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CHAPTER 4 BUSINESS-LEVEL STRATEGY

A business-level strategy is an integrated and coordinated set of commitments and actions the
firm uses to gain a competitive advantage by exploiting core competencies in specific product
markets.
Customers: Their relationship with Business-Level Strategies
Customers are the foundation of successful business-level strategies. When considering
customers, a firm simultaneously examines three issues: who, what, and how. These issues,
respectively, refer to Who (the customer groups to be served), What (the needs those
customers have that the firm seeks to satisfy), and How (the core competencies the firm will
use to satisfy customers needs).
Firms relationships with customers are characterized by three dimensions :
# Reach dimension: concerned with the firms access and connection to customer
# Richness: concerned with the depth and detail of the two-way flow of formation
between the firm and customer
# Affiliation: concerned with facilitating useful interactions with customers

The Purpose of Business-Level Strategy


# To create differences between the firms position and those its competitors.
# Perform activities differently or perform different activities

Types of Business-Level Strategy


1. The cost leadership strategy is an integrated set of actions taken to produce goods or
services with features that are acceptable to customers at the lowest cost, relative to that
of competitors. Firms using the cost leadership strategy commonly sell standardized
goods or services (but with competitive levels of differentiation) to the industrys most
typical customers.
Rivalry with existing competitors
Bargaining power of buyers (custmoers)
Bargaining power of supplies
Potential entrants
Product substitutes

Competitive risks associated with the cost leadership strategy include


(1) a loss of competitive advantage to newer technologies,
(2) a failure to detect changes in customers needs,
(3) the ability of competitors to imitate the cost leaders competitive advantage
through their own unique strategic actions.
2. Differentiation Strategy is an integrated set of action taken to produce goods/services (at
an acceptable cost) that customers perceive as being different in ways that are important
to them.
Product must have different (and valued) features.
Because of their uniqueness, differentiated goods or services are sold at a premium
price. Products can be differentiated along any dimension that some customer group
values.
Risks associated with the differentiation strategy include :
(1) a customer groups decision that the differences between the differentiated product
and the cost leaders goods or services are no longer worth a premium price,
(2) the inability of a differentiated product to create the type of value for which customers
are willing to pay a premium price,
(3) the ability of competitors to provide customers with products that have features
similar to those of the differentiated product, but at a lower cost,
(4) the threat of counterfeiting, whereby firms produce a cheap knockoff of a
differentiated good or service.
3. Focus Strategies is an integrated set of actions taken to produce goods or services that
serve the needs of a particular competitive segment. Thus, firms use a focus strategy
when they utilize their core competencies to serve the needs of a particular industry
segment or niche to the exclusion of others.
The competitive risks of focus strategies include :
(1) a competitors ability to use its core competencies to outfocus the focuser by
serving an even more narrowly defined market segment,
(2) decisions by industry-wide competitors to focus on a customer groups specialized
needs,
(3) a reduction in differences of the needs between customers in a narrow market segment
and the industry-wide market.
4. Intergrated Cost Leadership/differentiation Strategy involves enganging in primary
and support activities that allow a firm to simultaneously pursue low cost and
differentation.

The objective of using this strategy is to efficiently produce products with some
differentiated features. Efficient production is the source of maintaining low costs
while differentiation is the source of creating unique value.Firms that successfully use
the integrated cost leadership/differentiation strategy usually adapt quickly to new
technologies and rapid changes in their external environments.
Flexibility is required for the firm to learn how to use primary and support activities
in ways that allow them to produce differentiated products at relatively low costs. A
flexible manufacturing system (FMS) increases the flexibilities of human, physical,
and information resources that the firm integrates to create relatively differentiated
products at relatively low costs.
Total Quality Management Systems is a managerial innovation that emphasizes an
organizationstotal commitment to the customer and to continuous improvement of
every process through the use of data-driven, problem-solving approaches based on
empowerment of employee groups and teams. Firms develop and use TQM systems
in order to (1) increase customer satisfaction, (2) cut costs, and (3) reduce the amount
of time required to introduce innovative products to the marketplace.
The primary risk of this strategy is that a firm might produce products that do not
offer sufficient value in terms of either low cost or differentiation. In such cases, the
company is stuck in the middle. Firms stuck in the middle compete at a
disadvantage and are unable to earn more than average returns.

RM 7 Singapore Airlines Balancing Act


SIA is the most cost effective operator, on 2007 they cost per available seat kilometer was the
lowest between the other competitor such as European Airlines, US Airlines, etc. the also
successfully executes dual strategies. SIA offers world class services and the same time is a
cost leader. They offer premium class and LCC at the same time. This airlines also never
posted loss since its established in 1972.

They executes dual strategies by managing innovating in both centralized and decentralized
manner, being a technology leader and follower, achieving standardization and
personalization in its processes, and providing services excellence cost effectively.
SIA achieving service excellence cost effectively by managing two main assets which is
planes and people. They spends more than their rivals in key areas such as : buying new
aircraft, depreciating aircraft, training, labor cost on flights and innovation. And also their
spends less at partly as a consequence on : price per aircraft, fuel maintenance and repair,
salaries, sales and administration and back office technologies.
SIA also concern in their technology that they use. Unlike many market leaders in airlines
industry, SIA engages in small improvement in functions that dont touch the customer. SIA
introduced technological break through to save cost. They being a little pragmatic innovator
also withdrew services which customers dont like or cause problems. Like they do in 2004,
SIA outsourced many of its IT functions so it could focused on their core business.
SIA services processes like those of most other airlines. They using standardization for
personalization. SIA airlines institutionalizes personalization by creating a services culture
through recruitment, training and rewards. The crew members gets access to personal
information like name, birthday from CRM for bringing delight to customers experience.
Emulating SIA its not just about following its best practices. Its all about implementing two
seemingly contradictory strategies. This involve four broad principle. First, Harness the
power of your people and culture Second, make good use of technology because technology
cant transcend apparent contradictions cost effective service excellent. Third, utilize the
power of business ecosystems which is company must create business ecosystems rather than
ecosystems. Fourth, make investment decisions strategically, this about strategic alignment
not financial returns.