Assignment of FIN-4210: Strategic Management

Transcription

1 Assignment of FIN-4210: Strategic Management

2 An Assignment On Building Competitive Advantages Through Business Level Strategy

3 Submitted to Ayesha Akhter Course Instructor/ Lecturer, Department of Finance, Faculty of Business Studies Jagannath University, Dhaka Submitted by Sultan Ahmed Khan Representative of the group Epimetheus BBA 3 rd Batch Department of Finance, Faculty of Business Studies Jagannath University, Dhaka.

4 Group Name: Epimetheus Name of the members of the group: Serial No: Name of the members of the group Roll Number 01 Sultan Ahmed Khan Md. Mynul Islam Sharjil Ahmed Md. Anik Mahmud Protiva Talukder Md. Mehedi Hasan Mohammad Didarul Islam Khan Mohammad Mahmudul Hasan Sakhawat Hosain Group Representative: Sultan Ahmed Khan. Group Coordinator Contact Web : Md. Mynul Islam. : epimetheus.jnu@gmail.com :

5 February 25, 2013 The Course Instructor, Ayesha Akhter, Lecturer, Department of Finance, Jagannath University, Dhaka. Sub: Thanks giving letter to the respective faculty member. Sir, We are the student of Department of Finance (3rd batch) of Jagannath University, Dhaka & also from the group named Epimetheus. We are very much enthusiastic about our presentation. We are really happy to have such a presentation of challenging and interesting like this presentation & also thanks to you for making us worthy for corporate. Our presentation topic is Building Competitive Advantages through Business Level Strategy. We have learned many things from this topic which will help us in future to conduct as an official in the organization. There were some obstacles we have faced at the time of collecting data about our topic. But we have overcome all the obstacles by the endeavor effort by each member of our group and tried our best to give an overview of our topic. We the group Epimetheus tried our best to make this presentation attractive, impeccable, interesting, informative and enjoyable by the help of electronic and print media in association with our honorable teacher, mentor, counselor, instructor and advocate Ayesha Akhter. We are really grateful to him. We had limitations at the time preparing presentation. So mistakes may occur in our demonstration of our presentation. We hope that, you will exempt our mistakes. Thanking in anticipation, Yours Fidel, Sultan Ahmed Khan Group Representative, Group- Epimetheus BBA 3 rd Batch Department of Finance Jagannath University,Dhaka.

6 First of all we would like to thank the Almighty for giving us the strength, and the aptitude to complete this report within due time. We are deeply indebted to our course teacher, mentor, and counselor, Ayesha Akhter for assigning us such an interesting topic named Building Competitive Advantages through Business Level Strategy. We also express the depth of my appreciation to our honorable course teacher for his suggestion and guidelines, which helped us in completing this report.

7 Business-level strategy refer to the way strategic managers device a plan of action to use a company s resources and distinctive competencies to gain a competitive advantage over rivals in a market or industry. At the heart of the developing a generic business level strategy are choices concerning product differentiation, market segmentation and, distinctive competency. The combination of those three choices results in the specific form of the specific business-level strategy employed by a company. Cost leadership, differentiation, cost leadership and differentiation, focused low cost, and focused differentiation are generic competitive strategies. Each has advantages and disadvantages. A company must constantly manage its strategy; otherwise, it risks being stuck in the middle. Most industries are composed of strategic groups: groups of companies pursuing the same or a similar business-level strategy. The members of a strategic group constitute its immediate competitors. Because group constitute its immediate competitors. Because different strategic groups are characterized by different opportunities and threats, it may pay a company to switch strategic groups. The feasibility of doing so is a function of the height of mobility barriers. The choice of investment strategy for supporting the competitive strategy depends on the strength of a company s competitive position in the industry and the stage of the industry s life cycle. The main types of investment strategies are share building, growth, share increasing, hold-and-maintain, profit, market concentration, asset reduction, harvest, turnaround, liquidation, and divestiture. Gain theory offers a number of interesting insights into the kinds of competitive moves and tactics that companies can adopt to increase the returns from pursuing their business-level strategies. Some principles of gain theory are look forward and reason back, know thy rival, find the most profitable dominant strategy, remember that strategy can alter the payoff structure of the gain, and use strategy to change the payoff structure of the gain.

8 NAME Page no Executive Summary Introduction Introduction 01 Chapter- 01 Rational of the study 01 Objective of the study 02 Scope of the study 02 Methodology of the study 02 Limitations of the study 02 Body of the term paper Strategy & Classification 03 Business Level Strategy 04 Dynamics of Business Level Strategy 06 Choosing a Generic Business Level Strategy 07 Chapter- 02 Cost Leadership Strategy 08 Differentiation Strategy 10 Focus strategy 13 Choosing a Generic Business Level Strategy 16 Strategic Group Analysis 16 Choosing an Investment Strategy at the Business Level 17 Business level strategy and Game theory 18 Relationship among stages of the life cycle, competitive position, and choice of investment strategy 20

9 Findings of the study 23 Chapter-03 Conclusion 24 Bibliography 24 Level of strategies in a business 03 Chart Dynamics of business level strategy 06 Generic business level strategy 07 Focus strategy 13 investment Strategy 17

10 Chapter- 01 Introduction An advantage that a firm has over its competitors allowing it to generate greater sales or margins and/or retains more customers than its competition does. There can be many types of competitive advantages including the firm's cost structure, product offerings, distribution network and customer support Business Level Strategy refers to an integrated & co-ordinate set of commitments & actions the firm uses to gain competitive advantages by exploiting core competencies in specific product market. In this report we tried to show that how competitive advantages through a business level strategy build strong business product and services & how important it is for the business. Rational of the Study The case study is assigned by our course teacher Ayesha Akhter as a part of our Strategic Management course. The topic of our assignment is Building Competitive Advantages Through Business Level Strategy. By conducting this assignment we can enhance our knowledge and skill to apply various research methods in professional life on higher educational life. The report has given us a chance to raise our quality in developing research instrument and its applications. By doing so, we can boost our acceptability in economy and develop our real life knowledge. Primary objective Objective of the Study The main objective of the study is to know Building competitive advantages through business level strategy & show its sectored impact. Secondary objective: The case study has the following objectives: To know about Competitive Advantages & Business Level Strategy. To know the dynamics of business level strategy Choosing generic business level strategy. Competitive positioning & business level strategy-four strategies

11 Scope There were huge scopes to work in the area of this assignment. Considering the dead line, and exposure of the paper has been wide-ranging. The study Building Competitive Advantages Through Business Level Strategy has covered scenario of business environment of Bangladesh. It deals with the financial capability, proper investment & measures these qualities. We got a chance to work on the one of the top most document of the superior of any organizations which supplies the forecast information of a present or selected financial year for the forthcoming product or services. By doing the assignment, we are able to know that the importance of strategy in building competitive advantages in a market. In the assignment we have showed how the strategy impact on the decision process. Methodology We have used the concept of the course. Beside this we took help from world wide web. Sources of Data Here the secondary sources of information were used. The secondary sources are: Books. Website. Limitations While conducting the assignment on Building Competitive Advantages Through Business Level Strategy, some limitations were yet present there: Because of time shortage many related area can t be focused in depth. Website in different organization of Bangladesh contains poor information. Lack of latest studies & lack of local information regarding this matter. Too much sensitive information for any organization.

12 Chapter-2 Strategy & Classification Strategy, as a way of action, becomes necessary in a situation when, for the direct achievement of the main goal, the available resources are not enough. The task of strategy is an efficient use of the available resources for the achievement of the main goal. Tactics is the tool to implement strategy, and is subordinated to the main goal of strategy. After analyzing the source of environmental opportunities and threats and company strengths and weaknesses (SWOTs) a company can compete effectively in an industry. In this, we focus on various strategies a company can adopt at the business level to maximize its competitive advantage and profitability. In order to do so, we need to consider how a company's business-level strategy is derived from the definition of its business. Chart-I: Level of strategies in a business

13 Business Level Strategy Business level strategy means to determine how a corporation should compete in each of its businesses. It s an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets. As we saw in discussing the Abel! Framework, business definition is the result of three decisions: Customer needs, or what is being satisfied. Customer groups, or who is being satisfied. Distinctive competencies, or how customer needs are to be satisfied Customer Needs & Product Differentiation Customer needs are any needs that can be satisfied through the attributes or characteristics of a product or service two factors determine which product a customer choose to satisfy these needs. The price of the product The way a product is different from others Product differentiation is the process of creating a competitive advantage by designing product characteristics to satisfy customer needs. All companies must differentiate their products to satisfy some customer needs, but some companies do this to a much greater degree than others. For example, some companies aim to satisfy customer needs by offering a low-priced product; they do not engage in much product differentiation. Other companies seek to create something unique about their products to satisfy needs in ways in which other companies cannot. Uniqueness may relate to the following: Physical characteristics of the product, such as quality or reliability Appeal to a psychological need of customers, such as status or prestige The number of models in company's product range The development of a distinctive competency, such as service

14 Customer Groups & Market Segmentation The second aspect of business definition concerns market segmentation, the way the company groups its customers according to important differences in customer needs or preferences to gain a competitive advantage. One principle way of grouping customers and segmenting the market is by what customer are able and willing to pay for a particular product. Once price is taken into consideration, the other principle method of segmenting customers according to specific kind of needs that is being satisfied by a particular product In general, there are three strategies the company can adopt: Not recognize that there are different segments and simply serve the average customer Segment the market into different groups and develop a product to suit each group Serve only one or a few market segments These are part of developing a marketing competence, as noted in the last lecture. A company might want to make more complex product/market choices. It may want to produce a different product tailored to each market segment because this increases the demand for the company's products by attracting different kinds of customers. General Motors versus Ford is a good example. Distinctive Competencies The third issue in choosing a business-level strategy is to decide what type of distinctive competency to pursue to satisfy customer needs and groups in order to gain a competitive advantage. Some companies use their production technology to develop a manufacturing distinctive competency, others strive for a technological distinctive competency, and still others seek to establish a sales and marketing competency The issue at the business level is that the company must decide how to organize and combine its distinctive competencies to gain a competitive advantage. A product/market/distinctive-competency perspective provides a framework for under standing the foundations of business-level strategy. Now we can consider how different competitive strategies are the result of making different product/market/distinctivecompetency decisions

15 The Dynamics of Business Level Strategy Companies pursue a business level strategy to gain a competitive advantage that allows them to outperform rivals and achieve above average profitability. In determine how to achieve a competitive advantage; strategic managers have to make a consistent or compatible set of choices concerning following things: How to differentiate & price of their product. When & how to segment their market to maximize demand. Where & how to invest their capital to develop distinctive competencies that will create the most value where keeping their cost structure variable. These three distinctions determine which business level strategy company is pursuing. Business level strategy is therefore the main determinates of a company s business model. Chart-II: Dynamics of business level strategy The above figure presents a way of thinking about the relationship of these variables in a company s business model. The decision to differentiate a product increases the perceived value to the customer, so that market demand for the product increases. In turn, increased demand leads to economies of scale, which lowers the cost structure and units cost. Thus, from this point of view, differentiation can lower unit costs. Differentiation also requires additional expenditures on resources, for example, to improve product quality or support a higher level of service so that an increased in differentiation will also raise a company s cost structure & result in higher unit cost.

16 Choosing a Generic Business Level Strategy The purpose of pursuing a business-level strategy is to give the company a competitive advantage that will allow it to outperform its competitors and earn above-average returns. There are three basic strategies a company can adopt: cost leadership, differentiation, and focus cost leadership. These strategies are called generic because all companies or business can pursue them regardless of whether they are manufacturing, services, or nonprofit enterprise. Chart-III: Generic business level strategy

17 Cost Leadership Strategy A company's goal in pursuing cost leadership is to outperform competitors by producing goods and services at a lower cost. This strategy has two advantages. First, when all companies in the industry charge the same price for their products, the cost leader makes higher profits because its costs are lower. Second, if price wars develop and competition increases, then high-cost companies will be driven out of the industry before the cost leader. Thus the cost leader will earn above-average returns. To become the cost leader, however, the company must make particular product/market/distinctive-competency choices. The cost leader chooses low product differentiation, because differentiation is expensive. The company that develops unique products increases its costs. The cost leader aims for a level of product differentiation obtainable at low cost. The cost leader chooses to serve the needs of the average customer. Again, this avoids the high costs of serving different market segments. Perhaps no one is wholly satisfied with the product, but because its price is lower, some customers choose it. On the distinctive-competency dimension, the development of a competency in manufacturing is most important. The company must ride down the experience curve to lower its costs. Materials management is also very important. Consequently, the other functions tailor their distinctive competencies to meet the needs of manufacturing. R&D concentrates on process technology, and sales focuses on getting big customer accounts. The cost leader's strategy is geared to squeezing out every cent of cost savings by making consistent product/market/distinctive-competency choices.

18 Cost Leadership Strategy-Advantages The advantages of cost leadership can be discussed in terms of Porter's five forces model: Competitor: The cost leader is protected by its cost advantage. Powerful suppliers: Lower costs mean that the cost leader will be less affected than competitors. Powerful customers: The cost leader is less affected by buyers' ability to down prices. squeeze Potential entrants: Cost advantage is a barrier to entry because other companies are unable to enter at a lower cost. Substitute products: The cost leader is better able than its competitors to reduce its price in order to compete. Cost Leadership Strategy-Danger A cost-leadership approach has three principal dangers. That s are given here: Competitors may find ways of producing the product at lower cost, perhaps because of technological developments or because of cost savings, such as those foreign competitors can sometimes achieve. Competitors may imitate the cost leader's methods. In a single-minded effort to reduce costs, the cost leader may lose sight of changes in consumer tastes, To summarize, cost leadership can be a very profitable strategy. Though all companies try to contain their costs, the cost leader takes this to an extreme and makes all decisions with cost containment in mind. Given increased competition from abroad, this approach may be increasingly difficult to pursue in the future. Even the Japanese are suffering from competition from Taiwan and Korea. Companies are increasingly looking to differentiation as a competitive strategy.

19 Differentiation Strategy The objective of differentiation is to achieve a competitive advantage by creating a product or service that is perceived to be unique in some way. The differentiated company's ability to achieve this goal means that it can charge a premium price for its products that is, a price higher than its competitors' prices. It is the ability to earn higher profits through increased revenues rather than by low costs that allows the differentiator to outperform its competitors. The premium price is usually substantially above the cost leader's price, and customers pay it because they perceive the product's differentiated qualities to be worth it. Consequently, product pricing is done on the basis of what the market will bear. To become a differentiator, the company must make certain product/market/distinctivecompetency choices. On the dimension of product differentiation, the differentiator aims for a very high level of differentiation and frequently produces a wide range of products. As noted earlier, product differentiation can be achieved in many ways; examples include the purity we are asked to associate with Ivory Soap, Maytag's reputation for reliability, and Sony's link with product quality. IBM and Federal Express have made their names on service; so have Neiman Marcus and Nordstrom. Finally, BMW and Rolex appeal to customers' prestige needs. When a company pursues differentiation, it seeks to distinguish itself along as many dimensions as possible. Hence BMW is not just a prestige car; it is also fast, reliable, and technologically sophisticated. All these bases help to increase sales. On the issue of market segmentation, the differentiator generally segments its market into many niches. If it offers products for many market niches, it is pursuing a broad differentiation strategy. However, a differentiator might also decide to fill only those niches that are related to its differentiation advantage and be more narrowly focused. Hence Sony only fills high-price TV niches, just as BMW and Mercedes do in autos. On the dimension of distinctive competency, which function is most important depends on the source of the company's differentiation advantage. If it seeks a competitive advantage based on innovation and developing a technological competency, the key function is R&D; if customer responsiveness is its goal, then after-sales service, distribution, and customer service functions are most critical. This does not imply that manufacturing efficiency and the control of production costs are unimportant. The differentiator wants to keep in sight of the cost leader and is concerned with efficiency, but developing distinctive competencies is expensive, so the differentiator has higher costs. The object is to control costs enough so that the price charged is not so high that customers will not pay it.

20 Differentiation Strategy-Advantages & Dangers Once again, Porter's model is useful. The advantages & dangers of differentiation strategy are given below. Potential competitors are not a threat if the company has cultivated brand loyalty for its products and customers want the company's goods. Powerful suppliers are rarely a problem because the company's strategy is geared toward the price it can charge rather than toward minimizing costs. Powerful buyers are rarely a problem because only the company can supply the differentiated product. Potential entrants would be forced to develop a unique product in order to compete. This is expensive, especially when existing companies enjoy strong brand loyalty. The threat of substitute products depends on the ability of competitors to develop products that can meet the same customer needs as the differentiator's products and break brand loyalty. The principal dangers revolve around the company's ability to maintain its perceive uniqueness in customers' eyes. This depends in part on how quickly other companies" move to imitate successful differentiators.(autos, computers, and home electronic offer good examples of such efforts.) Another threat is that a source of uniqueness may be overridden by changes in consumer tastes and demands. A company must constantly look out for ways to match its unique strengths to changing product/market opportunities. In general, when differentiation is achieved through the design of the product, differentiators are at more risk. When it derives from intangible qualities such as prestige or from a service competency, the company is more protected because the qualities are more difficult to imitate. To summarize, differentiation involves a different set of choices from cost leadership. There are many sources of differentiation to exploit. When the company develop unique product, it can charge a premium price to earn high profits. However, it must watch out for imitators and not charge more than the market will bear.

21 Both cost leadership and differentiation Today it is possible to follow both strategies simultaneously. New production technologies like flexible manufacturing techniques, just-in-time inventory systems, and robotics have allowed companies take advantage of the benefits of both strategies. For example, flexible manufacturing systems enable companies to manufacture models of a product at little or no extra cost than if they produced large batches of standardized products. The growth of niche marketing has been made possible by these new low-cost production techniques. Similarly, the differentiator can reduce marketing costs by reducing the number of models in the product range while offering packages of options. (For example, car manufacturers offer a luxury package, sports package, and economy package). Differentiation is still feasible but at lower cost than for the pure differentiator.

22 Focus strategy The third generic strategy, the focus strategy, differs from the other two in that it is directed at serving the needs of a limited customer group or set. It concentrates on serving a particular market niche that may be defined as follows: Geographically, by region or locality. By type of customer, such as very rich or very young. By segment of the product line, such as only very expensive autos or designer clothes The company is therefore specializing in some way. Chart-IV: Focus strategy A focus strategy can be pursued using either a differentiation or a low-cost approach A low-cost approach A focus strategy can be pursued using either a differentiation or a low-cost approach. When a company adopts a low-cost approach, it competes against the market leader only in those segments where it has no cost disadvantage. A cost advantage may also arise because it is producing complex or custom-built products that do not lend themselves to economies of scale. The focus company serves specialist product segments and leaves the large-volume market to the cost leader.

23 Differentiation strategy When it pursues a differentiation strategy, all the means of differentiation open to the differentiator are open to the cost leader. Focused companies can particularly exploit their knowledge of a small customer set because they are closer to the customer than a broad differentiator. The Choices made by a focused company on the following factors Product differentiation can be high or low. Market segmentation is low: one or a few niches. The choice of distinctive competency depends on the company's source of competitive advantage. If it is differentiation, the competency could be R&D or service; if it is low cost, the competency could be local manufacturing. The large number of ways to compete explains why there are so many small companies. Focused companies can also grow by taking over other focusers. Focus strategy- Advantages Again we use Porter's five forces model to determine the advantages of focus strategy. The advantages are given below: Rivals The company is protected to the extent that it can provide a product or service at a price or quality others cannot offer. Powerful suppliers These are a threat because the company buys in such small volumes that it has less bargaining power. However, if the company can pass price increases on, this is less of a problem. Powerful buyers Its ability to satisfy unique customer needs gives the company power over its buyers; they cannot get the same thing from other companies. Potential entrants These have to overcome the hurdle of consumer loyalty, so there is protection here. Substitute products These must overcome consumer brand loyalty. So again protection from the five forces lets focusers make above-average profits.

24 Focus strategy- Disadvantages One danger is that because the focuser produces at smaller volumes, its costs will be higher than those of the low-cost company. Furthermore, if the focuser's niche suddenly disappears because of changes in technology or consumer tastes, it is hard to switch to a new niche quickly. A third problem is the possibility that differentiators ma y compete for the focuser's niche if it becomes very profitable, as occurred in IBM's fight with Apple. Being stuck in the middle Each of the generic strategies just discussed requires that the company make consistent product/market choices to achieve a fit. Hence a low-cost company cannot go for a high level of market segmentation because doing so would raise costs, and a differentiator cannot decrease R&D spending to reduce costs because in so doing it would lose its differentiation advantage. There are many examples of companies that have made the wrong choices. They are called stuck in the middle because they have been unable to obtain a competitive advantage and to earn average or above-average profits. Sometimes the company starts out by pursuing a generic strategy but loses that strategy because it makes the wrong choices or because the environment changes. Sometimes a low-cost company may diversify into new product markets where it has less expertise or may invest in research and development inappropriate to its strategy. Another path to failure is that taken by the successful focuser that tries to become a broad differentiator and ends up stuck in the middle. People Express is a good example. Finally, differentiators can lose their strategy if competitors enter the market and chip away at their competitive advantage. This has happened a lot lately to automakers and other companies. To summarize, managing a generic strategy requires careful attention to product/ technology /market choices. Such choices must be oriented toward one strategy. The environment must be closely monitored so that the company can keep its strengths aligned to market opportunities and avoid threats. The development of a generic strategy gives the company protection from the five forces and can reduce the level of industry rivalry. However, companies have to continue to invest in their generic strategies, or they risk losing their competitive advantages. This is the issue we turn to now. What is the appropriate investment strategy to match the company's generic competitive strategy?

25 Choosing a Generic Business Level Strategy Business level determines how a company will compete for a customer in a particular market segment or industry. In every market segment or industry, several companies typically compete for the same customers. The actions of one company have an impact on the others. Managers must position their companies competitively with regard to customers and competitors Strategic Group Analysis Strategic group analysis helps a company identify the strategies that its industry rivals are pursuing. Within most industries, strategic groups emerge, each composed of companies pursuing a similar generic strategy. All the companies inside an industry try pursuing a low cost strategy from another strategic group. The concept has number of implications. That are given here:- First, strategic managers cam map their competitors according to their choice of generic strategy. They can identify the different ways rival have decided what customer need to satisfy, which customer groups to serve, and which distinctive competencies to develop. Second, a company s nearest competitors are those companies pursuing a similar strategy in its strategic group. Customer tends to view the products of such enterprises as being direct substitutes for each other. Thus a major threat to a company s profitability may arise primarily from within its own strategic group, not necessarily from other companies. Third, different strategic groups can have a different standing with respect to each of Porter s five competitive forces because these factor affect companies in different ways. In other words, the risk of new entry by potential competitors, the degree of rivalry among companies within a group, the barging power of buyers, the barging power of suppliers, and the competitive force of substitute products can all vary in intensity among different strategic groups within the same industry.

26 Choosing an Investment Strategy at the Business Level An investment strategy refers to the amount and type of resources that must be invested to gain a competitive advantage. Generic strategies are expensive to maintain and develop. Differentiation is most expensive because of the need to provide uniqueness. Cost leadership is less expensive once the initial investment in plant and equipment has been made. Focus is least expensive because fewer resources are earmarked to serve one market segment rather than the whole market. In deciding on an investment strategy, the company must evaluate the returns from investing in a competitive strategy against the cost of developing the competitive strategy. Two factors are important in determining the potential returns from an investment strategy: the strength of a company's competitive position and the stage of the industry life cycle. The strength of a company's competitive position is a function of two factors: Its market share (large market share provides the company with experience-curve effects or suggests that the company has brand loyalty) and The strength of its distinctive competency (for example, the more difficult is its R&D or service expertise to imitate, the stronger is its position). These factors reinforce one another, so a company with both is in a very strong position and is probably a good investment. The second factor influencing investment attractiveness is the stage of the industry life cycle. The nature of the opportunities and threats from the environment is different at each stage. For example, competition is strongest in the shakeout stage, whereas customer demand expands the most in the growth stage. This affects the potential returns from a competitive strategy which summarizes the relationship among stages of the life cycle, competitive position, and choice of investment strategy at the business level. Chart-V: investment Strategy

27 Business level strategy and Game theory Companies are in a constant completive struggle with rivals in their industry and strategic group to gain more business from customers. A useful way of viewing this struggle is as a competitive game between companies, where companies are continually using competitive moves and tactics to compete effectively in an industry. Company that understands the nature of the competitive game theory they are playing can often make better strategic moves that increase profitability of their business. Business level strategy and Game theory- Basic principles There are several basic principles regarding Business level strategy and Game theory. Those are given below. Look Forward & Reason Back One of the most basic messages of game theory is that managers need to think strategically in two related ways. 1. Look forward, think ahead and anticipate how rivals will respond to whether strategic moves they make. 2. Reason backward to determine which strategic moves to pursue today given their assessment of how the company s rivals will respond to various future strategic moves. Managers who do both of these things should be able to discover the specific competitive strategy that will lead to the greatest potential returns. Know Thy Rival This illustrates a second basic principle of game theory. In other word, in thinking strategically managers put themselves in the position of a rival to answerer the question of how that rival is likely to act in a particular situation. If mangers are to be effective at looking forward and reasoning back they must have a good understanding of what their rival is likely to do under different scenarios, and they need to be able to extrapolate their rival s future behavior based on this understanding.

28 Find the Most Profitable Dominant Strategy A dominant strategy is one that makes you better off than you would be if you played any other strategy, no matter what strategy your opponent uses. Strategy Shapes the Payoff Structure of the Game An important lesson of this game theory is that through its choice of strategy, a company can alter the payoff structure of the competitive game being played in the industry. This insight also point to the need for companies to think through how their choice of business strategy might change the structure of the competitive game they are playing.

29 Relationship among stages of the life cycle, competitive position, and choice of investment strategy Strategy at the embryonic stage This is the stage at which companies are developing a distinctive competency, so investment needs are very great. Thus the appropriate strategy is a share-building strategy. Companies require large amounts of capital to; develop a competitive advantage. Much of this must come from outside investors. Growth strategy At the growth stage, a company must consolidate its position and increase its market share to survive the coming shakeout stage. Hence the appropriate ate investment strategy is the growth strategy. The company must maintain its relative position in a rapidly expanding market, so it requires the infusion of large amounts of capital. Differentiators engage in massive R&D efforts, and cost leaders invest in new plants and equipment to lower their costs. All this is very expensive. At that stage, too, companies in strong positions segment their markets to Increase market share. Such segmentation is also expensive because it requires investments in marketing and sales. Companies in a weak competitive position adopt a market concentration strategy. They withdraw to concentrate on developing their competency or niche because they lack the strength to become a full-fledged differentiator or low cost company. This approach is less expensive.

30 Shakeout strategy By the shakeout stage, demand is increasing more slowly and competition by price or product characteristics is rampant. Companies in strong competitive positions need to invest in a share-increasing strategy to attract customers from companies that are exiting the market. For cost leaders, investment in cost control is crucial. Differentiators attempt to enlarge their share in many market segments, offer more products, and become broad differentiators; that is, they become increasingly marketing oriented. The companies in a weak position again turn to market concentration or, if very weak, engage in a harvest or liquidation strategy Strategies at the maturity stage By the maturity stage, a strategic group structure has emerged in the industry, and companies have learned how their competitors will react to their competitive moves. Companies are eager to reap the rewards of their previous investments in a competitive strategy. Also, the slowdown in market growth reduces investment needs somewhat. Now companies in strong positions engage in the hold-and-maintain strategy or the profit strategy. Companies adopting the hold-and-maintain strategy continue to defend their market share but stop aggressively pursuing new customers. This enables them to give higher returns to shareholders. Decline strategies The decline stage starts when demands for the industry s products begin to fall. Companies in strong positions revert to market concentration and to asset reduction strategies. Even the strong company strives to consolidate its market niche. It narrows product range and exits marginal niches to redeploy resources more efficiently. (International Harvester and Woolworth illustrate this approach.) Such a strategy is sometimes called a harvest strategy because the company reduces to a minimum the assets it employs in the business and forgoes future investment in order to milk the resource now. The difference between a market concentration and a harvest strategy is that market concentration implies that the company is trying to turn its business around, whereas harvesting implies that it will exit the industry when it has harvested all the returns it can.

31 Turnaround strategies may be applied by companies at any stage in the life cycle. The question is, Is there a viable way to compete in the industry, and if so, how much will this cost? Sometimes it is possible to rescue the company's strategy from being stuck in the middle. At other times the problems may be due to bad strategy implementation, and it may be that resources should be invested in a new structure or management team. We will take up this issue later in the course. If turnaround is not possible, the two remaining options are liquidation and divestiture. These involve the company selling its assets piecemeal or selling the whole business if a buyer can be found. Thus, at the business level, formulating strategy involves The choice of a competitive strategy; The choice of an investment strategy to match this generic strategy; and Alignment of one's strategy with opportunities and threats that arise in the industry.

32 Chapter-03 Findings and conclusion Finding of the Study The intension of this study is to know about Building Competitive Advantages Through Business Level Strategy. The major findings of the overall study are discussed below: Business-level strategy - managers device a plan of action to gain a competitive advantage over rivals in a market or industry. The Dynamics of Business Level Strategy Choosing a Generic Business Level Strategy Choosing an Investment Strategy at the Business Level Advantages & Disadvantages of different strategy. Relationship among stages of the life cycle, competitive position, and choice of investment strategy at the business level

33 Conclusion Business-level strategy refer to the way strategic managers device a plan of action to use a company s resources and distinctive competencies to gain a competitive advantage over rivals in a market or industry. At the heart of the developing a generic business level strategy are choices concerning product differentiation, market segmentation and, distinctive competency. Cost leadership, differentiation, cost leadership and differentiation, focused low cost, and focused differentiation are generic competitive strategies. Each has advantages and disadvantages. A company must constantly manage its strategy; otherwise, it risks being stuck in the middle. Most industries are composed of strategic groups: groups of companies pursuing the same or a similar business-level strategy. The members of a strategic group constitute its immediate competitors. The choice of investment strategy for supporting the competitive strategy depends on the strength of a company s competitive position in the industry and the stage of the industry s life cycle. Gain theory offers a number of interesting insights into the kinds of competitive moves and tactics that companies can adopt to increase the returns from pursuing their business-level strategies.. Bibliography Articles Charles W.L.Hill & Gareth R.Jones; Strategic Management ; 6 th Edition. (Indian Edition: Biztantra, ). Web Sites 1.