strategic management

STRATEGIC MANAGEMENT

BBPS4103

BBPS4103

MOHAMED SHAHIM

BHRM BATCH 05

S130802180

FACULTY OF BUSINESS MANAGEMENT

VILLA COLLEGE

MOHAMED SHAHIM S1308021850

STRATEGIC MANAGEMENT BBPS4103

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1 Table of Contents

2 ABSTRACT .......................................................................................................................................... 2

3 INTRODUCTION ................................................................................................................................ 3

3.1 DIFFERENT LEVELS OF STRATEGIES .................................................................................. 3

3.1.1 Corporate Level Strategy: - This is mainly concerned with the overall purpose and the

scope of the organization in order to achieve the stakeholders expectations. It is also often stated as

the Mission Statement. ....................................................................................................................... 4

3.1.2 Business Level Strategy: - This is mainly about the strategic decisions to be made

regarding the choice of the products, and how to meet the needs and demands of the customers. In

short, business level strategy is about how a business competes successfully in a popular market. .... 4

3.1.3 Operational/ Functional Level Strategy: - Operational or Functional level strategy mainly

deals with the issues of the resources, processes and the people of the organization. .......................... 4

4 EXPLANATIONS OF BUSINESS LEVEL STRATEGIES ................................................................ 5

4.1 MICHAEL PORTERS GENERIC MODEL STRATEGY ......................................................... 6

4.1.1 COST LEADERSHIP STRATEGY ..................................................................................... 6

4.1.2 DIFFERENTIATION STRATEGY ..................................................................................... 8

4.1.3 FOCUS STRATEGIES ....................................................................................................... 11

5 JUSTIFICATION OF THE EXAMPLES OF BUSINESS LEVEL STRATEGIES .......................... 13

5.1 COST LEADERSHIP ................................................................................................................. 13

5.2 DIFFERENTIATION STRATEGY ........................................................................................... 13

5.3 COST FOCUS STRATEGY ....................................................................................................... 14

5.4 DIFFERENTIATION FOCUS STRATEGY .............................................................................. 14

6 SUMMARY ........................................................................................................................................ 15

7 References ........................................................................................................................................... 16



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2 ABSTRACT

This assignment is a part of the final mark up for the Strategic Management Module. In

this assignment, I will be discussing about the definitions of the strategic management and strategy.

Furthermore, different levels of Strategies and a brief explanation of those strategies will be

highlighted with their examples. A justification of the strategy to the business given in the

examples will be highlighted as well followed by a summary of the whole essay to end the

assignment.



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3 INTRODUCTION

Strategic management is the set of managerial decision and action that determines the long-run

performance of a corporation. It includes environmental scanning (both external and internal),

strategy formulation (strategic or long range planning), strategy implementation, and evaluation

and control. The study of strategic management therefore emphasizes the monitoring and

evaluating of external opportunities and threats in lights of a corporations strengths and

weaknesses (David Hunger).

The term strategic management is mainly the scope of strategic decision making activity

in an organization. Strategic management or strategy is a concept that has evolved over and over

and is being said that it will continue to evolve. Hence, the term strategic management and strategy

has several meanings and interpretation depending on the author and the sources.

According to Johnson and Scholes in their book, Exploring Corporate Strategy, defines the

strategy as, the direction and scope of an organization over the long-term, which achieves the

advantage for the organization through its configuration of resources within a challenging

environment, to meet the needs of the markets and to fulfil the stakeholder expectations.

Hence, a strategy can be defined as the actions and resources that are needed to achieve a

specific long-term goals or objectives of an organization.

3.1 DIFFERENT LEVELS OF STRATEGIES

There are different levels of strategies. And strategy of a specific organization changes

based on the levels of the strategy. The three main levels of strategy are; corporate level, business

level and functional or operational level.



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3.1.1 Corporate Level Strategy: - This is mainly concerned with the overall purpose and the scope of

the organization in order to achieve the stakeholders expectations. It is also often stated as the

Mission Statement.

3.1.2 Business Level Strategy: - This is mainly about the strategic decisions to be made regarding the

choice of the products, and how to meet the needs and demands of the customers. In short, business

level strategy is about how a business competes successfully in a popular market.

3.1.3 Operational/ Functional Level Strategy: - Operational or Functional level strategy mainly deals

with the issues of the resources, processes and the people of the organization.

Figure 1: Different Levels of Strategies 1

1 Image Source: http://www.slideshare.net/chitrangtandel/different-levels-of-strategy



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4 EXPLANATIONS OF BUSINESS LEVEL STRATEGIES

Every organizations vision and mission should be focused on satisfying the needs and

wants of the customers. This is done through business level strategies. Business level strategy

mainly focuses on the strategic decisions to be made regarding the choice of the products, and how

to meet the needs and demands of the customers. This strategy also is concerned with the

organizations or the businesss position in the industry relative to other competitors in the market.

Business level strategy is also focused on three main elements when it comes to satisfying the

customer needs and preferences. They are;

1. Who will be served,

2. What needs have to be met, and

3. How those needs will be satisfied.

And in a business level strategy, the senior management of every organization is highly

focused on the above three elements.

Business strategic model can be better understood with the work of the Harvard Business

School Professor, Professor Michael Porters Generic Model.

Figure 2: Michael Porters Generic Model Strategies 2

2 Image Source: http://vitalsix.co.uk/business-strategy-whats-yours-2/



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4.1 MICHAEL PORTERS GENERIC MODEL STRATEGY

According to Porter, two competitive dimensions are the key to business-level strategy.

The two dimensions that the Porter mentioned are;

1. Firms or Businesss Source of Competitive Advantage: - It involves whether a

business tries to gain edge on competitors by minimizing the cost or by coming up

with a new product that will attract the customers.

2. Firms or Businesss Scope of Operations: - It involves whether the business tries

to target customers in general or whether the business is seeking to attract a specific

group of customers.

Depending on the above two dimensions of Michael Porters Generic Model, we can tell

whether a business is targeting a customers or whether it targets a specific customer group. The

above two dimensions are further classified into four dimensions. They are called the Four Generic

Business Model Strategies. It is very important to understand the difference between the four

generic business model strategies. Because each strategy focusses on different value schemes to

its customers. Meaning that Businesses use either one of the strategies to achieve the competitive

advantage over their rival businesses in the market.

4.1.1 COST LEADERSHIP STRATEGY

Cost leadership can be defined as the strategy where the businesses compete for a wide

customer group based on the price. According to (Nielson, 2013), Cost leadership is about

organizing all your resources around producing goods and services at the lowest cost possible. By

having the lowest costs associated with providing your products, you put your business in the



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unique position of being able to charge your customers the lowest price in the market for those

products.

Cost leadership can be applicable or valuable only if the buyers or the customers do not

value the differentiation very much or if the customers are price sensitive and if the other

competitors in the market will not immediately match lower prices. Even if a company follows the

cost leadership strategy, the company will be able to achieve the competitive advantage if there

are no changes in the customer tastes, preferences, technology and the exogenous price or the cost

and if the activities taken by the business to achieve the low costs are rare and costly to imitate.

4.1.1.1 WALMART

An example of a company following the Cost Leadership Strategy is the Walmart. They

are the worlds largest company that used the cost leadership strategy to attain that position. Even

their advertising slogan says Save Money. Live Better.

Other examples of companies that cost leadership strategy to achieve the competitive

advantage includes the following.



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4.1.1.2 Southwest Airlines: - Southwest Airlines Co. is said to be the major U.S. airline and the

world's largest low-cost carrier.

4.1.1.3 Barnes & Noble: - Barnes & Nobles is a retailing company. They are a Fortune 500

company, the largest retail bookseller in the United States, and the leading retailer of

content, digital media and educational products in the USA.

4.1.1.4 IKEA: - IKEA is a multinational group of companies that designs and sells ready-to-

assemble furniture, appliances, small motor vehicles and home accessories. As of January

2008, it is the world's largest furniture retailer.

4.1.2 DIFFERENTIATION STRATEGY

Unlike a company following a cost leadership strategy, a company following

differentiation strategy attempts to convince customers to pay a premium price for its good or

services by proving them with a unique and desirable features. Main purpose of differentiation

strategy is to offer the customers something with a good value that will provide something special

to the customers.

According to Michael Porter, if a company is using the differentiation strategy, the

company is competing based on the uniqueness rather than the price and they are seeking to attract

a broader market in the industry. Companies that use differentiation strategy uses a technique of

promoting their products by saying that the cheaper products are much more likely to have

problems.

According to (Nielson, 2013), if a company is planning to move forward with the

differentiation strategy, the company should keep in mind the following important points.



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Benefit Leadership means signing up for a constant innovation: - This means that the brand

or the product or the service promised or the provided must be continually kept in order to

achieve the sustain growth and the profitability.

Providing superior benefits alone can very difficult to maintain: - This means that due to

the uniqueness and the quality of the product, providing superior benefits over a long-term

can be very challenging due to the intense competition.

Providing different benefits requires more creativity but can be easier to maintain over a

long-term: - This basically means that the company should provide the customers with

something that hasnt been provided or tried before and something that has a lower

competition.

Providing uniquely superior benefits; a combination of superior and different benefits, is

difficult to do but highly valuable when achieved: - this means that the company should

always provide the customers with something superior than what is in the market and

something with different benefits that has a low competition. This will help the company

to achieve the competitive advantage over other companies in the market and this will help

the company to be superior over other companies even though their prices are premium.

4.1.2.1 APPLE

Think Different, and thats how they became the worlds

number one computer company. As we all know, Apple is

widely considered as the company of innovation and creativity

par excellence. Apple was no the first company to achieve the

champion innovation in the computer industry; several other companies has been designing and



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introducing computer systems and software for several years. And then with the help of their

new design and marketing strategies and the new trend in their technology, despite the price of

the products of the Apple, number of customers raised.

Other examples of the companies that have achieved competitive advantage over the

market includes;

4.1.2.2 ROLEX: - Rolex enjoys an unrivalled reputation throughout the world for quality and

precision in luxury watchmaking.

4.1.2.3 CANON: - Canon is a Japanese multinational corporation specialized in the manufacture

of imaging and optical products, including cameras, camcorders, photocopiers, steppers,

computer printers and medical equipment. Canon began to invest more and more in both

product development in order to differentiate their product and in expanding their

marketing and sales staff and they achieved the competitive market over others.

4.1.2.4 NIKE: - Nike is an American multinational corporation that is engaged in the design,

development, manufacturing and worldwide marketing and selling of footwear, apparel,

equipment, accessories and services. Nike became the world leader in this market b taking

customer perceptions to heart and continually producing products that separate itself from

the pack.



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4.1.3 FOCUS STRATEGIES

Companies that follows focus strategies concentrate on particular market of products, by

understanding the dynamics of that market and the unique needs of customers within it. And then

they develop uniquely low cost or well specified products for the market. Because they serve

customers in their market uniquely well, they tend to build strong brand loyalty amongst their

customers. This makes their particular market segment less attractive to competitors (Mind Tools,

n.d.).

Focus strategy is further classified into Cost Focus Strategy and Differentiation Focus

Strategy. Either the company use the cost focus strategy or differentiation focus strategy, the key

to make a success of a generic focus strategy is to ensure that you are adding something extra as a

result of serving only that market place. This means that your adding something extra can either

be reducing cost or to increase differentiation.

4.1.3.1 COST FOCUS STRATEGY

Companies that mainly target on the cost focus strategy seeks the smallest buyers in a

market that purchase in small quantities that industry-wide competitors cannot serve them at the

same lowest cost.

4.1.3.1.1 IKEA

An example of a company that uses cost focus strategy can be IKEA. IKEA is a global

furniture retailer that provides the customers with affordable solutions for better living through

the cost focus leadership strategy. They offer the customers with home furnishings that combine

good design, function, and a good quality with affordable, low prices than the competitive

companies in the market.



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4.1.3.2 DIFFERENTIATION FOCUS STRATEGY

Companies that follow differentiation focused strategy must be producing products that are

customized for small market segments. Their products can be successful when either the quantities

involves are too small for the industry-wide competitors to handle economically or when the extent

of the customization requested is beyond the capabilities of the industry-wide differentiator.

4.1.3.2.1 LAMORGHINI

Automobili Lamborghini S.p.A. is an Italian brand and manufacturer of luxury sports cars

and, formerly, SUVs, which is owned by the Volkswagen Group through its subsidiary brand

division Audi. They compete in the tiny super car category with prices starting at $150,000 and

running as high as $600,000. These cars considered to be more than just transportation.



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5 JUSTIFICATION OF THE EXAMPLES OF BUSINESS

LEVEL STRATEGIES

5.1 COST LEADERSHIP

According to (Hudson, 2006), Walmart has the broadest customer base of any firm in the

United States. Approximately one hundred million Americans visit a Walmart in a typical week.

Furthermore, according to (Nielson, 2013) Walmart stores are not nearly as nice as Targets and

their store brand is arguably inferior to Targets store brands. But thats okay because what

Walmart cant do in providing benefits they may make up for in everyday low prices.

Furthermore, the companys slogans such as Always Low Prices and Save Money. Live

Better communicate Walmarts emphasis on price slashing to potential customers.

A company is said to have achieved a cost leadership strategy when that company has wide

number of customers and that the company is selling its products at a cheaper rate than the

competing companies in the market. And looking at the Walmarts background and their current

status, it is very clear that they are a cost leadership champion the market.

5.2 DIFFERENTIATION STRATEGY

Apple and Dell are the only ones in this industry making money. They make it by

being Wal-Mart. We make it by innovation Steve Jobs.

Differentiation strategy can be defined as where a company organizing all its resources

around the goal of providing a product that is unique in its quality relative to the competition. And

one way to achieve superior over the competitors is to beat them with the innovation. Despite the

price of Apple products compared to other products, according to (Eckel, 2011) Apple even



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smoked Microsoft when it comes to market value, steamrolling to a market capitalization of billion

versus Microsoft's comparably anemic $205 billion.

5.3 COST FOCUS STRATEGY

IKEA is one company that offers low-cost, modular furniture assembled by the customers,

using their unique way which is using self-service as an alternative to having sales associates

follow and pressure the customers to buy their products. IKEA has different varieties of products.

Different varieties with various designs with respect to the customers specific needs and wants in

a price which is pretty much lower than the competitive companies in the market.

5.4 DIFFERENTIATION FOCUS STRATEGY

Differentiation focus strategy mainly focuses on the production of customized products for

a smaller market or a targeted market.

Lamborghini differentiates on several levels from their competitors. This has led, the

Lamborghini being able to create a brand image that is very strong and one that brings to mind

quality, long lasting cars when a potential customer sees it.



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6 SUMMARY

Strategic management mainly deals with the strategic decision making of an organization

or a business. Strategic management is classified into mainly three different categories; corporate

level strategy, business level strategy and functional or operational level strategy. Business level

strategies are used by all the businesses inorder to achieve a competitive place in the market

industry.

According to Michael Porters Generic Model Strategy, business level strategy is further

classified into three main strategies depending on the businesss source of competitive advantage

and the businesss scope of operations. The three main strategies of Business level strategies are

cost leadership strategy, differentiation strategy and focus strategy.

Firstly, a cost leadership strategy is where a business compete for a wide customer group

based on the price. An example of a company that uses cost leadership strategy is Walmart.

Secondly, Apple is an example of a differentiation strategy. Apple is considered as a company that

uses differentiation strategy is because despite the price of their products their market level

compared to the competing companies are high. Finally, a company that uses focus strategy either

use a cost focus strategy or a differentiation focus strategy. A cost focus strategy is where

producing products of a particular company is customized for small market segments. IKEA is an

example for a company that uses a cost focus strategy. Lamborghini is a world-wide well known

car product for its higher price and the quality and the looks of their products. Lamborghini is said

to be using a differentiation focus strategy to achieve their competitive market by focusing on the

production of customized products for a smaller market or a targeted market.



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7 References

Barnat, R. (n.d.). Strategic Management: Formulation and Implementation. Retrieved March 4,

2015, from introduction-to-management: http://www.introduction-to-

management.24xls.com/en202

David Hunger, T. L. (n.d.). Basics concepts of strategic management. Essentials of Strategic

Management, 3-5.

Eckel, E. (2011, August 26). Steve Jobs: 10 historic achievements. Retrieved from Tech

Republic: http://www.techrepublic.com/blog/10-things/steve-jobs-10-historic-

achievements/

Hudson, A. Z. (2006). Managing Wal-Mart: How US-store chief hopes to fix Wal-Mart. Wall

Street Journal.

Nielson, J. (2013, October 21). The Two Business Strategies: Cost Leadership and Benefit

Leadership [And Where Michael Porter Missed The Mark]. Retrieved from The

Innovative Manager: http://www.theinnovativemanager.com/the-two-business-strategies-

cost-leadership-and-benefit-leadership-and-where-michael-porter-missed-the-mark/#

Riley, J. (2015, February 14). What is Strategy? . Retrieved from Tutor2u:

http://tutor2u.net/business/strategy/what_is_strategy.htm

Sridharan, M. (2014, February 10). Do it like Apple: differentiate or die! Retrieved from

outsource magazine: http://outsourcemagazine.co.uk/do-it-like-apple-differentiate-or-die/

Tools, M. (n.d.). Porter's Generic Strategies - Choosing Your Route to Success. Retrieved March

4, 2015, from Mind Tools: http://www.mindtools.com/pages/article/newSTR_82.htm