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Strategy

• Strategy an integrated and coordinated set of
  commitments and actions designed to exploit core
  competencies and gain a competitive advantage
• Business-level strategy an integrated and
  coordinated set of commitments and actions
  designed to provide value to customers and gain a
  competitive advantage by exploiting core
  competencies in specific, individual product
  markets

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Business-Level Strategy

• How should I compete in a particular business?
• Use existing or develop new core competencies to
  gain a competitive advantage
• Consider the general environment, the state of my
  industry, what my competitors are doing, and my
  position in the industry
• Create a position that is defensible in the long
  run so that I can outperform my competitors
• Customers
• Who? What needs? How?

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Figure 4.1 Four Generic Strategies
Source of Competitive Advantage
Differentiation
Cost
Cost Leadership
Broad Target
Differentiation
Breadth of Competitive Scope
Focused Low Cost
Focused Differentiation
Narrow Target
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Cost Leadership

• Integrated set of actions aimed at attaining low
  cost (relative to competitors) with acceptable
  features
• Usually characterized by
• Standardized products aimed at typical customer
• Techniques
• Efficient-scale facilities
• Vigorous pursuit of cost reductions
• Tight cost and overhead control
• Minimize costs in areas such as RD, service,
  sales, advertising, etc.
• BUT, these areas cannot be ignored

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Figure 4.2
Firm Infrastructure
Human Res. Management
Technology Development
Procurement
Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
Service
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Risks of a Cost Leadership Strategy

• Technological innovations by competitors will
  render manufacturing equipment obsolete
• Miss significant changes in customer needs or
  competitor moves because too focused on cost
  savings
• Imitation by other firms

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Differentiation

• Integrated set of actions aimed at producing
  products that customers view as different in
  way(s) that are significant to them
• Usually characterized by
• Ability to charge a premium
• Serve several market segments
• Products with unique attributes that provide
  value
• Design, brand name, features, technology,
  customer service, dealer network
• Strongest when unique on several dimensions

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Figure 4.3
Firm Infrastructure
Human Res. Management
Technology Development
Procurement
Inbound Logistics
Operations
Outbound Logistics
Marketing and Sales
Service
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Risks of a Differentiation Strategy

• Customers decide price premium is too great
• Means of differentiation no longer adds value
• Customer learning narrows perception of the value
  of differentiated features
• Counterfeiting

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Focus (Focused Low-Cost and Focused
Differentiation)

• Integrated set of actions aimed at meeting the
  needs of a particular competitive segment
• Usually characterized by
• Having a competitive advantage in one particular
  segment of the market, but not others
• Serve segment more efficiently or effectively
• Serve segments with unique needs or that are
  poorly served by others

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Risks of a Focus Strategy

• All those applicable to cost leader or
  differentiator PLUS
• Another firm outfocuses by concentrating on an
  even more narrow segment
• Firms serving the entire industry begin to
  compete heavily in the focusers market segment
• Needs of customers in the segment become more
  similar to the needs of other segments

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Integrated Low-Cost/Differentiation

• Integrated set of actions aimed at attaining both
  low cost and products that customers view as
  different in way(s) that are significant to them
• Usually characterized by
• Differentiated features (not as many as
  differentiator)
• Relatively low cost (not a low as cost leader)
• Multiple sources of competitive advantage
• Techniques
• Flexible manufacturing systems
• Information networks within and across firms
• TQM

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Risks of an Integrated Low Cost/Differentiation
Strategy?

• Offers great potential for above-average returns
• BUT, high risk of failure
• Firms may become stuck in the middle

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Advantages
Disadvantages
First Mover Second Mover Late Mover