business level strategy: creating and sustaining competitive advantages
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Business-Level Strategy:Creating and Sustaining Competitive Advantages
Chapter Five
Reporters:Cayude, Jeisa
FerogeneDarnayla, Alvie
Lim, John MichaelMendez, Ria Beth
Rosales, Louie PatrickTeves, Charlston
This chapter focuses on:
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1st Generic Strategy
• Overall cost leadership Low-cost-position relative to a firm’s
peers Manage relationships throughout the
entire value chain
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Overall Cost Leadership
Tight set of interrelated tactics that include:
•Aggressive construction of efficient-scale
facilities
• Vigorous pursuit of cost reductions from
experience
• Tight cost and overhead control
• Avoidance of marginal customer accounts
• Cost minimizing 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
• Experience curve refers to how business “learns” to lower
costs as it gains experience with production processes
with experience, unit costs of production decline as output increases in most industries
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Overall Cost Leadership
• Parity on the basis of differentiation Permits a cost leader to translate cost
advantages directly into higher profits than competitors
Allows firm to earn above-average profits
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Overall Cost Leadership
Improving Competitive Position vis-à-vis the
Five Forces
overall low cost-position enables a firm to achieve above-average returns despite strong competition
Potential Pitfall
too much focus on one or few value chain-activities
all rivals share a common input or raw material
the strategy is imitated so easily
erosion of cost advantages when the pricing information available to customers increases
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5-9
2nd Generic Strategy
• Differentiation Create products and/or services that
are unique and valued Non-price attributes for which
customers will pay a premium
Differentiation
• Prestige or brand image• Technology• Innovation• Features• Customer service• Dealer network
Firms achieve and sustain differentiation advantages and attain above-average performance when their price exceed the extra costs incurred in being unique.
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Firm Infrastructure
Human Resource Management
Technology Development
Procurement
Superior MIS – to integrate value-creating activities to improve quality
Facilities that promote firm image
Widely respected CEO enhances firm reputation
Programs to attract talented engineers and scientists
Provide training and incentives to ensure a strong customer service orientation
Superior material handling and sorting technology
Excellent applications engineering support
Purchase of high-quality components to enhance product image
Use of most prestigious outlets
Superior material handling operations to minimize damage
Quick transfer of inputs to manufacturing process
Flexibility and speed in responding to changes in manufacturing specificationsLow defect rates to improve quality
Accurate and responsive order processing
Effective product replenishment to reduce customer’s inventory
Creative and innovative advertising programs
Fostering of personal relationship with key customers
Rapid response to customer service requests.
Complete inventory of replacement parts and supplies
Inbound Logistics
Operations
Outbound Logistics
Marketing Sales
Service
Value Chain Activities: Differentiation
Differentiation
Improving Competitive Position vis-à-vis the
Five Forces
achieving differentiation is a viable strategy for earning above-average returns by creating a defensible position for overcoming Porter’s five competitive forces
Potential Pitfall
uniqueness that is not valuable
too much differentiation too high price premium differentiation that is
easily imitated dilution of brand
identification through product-line extensions
perceptions of differentiation may vary between buyers and sellers
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5-13
Potential Pitfalls of Differentiation Strategies
1. Uniqueness that is not valuable. A differentiation strategy must provide unique bundles of products and/or services that customers highly value.
2. Too much differentiation. Firms may strive for quality or service that is higher than customer’s desire. Thus they are vulnerable to competitors who provide an appropriate level of quality at a lower price.
3. Differentiation that is easily imitated. Resources that are easily intimidated cannot lead to sustainable advantages.
4. Dilution of brand identification through product line extensions. Firms may erode their quality brand image by adding products or services with lower prices and less quality.
5. Perception of differentiation may vary between buyers and sellers.
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3rd Generic Strategy
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• Focus Strategy Narrow product lines, buyer segments,
or targeted geographic markets Attain advantages either through
differentiation or cost leadership
Focus
• 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 them
Firm achieves competitive advantages by dedicating itself to these segments exclusively
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Focus
Cost Focus firms strives to
create a cost advantage in its target segment
Differentiation Focus firm seeks to
differentiate in its target market
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Focus
Improving Competitive Position vis-à-vis the
Five Forces
firms pursuing a focus strategy can earn above-average returns
Potential Pitfall
erosion of cost advantages within the narrow segment
even product and service offerings that are highly focused are subject to competition from new entrants and from imitation
focusers can become too focused to satisfy buyer needs
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Three Combination Approaches
• Automated and flexible manufacturing systems
• Exploiting the profit pool concept for competitive advantage
• Coordinating the “extended” value chain by way of information technology
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Integrated Overall low cost and Differentiation Strategies
Improving Competitive Position vis-à-vis the
Five Forces
create an enviable position relative to industry forces
serves to erect high entry barriers to potential competitors that have neither the financial nor physical resources to compete head to head
Potential Pitfall
firms that fail to attain both strategies may end up with neither and become “stuck in the middle”
underestimating the challenges and express associated with coordinating value-creating activities in the extended value chain
miscalculating sources of revenue and profit pools in the firm’s industry
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Industry Life-Cycle Stages: Strategic Implications
• Industry life cycle refers to the stages of introduction, growth,
maturity, and decline that occur over the life of an industry
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Industry Life-Cycle Strategies
In the Introduction Stage:
• Products are unfamiliar to consumers
• Market segments not well defined
• Product features not clearly specified
• Competition tends to be limited
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Industry Life-Cycle Strategies
The Growth Stage is:• Characterized by
strong increases in sales
• Attractive to potential competitors
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Industry Life-Cycle Strategies
For the Growth Stage:
• Brand recognition
• Differentiated products
• Financial resources to support value-chain activities
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Industry Life-Cycle Strategies
In the Maturity stage:
• Aggregate industry demand slows
• Market becomes saturated, few new adopters
• Direct competition becomes predominant
• Marginal competitors begin to exit
5-24
Industry Life-Cycle Strategies
In the Decline Stage:
• Industry sales and profits begin to fall
• Strategic options become dependent on the actions of rivals
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Strategies in the Decline Stage
For the Decline Stage• Maintaining • Exiting the market• Harvesting• Consolidation
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Turnaround Strategies
Asset and cost surgery Selective product and marketing pruning Piecemeal productivity improvements
5-27
It is more likely to occur during the maturity or decline stage
THANK YOU!
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