Business-Level Strategy

BUSI 7130/7136

Chris Shook

Agenda

• Overview of Business Level Strategy

• What is Strategy

• Geometry of Competition

Business-Level Strategy

• How to create competitive advantage in each business in which the company competes.

Generic Business Level StrategiesGeneric Business Level Strategies

CostCost UniquenessUniqueness

Source of Competitive AdvantageSource of Competitive Advantage

Breadth of Breadth of Competitive Competitive

ScopeScope

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

Generic Business Level StrategiesGeneric Business Level Strategies

Source of Competitive AdvantageSource of Competitive Advantage

UniquenessUniqueness

Breadth of Breadth of Competitive Competitive

ScopeScope

Source of Competitive AdvantageSource of Competitive Advantage

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

Focused Differen-

tiation

Focused Differen-

tiation

CostLeadership

CostLeadership

Differen-tiation

Differen-tiation

Focused Low CostFocused

Low Cost

Generic Business Level StrategiesGeneric Business Level Strategies

UniquenessUniqueness

Breadth of Breadth of Competitive Competitive

ScopeScope

Source of Competitive AdvantageSource of Competitive Advantage

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

CostLeadership

CostLeadership

Generic Business Level StrategiesGeneric Business Level Strategies

UniquenessUniqueness

Relatively standardized productsRelatively standardized products

Key CriteriaKey Criteria

Cost Leadership Business Level StrategyCost Leadership Business Level Strategy

Relatively standardized productsRelatively standardized products

Features acceptable to many customersFeatures acceptable to many customers

Key CriteriaKey Criteria

Cost Leadership Business Level StrategyCost Leadership Business Level Strategy

Relatively standardized productsRelatively standardized products

Features acceptable to many customersFeatures acceptable to many customers

Lowest competitive priceLowest competitive price

Key CriteriaKey Criteria

Cost Leadership Business Level StrategyCost Leadership Business Level Strategy

Breadth of Breadth of Competitive Competitive

ScopeScope

Source of Competitive AdvantageSource of Competitive Advantage

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

CostLeadership

CostLeadership

Differen-tiation

Differen-tiation

Generic Business Level StrategiesGeneric Business Level Strategies

UniquenessUniqueness

Value provided by unique features and value characteristicsValue provided by unique features and value characteristics

Key CriteriaKey Criteria

Differentiation Business Level StrategyDifferentiation Business Level Strategy

Value provided by unique features and value characteristicsValue provided by unique features and value characteristics

Command premium priceCommand premium price

Key CriteriaKey Criteria

Differentiation Business Level StrategyDifferentiation Business Level Strategy

Value provided by unique features and value characteristicsValue provided by unique features and value characteristics

Command premium priceCommand premium price

Key CriteriaKey Criteria

Differentiation Business Level StrategyDifferentiation Business Level Strategy

High customer serviceHigh customer service

Value provided by unique features and value characteristicsValue provided by unique features and value characteristics

Command premium priceCommand premium price

Superior qualitySuperior quality

Key CriteriaKey Criteria

Differentiation Business Level StrategyDifferentiation Business Level Strategy

High customer serviceHigh customer service

Value provided by unique features and value characteristicsValue provided by unique features and value characteristics

Command premium priceCommand premium price

Superior qualitySuperior quality

Key CriteriaKey Criteria

Differentiation Business Level StrategyDifferentiation Business Level Strategy

Prestige or exclusivityPrestige or exclusivity

High customer serviceHigh customer service

Breadth of Breadth of Competitive Competitive

ScopeScope

Source of Competitive AdvantageSource of Competitive Advantage

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

CostLeadership

CostLeadership

Differen-tiation

Differen-tiation

Generic Business Level StrategiesGeneric Business Level Strategies

Focused Differen-

tiation

Focused Differen-

tiation

Focused Low CostFocused

Low Cost

UniquenessUniqueness

Focused Business Level StrategiesFocused Business Level Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Large firms may overlook small nichesLarge firms may overlook small niches

However.....However.....Opportunities may exist because:Opportunities may exist because:

**

Focused Business Level StrategiesFocused Business Level Strategies

Firm may lack resources to compete industrywideFirm may lack resources to compete industrywide

Large firms may overlook small nichesLarge firms may overlook small niches

However.....However.....Opportunities may exist because:Opportunities may exist because:

**

**

Focused Business Level StrategiesFocused Business Level Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Firm may lack resources to compete industrywideFirm may lack resources to compete industrywide

Large firms may overlook small nichesLarge firms may overlook small niches

However.....However.....Opportunities may exist because:Opportunities may exist because:

**

**

**

Focused Business Level StrategiesFocused Business Level Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

May be able to serve a narrow market segment more effectively than industrywide competitorsMay be able to serve a narrow market segment more effectively than industrywide competitors

Focused Differentiators may thrive by selecting a small market that is underserved by large players

Focused Differentiators may thrive by selecting a small market that is underserved by large players

**

Focused Business Level StrategiesFocused Business Level Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Focused Business Level Strategies involve the same basic approach as Broad Market Strategies

Breadth of Breadth of Competitive Competitive

ScopeScope

Source of Competitive AdvantageSource of Competitive Advantage

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

CostLeadership

CostLeadership

Differen-tiation

Differen-tiation

Generic Business Level StrategiesGeneric Business Level Strategies

Focused Differen-

tiation

Focused Differen-

tiation

Focused Low CostFocused

Low Cost

UniquenessUniqueness

Breadth of Breadth of Competitive Competitive

ScopeScope

Source of Competitive AdvantageSource of Competitive Advantage

BroadBroadTargetTargetMarketMarket

NarrowNarrowTargetTargetMarketMarket

CostCost

CostLeadership

CostLeadership

Differen-tiation

Differen-tiation

Generic Business Level StrategiesGeneric Business Level Strategies

Focused Differen-

tiation

Focused Differen-

tiation

Focused Low CostFocused

Low Cost

Integrated Low Cost/

Differentiation

Integrated Low Cost/

Differentiation

UniquenessUniqueness

What is Strategy?Porter, 1996

What does the article say about OE ?

What does it say about unique activities?

What about trade-offs?

Is Growth Always Good?

Fit

Type of Fit Definition Goal

First-Order Simple Consistency

Single Mindedness

Second-Order Reinforcing Activities

Synergy

Optimization of Effort

Optimization Elimination of Activities

Geometry of Competition

Summary

• Competitive advantage is very rare. – Most competitors don’t have a competitive

advantage• Despite

– Good products– Good customer relations– Excellent capabilities

• Competitive position is very real.

Operating Results Masquerading as Strategic Advantage

0

20

40

60

80

100

120

140

Cost Leadership DifferentiationPer

cen

t o

f In

du

stry

Ave

rag

e R

even

ue

and

Co

st

Ind Avg PriceInd Avg Price

Ind Ave CostInd Ave Cost

Alternate Paths to Outperforming Industry AverageAlternate Paths to Outperforming Industry Average

• Low cost producers have a cost savings greater than its price reduction

• Differentiated producer commands a price premium in excess of its added costs

Geometry of Competition

• Where are you in relation to your competitors?

• Two types of multidimensional positioning– Positioning related to capabilities– Positions related to offerings

Positioning Related to Capabilities

• Capabilities drive offerings

• Assets & Activities

->Capabilities

->OfferingsA firm must have– Competitive offerings– Frontier capabilities– A fit between the two

Advantage Curve for Steinway and Yamaha

YamahaYamaha

SteinwaySteinway

Stuck in the Middle

AA BB CC

Win in the Middle

AA BB CC

A Guide to Action

• Change the offerings (i.e. move the dot)

• Create new capabilities (i.e. shift the curve)

• Influence customer preferences

• Change dimensions of competition (change the axis)