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,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*,Click to edit Master title style,Click to edit Master text styles,Second level,Third level,Fourth level,Fifth level,*,*,Business level Strategy,Dr Ita ODonovan,Lecture Five,1,Some Fundamentals,Alfred. D. Chandler, Jr. Received the Pulitzer prize for his work which demonstrated the evolutionary and historical nature of change and its effect on businesses.,A.D. Chandler Jr. ( 1969) The structure of American Industry in the twentieth Century: a historical overview.,Business History Review Vol 43. 255-298,Douglass C. North received a Nobel Prize for stressing the role of institutions in shaping organisational environments and organisations themselves.,D.C. North (1990) Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.,These two ideas which show businesses are influenced from the outside- in and also influence from the inside- out are dominant in business strategy today.,2,Some Fundamentals continued,At the business level of the industry five forces are considered to threaten or advantage the firm:,These are:,Entry barriers,Rivalry between industry incumbents,Substitute products or services,The bargaining power of suppliers,The bargaining power of buyers,At the international level four forces were seen as sources of national competitive advantage.,3,International Level Strategy,4,What we are looking at,We are going to examine competitive advantage and also,discuss those theorists who come to the debate from a resources perspective (inside- out) . Resource theorists point to the internally generated competencies.,The firm is seen as a bundle of firm- specific capabilities and assets,Knowledge which the firm has is difficult to imitate ( tacit knowledge and trade secrets),Organisational processes seen as very important,Competences seen as distinctive emphasised over physical assets,Long term development of competences, caution need to remain flexible also,Current routines, learning, practice, technologies, customer base, relationship with suppliers. (Teece, et al 1997),Alignment of capacity and competencies are essential in this approach,5,Competitive Advantage,We are concerned with what methods the business is going to utilise to gain and sustain competitive advantage:,Some key Principles:,A cost leadership strategy:,low cost producer in the industry, exploit cost advantage, no frills, scale and cost emphasis,A differentiation strategy:,seek uniqueness in the market along a dimension valued by buyers,A focus strategy:,choice of narrow scope within an industry, a segments or group of segments become the focus to the exclusion of others,6,Competitive advantage,7,Some Problems,Sustainable Cost Leadership:,means lowest cost overtime against competitors.,Requires also relative market share advantage can assist cost through economies of scale (,still caution here,),We know how difficult it is to sustain both market share advantage and cost advantage.,Cost leadership has a chance when used by a few firms not much if used for industry wide.,Need to be aware that cost based strategies generally problematic. Competitive Advantage can only be achieved in terms of a product or service by the user as having an advantage over competition,8,Differentiation,Differentiation,in terms of price, means a higher price, an offer that is of greater value than the competition. However one needs to consider that a firm may wish to offer a differentiated product at a similar price to competitors to gain increase in market share and volume.,Differentiation,must think about from whom the firm is differentiating.,What is the basis for the differentiation,Differentiation is likely to be about more than cost and quality.,For example, ambience of business, location of business, price options,9,Strategy Clock,High,Hybrid 3,Low,Price,2 6,Low price,Added value,1 7 6,7,8,destined to fail,8,Differentiation,4,Focused 5 Differentiation,Low Price High,10,Competitive Strategy Options,Strategies,Needs and Risks,1. Low price/low added value,Likely to be segment specific,2. Low Price,Risk of price war and low margins/need to be cost leader,3. Hybrid,Low cost base and reinvestment in low price and differentiation,4 Differentiation,Without price premium,With price premium,Perceived added value by user, yielding market share benefits,Perceived added value sufficient to bear price premium,5. Focused differentiation,Perceived added value to a particular segment, warranting price premium,6. Increased price/standard value,Higher margins if competitors do not follow/risk of losing market share,7. Increased price/low value,Only feasible in monopoly situation,8. Low value/standard price,Loss of market share,11,Strategy Examples,1 Low Price/low added value,: Clothes trade in UK from 1990s to now. As some stores upgrade merchandise new ones enter at lower price,2. Low Price:,very difficult,3. Hybrid:,added value while keeping prices down suggest Japanese firms doing this for years and IKEA the Swedish furniture and household goods company.,Need to consider overall cost base can sustain low margins, this needs to be considered from beginning and a follow strategy for when entry has been achieved.,4. Value added, or differentiation:,uniqueness of product or improvement in products. Investment in R and D. or design expertise. Mercedes Cars Germany,Market based approaches, power of the brand. Levi Jeans, Tourism in countries good example Nepal, ( Himalayas) China, ( Forbidden City) Malaysia (Beaches) promotional brand.,5. Focused Differentiation,:,this often means positioning your product in same category as others,e.g. Chocolates, your chocolates more expensive than others Guidiva.,Know which segment you are competing in, need to be confident about breadth of market move towards global markets or focus strategy.,12,Strategy Examples,Failure Strategies:,these are probably destined to failure,route 6,suggests increase in price without increase in value, note this is often what monopolies are accused of. Recently privatised bodies such as BT, Water Companies in UK.,route 7 more severe suggests reduction in value of product or service and increase in relative price,route 8 suggests reducing value while maintaining price, this is also dangerous,The strategy clock is a market based model of options working from the,outside in perspective,It focuses on the basic question what is the value of the product or service to the user.,13,The generic value chain,Firm Infrastructure,Human Resource Management Margin,Technology Development,Procurement,Inbound Operations Outbound Marketing Services Margin,Logistics Logistics & Sales,Porter ( 1985),14,Exercise Lecture Five,Essential reading Chapter five ,Business Level Strategy in DeWit and Meyer.,Each Student Read the Case Study Nine “Starbucks in the US” by Shanul Jain.,Group A: Describe and Discuss the positioning of the Starbuck Brand its achievements and difficulties.,Group B Describe and discuss what the differentiation approach was in Starbucks.,Group C. From the case study Describe and discuss Starbucks brand dilemmas,Group D. Critically analyse Starbucks Growth Strategy.,The results should be in written form and presented by each group.,15,References,Essential Reading,Chapter Five, In Strategy, Process, Content, Context (fourth Edition),Reading:,Teece, D. J., Pisano, G. And Shuen, A. (1997) Dynamic capabilitiies and Strategic Management, Strategic Management Journal, 18(7): 509-533,M.E. Porter ( 1985) Competitive Advantage; Free Press Chapter 2.,16,
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