MGMT494BI Chapter Six

What is business-level strategy?
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- Goal-directed actions: To achieve competitive advantage in a single product market.

"How should we compete?"
- Who: which customer segments?
- What: customer needs will we satisfy?
- Why: do we want to satisfy them?
- How: will we satisfy our customers' needs?

•To formulate an effective business strategy, managers need to keep in mind that competitive advantage is determined jointly by industry and firm effects.
- Differentiation:
•Seeks to create higher value vs. competitors.
•Offers unique features.
•Charges higher prices.

- Cost Leadership:
•Seeks to create similar value vs. competitors.
•Charges lower prices.

These two business strategies are called generic strategies because they can be used by any organization—manufacturing or service, large or small, for-profit or nonprofit, public or private, domestic or foreign—in the quest for competitive advantage, independent of industry context.
- Differentiation and cost leadership require distinct strategic positions, and in turn increase a firm's chances to gain and sustain a competitive advantage.
- Leverages the firm internal strengths.
- Mitigates internal firm weaknesses.
- Exploits external opportunities.
- Avoids external threats.

- There is no single correct business strategy for a specific industry.

Choose a strategy that:
- Provides a strong position that attempts to maximize economic value creation.
- Is effectively implemented.

The deciding factor is that the chosen business strategy provides a strong position that attempts to maximize economic value creation and is effectively implemented.
- A strategy that combines both differentiation and cost-leadership activities.
•A firm offers a differentiated product or service at a low cost.
•Ex: Trader Joe's, Cirque du Soleil.

- Uses value innovation to reconcile trade-offs.

- Blue oceans represent:
•Untapped market space.
•Creation of additional demand.
•Opportunities for highly profitable growth.
(Red oceans are the known market space of existing industries)
Requires that a firm's strategic moves lower its costs and also increase the perceived value for buyers. Lowering a firm's costs is primarily achieved by eliminating and reducing the taken-for-granted factors that the firm's industry rivals compete on. Perceived buyer value is increased by raising existing key success factors and by creating new elements that the industry has not offered previously.
Value Innovation Accomplished through Simultaneously Pursuing Differentiation (V ↑) and Low Cost (C ↓)
To Achieve Successful Value Innovation
Lower costs:
Eliminate: Which of the factors should be eliminated?
Reduce: Which of the factors should be reduced?
Increase perceived consumer benefits:
Raise: Which of the factors should be raised?
Create: Which factors should be created?
It is difficult to succeed at value innovation