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Business-Level Strategy
Business-level strategyBusiness-level strategy: an integrated and: an integrated and
coordinated set of commitments and actions thecoordinated set of commitments and actions the
firm uses to gain a competitive advantage byfirm uses to gain a competitive advantage byexploiting core competencies in specific productexploiting core competencies in specific product
marketsmarkets
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The Central Role of Customers
In selecting a business-level strategy,In selecting a business-level strategy,
the firm determinesthe firm determines
1.1. whowho it will serveit will serve
2.2. whatwhatneeds those target customersneeds those target customers
have that it will satisfyhave that it will satisfy
3.3. howhowthose needs will be satisfiedthose needs will be satisfied
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Cost Leadership Strategy
An integrated set of actions designed toAn integrated set of actions designed to
produce or deliver goods or services at theproduce or deliver goods or services at the
lowest costlowest cost,, relative to competitorsrelative to competitors with featureswith featuresthat are acceptable to customersthat are acceptable to customers
relatively standardized productsrelatively standardized products
features acceptable to many customersfeatures acceptable to many customers
lowest competitive pricelowest competitive price
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Cost Leadership Strategy
Cost saving actions required by this strategy:Cost saving actions required by this strategy:
building efficient scale facilities
tightly controlling production costs andoverhead
minimizing costs of sales, R&D and service
building efficient manufacturing facilities
monitoring costs of activities provided byoutsiders
simplifying production processes
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Differentiation Strategy
An integrated set of actions designed by a firmAn integrated set of actions designed by a firmto produce or deliver goods or services (at anto produce or deliver goods or services (at anacceptable cost) that customers perceive asacceptable cost) that customers perceive asbeing different in ways that are important tobeing different in ways that are important tothemthem
price for product can exceed what the firms targetprice for product can exceed what the firms targetcustomers are willing to paycustomers are willing to pay
nonstandardized productsnonstandardized products
customers value differentiated features more thancustomers value differentiated features more thanthey value low costthey value low cost
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Differentiation Strategy
Value provided byValue provided by unique features and valueunique features and value
characteristicscharacteristics
Command premium priceCommand premium price High customer serviceHigh customer service
Superior qualitySuperior quality
Prestige or exclusivityPrestige or exclusivity Rapid innovationRapid innovation
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Differentiation Strategy
Differentiation actions required by thisDifferentiation actions required by this
strategy:strategy:
developing new systems and processesdeveloping new systems and processes shaping perceptions through advertisingshaping perceptions through advertising
quality focusquality focus
capability in R&Dcapability in R&D maximize human resource contributionsmaximize human resource contributions
through low turnover and high motivationthrough low turnover and high motivation
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Focused Business-Level
StrategiesA focus strategy must exploit a narrowA focus strategy must exploit a narrowtargets differences from the balance of thetargets differences from the balance of theindustry by:industry by:
isolating a particular buyer groupisolating a particular buyer group
isolating a unique segment of a productisolating a unique segment of a productlineline
concentrating on a particular geographicconcentrating on a particular geographicmarketmarket
finding their nichefinding their niche
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Advantages of Integrated Strategy
A firm that successfully uses an integratedA firm that successfully uses an integrated
cost leadership/differentiation strategy shouldcost leadership/differentiation strategy should
be in a better position to:be in a better position to: adapt quickly to environmental changesadapt quickly to environmental changes
learn new skills and technologies morelearn new skills and technologies more
quicklyquickly
effectively leverage its core competencieseffectively leverage its core competencies
while competing against its rivalswhile competing against its rivals
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Benefits of Integrated Strategy
Successful firms using this strategy haveSuccessful firms using this strategy have
above-average returnsabove-average returns
Firm offers two types of values to customersFirm offers two types of values to customers some differentiated features (but less thansome differentiated features (but less than
a true differentiated firm)a true differentiated firm)
relatively low cost (but not as low as therelatively low cost (but not as low as thecost leaders price)cost leaders price)
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Corporate-Level Strategy
What is Corporate Level Strategy?
Definition: Action taken to gain a
competitive advantage through the
selection and management of a mix of
businesses competing in several
industries or product markets.
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1. What businesses should the corporation1. What businesses should the corporation
be in?be in?
2. How should the corporate office manage2. How should the corporate office managethe array of business units?the array of business units?
Corporate StrategyCorporate Strategy is what makes the corporate wholeis what makes the corporate whole
add up to more than the sum of its business unit partsadd up to more than the sum of its business unit parts
Key Questions of Corporate StrategyKey Questions of Corporate Strategy
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Levels and Types of DiversificationLevels and Types of Diversification
Low Levels of DiversificationLow Levels of Diversification
Moderate to High Levels of DiversificationModerate to High Levels of Diversification
Very High Levels of DiversificationVery High Levels of Diversification
Related linked (mixed)Related linked (mixed) < 70% of revenues from dominant< 70% of revenues from dominantbusiness, and only limited links existbusiness, and only limited links exist
AAAA
BBBB CCCC
Single businessSingle business > 95% of revenues from a single> 95% of revenues from a singlebusiness unitbusiness unit
AAAA
Dominant businessDominant business Between 70% and 95% ofBetween 70% and 95% ofrevenues from a single businessrevenues from a single businessunitunit
BBBB
AAAA
Unrelated-DiversifiedUnrelated-Diversified Business units not closely relatedBusiness units not closely related
AAAA
BBBB CCCC
< 70% of revenues from dominant< 70% of revenues from dominantbusiness; all businesses share product,business; all businesses share product,technological and distribution linkagestechnological and distribution linkages
Related constrainedRelated constrainedAAAA
BBBB CCCC
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Strategic Leadership involves:Strategic Leadership involves:
Strategic LeadershipStrategic Leadership
The ability to anticipate, envision, maintain flexibilityThe ability to anticipate, envision, maintain flexibilityand empower others to create strategic changeand empower others to create strategic change
Multi-functional work that involves workingMulti-functional work that involves workingthrough othersthrough others
Consideration of the entire enterprise rather thanConsideration of the entire enterprise rather thanjust a sub-unitjust a sub-unit
A managerial frame of referenceA managerial frame of reference
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Strategic CompetitivenessStrategic Competitiveness
Above-Average ReturnsAbove-Average Returns
Strategic CompetitivenessStrategic Competitiveness
Above-Average ReturnsAbove-Average Returns
EffectiveEffectiveStrategic LeadershipStrategic Leadership
EffectiveEffectiveStrategic LeadershipStrategic Leadership
influenceinfluence
shapes the formulation of
andandStrategic IntentStrategic IntentStrategic IntentStrategic Intent Strategic MissionStrategic MissionStrategic MissionStrategic Mission
SuccessfulSuccessfulStrategic ActionsStrategic Actions
SuccessfulSuccessfulStrategic ActionsStrategic Actions
FormulationFormulationof Strategiesof StrategiesFormulationFormulationof Strategiesof Strategies ImplementationImplementationof Strategiesof StrategiesImplementationImplementationof Strategiesof Strategies
Strategic LeadershipStrategic Leadershipand the Strategicand the StrategicManagement ProcessManagement Process
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Managerial DiscretionManagerial DiscretionManagerial DiscretionManagerial Discretion
External EnvironmentExternal Environment
Industry StructureIndustry StructureRate of market growthRate of market growth
# and type of competitors# and type of competitors
Political/Legal constraintsPolitical/Legal constraints
Product differentiationProduct differentiation
Factors Affecting Managerial DiscretionFactors Affecting Managerial Discretion
Interpersonal skillsInterpersonal skills
Tolerance for ambiguityTolerance for ambiguityCommitment to the firmCommitment to the firm
Aspiration levelAspiration levelSelf-confidenceSelf-confidence
Characteristics of the ManagerCharacteristics of the Manager
Employee interactionEmployee interaction
OrganizationalOrganizational
CharacteristicsCharacteristics
Resource availabilityResource availability
Size and ageSize and ageCultureCulture
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Exercise of Effective Strategic
LeadershipEstablishingEstablishing
balancedbalanced
organizationalorganizationalcontrolscontrols
EmphasizingEmphasizingethicalethical
practicepractice
DevelopingDevelopinghumanhuman
capitalcapital
Exploiting andExploiting and
maintainingmaintaining
corecorecompetenciescompetencies
SustainingSustaining
an effectivean effective
organizationalorganizational
cultureculture
DeterminingDetermining
strategicstrategic
directiondirection
Effective StrategicEffective Strategic
LeadershipLeadership
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Determining Strategic Direction
Strategic direction means the development ofStrategic direction means the development of
a long-term vision of a firms strategic intenta long-term vision of a firms strategic intent
A charismatic leader can help achieveA charismatic leader can help achieve
strategic intentstrategic intent
It is important not to lose sight of the strengthsIt is important not to lose sight of the strengths
of the organization when making changesof the organization when making changes
required by a new strategic directionrequired by a new strategic direction Executives must structure the firm effectivelyExecutives must structure the firm effectively
to help achieve the visionto help achieve the vision
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Exploiting and Maintaining Core
Competencies Core competencies are resources andCore competencies are resources and
capabilities that serve as a source ofcapabilities that serve as a source ofcompetitive advantage for a firm over its rivalscompetitive advantage for a firm over its rivals
Strategic leaders must verify that the firmsStrategic leaders must verify that the firmscompetencies are emphasized in strategycompetencies are emphasized in strategyimplementation effortsimplementation efforts
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Exploiting and Maintaining Core
Competencies In many large firms, and certainly in related-In many large firms, and certainly in related-
diversified ones, core competencies arediversified ones, core competencies areexploited effectively when they are developedexploited effectively when they are developedand applied across different organizationaland applied across different organizationalunitsunits
Core competencies cannot be developed orCore competencies cannot be developed orexploited effectively without developing theexploited effectively without developing thecapabilities of human capitalcapabilities of human capital
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Developing Human Capital
Human capital refers to the knowledge and skills ofHuman capital refers to the knowledge and skills ofthe firms entire workforcethe firms entire workforce
Employees are viewed as a capital resource thatEmployees are viewed as a capital resource thatrequires investmentrequires investment
No strategy can be effective unless the firm is able toNo strategy can be effective unless the firm is able todevelop and retain good people to carry it outdevelop and retain good people to carry it out
The effective development and management of theThe effective development and management of thefirms human capital may be the primary determinantfirms human capital may be the primary determinant
of a firms ability to formulate and implementof a firms ability to formulate and implementstrategies successfullystrategies successfully
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Sustaining an Effective
Organizational Culture An organizational culture consists of aAn organizational culture consists of a
complex set of ideologies, symbols, and corecomplex set of ideologies, symbols, and corevalues that is shared throughout the firm andvalues that is shared throughout the firm andinfluences the way it conducts businessinfluences the way it conducts business
Shaping the firms culture is a central task ofShaping the firms culture is a central task ofeffective strategic leadershipeffective strategic leadership
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Sustaining an Effective
Organizational Culture An appropriate organizational cultureAn appropriate organizational culture
encourages the development of anencourages the development of anentrepreneurial orientation among employeesentrepreneurial orientation among employeesand an ability to change the culture asand an ability to change the culture asnecessarynecessary
Reengineering can facilitate this processReengineering can facilitate this process
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The benefits ofThe benefits ofbusiness reengineeringbusiness reengineeringareare
maximized when employees believe that:maximized when employees believe that:
Changing Culture and ReengineeringChanging Culture and Reengineering
Every job in the company is essential andimportant
All employees must create value through theirwork
Constant learning is a vital part of every personsjob
Teamwork is essential to implementationsuccess
Problems are solved only when teams acceptthe responsibility for the solution.
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Emphasizing Ethical Practices
Ethical practices increase the effectiveness ofEthical practices increase the effectiveness ofstrategy implementation processesstrategy implementation processes
Ethical companies encourage and enableEthical companies encourage and enablepeople at all organizational levels to exercisepeople at all organizational levels to exerciseethical judgmentethical judgment
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Emphasizing Ethical Practices
To properly influence employee judgment andTo properly influence employee judgment andbehavior, ethical practices must shape thebehavior, ethical practices must shape thefirms decision-making process and be anfirms decision-making process and be anintegral part of an organizations cultureintegral part of an organizations culture
Leaders set the tone for creating anLeaders set the tone for creating anenvironment of mutual respect, honesty andenvironment of mutual respect, honesty andethical practices among employeesethical practices among employees
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Establishing Balanced
Organizational Controls Organizational controls provide theOrganizational controls provide the
parameters within which strategies are to beparameters within which strategies are to be
implemented and corrective actions takenimplemented and corrective actions taken Financial controls are often emphasized inFinancial controls are often emphasized in
large corporations and focus on short-termlarge corporations and focus on short-term
financial outcomesfinancial outcomes
Strategic control focuses on the content ofStrategic control focuses on the content of
strategic actions, rather than their outcomesstrategic actions, rather than their outcomes
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Establishing Balanced
Organizational Controls Successful strategic leaders balance strategicSuccessful strategic leaders balance strategic
control and financial control (they do notcontrol and financial control (they do noteliminate financial control) with the intent ofeliminate financial control) with the intent ofachieving more positive long-term returnsachieving more positive long-term returns
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Why do a situation analysis?
Situation analysis concentrates on
generating solid answers to a well-
defined set of strategic questions and
using these answers to:
Appraise the companys strategic situation
and business position
Craft a suitable strategy
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Situation analysis focuses on:
EXTERNAL FACTORS the firms
MACRO-environment (industry and
competitive conditions)
INTERNAL FACTORS the firms
immediate MICRO-environment (itsown internal situation and
competitive position)
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The Key Questions in
Company Situation Analysis1. How well is the companys present strategy
working?
2. What are the companys strengths,weaknesses, opportunities, and threats?
3. Are the companys prices and costscompetitive?
4. How strong is the companys competitiveposition?
5. What strategic issues does the company face?
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SWOT Analysis
SWOT represents the first letter inStrengths, Weaknesses, Opportunities,and Threats.
SWOT analysis Involves sizing-up a companys INTERNAL
strengths and weaknesses and itsEXTERNAL opportunities and threats
Is an easy to use tool for getting a quickoverview of a companys strategic situation
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Why SWOT Analysis is Important
It is the basis for matching strategy to the
companys situation
To its internal strengths and weaknesses
To its external threats and opportunities
A winning strategy must always fit the
companys situation.
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Strengths
What is a company Strength?
Something a company is good at doing or
a characteristic that gives it an importantcapability.
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Weaknesses
What are company weaknesses?
Something a company lacks or does poorly
(in comparison to others) or a conditionthat puts it at a disadvantage.
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Opportunities
What are company opportunities?
Those that offer important avenues for
profitable growth, those where a companyhas the most potential for competitive
advantage, and those which the company
has the financial resources to pursue.
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Threats
What are company Threats?
Certain factors in a companys external
environment that pose a threat to its well-being.
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Some questions to consider once the
SWOT listings have been compiled are: Does the company have internal strengths or
core competencies an attractive strategy can
be built around? Do company weaknesses make a company
vulnerable and does it disqualify a company
from pursuing industry opportunities?
Which weaknesses does a company need to
correct?
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Which opportunities does the company have
the skills and resources to pursue with a real
chance for success? Which opportunities arethe best from the companys standpoint?
(Remember: Opportunity without the means
to capture is only an illusion.)
What external threats should management be
worried most about and what strategic moves
need to be made to craft a good defense?
Some questions to consider once the
SWOT listings have been compiled are: