U4 What Strategic Options Are Available to the Strategic Business Unit (SBU)? Flashcards
Case Study
What Strategic Options Does the SBU Have?
A strategic business unit is a?
unit that provides specific products or services in a specific business or market.
Small companies often consist of?
one strategic business unit, whereas larger corporations have many SBUs.
Strategic business units are defined by?
having similar customers or competitors or by having similar strategic capabilities.
An example of a SBU is ?
the medical division of a large corporation which serves hospitals.
SBUs make decisions on?
product portfolios and on the markets they serve.
They can make decisions about which strategy to use in their markets in order to?
meet corporate goals.
They are the experts in?/
their markets and they know their customers.
SBUs are evaluated on ?
the sales and profits they generate and are responsible for the results of their business.
The strategies that the SBUs pursue are?
either generic (i.e. strategies regularly employed by organizations) or interactive (i.e. the organization’s direct response to changes in the market or the competitive environment).
The interactive strategy influences the market itself and necessitates a high level of flexibility by the organization to?
react quickly to these changes.
The strategy serves to make marketing decisions for?
the individual SBUs of an organization.
Generic Strategies
Michael Porter (1996) :
coined the term ‘generic strategy’ to describe those strategies most often deployed by organizations.
He systemized possible strategies that lead to a competitive advantage in the market.
Porter classifies the defined strategies according to the strategic goals that organizations set for themselves and by the strategic advantage the company pursues in order to reach its goal.
From Porter’s point of view, there are three main strategies:
-cost leadership (being cheaper)
-differentiation (being different)
-focus (being better)
Cost\/price leadership
In order to pursue cost leadership, companies have to produce the product or service at?
the lowest costs in the market so as to provide the lowest prices to the customers.
Cost leadership can be reached by:
==Low purchasing costs: the more a company purchases from a supplier, the more pressure they can exert on the supplier and the purchase prices.
==Economies of scale: the more a product or service is produced by a company, the more the product or service improves. This is called economies of scale as failure rates and costs go down.
==Experience: the more experience an organization gains, the better it gets at anticipating market fluctuations and reacting to them. By analyzing accumulated experience, companies can look to optimize internal processes and save costs.
Case study: ALDI
One example of a successful implementation of the cost\/price leadership strategy is the retailer ALDI.
ALDI pursues several principles, the main being to guarantee low prices to its customers. To drive down purchasing costs, the company has an international purchasing department, negotiates low transportation costs, and offers a limited product range in its stores.
Further cost savings are achieved through?
very simple,
sparse layout of their stores and their cheap location at the periphery of cities and towns, where the rent is affordable.
ALDI consistently strives to?
optimize and simplify internal processes.
It has neither a ————————nor a ———unit. Instead of forecasting, ALDI runs its business on ———————————–.
controlling
staff
current data
Differentiation
A differentiation strategy forces organizations to?
offer something unique.
This unique product or service has to be of such value to?
the customers that they are willing to pay a higher price for the product or service.
One advantage of this strategy is that companies create a unique market position, which allows?
them to operate with high profit margins due to higher prices charged.
Disadvantages are the relatively high investment costs to build ?
an image and brand in the market and the risk that others will copy the strategy and the company will lose its unique position.
Case study: Southwest Airlines
Southwest Airlines is one of the most successful airlines in the US. Southwest excels due to ?
its service attitude and punctuality.
Even though the airplanes are equipped with just one seating class,
no seating reservations are possible, and only snacks are served during flights, the service is well received by the customers as all Southwest staff are trained to be extremely friendly.
Punctuality is excellent as the turnaround time for the airplanes was drastically?’
reduced via a major company initiative.
This strategy has rewarded Southwest Airlines with a ——————————— sheet. It has created a unique position in the crowded ——————————– and differentiated itself from the competition.
positive balance
US airline market
The focus strategy
Companies pursuing a focus strategy direct their attention towards?
a small market segment or niche and offer a product or service that is designed specifically for this small group of customers.
The position in a small market niche protects?
the organization from the competition.
It can concentrate fully on its customers and charge ?
higher prices as it offers high quality products and services.
The disadvantages of this strategy are:
that growth may be limited and changes in the market will impact sales of these high-end products or services.
Bhutan is an example of?
a focus strategy. In 2008, the parliament decided to increase the tariff to $250 per visitor.
The decision is in line with?
the mission and structure of the country.
It also reflects the unique position the country holds in the —————–industry.
tourism
As mentioned earlier, this position also involves some risks;
if there is a worldwide recession,
the number of travellers to Bhutan could drop drastically given the high costs of visiting the country.
Generic strategies can be ————————.
combined
Southwest Airlines does not just excel by reason of its service and punctuality but also?
by offering low prices.
Bhutan also combines strategies by setting itself?
apart from other tourist destinations, offering superior service and focusing on a very specific market segment.
Different SBUs in a corporation can pursue different generic strategies, depending on?
their cost structure and the markets they serve.
Lufthansa has a high quality image and is positioned in?
the high-end segment of air travel.
Nevertheless, the company decided to enter the low cost air travel market when?
buying the charter airline Germanwings.
Moreover, technological developments influence?
the cost efficiency of companies and the quality of the products and services offered.
This could change the generic strategy of an organization.
