Part 2: Strategic Choices

The Focus of Part 2: Strategic Choices (1)

How an organisation positions itself in relation to competitors in terms of its overall competitive strategy
The scope and diversity of an organisations products and therefore the nature of its corporate portfolio and how that portfolio is managed

The geographic scope of the organisation and the bases of its international strategy
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The Focus of Part 2: Strategic Choices (2)

The extent to which and how it seeks to foster innovation and entrepreneurial endeavour
Ways in which it might pursue strategic options in terms of organic development, acquisitions or joint ventures The criteria and tools by which these choices might be evaluated

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Exhibit II.i Strategic Choices

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Exhibit II.ii The TOWS Matrix

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Strategic Choices 6: Business-Level Strategy

Learning Outcomes (1)

Identify strategic business units (SBUs) in organisations
Explain bases of achieving competitive advantage in terms of routes on the strategy clock Assess the extent to which these are likely to provide sustainable competitive advantage

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Learning Outcomes (2)

Identify strategies suited to hypercompetitive conditions
Explain the relationship between competition and collaboration Employ principles of game theory in relation to competitive strategy

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Exhibit 6.1 Business-Level Strategies

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What is a Strategic Business Unit?

A strategic business unit (SBU) is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU.

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Exhibit 6.2 The Strategy Clock

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Route 1: No Frills Strategy

Low price combined with low perceived product benefits focusing on pricesensitive market segments
Commodity markets Price-sensitive customers High power, low switching costs among buyers

Opportunity to avoid major competitors

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EasyJets No Frills Strategy (1)

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EasyJets No Frills Strategy (2)

Upon what are the bases for easyJets no frills strategy?
How easy would it be for larger airlines such as BA to imitate the strategy?

On what bases could other low-price airlines compete with easyJet?

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Route 2: Low-Price Strategy

Lower price than competitors while offering similar product benefits
Pitfalls

Margin reductions
Inability to reinvest

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Morrisons Low Price Strategy

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Route 3: Hybrid Strategy

Seeks to simultaneously achieve differentiation and low price relative to competitors
Advantageous when
Greater volumes can be achieved Cost reductions outside differentiated activities are available Used as an entry strategy

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Route 4: Differentiation Strategy

Seeks to provide products that offer benefits that differ from those offered by competitors
Dependent upon Identifying and understanding strategic customer needs

Identifying key competitors strategies

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Route 5: Focused Differentiation

Seeks to provide high perceived product benefits, justifying price premiums Key issues

Choice between focus strategy and broad differentiation

Tensions between focus strategy and other strategies

Market changes

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Routes 6-8: Failure Strategies

6 Increase prices without increasing service/product benefits
7 Reduction in product/service benefits with increase in relative price

8 Reduction in benefits whilst maintaining price

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Exhibit 6.3 Sustaining Competitive Advantage

Price-based strategies
Sustainable competitive advantage Differentiation

Lock-in
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Achieving Low Prices

Operate with lower margins

Develop a unique cost structure

Create efficiency in organisational capabilities

Focus on market segments with low expectations

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Ryanair

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Dangers of Low Price Strategies

Competitors might follow suit
Customers associate low price with low benefits Cost reductions may result in inability to pursue differentiation strategy

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Ways of attempting to Sustain Advantage through Differentiation

Create difficulties of imitation

Create a situation of imperfect mobility

Establish a lower cost position

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Yellow Tail

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Establishing Strategic Lock-In

Size or market dominance

First-mover dominance

Self-reinforcing commitment

Insistence on preservation of position

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Exhibit 6.5 Competitive Strategies in Hypercompetitive Conditions

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Exhibit 6.6 Competition and Collaboration

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What is Game Theory?

Game theory is concerned with the interrelationships between the competitive moves of a set of competitors.

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Exhibit 6.7 A Prisoners Dilemma

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Chapter Summary (1)

Competitive strategy is concerned with seeking competitive advantage
Competitive strategy must be defined in terms of SBUs The bases of competitive strategy include no frills, low-price, differentiation, hybrid, and focused differentiation strategies

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Chapter Summary (2)

Managers must consider the bases upon which price-based or differentiation strategies can be sustained on strategic capabilities
Sustainable competitive advantage is difficult to achieve in hypercompetitive conditions Strategies of collaboration may offer alternatives to or complement competitive strategies

Game theory provides a basis for examining possible competitive moves

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Key Debate: To Be Different or the Same ? To what extent do universities compete by being different or the same? Car manufacturers? Considering the nature of their industries and key players within them, why might these organisations adopt these approaches to conformity or differentiation?
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Case Example: Madonna (1)

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Case Example: Madonna (2)

Describe and explain Madonnas competitive strategy.
Why has she experienced sustained success? What might threaten the sustainability of her success?

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