Description
A business level strategy refers to a set of actions a business organization intends to undertake in order to improve on its competitiveness, service delivery and customer relations. It involves identification of competencies in core areas in order to gain comparative advantage over other firms.
Ch4-1
Strategic Inputs
Chapter 2 External Environment Strategic Intent Chapter 3 Internal Environment Strategic Mission
The Strategic Management Process
Strategy Implementation
Chapter 10 Corporate Governance
Chapter 12 Strategic Leadership Chapter 11 Structure & Control Chapter 13
Entrepreneurship
Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 8 International Strategy Chapter 6 Corporate-Level Strategy Chapter 9 Cooperative Strategies
Strategic Actions
Chapter 7 Acquisitions & Restructuring
& Innovation
Outcomes
Strategic
Feedback
Strategic Competitiveness Above Average Returns
Ch4-2
Chapter 2
External Environment
Chapter 3
Sustainable Competitive Advantage
Internal Environment
Chapter 4 Business Level Strategy
Ch4-3
Core Competenc y
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Ch4-4
Core Competency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Strateg y
An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Ch4-5
Core Competency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Strategy
An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Business Level Strategy
Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.
Ch4-6
Basis for Customer Segmentation
Consumer Markets
1. Demographic factors (age, income, sex, etc.) 2. Socioeconomic factors (social class, stage in the family life cycle) 3. Geographic factors (culture, region or country differences) 4. Psychological factors (lifestyle, personality traits) 5. Consumption patterns (heavy, moderate, and light users) 6. Perceptual factors (benefit segmentation, perceptual mapping) 7. Brand loyalty patterns
Ch4-7
Basis for Customer Segmentation
Industrial Markets
1. End use segments (identified by SIC code)
2. Product segments (based on technological differences or production economics)
3. Geographic segments (defined by boundaries between countries or by regional differences within them) 4. Common buying factor segments (cut across product/market and geographic segments) 5. Customer size segments
Ch4-8
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Focused Low Cost
Focused Differentiation
Ch4-9
Cost Leadership Business Level Strategy
Key Criteria:
Relatively standardized products Features acceptable to many customers Lowest competitive price
Ch4-10
Cost Leadership Business Level Strategy
Requirements:
Constant effort to reduce costs through: Building efficient scale facilities Tight control of production costs and overhead Minimizing costs of sales, R&D and service State of the art manufacturing facilities Monitoring costs of activities provided by outsiders Simplification of processes
Ch4-11
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Firm Infrastructure
Support Activities
Human Resource Management Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Ch4-12
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Ch4-13
Value Creating Activities Common to a Inbound Cost Leadership Business Level Strategy Logistics
Cost Effective MIS Systems
Firm Infrastructure Highly Efficient
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Systems to Link Effective Training Programs to Improve Worker Human Resource Management Suppliers’ Efficiency and Effectiveness Products with the Easy-to-Use Manufacturing Investments in Technology in order Firm’s Production Technologies to Reduce Costs Associated with Technological Development Manufacturing Processes Processes
Consistent Policies to Reduce Turnover Costs
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Located in Close
Support Activities
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Inbound Logistics Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers
Proximity with Small, Highly Sales Suppliers Trained Force
Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Ch4-14
Value Creating Activities Common to a Operations Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm
Simplified Planning Practices to Reduce Planning Costs
Support Activities
Efficient Plant Scale to Minimize Infrastructure Mfg. Costs
Relatively Few Management Layers to Reduce Overhead
Consistent Policies to Reduce Turnover Costs
Human Resource Management Timing of Asset Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Purchases
Policy Choice of Systems and Procedures to find the Frequent Evaluation Processes to Plant Technology Lowest Cost Products to Purchase Procurement
Raw Materials Monitor Suppliers’ Performances
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Inbound Logistics
Force
Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
National Scale Advertising
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Organizational Small, Highly Effective Product Trained Sales Learning Installations to
Ch4-15
Value Creating Activities Common to a Outbound Cost Leadership Business Level Strategy Logistics
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource ManagementSelection of Low Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Delivery Schedule that Reduces Costs Cost Transport Carriers
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Efficient Order Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Sizes
Operations
Outbound Outbound Logistics Logistics
and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Effective Product Interrelationships Installations to Reduce Frequency with Sister Units
Ch4-16
Value Creating Activities Common to a Marketing Cost Leadership Business Level Strategy & Sales
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Small, Highly Trained Sales Force Products Priced to Generate Sales Volume National Scale Advertising
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Ch4-17
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Effective Product Effective Training Programs Installations to Consistent Policies to to Improve Worker Human ResourceEfficiency Management Reduce Turnover Costs Reduce and Effectiveness Recalls Easy-to-Use Manufacturing Investments in Technology in order
Technologies to Reduce Costs Associated with Technological Development Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Service
Support Activities
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Service Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Ch4-18
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Procurement Monitor Suppliers’ Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Operations
Outbound Logistics
Procurement
Interrelationships with Sister Units
Systems and Procedures to Find Located in Close Policy Choice of Efficient Order the Lowest Products to Proximity with Cost Plant Technology Sizes Suppliers Purchase Raw Materials
Organizational Learning
Frequent Evaluation National Scale Processes to Monitor Advertising Suppliers’ Performances
Ch4-19
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Operations
Outbound Logistics
Easy-to-Use Manufacturing Technologies
Located in Close Proximity with Suppliers
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Technological Development
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Ch4-20
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Improve Worker Human Resourceto Management Efficiency and Effectiveness
Effective Training Programs
Easy-to-Use Manufacturing Technologies
Technological Development
Delivery Schedule Small, Highly that Reduces Trained Sales Costs Force
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Frequent Evaluation Processes to Monitor Suppliers’ Performances
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Human Procurement Resource Management
Operations Outbound Logistics Marketing & Sales Service
Effective Product Effective Training Programs Installations to to Improve Worker Reduce Frequency and Severity Efficiency and Effectiveness Selection of Low Products Priced to of Recalls Cost Transport Carriers Generate Sales Volume National Scale Advertising
Products with the Costs Firm’s Production Timing of Asset Processes Purchases Located in Close Proximity with Suppliers
Inbound Logistics
Highly Efficient Efficientto Plant Consistent Policies Systems to Link Scale to Minimize Reduce Turnover Costs Suppliers’ Manufacturing
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Ch4-21
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development Firm Infrastructure
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Systems to Link Suppliers’ Products with the Firm’s Production Processes
Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers
Trained Sales Force
Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Service
CostSystems Effective Simplified Planning Relatively Few and Procedures to find the Frequent Evaluation Processes to Cost Products to Purchase Procurement Suppliers’ Performances MIS Lowest Systems Practices Monitor to Reduce Management Layers Raw Materials Planning Costs Overhead Highly Efficient Efficient Plant Delivery Schedule Small, Highly to Reduce Effective Product
Ch4-22
How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain as needed
Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales New raw material Forward integration Backward integration Change location relative to suppliers or buyers
Ch4-23
Reconfiguring the Value Chain of Iowa Beef Packers (IBP)
Old Way:
Ranch Cattle Ship “on the Hoof” to Rail Center (Chicago) Slaughter into sides of beef “Boxed Cuts” at Markets
New New Way: Way
Locate large automated plants near ranches
Process into “Boxed Cuts” at plants
Ship cuts already “Boxed” to Markets
Save on shipping and cattle weight loss Utilize cheaper non-union rural labor
Ch4-24
Choices That Drive Costs
Economies of scale Product features
Asset utilization
Capacity utilization pattern - Seasonal, cyclical Interrelationships - Order processing and distribution
Performance
Mix & variety of products Service levels Small vs. large buyers Process technology Wage levels Product features Hiring, training, motivation
Ch4-25
Value chain linkages - Advertising & Sales - Logistics & Operations
Three Key Questions
1. How can an activity be performed differently or even eliminated?
2. How can a group of linked value activities be regrouped or reordered? 3. How might coalitions with other firms lower or eliminate costs?
Gallo sold wine through grocery stores rather than liquor stores because they were more efficient distributors
Ch4-26
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Ch4-27
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can frighten off New Entrants due to the need to:
* Enter at large scale to be Cost Competitive * Take time to move down the “Learning Curve”
Ch4-28
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”
Can mitigate Buyer Power by:
* Driving prices far below competitors may cause exit and shift power back to firm
Bargaining Power of Buyers
Ch4-29
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
of Well positioned relative toThreat New Substitutes in order to: Entrants * Make investments to create
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”
*
substitutes first Buy patents developed by potential substitutes
value position
* Lower prices to maintain
Bargaining Power of Buyers
Can mitigate Buyer Power by: Driving prices far below competitors which may cause exit and shift power back to firm
Ch4-30
Threat of Substitute Products
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”
Bargaining Power of Suppliers
Can mitigate Supplier Power by:
* Low cost position makes them better able to absorb cost increases Well positioned relative to Can mitigate Buyer Power by:
Substitutes in order to:
Driving prices far below large purchases * More likely to make very Threat of competitors which may Can buy patents developed by * which reduces chance Substitute of supplier power cause exit and shift power * Make investments to create substitutes potential substitutes * Lower prices to maintain value position
Bargaining Power of Buyers
Products
back to firm
Ch4-31
Effective Cost Leaders can remain profitable even when Competitors avoid the Five Forces appear unattractive price wars with Cost Leaders, which Can mitigate Supplier Power by: Can frighten off New Entrants due Threat of to the need to: creates higher profits * Low cost position makes them Enter at Large Scale to be New * better able to absorb cost increases Cost Competitive for entire industry Entrants * More likely to make very large
purchases which reduces chance of supplier power * Take time to move down the “Learning Curve”
Bargaining Power of Suppliers
Well positioned relative to Substitutes in order to:
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Can mitigate Buyer Power by:
* Make investments to create substitutes * Can buy patents developed by potential substitutes * Lower prices to maintain value position
Threat of Substitute Products
Driving prices far below competitors which may cause exit and shift power back to firm
Ch4-32
Major Risks of Cost Leadership Business Level Strategy
Dramatic technological change could take away your cost advantage
Competitors may learn how to imitate Value Chain Focus on efficiency could cause Cost Leader to overlook changes in customer preferences
Ch4-33
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Narrow Target Market
Ch4-34
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Ch4-35
Differentiation Business Level Strategy
Key Criteria:
Value provided by unique features and value characteristics Command premium price High customer service Superior quality Prestige or exclusivity Rapid innovation
Ch4-36
Differentiation Business Level Strategy
Requirements:
Constant effort to differentiate products through: Developing new systems and processes Shaping perceptions through advertising Quality focus
Capability in R&D
Maximize Human Resource contributions through low turnover and high motivation
Ch4-37
Value Creating Activities Common to a Differentiation Business Level Strategy
Firm Infrastructure
Support Activities
Human Resource Management Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Ch4-38
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Purchase of highest quality Procurement replacement parts
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-39
Value Creating Activities Common to a Inbound Differentiation Business Level Strategy Logistics
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure Superior handling
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products
of incoming raw Superior personnel materials to Human Resource Management training minimize damage Coordination among R&D, Investments in technologies that will Strong and improve the produce capability in product development and allow the firm to consistently Technological Development marketing highly differentiated products basic research quality of the final Systems and procedures used to find Purchase of highest quality product Procurement
Compensation programs intended to encourage worker creativity and productivity the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product replacement parts
Support Activities
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Inbound Logistics Logistics
Service
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-40
Value Creating Activities Common to a Operations Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm
Support Activities
Compensation programs intended to encourage worker creativity and productivity
Rapid responses to Coordination among R&D, Investments in technologies that will Strong customers unique product development and allow the firm to consistently produce capability in Technological Development marketing highly differentiated manufacturing products basic research specifications Systems and procedures used to find Purchase of highest quality
the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
rather than objective personnel Human Resource Management performance measures training
Consistent manufacturing of Infrastructure attractive products Extensive use of subjective Superior
A companywide emphasis on producing high quality products
Procurement replacement parts
Operations Outbound Logistics
Accurate and responsive order processing procedures
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Consistent manufacturing of attractive products
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-41
Value Creating Activities Common to a Outbound Differentiation Business Level Strategy Logistics
Highly Developed Information Systems to better understand customers’ purchasing preferences
Support Activities
Accurate and responsive order Compensation programs Extensive use of subjective Superior intended to encourage worker rather than objective personnel processing Human Resource Management creativity and productivity performance measures training procedures
Coordination among R&D, product development and marketing
Firm Infrastructure
A companywide emphasis on producing high quality products
Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Purchase of highest quality Procurement replacement parts Accurate and responsive order processing procedures
Operations
Outbound Outbound Logistics Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Rapid and timely product deliveries to customers
Strong capability in basic research
Ch4-42
Value Creating Activities Common to a Marketing Differentiation Business Level Strategy & Sales
Highly Developed Information Systems to better understand customers’ purchasing preferences
Strong Coordination among functions in Compensation programs Extensive use of subjective Superior intended to encourage worker rather than objective personnel R&D, Marketing Human Resource Management creativity and productivity performance measures training and Product Coordination among R&D, Investments in technologies that will Strong Development product development and allow the firm to consistently produce capability in
Firm Infrastructure
A companywide emphasis on producing high quality products
Support Activities
marketing
Technological Development highly differentiated products
Consistent manufacturing of attractive products Accurate and responsive order processing procedures
basic research
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Purchase of highest quality Procurement replacement parts
Extensive personal relationships with buyers Premium Pricing
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales & Sales
Inbound Logistics
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-43
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Complete field Compensation programs Extensive use of subjective Superior stocking of intended to encourage worker rather than objective personnel Human Resource Management replacement creativity and productivity performance measures training Coordination among R&D, Investments in technologies that willparts Strong
product development and marketing allow the firm to consistently produce Technological Development highly differentiated products Purchase of highest quality Procurement replacement parts capability in basic research Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Firm Infrastructure
A companywide emphasis on producing high quality products
Service
Support Activities
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service Service
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-44
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Purchase of highest quality Procurement replacement parts Procurement
Operations
Outbound Logistics
Procurement
Systems and procedures to customers unique used to find the highest manufacturing specifications quality raw materials
Rapid responses
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Pricing
Purchase of highest quality replacement parts Premium
Marketing & Sales
Inbound Logistics
Located in Close Proximity with Suppliers
Ch4-45
Primary Activities
Service
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Purchase of highest quality Procurement replacement parts Consistent manufacturing of attractive products Accurate and responsive order processing procedures Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Operations
Outbound Logistics
Coordination among Investments in technolR&D, marketing and ogies to produce highly Rapid responses Extensive product development differentiated products Rapid and timely to customers personal
unique manufacturing specifications product deliveries relationships to customers with buyers Premium Pricing
Marketing & Sales
Inbound Logistics
Technological Development
Primary Activities
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Strong capability in basic research
Ch4-46
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products Purchase of highest quality replacement parts
Systems and procedures used to find the highest quality raw materials
Human Procurement Resource Management
Operations Outbound Logistics
Product Development
minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Compensation programs Superior Consistent handling of manufacturing which encourage worker of incoming raw attractive materials and to products creativity productivity
Accurate and responsive order processing procedures
Extensive useCoordinof Strong Complete Superior field ation among stocking of subjective performance personnel functions in R&D, replacement parts measuresMarketing and training
Ch4-47
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development Firm Infrastructure
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
handling of incoming raw materials to minimize damage and improve the quality of the final product
manufacturing of responsive order attractive processing products procedures
ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Service
Highly developed Information A companywide emphasis Systems and procedures used to find Purchase of highest quality the highest rawProcurement materials replacement parts Systems to quality better understand on producing high quality customers’ purchasing preferences products Strong Coordin- Complete field Superior Consistent Accurate and
Ch4-48
Differentiation Business Level Strategy
Effectiveness with Differentiation grows out of Value Chain activities
Examples:
Heineken beer Steinway pianos Mercedes Benz autos Intel microprocessors Caterpillar tractors
Raw materials Raw materials & Workmanship Technology and Workmanship Technological superiority
Service buyers’ needs quickly anywhere in the world
Ch4-49
Create Value with Differentiation by:
Lowering Buyers’ Costs Raising Buyers’ Performance
Creating Sustainability through:
• Creating barriers by perceptions of uniqueness • Creating switching costs through differentiation
Ch4-50
Drivers of Differentiation
Examples:
Unique product features
Unique product performance Exceptional services New technologies Quality of inputs Exceptional skill or experience Detailed information
Ch4-51
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Ch4-52
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * New products must surpass proven products * Or be equal to performance at lower prices
Ch4-53
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices
Can mitigate Buyer Power because: Well differentiated products reduce customer sensitivity to price increases
Bargaining Power of Buyers
Ch4-54
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices
Well positioned relative to Substitutes because:
* Brand loyalty tends to reduce new product trial and brand switching
Threat of Substitute Products
Bargaining Power of Suppliers
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Ch4-55
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices
Bargaining Power of Suppliers
Can mitigate Supplier Power by: to Bargaining * Absorbing price increases due Power of higher margins
Well positioned relative to Substitutes because:
Suppliers
* Passing on higher supplier prices loyalty tends to * Brand because buyers are brand loyal reduce new product trial
and brand switching
Threat of Substitute Products
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Ch4-56
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Can mitigate Supplier Power by: * * Absorbing price increases due to higher margins Passing on higher supplier prices because buyers are brand loyal
Threat of New Entrants
Can fend off New Entrants because:
Brand loyalty New products must * surpass proven products overcomes much * Or be equal to performance price competition at lower prices
Bargaining Power of Buyers
Rivalry Among Competing Firms in Industry
Bargaining Power of Suppliers
Well positioned relative to Substitutes because:
*
Brand loyalty tends to reduce new product trial and brand switching
Threat of Substitute Products
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Ch4-57
Major Risks of a Differentiation Business Level Strategy
Customers may decide that the cost of “uniqueness” is too great
Competitors may learn how to imitate Value Chain
The means of uniqueness may no longer be valued by customers
Ch4-58
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Ch4-59
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Focused Low Cost
Focused Differentiation
Ch4-60
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Large firms may overlook small niches
Firm may lack resources to compete industry-wide
May be able to serve a narrow market segment more effectively than industrywide competitors Focus can allow you to direct resources to certain value chain activities to build competitive advantage
Ch4-61
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: May be able to retrofit old factories to keep costs down Minimize R&D costs by copying innovators
Examples:
Bang & Olufsen
Snap-on tools Iams Company
Upscale electronic components
High quality mechanics’ tools Premium pet foods
Ch4-62
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Focused Differentiators may thrive by selecting a small market that is underserved by large players
Example:
Custom manufacturers of parts for Harley-Davidson motorcycles
Ch4-63
Major Risks Involved With a Focused Differentiation Business Level Strategy
Firm may be “outfocused” by competitors
Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market
Ch4-64
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Narrow Target Market
Cost DifferenLeadership tiation Integrated Low Cost/ Differentiation Focused Focused DifferenLow Cost tiation
Ch4-65
Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may: Adapt more quickly Learn new skills and technologies
Utilize Flexible Manufacturing Systems to create differentiated products at low costs
Leverage core competencies through Information Networks across multiple business units Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
Ch4-66
Integrated Low Cost/Differentiation Strategy
Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy
Ch4-67
Integrated Low Cost/Differentiation Strategy
Southwest Airlines
Low Cost Use a single aircraft model (Boeing 737) Use secondary airports Fly short routes No meals 15 minute turnaround time No reserved seats Differentiation Focus on customer satisfaction High level of employee dedication
New flight services for business travelers (phones and faxes)
Ch4-68
No travel agent reservations
doc_141682505.ppt
A business level strategy refers to a set of actions a business organization intends to undertake in order to improve on its competitiveness, service delivery and customer relations. It involves identification of competencies in core areas in order to gain comparative advantage over other firms.
Ch4-1
Strategic Inputs
Chapter 2 External Environment Strategic Intent Chapter 3 Internal Environment Strategic Mission
The Strategic Management Process
Strategy Implementation
Chapter 10 Corporate Governance
Chapter 12 Strategic Leadership Chapter 11 Structure & Control Chapter 13
Entrepreneurship
Strategy Formulation
Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 8 International Strategy Chapter 6 Corporate-Level Strategy Chapter 9 Cooperative Strategies
Strategic Actions
Chapter 7 Acquisitions & Restructuring
& Innovation
Outcomes
Strategic
Feedback
Strategic Competitiveness Above Average Returns
Ch4-2
Chapter 2
External Environment
Chapter 3
Sustainable Competitive Advantage
Internal Environment
Chapter 4 Business Level Strategy
Ch4-3
Core Competenc y
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Ch4-4
Core Competency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Strateg y
An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Ch4-5
Core Competency
The resources and capabilities that have been determined to be a source of competitive advantage for a firm over its rivals.
Strategy
An integrated and coordinated set of actions taken to exploit core competencies and gain a competitive advantage.
Business Level Strategy
Actions taken to provide value to customers and gain a competitive advantage by exploiting core competencies in specific, individual product markets.
Ch4-6
Basis for Customer Segmentation
Consumer Markets
1. Demographic factors (age, income, sex, etc.) 2. Socioeconomic factors (social class, stage in the family life cycle) 3. Geographic factors (culture, region or country differences) 4. Psychological factors (lifestyle, personality traits) 5. Consumption patterns (heavy, moderate, and light users) 6. Perceptual factors (benefit segmentation, perceptual mapping) 7. Brand loyalty patterns
Ch4-7
Basis for Customer Segmentation
Industrial Markets
1. End use segments (identified by SIC code)
2. Product segments (based on technological differences or production economics)
3. Geographic segments (defined by boundaries between countries or by regional differences within them) 4. Common buying factor segments (cut across product/market and geographic segments) 5. Customer size segments
Ch4-8
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Focused Low Cost
Focused Differentiation
Ch4-9
Cost Leadership Business Level Strategy
Key Criteria:
Relatively standardized products Features acceptable to many customers Lowest competitive price
Ch4-10
Cost Leadership Business Level Strategy
Requirements:
Constant effort to reduce costs through: Building efficient scale facilities Tight control of production costs and overhead Minimizing costs of sales, R&D and service State of the art manufacturing facilities Monitoring costs of activities provided by outsiders Simplification of processes
Ch4-11
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Firm Infrastructure
Support Activities
Human Resource Management Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Ch4-12
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Ch4-13
Value Creating Activities Common to a Inbound Cost Leadership Business Level Strategy Logistics
Cost Effective MIS Systems
Firm Infrastructure Highly Efficient
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Systems to Link Effective Training Programs to Improve Worker Human Resource Management Suppliers’ Efficiency and Effectiveness Products with the Easy-to-Use Manufacturing Investments in Technology in order Firm’s Production Technologies to Reduce Costs Associated with Technological Development Manufacturing Processes Processes
Consistent Policies to Reduce Turnover Costs
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Located in Close
Support Activities
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Inbound Logistics Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers
Proximity with Small, Highly Sales Suppliers Trained Force
Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Ch4-14
Value Creating Activities Common to a Operations Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm
Simplified Planning Practices to Reduce Planning Costs
Support Activities
Efficient Plant Scale to Minimize Infrastructure Mfg. Costs
Relatively Few Management Layers to Reduce Overhead
Consistent Policies to Reduce Turnover Costs
Human Resource Management Timing of Asset Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Purchases
Policy Choice of Systems and Procedures to find the Frequent Evaluation Processes to Plant Technology Lowest Cost Products to Purchase Procurement
Raw Materials Monitor Suppliers’ Performances
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Inbound Logistics
Force
Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
National Scale Advertising
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Organizational Small, Highly Effective Product Trained Sales Learning Installations to
Ch4-15
Value Creating Activities Common to a Outbound Cost Leadership Business Level Strategy Logistics
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource ManagementSelection of Low Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Delivery Schedule that Reduces Costs Cost Transport Carriers
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Efficient Order Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Sizes
Operations
Outbound Outbound Logistics Logistics
and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Effective Product Interrelationships Installations to Reduce Frequency with Sister Units
Ch4-16
Value Creating Activities Common to a Marketing Cost Leadership Business Level Strategy & Sales
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Small, Highly Trained Sales Force Products Priced to Generate Sales Volume National Scale Advertising
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Ch4-17
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Effective Product Effective Training Programs Installations to Consistent Policies to to Improve Worker Human ResourceEfficiency Management Reduce Turnover Costs Reduce and Effectiveness Recalls Easy-to-Use Manufacturing Investments in Technology in order
Technologies to Reduce Costs Associated with Technological Development Manufacturing Processes Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Service
Support Activities
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Service Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers
Small, Highly Trained Sales Force
Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Ch4-18
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Procurement Monitor Suppliers’ Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Operations
Outbound Logistics
Procurement
Interrelationships with Sister Units
Systems and Procedures to Find Located in Close Policy Choice of Efficient Order the Lowest Products to Proximity with Cost Plant Technology Sizes Suppliers Purchase Raw Materials
Organizational Learning
Frequent Evaluation National Scale Processes to Monitor Advertising Suppliers’ Performances
Ch4-19
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development
Efficient Plant Delivery Schedule Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers Small, Highly Trained Sales Force Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers’ Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Operations
Outbound Logistics
Easy-to-Use Manufacturing Technologies
Located in Close Proximity with Suppliers
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Technological Development
Service
Highly Efficient Systems to Link Suppliers’ Products with the Firm’s Production Processes
Ch4-20
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Improve Worker Human Resourceto Management Efficiency and Effectiveness
Effective Training Programs
Easy-to-Use Manufacturing Technologies
Technological Development
Delivery Schedule Small, Highly that Reduces Trained Sales Costs Force
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes Frequent Evaluation Processes to Monitor Suppliers’ Performances
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Human Procurement Resource Management
Operations Outbound Logistics Marketing & Sales Service
Effective Product Effective Training Programs Installations to to Improve Worker Reduce Frequency and Severity Efficiency and Effectiveness Selection of Low Products Priced to of Recalls Cost Transport Carriers Generate Sales Volume National Scale Advertising
Products with the Costs Firm’s Production Timing of Asset Processes Purchases Located in Close Proximity with Suppliers
Inbound Logistics
Highly Efficient Efficientto Plant Consistent Policies Systems to Link Scale to Minimize Reduce Turnover Costs Suppliers’ Manufacturing
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
Interrelationships with Sister Units
Primary Activities
Ch4-21
Value Creating Activities Common to a Cost Leadership Business Level Strategy
Cost Effective MIS Systems
Firm Infrastructure
Simplified Planning Practices to Reduce Planning Costs
Relatively Few Management Layers to Reduce Overhead
Support Activities
Consistent Policies to Reduce Turnover Costs
Human Resource Management Technological Development Firm Infrastructure
Investments in Technology in order to Reduce Costs Associated with Manufacturing Processes
Effective Training Programs to Improve Worker Efficiency and Effectiveness
Easy-to-Use Manufacturing Technologies
Operations
Outbound Logistics
Located in Close Proximity with Suppliers
Policy Choice of Efficient Order Plant Technology Sizes Organizational Learning
National Scale Advertising
Interrelationships with Sister Units
Primary Activities
Marketing & Sales
Inbound Logistics
Systems to Link Suppliers’ Products with the Firm’s Production Processes
Scale to Minimize that Reduces Manufacturing Costs Costs Selection of Low Timing of Asset Cost Transport Purchases Carriers
Trained Sales Force
Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume
Service
CostSystems Effective Simplified Planning Relatively Few and Procedures to find the Frequent Evaluation Processes to Cost Products to Purchase Procurement Suppliers’ Performances MIS Lowest Systems Practices Monitor to Reduce Management Layers Raw Materials Planning Costs Overhead Highly Efficient Efficient Plant Delivery Schedule Small, Highly to Reduce Effective Product
Ch4-22
How to Obtain a Cost Advantage
1. Determine and Control Cost Drivers
2. Reconfigure the Value Chain as needed
Alter production process Change in automation New distribution channel New advertising media Direct sales in place of indirect sales New raw material Forward integration Backward integration Change location relative to suppliers or buyers
Ch4-23
Reconfiguring the Value Chain of Iowa Beef Packers (IBP)
Old Way:
Ranch Cattle Ship “on the Hoof” to Rail Center (Chicago) Slaughter into sides of beef “Boxed Cuts” at Markets
New New Way: Way
Locate large automated plants near ranches
Process into “Boxed Cuts” at plants
Ship cuts already “Boxed” to Markets
Save on shipping and cattle weight loss Utilize cheaper non-union rural labor
Ch4-24
Choices That Drive Costs
Economies of scale Product features
Asset utilization
Capacity utilization pattern - Seasonal, cyclical Interrelationships - Order processing and distribution
Performance
Mix & variety of products Service levels Small vs. large buyers Process technology Wage levels Product features Hiring, training, motivation
Ch4-25
Value chain linkages - Advertising & Sales - Logistics & Operations
Three Key Questions
1. How can an activity be performed differently or even eliminated?
2. How can a group of linked value activities be regrouped or reordered? 3. How might coalitions with other firms lower or eliminate costs?
Gallo sold wine through grocery stores rather than liquor stores because they were more efficient distributors
Ch4-26
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Ch4-27
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can frighten off New Entrants due to the need to:
* Enter at large scale to be Cost Competitive * Take time to move down the “Learning Curve”
Ch4-28
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”
Can mitigate Buyer Power by:
* Driving prices far below competitors may cause exit and shift power back to firm
Bargaining Power of Buyers
Ch4-29
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
of Well positioned relative toThreat New Substitutes in order to: Entrants * Make investments to create
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”
*
substitutes first Buy patents developed by potential substitutes
value position
* Lower prices to maintain
Bargaining Power of Buyers
Can mitigate Buyer Power by: Driving prices far below competitors which may cause exit and shift power back to firm
Ch4-30
Threat of Substitute Products
Effective Cost Leaders can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can frighten off New Entrants due to the need to: * Enter at Large Scale to be Cost Competitive * Take time to move down the “Learning Curve”
Bargaining Power of Suppliers
Can mitigate Supplier Power by:
* Low cost position makes them better able to absorb cost increases Well positioned relative to Can mitigate Buyer Power by:
Substitutes in order to:
Driving prices far below large purchases * More likely to make very Threat of competitors which may Can buy patents developed by * which reduces chance Substitute of supplier power cause exit and shift power * Make investments to create substitutes potential substitutes * Lower prices to maintain value position
Bargaining Power of Buyers
Products
back to firm
Ch4-31
Effective Cost Leaders can remain profitable even when Competitors avoid the Five Forces appear unattractive price wars with Cost Leaders, which Can mitigate Supplier Power by: Can frighten off New Entrants due Threat of to the need to: creates higher profits * Low cost position makes them Enter at Large Scale to be New * better able to absorb cost increases Cost Competitive for entire industry Entrants * More likely to make very large
purchases which reduces chance of supplier power * Take time to move down the “Learning Curve”
Bargaining Power of Suppliers
Well positioned relative to Substitutes in order to:
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Can mitigate Buyer Power by:
* Make investments to create substitutes * Can buy patents developed by potential substitutes * Lower prices to maintain value position
Threat of Substitute Products
Driving prices far below competitors which may cause exit and shift power back to firm
Ch4-32
Major Risks of Cost Leadership Business Level Strategy
Dramatic technological change could take away your cost advantage
Competitors may learn how to imitate Value Chain Focus on efficiency could cause Cost Leader to overlook changes in customer preferences
Ch4-33
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Narrow Target Market
Ch4-34
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Ch4-35
Differentiation Business Level Strategy
Key Criteria:
Value provided by unique features and value characteristics Command premium price High customer service Superior quality Prestige or exclusivity Rapid innovation
Ch4-36
Differentiation Business Level Strategy
Requirements:
Constant effort to differentiate products through: Developing new systems and processes Shaping perceptions through advertising Quality focus
Capability in R&D
Maximize Human Resource contributions through low turnover and high motivation
Ch4-37
Value Creating Activities Common to a Differentiation Business Level Strategy
Firm Infrastructure
Support Activities
Human Resource Management Technological Development
Procurement
Operations Outbound Logistics Marketing & Sales Inbound Logistics Service
Primary Activities
Ch4-38
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Purchase of highest quality Procurement replacement parts
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-39
Value Creating Activities Common to a Inbound Differentiation Business Level Strategy Logistics
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure Superior handling
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products
of incoming raw Superior personnel materials to Human Resource Management training minimize damage Coordination among R&D, Investments in technologies that will Strong and improve the produce capability in product development and allow the firm to consistently Technological Development marketing highly differentiated products basic research quality of the final Systems and procedures used to find Purchase of highest quality product Procurement
Compensation programs intended to encourage worker creativity and productivity the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product replacement parts
Support Activities
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Inbound Logistics Logistics
Service
Consistent manufacturing of attractive products
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-40
Value Creating Activities Common to a Operations Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm
Support Activities
Compensation programs intended to encourage worker creativity and productivity
Rapid responses to Coordination among R&D, Investments in technologies that will Strong customers unique product development and allow the firm to consistently produce capability in Technological Development marketing highly differentiated manufacturing products basic research specifications Systems and procedures used to find Purchase of highest quality
the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
rather than objective personnel Human Resource Management performance measures training
Consistent manufacturing of Infrastructure attractive products Extensive use of subjective Superior
A companywide emphasis on producing high quality products
Procurement replacement parts
Operations Outbound Logistics
Accurate and responsive order processing procedures
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Consistent manufacturing of attractive products
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-41
Value Creating Activities Common to a Outbound Differentiation Business Level Strategy Logistics
Highly Developed Information Systems to better understand customers’ purchasing preferences
Support Activities
Accurate and responsive order Compensation programs Extensive use of subjective Superior intended to encourage worker rather than objective personnel processing Human Resource Management creativity and productivity performance measures training procedures
Coordination among R&D, product development and marketing
Firm Infrastructure
A companywide emphasis on producing high quality products
Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Purchase of highest quality Procurement replacement parts Accurate and responsive order processing procedures
Operations
Outbound Outbound Logistics Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Rapid and timely product deliveries to customers
Strong capability in basic research
Ch4-42
Value Creating Activities Common to a Marketing Differentiation Business Level Strategy & Sales
Highly Developed Information Systems to better understand customers’ purchasing preferences
Strong Coordination among functions in Compensation programs Extensive use of subjective Superior intended to encourage worker rather than objective personnel R&D, Marketing Human Resource Management creativity and productivity performance measures training and Product Coordination among R&D, Investments in technologies that will Strong Development product development and allow the firm to consistently produce capability in
Firm Infrastructure
A companywide emphasis on producing high quality products
Support Activities
marketing
Technological Development highly differentiated products
Consistent manufacturing of attractive products Accurate and responsive order processing procedures
basic research
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Purchase of highest quality Procurement replacement parts
Extensive personal relationships with buyers Premium Pricing
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales & Sales
Inbound Logistics
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-43
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Complete field Compensation programs Extensive use of subjective Superior stocking of intended to encourage worker rather than objective personnel Human Resource Management replacement creativity and productivity performance measures training Coordination among R&D, Investments in technologies that willparts Strong
product development and marketing allow the firm to consistently produce Technological Development highly differentiated products Purchase of highest quality Procurement replacement parts capability in basic research Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Firm Infrastructure
A companywide emphasis on producing high quality products
Service
Support Activities
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service Service
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Ch4-44
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Purchase of highest quality Procurement replacement parts Procurement
Operations
Outbound Logistics
Procurement
Systems and procedures to customers unique used to find the highest manufacturing specifications quality raw materials
Rapid responses
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Pricing
Purchase of highest quality replacement parts Premium
Marketing & Sales
Inbound Logistics
Located in Close Proximity with Suppliers
Ch4-45
Primary Activities
Service
Accurate and responsive order processing procedures
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Purchase of highest quality Procurement replacement parts Consistent manufacturing of attractive products Accurate and responsive order processing procedures Investments in technologies that will allow the firm to consistently produce highly differentiated products
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product
Operations
Outbound Logistics
Coordination among Investments in technolR&D, marketing and ogies to produce highly Rapid responses Extensive product development differentiated products Rapid and timely to customers personal
unique manufacturing specifications product deliveries relationships to customers with buyers Premium Pricing
Marketing & Sales
Inbound Logistics
Technological Development
Primary Activities
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Strong capability in basic research
Ch4-46
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development
Investments in technologies that will allow the firm to consistently produce highly differentiated products Purchase of highest quality replacement parts
Systems and procedures used to find the highest quality raw materials
Human Procurement Resource Management
Operations Outbound Logistics
Product Development
minimize damage and improve the quality of the final product
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
Service
Compensation programs Superior Consistent handling of manufacturing which encourage worker of incoming raw attractive materials and to products creativity productivity
Accurate and responsive order processing procedures
Extensive useCoordinof Strong Complete Superior field ation among stocking of subjective performance personnel functions in R&D, replacement parts measuresMarketing and training
Ch4-47
Value Creating Activities Common to a Differentiation Business Level Strategy
Highly Developed Information Systems to better understand customers’ purchasing preferences
Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Compensation programs intended to encourage worker creativity and productivity Coordination among R&D, product development and marketing
Human Resource Management Technological Development Firm Infrastructure
Investments in technologies that will allow the firm to consistently produce highly differentiated products
Operations
Outbound Logistics
Rapid responses to customers unique manufacturing specifications
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Primary Activities
Marketing & Sales
Inbound Logistics
handling of incoming raw materials to minimize damage and improve the quality of the final product
manufacturing of responsive order attractive processing products procedures
ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Service
Highly developed Information A companywide emphasis Systems and procedures used to find Purchase of highest quality the highest rawProcurement materials replacement parts Systems to quality better understand on producing high quality customers’ purchasing preferences products Strong Coordin- Complete field Superior Consistent Accurate and
Ch4-48
Differentiation Business Level Strategy
Effectiveness with Differentiation grows out of Value Chain activities
Examples:
Heineken beer Steinway pianos Mercedes Benz autos Intel microprocessors Caterpillar tractors
Raw materials Raw materials & Workmanship Technology and Workmanship Technological superiority
Service buyers’ needs quickly anywhere in the world
Ch4-49
Create Value with Differentiation by:
Lowering Buyers’ Costs Raising Buyers’ Performance
Creating Sustainability through:
• Creating barriers by perceptions of uniqueness • Creating switching costs through differentiation
Ch4-50
Drivers of Differentiation
Examples:
Unique product features
Unique product performance Exceptional services New technologies Quality of inputs Exceptional skill or experience Detailed information
Ch4-51
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Ch4-52
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * New products must surpass proven products * Or be equal to performance at lower prices
Ch4-53
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices
Can mitigate Buyer Power because: Well differentiated products reduce customer sensitivity to price increases
Bargaining Power of Buyers
Ch4-54
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices
Well positioned relative to Substitutes because:
* Brand loyalty tends to reduce new product trial and brand switching
Threat of Substitute Products
Bargaining Power of Suppliers
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Ch4-55
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Threat of New Entrants
Can fend off New Entrants because: * * New products must surpass proven products Or be equal to performance at lower prices
Bargaining Power of Suppliers
Can mitigate Supplier Power by: to Bargaining * Absorbing price increases due Power of higher margins
Well positioned relative to Substitutes because:
Suppliers
* Passing on higher supplier prices loyalty tends to * Brand because buyers are brand loyal reduce new product trial
and brand switching
Threat of Substitute Products
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Ch4-56
Effective Differentiators can remain profitable even when the Five Forces appear unattractive
Can mitigate Supplier Power by: * * Absorbing price increases due to higher margins Passing on higher supplier prices because buyers are brand loyal
Threat of New Entrants
Can fend off New Entrants because:
Brand loyalty New products must * surpass proven products overcomes much * Or be equal to performance price competition at lower prices
Bargaining Power of Buyers
Rivalry Among Competing Firms in Industry
Bargaining Power of Suppliers
Well positioned relative to Substitutes because:
*
Brand loyalty tends to reduce new product trial and brand switching
Threat of Substitute Products
Can mitigate Buyer Power because well differentiated products reduce customer sensitivity to price increases
Ch4-57
Major Risks of a Differentiation Business Level Strategy
Customers may decide that the cost of “uniqueness” is too great
Competitors may learn how to imitate Value Chain
The means of uniqueness may no longer be valued by customers
Ch4-58
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Ch4-59
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Cost Leadership
Differentiation
Narrow Target Market
Focused Low Cost
Focused Differentiation
Ch4-60
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Large firms may overlook small niches
Firm may lack resources to compete industry-wide
May be able to serve a narrow market segment more effectively than industrywide competitors Focus can allow you to direct resources to certain value chain activities to build competitive advantage
Ch4-61
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: May be able to retrofit old factories to keep costs down Minimize R&D costs by copying innovators
Examples:
Bang & Olufsen
Snap-on tools Iams Company
Upscale electronic components
High quality mechanics’ tools Premium pet foods
Ch4-62
Focused Business Level Strategies
Focused Business Level Strategies involve the same basic approach as Broad Market Strategies. However, opportunities may exist because: Focused Differentiators may thrive by selecting a small market that is underserved by large players
Example:
Custom manufacturers of parts for Harley-Davidson motorcycles
Ch4-63
Major Risks Involved With a Focused Differentiation Business Level Strategy
Firm may be “outfocused” by competitors
Large competitor may set its sights on your niche market Preferences of niche market may change to match those of broad market
Ch4-64
Generic Business Level Strategies
Source of Competitive Advantage
Cost Uniqueness
Breadth of Competitive Scope
Broad Target Market
Narrow Target Market
Cost DifferenLeadership tiation Integrated Low Cost/ Differentiation Focused Focused DifferenLow Cost tiation
Ch4-65
Integrated Low Cost/Differentiation Strategy
Firms using an Integrated Strategy may: Adapt more quickly Learn new skills and technologies
Utilize Flexible Manufacturing Systems to create differentiated products at low costs
Leverage core competencies through Information Networks across multiple business units Utilize Total Quality Management (TQM) to create high quality differentiated products which simultaneously driving down costs
Ch4-66
Integrated Low Cost/Differentiation Strategy
Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise The risk is that the firm may become “Stuck in the Middle” lacking a strong commitment to or expertise with either type of generic strategy
Ch4-67
Integrated Low Cost/Differentiation Strategy
Southwest Airlines
Low Cost Use a single aircraft model (Boeing 737) Use secondary airports Fly short routes No meals 15 minute turnaround time No reserved seats Differentiation Focus on customer satisfaction High level of employee dedication
New flight services for business travelers (phones and faxes)
Ch4-68
No travel agent reservations
doc_141682505.ppt