STRATEGIC BUSINESS ANALYSIS Lesson 1 - Strategy Levels
Chapter 3 Strategies are implemented on two
Strategy Formulation: distinct levels: corporate and business
Understanding Different Strategies unit.
A corporate strategy is a general
direction for the growth of multiple
Lesson Objectives businesses (conglomerates) as defined
in the corporation’s vision and mission.
At the end of the lessons, students are expected
to: 1: Strategy Levels
1. distinguish between a corporate and A business unit strategy determines
business unit strategy; where and how a company should
2. explain how functional strategies compete by creating a competitive
complement a business strategy; market advantage to generate
3. explain how a business uses cost sustainable and profitable returns.
leadership to gain a competitive edge; Functional-level strategies support
4. explain how a business uses a business unit strategies and are
differentiation strategy to gain a confined within a department with set
competitive edge; goals, objectives, and performance
5. explain how a business uses a focus metrics.
strategy to gain a competitive edge; The Board of Directors is responsible
6. discuss how a business uses stability for setting and implementing the
strategies to maintain its market strategic plans and directions of the
position; different companies or business units
7. discuss the different growth strategies under its helm.
conglomerates and businesses use to Business unit strategies are
strengthen their market position; implemented to:
8. discuss how a business strengthens its a) capture previously untapped market
product supply and distribution with segments;
integration strategies; b) penetrate new geographical locations,
9. discuss how a failing business recovers either locally or globally;
with different turnaround strategies; c) compete with a market leader; and
10. discuss why a business chooses exit d) introduce new or improve existing
strategies to realign its market position; products.
11. discuss the different supplemental Operational effectiveness or short-term
activities used to support a business marketing promotions are not
strategy; and strategies. They are implemented to
12. analyze how conglomerates and achieve a strategy.
businesses apply different strategies to Functional strategies are confined
gain a competitive edge. within a department that operates with
set goals, objectives, and performance
metrics. The results are coordinated This strategy usually requires a large
and synchronized to maximize business market share advantage, cost-effective
outcomes. sources of raw materials, labor, or other
Goals and objectives create value to important production requirements to
support both the business and, if succeed.
applicable, corporate-wide strategy. Some recommended value-creating
Porter’s Generic Competitive activities to sustain this strategy are:
Strategies are generic competitive a) maximizing production output at the
strategies to gain a sustainable market least minimum time;
advantage. They are classified as: b) applying superior business process
a) Cost Leadership Strategy. This is the engineering methods;
company’s ability to efficiently reduce c) implementing tight cost control for
production costs compared to its direct and indirect operating costs such
competitors. as labor, materials, energy costs,
shipping costs, and tax rates;
d) eliminating cost-generating activities
b) Differentiation Strategy. The company through value chain analysis;
offers its customers products with e) investing in technology to replace
superior features unique to the traditional processes, reduce labor
marketplace compared to its requirements, and increase overall
competitors. productivity; and
c) Focus Strategy. The company offers its f) outsourcing noncore activities like
products to a narrow industry segment human resources, information
or market niche. technology, as well as finance and
accounting functions.
Lesson 2 - Cost Leadership Strategy Production costs and selling price are
often mistakenly interchanged. Low
Cost leadership is building a
prices with thin profit margins are not
competitive advantage by having the
sustainable. Low production costs
lowest operational cost among similar
provide sustainable profit margins.
companies in the industry.
There are limitations to a cost
A cost leadership strategy is achieved
leadership strategy relative to a firm’s
when a firm efficiently mass-produces
size, access to resources, as well as its
or when it manufactures volume-driven
industry and competitive analysis.
standardized products for a large
A cost leadership strategy is viable to
market to achieve economies of scale.
larger firms because of their capability
Products in this strategy are often basic
to channel their resources to compete
no-frills, “me-too” products
in larger markets, maximize negotiating
manufactured at relatively low costs
leverage with suppliers, market their
and made available to a very large
products to a larger market, and mass-
customer base.
produce products to achieve economies
of scale.
Smaller firms, on the other hand, do not a) supply chain activities that ultimately
have the luxury and capability to spill over to other stakeholders affect
initially compete in larger markets. They the performance or quality of the
lack the sophistication of a structured company’s products;
company and well-defined business b) product R&D activities that improve
functions to sustain this strategy. product designs and performance
Positioning a business as a low-cost features, secure frequent first-on-the-
manufacturer or service provider places market victories, provide wider product
a severe burden on the firm because of variety and selection, enhance user
the nonstop search for reducing costs safety, and enable recycling capability;
to gain and regain market share.
The negative impact of too many cost-
reduction efforts may drastically affect
product quality and force customers to
switch to other suppliers.
Lesson 3 - Differentiation Strategy
A differentiation strategy creates a
competitive advantage with products
that are unique and superior to a firm’s
competitors.
This might involve tangible differences
such as quality, features, perceived
value, and performance, as well as
intangible attributes overall such as
reputation and branding.
Customers for this broad market choose
products based on attributes other than
price.
They are willing to pay more if the
customer perceives value and satisfies a
particular preference that is not
noticeable in other products.
Firms that successfully differentiate
their products usually set higher prices
than low-cost competitors to support
the high costs of being different or
unique.
Differentiation opportunities can exist
in activities all along an industry’s value
chain, such as:
