Business Level Strategy
Strategy Notes
2 essential (generic) strategic approaches
 Low cost leadership
 Differentiation
 Note slight variations
 Note "stuck in the middle," where companies make strategic investments that are
neither effective as low cost nor differentiation.
2 basic spheres of activity: Scope
 Broad
 Narrow
 These lead to 4 strategic approaches
5th approach: Integrated Low Cost
and Differentiation
 Also known as "best cost provider"
 Not for the faint-hearted
 Risk of failure by becoming "stuck in the middle"
Low Cost Strategy
 Drivers
o Economies of scale
o Capacity utilization
o Experience curve
o Product / service design
o Process innovation
o Internal value chain coordination
 Risks
o Low cost versus low cost leadership
o Price is not a strategy
o Customers no longer value benefits derived from low costs
o Cost positions can be imitated over time
Differentiation Strategy
 Drivers
o Product / service features
o Psychographic and cognitive benefits
o Process innovation
o Internal value chain coordinaton
 Risks
o Product differentiation is not a strategy
o Customers no longer value benefits derived from differentiation
o Differentiation positions can be imitated over time
© 2014 Page West
Important questions about business level strategy
1. Why does the successful pursuit of each create competitive advantage?
 Recall that competitive advantage = superior profitability (over the long run).
 Each approach can deliver superior profitability in the short run.
 Each depends on important caveats
 Maintaining parity conditions
 Evolution of customer expectations is accounted for
 Evolution of competitive conditions is accounted for
2. How does a company successfully pursue a type of business level strategy?
 Value chain investments – every cell
 Understand executional & structural cost drivers
 Consistency and coordination across value chain cells.
 Working upstream with suppliers & downstream with customers.
 Be able to diagram a value chain that uniquely reflects a company's strategy.
3. When is each type of strategic approach appropriate?
 Examining the stage of industry development provides guidance.
4. What are the risks associated with pursuit of each type of business level strategy?
 Review discussion for low cost leadership.
 Review discussion for differentiation.
 Review discussion for integrated approach.
Outsourcing
When is it appropriate?
 To enhance strategic position in the marketplace.
 To offload non-strategic activities that require time and resources and for which
there is no special competence.
Risks in outsourcing
 Loss of control over costs or differentiation values
 Disruption of coordination and linkages in internal value chain
 Hollowing out the core – the cumulative effect of a series of outsourcing moves
 Competitive learning