Summary Exploring Strategy, Text and Cases, ISBN: 2459. The book is used for the Strategic Management 2 subject of the Business Administration course. It is a comprehensive summary outlining the necessary details. In addition, the summary contains relevant images of models used for strategic manag...
,Table of contents
Chapter 7: Business strategy and models
Chapter 8: Corporate strategy and diversification
Chapter 9: International strategy
Chapter 10: Entrepreneurship and innovation
Chapter 11: Mergers, acquisitions, and alliances
,Chapter 7: Business strategy and models
7.1 Introduction
Two fundamental strategic choices are:
- What business strategy should a company, business unit or other organisation adopt in its
market?
o Business strategies are about how to compete in a marketplace.
o Strategic business unit (SBU) = supplies goods or services for a distinct domain of
activity.
- What business model should a company, business unit or other organisation adopt in its
market?
o Business model = the identification the relationship between the value created for
customers and other participants, the organisational activities that create this value
and how the organisation and other stakeholders can capture value from this.
Business strategy and business models are relevant to the private business sector, charities, and the
public-sector organisations.
Three main themes around business strategy:
1. Generic competitive strategies
o Cost leadership
o Differentiation
o Focus
o Hybrid
2. Interactive strategies
o Building on the notion of generic strategies to consider interaction with competitors.
o Hypercompetitive strategy
o Cooperative strategies
o Game theory
3. Business models → three basic components:
o Value creation
o Value configuration
o Value capture
7.2 Generic competitive strategies
Competitive strategy = concerned with how a company, business unit or organisation achieves
competitive advantage in its domain of activity. Competitive strategy involves issues such as costs,
product and service features and branding.
Competitive advantage = about how a company, business unit or organisation creates value for its
users which is both greater than the costs of supplying them and superior to that of rivals.
Two important features of competitive advantage:
1. To be competitive at all, an organisation must ensure that customers see sufficient value that
they are prepared to pay more than the costs of supply.
2. To have an advantage, the organisation must be able to create greater value than
competitors.
Michael Porter → two fundamental means of achieving competitive advantage:
1. Lower costs than competitors
2. Differentiate products and services from competitors
Porter adds an extra dimension based on the scope of customers that the business chooses to serve
→ narrow customer segment or broad customer segment.
This leads to following generic strategies:
1. Cost-leadership strategy
Involves becoming the lowest-cost organisation in a domain of activity.
Four key cost drivers that can help deliver cost leadership:
o Input costs
o Economies of scale
o Experience
, ▪ Experience curve: the cumulative experience gained by an organisation with
each unit of output leads to reductions in unit costs.
▪ The experience curve has three important implications for business strategy:
• Entry timing into a market is important → earlier entrants have more
experience → cost advantage.
• Gain and hold market share → higher market share = more
cumulative experience.
• Improvements normally continue overtime
▪ Two sorts of efficiencies:
• Gains in labour productivity
• More efficient designs or equipment
o Product/process design
▪ Whole-life costs = the costs to the customer not just of purchase but the
subsequent use and maintenance.
Two requirements for cost-based strategies:
1) To have competitive advantage the business’s cost structure needs to be lower than
all competitors.
2) Low cost should not be pursued in total disregard for quality. To sell its products and
services, the cost-leader has to be able to meet market standards.
Cost leaders have two options:
▪ Parity with competitors in product or service features valued by customers.
This allows the cost-leader to charge the same prices as the average
competitor, while translating its cost advantage into extra profit.
▪ Proximity to competitors in terms of features. Where a competitor is
sufficiently close to competitors in terms of product or service features,
customers may only require small cuts in prices to compensate for the slightly
lower quality.
2. Differentiation strategy
Involves uniqueness along some dimension that is sufficiently valued by customers to allow
price premium.
Three primary differentiation drivers:
1) Product and service attributes: certain product attributes can provide better or unique
features than comparable products or services for the customers. In building a basis
for differentiation it is vital to identify the customer on whose needs the differentiation
is based.
2) Customer relationships: differentiation can also rely on the relationship between the
organisation and the customer. This relates to how the product is perceived by the
customer.
Ways of value creation:
▪ Customer services and responsiveness
▪ Customisation
▪ Marketing and reputation
3) Complements: differentiation can also build on linkages to other products or services.
The value of some products can be increased when it is consumed with other
products.
To create valuable differentiation involves additional investments. The differentiator needs to
ensure that the additional costs of differentiation de not exceed the gains in price.
3. Focus strategy
Targets a narrow segment or domain of activity and tailor its products or services to the needs
of that specific segment to the exclusion of others. The focuser achieves competitive
advantage by dedicating itself to serving its target segments better than others that are trying
to cover a wider range of segments.
Two variants:
1) Cost focus strategy → cost focusers: identify areas where broader cost-based
strategies fail because of the added cost of trying to satisfy a wide range of needs.
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