Business level Strategy
Introduction
• Choices that can be made to gain competitive
advantage
• Organizations have a number of business units
• Competitive strategy in an organization is
created in the separate business units of the
organization
Three main elements that constitute
business-level strategy
IDENTIFYING STRATEGIC BUSINESS
UNITS
A strategic business unit is a part of an organisation for
which there is a distinct external market for goods or
services that is different from another SBU.
There are two opposing pitfalls that need to be avoided:
1. With too many SBU immense variety of competitive
strategies for a single organisation would create a lack
of focus and inefficiency
2. On the other hand, the concept of the SBU is
important in properly reflecting the diversity of
products and markets that actually exist
• Two broad criteria which can help in avoiding
these two pitfalls
• External criteria: the nature of the
marketplace for different parts of the
organisation (customer types, channels,
competitors, retail, mail order)
• Internal criteria: the nature of an
organisation’s strategic capability – its
resources and competences (technology)
BASES OF COMPETITIVE ADVANTAGE:
THE ‘STRATEGY CLOCK’
Competitive strategy is concerned with the basis on
which a business unit might achieve competitive
advantage in its market
• In this cadre the public organizations has to sustain the
quality of its services within agreed budgets
• Porter proposed that there three different strategies by
which an organisation could achieve competitive
advantage.
• Leadership
• Differentiation
• Focus
• There are a number of providers customers
will choose which offering to accept on their
perception of value-for-money
The strategy clock (competitive
options)
Price based strategies (route 1,2)
no frills’ strategy,
‘No frills’ strategy, which combines a low price,
low perceive product/service benefits and a
focus on a price-sensitive market segment.
Contd…
•
•
•
•
Price sensitive customers
Low switching costs
Alike products
There are a small number of providers with
similar market shares
• Avoid major competitors
Low-price strategy
2. The low-price strategy, seeks to achieve a lower price
than competitors whilst trying to maintain similar
perceived product or service benefits to those offered
by competitors
• There are several potential pitfalls when competing on
price:
• Although tactical advantage may be gained by
reducing price it is likely to be followed by competitors.
• Inability of the people to reinvest, so they will buy at
any cost
• Marginal reduction
Differentiation strategies (route 3)
A differentiation strategy seeks to provide products
or services benefits that are different from those
of competitors and that are widely valued by
buyers
It dependent on a number of factors:
• Who is the strategic customer(the reader of the
newspaper)
• Who are the competitors (business competing
with a wide competitor base or with a much
narrower base)
Hybrid strategy(route 3)
A hybrid strategy seeks simultaneously to achieve
differentiation and a price lower than that of
competitors
The hybrid strategy could be advantageous in the
following circumstances:
• Greater volumes can be achieved than competitors
• If an organisation is clear about the activities on which
differentiation can be built it may then be able to
reduce costs on other activities.
• As an entry strategy in a market with established
competitors, loose bricks
Focused differentiation (route 5)
A focused differentiation strategy seeks to provide high perceived
product /service benefits justifying a substantial price premium,
usually to a selected market segment (niche)
Focused differentiation raises some important issues:
• may be difficult when it is only part of an organization's overall
strategy – a very common situation
• Focus strategies may conflict with stakeholder expectations.
• The market situation may change and customers are unwilling to
pay high
Failure strategies (routes 6, 7 and 8)
A failure strategy is one that does not provide perceived
value-for-money in terms of product features, price or
both
• Route 6 suggests increasing price without increasing
product/service benefits to the customer.
• Route 7 is involving the reduction in product/service
benefits whilst increasing relative price
• Route 8, reduction in benefits whilst maintaining price,
is also dangerous, though firms have tried to follow it.
Sustaining competitive advantage
Lock-in
Lock-in is where an organisation achieves a
proprietary position in its industry; it become
an industry standard
COMPETITIVE STRATEGY IN
HYPERCOMPETITIVE CONDITIONS
Hyper competition is when many organisations
in both the public and private sectors face
instability, fast-changing, uncertain business
environments and increased levels of
competition
How to overcome
GAME THEORY
Game theory is concerned with the
interrelationships between the competitive
moves of a set of competitors
• to anticipate the reaction of competitors
• First, that a competitor will behave rationally
and always try to win to their own benefit
• Second, that the competitor is in an
interdependent relationship with other
competitors
• Simultaneous games: A simultaneous game is
where the players involved. for example,
competitors are all faced with making
decisions at a point in time
In game theory, equilibrium is a situation where
each competitor contrives to get the best
possible strategic solution for themselves
given the response from the other
• Sequential games: The guiding principle here is
to think forwards and then reason backwards.
• in particular the importance of:
• identifying dominant and dominated strategies;
• the timing in strategic moves;
• the careful weighing of risk;
• establishing credibility and commitment
• Repeated games: In repeated games,
competitors interact repeatedly and it has
been shown that in such circumstances the
equilibrium outcome is much more likely to
favour cooperation or accommodation of both
parties’ best interests