STRATEGIC MANAGEMENT

Business level strategies

 Business level strategy
• Business-level strategy is 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.
• It indicates the choices the firm has made about how it intends to
compete in individual product markets.
• Moreover, the purpose of a business-level strategy is to create
differences between the firm’s position and those of its competitors.
• To position itself differently from competitors, a firm must decide
– whether it intends to perform activities differently or
–to perform different activities.
• Strategy defines the path which provides the direction of actions to be
taken by leaders of the organization.
• A competitive strategy is simply anything a
business does in order to gain a competitive
advantage over its competitors.
• It is a good thing for the consumers in the
market because it gives them added value.
• Sometimes, that added value comes
– in the form of lower prices and
– sometimes it comes in the form of increased
services and benefits, which ultimately justifies the
higher prices that they have to pay.
• The two main strategies you can adopt as a business
are that you focus either on
– costs or
– on differentiation.
• When you focus on costs, then you try to become a
low-cost provider.
• When you focus on differentiation, then you look to
compete by adding extra value to your customers
that they won’t find in your competitors. In other
words, you are focusing on areas other than cost to
set yourself apart from the competition.
 1. cost leadership strategy
• With a low-cost strategy, you can only win if you are
the company with the lowest cost in the market.
• If a bunch of companies are selling products in that
area, which, for all intents and purposes, are identical,
then the company that sells the products at the lowest
prices will get the greatest number of customers.
•  This is a strategy that has often been used to force
competition out of the market.
• should have high technical capacity and plenty of
capital and invest in the latest cost-saving
technologies 
• A cost leadership provider seeks to sell its
products at the lowest price it can, while still
making a profit so that it can draw customers to
the market.
• they grow their market share and utilize their
capacities well, which pushes their costs even
lower due to economies of scale.
• This is the broad version of the low-cost strategy
because such companies try to appeal to a broad
market.
• They will look boost their sales volumes as high
– by attracting as many different types of customers
to buy
– as many different types of their products as they
can.
• It would need to have
– multiple product lines that appeal to a wide range
of customer types
– and it would need to have very high production
capacity in order to meet demand and
– generate high sales volumes.
– Small businesses might find it difficult to pull off
this kind of strategy.
• 2. Focused Low-Cost Strategy
• If a small business cannot appeal to the broader market,
what is a small business to do?
• It focuses on a niche, of course.
• While a small business cannot feasibly achieve low prices
on all of its products, it can try and focus on a small
niche and try to be the lowest cost provider in the
market for that specific niche.
• . In the first you seek to lower costs everywhere, in the
other you pick your battles and charge normal prices for
everything else.
• Examples : eat out outlets , target fast moving customers
and provide value food saving on infrastructural cost.
 3. Differentiation Strategies

• This strategy is for firms that want a broad customer base

based on their uniqueness.
• Typically, firms with this strategy will focus on building unique
features to win in the marketplace.
• They also usually charge a higher price to their customers, to
offset the cost of being unique.
• Common mechanisms to differentiate include:
• Superior quality.
• Customer service.
• Design.
• Uniqueness.
• Differentiation Strategy Example
• Apple is an example of a firm operating a
differentiation strategy to sell its laptops to a
broad market. Their unique design and
engineering allow them to stand out in the
marketplace.
• This enables them not only to charge a
premium price but also to combat competitors.
 4. Focused Differentiation

• This strategy is very similar to that of a

differentiation strategy except that it is focused on
a very narrow segment of the market. These firms
compete by offering unique features to a small
market segment.
• Common mechanisms to focus include:
• Select a profitable narrow subset of the market.
• Focus on areas where competition is weakest.
• Focus on a segment where product substitution is
difficult.
• Focused Differentiation Example
• Rolls Royce cars is an example of a company
using a focused differentiation strategy. Their
cars are synonymous with prestige, quality, and
engineering excellence. They are premium
priced and focussed on a tiny subset of the
global car market.
• A specific item which is unique for a particular
restaurant like sriraj lassi outlet.
• This kind of niche differentiation is particularly
common with social media platforms. While
Instagram, Facebook, and Instagram are all social
media platforms that allow most of the same
stuff (posting text, images, videos, live streaming,
and engagements),
• they have all targeted specific niches in order to
differentiate themselves.
– Instagram is for photos,
– Twitter for small shareworthy posts,
– and Facebook for longer posts and videos.
• That is part of what makes each of them so
distinct in the world of social media.
• 5. Integrated Cost Leadership/Differentiation Strategy
• This strategy involves producing low-cost products with
differentiated features.
• This strategy is about simultaneously focusing on two
drivers of competitive advantage: cost and
differentiation. This type of strategy is often called a
hybrid strategy.
• IKEA ( multinational swedish , into furniture )is a great
example of a business with an integrated cost
leadership and differentiation strategy.
• It sells unique products that you can’t get elsewhere.
• It invests in its own designers to achieve this. It also
sells it’s products at a low price.
• It invests in automation and logistics to do this.
The Generic Building Blocks of Competitive
Advantage

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 Efficiency
• The quantity of inputs it takes to produce a
given output.
• Efficiency = Value of output/cost of input
– Inputs like land, capital, rawmaterial, managerial
knowhow, technical knowhow
• Productivity leads to greater efficiency and
lower costs
– Employee productivity
– Capital productivity
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 Quality
• Superior quality = customer perception of
greater value in a specific product’s attributes
– Form, features, performance, durability, reliability,
style, design
• Quality products = goods and services that are
reliable and that are differentiated by
attributes that customers perceive to have
higher value

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 Quality (cont’d)
• The impact of quality on competitive
advantage
– High-quality products increase the value of
(differentiate) the products in customers’ eyes
– Greater efficiency and lower unit costs are
associated with reliable products

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 Innovation
• The act of creating new products , production
processes, management systems, organisational
structure, and strategits in a company,
• It is new way of doing things.
– Product innovation
• Creates products that customers perceive as more valuable,
increasing the company’s pricing options
– Process innovation
• Creates value by lowering production costs
• Perhaps the most important building block of
competitive advantage
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 Responsiveness to Customers
• Doing a better job than competitors of
identifying and satisfying customers’ needs
– Superior quality and innovation are integral to
superior responsiveness to customers
– Customizing goods and services to the unique
demands of individual customers or customer
groups

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 Responsiveness to Customers (cont’d)

• Sources of enhanced customer responsiveness

– Customisation of products, quick delivery, quality
Customer response time, design, service, after-
sales service and support
• Differentiates a company/its products; leads
to brand loyalty and premium pricing

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 The Durability of Competitive Advantage

• Barriers to Imitation
– Barriers to the factors which makes competitors
difficult to imitate the distinctive competencies , the
longer the period competitor the distinctive
competancies, greater the company has strong
market position.

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 The Durability of Competitive Advantage

• Capability of Competitors
– When a firm is committed to particular course of
action in doing a business and establish the set of
resources and capabilities , such prior
commitments makes difficult to imitate the
competitive advantage of successful firm. Eg. US
autogiants like general motors, ford, invest on
large sized cars, was set a back to shift investment
on medium and small size cars by japanese
competitors.
 The Durability of Competitive Advantage

• Dynamism of industry
– Characterised by high rate of innovation and fast
changes.
– Faster product life cycle and the competitive
advantage don’t last long. Give rise to hyper
competition
– Examples are electronic and computer industry.
– Like apple, dell, IBM, Compaq with continous
innovation , lead to turblence in the computer
industry.
 Why Companies Fail
• Failing company is the one whose profit rate is much lower
than the average profit rate of other competitors
• Inertia
– Companies find it difficult to change their strategies and structures
• Prior strategic commitments
– Prior commitment like huge investments , direction, facilties, limit a
company’s ability to imitate and cause competitive disadvantage.
IBMs massive investments locked on shrinking business.
• Too much inner directedness ( icarus paradox)
– A company can become so specialized based on past success that it
loses sight of market realities , fail to innovate for changing market
taste.
– Craftsmen, builders, pioneers, salesmen

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Avoiding Failure and Sustaining Competitive
Advantage
• Focus on the building blocks of competitive
advantage
• Institute continuous improvement in learning
• Track best industrial practice in use
benchmarking
• Overcome inertia

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