Business-level Strategy

Business-Level Strategy

We’ll cover • • • •

Levels of Strategy Business Level Strategy Reach, Richness, and Affiliation Porter’s generic strategies

According to Michael Porter, the essence of business-level strategy is “to perform activities differently or to perform different activities than rivals.” The who, what, and how of selecting a business-level strategy are determined when a firm establishes (4)who will be served; (5)what needs those target customers have that it will satisfy; and (3) how those needs will be satisfied.

Managing Relationships With Customers • Customer relationships are strengthened by offering them superior value – help customers to develop a new competitive advantage – enhance the value of existing competitive advantages • Successful companies chart new competitive space in order to serve new customers as they simultaneously try to find new ways to better server existing customers

Managing Relationships With Customers • Establish a competitive advantage along these dimensions: Reach – the firm’s access and connection to customers Richness – the depth and detail of the two-way flow of information between the firm and customers Affiliation – facilitating useful interactions with

The Central Role of Customers In selecting a business-level strategy, the firm determines 1. who it will serve 2. what needs those target customers have that it will satisfy 3. how those needs will be satisfied

Basis for Customer Segmentation

Customers Consumer Industrial

Markets

Markets

Core Competencies and Strategy The resources and capabilities that have Core been determined to be a source of competencies competitive advantage for a firm over its rivals Strategy

An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage

Actions taken to provide value to customers Business-level and gain a competitive advantage by exploiting core competencies in specific, strategy individual product markets

Business-Level Strategy An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets Key Issues •What good or service to offer customers •How to manufacture or create the good or service •How to distribute the good or service in the marketplace

Types of Business-Level Strategies

• Business-level strategies are intended to create differences between the firm’s position relative to those of its rivals • To position itself, the firm must decide whether it intends to perform activities differently or to perform different activities as compared to its rivals

Porter’s Generic Strategies

Broad target Narrow target

Competitive Scope

Competitive Advantage Cost Uniqueness Cost Differentiation Leadershi p Integrated Cost Leadershi p/ Differentia Focused tion Focused Differentiati Cost on

Leadershi

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Cost Leadership Strategy An integrated set of actions designed to produce or deliver goods or services at the lowest cost, relative to competitors with features that are acceptable to customers – relatively standardized products – features acceptable to many customers – lowest competitive price

Cost Leadership Strategy What are the cost saving actions required by this strategy ?

How to Obtain a Cost Advantage Determine and control

Reconfigure, if needed

Cost DriversValue Chain • Alter production process • New raw material • Change in automation • Forward integration • New distribution channel • Backward integration • New advertising media • Change location relative to • Direct sales in suppliers or buyers place of indirect sales

Questions Leading to Lower Costs

1. How can an activity be performed

differently or even eliminated? 2. How can a group of linked value activities be regrouped or reordered? 3. How might coalitions with other firms lower or eliminate costs?