Competitive Strategies
 Corporate Level Directional Strategies
– Growth
• Vertical: Backward or forward integration
• Horizontal: Exporting, Licensing, Joint Ventures,
acquisitions, etc.
• Diversification
– Stability
– Retrenchment
Business Unit Strategies
FINDING A NICHE
 Low Cost Strategy
Large
Market
– Wal-Mart, Southwest Airlines, H&R Block
 Differentiation Strategy
– Rolls-Royce, Calloway Golf, Neiman
Marcus
 Focus Strategy
– Lexus, Porsche, Federal Express
Small
Market
Differentiation Methods
Total Quality Management
 The Primary Method
of Differentiation
 Customer Focus
 Management Takes
Lead
 Employee Training
and Empowerment
 Continuous
Improvement
 System of Capturing
Quality Costs
Other Differentiation Methods
 Process Innovations
– Computerizing manual operations
 Product Innovations
– Hewlett Packard (50% of products have
been on the market less than 2 years)
 Organizational Expertise
– Golf pro shops verses buying golf
equipment at Wal-Mart
 Service
 Marketing
Value of Product or Service
 Value Chains
– Progression of activities that add value in
the context of organization continuum
INPUTS
Materials
Quality Control
Inspections
Training
Labor
CONVERSION
(ADDING
VALUE)
Labor &
Machinery
Indirect Costs
OUTPUTS
(CUSTOMER
SATISFACTION)
Product OR
Service
Process Value Analysis
(Activity Based Management)
 Documentation of
Activities
 Categorize Activities as:
– Value Added
– Non-Value Added
 Define Lead Time
– From Order Receipt to
Delivery
 Eliminate or minimize
non value-added
activities
 Improve value-added
activities
Low Cost Leadership: Improve
Costing Systems
 Costs are traced to cost objects as closely
as possible
– Cost objects are targets of accumulations of
costs (products, departments, divisions)
– As to cost objects, costs are classified as:
• Direct Costs – Easily traceable to cost
objects
• Indirect Costs – Cannot be easily traced to
cost objects, thus must be assigned or
allocated
– Indirect costs are the problem
Indirect Cost Allocation
Methods
 Volume Based
– Units Produced, Direct Labor Hours,
Machine Hours, Material Cost, Direct Labor
Cost
 Activity Based Costing
– Accumulate costs first by activity pools
– Next, assigns activity costs to cost objects
– On the basis of respective cost object’s
usage of the activity
 Gives the TRUE COST
Other Cost Competitive
Strategies
 Cellular
Manufacturing
 Target Costing
 Just-in-Time
Inventories
 Benchmarking