10.4 Business-level strategy

Question 1

What is meant by “business level strategy”?

Answer 1

The development of strategy and the choices that take place within a defined business unit.

Question 2

Why is business level strategy important for large company groups?

Answer 2

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.

Question 3

What does “SBU” stand for?

Answer 3

Strategic business unit

Question 4

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

Answer 4

cost leadership
differentiation
cost focus
differentiation focus

Question 5

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).

Answer 5

costs
economies
experience
design

Question 6

What are reasons why a cost leadership approach might fail?

Answer 6

• 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.

Question 7

What is meant by “differentiation” as a business strategy?

Answer 7

Using different variants of the same product to drive up sales (e.g. the various types of Coca Cola)

Question 8

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)

Answer 8

attributes
relationships
complements

Question 9

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?

Answer 9

performance
conformance
aesthetics

Question 10

What could be some possible downsides to differentiation?

Answer 10

• 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

Question 11

What is an “organisational focus” strategy?

Answer 11

Tailoring a product or service to the specific needs of the perceived customer. (e.g. Ryanair target budget travelers)

Question 12

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

Answer 12

cost

differentiation

Question 13

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

Answer 13

cost leader
differentiation
focus strategy

Question 14

What is meant by a “hybrid strategy”?

Answer 14

A strategy whereby elements of multiple different strategies are employed together - e.g. a cost leader with elements of focus strategy.

Question 15

Wearden provides two examples of organisations that have successfully employed hybrid strategies - which are these?

Answer 15

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).

Question 16

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________.

Answer 16

value chain analysis

Question 17

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_________.

Answer 17

stakeholder mapping exercise

Question 18

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.

Answer 18

Porter’s five forces.

Question 19

What might “BPR” stand for?

Answer 19

Business Process Re-engineering

Question 20

“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_________.

Answer 20

processes

objectives

Question 21

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)

Answer 21

strategy
processes
information technology
culture

Question 22

Define “synergy” in the context of discussing business units working together.

Answer 22

The alignment of assets or activities such that the combined results can deliver a greater advantage than the separate parts.

Question 23

Porter identified three ways in which an organisation can gain advantage. What are these?

Answer 23

Cost - be the cheapest
Differentiation - offer something different
Focus - hone in on a particular target market or markets

Question 24

When pursuing a cost leadership strategy, what are the key tactics?

Answer 24

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

Question 25

Johnson suggests 4 key cost drivers that need to be taken into consideration in a cost leadership approach. What are these?

Answer 25

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

Question 26

What are the possible risks in pursuing a cost leadership approach?

Answer 26

Focus on cost can be to the detriment of quality
Restricted supply base being shared across competitors
Imitation by competitors

Question 27

What is a differentiation approach to competitive advantage?

Answer 27

Development of one more aspects of a product or service that are unique (or perceived by the customer to be unique).

Question 28

Johnson suggests three primary drivers of a differentiation strategy. What are these?

Answer 28

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.

Question 29

Garvin (1987) identified eight dimensions of differentiation quality. What are these?

Answer 29

Performance
Features
Reliability
Conformance
Durability
Serviceability
Aesthetics
Perceived quality

Question 30

What are the risks of pursuing a differentiation strategy?

Answer 30

• 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

Question 31

What does Porter mean by an “organisational focus approach” to strategy?

Answer 31

Targeting a more defined and narrower consumer group. The product will be tailored to their needs.

Question 32

What are the two types of focus strategy identified by Porter?

Answer 32

Cost focus

Differentiation focus

Question 33

Give an example of a cost focus business.

Answer 33

Ryan Air

Question 34

Giver an example of a differentiation focus business.

Answer 34

Ecover

Question 35

How does Porter suggest that a cost leadership approach can be monitored and controlled?

Answer 35

Through robust value chain analysis

Question 36

How does Porter suggest that a differentiation approach can be monitored and controlled?

Answer 36

Understanding of stakeholder expectations through stakeholder mapping.

Question 37

How does Porter suggest that a focus approach can be monitored and controlled?

Answer 37

Robust understanding of of options available to customers through a “five forces” approach.