BUSINESS LEVEL

STRATEGIES
Introduction
◦ Corporate level strategies lay down the framework in which business strategies
operate.

◦ The function of corporate level strategy is to deal with a portfolio of businesses in such a
manner that the overall returns are optimized.

◦ Corporate level strategies and, business definition act as the foundation of business
level strategies.
Two schools of thought of Business
Strategy
◦ Porter’s Positioning School- Outside In Approach

◦ Capabilities (resource) Based View- Inside Out Approach

The Positioning School
◦ Positioning School see strategy making as an analytical process. Emphasis is less on
plan, more on position.

◦ Firms need to find a position relative to their competitors but only a few key positions
are desirable in any industry.

◦ Emphasis is paced on the economic logic of occupying a monopoly position.

◦ The positioning school sees only generic strategies - independent of context.

Principles of the positioning school
◦ 1. Strategies are generic & transferable
◦ 2. Strategy formulation is calculating the best strategic position for your firm.
◦ 3. Industry analysis plays an important role in the process.
◦ 4. Strategies once selected are full blow - organizational structure is based on
choice of market position.
Generic Strategies
◦ Michael E Porter - Founder of the positioning school
◦ Factors that determine the choice of competitive strategy
Porter’s Five Forces Model
-Threat of new entrants
◦ 1. Industry Structure -Threat of substitutes
-Bargaining power of
Two Factors suppliers
◦ 2. Positioning of -Bargaining power of buyers
-Competitive Advantage
a Firm in the Industry Low Cost Products -Rivalry among firms
Differentiated Products

-Competitive Scope
Broad Target
Narrow Target
◦ Looking at the relationship between cost & scope, Porter devised three/four optimal
generic strategies

3 Basic Choices
1. Cost Leadership
2. Differentiation
3. Focus
1. Cost Leadership Strategy
◦ Be the lowest cost producer in the sector/industry
◦ Not necessarily low price, but trying to secure largest margin possible
◦ Erect mobility barriers to stop competitors eroding cost advantage

◦ McDonald’s
◦ RyanAir
◦ IKEA
◦ Tata Steel
Drivers of Cost Advantage
◦ Input/raw material cost
◦ Economies of Scale and Scope
◦ Economies of learning/experience
Achieving Cost Leadership
Economies of scale and scope

Product Production

High capacity utilization

Standardized Investment in cost saving technologies
Uniform Service Packages Withhold differentiation as much as possible

Average target consumer

Fulfilling mass needs
Cost Leadership Caveats
◦ Cost Advantage is ephemeral. Cost reduction techniques are imitable.
◦ Product becomes generic and easily copied
◦ As society gets rich, tastes may may move on from ‘one size fits all’
Apple- escape from the office
Fly Emirates- Hello tomorrow
2. Differentiation Strategy
◦ As opposed to cost leadership, the differentiation strategy allows companies to take on
an innovative approach for their products, and charge premium prices for it. For
example, Starbucks goes beyond selling coffee by providing a unique coffee
experience in their coffeehouses.

◦ Broad differentiation - being unique by focusing on a dimension sufficiently value by

customers to allow a premium but still aiming to serve a relative broad demographic

◦ Apple
◦ Emirates
◦ Harley Davidson
How to achieve differentiation?
1. Understanding what is valuable to Customers?

2. Enhancing differentiation by providing that value.

Innovation
Quality Improvement
Customer Service
Differentiation Drivers
1. Unique taste- 6. Product Reliability
◦ Redbull, Doritos Whirpool
2. Multiple Features-
◦ MS office, Apple Product quality, Technology, etc.
3. Wide selection in one stop shopping-
◦ Amazon, Home Depot
4. Superior Service-
Nordstorm
5. Design and Performance-
Mercedes Benz, BMW
3. Focus Strategy
◦ Focus Strategy is the strategy which believes in concentrating on a small segment
defined in terms of customer segment or geographical territory.

◦ A focus strategy means carefully choosing the arena to compete in and narrowing the
competitive scope.

◦ By selecting carefully a segment and meeting the needs of that segment better than
competitors who target more broadly defined segments, companies can gain
competitive advantage.

◦ A focus strategy can be pursued using either a differentiation or a low cost approach.
◦ If a company adopts a focused low cost strategy, it competes against the market cost
leader only in those segments where it has no cost disadvantage, such as small niches or
complex products that do not lend themselves to economies of scale.

◦ If a company adopts a focused differentiation strategy, it competes against the

differentiator by exploiting their knowledge of a small customer set or of a particular
specialization within the broader range of products. Focused differentiators may also be
more innovative than larger firms, because the focuser is concentrating on the needs of
just one type of customer.
◦ Ex. Hermes, Rolls Royace