Business level Strategy

Introduction

• Choices that can be made to gain competitive advantage

• Organizations have a number of business units• Competitive strategy in an organization is

created in the separate business units of the organization

Three main elements that constitute business-level strategy

IDENTIFYING STRATEGIC BUSINESS UNITS

A strategic business unit is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU.

There are two opposing pitfalls that need to be avoided:1. With too many SBU immense variety of competitive

strategies for a single organisation would create a lack of focus and inefficiency

2. On the other hand, the concept of the SBU is important in properly reflecting the diversity of products and markets that actually exist

• Two broad criteria which can help in avoiding these two pitfalls

• External criteria: the nature of the marketplace for different parts of the organisation (customer types, channels, competitors, retail, mail order)

• Internal criteria: the nature of an organisation’s strategic capability – its resources and competences (technology)

BASES OF COMPETITIVE ADVANTAGE:THE ‘STRATEGY CLOCK’

Competitive strategy is concerned with the basis on which a business unit might achieve competitive advantage in its market

• In this cadre the public organizations has to sustain the quality of its services within agreed budgets

• Porter proposed that there three different strategies by which an organisation could achieve competitive advantage.

• Leadership• Differentiation• Focus

• There are a number of providers customers will choose which offering to accept on their perception of value-for-money

The strategy clock (competitive options)

Price based strategies (route 1,2) no frills’ strategy,

‘No frills’ strategy, which combines a low price, low perceive product/service benefits and a focus on a price-sensitive market segment.

Contd…

• Price sensitive customers• Low switching costs• Alike products• There are a small number of providers with

similar market shares• Avoid major competitors

Low-price strategy2. The low-price strategy, seeks to achieve a lower price than

competitors whilst trying to maintain similar perceived product or service benefits to those offered by competitors

• There are several potential pitfalls when competing on price:

• Although tactical advantage may be gained by reducing price it is likely to be followed by competitors.

• Inability of the people to reinvest, so they will buy at any cost

• Marginal reduction

Differentiation strategies (route 3)

A differentiation strategy seeks to provide products or services benefits that are different from those of competitors and that are widely valued by buyers

It dependent on a number of factors:• Who is the strategic customer(the reader of the

newspaper)• Who are the competitors (business competing with

a wide competitor base or with a much narrower base)

Hybrid strategy(route 3)A hybrid strategy seeks simultaneously to achieve

differentiation and a price lower than that of competitors

The hybrid strategy could be advantageous in the following circumstances:

• Greater volumes can be achieved than competitors

• If an organisation is clear about the activities on which differentiation can be built it may then be able to reduce costs on other activities.

• As an entry strategy in a market with established competitors, loose bricks

Focused differentiation (route 5)A focused differentiation strategy seeks to provide high perceived product

/service benefits justifying a substantial price premium, usually to a selected market segment (niche)

Focused differentiation raises some important issues:

• may be difficult when it is only part of an organization's overall strategy – a very common situation

• Focus strategies may conflict with stakeholder expectations.

• The market situation may change and customers are unwilling to pay high

Failure strategies (routes 6, 7 and 8)

A failure strategy is one that does not provide perceived value-for-money in terms of product features, price or both

• Route 6 suggests increasing price without increasing product/service benefits to the customer.

• Route 7 is involving the reduction in product/service benefits whilst increasing relative price

• Route 8, reduction in benefits whilst maintaining price, is also dangerous, though firms have tried to follow it.

Sustaining competitive advantage

Lock-in

Lock-in is where an organisation achieves a proprietary position in its industry; it become

an industry standard

COMPETITIVE STRATEGY IN HYPERCOMPETITIVE CONDITIONS

Hyper competition is when many organisations in both the public and private sectors face instability, fast-changing, uncertain business environments and increased levels of competition

How to overcome

GAME THEORY

Game theory is concerned with the interrelationships between the competitive

moves of a set of competitors• to anticipate the reaction of competitors• First, that a competitor will behave rationally and

always try to win to their own benefit• Second, that the competitor is in an

interdependent relationship with other competitors

• Simultaneous games: A simultaneous game is where the players involved. for example, competitors are all faced with making decisions at a point in time

In game theory, equilibrium is a situation where each competitor contrives to get the best possible strategic solution for themselves given the response from the other

• Sequential games: The guiding principle here is to think forwards and then reason backwards.

• in particular the importance of:• identifying dominant and dominated strategies;• the timing in strategic moves;• the careful weighing of risk;• establishing credibility and commitment

• Repeated games: In repeated games, competitors interact repeatedly and it has been shown that in such circumstances the equilibrium outcome is much more likely to favour cooperation or accommodation of both parties’ best interests