Chapter 4

Business Strategy
The business Strategy is an approach to growth and competition in it chosen market. The good
example here is the strategy of the BMW company to reach number one in the industry of
automobile. The challenge here is to balance their aggressive growth plan against their obsession
with performance, innovation and brand image. Thus far, BMW has successfully achieved it.

Business Manager are involved two categories of strategies:

Growth Strategy – Concern with increase of size and viability of the business by dealing
with resources allocation, setting scope and time of the business growth direction. The business
can choose to pursue growth through internal or external investment, or Stabilize their growth by
giving restriction on both internal and external investment.

Internal Growth Strategies

By investing its resources (i.e., time, money, people) internally, a business can pursue
market penetration, market development or product/service development.

Market penetration- this is focus on investing on advertising to increase in sales and

market share

Market development- this focus on finding new costumer groups or finding new uses of
existing products that involve innovation, research and new market approach.

Product/service development – it focusses on modifying existing product or develop

new product/services to gain more sells

External Growth Strategies

This involve investing organization resources in another company or business achieve

growth targets, include horizontal integration and joint venture or alliances. When an
organization makes decision to increase its scope, it introduces additional management
complexity.
 Horizontal integration – involves the acquisition of an organization in the same line of
business. This purpose is to gain market share in a particular market share, expanding
market graphically or augmenting product line or service lines.

Joint venture or alliances - This will penetrate new domestic or foreign markets,
develop new products and services, or improve existing processes for producing product
and services. Alliances that involve movement into new market products or processes
will pull the organization into additional areas, which increase complexity and requires
coordination and control that can create a new business division to serve coordinating
unit.

Stability strategies

This strategy makes no overt action are taken to achieve growth. This can be logical and
an appropriate use of investment funds. There are many situations in which investing for
the objective growth is counterproductive or ineffective and it can also call out attention
of the competitors. This situation is typical of industries with low profits, no growth and
high exit barriers. Exit barriers exist when capital equipment and skills an organization
possesses are not applicable to other business.

Timing of Growth Strategies

Knowing the timing of particular growth moves relative competitor is a key to growth.
Research identify four categories to know the right timing.

Prospectors – pursue what could be termed am offensive strategy and take risk.

Defenders – turf protectors that are engage in little or no new product/market

development.

Analyzer – Attempt to maintain position in existing markets, while waiting to see happen
to other competitors.

Reactors – no distinct strategy but react to environmental situation.

Competitive Strategy – this concern with how the firm intends to position itself to create value
for its customers in a way that differ with other competitors. Growth and competition are tightly
linked: only through successful competitive strategies will an organization have the fuel to make
the growth successful.

In general, firms seek a competitive advantage either by offering products or services that
different from those competitors and those differences are valued by costumer’s product or
services that are standard, but produced at lower cost or a combination of the first two options, a
hybrid competitive strategy called best cost.

Cost Leadership – Set out to become the lowest cost providers of good or service. This
means that they attempt to serve a large percentage pf the total market.

Factors that underlie cost structure in firm:

High Capacity Utilization – When demand is high and production capacity us fully
utilized, a firm’s fixed cost is spread over more units, which lower unit cost.

Economies of scale- are often confused with increase in the “thoughput” of a

manufacturing plant or other facilities. Increase on capacity utilization that spread fixed
expenses can lead to lower unit cost.

Technological advances – are often trading an increase in fixed costs for a reduction in
variable cost.

Learning/Experience effect – The learning curve effect say that the time required to
complete a task will decrease as a predictable function of number of times the task
repeated.

Differentiation Strategies

The emphasis is on creating value though uniqueness, as opposed to lowest cost. Uniqueness can
be achieved through product innovations, superior quality, superior service, creative advertising,
better supplier relationship, or in many other ways.
Best Cost – These uncommitted firm should have lower performance than committed firms
because they have no consistent basis for creating superior value and are not effective at
implementing either strategy.

Focus – can be based on differentiation (differentiation focus) or lowest cost (cost focus) or a
combination of differentiation and lowest cost (best-cost focus). The key to a focus strategy is
providing a product or service that caters to a particular segment in the market.