Business Level Strategy

Business Level Strategy

A Business

Level Strategy is an integrated and

coordinated set of commitments & actions designed
to provide value to customers and gain a
competitive advantage by exploiting core
competencies in specific individual product markets

Three

Issues:

Whom it will serve

What needs target customers have that it will

satisfy
How those needs will be satisfied through
implementation of given strategy

Types of Business-Level
Strategies
Business-level strategies are intended to create

differences between the firms position relative to

those of its rivals
To position itself, the firm must decide whether it
intends to perform activities differently or to
perform different activities as compared to its
rivals

Five Generic Strategies

Broad
target

Cost

Uniqueness

Cost
Leadership

Differentiation

Integrated Cost
Leadership/
Differentiation
Narrow
target

Competitive Scope

Competitive Advantage

Focused Cost
Leadership

Focused
Differentiation

Types of Business Level Strategies

Cost

Leadership
Differentiation
Focus Strategy
Cost Leadership:
Integrated set of actions designed to produce or deliver
goods or services at lower cost
Focus on driving costs lower relative to competitors
cost
Features that are acceptable to customers

Cost Leadership Strategy

Cost saving actions required by this strategy:
building efficient scale facilities
tightly controlling production costs and overhead
minimizing costs of sales, R&D and service
building efficient manufacturing facilities
monitoring costs of activities provided by outsiders
simplifying production processes

How to Obtain a Cost

Advantage

Determine and
control

Cost Drivers

Alter production process

Change in automation
New distribution channel
New advertising media
Direct sales in place of
indirect sales

Reconfigure, if
needed

Value Chain

New raw material

Forward integration
Backward integration
Change location
relative to suppliers or
buyers

Major Risks of Cost

Leadership Strategy
Dramatic technological change could take away

your cost advantage

Competitors may learn how to imitate value chain
Focus on efficiency could cause cost leader to
overlook changes in customer preferences

Differentiation
Unique

attributes & characteristics of a firms

product provide value to customers
Premium prices due to unique need satisfaction
Firms must be truly be unique at something to be
perceived as unique
Unusual Features, Responsive Customer Service,
Rapid Product Innovations, Different Status ,
Engineering Designs, Prestige & Status
Anything to create real or perceived value
Challenge to identify features that create value
for customers

Factors That Drive

Differentiation
Unique product features
Unique product performance
Exceptional services
New technologies
Quality of inputs
Exceptional skill or experience
Detailed information

Focus Strategy
Integrated

set of actions designed to produce goods

or services that serve the needs of a particular
competitive segment
A particular Buyer group, A different segment of a
product line, different geographic market
Focused Cost Leadership or focused
Differentiation
Firms have the core competencies required to
provide value to a narrow competitive segment
that exceeds the value available from firms serving
customers on industry wide basis

Focused Business-Level Strategies

A focus strategy must exploit a narrow targets
differences from the balance of the industry by:
isolating a particular buyer group
isolating a unique segment of a product line
concentrating on a particular geographic market
finding their niche

Factors That May Drive Focused Strategies

Large firms may overlook small niches
Firm may lack resources to compete in the

broader market
May be able to serve a narrow market segment
more effectively than can larger industry-wide
competitors
Focus may allow the firm to direct resources to
certain value chain activities to build
competitive advantage

Major Risks of Focused

Strategies
Firm may be outfocused by competitors
Large competitor may set its sights on your niche

market
Preferences of niche market may change to match
those of broad market

Advantages of Integrated
Strategy
A firm that successfully uses an integrated cost
leadership/differentiation strategy should be in a
better position to:
adapt quickly to environmental changes
learn new skills and technologies more quickly
effectively leverage its core competencies while
competing against its rivals

Benefits of Integrated Strategy

Successful firms using this strategy have above-

average returns
Firm offers two types of values to customers
some differentiated features (but less than a true
differentiated firm)
relatively low cost (but now as low as the cost
leaders price)

Major Risks 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

Functional Strategies

The short-term goal-directed decisions and actions of an organizations functional

departments.

All organizations perform 3 basic functions as they create and deliver goods and services:

1.

Marketing (to assess and establish product demand then market and deliver the product after
production)
Production and operations (to create the product/service)
Financial and accounting ( to get payment for the product/service and information on
performance results)

2.
3.

4.
-

These three basic functions typically expand into:

Production-Operations-Manufacturing Strategies
Marketing Strategies
Human Resource Management Strategies
Research and Development Strategies
Information System Strategies
Financial-Accounting Strategies

MARKETING
Building

Customer Satisfaction, Value, & Retention

Market Oriented Strategic Planning
Analyzing Consumer Markets and Buying Behavior
Setting the Product & Branding Strategy
Developing Price Strategies & Programs
Designing & Managing Value Networks and
Marketing Channels
Managing Integrated Marketing Communications
Managing Advertising, Sales Promotion, & PR
Direct Marketing Fundamentals

Financial Management
CAPITAL ACQUISITION:
Acceptable

cost of capital
Desired proportion of short term & long term
debt; Preferred & common equity
Balance b/w Internal & External Funding
Appropriate Risk & Ownership structures
Levels & Forms of leasing for providing assets

Financial Management
CAPITAL ALLOCATION
Priorities

for Capital Allocation Projects

Final selection of Projects
Capital Allocation by operating Managers w/o approval
DIVIDEND & WORKING CAPITAL MANAGEMENT
Proportion of earnings as dividends
Importance of dividend stability
Cash Flow Requirements; Minimum & Maximum Cash
balances
Liberal/ Conservative Credit Policies
Payment timings & Procedures

Financial Management
CAPITAL STRUCTURE
Optimal

DECISION:

Capital Structure
Debt & Equity Ratio
External vs. Internal Financing
SOURCES & USES of CASH:
Cash Flow Statements

Functional Strategies in the R & D Area

Research

vs. Commercial Development:

Emphasis on Innovation & Break Through
Emphasis on product development,
Refinement & modification
Time Horizon:
Short Term or Long Term
Orientation to support business strategy

Functional Strategies in Personnel

Development

of Managerial Talent:

Employee Recruitment, Selection & Orientation

Career Development & Counseling, Training &

Development

Compensation

& Regulatory Concerns:

Compensation, Labor/Union Relations

Competent

& Well Motivated:

Discipline, Control & Evaluation

Performance Appraisal, 360 degree Feedback