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BUSINESS-LEVEL STRATEGY
Business 189
Spring 2007
Dr. Mark Fruin
WHAT IS BUSINESS-LEVEL STRATEGY?
• A FIRM-SPECIFIC PLAN OF ACTION FOR GAINING COMPETITIVE ADVANTAGE IN A MARKET OR INDUSTRY (TAKE BUSINESS AWAY FROM RIVALS)
• IMPLEMENT B-L STRATEGIES THAT MAKE FULL USE OF FUNCTIONAL LEVEL STRATEGIES
• INDUSTRIES = PRODUCT/MARKET SEGMENTS• BASED ON
– PRODUCT DIFFERENCES– CUSTOMER GROUPS OR MARKET SEGMENTS– LOCATION (SEGMENTS OFTEN DIFFER BY LOCATION)– HAVING DISTINCTIVE COMPETENCES
• FOLLOWING PORTER, EITHER COST LEADERSHIP OR DIFFERENTIATION ADVANTAGES/THESE ARE PRODUCT STRAT
BL & FL STRATEGIES• DISTINGUISH BETWEEN BUSINESS LEVEL &
FUNCTIONAL LEVEL STRATEGIES– IS ONE TYPE OF STRATEGY MORE
APPROPRIATE AT CERTAIN TIMES & STAGES?– CAN BOTH BE PURSUED SIMULTANEOUSLY?– IS THE COMPETITION BETWEEN GM & TOYOTA
TO BE THE LARGEST AUTO MAKER IN THE WORLD, A BL OR FL COMPETITON?
COMPETITIVE POSITIONING• TO BE IN A POSITION OF COMPETITIVE
ADVANTAGE, A FIRM MUST MAKE CHOICES• WHAT PRODUCT FEATURES?• WHAT CUSTOMER CHARACTERISTICS OR
CUSTOMER GROUPINGS• WHERE (WHEN & HOW)• WILL PRODUCT BE COMPETITIVELY
POSITIONED ACCORDING TO– COST LEADERSHIP?– DIFFERENTIATION?
SEGMENTATION STRATEGIES
• FIGURE 5.2 (SEE FIGURE 5.1 AS WELL)– NO MARKET SEGMENTATION - THE MARKET
TAKEN AS AN UNDIFFERENTIATED WHOLE– HIGH MARKET SEGMENTATION - LOTS OF
DIFFERENT PRODUCT/MARKET SEGMENTS– FOCUSED MARKET SEGMENTATION - A FEW
SEGMENTS ARE SELECTIVELY TARGETED
SEGMENTATION AND THE BUSINESS MODEL
• CHAPTER TALKS A LOT ABOUT BUSINESS MODELS RATHER THAN STRATEGIES
• WHAT’S THE DIFFERENCE AGAIN?
• BM IS HOW ARE WE GOING TO MAKE MONEY
• STRATEGY IS HOW ARE WE GOING TO IMPLEMENT/EFFECT BM
WAL-MART’S BUSINESS MODEL
• WAL-MART’S BUSINESS MODEL ON P. 157, FIGURE 5.3
• BALOONS ARE ACTIVITIES/CAPABILITIES THAT DISTINGUISH W-M’S BUSINESS MODEL AND PROD/MKT SEGMENTATION
• HOW ARE W-M’S CAPABILITIES IMPLEMENTED/PUT INTO PLAY???– FUNCTIONAL LEVEL STRATEGIES– GENERIC COMPETITIVE STRATEGIES
FIGURES 5.5, 5.6, 5.8, 5.9 & 5.10
• ILLUSTRATE WHAT WE HAVE JUST SAID• BUSINESS-LEVEL STRATEGIES REQUIRE
– TARGET SEGMENTS (MAKE CHOICES)– CARRY OUT FUNCTIONAL LEVEL
STRATEGIES (STRATEGY STACK IN ACTION)– DEVELOP ACTIVITIES/CAPABILITIES THAT
IMPLEMENT TARGETED SEGMENTS– EXCEL IN ONE OR ANOTHER GENERIC
COMPETITIVE STRATEGY (MAKE CHOICES)
GENERIC STRATEGIES
• COST LEADERSHIP (VALUE PROPOSITION STRATEGY)– BROAD– NARROW
• DIFFERENTIATION (PRICE PREMIUM STRATEGY)– BROAD – NARROW (FOCUS DIFFERENTIATION)
CUSTOMER GROUPS & MARKET SEGMENTATION
• HOW MUCH ARE CUSTOMERS WILLING TO PAY VERSUS WHAT CUSTOMERS ARE BEING SERVED?
• THREE ALTERNATIVE STRATEGIES– FOCUS ON “AVERAGE” CUSTOMER
– SEGMENT MARKET INTO MANY DIFFERENT CONSTITUENCIES/CLUSTERS
– CONCENTRATE ON “NICHES” ONLY• WHY DO THIS?
CAN A FIRM OFFER TOO MANY PRODUCTS?
• HOW MANY PRODUCTS ARE THE “RIGHT” NUMBER OF PRODUCTS?
• INDUSTRY CYCLE EFFECTS
• MACROECONOMIC EFFECTS
• SIGNALS & SIGNS OF TOO FEW OR TOO MANY PRODUCTS?
ADVANTAGES & DISADVANTAGES OF C.L.
• ADVANTAGES– USING 5 FORCES MODEL: COST LEADER HAS
• MORE POWER RELATIVE TO SUPPLIERS• MORE POWER RELATIVE TO BUYERS• BETTER ABLE TO DETER ENTRY OF NEW COMPETITORS &
BATTLE SUBSTITUTE PRODUCTS (BY LOWERING PRICES)
• DISADVANTAGES– MORE LIKELY STUCK IN PARTICULAR TECH/SEGMNT
• WHY?
– MORE LIKELY TO BE IMITATED• WHY?
– MORE LIKELY STUCK IN C.L. STRATEGY (AND POSSIBLY LOSE SIGHT OF CHANGING CUST. TASTES)
• DISCONTINUOUS INNOVATION (CLAY CHRISTENSEN)
BROAD V NARROW COST LEADER
• BROAD COST LEADERSHIP MEANS TAKING ADVANTAGE OF ECONOMIES OF SCALE & SCOPE ON NATIONAL LEVEL
• NARROW COST LEADERSHIP MEANS BEING A LEADER LOCALLY OR IN JUST ONE OR ANOTHER PRODUCT FEATURE– LOCAL PIZZA VS. NATIONAL CHAIN
– CARBON FIBER VS. STEEL, ALUMINUM & TITANIUM MOUNTAIN BIKING FRAMES
ADVANTAGES & DISADVAN-TAGES OF DIFFERENTIATION
• ADVANTAGES– DIFFERENTIATORS TRY TO DIFFERENTIATE IN MANY
DIFFERENT WAYS– HARD TO IMITATE (IF DONE WELL)– BRAND LOYALTY HIGH IF CONVINCE BUYERS OF
“UNIQUENESS,” “UNUSUALNESS,” & “SPECIALNESS”
• DISADVANTAGES– DIFFERENTIATION IS EXPENSIVE– MANY DIFFERENTIATION FACTORS EASILY IMITATED– FOR HOW LONG CAN “UNIQUENESS” BE
SUSTAINED/PROTECTED
FOCUSED DIFFERENTIATION
• FD MEANS CONCENTRATING ON– A PARTICULAR AREA (GEOGRAPHICALLY)– A PARTICULAR CUSTOMER (WELL EDUCATED,
PART. HOUSEHOLD INCOME, ETC.– PARTICULAR MARKET SEGMENT, SUCH AS
DESIGNER CLOTHES, FAST CARS, SMALL FOOTPRINT APPLIANCES, ETC.
GENERIC STRATEGIES• REQUIRE CAREFUL ATTENTION TO
PRODUCT/TECH/MARKET CHOICES– LOOKING FOR THE SWEET SPOTS
• CAN PROTECT FIRMS FROM 5 FORCES RIVALRIES - WHY?
• REQUIRE CONTINUOUS UPGRADING OF INVESMENT CHOICES - WHY?
• CREATE STRATEGIC GROUPINGS (OF FIRMS FOLLOWING SIMILAR STRATEGIES)
STRATEGIC GROUPS• WITHIN MOST INDUSTRIES, STRATEGIC
GROUP EMERGE
• A STRATEGIC GROUP IS DEFINED BY COMPANIES PURSUING THE SAME GENERIC STRATEGY
• MOBILITY BARRIERS INHIBIT THE MOVEMENT OF COMPANIES FROM ONE STRATEGIC GROUP TO ANOTHER
COMPETITIVE ADVANTAGE & INVESTMENT STRATEGY
• WHAT TYPE OF INVESTMENTS MUST FIRMS MAKE TO SUSTAIN COMPETITIVE ADVANTAGE?
• OBVIOUS– HUMAN RESOURCES– FUNCTIONAL-LEVEL STRATEGIES– PURSUIT OF FINANCIAL ADVANTAGE– GLOBALIZATION & OUTSOURCING
• NOT SO OBVIOUS? – INTANGIBLE RESOURCES– TACIT CAPABILITIES– SOCIAL PROCESSES– HIGHER LEVEL HR INVESTMENTS
QUESTIONS
• WHY DOES EACH GENERIC STRATEGY REQUIRE DIFFERENT SETS OF PRODUCT/MARKET/DISTINCTIVE COMPETENCY CHOICES?– EXAMPLES OF FIRM PAIRS MAKING DIFFERENT
CHOICES; ARE THEY IN SAME STRATEGIC GROUP?
• HOW SHOULD DIFFERENTIATION INVESTMENT CHOICES VARY IF YOU ARE IN STRONG OR WEAK COMPETITIVE POSITION?
STUDY GROUP QUESTIONS• WHICH FIRM (OF THE PAIR) PERFORMS BEST IN
TERMS OF FUNCTIONAL-LEVEL STRATEGIES?– FL STRATEGIES INDIVIDUALLY & TOGETHER
• DO THE TWO FIRMS BELONG TO THE SAME STRATEGIC GROUP IN THE INDUSTRY?
• DO BOTH FIRMS PURSUE THE SAME BL STRATEGIES? (TARGET THE SAME CUSTOMERS WITH SIMILAR PRODUCTS?)
• WHICH FIRM IS MORE PROFITABLE & WHY?– ARE FL OR BL STRATEGIES MORE IMPORTANT?
MORE QUESTIONS?
• HOW SHOULD HP/COMPAQ ATTACK DELL - WITH FL OR BL STRATEGIES?
• IN WHAT WAYS ARE FL AND BL STRATEGIES INTERRELATED?– # OF MODELS– PRODUCT DEVELOPMENT LEAD TIMES– DEGREE OF VERTICAL INTEGRATION
VS. OUTSOURCING– OTHER??
IN SUM• WHAT CUSTOMERS WANT IS CHANGING
ALL THE TIME: SEGMENTS ARE DYNAMIC, NOT STATIC
• TO COMPETE, FIRMS MUST MAKE CHOICES, NOT ONLY ABOUT B-L STRATEGIES BUT ALSO ABOUT F-L STRAT
• ULTIMATELY, IN MANY CASES, COMPETITIVE SUCCESS IS SHORT-LASTING– WHICH FIRM HAS BEST RESOURCES &
CAPABILITIES FOR CUSTOMER NEEDS TODAY