4 - Business-Level Strategy

Question 1

strategy is dictated by:

Answer 1

1. external environment

2. internal resources, capabilities + core compentencies

Question 2

business level strategy

Answer 2

integrated set of actions/commitments used to gain CA by exploiting core competences in a specific product market

purpose: create differences b/w firm’s position + its competitors
- 5 different types

Question 3

business level strategy: strengthening relationship w/ customers

Answer 3

• effectively manage relationships (deliver value + interact)
• reach, richness + affiliation (deep connection w/ customers)
• market segmentation (who)
• which needs to satisfy (what)
• which core competencies necessary to satisfy those needs (how)

Question 4

what is the foundation of successful business-level strategies?

Answer 4

customers

• strategic competitiveness only occurs when a firm can satisfy its customers

Question 5

how does a firm differentiate its positioning from its competitors?

Answer 5

perform different activities

perform activities differently

Question 6

different types of business level strategies

Answer 6

• x: competitive advantage
• y: competitive scope

cost leadership

• cost
• broad target

differentiation

• uniqueness
• broad target

focused cost leadership

• cost
• narrow target

focused differentiation

• uniqueness
• narrow target

integrated cost leadership/differentiation = middle

Question 7

cost leadership

Answer 7

deliver goods/services with acceptable features to customers at lowest cost

• operate w/ greater margins
• standardized goods
• continuously reduce costs of value chain activities

Question 8

cost leadership in relation to the 5 Forces

Answer 8

rivalry against existing competitors:
- rivals hesitate to compete on basis of price (higher margins)

bargaining power of buyers:
- firms can drive prices low = shift buyer power back to firm (because buyers can force cost leaders to reduce price)

bargaining power of suppliers:

• may force suppliers to hold down prices
• can absorb supplier’s price increases due to high margin + low cost position

potential entrants:
- barriers to entry due to high profit margins

product substitutes:
- cost leader has more flexibility that competitors (can reduce price)

Question 9

competitive risks of the cost leadership strategy

Answer 9

cost advantage may become obsolete (due to innovations)

focus on cost may cause the firm to overlook important customer preferences

imitation

Question 10

differentiation

Answer 10

deliver goods/services at an acceptable cost that customers perceive as unique to them

• customized products

Question 11

differentiation in relation to the 5 Forces

Answer 11

rivalry against existing competitors:

• loyal customers
• must be attentive to imitations

bargaining power of buyers:
- as loyalty increases, price sensitivity decreases

bargaining power of suppliers:

• suppliers must provide high quality components = driving up firm’s costs
• can absorb prices due to high margin, or:
• cost may be passed onto customer

potential entrants:
- substantial barriers + require significant investment

product substitutes:
- hold an attractive position due to customer loyalty

Question 12

competitive risks of the differentiation strategy

Answer 12

customers decide if price is too great

means of differentiation may cease to provide value for which customers are willing to pay

experience can narrow customers’ perceptions of the value of a product’s differentiated features

counterfeiting

Question 13

focus strategies

Answer 13

focused cost leadership

focused differentiation

Question 14

why focus strategies?

Answer 14

may lack resources to compete in broader market

more effectively serve a narrow market than larger industries

may direct resources to certain value chain activities to build CA

Question 15

risk of using focus strategies

Answer 15

competitor might focus on a more narrow segment and thereby “out-focus” the focuser

larger firms might find the market segment attractive

customer needs in market segment might become similar to those of industry-wide customers

Question 16

integrated cost leadership/differentiation

Answer 16

low cost position w/ some product differentiation

• 2 sources of CA
• requires flexibility

Question 17

flexible sources

Answer 17

flexible manufacturing systems (computer controlled process = min manual intervention)
- eliminates “low cost vs product variety” trade-off

information networks (link suppliers, distributors + customers)

total quality management systems

• data driven, problem solving approaches
• commitment to continuous improvement

efficient KM systems (info)

strategic adaptation

Question 18

why do integrated CL/differentiation strategies require flexibility?

Answer 18

to learn how to use primary value-chain activities + support functions in ways that allow them to produce differentiated products at relatively low costs

Question 19

competitive risks of integrated strategies

Answer 19

risk of getting ‘stuck in the middle’
- cost structure too low for attractive pricing of products + products not differentiated enough to create value = fail to implement strategy

result: don’t earn AAR

Question 20

cost leadership: value creating activities

Answer 20

cost effective MIS
tight control of costs
build efficient manufacturing facilities (economies of scale)
simplify production processes
low cost materials
effective relationships w/ suppliers/distributors...
effective training
low-cost transportation

Question 21

differentiation: value creating activities

Answer 21

highly developed MIS
emphasis on quality
flexible systems
high quality materials 
attractive products
superior personnel training
superior handling of incoming materials