chapter 6
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Strategy Formulation
Business Unit Level Strategies (Competitive Strategies)
Strategy Formulation
A Business Unit is defined as an organizational subsystem that has its own market, a set of competitors, and a mission distinct from those of the other subsystems in the organization
Strategy Formulation
Competition amounts to the efforts of multiple organizations that are offering a similar product or service in obtaining desired customers, market share, ranking or resources
Strategy Formulation
Strategic Group amounts to a set of firms competing within an industry that have similar strategies and resources.
Strategy Formulation
PriceQualityLevel of vertical
integrationGeographic scopeLevel of
diversificationR&D expenditures
Market ShareProfitsProduct
characteristicsAny other relevant
strategic factor
Potential Dimensions Used in Defining Strategic Groups
Strategy Formulation
VIRO Framework for defining a Sustainable Competitive Advantage
Value - does it provide a comp advantage?Rareness - do other competitors have it?Imitability - Is it costly for others to imitate?Organization - is the firm organized to
exploit the resource?
Porter’s Generic Competitive Business Unit Strategies
It is critical to envision org’s that are determined to both:
Serve a narrow or focused market niche versus a broad market (in terms of customers or product).
Elect to to compete on the basis of having the lowest costs (not price) or by being distinctively different (or differentiated).
Generic Strategies for Small Businesses
Niche-Low Cost
Niche-Differentiation
Niche-Low Cost/Differentiation
OrganizationStrategy
Product
Customer
Geographical
Generic Strategies for Small Businesses
Niche-Low Cost
Emphasizes keeping overall costs low while serving a narrow or focused segment (niche) of the market.
Niche-Low Cost
Cos
tDifferentiation
Jet Blue
Generic Strategies for Small Businesses
Niche-Low Cost Vulnerabilities
Technological obsolescence and thus lose sight of shifting cust preferences
Low cost competencies imitatedCompetition intense in no frill
environments & competition may successfully lower their costs more
Generic Strategies for Small Businesses
Niche-Differentiation
Emphasizes offering customers highly differentiated, need fulfilling products or services for a narrow or focused segment (niche) of the market.
Niche-Differentiation
Cos
t
Mikimoto
Differentiation
Generic Strategies for Small Businesses
Niche-Differentiation Vulnerability
Org must seek to remain unique despite efforts by competitors to copy
Competitors who also emphasize lowering of costs may be able to offer similar products at predatory prices.
Generic Strategies for Small Businesses
Niche-Low Cost/Differentiation
Emphasizes offering customers highly differentiated, need fulfilling products or services for a narrow or focused segment (niche) of the market while keeping costs low.
Generic Strategies for Small Businesses
Niche-Low Cost/Differentiation
Dedication to qualityProcess innovationsProduct innovationsLeverage through org’l expertise
& image
Niche Low-Cost/Differentiation
Cos
t
RedHook
Differentiation
BostonBrewing
Generic Strategies for Large Businesses
Low Cost
Differentiation
Low Cost/Differentiation
Generic Strategies for Large Businesses
Low CostEmphasizes keeping overall costs
low while serving a broad market industrywide.
Low Cost Strategy
Cos
tDifferentiation
Wal Mart
Neiman-Marcus
Generic Strategies for Large Businesses
Low Cost Vulnerabilities
Remain vulnerable to price competition pressuring margins further aggravated by price wars
Technological stability causing firms to avoid responding to new mrkt & product opportunities may become obsolete
Generic Strategies for Large Businesses
Differentiation
Emphasizes offering customers industrywide highly differentiated, need fulfilling products or services.
Differentiation Strategy
Cos
t Apple
Differentiation
Generic Strategies for Large Businesses
Low Cost Vulnerabilities
New competitors with similar products at lower costs (and prices)
Remaining unique in customer’s eyes
Generic Strategies for Large Businesses
Multiple Strategies
The use by an organization of more than one of the previously mentioned strategies
Mid Size Firms Perform Poorly
“Stuck in the Middle”Don’t possess the advantages of
either their smaller or larger competitors
Best they can hope for is to expand their operations over time & take advantage of economies of scale or retrench and become smaller
Selecting a Generic Strategy
Industry Life Cycle
Embryonic Growth Shakeout Maturity Decline
Getting “Stuck in the Middle”
Finding oneself between a niche strategy and a broad target market strategy is a recipe for disaster . . . No competitive advantage and thus “below average” performance is the best that one can expect
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