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Strategic Management, 4e Teacher’s Resource Manual
CHAPTER 6
Business Strategy: Differentiation, Cost
Leadership, and Blue Oceans
CHAPTER CONTENTS
Learning Objectives
ChapterCase 6: JetBlue Airways: Finding a New Blue Ocean?
6.1 Business-Level Strategy: How to Compete for Advantage (LO 6-1)
CONNECT® INTEGRATION
Interactive Labeling: Business-Level Strategy
CONNECT® INTEGRATION
Case Analysis: Toyota Handling Recalls and Customer Satisfaction
CONNECT® INTEGRATION
Whiteboard Animation: Differentiation Strategy and Cost Leadership Strategy
6.4 Business-Level Strategy and the Five Forces: Benefits and Risks (LO 6-4)
6.5 Blue Ocean Strategy: Combining Differentiation and Cost Leadership (LO 6-5, LO 6-6)
CONNECT® INTEGRATION
Interactive Labeling: Blue Ocean Strategy
myStrategy
6-1
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The TRM follows the order of the textbook outline for each chapter and is divided into sections for each learning objective.
Each section identifies the relevant PowerPoint slides from both the Lecture slides and the Supplemental Lecture slides (more
on this below). This eases your preparation time for class as you can adjust slides as needed to ensure your students stay
actively engaged throughout each session.
Within the Instructor Resources Tab, located in the Connect® Library, the following Instructor Resources can be found:
McGraw-Hill Education has discontinued EZ-Test Online. Some of the robust new features present in TestGen®,
include:
▪ Cross-platform software compatibility with Windows and Mac
▪ Multiple LMS export formats, including Blackboard, Moodle, Desire2Learn, and Sakai
▪ Highly customizable formatting and editing option
4) Create™ Case Support (all cases are available in Create™ and selected ones in HBS)
a. A case matrix that identifies the industry sector covered by each case, as well as the primary and secondary
chapter alignments
b. One-page case abstract for quick overview of each case
c. Case Teaching Notes for instructor use only
d. Case Financials in Excel files for the exhibit data in the most popular cases
e. Case Strategic Financial Analysis template
f. Instructions on How to Downlaod SEC Financial Data into Excel Spreadsheets
5) MiniCase Support (all MiniCases are located in Part Four of the book)
a. MiniCase Matrix that identifies chapter alignment
b. MiniCase Teaching Notes comprising suggested answers to the MiniCase discussion questions. In some
instance, they also provide specific additional article and video resources to accompany each MiniCase.
6) Strategy Term Project
a. Modules for students on how to conduct a strategic management analysis of a company of their choosing;
there is one module per chapter so that students can build upon their analysis and tie each section of their
analysis to specific chapter concepts.
b. Running Case Teaching Notes that cover the strategy term project found in Connect®. HP is used as the
example firm to demonstrate how pieces of the term project align with each chapter.
7) Video Resources
a. The Video Grid and Guide provides links to supplemental video resources to accompany both the
MiniCases and full-length Create™ cases.
b. The Video Library provides links to all the assignable videos in Connect®.
8) A link to Capsim’s Capstone Simulation is provided; this simulation allows students to apply their knowledge of
key strategy concepts.
Typically, SmartBook® is assigned by module (chapter), and instructors can set which learning objectives to cover as well as
the number of probes the student will see for each assignment. Instructors also set the number of points a SmartBook®
module is worth in the course. Usually, applying a minimal number of points for completion of each module is enough to
encourage students to read the chapter. Many instructors assign these modules to be completed before the class or online
session.
SmartBook® provides several diagnostic tools for instructors to gauge which concepts their students struggle to understand.
Below is the set of adaptive assignment reports available in SmartBook®:
By selecting “Module Details” the instructor finds the results for the students in the class overall. These details reveal where
in the chapters students might be struggling. The module gives the chapter section, average time spent, average questions per
student correct/total, and the percentage of correctness (number of assigned items). Information about the most challenging
sections for students can help instructors refine the focus of the next classroom or online session.
For more detailed analysis, SmartBook® captures students’ confidence in their competency using the “Metacognitive Skills”
report. Below (a recreation of the Metacognitive Skills report), we find the second student is confident and mostly correct
(91% in the correct & aware column) while the first student “doesn’t know what she doesn’t know” (39% in the far-right
column).
Four exercises are available for instructors to assign beyond the chapter materials. These are 1) MiniCase Case Analyses, 2)
Case Strategic Financial Analyses (SFAs), 3) Financial Ratio Reviews, and 4) Case Exercises.
1) To encourage analytical thinking, each MiniCase from Part Four of the book is also an assignable application
exercise (MiniCase Case Analysis). Each MiniCase is followed by four to five multiple-choice questions that
assess students’ understanding of the key issues presented in the MiniCase.
2) The Case SFA provides assignable key ratio comparisons for the Create ™-only full-length cases available with the
textbook. These require the student to analyze the case financial statements and calculate answers to several ratios in
the spreadsheet. The Case SFAs engage students’ financial analysis skills—skills many professors have identified as
requiring more practice among their students.
3) Financial Ratio Reviews give students the opportunity to further hone their financial analysis skills; review
exercises cover each type of financial ratio (activity, leverage, liquidity, market and profitability).
4) Case Exercises, which are new to this edition of Strategic Management, focus on the key symptoms and influences
of a problem a firm might be facing, followed by a series of questions that help students understand how the firm
eventually achieves a solution to that problem (or asks students to suggest a solution). Case Exercises for this edition
accompany the most popular full-length cases: Amazon, Apple, BestBuy, Facebook, McDonald’s, and Tesla.
What resources are available for each chapter and how should I integrate them in my course?
Consider assigning one or two Application Exercises per chapter. They are built around chapter learning objectives, so the
instructor can choose based on his/her focus for each specific chapter. Several types of application exercises are available in
each chapter. The newest addition is the Whiteboard Animation series, comprising four- to five-minute videos on key
concepts or concepts that tend to challenge students the most. Each animation is accompanied by three to four multiple-
choice questions to check student attention and comprehension. Comprehensive Case Analyses and Video Cases each
6-4
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feature firms and industries different than those discussed in the textbook. Finally, Click-and-Drag exercises help students
actively demonstrate their understanding of the associated learning objectives. Application Exercises can be assigned as
preparatory exercises due before class (this is especially good for flipped classrooms), or after class as concept
comprehension checks. Applications Exercises will generally be assigned as homework or practice as part of the overall class
grade. A general rule of thumb would be to make application exercises worth 5 to 10 points each since these require time and
thought.
To find the Applications in Connect®, go to “Add Assignment” and then select “Question Bank.” Application Exercises are
organized by chapter. Instructors have the option to select for one attempt only, but they may want to give students unlimited
or multiple attempts on the first few assignments to give students a chance to learn and navigate the system. (As the course
progresses, instructors may want to tighten up the time on task and reduce the number of attempts to complete each exercise).
Chapter quizzes and full chapter test banks are available for assignment, and like the Application Exercises, are organized
by chapter. The value applied to each question should be relatively low because numerous questions are usually assigned for
each chapter. As such, make these questions worth 1 or 2 points each. The feedback given to students is time-flexible.
Selecting feedback to be displayed after the assignment due date helps to keep students from giving the correct answers to
other students while the questions are still available. For this reason, it is suggested that no feedback to quizzes and test bank
exams be made available until after the assignment is due.
More detailed information on SmartBook® and Connect® is available through several resources at McGraw-Hill. A good
starting point is your local Learning Technology Representative, who can be found here:
http://www.mheducation.com/highered/platforms/connect/features-educators.html
Course Preparation
Helpful Suggestions Regarding Assignment Policies: Connect® gives instructors a wide array of flexibility in making
assignments and creating grading policies. Instructors may choose to:
• assign as many assignments as appropriate given the level and time commitment expected for the class,
• determine point values for each question/application that works within the total course percentages,
• make available multiple attempts per assignment with options of accepting the highest score or averaging all the
attempts together (several attempts are particularly good for homework assignments),
• deduct points for late assignment submissions (percentage deduction per hour/day/week/etc.) or create hard deadlines
thus accepting no late submissions,
• show feedback on application/questions immediately upon submission or at the time the assignment is due for the whole
class, create new assignments or questions from scratch, or edited versions from a variety of provided resources.
Throughout the TRM for each chapter, we will integrate materials from the Lecture PowerPoint slides, Supplemental
Lecture slides, Connect® Application Exercises, end-of-chapter activities, and MiniCases. This integration of resources will
allow for a cohesive presentation of the relevant resources at your disposal, helping you to convey these topics effectively
and efficiently to your students.
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CHAPTER 6
Learning Objectives
LO 6-1 Define business-level strategy and describe how it determines a firm’s strategic position.
LO 6-2 Examine the relationship between value drivers and differentiation strategy.
LO 6-3 Examine the relationship between cost drivers and cost-leadership strategy.
LO 6-4 Assess the benefits and risks of differentiation and cost-leadership strategies vis-à-vis the five forces that shape
competition.
LO 6-5 Evaluate value and cost drivers that may allow a firm to pursue a blue ocean strategy.
LO 6-6 Assess the risks of a blue ocean strategy, and explain why it is difficult to succeed at value innovation.
This chapter begins the strategy formulation phase of the Analyze, Formulate, and Implement (AFI) framework. The chapter
takes a close look at business-level strategy and how to compete for advantage. Business-level strategy details the actions
managers take in their quest for competitive advantage when competing in a single product market. The chapter introduces
the generic business strategies and then dives into detail on differentiation and cost-leadership strategies. At the firm level,
performance is determined by value and cost positions relative to competitors. The chapter continues by integrating the five
forces model (from Chapter 3) with business-level strategies to assess the benefits and risks of each strategy as they vary with
industry conditions. Finally, the blue ocean strategy is discussed as a position combining both cost leadership and
differentiation.
A chapter opening case on JetBlue Airways and two strategy highlights are included in the chapter for tangible applications
of the theoretical frameworks discussed.
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2. JetBlue’s chief marketing officer, Marty St. George, was asked by The Wall Street Journal, “What is the
biggest marketing challenge JetBlue faces?” His response: “We are flying in a space where our competitors
are moving toward commoditization. We have taken a position that air travel is not a commodity but a
services business. We want to stand out, but it’s hard to break through to customers with that message.”
a. Given St. George’s statement, which strategic position is JetBlue trying to accomplish: differentiator,
cost leader, or blue ocean strategy? Explain why.
With no other information than that statement, one would have to conclude that JetBlue is attempting a differentiation
strategy. However, their price positioning in the market, their communication to customers, and their recent actions (see next
question) all suggest that JetBlue is also trying to compete with the cost leaders. This mixed message is characteristic of a
“stuck in the middle” strategy.
b. Which strategic moves has the new CEO put in place, and why? Explain whether they focus on value
creation, operating costs, or both simultaneously. Do these moves correspond to St. George’s
understanding of JetBlue’s strategic position? Why or why not? Explain.
Hayes’s decision to reduce legroom is counter to a differentiation strategy and the message communicated by the CMO. His
decision to raise fees for checked baggage runs counter to a strategy to compete effectively with Southwest, but is not too
dissimilar to ultra-low-cost airlines, like Ryanair or Spirit. It is also counter to customer service, as it means that customers
will lug their own baggage more often and there will be more competition for space in overhead bins.
3. Consider JetBlue’s value curve in Exhibit 6.11. Why is JetBlue experiencing a competitive disadvantage?
What recommendations would you offer to JetBlue to strengthen its strategic profile? Be specific.
To escape from its “stuck in the middle” position, JetBlue needs to move its curve either up or down. If it is going to try to
compete as a differentiator, as St. George suggests, then the highest priority areas for improvement are likely to be customer
service and reliability. If it wants to compete more effectively with the low-cost airlines, it needs to significantly pare back
costs, by reducing services and amenities. This would likely be the more radical of the two position changes.
4. JetBlue CEO Robin Hayes is contemplating adding international routes, connecting the U.S. East Coast to
Europe. Would this additional international expansion put more pressure on JetBlue’s current business
strategy? Or would this international expansion require a shift in JetBlue’s strategic profile? Why or why
not? And if a strategic repositioning is needed, in which direction should JetBlue pivot? Explain.
The actions Mr. Hayes is considering would move JetBlue more in the direction of the legacy hub-and-spoke carriers. While
the international routes tend to be quite profitable, they can require increased fixed and variable costs. A key factor may be
the success of the new airplane to provide longer range at lower costs for JetBlue. The airline, however, will not be the only
one using newer more efficient planes from Airbus and Boeing, thus bringing in a question about the sustainability of any
competitive advantage gained from the move. It appears JetBlue is moving towards reducing its differentiation to focus on
cost-per-seat savings for the airline. Thus, they may shift out of their attempted blue ocean towards cost leadership unless
they can find new elements to spur value innovations.
6-7
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EXAMPLES
Different generic strategies can lead to competitive advantage, even in the same industry. For example, Rolex and Timex
both compete in the market for wristwatches, yet they follow different business strategies. Rolex follows a differentiation
strategy: It creates a higher value for its watches by making higher-quality timepieces with unique features that last a lifetime
and that bestow a perception of prestige and status upon their owners. Customers are willing to pay a steep premium for these
attributes. Timex, in contrast, follows a cost-leadership strategy: It uses lower-cost inputs and efficiently produces a
wristwatch of acceptable quality, highlights reliability and accuracy, and prices its timepieces at the low end of the market.
The issue is not to compare Rolex and Timex directly—they compete in different market segments of the wristwatch
industry. Both can achieve a competitive advantage using diametrically opposed business strategies. This is because both
have a clear strategic profile. Rather, the idea is to compare Rolex’s strategic position with the next-best differentiator (e.g.,
Ebel), and Timex’s strategic position with the next-best, low-cost producer (e.g., Swatch). In the preceding example, Rolex
focuses on a small market segment: affluent consumers who want to present a certain image. Timex offers watches for many
different segments of the mass market.
DISCUSSION TOPICS
You may want to use Exhibit 6.1 to pull together several topics touched on in previous chapters as a way to open up this
chapter with the class. Chapter 1 noted that competitive advantage is based on the interdependence of firm and industry
effects (on the left side of the figure). The green boxes at the top of the figure bring out industry elements discussed in
Chapter 3. The blue boxes in the lower part of the diagram are the primary subjects for this chapter. There are two
fundamentally different business strategies: differentiation and cost leadership. They are generic due to their wide application
to disparate organizations. The scope of competition must also be considered. The business can target a broad audience or a
narrow or niche market. Strategic position is the profile based on value creation and cost. Higher value tends to require higher
cost, thus the need for trade-offs for businesses to choose between a cost or value position. The generic strategies will build
on the marketing courses the students have had prior to this strategy course. The narrow and broad competitive scope
complements well with selling into broad or niche target markets.
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We find it helpful to remind the students of the strategic group discussion (in Chapter 3) as this tool identifies business
strategies that would be similar or different from one firm to the next. If used within a large industry, the results should yield
a list of firms that make up strategic groups and are direct competitors with each other within the groups. You could, for
example, ask students to analyze the airline industry. Make sure that they do not limit themselves to one firm in each box of
the rubric. Begin with the ChapterCase on JetBlue to start them off. After they have completed their analysis in small groups,
then pull up the strategic group map from Chapter 3 (Exhibit 3.7) and invite students to compare/contrast their output with
the strategic groups map
For a different sort of exercise, you can use the following table to discuss advertising across different business level
strategies. The columns show some optional advertising approaches used by companies to communicate the value of their
product in order to influence your buying decisions, and the rows list some familiar product categories. For each product
category, first consider how each type of advertising might influence you, then rank from 1 (not at all) to 5 (strong influence)
and enter that number in the cell. Most consumers use different criteria to make purchase decisions for different categories of
product. Compare your rankings with those of other students in the class. What approaches not included here have a stronger
influence on your buying decisions? Second, for each advertising approach, decide whether you think it would be more likely
to be used for products sold by a company using a differentiation (D), cost-leadership (CL), or integration (I) strategy and
enter the letter abbreviation of that strategy under the column heading. Compare your responses with those of other students
and discuss why differentiators and cost leaders may choose similar or different advertising approaches.
This exercise would work best as a small group discussion that is later selectively shared with the full classroom. Ask each
student to complete the table before arriving in class. Then match their answers against those of other students in a group of
two or three. Ask them to draw on what they know about marketing to make a determination of the effectiveness (reach,
richness, relevance, and cost) of each type of communication for that industry. Richer media allow more information to be
communicated. Communication that is more narrowly targeted toward the customer is higher in relevance. Focus strategies
may be communicated more often using high relevance media. Differentiation strategies need richer media to communicate
information about products and services. Cost-leadership strategies need very low-cost media.
6-9
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INTEGRATION
Interactive Labeling: Business -Level Strategy
This interactive drag-and-drop exercise covers the textbook examples of firms using a variety of generic business-level
strategies. The student will read the brief application case and move the firm name into the correct box provided. A related
quiz with questions follows the interactive activity.
✓ Difficulty: Medium
✓ Blooms: Apply
✓ AACSB: Analytics
DISCUSSION TOPICS
Differentiation strategy will add unique or otherwise rare features to increase the value as viewed by the customers. This
value in turn will drive a higher price for the product or service. Alternatively, differentiators excel at customer service.
Managers must be able to identify unmet customer needs and find ways to satisfy them or exceed customer expectations.
Firm C in Exhibit 6.3 is typically the case, as driving higher value will often increase cost. As long as the value gap is
increased (value increases MORE than cost), the differentiation will benefit the firm.
INTEGRATION
Case Analysis: Toyota Handling Recalls and Customer Satisfaction
This case analysis explores Toyota’s customer service from early successes with the Lexus to more recent problems the firm
has had. The activity reinforces the value drivers discussed in the textbook. Students will read the case and then answer the
four questions following it.
6-10
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Follow-Up Activity: The instructor can build on these concepts by having the class or small groups develop examples of
firms using the other two value drivers (product features and complements). Examples can be successful or failed attempts of
firms building competitive advantage with these levers.
✓ Difficulty: Medium
✓ Blooms: Evaluate
✓ AACSB: Analytic
GoPro has a focused differentiation strategy the students may enjoy discussing. It sells cameras for sports enthusiasts that are
continually innovated to be smaller and more effective for its target market use.
EXAMPLES
The South African company De Beers has long held a very strong position in the market for diamonds because it tightly
controls the supply of raw materials. The aluminum producer Alcoa has access to lower-cost bauxite mines in the United
States, which supply a key ingredient for aluminum. GE, through its GE Capital division, has a lower cost of capital than
other industrial conglomerates such as Siemens, Philips, or ABB.
LECTURE SLIDE 19
Economies of scale are illustrated in Exhibit 6.5, which visually shows the range of scale impacts. Royal Caribbean Cruises is
betting on economies of scale. It launched its Oasis class $1.4B luxury cruise ships, the Allure of the Seas and Oasis of the
Seas—the world’s largest at 20 stories above the sea and stretching more than four football fields. The Oasis of the Seas can
accommodate more than 5,400 passengers. Will it allow Royal Caribbean to capture economies of scale, or will it prove too
large, leading to diseconomies of scale?
The example of W. L. Gore for diseconomies of scale comes from the very readable book The Tipping Point by Malcolm
Gladwell. In the book, Gladwell goes on to discuss a Dunbar Number, which is named after a U.K. scholar (Robin Dunbar).
He argues that humans have cognitive limits at around 150 friends. Gore has expanded the idea into effective work group size
limits due to excess bureaucracy and management that slows down decision making as the group size grows.
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INTEGRATION
Whiteboard Animation: Differentiation and Cost Leadership Strategy
This animated video case analysis provides an overview of these two generic business strategies. It can complement or
substitute for a short classroom lecture on the concepts.
✓ Difficulty: Medium
✓ Blooms: Apply
✓ AACSB: Analytic
DISCUSSION TOPICS
Consider Southwest Airlines, what happens to competitive advantage when a firm with a cost-leadership strategy changes its
target customer from one with basic needs to one with more complex needs or expands into high cost/high time delay airports
as Southwest has done with its moves into Newark, LaGuardia, Los Angeles, and San Francisco, and added the increased
complexity of international flights? Which parts of the value chain have experienced increased costs?
Scale benefits explain the rise of superstores that are often 200,000 square feet or more. Retailers that have leveraged the
superstore concept to emerge as category killers are Toys “R” Us, Home Depot, Barnes & Noble, and Best Buy. Now in a
new wave of industry evolution, Amazon is “killing the category killers.” Ask students if they can explain why this is
happening using economies of scale and learning. They should be able to identify much higher throughput through Amazon’s
fulfillment centers than through any individual store. They may also point out that consumers do their own product selection
and checkout in Internet commerce, raising the level of sales per employee at Amazon.
6-12
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Ryanair based in Dublin, Ireland has been renowned in Europe as a firm that can make a profit on a $20 ticket by
imposing numerous fees and surcharges. The airline has sought to be the lowest of the low-cost providers in the EU
with a “no frills get you from point A-to-B-model.” Ryanair is on record as saying it wants to be the “Amazon.com of
travel in Europe” by bringing in competitors’ price comparison, hotel discounts, and even concert tickets. Check out
the company website (http://www.ryanair.com) and consider the questions that follow.
1. If you were a competitor in the European market, such as British Airways or Lufthansa, how would you
compete against Ryanair, knowing your cost structure would not allow price parity? If you were a low-cost
leader like EasyJet, how would you compete against Ryanair?
The website link is provided here as the firm may well change its policies on disclosure of fees. This is especially true as
other more traditional airlines are also imposing more fees on the flying passengers. As of the autumn of 2015, the home
page for Ryanair has a link for fees at the bottom of the page in the small print menu under “Information.” Once you click the
button, it opens to two rather legal-looking tables of different fees.
The traditional European airlines do not have a cost structure to compete with Ryanair. U.S. airline attempts to lower cost
structures (such as Delta’s Song or Continental Lite) were a dismal failure. Therefore, the competitors should compete
against Ryanair on differentiated service and acknowledge some ultra-low price routes will be difficult to grow in share. At
the same time, the competitors, however, should be sure that consumers are comparing “fully loaded” costs rather than
comparing an $8 seat on Ryanair with a $150 seat on Aer Lingus. The competition should not be shy about posting
comparable rates for Ryanair and their own prices (with fees included). Many customers will make different decisions if the
actual travel costs are $87 for Ryanair versus $165 for Aer Lingus.
2. What similarities and differences do you find about Ryanair compared to JetBlue from the ChapterCase?
Perhaps the most salient conclusion that students will reach is that Ryanair makes no pretenses of offering high levels of
customer service. They do not have any issues with being “stuck in the middle” as they are firmly focused on cutting all costs
and charging additional fees for what minimal services that they do offer. Both airlines run point-to-point routes and neither
interlines baggage.
6-13
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Notice we did not ask if this is legal. There are many practices that are legal, but may not be considered ethical or moral
behavior. A loss leader approach is not uncommon in retailing and larger firms can afford to do it longer than smaller firms.
Students will differ on whether this is ethical, but it is a practice that smaller firms such as Method should be prepared to
address. (In the case of Method, they are highly differentiated in their products and target customers and are unlikely to be
significantly affected by such a price move.)
EXAMPLES
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Success in a blue ocean strategy doesn’t imply that the firm must be the highest-value creator and the lowest-cost producer in
its respective industry. Whether a blue ocean strategy can lead to competitive advantage depends on the difference between
value creation (V) and cost (C), and on the resulting magnitude of economic value created (V – C). What matters in gaining
competitive advantage is the relative difference in economic value creation in comparison to industry rivals. The goal of a
blue ocean strategy is therefore to achieve a larger economic value created than that of rivals pursuing a differentiation or
low-cost-leadership strategy. To illustrate this point, compare three retail chains: Nordstrom, Target, and Walmart.
Nordstrom is a differentiator; Walmart is a cost leader; Target has a blue ocean strategy. Nordstrom is an upscale retailer
pursuing a differentiation strategy by focusing on a superior customer experience in a luxury department store setting. Target
has been able to effectively compete with Nordstrom mostly by achieving a much lower-cost position, while offering an
acceptable shopping experience when compared with Nordstrom. On the other hand, Target has been able to compete with
Walmart by building similar skills in efficient logistics. Target almost achieves cost parity with Walmart. At the same time,
Target outdoes Walmart in product selection, merchandising, and store layout so that its stores offer a higher-quality
shopping experience for the customer. Target creates significantly more value in the minds of customers than does Walmart
with its no-frills approach. If Target is successful with its blue ocean strategy, it achieves the highest economic value.
Examples of ways in which firms can simultaneously add value and lower cost: Through techniques such as total quality
management, companies design and build products with quality in mind, while increasing their differentiated appeal. By
building in better quality, companies lower the cost of both production and after-sale service requirements. From the
customer’s perspective, the product has increased value because it reduces the total cost of ownership. Advances in
manufacturing and information technology have made feasible mass customization—the manufacture of a large variety of
customized products or services done at a relatively low unit cost. In the car industry, Toyota was the first to introduce lean
manufacturing, allowing it to mass customize vehicles and produce higher quality at a lower per-unit cost. Other companies
are able to conquer this trade-off by using the Internet. You can design your own T-shirts at threadless.com or create
customized sneakers at nike.com.
Toyota introduced lean manufacturing to resolve the trade-off between quality and cost. This process innovation allowed
Toyota to produce higher-quality cars at a lower unit cost, and to perfect the mass customization of cars. Lean manufacturing,
over time, has become a necessary but not sufficient condition for competitive advantage in the auto industry. Today, if a
carmaker can’t produce high-quality, mass-customized cars at low cost, it is not even in the game. More recently, Toyota
stumbled as questions arose whether the company could maintain its stellar quality record while growing so fast. Korea’s
Hyundai stepped into this void, offering cars that surpass Toyota in quality while attempting to provide luxury similar to
Lexus vehicles. Hyundai’s managers carved out a strong strategic position for the company by focusing on resolving the
trade-offs between luxury, quality, and cost. The ups and downs in the car industry clearly show that competitive advantage
is transitory. It is a difficult quest to gain competitive advantage; it is even more difficult to sustain it. The tools of strategic
management aid managers in this important challenge.
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Strategic Management, 4e Teacher’s Resource Manual
1. The retail department store is clearly a red ocean space right now. Your team has been asked to consult
for Simon Property Group (SPG in NYSE), one of the largest U.S. operators of shopping malls. The
company wants to know how its mall space could be repurposed. What blue ocean ideas can your team
develop to present to the executives at Simon? Consider the positives and negatives of typical mall sizes
and locations in your answer. Stretch beyond traditional retailing for ideas to consider.
Students may have a variety of answers for this question and it is one likely to be answered in a variety of different ways
across the country over the next five to ten years. If you want to provide some food for thought to the students on this subject
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Strategic Management, 4e Teacher’s Resource Manual
you can review “The Mall of the Future Will Have No Stores,” in The Wall Street Journal, June 12, 2017. The article has
several examples of malls being used for major office space, logistics, and more open-air plazas and parks.
INTEGRATION
Click-and-Drag: Blue Ocean Strategy
This click-and-drag activity builds student comprehension of the differences between a successful value innovation strategy
and a firm that is “stuck in the middle.” The student will read the brief case that complements the textbook description of
IKEA and the retailing industry. Then, the student will move the labels to their correct locations. Then the student will
complete a related quiz with three questions.
Follow-Up Activity: The instructor can expand on the concepts from the “click-and-drag” by having students discuss the
different drivers that a successful blue ocean strategy requires. Discussion question 3 at the end of the chapter suggests using
the value chain tool from Chapter 4 to compare how the value chain activities would be different for firms using cost
leadership, differentiation, and value innovation as their business-level strategies.
✓ Difficulty: Medium
✓ Blooms: Apply
✓ AACSB: Analytics
DISCUSSION TOPICS
Drawing on knowledge from your supply chain and operations management majors, ask students to discuss how the digital
revolution in manufacturing might create new opportunities for blue ocean strategies (see “The Digital-Manufacturing
Revolution: How It Could Unfold,” McKinsey Quarterly, October 2015).
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Strategic Management, 4e Teacher’s Resource Manual
EXERCISES
If you used the Whole Foods discussion questions earlier in this guide, ask students to use a strategy canvas to compare
Whole Foods to the Trader Joe’s example in Section 6.2
CLASS EXERCISES
Students enjoy the opportunity to practice implementing generic strategies. You can choose any consumer industry and
assign one of the four generic strategies to each team of students. Then invite the students to plan a new business in that
industry with that strategy. Ask them to identify the value and cost drivers and describe how they will implement them for
their firm. Then ask them to develop a marketing message for their firm in the form of a Facebook page, a video “celebrity”
endorsement, a podcast radio ad, or a flip chart “billboard.” Ask the class to vote on which business/product they would
visit/buy most often. Some retail industries you might use: yogurt shops, coffee shops, gyms, hotels, or spas. Some consumer
products you might use: shampoo, frozen pizzas, or salad dressings.
✓ AACSB 2015 Standard 9 Thinking creatively and Application of knowledge (able to translate knowledge of business
and management into practice)
RELATED MINICASES
Instructors may want to consider assigning and discussing any of the following MiniCases that cover topics found in this
chapter. All MiniCases have assignable McGraw-Hill Connect® case questions available.
As the text notes, there is no single correct generic strategy for a specific industry. A drawback of a broad business strategy is
that the firm may be blinded to new entrants that enter the industry through a niche approach. Drawbacks to a more focused
approach could be that the niche you target will not grow or may decline; economic performance will have higher variability
for smaller segments than broader populations; and if economy of scale is important, it can be hard to be large enough to
compete with a focused strategy.
2. In Chapter 4, we discussed the internal value chain activities a firm can perform in its business model
(see Exhibit 4.7). The value chain priorities can be quite different for firms taking different business
strategies. Create examples of value chains for three firms: one using cost leadership, another using
differentiation, and a third using a value innovation business-level strategy.
Have the students review Chapter 4 to answer this question. In general, cost-leader firms will focus on primary activities and
making them the most efficient. Differentiated firms will focus on secondary activities and providing improved customer
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Strategic Management, 4e Teacher’s Resource Manual
service, while value innovation firms will choose a combination of these activities to strategically extend value while holding
or reducing costs.
3. The chapter notes there are key differences between economies of scale and learning effects. Let us put
that into practice with a brief example. A company such as Intel has a complex design and
manufacturing process. For instance, one fabrication line for semiconductors typically costs more than
$1.5 billion to build. Yet the industry also has high human costs for research and development (R&D)
departments. Semiconductor firms spend an average of 17 percent of revenues on R&D. For comparison,
the automobile industry spends a mere 3 percent of sales on R&D. Thus, Intel’s management must be
concerned with both scale of production and learning curves. When do you think managers should be
more concerned with large-scale production runs, and when do you think they should be most concerned
with practices that would foster or hinder the hiring, training, and retention of key employees?
Many students will bring work experience to the classroom. At the MBA level, many students will have professional work
experience and can make some contributions on HR practices. One point of this question is to note that HR practices will
tend to be quite different for a differentiated firm than a cost-focused business. Intel would want to focus on retaining its
employee base since the learning curves and experience curves in both design and manufacture of its product is significant.
They undergo a thorough recruitment and hiring screening process to try to bring the right skill sets into the firm. Intel also
commits major funding into training, including educational support for advanced degrees, and they encourage a sabbatical
leave for employees with many years of service.
INTEGRATION
Note to the Instructor, Question 12 (Graduate Level): The answer to this question is subjective based on the student’s
opinion as well as the discussion points that have been reviewed in class. Some points to consider when checking their
answer for thoroughness and logic include: the types of customers that HP serves, the customer needs that HP attempts to
satisfy, the intent behind why HP wants to satisfy their customers, and how HP is positioned to satisfy those customer needs.
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Strategic Management, 4e Teacher’s Resource Manual
Does your selected business have differentiated products or services? If so, what is the basis for this differentiation from the
competition?
Differentiation or cost focus can often be determined from a close examination of the annual report. All firms will talk about
costs, but a differentiated firm will also highlight how it views its products (service) to be different from the competition. The
students can review the Value Drivers section of the text for some thoughts on the basis of the differentiation.
Does your firm have a cost-leadership position in this business? If so, can you identify which cost drivers it uses effectively
to hold this position?
Financial analysis of the focal firm and key competitors is the clearest way to determine if the firm has cost leadership. Many
students will be tempted to take the easier-to-find price differential as a signal on costs, but due to profitability levels this can
be misleading, particularly over a short time frame (such as one year). Be sure to help the students focus on costs found in the
financial section of the annual report of many industry websites.
What is your firm’s approach to the market? If it segments the market, identify the scope of competition it is using.
The market scope should be taken relative to the competitors in the industry of focus. For example, in the furniture industry
IKEA is primarily appealing to college-aged consumers and young families just starting out, and has a narrower approach
than other retailers such as Ashley Furniture or La-Z-Boy.
Using the answers to the preceding questions, identify which generic business strategies your firm is employing. Is the firm
leveraging the appropriate value and cost drivers for the business strategy you identified? Explain why or why not.
This answer makes sure the students can apply the concepts of this chapter to their focal firm. You may want to direct
students to look at Exhibit 6.9 on the value and cost drivers if they are still unsure at this point how to categorize the business
unit or firm.
As noted in the chapter, each business strategy is context-dependent. What do you see as positives and negatives with the
selected business strategy of your firm in its competitive situation?
The section on the relationship to the five forces benefits and risks is likely to be helpful with the student thinking through
this question.
Create a strategy canvas (see Exhibit 6.11) for your firm. Set on the horizontal axis an appropriate selection of the
value curve items and on the vertical axis, set the other industry segments (such as strategic groups) for comparison.
At this point, it is important to emphasize for the students the importance of taking the time to select axes that are meaningful
in the context of competition and competitive advantage within the industry.
What suggestions do you have to improve the firm’s business strategy and strategic position?
Here, the student should think through the chapter material and the copious information they have already collected
on the firm and make some suggestions for how the firm could improve its position either now or, thinking of the
dynamics of competitive position, how it might change in the future.
myStrategy
INSTRUCTOR SUPPLEMENT SLIDES 16-17: LOW-COST AND DIFFERENTIATED WORKPLACES
Here, we encourage the student to take what he/she has learned about competitive advantage and apply it to his/her personal
career. Encourage students to spend a few minutes looking at themselves to discover their own competitive advantages.
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Another random document with
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jos joskus täytyykin rannalla odottaa vuorokauden ajan venettään,
jonka joku tarpeeseensa on ottanut, ja sitä, joka niin luonnollisesta
asiasta lausuisi solvaavia nuhteita, jopa pidettäisiin huonona
ihmisenä.
Kemin markkinat.
*****
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