Upload
rashad-orudjov
View
215
Download
0
Embed Size (px)
Citation preview
8/9/2019 BS L10 Busines-level Strategies
1/20
BUSINESS-LEVELSTRATEGIES
Prof.Dr.Dr.Dr.H.C. Constant in Brat ianu
Facul ty of Bu siness Adm inis t rat ion
Academy of Econom ic Studies
Buch arest , Romania
8/9/2019 BS L10 Busines-level Strategies
2/20
MEANING
Business-level strategies are strategies developed atthe level of Strategic Business Units (SBU).
A SBU is a component of a company that is able to puton the market a product and to compete against other
companies for that product. A SBU supplies goods or services for a distinct domain
of activity. More specifically, a SBU refers to a distinctbusiness within a large diversified corporation. Withinsuch a complex corporation, a SBU has theresponsibility of designing and implementing its ownstrategies.
SBUs may be considered in some companies as beingdivisions or profit centers.
8/9/2019 BS L10 Busines-level Strategies
3/20
GENERIC STRATEGIES
Business-level strategies have as the main characteristicthe control of production costs.
Generic strategies:
- Overall cost leadership strategies- Differentiation strategies
- Focus cost strategies
- Focus differentiation strategies
8/9/2019 BS L10 Busines-level Strategies
4/20
Low cost Differentiation
Competitive advantage
Industrywide
Particularsegment
only
Strategic
target
Generic Strategies
Overall costleadership Differentiation
Focus costleadership
Focusdifferentiation
8/9/2019 BS L10 Busines-level Strategies
5/20
Overall cost leadership strategy
Cost leadership can be achieved for one or a groupof products, by:
- Aggressive construction of efficient facilities
- Vigorous pursuit of cost reductions by using
the experience curve and standardization ofprocesses and of products and services
- Tight cost and overhead control
- Cost minimization in all activities in the firms
value chain- Outsourcing production activities in countrieswith a lower level of workers salaries (China,Taiwan, India)
8/9/2019 BS L10 Busines-level Strategies
6/20
Cost leadership strategy
Efficiency curve / Learning curve
Cost/unit
Volume of soldproducts
VA VB
CA
CB
E=CA - CB
8/9/2019 BS L10 Busines-level Strategies
7/20
Examples
Henry Ford Model T car
- mass production
- costs reductions (inclusive colours)
- $3000 >>> $900 / car
IKEA Furniture company
- Good quality at low price
- Furniture at prices that are generally 30% to 50%below that of competitors
Toyota management system
- kanban / Just in time (JIT) logic
- reducing any kind of stock and waste
8/9/2019 BS L10 Busines-level Strategies
8/20
Toyota system (I)
General formula for efficiency
Process result = work + waste (muda)
The problem of increasing efficiency is transformedinto the problem of reducing waste:
- waste of time
- waste of space
- waste of energy
- waste of transportation
- waste as overproduction
- waste as stocks
8/9/2019 BS L10 Busines-level Strategies
9/20
Toyota system (II)
The management is based on 2 principles:
- Just In Time (JIT)
- team work
The working method is called kanban.Kanban is a sheet of paper, as a template, containing
information about the technological processsequences necessary for each mechanical piece to
be realized.
Kanban system uses an inverse management logic,since the working flux is controlled backward.
8/9/2019 BS L10 Busines-level Strategies
10/20
Differentiation strategy
The strategy of differentiation consists of creatingdifferences in the firms product or service offering by
creating something that is perceived industry wide asunique and valued by customers
Successful differentiation can be obtain:
(a) setting prices at industry average and getmarket shares because consumers will choose higherquality at the same price, and
(b) raise prices over those of competitors and get
benefits of higher prices BMW is known for its high prestige, superior
engineering, and high-quality automobiles
Harley-Davidson differentiates on image and dealer
services
8/9/2019 BS L10 Busines-level Strategies
11/20
Stuck in the middle
Michael Porter claims that managers must make a clearchoice between these generic strategies. Otherwisethey will be stuck in the middle, which is not a winningposition.
For a competitor having the lowest cost product on themarket it makes no sense to add extra costs to hisproducts to take advantage of some differentiation.
For a competitor following a differentiation strategy itmakes no sense to cut costs since the quality of the
product may decrease. However, Porters argument for pure strategies is
controversial. There are companies with SBU that haveadopted different strategies.
8/9/2019 BS L10 Busines-level Strategies
12/20
Focus strategy
Focus strategy is based on the choice of a narrowcompetitive scope within an industry
A firm following this strategy selects a segment or
group of segments and tailors its strategy to servethem
The firm achieves a competitive advantage by
dedicating itself to these segments exclusively
Focus requires that a firm either have a low-costposition with its strategic target, high differentiation,
or both
8/9/2019 BS L10 Busines-level Strategies
13/20
Focus strategy - examples
Focused cost leadership strategy: JetBlue is a relatively recent entry on the commercial-
airline market, following Southwest Airlines model.
Focused differentiation strategy: Montague focuses on the niche market of folding
bikes
Rolls-Royce and Ferrari in car industry
Harley-Davidson in motorcycle industry
8/9/2019 BS L10 Busines-level Strategies
14/20
Drivers for generic strategies
Low cost strategy
- Economy of scale
- Economy of scope
-Learning
- Superior technology
- Superior productdesign
- Standardization
Differentiation strategy
- Premium brand image
- Customization
-Unique styling
- Speed
- Convenient access
- Unusually high quality
8/9/2019 BS L10 Busines-level Strategies
15/20
Threats for generic strategies
Low cost
- New technology
- Inferior quality
-Social, political andeconomic risk ofoutsourcing
- Changing the needs or
customers
Differentiation
- Failing to increasebuyers willingness to
pay higher prices- Underestimating costs
of differentiation
- Overfilling buyers
needs- Lower-cost imitation
8/9/2019 BS L10 Busines-level Strategies
16/20
Integrated strategies
In reality, few firms choose well defined strategieslike being only low-cost leader or differentiator
In many firms there is an integration of thesestrategies that mean elements of one type ofstrategy strongly support another strategy. Forinstance, elements of differentiation may support alow-cost strategy.
Many low-cost firms invest in branding whichmeans differentiation (McDonalds)
8/9/2019 BS L10 Busines-level Strategies
17/20
Strategies for different phases ofindustry life cycle
Embryonic stage
- Staying local
- Internal development
- Target basic needs and minimal differentiation- Strategies to gain early footholds
- Costs are high. Focus is on securing additionalcapital to fund growth phase
8/9/2019 BS L10 Busines-level Strategies
18/20
Strategies for different phases ofindustry life cycle
Maturity stage
- Globalizing and diversifying
- Mergers and acquisitions for consolidation
- Choices of international markets and new industrydiversification need rational sequencing
-Declining growth demands cost containment andrationalization of operations
- Implementing TQM strategy
8/9/2019 BS L10 Busines-level Strategies
19/20
Strategies for different phases ofindustry life cycle
Decline stage
- Abandoning some markets if decline is severe
- Focusing on segments that provide the most
profitability- Divestiture enable some competitors to exit andothers to consolidate larger shares of the market
- Fewer competitors result in less pressure for
differentiation- Timing of exit from selected segments or business
8/9/2019 BS L10 Busines-level Strategies
20/20
Testing the quality of your strategy
1. Does your strategy exploit your key resources ?
2. Does your strategy fit with current industrycondition?
3. Will your differentiation be sustainable ?
4. Are the elements of your strategy consistent andaligned with your strategic position?
5. Can your strategy be implemented?