Business Level Strategy

By

Dr M Rahman
Associate Professor
SOB
Galgotias University
 Business Level Strategy

• Business Level Strategy occurs at the business unit/product-market level.

• Business level strategy refers to “Actions taken to provide value to customers

and gain a competitive advantage by exploiting core competencies in specific,
individual product markets.” (Hitt, Ireland, Hoskisson & Manikutty, 2012)

• Business level strategy refers to “the courses of actions adopted by an

organisation for each of its business separately, to serve identified customer
groups and provide value to the customer by satisfying their needs.” (Kazmi,
2008)
Formulating Business Strategy Considers Three Key Issues

 Who: Determining the customers to serve

• Deciding who the target customer is that the firm intends to serve.
• Market Segmentation

 What: Determining which customer needs to satisfy

• The firm must identify the target customer segment’s needs that its
products can satisfy.

 How: Determining means to satisfy customer needs

• The firm determine how to use its resources and capabilities
to develop products that can satisfy the customer need.
 Segmentation and Targeting
Segmentation Bases: One at a time or Combination
Demographic
Geographic
Psychographic
Behavioural

Segments must fulfill the criteria – Substantial,

Differentiable, Measurable, Accessible.
 Types of business level strategies
• Firms choose among different business level strategies to
establish and defend their desired strategic position against
competitors.

• Business level strategy helps the firm to establish and exploit

a particular COMPETITIVE ADVANTAGE within a particular
COMPETITIVE SCOPE.

• The firm’s business level strategy is a deliberate choice about

how it will perform the value chain’s primary and support
activities to create unique value.
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Market Leadership tiation
Competitive Scope

Focused
Narrow Focused
Target Differen-
Market Low Cost
tiation
Cost-leadership strategy
 Overall Cost Leadership
Integrated tactics
Constant effort to reduce costs through:
 Development of efficient-scale facilities… State of the art
manufacturing facilities
 Vigorous pursuit of cost reductions from experience
 Tight cost and overhead control
 Avoidance of marginal customer accounts
 Cost minimization in all activities in the firm’s value chain,
such as R&D, service, sales force, and advertising
 Simplification of processes
Cost Leadership Business Level Strategy
Key Criteria:

Relatively standardized products

Features acceptable to many customers

Lowest competitive price

Xiaomi – Low cost Leadership strategy
• The firm sold 96,24,110 units of Redmi Note 4, Considered to
be the lowest priced smartphone with similar features in
2017.
• Xiaomi held 2nd position in smartphone with market share of
20.9% in CY2017( Source: https://www.idc.com/getdoc.jsp?containerId=prAP43569518)
• Samsung held 24.7% share.
Effective Cost Leaders can remain
profitable even when the
Five Forces appear unattractive to
most players
 Cost Leadership:
Improving Competitive Position vis-à-vis the Five Forces

An overall low-cost position:

 Provides substantial entry barriers from economies of scale
and cost advantages
 Protects a firm against rivalry from competitors
 Protects a firm against buyers bargaining power
 Provides more flexibility to cope with demands from powerful
suppliers for input cost increases
 Puts the firm in a favorable position with respect to substitute
products
 Value Creating Activities Common to a
Inbound
Cost Leadership Business
Logistics Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Highly Efficient
Planning Costs
Management Layers to
Reduce Overhead
Systems to Link
Activities
Support

Effective Training Programs to

Human Resource
Consistent Policies to
Reduce Turnover Costs Management
Suppliers’
Improve Products
Worker
and Effectiveness
Efficiency

with the Firm’s

Easy-to-Use Manufacturing Investments in Technology in order to
Technological Development
Technologies Production
Reduce Costs Associated with
Manufacturing Processes
Processes
Systems and Procedures to find the

Raw Materials
Procurement
Lowest Cost Products to Purchase
Frequent Evaluation Processes to
Located
Monitorin ClosePerformances
Suppliers’

Highly Efficient Efficient Plant Proximity with

Delivery Schedule Small, Highly Effective Product

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Suppliers
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Inbound
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Production
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

Located in Close Policy Choice of Efficient Order National Scale

Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Operations
Cost Leadership Business Level Strategy
Efficient Plant Scale
Simplified Planning Relatively Few
Cost Effective
Firm
Practices to Reduce to Minimize Mfg.
Infrastructure
Management Layers to
MIS Systems Planning Costs Reduce Overhead
Costs
Activities
Support

Effective Training Programs to

Human Resource Management
Consistent Policies to
Reduce Turnover Costs Timing of Asset
Improve Worker Efficiency
and Effectiveness

Easy-to-Use Manufacturing Purchases

Investments in Technology in order to
Technological Development
Technologies Reduce Costs Associated with
Policy Choice of
Manufacturing Processes
Systems and Procedures to find the
Procurement
Lowest Cost Products to Purchase
Plant
Frequent Evaluation Technology
Processes to
Monitor Suppliers’ Performances
Raw Materials
Highly Efficient Efficient Plant
Organizational
Delivery Schedule Small, Highly Effective Product

Service
Systems to Link Scale to Minimize that Reduces Learning
Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Production
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

Located in Close Policy Choice of Efficient Order National Scale

Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Outbound
Cost Leadership Business LevelLogistics
Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Delivery Schedule
that Reduces Costs
Activities
Support

Effective Training Programs to

Human Resource Management Selection of Low
Consistent Policies to
Reduce Turnover Costs Improve Worker Efficiency
and Effectiveness

Easy-to-Use Manufacturing Cost Transport

Investments in Technology in order to
Technological Development
Technologies Reduce Costs Associated with
Manufacturing Processes Carriers
Frequent Evaluation Processes toEfficient Order
Systems and Procedures to find the

Raw Materials
Procurement
Lowest Cost Products to Purchase Monitor Suppliers’ Performances
Sizes
Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product
Interrelationships

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing

Outbound
Costs
Outbound
with Sister Units
Reduce Frequency

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Production Logistics
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

Located in Close Policy Choice of Efficient Order National Scale

Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Marketing
Cost Leadership Business Level Strategy
& Sales
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Small, Highly
Trained Sales Force
Activities
Support

Effective Training Programs to

Human Resource Management
Consistent Policies to
Reduce Turnover Costs Improve Worker Efficiency
and Effectiveness
Products Priced to
Easy-to-Use Manufacturing Investments in Technology in order to
Generate Sales
Technological Development
Technologies Reduce Costs Associated with
Manufacturing Processes
Volume
Systems and Procedures to find the
Procurement
Lowest Cost Products to Purchase
Frequent Evaluation Processes to National Scale
Monitor Suppliers’ Performances
Raw Materials Advertising
Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

Sales
& Sales
Production
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

&
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Cost Effective
Simplified Planning
Firm Infrastructure
Practices to Reduce
Relatively Few
Management Layers to
Service
MIS Systems Planning Costs Effective Product
Reduce Overhead
Activities

Installations to
Support

Effective Training Programs to

Human
Reduce Turnover CostsResource Management
Consistent Policies to
Improve Worker
and Effectiveness
Efficiency
Reduce
Easy-to-Use Manufacturing Investments in Technology inRecalls
order to
Technological Development
Technologies Reduce Costs Associated with
Manufacturing Processes
Systems and Procedures to find the
Procurement
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Monitor Suppliers’ Performances

Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product

Service
Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Production
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

Located in Close Policy Choice of Efficient Order National Scale

Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Activities
Support

Effective Training Programs to

Human Resource Management
Consistent Policies to
Reduce Turnover Costs Improve Worker Efficiency
and Effectiveness

Easy-to-Use Manufacturing Investments in Technology in order to

Technological Development
Technologies Reduce Costs Associated with
Manufacturing Processes
Systems and Procedures to find the
Procurement
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Procurement
Monitor Suppliers’ Performances

Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Logistics
Production
Processes Procurement
Timing of Asset
Purchases
Selection of Low
Cost Transport
Carriers
Products Priced to of Recalls
Generate Sales
Volume
Systems and Procedures to Find Frequent Evaluation
Located in Close Policy Choice of Efficient Order National Scale
theProximity
Lowest with Cost Products to
Plant Technology Sizes Processes to Monitor
Advertising
Suppliers
Purchase Raw Materials Suppliers’ Performances
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Activities
Support

Effective Training Programs to

Human Resource Management
Consistent Policies to
Reduce Turnover Costs Improve Worker Efficiency
and Effectiveness

Easy-to-Use Manufacturing Investments in Technology in order to

Technological Development
Technologies Reduce Costs Associated with
Manufacturing Processes
Systems and Procedures to find the
Procurement
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Monitor Suppliers’ Performances

Highly Efficient Efficient Plant Delivery Schedule Small, Highly Effective Product
Technological Development

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Easy-to-Use
Production Investments in Technology in
Logistics
Selection of Low Products Priced to of Recalls
Timing of Asset Cost Transport Generate Sales
Manufacturing
Processes
Purchases Carriers
order to Reduce Costs Associated
Volume
Technologies with Manufacturing Processes
Located in Close Policy Choice of Efficient Order National Scale
Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Activities
Support

Effective Training Programs to

Human Resource Management
Consistent Policies to
Reduce Turnover Costs Improve Worker Efficiency
and Effectiveness

Easy-to-Use Manufacturing Investments in Technology in order to

Technological Development
Technologies Reduce Costs Associated with
Manufacturing Processes

Human Procurement
Resource Management
Systems and Procedures to find the
Lowest Cost Products to Purchase
Raw Materials
Frequent Evaluation Processes to
Monitor Suppliers’ Performances

Consistent
Highly EfficientPolicies
Efficientto
Plant Effective Training Programs to
Delivery Schedule Small, Highly Effective Product

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Reduce
Suppliers’Turnover Costs Improve Worker Efficiency and
Operations

Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics

Effectiveness
Inbound

with the Firm’s Costs and Severity

& Sales
Production
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

Located in Close Policy Choice of Efficient Order National Scale

Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
 Value Creating Activities Common to a
Cost Leadership Business Level Strategy
Simplified Planning Relatively Few
Cost Effective
MIS Systems Firm Infrastructure
Practices to Reduce
Planning Costs
Management Layers to
Reduce Overhead
Activities
Support

Effective Training Programs to

Human Resource Management
Consistent Policies to
Reduce Turnover Costs Improve Worker Efficiency
and Effectiveness

Easy-to-Use Manufacturing Investments in Technology in order to

TechnologiesFirm Infrastructure
Technological Development Reduce Costs Associated with
Manufacturing Processes
Cost Systems
Effective Simplified
and Procedures to find the Planning Relatively Few
Raw Materials
Procurement
Lowest Cost Products to Purchase
MIS Systems Practices to
Frequent Evaluation Processes to
Reduce
Monitor Management Layers
Suppliers’ Performances

Highly Efficient Planning

Efficient Plant Costs
Delivery Schedule Small, Highly to Reduce Overhead
Effective Product

Service
Systems to Link Scale to Minimize that Reduces Trained Sales Force Installations to
Operations

Suppliers’ Products Manufacturing Costs Reduce Frequency

Outbound

Marketing
Logistics
Inbound

with the Firm’s Costs and Severity

& Sales
Production
Logistics
Selection of Low Products Priced to of Recalls
Processes Timing of Asset Cost Transport Generate Sales
Purchases Carriers Volume

Located in Close Policy Choice of Efficient Order National Scale

Proximity with Plant Technology Sizes Advertising
Suppliers
Organizational Interrelationships
Learning with Sister Units

Primary Activities
Potential Pitfalls/Major Risks of Cost Leadership Business
Level Strategy

Dramatic technological change could take away

your cost advantage.

Competitors may learn how to imitate Value

Chain.

Focus on efficiency could cause Cost Leader to

overlook changes in customer preferences.
Differentiation strategy
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Market Leadership tiation
Breadth of
Competitive Scope

Narrow
Target
Market
Differentiation Strategy involves firms
making products or services
significantly different from and more
attractive than those of competitors.
 Approaches to Differentiation
Differentiation can take many forms
– Unique product features/ingredients/Components
– Unique Design
– Technology leadership
– Rapid Innovation
– Customer service

A firm can adopt one approach or combination at

a time
 Differentiation Business Level Strategy

Key Criteria:
Value provided by unique features

Command premium price

High customer service
Superior quality

Prestige or exclusivity

Rapid innovation
 Differentiation
• Firms may differentiate along several dimensions at once.

• Firms achieve and sustain differentiation and above-average

profits when price premiums exceed extra costs of being
unique.

• Successful differentiation requires integration with all parts of

a firm’s value chain.

• An important aspect of differentiation is speed or quick

response
 Apple iPhone 6 – Rs 20,200 ……. Apple iPhone XS Max – Rs 1,08,424
(https://gadgets.ndtv.com/mobiles/apple-price-list)

.
 Differentiation Business Level Strategy
Requirements/Actions:
Constant effort to differentiate products through:
Developing new systems and processes

Shaping perceptions through advertising

Quality focus

Capability in R&D

Maximize Human Resource contributions

through low turnover and high motivation
Effective Differentiators can remain
profitable even when the
Five Forces appear unattractive
 Differentiation: Improving Competitive Position vis-
à-vis the Five Forces

• Differentiation
– Creates higher entry barriers due to customer loyalty
– Reduces buyer power because buyers lack suitable
alternative
– Reduces supplier power due to prestige associated with
supplying to highly differentiated products
– Provides higher margins that enable the firm to deal with
supplier power
– Establishes customer loyalty and hence less threat from
substitutes
 Potential Pitfalls of Differentiation Strategies

 Uniqueness that is not valuable.

 Too much differentiation. May lead to unreasonably high
price.
 Too high a price premium – Similar to too much
differentiation.
 Differentiation that is easily imitated. Capabilities that are easily
imitated don’t lead to sustainable competitive advantage.
 Dilution of brand identification through product-line
extensions.
 Value Creating Activities Common to a
Differentiation Business Level Strategy
Firm Infrastructure
Activities
Support

Human Resource Management

Technological Development
Procurement

Service
Operations

Outbound

Marketing
Logistics
Inbound

& Sales
Logistics

Primary Activities
 Value Creating Activities Common to a
Inbound
Differentiation Business
Logistics Level Strategy
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
Superior handling emphasis on producing
high quality products
of incoming raw
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource
intended to encourage worker
creativity and productivity
materials Management
to
rather than objective
performance measures
personnel
training
minimize damage
Coordination among R&D, Investments in technologies that will Strong
productTechnological
development and andDevelopment
allow improve
the the produce capability in
firm to consistently
marketing highly differentiated products basic research
quality of the final
Procurement product
Systems and procedures used to find Purchase of highest quality
the highest quality raw materials replacement parts

Superior Consistent Accurate and Strong Coordin- Complete field

Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
Inbound
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
minimize
Logistics Product
damage and Development
improve the Rapid responses Extensive
quality of the to customers Rapid and timely personal
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Operations
Differentiation Business Level Strategy
Highly Developed Information Systems Developing new system
A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
emphasis on producing
high quality products
Consistent manufacturing
Activities

Compensation programs Extensive use of subjective

Superior
Support

Human Resource
intended to encourage worker
creativity and productivity
Management
of attractive
rather than objective
performance measures
products
personnel
training

Coordination among R&D, Investments in technologies that will

Strong
Rapid responses to
Technological Development
product development and
marketing
allow the firm to consistently produce
customers unique
capability in
highly differentiated products
basic research

Systems and procedures used to find Purchase of manufacturing

highest quality
Procurement
the highest quality raw materials replacement parts
specifications
Superior Consistent Accurate and Strong Coordin- Complete field

Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
minimize
Logistics Product
damage and Development
improve the Rapid responses Extensive
quality of the to customers Rapid and timely personal
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Outbound
Differentiation Business LevelLogistics
Strategy
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
emphasis on producing
Accurate and
high quality products
responsive order
Activities

Compensation programs Extensive use of subjective Superior

Support

Human
intended Resource
to encourage Management
worker rather than
creativity and productivity
objective
performance measures
processing
personnel
training
procedures
Coordination among R&D, Investments in technologies that will Strong
Technological Development
product development and
marketing
allow the firm to consistently produce
highly differentiated products
capability in
basic research
Rapid and timely
Systems and procedures used to find Purchase of highest quality
Procurement
the highest quality raw materials replacement parts product deliveries to
customers
Superior Consistent Accurate and Strong Coordin- Complete field

Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive

Outbound
processing
Outbound functions in R&D, replacement parts

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
minimize
Logistics
Logistics Product
damage and Development
improve the Rapid responses Extensive
quality of the to customers Rapid and timely personal
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Marketing
Differentiation Business Level Strategy
& Sales
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’ Strong Coordination among
emphasis on producing
purchasing preferences high quality products
functions in R&D, Marketing
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource Management

intended to encourage worker rather than objective and Product Development
personnel
creativity and productivity performance measures training

Coordination among R&D, Investments in technologies that will

Strong
Extensive marketing efforts,
Technological
product development and
marketing
Development
allow the firm to consistently produce
capability in
developing favourable image
highly differentiated products
basic research

Systems and procedures used to find Purchase of highest quality

Procurement
the highest quality raw materials replacement parts
Extensive personal
Superior Consistent Accurate and Strong relationships
Coordin- Completewith
field buyers

Service
handling of manufacturing of responsive order ation among stocking of
functionsPremium Pricing
Operations

incoming raw attractive processing in R&D, replacement parts

Outbound

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

Sales
& Sales
minimize
Logistics Product
damage and Development
improve the Rapid responses Extensive
quality of the to customers Rapid and timely personal

&
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information Systems
Firm Infrastructure
to better understand customers’
A companywide
emphasis on producing
Service
purchasing preferences high quality products Quick
response
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource Management

intended to encourage worker
personnel
creativity and productivity
training
rather than objective
performance measures

Coordination among R&D, Complete

Investments in technologies that will
Strong field
Technological Developmentstocking
product development and
marketing
allow the firm to consistently produce
highly differentiated products
capability in
of
basic research
replacement
Systems and procedures used to find Purchase of highest quality
Procurement
the highest quality raw materials replacement parts parts
Superior Consistent Accurate and Strong Coordin- Complete field

Service
Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
minimize
Logistics Product
damage and Development
improve the Rapid responses Extensive
quality of the to customers Rapid and timely personal
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
emphasis on producing
high quality products
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource Management

intended to encourage worker
creativity and productivity
rather than objective
performance measures
personnel
training

Coordination among R&D, Investments in technologies that will Strong

Technological Development
product development and
marketing
allow the firm to consistently produce
highly differentiated products
capability in
basic research

Systems and procedures used to find Purchase of highest quality

Procurement
Procurement
the highest quality raw materials replacement parts

Superior Consistent Accurate and Strong Coordin- Complete field

Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
minimize
Logistics Product
damage and
improve the
Procurement Development
Rapid responses Extensive
Systems and procedures
quality of the
to customers Purchase of highest
Rapid and timely personal Located in
final product
unique product deliveries relationships
used to find the highest
manufacturing
quality replacement
to customers with buyers
Close Proximity
quality raw materials
specifications parts Premium with Suppliers
Pricing

Primary Activities
 Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
emphasis on producing
high quality products
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource Management

intended to encourage worker
creativity and productivity
rather than objective
performance measures
personnel
training

Coordination among R&D, Investments in technologies that will Strong

Technological Development
product development and
marketing
allow the firm to consistently produce
highly differentiated products
capability in
basic research

Systems and procedures used to find Purchase of highest quality

Procurement
the highest quality raw materials replacement parts

Superior Consistent Accurate and Strong Coordin- Complete field

Technological Development

Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
Coordination among
minimize
Investments in technol-
Logistics Product Strong
R&D, marketing and
damage and ogies to produce highly
Development capability in
improve theRapid responses Extensive
product development
quality of the
to customers
differentiated
Rapid products
and timely personal basic research
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
emphasis on producing
high quality products
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource Management

intended to encourage worker
creativity and productivity
rather than objective
performance measures
personnel
training

Coordination among R&D, Investments in technologies that will Strong

Technological Development
product development and
marketing
allow the firm to consistently produce
highly differentiated products
capability in
basic research

Human Procurement
Resource Management
Systems and procedures used to find
the highest quality raw materials
Purchase of highest quality
replacement parts

Compensation
Superior programs
Consistent ExtensiveStrong
Accurate and useCoordin-
of Superior
Complete field

Service
which encourage
handling of worker of
manufacturing subjectiveation
responsive order among
performance stocking ofpersonnel
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
creativity
materialsand productivity measuresMarketing and training
Logistics
Inbound

to products procedures

& Sales
minimize
Logistics Product
damage and Development
improve the Rapid responses Extensive
quality of the to customers Rapid and timely personal
final product unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
 Value Creating Activities Common to a
Differentiation Business Level Strategy
Highly Developed Information Systems A companywide
Firm Infrastructure
to better understand customers’
purchasing preferences
emphasis on producing
high quality products
Activities

Compensation programs Extensive use of subjective Superior

Support

Human Resource Management

intended to encourage worker
creativity and productivity
rather than objective
performance measures
personnel
training

Coordination among R&D, Investments in technologies that will Strong

marketing
Firm Infrastructure
Technological Development
product development and allow the firm to consistently produce
highly differentiated products
capability in
basic research
Highly developed Information Purchase of highest
Systems and procedures used to find
A companywide
quality
emphasis on
Systems to quality
the highest better Procurement
raw understand
materials producing high quality
replacement parts

customers’
Superior
purchasing
Consistent
preferences
Accurate and
products
Strong Coordin- Complete field

Service
handling of manufacturing of responsive order ation among stocking of
Operations

incoming raw attractive processing functions in R&D, replacement parts

Outbound

Marketing
Logistics

Marketing and
Inbound

materials to products procedures

& Sales
minimize damage
Logistics Product
and improve the Development
quality of the Rapid responses Extensive
final product to customers Rapid and timely personal
unique product deliveries relationships
manufacturing to customers with buyers
specifications
Premium
Pricing

Primary Activities
Focus strategy
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Market Leadership tiation
Breadth of
Competitive Scope

Narrow Focused Focused

Target Differen-
Market Low Cost
tiation
 Focus Strategy
• An integrated set of actions taken to produce goods or
services that serve the needs of a particular competitive
segment

• Focus is based on the choice of a narrow competitive scope

within an industry
– Firm selects a segment or sub-group of segments (niche) and tailors
its strategy to serve them
– Firm achieves competitive advantages by dedicating itself to these
segments exclusively
• Two types of Focus strategies:
– Focused Low Cost Strategy
– Focused Differentiation Strategy
 Factors That Drive Focused Strategies
• Large firms may overlook small niches.
• A firm may lack the resources needed to compete in
the broader market
• A firm is able to serve a narrow market segment
more effectively than its larger industry-wide
competitors
• Focusing allows the firm to direct its resources to
certain value chain activities to build competitive
advantage
Focus: Improving Competitive Position vis-
à-vis the Five Forces

• Focus
– Creates barriers of either cost leadership or
differentiation, or both
– Also focus is used to select niches that are least
vulnerable to substitutes or where competitors
are weakest
 Pitfalls of Focus Strategies

• Erosion of cost advantages within the narrow

segment

• Focused products and services still subject to

competition from new entrants and from imitation

• Focusers can become too focused to satisfy buyer

needs
Combination Strategy

Or

Integrated Low Cost/

Differentiation
 Generic Business Level Strategies
Source of Competitive Advantage

Cost Uniqueness

Broad Cost Differen-

Target
Market Leadership tiation
Breadth of Integrated Low
Competitive Scope
Cost/
Differentiation
Narrow Focused Focused
Target Differen-
Market Low Cost
tiation
 Integrated Cost Leadership/
Differentiation Strategy
• A firm that successfully uses an integrated cost
leadership/differentiation strategy should be in a
better position to:
– Adapt quickly to environmental changes
– Learn new skills and technologies more quickly
– Effectively leverage its core competencies while competing
against its rivals
 Combination Strategies: Integrating Overall
Low Cost and Differentiation

• Primary benefit of successful integration of low-cost

and differentiation strategies is difficulty it poses for
competitors to duplicate or imitate strategy.

• Goal of combination strategy is to provide unique

value in an efficient manner.
Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may:
Adapt more quickly

Learn new skills and technologies

Utilize Flexible Manufacturing Systems to create

differentiated products at low costs

Leverage core competencies through Information

Networks across multiple business units

Utilize Total Quality Management (TQM) to create high

quality differentiated products which simultaneously
driving down costs
Combination Strategies: Improving Competitive Position
vis-à-vis the Five Forces
• Firms that successfully integrate differentiation and cost
strategies obtain advantages of competition from both
approaches
– High entry barriers

– Bargaining power over suppliers

– Reduces power of buyers (fewer competitors)

– Value position reduces threat from substitute products

– Reduces the possibility of head-to-head rivalry

Integrated Low Cost/Differentiation Strategy

Recognize that the Integrated Low Cost/

Differentiation business level strategy involves a
Compromise

The risk is that the firm may become “Stuck in

the Middle” lacking a strong commitment to or
expertise with either type of generic strategy
 Pitfalls of Combination Strategies
• Firms that fail to attain both strategies may end up
with neither and become “stuck in the middle”

• Underestimating the challenges and expenses

associated with coordinating value-creating
activities in the extended value chain

• Miscalculating sources of revenue and profit pools

in the firm’s industry