7.

BUSINESS STRATEGIES

1. Contingent concept of business strategies

2. Generic/standardized concept of business strategies
2.1 Porter’s competitive strategies
2.2 Hall’s competitiveness model
2.3 Mintzberg’s strategy typology
2.4 Miles and Snow’s strategy typology
2.5 Nelson Valverde’s strategy typology
2.6 Strategy clock typology

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 Business strategies
Three tasks/targets of business strategy
- how to compete in an industry or one of the market segments
- how to surpass rivals at satisfying the needs of the same customers
- how to acquire a competitive advantage over rivals

Three questions of business strategy

- What needs will be satisfied? – by product, service
- Who will be satisfied? - market, segment, customer
- What way will the needs be satisfied? - resources, processes, technology

Three answers of business strategy

A company reacts to various needs of customers through differentiation.
A company reacts to existence of various groups of customers through market
segmentation.
A mode of customer’s satisfaction depends on kind and level of distinctive
(core) competence of a company.
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 1. Contingent concept of business strategies

Contingent concept assumes, that for a certain package of circumstances or limited

conditions there is possible to find the best strategy.

Program PIMS (Profit Impact of Market Strategies) is a real application of contingent

concept in business practice.

Program saves and updates data from 3000 business units. Approximately 200 data are
gained and assessed from each business unit. Now there are being used items from 250
companies acting in various industries and countries.

A motive of program PIMS was an effort to detect what value of ROI or cash flow a
company should reach so that its development might be regarded successful.

Further, an answer had been looked for the question, which factors influence the size
of ROI. Program PIMS provides with solution expressed by regression equation put
together on the basis of quoted database, which formulates mathematical relation
between dependent variable ROI or cash flow and 37 independent variables.

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 Contingent concept of business strategies

Independent variables are divided in four groups. They constitute determinants of

ROI and are quantitative expression of external (1. and 2.) and internal (3. and 4.)
environment parameters.

1. Business environment – industry growth rate, inflation rate, entry barriers to

industry, segmentation rate of industry, frequency of innovation flows, number
and structure customers etc.

2. Competitive position – relative market share, price and quality of products

and services, promotion, new product development, etc.

3. Structure of business processes – vertical integration degree, productivity,

intensity of investment, etc.

4. Resource allocation – amount of R&D, marketing, etc. expenditures.

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 Contingent concept of business strategies

ROI
30 %
20 %
10 %
0% under 10 % 10-20 % 20-30 % 30-40 % over 40 %

Relative market share

Relation between relative market share tendency and ROI (%)

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 Contingent concept of business strategies

Market share (%) Quality of product

low average high
under 12 4,5 10,4 17,4
12 - 26 11,0 18,1 23,1
over 26 19,5 21,9 28,3

Influence of market share and product quality on ROI (%)

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 2. Generic/standardized concept of business strategies

Generic theory identifies some common features of action of successful

companies.

This theory assumes, that some strategies are almost always suitable without any
reference to a particular situation.

They are labeled as generic (general, generally being used, standardized)

strategies.

Generic concepts pass over many complexities of particular situations, but

empirical studies confirmed their validity in majority of cases.

There is a question, whether whatever generic strategy can cover all the
contingencies of strategic space (processes, relations, resources, limitations, etc.).

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 2.1 Porter’s generic competitive strategies

Competitive advantage
Low cost Differentiation
Broad 1. Cost 2. Differentiation
target leadership
Competitive
scope
3.a Cost focus 3.b Focused
Narrow differentiation
target

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 Product/market/distinctive competence choices and
generic competitive strategies

Cost Differentiation Focus

leadership
Product Low High Low to high
differentation (principally by (principally by (price or
price) uniqueness) uniqueness)
Market Low High Low
segmentation (mass market) (many market (one or a few
segments) segments)
Manufacturing Research and Any kind of
Distinctive and material development, distinctive
competence processes sales and competence
marketing

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 2.2 Hall’s competitiveness model

High Garden Power alley

of eden
Zone of
Relative
competitive battle
differentation Power
alley Danger
zone

Low Death
valley
Low High
Relative cost

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 2.3 Mintzberg’s strategy typology

1. Locating the core business

2. Distinguishing the core business
3. Elaborating the core business.
4. Extending the core business
5. Reconceiving the core business

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 1. Locating the core business

* Upstream business strategy – primary industries, raw material extraction and

conversion

* Midstream business strategy – secondary industries, manufacturing

* Downstream business strategy – tertiary industries, delivery and other services

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 2. Distinguishing the core business

Strategies of differentiation
* Price differentiation strategy
* Image differentiation strategy
* Support differentiation strategy
* Quality differentiation strategy
* Design differentiation strategy
* Undifferentiation strategy

Scope strategies
* Unsegmentation strategy
* Segmentation strategies
* Niche strategy
* Customizing strategy 13
 3. Elaborating the core business

Existing product New product

Existing Penetration Product

market strategies development
? strategies
New Market Diversification
market development strategies
strategies

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 4. Extending the core business

* Chain integration strategies (vertical)

* Diversification strategies (horizontal)

* Combined integration-diversification strategies

* Strategies of entry

* Withdrawal strategies

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 5. Reconceiving the core business

* Business redefinition strategy (movie camera – video camera)

* Business recombination strategies (jointing production of painting materials and

adhesives to the one business)

* Core relocation strategies (shift of inertia center along production, technology

and trade chain, transfer of emphasis on other functional area, leaving former
business, e. g. from production activities to trade activities)

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 2.4 Miles and Snow’s strategy typology

Strategic Adaptive strategies

decisions
Defenders Prospectors Analysers Reactors
Business Inclination to Inclination to Inclination to Reelaborating
stable unstable combined vision, mission,
environment environment environment goals and strategy
Technology Repeated and Flexible and Combined Reelaborating
effective innovative manufacturing manufacturing
manufacturing manufacturing and operational and operational
and operational and operational methods methods
methods methods
Administration Rigorous control Liberal control of Combined Reelaborating
of activities and activities and control mehods management
decisions decisions system

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2.5 Nelson Valverde’s strategy typology

High
Mink Lion
Added
value
Lynx Horse
Low
Narrow Wide
Amplitude of products
line

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 Nelson Valverde’s typology

Mink (few segments, high added value)

1. Sophisticated products/adapted to a certain segment
2. Marketing adapted to each segment
3. Image of speciality/exclusiveness/luxury
Examples: Bentley, Chivas Regal, Patek Philippe, Steinway, Calvin Klein

Lion (many segments, high added value)

1. Sophisticated products/adapted to a certain segment
2. Marketing adapted to each segment
3. Image of leader
4. Larger number of segments than mink
Examples: American Express, Boeing, Coca Cola, IBM, Daimler-Benz

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 Nelson Valverde’s typology
Horse (many segments, less added value)
1. Less sophisticated product than lion
2. Fewer models than lion
3. Image of good (appropriate) purchase
4. Wagers/stakes on progressive economies
5. Institutional marketing
Examples: Sears, Black & Decker, Texas Instruments, Levi’s, VW, Inditex (Zara)
Lynx (few segments, less added value)
1. Less sophisticated products than lion
2. Fewer segments and models than lion
3. Image of good (appropriate) purchase
4. Little service, smaller price margin
5. Fewer segments than horse
Examples: Renault Clio, Timex, New York Air, Fiat Punto, Lidl 20
2.6 The strategy clock: competitive strategy options

High Differentation
4
Hybrid
3 Focused
differentation
5

Perceived Low price

product/service 2 6
benefits

1 Strategies
„No 7 destined for
frills“ ultimate failure
88 6, 7, 8

Low

Low Price High

1 - flea market 5 - Rolls Royce

2 - Renault – Dacia 6 - energy suppliers, increased price, standard value
3 - Sony, Co. 7 - city transport, increased price, low value
4 - Fiat - without price premium, 8 - smaller rolls, the same price, but lower weight
VW - with price premium standard price, low value 21
 The strategy clock: competitive strategy options
1 „No frills“ – likely to be segment specific, flea market

2 Low price – risk of price war and low margins, need to be cost leader, Renault – Dacia ←

3 Hybrid – low cost base and reinvestment in low price and differentiation, Sony Co.

4 Differentiation ↑
a) without price premium – perceived added value by user, Fiat
b) with price premium – perceived added value sufficient to bear price premium, VW

5 Focused differentiation – perceived added value to a particular segment, warranting price

premium, Rolls-Royce

6 Increased price/standard value – higher margins if competitors do not follow, risk of losing
market share, energy suppliers →

7 Increased price/low value – only feasible in monopoly situation, city transport

8 Standard price/low value – loss of market share, backery – smaller rolls, the same price
however smaller weight ↓
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(low ← price → high, ↑ high benefits ↓ low)