AB3602/AB3601

Strategic Management

Session 6: Business Strategy

YAN Li, Ph.D.

Senior Lecturer
Strategy, IB & Entrepreneurship
Nanyang Business School
Nanyang Technological University
1
AY2023-2024 Semester 1
Strategic Analysis
The Process Approach
❖ Institutional Analysis (General/Business Environment)
❖ PESTEL or 7 Segments General Environment
❖ Industry Analysis (Industry/MKT Structure)
❖ Five Forces (Define the MKT/Seg + strategy group)
❖ Internal and External Analysis (firm-level)
❖ SWOT (external-internal)
❖ Value Chain (internal-external)
❖ RBV (Resource-based View)
❖ Generic Strategy / Strategic positioning
Business Strategy
2
Case: Beyond Meat
Case: Beyond Meat
Case discussion questions:
1. What key factors have contributed to the emergence of
the alternative meats industry?
Focus on the major external trends that have shaped this
new food industry segment.
2. Provide a comprehensive analysis of the drivers of
industry profitability in the meat alternatives business.
3. What is Beyond Meat’s business strategy?
How did it (BYND) craft its strategy for the business?
45
Minutes
 RBV: Internal Analysis
Resource-based View
❖ Management/General Resources
❖ Strategic Resources Corporate
competitiveness

WHY
Source: Adapted from Barney 1991 Prof. Jay Barney
 Four Criteria of Competitive Advantages

Valuable Capabilities • Help a firm neutralize threats or exploit opportunities

Rare Capabilities • Are not possessed by many others

Costly-to-Imitate • Historical: A unique and valuable organizational culture or brand
Capabilities name
• Ambiguous cause: The causes and uses of competencies are
unclear
• Social complexity: Interpersonal relationships, trust, and friendship
among managers, suppliers, and customers

Non substitutable • No strategic equivalent

Capabilities
 RBV: Competitive Consequences
Is the Is the Is the Capability Is the Capability Competitive Performance
Capability Capability Costly to Imitate? Nonsubstitutable? Consequences Implications
Valuable? Rare?
No No No No Competitive Below-average
disadvantage returns
Yes No No Yes/No Competitive parity Average returns

Yes Yes No Yes/No Temporary Average returns

competitive to above-average
advantage returns
Yes Yes Yes Yes/No (Sustainable ？) Above-average
competitive returns
Advantage

11
 Resources-based View
{I + N}

Case: From Fishmarket to Fish Philosophy

https://www.youtube.com/watch?v=iGwo67vCh4U Prof. Jay Barney
12
Resource-based View: VRIO

13
 Case: From Fish Market to Fish Philosophy
https://www.youtube.com/watch?v=iGwo67vCh4U
Video Case:
From Fish Market to Fish Philosophy

14
Video Case:
From Fish Market to Fish Philosophy

❖ Identify Pike Place Fish’s Core Competencies

❖ Explain why they are so successful?
10
Minutes

15
Resource-based View: VRIO

16
Sustainability Considerations in
Internal Analysis
❖ Sustainability considerations include understanding the impact of
sustainability, such as environment (E) and social (S) factors on a
firm’s value chain activities. Examples include:
❖ Human Resource Management oversight of safe working conditions.
❖ Technology Development to consider product safety and recycling.
❖ Inbound Logistics to reduce greenhouse gas emissions.
❖ More examples may be found in Porter and Kramer’s “Strategy and
Society” article in the Dec 2006 issue of Harvard Business Review
(available online via NTU Library).
Sustainability Considerations in Internal Analysis
Overview of Internal Analysis
AB3602/AB3601
Strategic Management

Session 6: Business Strategy

YAN Li, Ph.D.

Senior Lecturer
Strategy, IB & Entrepreneurship
Nanyang Business School
Nanyang Technological University
20
AY2023-2024 Semester 1
Business Strategy
❖ A business-level strategy is an integrated and
coordinated set of commitments and actions the firm
uses to gain competitive advantages by exploiting core
competencies in specific product markets
❖ Products/services
❖ Who will be served
❖ What needs those target customers have to be satisfied
❖ How those needs will be satisfied

21
What is Business Strategy?
❖ How to compete in an industry or industry
(market) segment?
❖ Making choices about one’s products/services and
activities that are intended to create differences
between the firm’s competitive position relative to
those of its rivals.
❖ The firm’s competitive position should lead to
competitive advantages over rivals
(i.e., above-average returns).
Market Segmentation
❖ A process used to cluster people with similar needs into
individual and identifiable groups
More important for
today’s business

23
Business Models
❖ Business models are part of a comprehensive
business-level strategy.
❖ A business model influences strategy implementation,
especially in terms of the interdependent processes the
firm uses during implementation.
❖ A business model describes what a firm does to create,
deliver, and capture value for its stakeholders.
❖ Business model innovation occurs when a firm
determines that its current business model is outdated
and successfully replaces it with a newer one.
Business Models
❖ Firms select from many different business models
❖ Freemium model
❖ Advertising model
❖ Peer-to-peer model
❖ Franchise model
❖ Subscription model
❖ Digital platform model
 Generic Strategy: Business Strategy
Strategic Positioning, or Positioning
❖ Cost Leadership is NOT
MKT

Price Leadership
❖ Cost Leadership does
NOT always mean a
lower price
❖ The main task is to
reduce the cost

Determining the cost/value trade-off you wish to offer consumers is the most critical decision” -- Porter (1996)
Strategic Positioning: Generic Strategy

Integrated Strategy

❖ Traditional theoretical discussion indicates that cost

leadership and differentiation are not compatible.
Generic Strategy or Business Strategy
Five Business-Level Strategies

28
Business Strategy
❖ A business-level strategy is an integrated and
coordinated set of commitments and actions the firm
uses to gain competitive advantages by exploiting core
competencies in specific product markets
❖ How to define business strategy
❖ Who will be served (MKT/Segment)
❖ What needs those target customers have to be satisfied
❖ How those needs will be satisfied
❖ Value preposition (Real and Perceived)
❖ Price
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The customer, the Nature
and the Function or Utility

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Generic Strategy or Business Strategy
Comparison of Cost Leadership and Differentiation Strategies
Cost Leadership Differentiation

Business Model At the lowest price At a premium price

Strategy At the lowest cost At the highest real and perceived value

Lower the price to the highest level of the Raise the price to the highest willingness to
largest market share (%) pay of the largest market scale ($)

Product/Service Standard Unique

Brand
Emphasis Efficiency Effectiveness

Improve operation excellence and cost Effective branding, advertising, unique

control design, outstanding quality and service, etc.
Minimize marketing, R&D, etc.
32
Definitions
❖ Cost Leadership:
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.
❖ Low cost: not low price
❖ Differentiation:
an integrated set of actions taken to produce goods and
services that customers perceive as being different in
ways that are important to them
❖ Perceive: not think (with rationality)
33
Definitions
❖ Focus:
an integrated set of actions taken to produce goods or
services that serve the needs of a particular competitive
segment
❖ Define the market, today, usually refers to defining a unique
segment
❖ Integrated Strategy:
engaging in primary value chain activities and support
functions that allow a firm to simultaneously pursue low
cost and differentiation
34
Risks of Cost Leadership
❖ A loss of competitive advantage to newer technologies.
❖ A failure to detect changes in customers’ needs.
❖ The ability to imitate the cost leader’s competitive
advantages through competitors’ own distinct strategic
actions.

35
Risks of Differentiation
❖ A customer group’s decision that a differentiated product’s
unique features are no longer worth a premium price.
❖ The inability of a differentiated product to create the type of
value for which customers are willing to pay a premium price.
❖ The ability of competitors to provide customers with products
that have features similar to those of the differentiated product
but at a lower cost.
❖ Counterfeiting.
❖ The failure of a firm to meet customers’ expectations through its
efforts to implement the differentiation strategy.
36
Risks of Focus Strategy
❖ A competitor’s ability to use its core competencies to “out focus”
the focuser by serving an even more narrowly defined market
segment
❖ An industry-wide company’s decision that the market segment
served by the firm using a focus strategy is attractive and worthy
of competitive pursuit (Large competitor may set its sights on
your niche market)
❖ A reduction in differences of the needs between customers in a
narrow market segment and the industry-wide market over time
(Preferences of niche market may change to match those of
broad or another market)
37
Risks of Integrated Strategy
❖ 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 becomes “stuck in the middle.”
❖ Firms stuck in the middle:
❖ Compete at a disadvantage.
❖ Are unable to earn more than average returns.

38
Case: Beyond Meat
Case discussion questions:
1. What key factors have contributed to the emergence of
the alternative meats industry?
Focus on the major external trends that have shaped this
new food industry segment.
2. Provide a comprehensive analysis of the drivers of
industry profitability in the meat alternatives business.
3. What is Beyond Meat’s business strategy?
How did it (BYND) craft its strategy for the business?
8
Minutes
Case: Beyond Meat
3. What is Beyond Meat’s business strategy?
How did it (BYND) craft its strategy for the business?

❖ MKT/Seg
❖ Needs
❖ Value Proposition
❖ Price
Challenges of Internal Analysis
❖ Three conditions affect managers as they analyse the
internal organization and make decisions about
resources:
❖ Uncertainty
❖ Complexity
❖ Intra-organizational conflict

42
Determining Business-level Strategy

43
Determining Business-level Strategy 1
❖ Understand the value drivers of the customers
❖ Conduct Market Segmentation
❖ Group customers based on their value drivers (i.e., important
and significant differences in their needs, attitudes, and buying
practices)
❖ Consumer buyers (e.g., demographics, socioeconomic, consumption
patterns, etc)
❖ Industrial buyers (e.g., size, geography, end-use, etc)
❖ After market segmentation, the firm can:
❖ develop a product to suit the needs of each customer grouping OR
❖ concentrate on one customer grouping
44
Determining Business-level Strategy 2
❖ Examine the attractiveness of the segment(s)
❖ Attractiveness of Market Segments
❖ Tools in external environment analyses will be useful in
determining environmental opportunities and threats and, thus,
segment attractiveness. For instance
❖ General Environment Analysis
❖ Porter’s Five Forces Model
❖ Generally, a firm should choose to compete in a more attractive
market segment or segments (provided the firm has the
necessary resources and capabilities to have a sustainable
competitive advantage in that segment or segments)
45
Determining Business-level Strategy 3
❖ Examine internal strengths and weaknesses
❖ Based on the value drivers of the customer segment and results of
the external analyses (e.g., opportunities and threats of that
segment), a firm should determine or choose the most appropriate
business strategy to compete in that segment.
❖ Assessment of Internal Strengths and Weaknesses
❖ Feasibility Test:
Does the firm have the available resources/capabilities to execute the
intended business strategy?
❖ Test of Sustainable Competitive Advantages:
Do those resources/capabilities provide a sustainable competitive
advantages?
46
Quantitative analysis
to supplement evaluation of business strategy
❖ Commonly used measures of Profitability such as
❖ Return on Equity (ROE)
❖ Return on Assets (ROA)
❖ EBIT Margin
❖ Gross Margin
❖ Net Margin
❖ Earnings per Share (EPS)

47
Commonly used financial ratios
❖ Profitability Analysis:
❖ Return on equity; Return on assets; Net margin; Earnings per share
❖ Liquidity Analysis:
❖ Current ratio; Quick ratio; Net working capital
❖ Capital Structure Analysis:
❖ Debt to equity; Interest coverage
❖ Activity Analysis:
❖ Assets turnover; Accounts receivable turnover; Inventory turnover
❖ Capital Market Analysis:
❖ Price earnings; Market to book; Dividend yield

48
Case: Edward Marshall Boehm
❖ How to ask meaningful questions in
a case study

❖ Case discussion questions:

1. What are the natures of the Boehms’
products
2. What strategy should the Boehms follow
to grow the company?
3. And, why?

30
Minutes
Resource-based View
Assumptions
1. Resource uniqueness
2. Capability uniqueness
3. Resource ownership
4. Origins of competitive
advantages

What are resources

WHY
Underlying Assumptions of RBV
As a source of competitive advantage, a capability must not be
easily imitated but also not too complex to understand and
manage.
1. Differences in firms’ performances across time are due
primarily to their unique resources and capabilities rather
than the industry’s structural characteristics.
2. Firms acquire different resources and develop unique
capabilities based on how they combine and use the
resources.
3. Resources and capabilities are not highly mobile across firms.
4. Differences in resources and capabilities are the basis of
competitive advantage.
66
 Model of Competitive Rivalry

Source: Adapted from M. J. Chen, 1996, Competitor analysis and interfirm rivalry: Toward a theoretical integration, Academy of Management Review, 21: 100–
134.
69
Competitor Analysis

70
Market Commonality
❖ Market commonality is concerned with the number of
markets with which the firm and a competitor are jointly
involved and the degree of importance of the individual
markets to each.
❖ Firms competing against one another in several markets
engage in multipoint competition.
❖ In general, multipoint competition reduces competitive
rivalry, but some firms will still engage in attacks when the
potential rewards (e.g., potential market share gain) are high.

71
Resource Similarity
❖ Resource similarity is the extent to which the firm’s tangible
and intangible resources compare favorably to a
competitor’s in terms of type and amount.
❖ Firms with similar types and amounts of resources tend to:
❖ Have similar strengths and weaknesses.
❖ Use similar strategies in light of their strengths to pursue what may
be similar opportunities in the external environment.

72
Case: Southwest Airlines
Resources as advantages
❖ CEO: Herb Kelleher

❖ What is Southwest Airlines’ business strategy?

❖ Where come SA’s competitive advantages?
❖ How do SA create its value?

20
Minutes
73
Case: Southwest Airlines

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Case: Southwest Airlines
Resources as advantages
❖ Watch the video case
https://www.youtube.com/watch?v=MyiI8FoJk54
https://www.youtube.com/watch?v=UX1ZKHPiSZ8

❖ Further Questions
❖ What are Southwest Airlines (SA) resources?
❖ How do you understand the market that SA is in?
❖ How does SA create value with its Strategy?
❖ How does SQ create value?

76
Case: Southwest Airlines
Resources as advantages
❖ What are Southwest Airlines (SA) resources?
❖ Frameworks
❖ Analysis: the table
❖ How do you define the market the SA is in?
❖ Define the market or markets
❖ Analysis: your insights
❖ How do SA create its value?
❖ Frameworks
❖ Analysis
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