University of Cagliari, Faculty of Economics, a.a. 2012-13
A course within the II level degree in
Managerial Economics year II, semester I, 6 credits
Lecturer:
Dr Alberto Asquer aasquer@unica.it
Phone: 070 6753399

Business Strategy and Policy

Plan of this lecture
1. The “Bain paradigm”
2. The analysis of the industry: the 5 forces framework
3. The analysis of the position of the competitors: strategic grouping
4. Strategic positioning and the generic strategies
5. Hybrid strategies
- - - - - - - - - - - - -
6. Summary

1. The “Bain paradigm”
The “Bain paradigm” refers to the theoretical approach for which:
affects
affects

2. The analysis of the industry: the 5 forces framework
Michael Porter's (1980) theoretical framework for industry analysis
Threat of substitutive products
Bargaining power of suppliers
Internal rivalry
Bargaining power of clients
Threat of new entrants

2. The analysis of the industry: the 5 forces framework
Michael Porter's (1980) theoretical framework for industry analysis
Threat of substitutive products
Bargaining power of suppliers
Internal rivalry
Bargaining power of clients
Threat of new entrants

2. The analysis of the industry: the 5 forces framework
What are the effects of...
High brand preference and customer loyalty?
Low regulatory restrictions?
High demand growth?
Threat of substitutive products
Ease of market entry?
Bargaining power of suppliers
Internal rivalry
Bargaining power of clients
High switching costs?
Threat of new entrants
High learning or experience curves?
High economies of scale?
There are just a few large buyers?

2. The analysis of the industry: the 5 forces framework
For example, what is the attractiveness of the car industry?
Brand preference and customer loyalty?
Regulatory restrictions?
Demand growth?
Threat of substitutive products
Ease of market entry?
Bargaining power of suppliers
Internal rivalry
Bargaining power of clients
Switching costs?
Threat of new entrants
Learning or experience curves?
Economies of scale?
Are there just a few large buyers?

3. The analysis of the position of the competitors
Competitors tend to form groups whose members share similar competitive approaches and behaviour in the market.
The analysis of the position of the competitors results in a map of strategic groups.
Groups can be formed along any out of several dimensions, like: pricing behaviour, quality of products, geographic coverage, degree of vertical integration, product-line breath, distribution channels, type of service, etc.
Strategic groups can be represented into graphs!

3. The analysis of the position of the competitors
Example: strategic group map of the automotive industry
Wolkswagen,
Honda
BMW,
Mercedes
Toyota
Nissan,
Chrysler,
Mazda
Hundai,
Suzuki
General Motors,
Ford
Variety of models

3. The analysis of the position of the competitors
Example: strategic group map of the automotive industry
Wolkswagen,
Honda
BMW,
Mercedes
Toyota
Nissan,
Chrysler,
Mazda
Hundai,
Suzuki
More distance = less rivalry
General Motors,
Ford
Variety of models

3. The analysis of the position of the competitors
Example: strategic group map of the automotive industry
BMW,
Mercedes
Different position
= different competitive pressures, different strategies, different profit potential
Wolkswagen,
Honda
Toyota
Nissan,
Chrysler,
Mazda General Motors,
Ford
Hundai,
Suzuki
Variety of models

4. Strategic positioning and the generic strategies
Low-Cost
Strategy
Hybrid
Strategies
Differentiation
Strategy
Low-cost
Focus
Strategy
Differentiation

4. Generic strategies: overall LOW COST
The basis for sustained competitive advantage is lower costs than competitors
One way is to perform value chain activities more cost-effectively than competitors
Another way is to reconfigure the value system in such a way as to bypass or eliminate non-essential activities altogether

4. Generic strategies: overall LOW COST
Typical actions to improve cost-efficiency of the value chain:
Exploit economies of scale
Climb up the experience/learning curve
Operate at full capacity
Boost sales volumes
Improve supply chain efficiency
Use low-cost materials
Use online and other IT systems
Use labour-saving methods
Leverage on your bargaining power
Outsourcing and vertical integration

4. Generic strategies: overall LOW COST
Typical actions to reconfigure the value system:
Bypassing intermediates and directly sell to customers
Replace activities with faster and cheaper ones
Streamline operations by eliminating activities that are not needed or deliver little value
Relocate facilities to save shipping (and sometimes labour costs)
Simplify the product (no-frills)
Narrow the product line

4. Generic strategies: overall DIFFERENTIATION
The basis for sustained competitive advantage is “being different” possibly, in a way that is difficult to imitate
Sources of differentiation are found in:
- Supply chain activities
- R&D activities
- Production and technology activities
- Distribution activities
- Marketing activities
And differentiation works by making the product
1) cheaper to use;
2) better performing;
3) better satisfy the consumer;
4) faster to reach consumer.

4. Generic strategies: FOCUS
The basis for sustained competitive advantage is the specialisation to serve the particular needs (solve the specific problems) of selected targets within the consumers market
There are two variants:
1) Focused low-cost strategy

4. Generic strategies: FOCUS
The basis for sustained competitive advantage is the specialisation to serve the particular needs (solve the specific problems) of selected targets within the consumers group
There are two variants:
2) Focused differentiation strategy

4. Strategic positioning in “Hybrid Strategies”
The basis for sustained competitive advantage is the ability to incorporate attractive or upscale attributes at a lower cost than rivals, i.e.,
“Best Cost” strategy
It's a 'middle ground', or 'hybrid', strategic approach that broadly seeks to combine low cost and differentiation
There may be the risk to be “stuck in the middle” (Porter, 1980)

5. Summary
Main points
The 5-forces framework assists in analysing industry structure for the sake of assessment of the attractiveness of the industry.
Competitors tend to form strategic groups that can be mapped.
The generic strategies provide broad guidelines for formulating the direction for the strategic management of firms.
Low-cost, differentiation, and focus are the main generic strategies.
Firms may also try to follow “hybrid” strategies.