Professional Documents
Culture Documents
Business-Level Strategy
Business-Level Strategy
Creating and
Sustaining
Competitive
Advantages
STRATEGIC MANAGEMENT
McGraw-Hill/Irwin
Porter’s “What Is Strategy?”
• Operational effectiveness is not strategy:
• Operational effectiveness means performing similar
activities better than rivals. It is necessary, but not
sufficient, for competitive advantage.
• Strategic positioning means performing different
activities from rivals’ or performing similar activities in
different ways:
Variety-based positioning (producing a subset of
products/services)
Needs-based positioning (serving needs of particular group
of customers)
Access-based positioning (using different ways to reach
customers)
• Strategy involves trade-offs, choosing what not to do.
2
Types of Competitive Advantage and
Sustainability
3
Three Generic Strategies
Competitive Advantage
Uniqueness Perceived Low Cost Position
by the Customer
Industrywide
Strategic Target
Particular
Segment Only
4
Creating Value Through Human Capital,
Social Capital, and Technology
Competitive Advantage
Differentiation Differentiation Cost Stuck in
and Cost Differentiation Cost Focus Focus the Middle
Performance
Return on
investment (%) 35.5 32.9 30.2 17.0 23.7 17.8
Sales Growth (%) 15.1 13.5 13.5 16.4 17.5 12.2
Gain in Market
Share (%) 5.3 5.3 5.5 6.1 6.3 4.4
Source: Adapted from G. G. Dess and J. C. Picken, Beyond Productivity (New York:
AMACON, 1999), pp. 63-64.
5
Overall Cost Leadership
• Integrated tactics
• Aggressive construction of efficient-scale facilities
• Vigorous pursuit of cost reductions from experience
• Tight cost and overhead control
• Avoidance of marginal customer accounts
• Cost minimization in all activities in the firm’s value
chain, such as R&D, service, sales force, and
advertising
6
Few management layers Standardized account-
Value-Chain
Activities
Firm
infrastructure to reduce overhead ing practices to minimize
costs personnel required
Human resource Minimize costs associated Effective orientation and
management with employee turnover training programs to maxi-
through effective policies mize employee productivity
Technology Effective use of automated Expertise in process
development technology to reduce engineering to reduce
scrappage rates manufacturing costs
Effective policy guidelines Shared purchasing operations
Procurement to ensure low cost raw with other business units
materials (with acceptable
quality levels)
Effective Effective Effective Purchase of Thorough service
layout of use of utilization media in repair guidelines to
receiving quality of large blocks minimize repeat
dock control delivery maintenance calls
operation inspectors fleets Sales force
to utilization is Use of single type
minimize maximized of repair vehicle
rework on by territory to minimize
the final management costs
product
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
Copyright © 1985 by Michael E. Porter.
7
Overall Cost Leadership (Cont.)
8
Comparing Experience Curve Effects
9
Overall Cost Leadership: Improving
Competitive Position vis-à-vis the Five Forces
10
Pitfalls of Overall Cost Leadership Strategies
11
Differentiation
12
Value-Chain
Firm
infrastructure
Superior MIS—To integrate Facilities that Widely respected
value-creating activities to promote firm CEO enhances
Activities:
Examples of
improve quality image firm reputation
Programs to attract talented Provide training and
Human resource engineers and scientists incentives to ensure a strong
Differentiation
management customer service orientation
Superior material handling Excellent applications
Technology and sorting technology engineering support
development
Source: Adapted from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter.
Copyright © 1985 by Michael E. Porter.
13
Differentiation
14
Differentiation: Improving Competitive
Position vis-à-vis the Five Forces
• Differentiation
• Creates higher entry barriers due to customer loyalty
• Provides higher margins that enable the firm to deal
with supplier power
• Reduces buyer power because buyers lack suitable
alternative
• Reduces supplier power due to prestige associated
with supplying to highly differentiated products
• Establishes customer loyalty and hence less threat
from substitutes
15
Potential Pitfalls of Differentiation
Strategies
17
Focus: Improving Competitive Position
vis-à-vis the Five Forces
• Focus
• Creates barriers of either cost leadership or
differentiation, or both
• Also focus is used to select niches that are
least vulnerable to substitutes or where
competitors are weakest
18
Porter’s Five forces
19
Pitfalls of Focus Strategies
20
Combination Strategies: Integrating
Overall Low Cost and Differentiation
21
Combination Approaches
22
The U.S. Auto Industry’s Profit Pool
Source: Adapted from “A Fresh Look at Strategy” by O. Gadiesh and J. L. Gilbert, Harvard Business Review 76, no. 3
(1998), pp. 139-48. Copyright © 1998 by the Harvard Business School Publishing Corporation, all rights reserved.
23
Combination Strategies: Improving
Competitive Position vis-à-vis the Five Forces
24
Pitfalls of Combination Strategies
25
Industry Life-Cycle States: Strategic
Implications
26
Stages of the Industry Life Cycle
27
Stages of the Industry Life Cycle
Stage
Introduction Growth Maturity Decline
Factor
28
Stages of the Industry Life Cycle
Stage
Introduction Growth Maturity Decline
Factor
29
Strategies in the Introduction Stage
30
Strategies in the Growth Stage
31
Strategies in the Maturity Stage
32
Strategies in the Decline Stage
• Maintaining • Harvesting
• Exiting the market • Consolidation
33
Turnaround Strategies in the Life Cycle
34
Grand Strategies
• Concentrated Growth
• Market Development
• Product Development
• Innovation
• Cooperative Strategies
• Joint Ventures
• Strategic Alliances
• Merger and Acquisition Strategies
• Horizontal Integration
• Vertical Integration (forward and backward)
• Related Diversification
• Unrelated Diversification
35
Grand Strategies (cont.)
36