BUSINESS-LEVEL

STRATEGIES

Prof.Dr.Dr.Dr.H.C. Constantin

Bratianu

Faculty of Business Administration

Academy of Economic Studies
Bucharest, Romania

MEANING
Business-level strategies are strategies developed at
the level of Strategic Business Units (SBU).
A SBU is a component of a company that is able to put
on the market a product and to compete against other
companies for that product.
A SBU supplies goods or services for a distinct domain
of activity. More specifically, a SBU refers to a distinct
business within a large diversified corporation. Within
such a complex corporation, a SBU has the
responsibility of designing and implementing its own
strategies.
SBUs may be considered in some companies as being
divisions or profit centers.

GENERIC STRATEGIES
Business-level strategies have as the main characteristic
the control of production costs.

Generic strategies:
- Overall cost leadership strategies
- Differentiation strategies
- Focus cost strategies
- Focus differentiation strategies

Strategic target

Competitive advantage

Low cost

Differentiation

Industry
wide

Overall cost
leadership

Differentiation

Particular
segment
only

Focus cost
leadership

Focus
differentiation

Generic Strategies

Overall cost leadership strategy

Cost leadership can be achieved for one or a group
of products, by:
- Aggressive construction of efficient facilities
- Vigorous pursuit of cost reductions by using
the experience curve and standardization of
processes and of products and services
- Tight cost and overhead control
- Cost minimization in all activities in the firms
value chain
- Outsourcing production activities in countries
with a lower level of workers salaries (China,
Taiwan, India)

Cost leadership strategy

Efficiency curve / Learning curve
Cost/unit
CA
E=CA - CB

CB
VA

VB

Volume of sold
products

Examples
Henry Ford Model T car
- mass production
- costs reductions (inclusive colours)
- $3000 >>> $900 / car
IKEA Furniture company
- Good quality at low price
- Furniture at prices that are generally 30% to 50%
below that of competitors

Toyota management system

- kanban / Just in time (JIT) logic
- reducing any kind of stock and waste

Toyota system (I)

General formula for efficiency
Process result = work + waste (muda)
The problem of increasing efficiency is transformed
into the problem of reducing waste:
- waste of time
- waste of space
- waste of energy
- waste of transportation
- waste as overproduction
- waste as stocks

Toyota system (II)

The management is based on 2 principles:
- Just In Time (JIT)
- team work
The working method is called kanban.
Kanban is a sheet of paper, as a template, containing
information about the technological process
sequences necessary for each mechanical piece to
be realized.
Kanban system uses an inverse management logic,
since the working flux is controlled backward.

Differentiation strategy
The strategy of differentiation consists of creating
differences in the firms product or service offering by
creating something that is perceived industry wide as
unique and valued by customers
Successful differentiation can be obtain:
(a) setting prices at industry average and get
market shares because consumers will choose higher
quality at the same price, and
(b) raise prices over those of competitors and get
benefits of higher prices
BMW is known for its high prestige, superior
engineering, and high-quality automobiles
Harley-Davidson differentiates on image and dealer
services

Stuck in the middle

Michael Porter claims that managers must make a clear
choice between these generic strategies. Otherwise
they will be stuck in the middle, which is not a winning
position.
For a competitor having the lowest cost product on the
market it makes no sense to add extra costs to his
products to take advantage of some differentiation.
For a competitor following a differentiation strategy it
makes no sense to cut costs since the quality of the
product may decrease.
However, Porters argument for pure strategies is
controversial. There are companies with SBU that have
adopted different strategies.

Focus strategy
Focus strategy is based on the choice of a narrow
competitive scope within an industry
A firm following this strategy selects a segment or
group of segments and tailors its strategy to serve
them
The firm achieves a competitive advantage by
dedicating itself to these segments exclusively
Focus requires that a firm either have a low-cost
position with its strategic target, high differentiation,
or both

Focus strategy - examples

Focused cost leadership strategy:
JetBlue is a relatively recent entry on the commercialairline market, following Southwest Airlines model.
Focused differentiation strategy:
Montague focuses on the niche market of folding
bikes
Rolls-Royce and Ferrari in car industry
Harley-Davidson in motorcycle industry

Drivers for generic strategies

Low cost strategy

Differentiation strategy

Economy of scale
Economy of scope
Learning
Superior technology
Superior product
design
- Standardization

Premium brand image

Customization
Unique styling
Speed
Convenient access
Unusually high quality

Threats for generic strategies

Low cost

Differentiation

- New technology
- Inferior quality
- Social, political and
economic risk of
outsourcing
- Changing the needs or
customers

- Failing to increase
buyers willingness to
pay higher prices
- Underestimating costs
of differentiation
- Overfilling buyers
needs
- Lower-cost imitation

Integrated strategies
In reality, few firms choose well defined strategies
like being only low-cost leader or differentiator
In many firms there is an integration of these
strategies that mean elements of one type of
strategy strongly support another strategy. For
instance, elements of differentiation may support a
low-cost strategy.

Many low-cost firms invest in branding which

means differentiation (McDonalds)

Strategies for different phases of

industry life cycle
Embryonic stage
- Staying local
- Internal development
- Target basic needs and minimal differentiation
- Strategies to gain early footholds
- Costs are high. Focus is on securing additional
capital to fund growth phase

Strategies for different phases of

industry life cycle
Maturity stage
- Globalizing and diversifying
- Mergers and acquisitions for consolidation
- Choices of international markets and new industry
diversification need rational sequencing
-Declining growth demands cost containment and
rationalization of operations
- Implementing TQM strategy

Strategies for different phases of

industry life cycle
Decline stage
- Abandoning some markets if decline is severe
- Focusing on segments that provide the most
profitability
- Divestiture enable some competitors to exit and
others to consolidate larger shares of the market
- Fewer competitors result in less pressure for
differentiation
- Timing of exit from selected segments or business

Testing the quality of your strategy

1. Does your strategy exploit your key resources ?
2. Does your strategy fit with current industry
condition?
3. Will your differentiation be sustainable ?
4. Are the elements of your strategy consistent and
aligned with your strategic position?
5. Can your strategy be implemented?