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Chapter 6Chapter 6

Business-Level StrategyBusiness-Level Strategy

StrategicStrategic Charles W. L. HillCharles W. L. Hill

ManagementManagement Gareth R. JonesGareth R. Jones

Fifth EditionFifth Edition

PowerPoint Presentation PowerPoint Presentation by Charlie Cookby Charlie Cook

An Integrated ApproachAn Integrated Approach

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What Is Business-Level What Is Business-Level Strategy?Strategy?Business-level strategyBusiness-level strategy

A plan of action to use the firm’s resources and A plan of action to use the firm’s resources and distinctive competencies to gain competitive distinctive competencies to gain competitive advantage.advantage.

Abell’s “Business Definition” processAbell’s “Business Definition” process Customer needs – product differentiation (what)Customer needs – product differentiation (what) Customer groups – market segmentation (who)Customer groups – market segmentation (who) Distinctive competencies – competitive actions (how)Distinctive competencies – competitive actions (how)

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Choosing a Generic Business-Level Choosing a Generic Business-Level StrategyStrategyProduct/Market/Distinctive-Competency Choices Product/Market/Distinctive-Competency Choices and Generic Competitive Strategiesand Generic Competitive Strategies

Cost LeadershipCost Leadership DifferentiationDifferentiation FocusFocus

ProductProductDifferentiationDifferentiation

LowLow(principally(principallyby price)by price)

HighHigh(principally by (principally by uniqueness)uniqueness)

Low to highLow to high(price or (price or uniqueness)uniqueness)

MarketMarketSegmentationSegmentation

LowLow(mass market)(mass market)

HighHigh(many market (many market segments)segments)

LowLow(one or a few (one or a few segments)segments)

DistinctiveDistinctiveCompetencyCompetency

ManufacturingManufacturingand materials and materials managementmanagement

Research and Research and development, sales development, sales and marketingand marketing

Any kind of Any kind of distinctive distinctive competencycompetency

TABLE 6.1

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FIGURE 6.1

Types of Business-Level Types of Business-Level StrategiesStrategies

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Choosing a Business-Level Choosing a Business-Level StrategyStrategyCost-leadership strategyCost-leadership strategy success is affected by: success is affected by:

Competitors producing at equal or lower costs.Competitors producing at equal or lower costs. The bargaining strength of suppliers.The bargaining strength of suppliers. Powerful buyers demanding lower prices.Powerful buyers demanding lower prices. Substitute products moving into the market.Substitute products moving into the market. New entrants overcoming entry barriers.New entrants overcoming entry barriers.

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Choosing a Business-Level Choosing a Business-Level StrategyStrategyDifferentiation strategyDifferentiation strategy success is achieved success is achieved through:through:

An emphasis on product or service quality.An emphasis on product or service quality. Innovation in providing new features for which Innovation in providing new features for which

customers will pay a premium price. customers will pay a premium price. Responsiveness to customers after the sale.Responsiveness to customers after the sale. Appealing to the psychological desires of customers.Appealing to the psychological desires of customers.

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Choosing a Business-Level Choosing a Business-Level StrategyStrategyDifferentiation strategyDifferentiation strategy success is affected by: success is affected by:

Competitors imitating features and services.Competitors imitating features and services. Increases in supplier costs exceeding differentiator’s Increases in supplier costs exceeding differentiator’s

price premium. price premium. Buyers becoming less brand loyal.Buyers becoming less brand loyal. Substitute products adding similar features.Substitute products adding similar features. New entrants overcoming entry barriers related to New entrants overcoming entry barriers related to

differentiator’s competitive advantage.differentiator’s competitive advantage.

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Choosing a Business-Level Choosing a Business-Level StrategyStrategyFocus strategyFocus strategy success is affected by: success is affected by:

Competitor entry into focuser’s market segment.Competitor entry into focuser’s market segment. Suppliers capable of increasing costs affecting only Suppliers capable of increasing costs affecting only

the focuser.the focuser. Buyers defecting from market segment. Buyers defecting from market segment. Substitute products attracting customers away from Substitute products attracting customers away from

focuser’s segment.focuser’s segment. New entrants overcoming entry barriers that are the New entrants overcoming entry barriers that are the

source of the focuser’s competitive advantage.source of the focuser’s competitive advantage.

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Strategic Groups and Business-Strategic Groups and Business-Level StrategyLevel Strategy

Implications for business-level strategyImplications for business-level strategy Immediate competitors are companies pursuing same Immediate competitors are companies pursuing same

strategy within the same strategic group.strategy within the same strategic group. Different strategic groups can have a different Different strategic groups can have a different

standing with respect to the effects of the five standing with respect to the effects of the five competitive forces.competitive forces.

First mover advantageFirst mover advantage Benefits are first choice of customers and suppliers, Benefits are first choice of customers and suppliers,

setting standards, building entry barriers.setting standards, building entry barriers.

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Choosing an Investment Choosing an Investment Strategy at the Business LevelStrategy at the Business Level

Investment strategyInvestment strategy The resources (human, functional, and financial) The resources (human, functional, and financial)

required to gain sustainable competitive advantage.required to gain sustainable competitive advantage.

Competitive positionCompetitive position Market share is an indicator of competitive strength.Market share is an indicator of competitive strength. Distinctive competencies are competitive tools. Distinctive competencies are competitive tools.

Life Cycle EffectsLife Cycle Effects An industry’s life cycle stage affects its attractiveness An industry’s life cycle stage affects its attractiveness

to investment prospects.to investment prospects.

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Choosing an Investment Strategy at the Choosing an Investment Strategy at the Business LevelBusiness Level

Stage of the Stage of the Industry Life CycleIndustry Life Cycle

Strong CompetitiveStrong CompetitivePositionPosition

Weak CompetitiveWeak CompetitivePositionPosition

EmbryonicEmbryonic Share buildingShare building Share buildingShare building

GrowthGrowth GrowthGrowth Market concentrationMarket concentration

ShakeoutShakeout Share increasingShare increasing Market concentration or Market concentration or harvest/liquidationharvest/liquidation

MaturityMaturity Hold-and-maintain or profitHold-and-maintain or profit Harvest or Harvest or liquidation/divestitureliquidation/divestiture

DeclineDecline Market concentration or Market concentration or harvest (asset reduction)harvest (asset reduction)

Turnaround, liquidation,Turnaround, liquidation,or divestitureor divestiture

TABLE 6.2