Strategy & Competition
Business Level
Strategy
Michel Greiche
Department of Management
Today we focus on understanding how
organizations build business level strategies
Agenda
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Business Level Strategy
 What are we talking about when we talk about strategy?
 Know your customer!
 Types of Business Level Strategies
Case – Brooklyn Brewery
 Brooklyn Brewery faces challenges in its next phase of
life
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The dynamics of the beer industry? Attractive?
How did BB overcome these dynamics to establish a strong
position? What has happened to that position and why?
What are the strategic business level decisions to be taken?
What are we talking about when we talk about
strategy?
Business Strategy
• Participation strategy. Which product
markets do I compete in?
• Competitive strategy. How can I
serve existing customers better and
attract new customers? How do I align
my operating model to deliver my
customer proposition?
• Organization strategy. How do I
mobilize my organization (structure,
processes)? What is the role and mix
of my leadership team?
Corporate Strategy
• Portfolio strategy. What is the right
size and mix of my portfolio of
businesses? Which businesses will
drive growth? Which businesses will
fund growth?
• Value-added strategies. What
synergies can I capture across
businesses (shared assets and
capabilities) that will deliver more value
than the sum of the parts?
• Management model. How do I manage
my portfolio of businesses (structure ,
processes)? What is the role of the
centre?
• Capital model. How do I allocate
capital and other scarce resources?
PwC
What does a good strategy look like?
• Makes real choices and trade-offs, focusing on key
strategic bets for the business
• Creates distinctiveness, focusing on sources of
profitable difference that competitors can’t easily match
• Links choices to how companies make money over time,
leveraging a company’s key assets and capabilities
• Ensures consistency across the business, driving
decision-making and behaviors which support delivery
of the strategy
• Is executable with existing assets, capabilities and
resources
PwC
Shared strategic foundation
3 requirements to developing better strategies
1.
Understand where value is created or destroyed
2.
Understand why value is created or destroyed (market
attractiveness, competitive position)
3.
Understand what choices you can make to unlock
value (business model)
The underlying principle is that value can be managed: better strategies lead to better performance
PwC
Understanding where and why value is created or
destroyed
Where value is created or destroyed
Why value is created or destroyed
Profitable
Mixed performance,
usually vulnerable
Brand 1
Area = profit
Brand 3
Brand 4
Capital employed
Market attractiveness
Brand 2
Brand 2
ROCE
High profit and
value creation
Unprofitable
Brand 1
Area = profit
Brand 3
Brand 4
Unprofitable and
value destruction
Mixed performance,
usually profitable
Disadvantaged
Advantaged
Competitive position
Two sources of value creation (or destruction): market attractiveness and/or competitive position
PwC
Understanding what choices you can make to
unlock value
“Tips and tricks”
Profitable
Participation strategy
(where to play)
Geographies
Customers
High profit and
value creation
Brand 2
Market attractiveness
Products
Mixed performance,
usually vulnerable
Brand 1
Area = profit
Brand 3
Brand 4
Channels
Value chain activities
Unprofitable
Unprofitable and
value destruction
Mixed performance,
usually profitable
Disadvantaged
Advantaged
Competitive position
Proposition
Operations
Competitive strategy (how to win)
PwC
• Estimate
position.
Use combination
of quantitative
and qualitative
judgement to
define position.
• Consider
evolution.
Assess how
businesses are
likely to change
position over
time.
The customer plays a central role when selecting
the business level strategy
Customer Role
• Who does the company want to serve?
• What are the needs of these target customers?
• What is the target customer willing to pay to have these
needs fulfilled?
• How the company will satisfy these needs?
Generic Approaches: Business Level Strategy
Cost leadership
Differentiation
Focus
Generic Approaches: Bases of competition
There are essentially three different types of
competitive advantage
Types of Competitive Advantage
Average
industry
competitor
Differentiated
competitor
Low-cost
competitor
Competitor
with dual
advantage
The wider the gap the greater the competitive advantage.
Willingness to pay
Supplier opp. cost
How to obtain a cost advantage?
• Offer no-frills, standardized products/services for the average
customer
• Reap large cost savings with only slight decreases in willingness to
pay
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Determine and control cost drivers
Configure the value chain accordingly and focus on efficiency
• Risks in achieving this type of competitive advantage include:
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Loss of competitive advantage to newer technologies
Failure to detect changes in customers’ needs
Competitors’ ability to imitate the cost advantage through their
own unique strategic actions
How to obtain a differentiation advantage?
• Offer products/services with unique features for which customers
are willing to pay price premium
 Raise performance of product/service
 Increase customers’ reluctance to switch to non-unique product
• Raise the willingness to pay a premium with only a slight increase
in costs
 Configure value chain/activity system accordingly
• Risks in achieving this types of competitive advantage include:
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Customers decide that the differences between the
differentiated product and the cost leader’s product are not
worth a higher price
Competitors offer similar products at a lower cost
Counterfeiters offer a cheap “knockoff” of a differentiated good
or service
How to achieve a dual advantage?
 Provide relatively low cost products with valued differentiated features
 Use primary and support activities to produce differentiated products
at relatively low costs
 Critical Success factors include: Flexible Manufacturing Systems,
Information Networks, TQM Systems
 Risks in achieving this type of competitive advantage:
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Products/services that lack sufficient low cost or differentiation
To be “stuck in the middle”, i.e. lacking a strong commitment to or
expertise with either type of generic strategy
The Power of the Matrix!