Strategic management Business administration T.5 Business level Strategy

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Strategic managementBusiness administrationT.5
Business level Strategy

• Prof.Dr. E. Vatchkova

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Contents JSh, 2002

1. Forces, influencing BS
2. The strategy clock
3. Sustaining competitive advantage
4. Competition and collaboration
5. Game theory
6. Competitive strategy under hypercompetitive
   conditions

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What is it about?

• Bases of strategic choice at this level
• Generation of rents, superprofits, economic
  profit

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Why is it important?

• How to compete effectively in a market?
• How value is realized?
• To what extent is it possible to achieve
  competitive advantage?
• How the investments depend on the value created
  by constituent business units?

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Bases of strategic choice at the business level

• The influence of environment, capabilities,
  expectations
• Gaining competitive advantage - generic
  competitive strategies price-based,
  differentiation, focus
• Sustaining competitive advantage low price
  advantage, differentiation, lock-in
• Co-operative and competitive strategies
• Games theory and hypercompetition

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• 4.
• Differentiation

• 3.
• Hybrid

• 5.
• Focused
• Differentiation

• 6.

• 2.
• Low price

• failure

• 7.

• 1.
• No frills

• 8.

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The strategy clock

• Price-based strategy(routes1 2)
• The hybrid strategy (route 3)
• Add value, or differentiation strategy (route 4)
• Focused differentiation(route5)
• Failure strategy (route 6,7 8

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NO FRILLS STRATEGY

• It combines
• Low price
• Low perceived added value
• Focus on a price sensitive market segment
• Risks- likely to be segment specific

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LOW PRICE STRATEGY

• Lower price for similar value
• Low cost base
• Focusing on unattractive market segment
• Risk price war
• low margins
• need to be cost leader

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HYBRID STRATEGY

• Low cost base, reinvestment in low price and
  differentiation
• Entry strategy market segment, facilitating
  low-price approach
• Core competencies, on which differentiation can
  be built
• Greater volumes achieved, margins kept because of
  low cost price

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DIFFERENTIATION STRATEGY (with or without price
premium)

• Uniqueness or improvements in products
• Marketing based approach
• Competence-based approach

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Focused differentiation

• Perceives added value to a particular segment
• Warranting price premium

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LOCK-IN STRATEGY

• The organization has achieved a proprietary
  position in its industry
• It has become an industry standard
• Microsoft, IBM

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Ultimate failure strategies

• Increased price/standard value
• Higher margins if competitors do not follow
• Risk of loosing market share
• Increased price/low value
• Feasible only in monopoly situation
• Low values/standard price
• Loss of market share

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COLLABORATION STRATEGY

• Buyer-seller
• To increase buying power
• To build barriers to entry or avoid substitution
• To gain entry and competitive power
• To share work with customers

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GAMES THEORY

• THE STRATEGIST IS TO ANTICIPATE THE REACTIONS
  OF OTHERS
• COMPETITORS WILL BEHAVE RATIONALLY
• INTERDEPENDANT RELATIONSHIP OF COMPETITORS
• THE NEED TO BE IN THE POSITION OF COMPETITOR TO
  BE INFORMED

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TYPES OF GAMES

• Simultaneous games
• Sequential games
• Repeated games