Business-Level Strategy: Creating and Sustaining Competitive Advantages
Business-Level Strategy: Creating and Sustaining Competitive Advantages
Business-Level Strategy: Creating and Sustaining Competitive Advantages
everything. ®
CHAPTER 5
Business-Level Strategy:
Creating and Sustaining
Competitive Advantages
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Learning Objectives
After reading this chapter, you should be able to:
1. Describe the central role of competitive advantage in the study of
strategic management and the three generic strategies: overall cost
leadership, differentiation, and focus.
2. Explain how the successful attainment of generic strategies can
improve the firm’s relative power vis-à-vis the five forces that
determine an industry’s average profitability.
3. Identify the pitfalls managers must avoid in striving to attain
generic strategies.
4. Explain how firms can effectively combine the generic strategies of
overall cost leadership and differentiation.
5. Identify which factors determine the sustainability of a firm’s
competitive advantage.
6. Understand the importance of considering the industry life cycle to
determine a firm’s business-level strategy and its relative emphasis
on functional area strategies and value-creating activities.
7. Understand the need for turnaround strategies that enable a firm to
reposition its competitive position in an industry.
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Looking Ahead
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The Central Role of Competitive
Advantage
Consider …
In order to create and sustain a competitive
advantage, companies need to stay focused
on their customers’ evolving wants and needs
and not sacrifice their strategic position as
they mature and the market around them
evolves.
They also have to have a strategy…
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Sustaining a Competitive Advantage
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Three Generic Strategies 1
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Three Generic Strategies 2
Differentiation implies:
• Products and/or services that are unique and valued.
• Emphasis on nonprice attributes for which customers will
gladly pay a premium.
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Overall Low-Cost Leadership 1
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Overall Low-Cost Leadership 2
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Improving Competitive Position vis-à-vis
the Five Forces: Cost Leadership
An overall low-cost position:
Protects a firm against rivalry from competitors.
Protects the firm against powerful buyers.
Provides more flexibility to cope with demands from
powerful suppliers who want to increase input costs.
Provides substantial entry barriers due to economies
of scale and cost advantages.
Puts the firm in a favorable position with respect to
substitute products.
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Pitfalls of Cost Leadership
Too much focus on one or a few value chain
activities.
Reduced flexibility.
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Differentiation 1
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Differentiation 2
Differentiation requires:
• A level of cost parity relative to competitors.
• Integration of multiple points along the value chain.
• Superior material handling operations to minimize
damage.
• Low defect rates to improve quality.
• Accurate and responsive order processing.
• Personal relationships with key customers.
• Rapid response to customer service requests.
• Differentiation along several different dimensions at
once.
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Improving Competitive Position vis-à-vis
the Five Forces: Differentiation
An overall differentiation strategy
Creates higher entry barriers due to customer
loyalty.
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Pitfalls of Differentiation
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Focus 1
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Focus 2
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Improving Competitive Position vis-à-vis
the Five Forces: Focus
An overall focus strategy
Creates higher entry barriers due to cost leadership
or differentiation or both.
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Pitfalls of Focus
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Combination Strategies: Integrating
Low-Cost and Differentiation
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Combination Strategies
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Improving Competitive Position vis-à-vis
the Five Forces: Combination
An integrated/combination overall low-cost
and differentiation strategy
Creates higher entry barriers due to both cost
leadership and differentiation.
Can provide higher margins that enable the firm to
deal with supplier power.
Reduces buyer power because of fewer competitors.
Overall value proposition reduces threat from
substitutes.
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Pitfalls of Combination Strategies
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Question 1
Which statement regarding competitive advantages
is true?
A. If several competitors pursue similar differentiation
tactics, they may all be perceived as equals in the
mind of the consumer.
B. With an overall cost leadership strategy, firms need
not be concerned with parity on differentiation.
C. In the long run, a business with one or more
competitive advantages is probably destined to
earn normal profits.
D. Attaining multiple types of competitive advantage
is a recipe for failure.
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Industry Life Cycle Stages 1
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Industry Life Cycle Stages 2
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Strategies in the Introduction Stage
Strategies:
• Develop a product and get users to try it.
• Generate exposure so the product becomes
“standard.”
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Strategies in the Growth Stage
Strategies:
• Create branded differentiated products.
• Stimulate selective demand.
• Provide financial resources to support value-chain
activities.
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Strategies in the Maturity Stage
Strategies:
• Create efficient manufacturing operations.
• Lower costs as customers become price-sensitive.
• Adopt reverse or breakaway positioning.
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Strategies in the Decline Stage
Strategies:
• Maintaining the product position.
• Harvesting profits and reducing costs.
• Exiting the market.
• Consolidating or acquiring surviving firms.
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Question 2
As markets mature,
A. costs continue to increase.
B. applications for patents increase
C. differentiation opportunities increase.
D. there is increasing emphasis on efficiency.
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Turnaround Strategies
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