strategic management 7

8/2/2019 Strategic Management 7

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Strategic Management-7

Business level strategies


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Strategies occur at multiple levels- Corporate andBusiness unit

Corporations often function through theirbusiness units

Corporate level strategies provide a broaddirection to the firm, but it is at the level of thebusiness where most competitive interactionoccurs and where competitive advantage isultimately won or lost

Business-level strategies are an important level atwhich companies set their strategies


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Business definition is at the core of business

strategies

Each business in a firm can be defined along

three dimensions of customer needs,

customer groups and alternate technologies

By defining the what, who and how of a

business the business definition seeks to

provide direction


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What- deals with customer needs

Who- deals with target segments

How- deals with technologies (not just

technical but all processes)


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Business strategies are the courses of actionpursued by an organization to serve identifiedcustomer groups and to provide value to

customers by satisfaction of their needs In the process the organization uses its core

competencies to gain, sustain and enhance itscompetitive advantage

The source of competitive advantage comesfrom skillful use of its core competencies


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Michael Porter on strategy

The dynamic factors that determine the choice ofa competitive strategy are: industry structure andposition of the firm in the industry

Industry structure is determined by competitiveforces

These forces are: threat of new entrants; threatof substitute products or services; bargaining

power of suppliers; bargaining power of buyers

and rivalry among existing players in the industry


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The second factor that determines a firms

competitive strategy is a firms positioning

within the industry

Positioning is the overall approach of the firm

towards competing

It is designed to gain a competitive advantage

and is based on: competitive advantage and

competitive scope


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Competitive advantage can arise due to: lower

cost and differentiation

Competitive scope can arise due to : broad

target and narrow target


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Competitive advantage can be gained by

producing standardized product through mass

production techniques (lower cost) and

distributing them through mass marketing

OR

Through high valuehigh priced offerings to a

select audience through specialized

distribution channels-niche marketing


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Competitive scope refers to the range ofproducts and services that a company offers

Under broad targeting it can offer a full range

of products and services to a wide range ofcustomers

Under narrow targeting it can choose to serve

a limited number of customers in a restrictedgeographical area with a limited range ofproducts


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Generic business strategies

Broad target Cost leadership Differentiation

Narrow target Focussed cost

leadership

Focussed

differentiation

Low cost products Differentiatedproducts


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Cost leadership-offers a margin of flexibility tothe organization to lower the price if thecompetition becomes stiff and yet earn the same

profit Examples:

Gujarat cooperative Milk Marketing Federation

Moser- Baer India

Tata Steel

Reliance Communications


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Achieving cost leadership

Accurate demand forecasting

High capacity utilization

High level of standardization of products Investments in cost saving technologies


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Cost leadership- when?

Cost leadership strategies work best in price

sensitive markets; where buyers possess a

significant bargaining power; differentiation is

superfluous or does not matter much tocustomers; low customer loyalty


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Cost leadership- Benefits and Risks

Benefits- cost leadership is a high entry barrier.Others cannot copy it easily

Best insurance against competition

Risks-Severe cost reduction can result in dilutionof customer focus

Technological shifts are a great threat; newer

technology possessed by newer entrants may bemore efficient as compared to obsoletetechnology


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Differentiation strategy

Useful when the competitive advantage of anorganization lies in its special featuresincorporated in its product which customers

are willing to pay for This allows it to charge a premium for its

products.

But differentiation also adds costs The key is to maintain a balance between

price and costs


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Achieving differentiation

Incorporate valuable feature and benefits

Increase non-tangible components of the

product

Increase variety offered

Better design

Offer a complete range of products that thecustomer needs


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Differentiation-when?

Customer needs and preferences are too

diversified

Customers willing to pay for differentiated

services

The market is too large to be satisfied by a few

players offering standardized products


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Differentiation-benefits and risks

Benefits- Differentiation allows branding

which leads to loyalty

Differentiation can be a sustainable entry

barrier

Risks- fails when the basis of differentiation is

not/ no longer valued by the customer


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Focus strategy

For an identified segment, a focussed organization useseither low cost or differentiation strategy

Examples-

Indian music: Tips created a revolution with a low cost

strategy in audio cassettes Times Music and Music Today cater to upwardly mobile

, sophisticated music lovers based on differentiationand premium pricing

Tanishq- Offers a differentiated product for high-income customers

Software companies- LOB strategy


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Achieving focus

Identify specific niches

Create superior skills to serve this segment

Develop innovative ways of managing thevalue chain


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Focus strategies-when?

There is a niche which is prepared to pay for ahigher value

The niche is large enough and has growth

potential The major players in the industry are not

interested in the niche; it is not crucial for

them There is some uniqueness associated with the

chosen segment


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Focus strategies-benefits and risks

Focus build loyalties; this can be an entry barrier

Could even transfer price increases (within limits) tothe customer

Niches can be transient; markets may change rapidly

If a niche becomes large enough it will attract

competitors Being focussed means committing to a narrow market

segment, may hinder movement to other segments

strategic management 7

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