STRATEGY FORMULATION

ALMA.SHAMEEM
 STRATEGY FORMULATION

• CHAPTER 06-BUSINESS STRATEGY

• CHAPTER 07-FUNCTIONAL STRATEGY

STRATEGY FORMULATION

CHAPTER 06
BUSINESS LEVEL STRATEGY
 Learning Objective
After learning this chapter, you should be able to
explain:
• How to identify strategic business units (SBUs) in organization?
• Different bases of achieving competitive advantage in terms of
‘routes’ on the strategy clock.
• The factors influencing the sustainability of competitive
advantage.
• The relationship between competition and collaboration.
• The principles of game theory in relation to competitive
strategy.
 BUSINESS LEVEL STRATEGY
• BLS focuses on improving the competitive
position of a company’s or business unit’s
products or services within the specific industry
or market segment that the company or business
unit serves.

• Corporate Strategy – What industry the company

should be in.

• Business Strategy - How the company or its units

should compete or cooperate in each industry.
 BUSINESS LEVEL STRATEGY
• BLS Can be:

Competitive Strategies (Batting against all

competitors)

Cooperative Strategies (Working with one or

more companies to gain advantage against
other competitors )
Identifying Strategic Business Unit

• A SBU is a part of an organization for which

there is a distinct external market for good
and services that is different from another
SBU.

• The identification of an organization’s SBU is

essential to the development of business level
strategies.
Identifying Strategic Business Unit
• There two broad criteria which will be a
important in identifying SBUs that are useful
when developing business level strategy.
1. External criteria for identifying SBUs are
about the nature of the marketplace for
different parts of the organization.
2. Internal criteria for identifying SBU are about
the nature of an organization’s strategic
capacity – Its resources and competences.
 BUSINESS STRATEGY
• Competitive Strategies
Porter’s Competitive Strategies
Competitive strategy raises the following questions:

1. Should we compete on the basis of low cost ,or should

we differentiate our products or services on some basis
other than cost, such as quality or services?

2. Should we compete head to head with our major

competitors for the biggest but most sought after share of
the market, or should we focus on a niche in which we can
satisfy a less sought after but also profitable segment of the
market?
 BUSINESS LEVEL STRATEGY
• Porter’s Competitive Strategies
Based on the two types of target markets ( Mass
Market and Market Niche)with the two
competitive strategies (Lower Cost Strategy and
Differentiation Strategy) result in the four
variations strategies:
Porter’s Competitive Strategy
 Bases of Competitive Advantage:
The Strategic Clock

• Its explain the different ways in which

managers in an organization might think about
competitive strategy, the bases on which a
business unit might achieve competitive
advantage in its market.
 Bases of Competitive Advantage:
The Strategic Clock
• Price based strategies (R1 and R2)
• Differentiation strategies (R4)
• The hybrid strategies ( R3)
• Focused differentiation ( R5)
• Failure strategies ( R6)
 Bases of Competitive Advantage:
The Strategic Clock
• Price based strategies (R1 and R2)
- R1:A no frills strategy combines a low price,
low perceived product / service benefits and a
focus on a price sensitive market segment.
- R2: A low price strategy seeks to achieve a
lower price than competitors whilst trying to
maintain similar perceived product or services
benefits to those offered by competitors.
 Bases of Competitive Advantage:
The Strategic Clock
• Differentiation strategies (R4)
R4: A differentiation strategy seek to provide
products or services benefits that are different
from those of competitors and that are widely
valued by buyers.
• The hybrid strategies ( R3)
R3:A hybrid strategy seeks simultaneously to
achieve differentiation and a price lower than
that of competitors.
 Bases of Competitive Advantage:
The Strategic Clock
• Focused differentiation ( R5)
R5: A focused differentiation strategy seeks to
provide high perceived product / service benefits
justifying a substantial price premium, usually to a
selected market segment (niche).
• Failure strategies ( R6)
R6: A failure strategy is one that does not
provide perceived value for money in terms of
product features, price or both.
 BUSINESS LEVEL STRATEGY
• Competitive Tactics
Some of the tactics available to implement
competitive strategies are:

1. Timing Tactics (When)

2. Market Location Tactics (Where)

Sustaining Competitive Advantage
• Sustaining price based advantage
• Sustaining differentiation based advantage
• The delta model and lock in
 Competitive Strategy in
Hypercompetitive Conditions
• Repositioning
• Overcoming competitors’ market
based moves
• Overcoming competitors' barriers
• Competing successfully
 Competition and Collaboration
• Competitiveness might be improved by
collaboration to achieve:
1. Increased selling power
2. Increased buying power
3. Increased barriers to entry
4. Decreased risk of substitution
5. Entry to new markets
6. Shared work with customers
7. Stakeholders expectations.
 Game Theory
• Game theory provides a basis for
thinking through competitors’
strategic moves in such a way as to
pre-empt or counter them.
 Key References
• Johnson G, Scholes K, and Whittington R,
Exploring Corporate Strategy : Text and Cases,
7th Edition,Dorling Kindersley (India).

• J David Hunger and Thomas L Wheelan,

Strategic Management (12th Edition), Dorling
Kinderseley (India) Pvt Ltd.
Thank you