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Strategic Management – Slide 7 Business Level Strategies

1. Business (Competitive) Level Strategy
• Creating and Sustaining a Competitive Advantage

• Frameworks
=> Porter’s Three Generic Strategies
=> Innovation as a Fourth Generic Strategy
=> Miles & Snow “Dynamic” Strategies

2. Porter’s Generic Strategies (Positioning Strategies)
Three Generic Strategies
• Overall Cost Leadership
• Differentiation
• Focus
3. Three Generic Strategies
3. Three Generic Strategies
3.1 Overall Cost Leadership
– Low-cost-position relative to a firm’s peers
– Manage relationships throughout the entire value chain
3.2 Differentiation
– Create products and/or services that are unique and valued
– Non-price attributes for which customers will pay a premium
– May be actual or perceived
3.3 Focus Strategy
– Narrow product lines, buyer segments, or targeted geographic markets
– Attain advantages through specialization and in-depth user knowledge.
4. Overall Cost Leadership
Requires a tight set of interrelated tactics that includes:
• Tight cost and overhead control
• Avoidance of marginal customer accounts
• Cost minimization in all activities in the firm’s value chain?R&D, service, sales force, and advertising

Experience curve
– Refers to how business “learns” to lower costs as it gains experience with production processes.
– With experience, unit costs of production decline as output increases in most
industries.

5. Differentiation (Based on)
• Prestige or brand image
• Technology
• Quality
• Features
• Customer service
• Dealer network
6. Differentiation
• Creates higher entry barriers due to customer loyalty
• Provides higher margins that enable the firm to deal with supplier power
• Establishes customer loyalty and hence less threat from substitutes
7. Focus Strategy (Based on)
• Focus strategy is based on the choice of a narrow competitive scope within an industry.
=> Firm selects a segment or group of segments (niche) and tailors its strategy to serve them.
=>Firm achieves competitive advantages by dedicating itself to these segments exclusively.
8. Focus Strategy
• Creates barriers of either cost leadership or differentiation, or both.
• Used to select niches that are least vulnerable to substitutes or where competitors are weakest.
9. Sources of Competitive Advantage (Based on Core Values)
• Efficiency
• Innovation
• Quality
• Customer Service
• Speed/Adaptability
10. Examples
• Overall Cost Leadership
1) Dell
2) Wal-Mart
• Differentiation
1) Harley Davison
2) Bose
3) Motel 6
• Focus
1) Radio Shack
2) Guitar Center
3) Southwest Airlines (in the 1980s)
11. Limitation of Porter’s Generic Strategy Framework
• Positioning strategies are “static” and do not take time or competitive dynamics into account.
• Not sustainable through industry life cycle stages.

• Innovation: “Fourth” generic strategy
=> Separate from differentiation because innovation is a dynamic strategy
=> Apple as an example

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