BUS 498- Chapter 6

Define business-level strategy and describe how it determines a firm's strategic position:

Business-level strategy determines a firm's strategic position in its quest for competitive advantage when competing in a single industry or product market Strategic positioning requires that managers address strategic trade-offs that arise between value and cost, because higher value tends to go along with higher cost. Differentiation and cost leadership are distinct strategic positions. Besides selecting an appropriate strategic position, managers must also define the scope of competition- whether to pursue a specific market niche or go after the broader market.

cost drivers that keep costs low

Cost of input factors •Raw materials, capital, labor, and IT services Economies of scale •Decreases in cost per unit as output increases Learning-curve effects •Less time to produce output with experience Experience-curve effects •Improvements to technology and production processes

Economies of scope vs Economies of scale

Economies of scope: savings that come from producing two (or more) outputs at less cost than producing each output individually, despite using the same resources and technology Economies of scale: Decrease in cost per unit as output increases.

What Is Business Level Strategy?

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?

Assess the risks of a blue ocean strategy, and explain why it is difficult to succeed at value innovation:

A successful blue ocean strategy requires that trade-offs between differentiation and low cost be reconciled. A blue ocean strategy often is difficult because the two distinct strategic positions require internal value chain activities that are fundamentally different from one another. When firms fail to resolve strategic trade-offs between differentiation and cost, they end up being "stuck in the middle." They then succeed at neither business strategy, leading to a competitive disadvantage.

Strategic Position

Profile based on value creation and cost •In a specific product market A valuable and unique position, which: •Meets customer needs •At the highest possible product value •For the lowest possible product cost - Economic Value Created: (V-C) The greater (V-C) = Competitive Advantage

Assess the benefits and risks of differentiation and cost-leadership strategies visa-a-vis the five forces that shape competition:

The five forces model helps managers use generic business strategies to protect themselves against the industry forces that drive down profitability. Differentiation and cost-leadership strategies allow firms to carve out strong positions, not only to protect themselves against the five forces, but also to benefit from them in their quest for competitive advantage. Exhibit 6.8 details the benefits and risks of each business strategy.

Examine the relationship between cost drivers and cost-leadership strategy:

The goal of a cost-leadership strategy is to reduce the firm's cost below that of it competitors. In a cost-leadership strategy, the focus of competition is achieving the lowest possible cost position, which allows the firm to offer a lower price than competitors while maintaining acceptable value. Some of the unique cost drivers that managers can manipulate are the cost of input factors, economies of scale, and learning-and experience-curve effects. No matter how low the price, if there is no acceptable value proposition, the product or service will not sell.

Examine the relationship between value drivers and differentiation strategy:

The goal of a differentiation strategy is to increase the perceived value of goods and services so that customers will pay a higher price for additional features. In a differentiation strategy, the focus of competition is on value-enhancing attributes and features, while controlling costs. Some of the unique value drivers managers can manipulate are product features, customer service, customization, and complements. Value drivers contribute to competitive advantage only if their increase in value creation exceeds the increase in cost, that is ...(LOOK FOR MORE IN BOOK)

Evaluate value and cost drivers that may allow a firm to pursue a blue ocean strategy:

To address the trade-offs between differentiation and cost leadership at the business level, managers must employ value innovation, a process that will lead them to align the proposed business strategy with total perceived consumer benefits, price, and cost. Lowering a firm's cost is primarily achieved by eliminating and reducing the taken-for-granted factors on which the firm's industry rivals compete. Increasing perceived buyer value is primarily achieved by raising existing key success factors and by creating new elements that the industry has not yet offered. Strategic leaders track their opportunities and risks for lowering a firm's costs and increasing perceived value vis-a-vis their competitors by use of a strategy canvas, which plots industry factors among competitors (see exhibit 6.11)

learning curve effects

firms learn how to do things better by doing them repeatedly over time aka repeating a task causes over time finding faster and better ways to improve the process

Experience-curve effects

improvements to technology and production processes aka combines learning and tech improvements

minimum efficient scale (MES)

output range needed to bring down the cost per unit as much as possible, allowing a firm to stake out the lowest-cost position that is achievable through economies of scale

Value drivers

product features, customer service, complements