10.4 Business-level strategy Flashcards
What is meant by “business level strategy”?
The development of strategy and the choices that take place within a defined business unit.
Why is business level strategy important for large company groups?
There may be many unrelated business entities as part of a group, and each will require an individual strategy, although this can be part of the larger Group strategy.
What does “SBU” stand for?
Strategic business unit
Porter sets out 4 choices for businesses to follow when selecting strategy as a matrix. These four choices a re: - cost l\_\_\_\_\_\_\_\_\_\_ - d\_\_\_\_\_\_\_\_\_\_\_\_ - cost f\_\_\_\_\_\_\_ and d\_\_\_\_\_\_\_\_\_ focus
cost leadership
differentiation
cost focus
differentiation focus
Johnson states that there are four key cost drivers to consider when pursuing a cost leadership model. These are:
- input c_____ (i.e. minimising the cost of labour and materials)
- e_________ of scale (spreading cost over time and avoiding large upfront costs
- ex__________ (employing experience people who already know what they are doing)
- d______ (using a rational strategy to ensure that the design of the product is efficient).
costs
economies
experience
design
What are reasons why a cost leadership approach might fail?
- unjustified focus on the cost of one or more elements of the supply chain while ignoring others
- insufficient supply base to share across competitors (i.e. you cannot be the cheapest if another supplier controls key resources).
- the product and cost savings are easily imitated by others
- cost restrictions have caused a drop in quality.
What is meant by “differentiation” as a business strategy?
Using different variants of the same product to drive up sales (e.g. the various types of Coca Cola)
Johnson suggests there are thee primary drivers for a “differentiation” strategy:
- product and service a__________ (appealing to customers with a variety of choice)
- customer r_________ (the manner in which a business deals with their customer base)
- c________ (the add ons that come with a product to improve its service (e.g. inclusion of software with certain computers)
attributes
relationships
complements
Garvin (1987) defined 8 dimensions of quality in providing a “differentiation” approach:
1 P________ - is it better than the competition?
2 Features - does it have unique aspects
3 Reliability - will it outperform others?
4 C_________ - does it meet laws and standards?
5 Durability - will it last?
6 Serviceability - if it breaks can it be repaired?
7 A_________ - does it look. sound or feel better?
8 Perceived quality - is the customer satisfied?
performance
conformance
aesthetics
What could be some possible downsides to differentiation?
- too much differentiation could confuse customers
- too high a price
- competitors could easily copy
- different perceptions between buyers and sellers
- striving for uniqueness of value
What is an “organisational focus” strategy?
Tailoring a product or service to the specific needs of the perceived customer. (e.g. Ryanair target budget travelers)
Johnson (2017) gives examples of two different organisational focus strategies:
1 c____ focus strategy - e.g. Ryanair targeting price conscious travelers
2 d_________ focus strategy - e.g. Ecover targeting environmentally conscious customers
cost
differentiation
Porter suggests that an organisation is only successful through following a distinct strategy:
- a c_____ l______ will end up adding cost if it attempts to diffenrentiate
- a d________ will lose its point of difference if it fails have clarity over why it is different
- a f______ s________ can find its customer base eroded by being perceived as losing its specialism
cost leader
differentiation
focus strategy
What is meant by a “hybrid strategy”?
A strategy whereby elements of multiple different strategies are employed together - e.g. a cost leader with elements of focus strategy.
Wearden provides two examples of organisations that have successfully employed hybrid strategies - which are these?
1) Tesco - has succeeded in being UK’s largest retailer for over 25 years through using a combination of Porter’s three generic strategies
2) MacDonald’s - moved from initial product differentiation to a cost leader (this was only possible because of its size and dominance).
Wearden discussed the methods used to ensure that different strategies remain sustainable over a long period.
Cost leadership can be monitored and controlled through the effective and ongoing use of a robust v______ c_____ a________.
value chain analysis
Wearden discussed the methods used to ensure that different strategies remain sustainable over a long period.
Differentiation can be monitored and controlled through a close understanding of different stakeholder expectations, through the ongoing use of a s_________ m__________ e_________.
stakeholder mapping exercise
Wearden discussed the methods used to ensure that different strategies remain sustainable over a long period.
Focus can be monitored and controlled through a robust understanding of the different options available to customers through the ongoing use of a model such as P________ f____ f______ model.
Porter’s five forces.
What might “BPR” stand for?
Business Process Re-engineering
“Business Process Re-engineering” (BPR) requires a … radical redesign of organisational p________ with the aim of achieving significant improvement in operation to achieve strategic o_________.
processes
objectives
There are 5 rules to “Business Process Re-engineering” (BPR):
- s_______ must be determined before redesign
- existing p________ should be used as a basis for redesign
- use of i_______ t________ should be optimised
- governance, c_______ and organisational structures must align with the process flow
- people need to understand and participate (buy-in)
strategy
processes
information technology
culture
Define “synergy” in the context of discussing business units working together.
The alignment of assets or activities such that the combined results can deliver a greater advantage than the separate parts.
Porter identified three ways in which an organisation can gain advantage. What are these?
Cost - be the cheapest
Differentiation - offer something different
Focus - hone in on a particular target market or markets
When pursuing a cost leadership strategy, what are the key tactics?
A detailed understanding of product costs (direct and indirect)
A focus on cost reduction based on historic performance
Removal of inefficiencies
Focus on customers who pay on time and in full
A focus on product quality
Johnson suggests 4 key cost drivers that need to be taken into consideration in a cost leadership approach. What are these?
Input costs - raw materials and labour
Economies of scale - spread cost over time
Experience - a person who knows what they are doing will be more efficient
Design - efficiency built into product design
What are the possible risks in pursuing a cost leadership approach?
Focus on cost can be to the detriment of quality
Restricted supply base being shared across competitors
Imitation by competitors
What is a differentiation approach to competitive advantage?
Development of one more aspects of a product or service that are unique (or perceived by the customer to be unique).
Johnson suggests three primary drivers of a differentiation strategy. What are these?
Product and service attributes - traits tailored to appeal to the consumer.
Complements - perceived or actual receipt of additional products or services online to enhance the core purchase.
Customer relationships - the way customers are treated.
Garvin (1987) identified eight dimensions of differentiation quality. What are these?
Performance Features Reliability Conformance Durability Serviceability Aesthetics Perceived quality
What are the risks of pursuing a differentiation strategy?
- too much differentiation confuses the customers
- too high a price
- imitation by competitors
- differing perception of the meaning of “quality” between buyer and seller
- striving for uniqueness that fails to bring value
What does Porter mean by an “organisational focus approach” to strategy?
Targeting a more defined and narrower consumer group. The product will be tailored to their needs.
What are the two types of focus strategy identified by Porter?
Cost focus
Differentiation focus
Give an example of a cost focus business.
Ryan Air
Giver an example of a differentiation focus business.
Ecover
How does Porter suggest that a cost leadership approach can be monitored and controlled?
Through robust value chain analysis
How does Porter suggest that a differentiation approach can be monitored and controlled?
Understanding of stakeholder expectations through stakeholder mapping.
How does Porter suggest that a focus approach can be monitored and controlled?
Robust understanding of of options available to customers through a “five forces” approach.
