Chapter 8 Business strategy and models Flashcards
Strategic Business Unit (SBU)
Supplies goods or services for a distinct domain of activity (sometimes called “divisions” or “profit centres”)
Competitive strategies
Concerned with how a company, business unit or organisation acheives competitve advantage in its domain of activity
- Often incluedes activites such as costs, product and service-features and branding
Cost-leadership strategy
Involves becoming the systematically lowes-cost organisations in a domain or activity. To be a cost leader, you need to be at the lowest cost, and not have a total disregard for quality.
Four key cost dirivers that can help deliver cost leadership:
* Input cost
* Economies of scale
* Experience
* Product/process design
Cost leaders have 2 options:
1. Parity with competitors in product features valued by customers. The cost leader charges the same prices as the average competitor in the marketplace, while translating its cost advantage wholly into extra profit
2. Proximity to competitors in terms of features. Where a competitor is sufficiently close to competitors in terms of product or service features, customers may only require small cuts in prices to compensate for the slightly lower quality
Differentiation strategy
Involves uniqueness aling some dimension that is suffciently valued by customers to allow a price premium. Some aspects to consider when pursuing a differentiation strategy:
* Product and service attributes - Certain product attributes can provide better or unique features than comparavle products or services for customers
* Customer relationships - relationship between the organisation providing the product and the customer. The perceived value can increase through customer services and responsiveness.
* Complements - builds on linkages to other products or services. The perceived value of some products can be significantly enhanced when consumed together with other product or service complements compared to consuming the product alone.
Focus strategy (Scope)
targets a narrow segment or domain of activity and tailors its products or services to the needs of that specific segment to the exclusion of others. The focuser achieves competitive advantage by dedicating itself to serving its target segments better than others that are trying to cover a wider range of segments.
Two variants of focus strategies:
* Cost focus strategy
* Differentiation focus strategy
Successful focus strategies depnds on one of three factors:
1. Distinct segment needs
2. Distinct segment value chains
3. Viable segment economics
Cost focus strategy
identify areas where broader cost-based strategies fail because of the added costs of trying to satisfy a wide range of needs.
Differentiation focus strategy
look for specific needs that broader differentiators do not serve so well. Focus on one particular need helps to build specialist knowledge and technology.
Hybrid strategy
Combine different generic strategies, since there is a fundamental tradeoff between the generic competetive strategies.
It is possible for a company to create two separate strategic business units (SBUs), each pursuing different generic strategies and with different cost structures.
Blue Ocean Strategy
“Blue oceans” are new market spaces where competition is minimised.
Avoid “Red Oceans”, where industries are already well.defined and rivlaty is intense.
The Blue ocean concept thus aims at identifying potential spaces in the environment with little competition.
Strategy canvas tool
COmpares competitiors according to their perdormance on critical success factors (CSFs) in order to establish potential strategies for the future.
Value innovator: is a company that manages to identify new CSFs that are either particularly valued by customers (differentiation) or which provide a significant advantage in terms of cost (low cost) and thus competes in ‘Blue Oceans’
Interactive strategies
Blue Ocean strategy shows that competitive strategies need to be chosen, and adjusted, in relation to competitors’ strategies. If everybody else is in a red ocean chasing after differentiation then a cost leadership strategy might be sensible. Thus, business strategy choices interact with those of competitors.
Interdependence between rivals
Competitors’ strategies are interdependent and interact through moves and countermoves.
Three key decisions when your strategic position gets compromised:
1. Threat assessment. The first decision point is wheter the threat is substantial or not.
2. Differentiation response. Seek out new points of differentiation.
3. Cost response. Merger with other high-cost organisations may help reduce costs and match prices through economies of scale.
Game Theory
encourages an organisation to consider competitors’ likely moves and the implications of these moves for its own strategy.
Game theorists often advise a more cooperative approach than head-to-head competition. Collaboration with some competitors may give competitive advantage over other competitors or potential entrants.
Business models
describes a value proposition for customers and other participants, an arrangement of activities that produces this value, and associated revenue and cost structures.
It concerns the manners and mechanisms of an organisation’s value creation, configuration and capture.
Value creation
a proposition that addresses a specific customer segment’s needs and problems and those of other participants.
* Main concern is the targeted customer segment and how their needs are fulfilled, but also how to create value for any other parties involved.
