5-1 5-1 welcome to class five!
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TRANSCRIPT
5-1
Welcome to Class Five!Welcome to Class Five!
Business-level Strategy and
Pro Bowl Debate: Team 1 vs. Team 6
Business-level Strategy and
Pro Bowl Debate: Team 1 vs. Team 6
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The Primary Focus of Business-Level Strategy is:
Creating and Sustaining Creating and Sustaining Competitive AdvantagesCompetitive Advantages
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How does Business-level Strategy Business-level Strategy
differ from Corporate-level strategy?differ from Corporate-level strategy?
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Less concerned with buying and selling products Less concerned with buying and selling products and/or providing servicesand/or providing services More concerned with managing a portfolio of More concerned with managing a portfolio of businesses.businesses. More concerned with strategic acquisitions and More concerned with strategic acquisitions and divestitures.divestitures. Should consider the needs of multiple stakeholdersShould consider the needs of multiple stakeholders Should include providing a satisfactory return to Should include providing a satisfactory return to stockholdersstockholders
Corporate-Level StrategyCorporate-Level Strategy
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Business-Level StrategyBusiness-Level Strategy
Focus is on establishing and sustaining a competitive advantage with products or services (different
from corporate-level strategy). Should consider the needs of
multiple stakeholders (similar to corporate-level strategy).
Should include providing a satisfactory return to stockholders (similar to corporate-level strategy).
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The following are 3 The following are 3 Generic StrategiesGeneric Strategies for achieving and sustaining for achieving and sustaining
Competitive AdvantagesCompetitive Advantages
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1) OVERALL COST LEADERSHIP1) OVERALL COST LEADERSHIP
Continually pinpointing ways to reduce cost in order to be able to sell low.
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2) DIFFERENTIATION
Creating a product or service that is considered as unique, valuable and something for which customers will be willing to pay a premium.
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3) FOCUS or Niche
Finding a little corner in a particular industry and becoming an expert at catering to the needs within that niche.
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Industry Life-Cycle States: Strategic Implications
Life cycle of an industryIntroductionGrowthMaturityDecline
Emphasis on strategies, functional areas, value-creating activities, and overall objectives varies over the course of an industry life cycle
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Introduction Stage
Products are unfamiliar to consumersMarket segments not well definedProduct features not clearly specifiedCompetition tends to be limited
Strategies
• Develop product and get users to try it
• Generate exposure so product becomes “standard”
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Growth StageCharacterized by strong increases in salesAttractive to potential competitorsPrimary key to success is to build consumer preferences for specific brands
Strategies
• Strive for BrandBrand recognition
• Emphasize DifferentiatedDifferentiated products & premium pricing
• Target Financial resourcesTarget Financial resources to support value-chain activities
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Maturity StageAggregate industry demand slowsMarket becomes saturated, few new adoptersDirect competition becomes predominantMarginal competitors begin to exit
Strategies• Focus is on efficient manufacturing operations and process
engineering
• Attempt to keep costs low (customers become price sensitive)
• Frequently key technology no longer has patent protection and experience is not an advantage consequently competition based on price is often a forced reality.
• Important to attempt to compete on the basis of differentiationImportant to attempt to compete on the basis of differentiation
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Decline Stage
Industry sales and profits begin to fallStrategic options become dependent on the actions of rivals
Strategies
• Maintaining the status quo
• Exiting the market (dropping the product or service)
• Harvesting (squeezing as much profit as possible from the business)
• Consolidation (buy the competition)
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Turnaround Strategies in the Life Cycle
Asset and cost surgerySelective product and market pruningPiecemeal productivity improvements
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Please review Slides 18 through 33 for homework.
Very importantVery important!!
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Introducing Debate 1:Introducing Debate 1:The Pro BowlThe Pro Bowl
Presenting TeamsPresenting Teams
1 and 61 and 6!!
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The following is part of your out of class assignment. Please study the
slides carefully.
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Three Generic Strategies (cont)
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Three generic strategies to overcome the five forces and achieve competitive advantage
Overall cost leadershipLow-cost-position relative to a firm’s peersManage relationships throughout the entire value chain
DifferentiationCreate products and/or services that are unique and valuedNon-price attributes for which customers will pay a premium
Focus strategyNarrow product lines, buyer segments, or targeted geographic marketsAttain advantages either through differentiation or cost leadership
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Overall Cost Leadership
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Integrated tacticsAggressive construction of efficient-scale facilitiesVigorous pursuit of cost reductions from experienceTight cost and overhead controlAvoidance of marginal customer accountsCost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising
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Overall Cost Leadership (Cont.)
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
A firm following an overall cost leadership positionMust attain parity on the basis of differentiation relative to competitorsParity on the basis of differentiation
Permits a cost leader to translate cost advantages directly into higher profits than competitorsAllows firm to earn above-average profits
5-22Overall Cost Leadership: Improving Competitive Position vis-à-vis the Five Forces
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
An overall low-cost positionProtects a firm against rivalry from competitorsProtects a firm against powerful buyersProvides more flexibility to cope with demands from powerful suppliers for input cost increasesProvides substantial entry barriers from economies of scale and cost advantagesPuts the firm in a favorable position with respect to substitute products
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Pitfalls of Overall Cost Leadership Strategies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Too much focus on one or a few value-chain activitiesAll rivals share a common input or raw materialThe strategy is imitated too easilyA lack of parity on differentiationErosion of cost advantages when the pricing information available to customers increases
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Differentiation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Differentiation can take many formsPrestige or brand imageTechnologyInnovationFeaturesCustomer serviceDealer network
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Differentiation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Firms may differentiate along several dimensions at onceFirms achieve and sustain differentiation and above-average profits when price premiums exceed extra costs of being uniqueSuccessful differentiation requires integration with all parts of a firm’s value chainAn important aspect of differentiation is speed or quick response
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McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Uniqueness that is not valuableToo much differentiationToo high a price premiumDifferentiation that is easily imitatedDilution of brand identification through product-line extensionsPerceptions of differentiation may vary between buyers and sellers
Potential Pitfalls of Differentiation Strategies
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Focus
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Focus is based on the choice of a narrow competitive scope within an industry
Firm selects a segment or group of segments (niche) and tailors its strategy to serve themFirm achieves competitive advantages by dedicating itself to these segments exclusively
Two variantsCost focusDifferentiation focus
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Pitfalls of Focus Strategies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Erosion of cost advantages within the narrow segmentFocused products and services still subject to competition from new entrants and from imitationFocusers can become too focused to satisfy buyer needs
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Combination Strategies: Integrating Overall Low Cost and Differentiation
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Primary benefit of successful integration of low-cost and differentiation strategies is difficulty it poses for competitors to duplicate or imitate strategyGoal of combination strategy is to provide unique value in an efficient manner
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Three Combination Approaches
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Automated and flexible manufacturing systemsExploiting the profit pool concept for competitive advantageCoordinating the “extended” value chain by way of information technologyFirms that successfully integrate differentiation and cost strategies obtain advantages of competition from both approaches
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Pitfalls of Combination Strategies
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Firms that fail to attain both strategies may end up with neither and become “stuck in the middle”
Underestimating the challenges and expenses associated with coordinating value-creating activities in the extended value chain
Miscalculating sources of revenue and profit pools in the firm’s industry
5-32Stages of the Industry Life Cycle
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Generic strategies
Differentiation Differentiation Differentiation Overall costOverall cost leadershipleadership Focus
Market growth rate
Low Very large Low to Negativemoderate
Number of segments
Very few Some Many Few
Intensity of competition
Low Increasing Very intense Changing
Emphasis on product design
Very high High Low to Lowmoderate
StageIntroduction Growth Maturity DeclineFactor
5-33Stages of the Industry Life Cycle
McGraw-Hill/IrwinStrategic Management, 3/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved.
Emphasis on process design
Low Low to High Lowmoderate
Major functional area(s) of concern
Research and Sales and Production GeneralDevelopment marketing management
and finance
Overall objective
Increase Create Defend Consolidate,market share consumer market share maintain, awareness demand and extend harvest, or
product life exitcycles
Stage
Factor Introduction Growth Maturity Decline