Strategic Management T 5 Business level strategy Business administration Prof.Dr. E.Vatchkova

Strategic ManagementStrategic Management

T 5 Business level strategyT 5 Business level strategy

Business administrationBusiness administration

Prof.Dr. E.VatchkovaProf.Dr. E.Vatchkova

ContentsContentsJ&Sh, 2002J&Sh, 2002

1.1. Forces, influencing BSForces, influencing BS

2.2. The “strategy clock”The “strategy clock”

3.3. Sustaining competitive advantageSustaining competitive advantage

4.4. Competition and collaborationCompetition and collaboration

5.5. Game theoryGame theory

6.6. Competitive strategy under Competitive strategy under hypercompetitive conditionshypercompetitive conditions

Bases of strategic choice Bases of strategic choice at the business levelat the business level

• 1.1.The influence of:The influence of:

• The forces at work in the business The forces at work in the business environment ,the internal environment ,the internal capabilities of organizations and the capabilities of organizations and the expectations and influences of expectations and influences of stakeholders.These factors are stakeholders.These factors are potentially important in developing potentially important in developing business strategy. business strategy.

• 2.2.The bases of competitive The bases of competitive advantageadvantage-is the bases on which a -is the bases on which a business unit might achieve business unit might achieve competitive advantage in its market.competitive advantage in its market.

• 2.1.2.1.Price-based strategy(routes1 &2)Price-based strategy(routes1 &2)

• 11.”no frills.”no frills””strategystrategy-combines a low -combines a low price,low perceived add value & a focus price,low perceived add value & a focus on a price-sensitive market segment.on a price-sensitive market segment.

• 2. 2. The Low price strategy-The Low price strategy-seeks seeks to achieve a lower price than to achieve a lower price than competitors whilst trying to competitors whilst trying to maintain similar value of product or maintain similar value of product or service to that offered by service to that offered by competitors.competitors.

• 2.3.2.3.The hybrid strategy(route 3)The hybrid strategy(route 3)

• It seeks simultaneously to achieve It seeks simultaneously to achieve differentiation & a price lower than differentiation & a price lower than that of competition.that of competition.

• 2.4. 2.4. add value,or differentiation add value,or differentiation strategy(route 4)strategy(route 4)

•It seeks to provide products or It seeks to provide products or services unique ,different from services unique ,different from those of competitors in terms of those of competitors in terms of dimensions widely valued by dimensions widely valued by buyers. buyers.

• 2.5.2.5.Focused differentiation(route5)Focused differentiation(route5)

• This strategy seeks to provide high This strategy seeks to provide high perceived value justifying a perceived value justifying a substantial price premium, usually substantial price premium, usually to a selected market segment. to a selected market segment.

• 2.6.2.6.Failure strategy(route 6,7 & 8)Failure strategy(route 6,7 & 8)

• Route 6-Route 6-reflects on increasing price reflects on increasing price without increasing value to the without increasing value to the buyer.buyer.

• Route 7-Route 7-it involves the reduction in it involves the reduction in value of the product or value of the product or service,whilst increasing relative service,whilst increasing relative price.price.

• Route 8-Route 8-reduction in value whilst reduction in value whilst maintaining price.maintaining price.

•1.•“No frills”

•2.•Low price

•3.•Hybrid

•4.•Differentiation

•5.•Focused•Differentiation

•6.

•7.

•8.

•failure

• 3.Sustaining competitive 3.Sustaining competitive advantageadvantage

• The issue of sustainability is The issue of sustainability is important.A competitive advantage important.A competitive advantage can be achieved in such way that it can be achieved in such way that it can be preserved over time.Some can be preserved over time.Some believe that it can be achieved & believe that it can be achieved & other don’t.other don’t.

• 3.1 3.1 Sustaining low price advantageSustaining low price advantage

• It is mentioned earlier that It is mentioned earlier that achieving the S.C.A through low achieving the S.C.A through low price is dependent on low cost that price is dependent on low cost that is difficult to sustain.is difficult to sustain.

• How might it be achieved & what How might it be achieved & what are the problems? are the problems?

• Such case can be an organization to Such case can be an organization to seek to sustain reduced price over seek to sustain reduced price over competition on the basis on having competition on the basis on having the lowest the lowest cost base such that cost base such that competitors can’t hope to imitate it competitors can’t hope to imitate it of being e cost leader. of being e cost leader.

• Porter actually defines cost Porter actually defines cost leadership as leadership as the low - costthe low - cost producer in its industry…a producer in its industry…a low - cost low - cost producer must find & exploit all producer must find & exploit all sources of cost advantage.sources of cost advantage.

• 3.2 3.2 Sustaining differentiation-based Sustaining differentiation-based advantageadvantage

• Sustainable differentiation needs to Sustainable differentiation needs to be based on less imitable aspects of be based on less imitable aspects of competitive advantage.Most of the competitive advantage.Most of the cases it usually means “being cases it usually means “being different”.different”.

• Conditions to sustain differentiation Conditions to sustain differentiation include the following:include the following:

• The difficulties of imitation based on The difficulties of imitation based on core competence's.The reasons for core competence's.The reasons for this include: this include:

• Complexity-Complexity-the competence's upon the competence's upon which successful strategy is based which successful strategy is based are too complex for competitors to are too complex for competitors to comprehend.comprehend.

• Intangible assets-Intangible assets-such as brand such as brand image or reputation are difficult for image or reputation are difficult for a competitor to obtain.a competitor to obtain.

• Switching cost- Switching cost- are the actual or are the actual or perceived cost for a buyer of perceived cost for a buyer of changing the source of supply of a changing the source of supply of a product or service.The buyer might product or service.The buyer might be dependent on the supplier for be dependent on the supplier for particular components,such as particular components,such as service or skills or the benefits of service or skills or the benefits of switching may simply not be worth switching may simply not be worth the cost or risk. the cost or risk.

• 3.3 3.3 The delta model and lock-inThe delta model and lock-in

• Another approach of sustainability is Another approach of sustainability is the idea of the “lock - in”.the idea of the “lock - in”.

• Here an organization has achieved Here an organization has achieved it’s position in its industry,it has it’s position in its industry,it has become an industry standard . become an industry standard .

• IBMIBM

• MicrosoftMicrosoft

• 4.4.Competition and collaborationCompetition and collaboration

• Collaboration between organizations Collaboration between organizations may be a crucial ingredient in may be a crucial ingredient in achieving advantage or avoiding achieving advantage or avoiding competition.They might compete in competition.They might compete in some markets & collaborate in some markets & collaborate in others or even at the same time others or even at the same time compete & collaborate.compete & collaborate.

• Five forces of the framework.Five forces of the framework.

• 1.1.Buyer-seller collaboration.Buyer-seller collaboration.

• 2.Collaboration to increase buyer 2.Collaboration to increase buyer power.power.

• 3.Collaboration to build barriers to 3.Collaboration to build barriers to entry or avoid substitution.entry or avoid substitution.

• 4. Collaboration to gain entry & 4. Collaboration to gain entry & competitive power. competitive power.

• 5.Collaboration to share work with 5.Collaboration to share work with customers. customers.

• 5.5.Game theoryGame theory

• The center idea is that the The center idea is that the strategist,has to anticipate the strategist,has to anticipate the reaction of others.reaction of others.

• General General

• EnemyEnemy

• ManagerManager

• CompetitorsCompetitors

• The assumption in game theory is The assumption in game theory is that to a greater or lesser extent that to a greater or lesser extent competitors are aware of the competitors are aware of the interdependencies that exist & of interdependencies that exist & of the sorts of move that competitors the sorts of move that competitors could take.could take.

• The key there for the strategist as The key there for the strategist as game theorist is the need to put game theorist is the need to put themselves in the position of their themselves in the position of their competitors as to take a rational competitors as to take a rational view of point about what the view of point about what the competitors are likely to do,& competitors are likely to do,& therefore choose their best course therefore choose their best course of action. of action.

• Guiding principles of Game theory :Guiding principles of Game theory :

• 5.1 Simultaneous games5.1 Simultaneous games-Is one of -Is one of the most famous G.theory. There the most famous G.theory. There the players are involved.Ex.The the players are involved.Ex.The competitors are faced with making competitors are faced with making decisions at a point in time.decisions at a point in time.

• The game theory suggests that there The game theory suggests that there are 3-main principles:are 3-main principles:

• 1.Dominant strategy-is one that 1.Dominant strategy-is one that outperforms all other strategies outperforms all other strategies whatever rivals choose.whatever rivals choose.

• 2.Dominated strategy2.Dominated strategy

• 3.Equilibrium-is a situation where each 3.Equilibrium-is a situation where each competitor contrives to get the best competitor contrives to get the best possible strategic solution for itself possible strategic solution for itself given the response from the othersgiven the response from the others

• 5.2 5.2 Sequential Sequential games games - General- General it is it is to think forward & reason to think forward & reason backwardsbackwards

• 5.35.3 Repeated game Repeated game - here - here competitors interact repeatedly & it competitors interact repeatedly & it has been shown that in such has been shown that in such circumstances the equilibrium circumstances the equilibrium outcome is much more likely to outcome is much more likely to favour co-operationfavour co-operation

• 5.45.4Changing the rules of the gameChanging the rules of the game

• By thinking through the logic of the By thinking through the logic of the game a competitors might find that game a competitors might find that they are simply not able to compete they are simply not able to compete effectively within the rules as they effectively within the rules as they exist.An alternative approach for a exist.An alternative approach for a competitor who decides they can’t competitor who decides they can’t win on such bases is to price-change win on such bases is to price-change the rules of the game.the rules of the game.

• 6.6.Competitive strategy in Competitive strategy in Hypercompetitive conditionsHypercompetitive conditions- the idea - the idea of strategy in hypercompetitive of strategy in hypercompetitive situation is considered unlike the game situation is considered unlike the game theory. Hypercompetitivetheory. Hypercompetitive environment environment require organizations to acknowledge require organizations to acknowledge that advantages may be temporary.that advantages may be temporary.

• 6.1 Overcoming traditional bases of 6.1 Overcoming traditional bases of competitive advantage.competitive advantage.

• -Advantage bases on price or -Advantage bases on price or differentiation.differentiation.

• -Seeking advantage through -Seeking advantage through market-based strategic movesmarket-based strategic moves

• - Seeking advantage by building - Seeking advantage by building barriers-so to provide competitors barriers-so to provide competitors entering their domains. entering their domains.

• 6.2 Escalating bases of competition6.2 Escalating bases of competition

•1.Differentiation •Imitation

•2.Resource-based• barriers

•Imitation

•3.New •markets

•Imitation

•5.Build•stronghold

• 6.3 Successful hypercompetitive 6.3 Successful hypercompetitive strategies:strategies:

• SpeedSpeed

• flexibilityflexibility

• innovationinnovation

• willingnesswillingness

• capacity to changecapacity to change