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Hitt13e PPT Ch04
Hitt13e PPT Ch04
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
CHAPTER
4
Business-Level Strategy
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
LEARNING OBJECTIVES
Studying this chapter should provide you with the strategic management
knowledge needed to:
4-1 Discuss the relationships between customers and business-level
strategies in terms of who, what, and how.
4-2 Explain the purpose of forming and implementing a business-level
strategy.
4-3 Describe business models and explain their relationship with business-
level strategies.
4-4 Explain the differences among five types of business-level strategies.
4-5 Use the five forces of competition model to explain how firms can earn
above-average returns when using each business-level strategy.
4-6 Discuss the risks associated with using each of the business-level
strategies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Chapter Introduction (slide 1 of 3)
• By selecting and implementing one or more strategies, firms seek
to:
• Gain strategic competitiveness
• Earn above-average returns
• Strategies:
• Are purposeful
• Develop before firms engage rivals in marketplace competitions
• Demonstrate a shared understanding of the firm’s vision and mission
• A strategy that is consistent with the conditions and realities of a
firm’s external and internal environments marshals, integrates, and
allocates available resources, capabilities, and competencies to
align them properly with opportunities in the external environment.
• When effective, a strategy rationalizes the firm’s vision and mission
along with the actions taken to achieve them.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Chapter Introduction (slide 2 of 3)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Chapter Introduction (slide 3 of 3)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-1 Customers: Their Relationship
with Business-Level Strategies
• Strategic competitiveness results only when the firm
satisfies a group of customers by using its competitive
advantages as the basis for competing in individual
product markets.
• A key reason firms must satisfy customers with their business-
level strategy is that returns earned from relationships with
customers are the lifeblood of all organizations.
• The most successful companies try to find new ways to:
• Satisfy current customers
• Meet the needs of new customers
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-1a Effectively Managing
Relationships with Customers
• Firms strengthen their relationships with
customers by delivering superior value to them.
• Delivering superior value often results in increased
customer satisfaction.
• In turn, customer satisfaction has a positive relationship with
profitability because satisfied customers are more likely to be
repeat customers.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-1b Reach, Richness,
and Affiliation
• The reach dimension of relationships with
customers revolves around the firm’s access
and connection to customers.
• Richness concerns the depth and detail of the
two-way flow of information between the firm
and customers.
• Affiliation is concerned with facilitating useful
interactions with customers.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-1c Who: Determining the
Customers to Serve
• A firm decides who the target customer is by
dividing customers into groups based on
differences in customers’ needs.
• Market segmentation is the process of dividing
customers into groups based on their needs.
• Market segmentation is used to cluster customers with
similar needs into individual and identifiable groups.
• Firms can use almost any identifiable human or
organizational characteristic to subdivide a market into
segments that differ from one another on a given
characteristic.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Table 4.1
Basis for Customer Segmentation (slide 2 of 2)
Industrial Markets
1. End-use segments (identified by Standard Industrial Classification [S I C]
code)
2. Product segments (based on technological differences or production
economics)
3. Geographic segments (defined by boundaries between countries or by
regional differences within them)
4. Common buying factor segments (cut across product market and geographic
segments)
5. Customer size segments
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Table 4.1
Basis for Customer Segmentation (slide 1 of 2)
Consumer Markets
1. Demographic factors (age, income, sex, etc.)
2. Socioeconomic factors (social class, stage in the family life cycle)
3. Geographic factors (cultural, regional, and national differences)
4. Psychological factors (lifestyle, personality traits)
5. Consumption patterns (heavy, moderate, and light users)
6. Perceptual factors (benefit segmentation, perceptual mapping)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-1d What: Determining Which
Customer Needs to Satisfy
• Having close interactions with current and potential
customers helps a firm identify the targeted customer
group’s current and future needs that its products can
satisfy.
• In a general sense, needs (what) are related to a product’s
benefits and features.
• Successful firms:
• Learn how to deliver to customers what they want, when they
want it
• Recognize that consumer needs change
• Firms that fail to do this may lose their customers to competitors
whose products provide more value.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-1e How: Determining Core Competencies
Necessary to Satisfy Customer Needs
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-3 Business Models and their Relationship
with Business-Level Strategies (slide 1 of 3)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-3 Business Models and their Relationship
with Business-Level Strategies (slide 3 of 3)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4 Types of Business-Level
Strategies (slide 1 of 2)
• Firms choose between five business-level strategies to establish
and defend their desired strategic position against competitors:
1. Cost leadership
2. Differentiation
3. Focused cost leadership
4. Focused differentiation
5. Integrated cost leadership / differentiation
• Each business-level strategy can help the firm establish and exploit
a competitive advantage (either lowest cost or distinctiveness) as
the basis for how it will create value for customers within a particular
competitive scope (broad market or narrow market).
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Figure 4.1
Five Business-Level Strategies
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4 Types of Business-Level
Strategies (slide 2 of 2)
• None of the five business-level strategies is inherently or
universally superior to the others.
• The effectiveness of each strategy is contingent on the:
• Opportunities and threats in a firm’s external environment
• Strengths and weaknesses derived from its resource portfolio
• Thus, it is critical for the firm to select a business-level
strategy that represents an effective match between the
opportunities and threats in its external environment and
the strengths of its internal organization based on its
core competencies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4a Cost Leadership Strategy
(slide 1 of 5)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4a Cost Leadership Strategy
(slide 2 of 5)
• Firms that effectively use the cost leadership strategy can earn
above-average returns despite the presence of strong competitive
forces.
Potential Entrants
• Over time, the efficiency of a cost leader enhances its profit
margins, which in turn creates an entry barrier to potential
competitors.
• New entrants must be willing to accept less than average returns until
they gain the experience required to approach the cost leader’s
efficiency.
Product Substitutes
• When faced with product substitutes, the cost leader has more
flexibility than do its competitors.
• To retain customers, it often can reduce its product’s price.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4a Cost Leadership Strategy
(slide 5 of 5)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4b Differentiation Strategy (slide 1 of 6)
• The differentiation strategy is an integrated set of
actions taken to produce products (at an acceptable
cost) that customers perceive as being different in ways
that are important to them.
• While cost leaders serve a typical customer in an industry,
differentiators target customers for whom the firm creates
value because of the manner in which its products differ
from those produced and marketed by competitors.
• Product innovation (a new product or service
development that solves the customer’s problem and
benefits both the customer and the company) is critical
to the successful use of the differentiation strategy.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4b Differentiation Strategy (slide 2 of 6)
• Through the differentiation strategy, the firm produces
distinctive products for customers who value
differentiated features more than low cost.
• Because a differentiated product satisfies customers’ unique
needs, firms following the differentiation strategy are able to
charge premium prices.
• The ability to sell a product at a price that substantially exceeds the
cost of creating its differentiated features allows the firm to
outperform rivals and earn above-average returns.
• To maintain success by implementing the differentiation
strategy, the firm must:
• Consistently upgrade differentiated features that customers value
• Create new valuable features without significant cost increases
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4b Differentiation Strategy (slide 3 of 6)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4b Differentiation Strategy (slide 4 of 6)
• There are ways that firms using the differentiation strategy can
successfully position themselves in terms of the five forces of
competition to earn above-average returns.
Potential Entrants
• Substantial barriers to potential entrants are created by:
• Customer loyalty
• The need to overcome the uniqueness of a differentiated product
Product Substitutes
• Companies selling brand-name products to loyal customers face a
lower probability of customers switching to substitute products.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4b Differentiation Strategy (slide 6 of 6)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4c Focus Strategies (slide 1 of 3)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4c Focus Strategies (slide 2 of 3)
• A focus strategy leads to success when the firm:
• Serves a segment well whose unique needs are so specialized that
broad-based competitors choose not to serve that segment
• Creates value for a segment that exceeds the value created by industry-
wide competitors
• Firms can create value for customers in specific and unique market
segments by using the:
• Focused cost leadership strategy
• Focused differentiation strategy
• The activities required to use both of these strategies and the
manner in which both of these strategies allow a firm to deal
successfully with the five competitive forces are virtually identical to
those of the industry-wide cost leadership and differentiation
strategies.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4c Focus Strategies (slide 3 of 3)
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4d Integrated Cost Leadership /
Differentiation Strategy (slide 2 of 6)
• Developing two sources of competitive advantage
(cost and differentiation) increases the number of
primary value chain activities and support
functions in which the firm becomes competent.
• Flexibility is required to learn how to use primary
value chain activities and support functions in ways to
produce differentiated products at relatively low costs.
• Three sources of flexibility used to implement the integrated
cost leadership / differentiation strategy successfully include:
1. Flexible manufacturing systems
2. Information networks
3. Total quality management systems
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4d Integrated Cost Leadership /
Differentiation Strategy (slide 3 of 6)
Flexible Manufacturing Systems
• A flexible manufacturing system (F M S) is a computer-controlled
process that firms use to produce a variety of products in moderate,
flexible quantities with a minimum of manual intervention.
• The goal of an F M S is to eliminate the “low cost versus product
variety” trade-off that is inherent in traditional manufacturing
technologies.
• An F M S allows a firm to:
• Change quickly and easily from making one product to making another
• Increase its effectiveness in responding to changes in its customers’
needs, while retaining low-cost advantages and consistent product quality
• Reduce the lot size needed to manufacture a product efficiently
• Have a greater capacity to serve the unique needs of a narrow
competitive scope
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4d Integrated Cost Leadership /
Differentiation Strategy (slide 4 of 6)
Information Networks
• Information networks link companies with their:
• Suppliers
• Distributors
• Customers
• Customer relationship management (CRM) is an information-
network process that firms use to manage relationships with
customers.
• When used effectively, information networks help the firm
satisfy customer expectations in terms of:
• Product quality
• Delivery speed
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4d Integrated Cost Leadership /
Differentiation Strategy (slide 5 of 6)
Total Quality Management Systems
• Total quality management (T Q M) involves the implementation of
appropriate tools / techniques to provide products and services to
customers with best quality.
• Firms develop and use T Q M systems to:
• Increase customer satisfaction
• Cut costs
• Reduce the amount of time required to introduce innovative products to
the marketplace
• An effective T Q M system helps the firm develop the flexibility
needed to identify opportunities to simultaneously:
• Increase its product’s differentiated features
• Reduce costs
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
4-4d Integrated Cost Leadership /
Differentiation Strategy (slide 6 of 6)
Competitive Risks of the Integrated Cost
Leadership / Differentiation Strategy
• The primary risk of this strategy is that a firm
might produce products that do not offer
sufficient value in terms of either low cost or
differentiation.
• In such cases, the company becomes “stuck in the
middle.”
• Firms stuck in the middle:
• Compete at a disadvantage
• Are unable to earn more than average returns
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
APPENDIX
NOTE TO INSTRUCTOR: Choose from the following questions (also found in the text at the end of the chapter)
to conduct in-class discussions around key chapter concepts.
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.
Discussion:
Hitt, Ireland, Hoskisson, Strategic Management: Competitiveness & Globalization: Concepts & Cases, 13e. © 2020 Cengage.
All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or part.