Strategic Management. Week 5 ( Chapter 5) Strategic Choices. Business Level Strategy

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1 Strategic Management Week 5 ( Chapter 5) Strategic Choices Business Level Strategy

2 Learning Outcomes: After reading this lecture you should be able to understand: How to identify strategic business units (SBUs) in organizations. Different bases of achieving competitive advantage. The factors influencing the sustainability of competitive advantage.

3 A model of the elements of strategic management Peter Exhibit Considine Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd

4 Identifying Strategic Business Unit A strategic business unit is a part of an organization for which there is a distinct external market for goods or services that is different from another SBU. There are two opposing pitfalls that need to be avoided: - If each product and each geographical branch is considered to be an independent SBU such immense variety of competitive strategies for a single organization would create a lack of focus and inefficiency. - The concept of the SBU is important in property reflecting the diversity of products and markets that actually exist

5 Indentifying Strategic Business Unit Criteria in avoiding the pitfalls: External - ( the nature of the marketplace for different parts of the organization; 2 parts of the organization should only be regarded as the same SBU if they are targeting the same customer types, through the same sorts of channels and facing similar competitors. Example: A tailoring unit which caters to the needs of the local market cannot belong to the same SBU that offers standardized products or services globally.

6 Indetifying Strategic Business Unit Criteria in avoiding the pitfalls: Internal - ( are about the nature of an organization s strategic capability) 2 parts of an organization should be regarded as the same SBU if they have similar products/service built on similar technologies and sharing a similar set of resources and competences. Example: Within the company Kodak, the unit offering film-based products are not the same as those offering digital photography.

7 Bases for competitive advantage Competitive strategy is concerned with the basis on which a business unit might achieve competitive advantage in its market. Different generic strategies by which an organization could achieve competitive advantage: Overall cost leadership Differentiation Focus

8 Bowman s Strategy Clock

9 Strategy Clock: concepts Strategy No Frills Low Price Hybrid Needs/Risks Likely to be segment specific. Combines a low price, low perceived product/service benefits and focus on a price-sensitive market segment ( basic foodstuff) Risk of Price war and low margins; need to be cost leader. seeks to achieve a lower price than competitors whilst trying to maintain similar perceived product or services benefits to those offered by competitors. Price sensitive customers ( low income group) Low cost base and reinvestment in low price and differentiation. seeks simultaneously to achieve differentiation and a price lower than that of competitors.

10 Strategy Clock: concepts ( cont.) Strategy Needs/Risks Differentiation a) W/out price premium perceived added value by user, yielding market share benefits. b) With price premium perceived added value sufficient to bear price premium Focused differentiation Perceived added value to a particular segment, warranting price premium Provide products/servic es that offer different from those of competitors and that are widely valued by buyers.

11 Strategy Clock: concepts ( cont.) Strategy Increased price/standard value Increased price/low value Needs/Risks Higher margins if competitors do not follow Risk of losing market share Only feasible in monopoly situation Strategy destined for failure Strategy destined for failure Low value/standard price Loss market share Strategy destined for failure

12 Sustaining Competitive Advantage Exhibit 5.3 Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005) 17

13 Sustaining competitive advantage Sustaining price-based advantage An organization pursuing low-price strategies may be prepared to accept the reduced margin either because it can sell more volume than competitors An organization may be prepared to sustain and win a price war with competitors either because it has a lower cost structure or it has deeper pocket to sustain medium term looses with the air of driving out competitors.

14 Sustaining competitive advantage Sustaining differentiation-based advantage Create difficulties of imitation Imperfect mobility of resources and/or competences that are sustaining differentiation. ( e.g. brand, image or reputation are difficult for a competitor to obtain. Even if it will, the reputation of the brand may not readily transfer given new ownership)

15 Sustaining competitive advantage Lock In ( Delta model) it is where the organization achieves a proprietary position in its industry. The achievement is dependent on the following factors: Size of market dominance Standards be set in the early life cycle of the markets

16 Competitive Strategies in Hypercompetitive Conditions Exhibit 5.4 Tutor Peter Considine. (Core Text Exploring Corporate Strategy, Seventh Edition, Pearson Education Ltd 2005) 19

17 Competitive Strategies in Hypercompetitive Conditions Repositioning in the strategy clock Overcoming Competitors Market-Based Moves Blocking first-mover advantage ( it is important that organization realize the importance of not allowing a competitor to establish a dominant product or design before they make a response) Imitate competitors product market moves Overcoming Competitors Barriers Offering products with shorter life cycle Undermining competitors stronghold ( dominance in geographic areas or market segment) Competing successfully Pre-empt imitation by others by competing in new ways Not attacking competitors weaknesses A series of smaller moves may be more effective than a bigger oneoff change Disrupting the status quo Be unpredictable

18 Competition & Collaboration Competitiveness might be improved by collaboration to achieve: Increased selling points. Increased buying power. Increased barriers to entry. Decreased risk of substitution. Entry to new markets. Shared work with customers. Stakeholders expectations.

19 Reference Johnson, Gerry, Scholes, Kevan & Whittington, Richard, 2005 Exploring Corporate Strategy: Text and Cases 17 th ed. Prentice Hall, England.