Business-Level Strategy
Chapter 7
Strategic Management:Value Creation, Sustainability, and Performance, 3e, 2014
Learning Objectives
1.
Compare business-level strategies.
2.
Describe how each type of business-level
strategy creates competitive advantage.
3.
Examine the underlying drivers for each
type of business-level strategy.
4.
Analyze when outsourcing makes sense.
Two Important Dimensions

Strategic Approach
 Low Cost Leadership – lower costs while
providing competitive level of benefits
 Differentiation – increasing benefits while
providing competitive level of cost / price

Scope
 Broad – multiple segments or geographies
 Narrow – tailored to specific segments or
areas
Five Business-Level Strategies
Connecting Strategy to Superior
Performance (Above Average Profits)
Caveats for Business Strategy

Parity on other conditions valued by the
market
 Low cost – cost is not the only factor
 Differentiation – price / value relationship

Evolution of customer expectations

Evolution of competition
Low Cost Leadership - Drivers
Economies of scale
 Capacity utilization
 Experience curve
 Product / service design
 Process innovation (value chain design)
 Internal value chain coordination

Low Cost Leadership - Risks

Not owning low cost leadership position

Price is not a strategy
 Price is tactical & immediate; low cost requires
strategic investments over the long run

Customers no longer value benefits derived
from low costs

Cost position can be imitated over time
Differentiation – Drivers

Product and service features
 Respond to customer needs
 Integrity of product / service
 Use of quality inputs

Psychographic and cognitive benefits
 Marketing and advertising
 Perceived responsiveness to customers
 Corporate reputation
Process innovation (value chain design)
 Internal value chain coordination

Differentiation – Risks

Product differentiation is not strategy
(Value Chain differentiation is)

Customers no longer value benefits derived
from differentiation

Differentiation positions can be imitated
over time
Variations on Business Strategy

Focus
 Subset of industry's products / services
 Segmenting customers or customer needs
 Targeting narrow geography or customer
access

Integrated Low Cost / Differentiation
Strategy
 Seeking to address both dimensions
 Runs risk of becoming "stuck in the middle"
Strategy and Outsourcing

Enhance position in the market
 Joint ventures for R&D

Offloading non-essential activities
 No particular internal competence
 Does not contribute to strategic position
Outsourcing Risks
Loss of control over costs or differentiation
values
 Disruption of coordination and linkages
across internal value chain
 "Hollowing out the core"

 Possible cumulative effect of sets of
activities that are outsourced

Competitive learning
 Competitors can more easily observe
"what remains" after the outsourcing