BUSINESS-LEVEL STRATEGIC ALTERNATIVES

1. BUSINESS-LEVEL STRATEGIC ALTERNATIVES Payne (5)

2. INDUSTRY ATTRACTIVENESS Which businesses should we be in? CORPORATE STRATEGY RATE OF PROFIT ABOVE THE COMPETITIVE LEVEL How do we make money? COMPETITIVE ADVANTAGE How should we compete? BUSINESS STRATEGY

3. The Decision Logic of Strategy Formulation May be Corporate or Business Strategic Decisions Establishment of mission, vision, values, objectives -- the Directional Strategies Identification, evaluation, and selection of -- the Adaptive Strategies Identification, evaluation, and selection of -- the Market Entry Strategies Identification, evaluation, and selection of -- the Positioning Strategies Implementation through development of -- the Functional &Operational Strategies

5. Delineate how the organization will adapt to changes in the environment or competitive landscape: Adaptive Strategies • Expansion • Diversification • Vertical Integration • Market Development • Product Development • Penetration • Contraction • Divestiture • Liquidation • Harvesting • Retrenchment • Outsourcing • Stabilization • Enhancement • Status Quo Corporate Strategy Decisions Only

6. Remember Ansoff’s Matrix?

7. Business-level strategy: an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. Key Issues: What product/service to offer customers? How to manufacture or create the product or service? How to distribute the product/service in the marketplace? Business-Level Strategy

9. Core competencies Strategy Business-level strategy RBV: Core Competencies and Strategy The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets

10. “The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.” - Gary Hamel and C.K. Prahalad COMPETITIVE ADVANTAGEexists when a firm’s strategy gives it an edge in: Defending against competitive forces and Securing customers …such that the firm earns (or has the potential to earn) a persistently higher rate of profit. Competitive Advantage

11. Gaining of Competitive Advantage “The essence of strategy lies in creating tomorrow’s competitive advantages faster than competitors mimic the ones you possess today.” - Gary Hamel and C.K. Prahalad • COMPETITIVE ADVANTAGEcomes with the offering of SUPERIOR VALUE through: • Offering buyers a good product at a lower price • Offering a better product/service buyers think is worth a premium price

12. Market Development-- expand geographic service area or by targeting new market segments within the present area. Building new store near high-growth residential areas Product Development-- introduction of new product/services in present markets, through product/service enhancement and line expansion. Penetration -- centered on promotional, distribution, and pricing strategies with current products or services. 1 in 12 wins Coca-Cola or “buy one, get one free” for Tinactin. Adaptive: Expansion-Market/Product Development & Penetration

13. 22% Stars Question Marks 20% 18% 16% 14% Business Growth Rate 12% 10% Cash Cows Dogs 8% 6% 4% 2% 0.5X 0.4X 0.3X 0.2X 0 4X 10X 1X 0.1X 1.5X 2X Relative Market Share The BCG Portfolio Matrix

14. When past strategies have been viewed as appropriate and few changes are required: Enhancement- when organization just “needs to do things better;” takes forms of CQI, TQM programs, speeding delivery, adding flexibility to service design Status Quo- maintenance of services at the current levels, defending against competitors Adaptive: Stabilization Strategies

15. Carry out the expansion (and stabilization) strategies through: Purchase Strategies: Acquisition – purchase of new product, unit or organization Licensing – lease technology, product or service Venture Capital Investment – “try out” investment option Cooperation Strategies: Mergers – two organizations come together as one Strategic Alliance – long-term agreement to work together Joint Venture – combined resources to work on common issue of interest Developmental Strategies: Internal Development – uses existing resources or structures Internal Ventures – establishes new entity for developmental purposes Market Entry Strategies May be Corporate Decision if in Different Market

16. Business Level Positioning: Position the organization vis-à-vis other organizations within the market These are market-oriented and best articulate the competitive advantage within the market May be market-wide (or broad-based) or directed at a particular segment (or niche-focused) Based largely on Generic Business Strategies: Low-Cost Leadership Strategy Broad Differentiation Strategy Focused Low-Cost Strategy Focused Differentiation Strategy Positioning Strategies

17. Porter’s Generic Strategies

19. Objective: Open up a sustainable cost advantage over rivals, using lower-cost edge as a basis either to: Under-price rivals and reap market share gains OR Earn higher profit margin selling at going price Keys to Success: Make achievement of low-cost relative to rivals the THEME of firm’s business strategy Find ways to drive costs out of business year-after-year A Low-Cost Leadership Strategy Characteristics • Cost conscious corporate culture • Efficient scale facilities • Tightly controlled production costs and • overhead • Minimized costs of sales, R&D and • service • Efficient manufacturing facilities • Simplified production processes • Intensive scrutiny of budget • requests

20. Economies of Scale Indivisibilities Specialization and Division of Labor Economies of Learning Increased Dexterity Improved Coordination and Organization Process Technology and Process Design Mechanization and Automation Efficient Utilization of Materials Increased Precision Drivers of Cost Advantage • Product Design • Design for Automation • Designs to Economize on Materials • Input Costs • Location Advantages • Ownership of Low-Cost Inputs • Bargaining Power • Supplier Cooperation • Capacity Utilization • Ratio of Fixed to Variable Costs • Costs of Installing and Closing Capacity • Managerial / Organizational Efficiency • Organizational Slack

21. Office of the President Centralized Staff Accounting Engineering Operations Marketing Personnel Common Structure for Cost Leadership • Operations is main function • Process engineering is emphasized over R&D • Large centralized staff • Formalized procedures • Structure is mechanical, job roles highly structured

22. Incorporate differentiating features that cause buyers to prefer firm’s product or service over the brands of rivals Find ways to differentiate that CREATE VALUEfor buyers and that are NOT EASILY MATCHED orCHEAPLY COPIEDby rivals Not spending more to achieve differentiation than the price premium that can be charged Uniquenessis achieved in ways that: Buyers perceive as valuable Rivals find hard to match or copy Can be incorporated at a cost well below theprice premium that buyers will pay A Differentiation Strategy Objective Keys to Success Characteristics

23. Differentiation actions required: Developing new systems and processes Shaping perceptions through advertising Quality focus Capability in R&D Maximize human resource contributions through low turnover and high motivation Differentiation Strategy Factors Driving Differentiation: • Unique product features • Unique product performance • Exceptional services • New technologies • Quality of inputs • Exceptional skill or experience • Detailed information • Extensive personal relationships with buyers and suppliers

24. President and Limited Staff Marketing R&D Operations Human Resources New Product R&D Finance Marketing Common Structure for Differentiation • Marketing is the main function for tracking new product ideas • New product R&D is emphasized • Most functions are decentralized • Formalization is limited to foster change and promote new ideas • Overall structure is organic; job roles are less structured

25. Combine a strategic emphasis on low-cost with a strategic emphasis on differentiation Make an upscale product at a lower cost Give customers more value for the money Create superior value by MEETING OR EXCEEDINGbuyer expectations on product attributes and BEATING their price expectations Be the low-cost producer of a product with GOOD-TO-EXCELLENT product attributes, then use cost advantage to UNDERPRICEcomparable brands Best Cost Provider/Integrative Strategy Objective Keys to Success

26. An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm) The firm may become “stuck in the middle” lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy Major Risk of Integrated Strategy

27. Involves concentrated attention on a narrowpiece of the total market Serve niche buyers betterthan rivals Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs Develop unique capabilities to serve needs of target buyer segment Achieve LOWER COSTSthan rivals in serving the segment-- A low-cost strategy Offer niche buyers SOMETHING DIFFERENTfrom rivals-- A differentiation strategy A Focus/Niche Strategy Objective Keys to Success Two Types

29. IKEA