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Business-level strategies

Business-level strategies
Learning objectives
1. Explain the role of business-level strategies in the business strategy process
2

Outline three broad business-level typologies; in particular, Ansoffs product/


market strategies; Miles and Snows adaptive strategies; and Porters
competitive strategies

Identify and discuss the specific business-level strategies within these three
typologies and how these specific strategies may relate to one another

Discuss how a firms business-level strategies are enacted in the marketplace

Understand how to evaluate the effectiveness of the implementation of a


firms business-level strategies.

Business-level strategies
Outline
Introduction

A reminder: What is strategy?


Levels of strategy
The business-level strategy mix

Business-level strategies

Ansoffs product/ market strategies


Miles and Snows adaptive strategies
Porters competitive strategies

How are business level strategies enacted?


Evaluating effectiveness of business level strategies
Conclusion
Business level strategies: Summary
Strategic implementation: General perspective.

References

Hanson et al., (2014) Chapter 4 (especially pp. 104-124)

Article 5(b): Johnson et al., (2008) (especially pp. 257-262 and 278-280)

Article 8: Robbins, S. P., Bergman, R., and Stagg, I (2006). Management,


Prentice Hall, Australia (especially pp. 274- 279)

Readings in bold black are important.

A business strategy process: Rational or formal model


2.

Strategic analysis
3.

Analyse the
environment

Strategic
direction-setting

6.

Identify the
organisations
current vision,
mission and
strategic
objectives

Reassess the
organisations
vision, mission
and strategic
objectives

Analyse the
organisations
resources

Strategic
Strategic
implementation evaluation

Identify
opportunities
and threats

1.

4.

Strategic choice

7.
Formulate
business
strategies

8.

9.

Implement
strategies

Evaluate
results

5.
Identify
strengths and
weaknesses

(Source: Robbins, S. P., Bergman, R., Stagg, I. and Coulter, M. 2009. Management, 5th edition, Pearson Education,
Australia: 276; and Robbins, S. P., Bergman, R., and Stagg, I. 1997. Prentice Hall, Australia: 248 ).

Introduction
The previous topic examined strategy at the corporate level: that is,
strategies pursued by corporations with multiple businesses in different
industries/ markets.

This topic examines typical business-level strategies pursued by


firms in a single industry or market.

The next topic will examine international strategies typically pursued by a


firm operating in a single international industry or market.

Introduction
A reminder: What is strategy?

A strategy is a comprehensive plan or blueprint that sets out coordinated commitments and activities that will be implemented
in order to achieve strategic objectives.
(Hanson et al., 2014: 4-6)

Introduction
Levels of strategy
(Based on deWit and Meyer, 2010: 9)

NETWORK/ JOINT VENTURE LEVEL STRATEGIES


Multiple corporations working collaboratively

CORPORATE LEVEL STRATEGIES

Strategies for a corporation with multiple businesses

BUSINESS LEVEL STRATEGIES


Strategies for a business in a single industry or market
FUNCTIONAL LEVEL STRATEGIES
Strategies for each functional or discipline area in a business
that combine to implement business level strategies

Introduction

The business-level strategy mix

There is typically no one right, single business-level


strategy for larger firms:
Larger firms usually choose and implement a mix of businesslevel strategies to pursue their strategic objectives
Choosing these strategies is a complex and creative process
It is an ongoing process of constant review, refinement and
adaptation of strategies as environments, markets and
competitors change. This process never stops.

Business-level strategies
We examine three contemporary business-level strategic
typologies frequently adopted in practice:
Ansoffs product/ market business-level strategies
Miles and Snows adaptive business-level strategies
Porters competitive business-level strategies.

Business-level strategies
Ansoffs product/market strategies
Market penetration
Market development
Product development
Diversification
(Johnson et al., 2008: 257-262).

Business level strategies


Ansoffs product/market strategies

Markets/
Clients

Products/
Services

Same

Same
Market
Penetration

New
Product
Development

Least risk

New

Market
Development

More risk

Diversification

More risk

Pe ar son Education Australia 2000

Most risk

Business-level strategies
Ansoffs product/market strategies
Market penetration (or expansion) strategy

A market penetration or expansion strategy involves pursuit of increased


share of the existing market with the same products or services (Telstra)

Market share will usually come at the expense of competitors, who may
retaliate: a source of risk

Market penetration may reach a limit if regulators deem the firm has
gained excessive market power: another source of risk

A variation on this strategy is market consolidation, which involves


defending (rather than expanding) existing market share.

Business-level strategies
Ansoffs product/market strategies
Market development strategy

A market development strategy focuses upon delivering the same products


or services into new markets (ANZ into India)

New markets may include new market segments, new users, new regions,
states or countries not currently served by the firms existing products or
services: the newness of these markets is a source of risk

Sometimes a market development strategy will also involve pursuing a


product development strategy as well, to tailor the products or services to
the particular requirements of the new market.

Business-level strategies
Ansoffs product/market strategies
Product development strategy

A product development strategy involves modifying or creating new


products or services, targeted at existing markets in which the firm
operates (Woolworths into insurance)

However, as indicated in the previous slide, sometimes a product


development strategy, involving the tailoring of existing products or
services, is developed in conjunction with a market development strategy.

Business-level strategies
Ansoffs product/market strategies
Diversification strategy

A diversification strategy usually involves creating new products or


services for new markets not currently served by the firm: the newness of
offerings and markets creates considerable risk

To the extent a diversification strategy moves a firm into new industries,


this strategy tends to fit into corporate-level strategies (see topic on
corporate-level strategies).

Business level strategies


Miles and Snows adaptive strategies

Prospector strategy
Analyser strayegy
Defender strategy
Reactor strategy.

Miles and Snow link these four types of business level strategies to
the degree of turbulence found in the marketplace.

Business level strategies


Miles and Snows adaptive strategies

(Source: Robbins, S. P., Bergman, R., and Stagg, I 1997. Management, Prentice Hall, Australia: 257-260; and Miles, R.E.,
Snow, C.C., Meyer, A.D and Coleman, H.J. 1978. Organizational Strategy, Structure and Process. The Academy of
Management Review, July: 546-562).

Business level strategies


Porters competitive strategies
Differentiation in a broad market: product differentiation in ways
valuable to customers
Focused differentiation in a niche market
Cost leadership: lowest cost supplier in a broad market
Focused cost leadership in a niche market
Integrated differentiation and cost leadership in a broad market
Integrated differentiation and cost leadership in a niche market.

Business level strategies


Porters competitive strategies

Copyright 2014 Cengage Learning Pty Limited


Hanson et al., 2014: 110

Business level strategies


Porters competitive strategies
Differentiation strategy

Offering a product or service that is different to competitors offerings, in a


way that is valuable to a broad target market of customers (Toyota)

Differentiation can be along many dimensions: superior performance,


features, quality, prestige, image

This valuable differentiation of product or service enables the firm to charge


a price premium for its offering.

Focused differentiation strategy

Creating a differentiation strategy in a focused or niche market, or market


segment with special needs (Porsche)

Business level strategies


Porters competitive strategies
Cost leadership strategy

Offering a product or service that is cheaper than competitors offerings, in a


form (such as generic branding) that is valuable to a broad target market of
customers (Aldi)

A cost leadership strategy involves constantly looking for ways to reduce


costs of creating and supplying the product or service to the target market.

Focused cost leadership strategy

Offering a product or service at sufficiently low prices in a niche or focused


market segment, that makes it hard for rivals to enter or compete (Ikea)

Business level strategies


Porters competitive strategies
Cost leadership strategy
Experience curve or economies of scale theory lies behind a cost leadership
strategy (Viljoen and Dann, 2003: 272)

Unit
cost

Experience Curve

Accumulated volume
of production
Pe ar son Education Australia 2000

Business level strategies


Porters competitive strategies
Cost leadership strategy
There are many sources of savings for cost leadership strategies
Ongoing investment in more efficient, larger-scale facilities
Expanding volume (through market penetration/ development
strategies)
Learning over time how to make products/ deliver services more
efficiently
Ongoing product redesign and standardisation to reduce/ eliminate
costs of production
Ongoing cost and efficiency improvements in production, operating
and logistics systems
Securing lower cost factors of production.

Business level strategies


Porters competitive strategies
Cost leadership strategy
Some ways of achieving economies of scale to pursue a cost leadership
strategy
Subcontracting and outsourcing
Strategic alliances and joint ventures
Using technology: the internet; online activities
Developing organisation structures such as Shamrock
organisations and economic webs (see separate topic
Organisation structure and controls)

Business level strategies


Porters competitive strategies
Cost leadership strategy
Some implications of cost leadership strategies

Growing competitive pressures are forcing competitors to pursue cost leadership


strategies. Result?
Growing commoditisation of products and services. Examples?
QUESTION
How, then, may firms that need to pursue cost leadership strategies maintain and
strength their strategic competitive advantage other than through price?

Business level strategies


Porters competitive strategies
Integrated cost leadership/ differentiation strategies in broad or niche
markets

By combining product/ service differentiation that is valuable to the target


market with pursuit of cost leadership to constantly lower the cost of
providing the product or service

Differentiation reduces (but may not eliminate) pressure to frequently lower


price to match competitors lower priced offerings (Coles, Woolworths,
Kmart)

Cost leadership provides ongoing savings to reduce prices where necessary in


the face of competitive price pressure, as well as building/ protecting margin
to produce higher profitability (Virgin Australia, Jetstar).

Business level strategies


Porters competitive strategies
An example of integrated cost leadership/ differentiation strategies in
action for Australian raw sugar (Viljoen and Dann, 2003:278)
Just-in-time supply service to refiners (customers) avoids need to
stockpile
Expertise available to refiners to solve problems refining raw sugar
Chemical composition of raw sugar adjusted to refiners needs
Refiners get raw sugar delivered in right type of ship (front-end
loader or vacuum pump)
Raw sugar price stabilisation scheme available to refiners.

How are business-level strategic plans enacted?

Business-level strategies are generic concepts; you


cannot create and implement a differentiation strategy
as such!
The business-level strategy has to be made real.
How?

How are business-level strategic plans enacted?


Organic (internal) methods:
Develop functional level strategies (in areas such sales,
marketing, product/service development, production,
personnel, finance, distribution and logistics) that combine to
create the desired business level strategies

Some external methods:

Use mergers and acquisitions tools


Use strategic alliances and joint ventures tools
Use the franchising tool.
Note: these are all tools to enact business level plans. They are
not business-level strategies!

How are business level strategic plans enacted?


(Diagram based on deWit and Meyer, 2010: 9)

NETWORK/ JOINT VENTURE LEVEL STRATEGIES


Multiple corporations working collaboratively

CORPORATE LEVEL STRATEGIES

Strategies for a corporation with multiple businesses

BUSINESS LEVEL STRATEGIES

Strategies for a business in a single industry or market


Ansoffs product/ market strategies
Miles and Snows adaptive strategies
Porters competitive strategies
International strategies

FUNCTIONAL LEVEL STRATEGIES

Strategies for each functional or discipline area in a business that combine to implement
business level strategies
Sales

Marketing

Product development

Finance
Manufacturing

Systems
Accounting

IT

HR

Logistics

Many other disciplines

Evaluating effectiveness of business-level strategies


(Johnson et al., 2008: 278-280)

The Boston Consulting Group (BCG) portfolio matrix:


a model used to assess the effectiveness of
implementation of business-level strategies.

Evaluating effectiveness of business-level strategies


BCG portfolio matrix

Market Growth Rate

Stars

Relative Market Share


? Marks

Cash Cows

Dogs

Cash
movement
Product
Movement

35
Pe ar son Education Australia 2000

Evaluating effectiveness of business-level strategies


Additional theories that should be used to evaluate the effectiveness of
implementation of business-level strategies:

Turbulence theory: is there evidence of a mismatch between a firms market


turbulence and its business strategy focus? Evidence is often in the form of the
a pursuing wrong or inappropriate business-level strategies

Is there evidence of unrealised, unintended or imposed strategies? If so, it may


be a sign or wrong or poorly executed strategies

Is there evidence of strategic drift or strategic flux? Again, this may indicate
wrong or poorly executed strategies

Is the firm at a point where transformational change is needed? Again, this


need frequently indicates a firms chosen strategies have failed

Has the firm reached Point A or Point B on the sigmoid curve? Have they

Conclusion
Strategic decision-making is too complex for perfect decisions to
be made: they tend to be satisfactory rather than optimal
A good choice today may be a poor choice tomorrow:
Ongoing strategic decisions needed
Strategy must be flexible enough to continue to change

Strategic decision-making involves much judgment and intuition.


Why?

Above all, strategic decision-making is a never ending process of


creation, trial and error, adaptation and adjustment - at both
business and functional strategy levels - to ensure a firm remains
competitive in this era of rapid, volatile, discontinuous change!