Chapter 4:

Business Strategy
How do businesses generate a successful
strategy?

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Learning Objectives
1. Describe the nature of strategic management.
2. Identify key forces in determining an industry’s
structure.
3. Describe how organizational resources and
capabilities affect firm performance.
4. Describe three generic business strategies.
5. Explain the nature of corporate strategy.

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What is strategic management?
 Strategic management consists of the analysis,
decisions, implementations, and evaluations a firm
undertakes to create and sustain its competitive
advantages.

 What is strategy? The plans made or the actions

taken in an effort to help an organization obtain its
intended purposes

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Five Forces Model

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Threat of new entrants:
Is the threat of new entrants high or low?
Barriers to entry
Economies of scale
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale

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Threat of Suppliers
 Is the threat of suppliers high or low?
 Are resources critical?
 Are there many suppliers?

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Threat of buyers
Is the power of buyers high or low?
Switching costs
Undifferentiated products
Importance of incumbents’ products to
buyers
The number of incumbents relative to the
number of buyers

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Threat of substitutes
Is the power of substitutes high or low?
What is a substitute?
Any product that can act as a substitute for

another product.

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Threat of substitutes
Examples Substitutes
Coffee • Tea, juice, water, milk, cola,
pop
Television • Internet, radio, reading a book,
going to the movie theatre
Cell phone • Skype, talking in-person,
emailing

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Rivalry amongst existing firms
Is the threat of current competition
high or low?
Lack of differentiation.
Numbers of competitors.
High exit barriers.

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 Limitations of the
Five Forces Model
 Assumes power relationships are the
same in each force
 Time-based

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 Analyzing the Internal
Environment: The VRIO Model
Value
Rareness
Imitability
Organization

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 Think Pair Share:
Complete a VRIO analysis based upon
the company Apple.

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 SWOT analysis
Internal External

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Different Levels of Strategies
Business-Level
Corporate-Level

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 Business-Level Strategies:
Cost leadership
Product differentiation
Focus

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 Business-Level Strategies:
Cost leadership
 Economies of scale.
 Learning curve economies.
 Access to low-cost factors of
production.

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Business-Level Strategies:
Product Differentiation
“Perceived value” through

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 Business-Level Strategies:
Focus
 A focus strategy targets a:
 particular buyer group
 segment of the product line
 geographic market

 A focus strategy can also have a cost

leadership or differentiation strategy
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 Corporate-Level Strategy:
 What businesses (products and
services) and markets should the firm
compete in?

 How these businesses and markets

should be managed to create
synergies?
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 Corporate-Level Strategy:
Diversification
 What is diversification?

 Motives for diversification?

 Intrafirm dynamics
 Interfirm dynamics

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 Corporate-Level Strategy:
Diversification
 What are types of diversification?
1. Related
2. Unrelated
3. Vertical Integration

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Corporate-Level Strategy:
Diversification

3. Vertical Integration

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 Corporate-Level Strategy:
Means to Diversify
 What are the ways companies can
diversify?
 Internal development
 Mergers or Acquisitions
 Strategic alliances
 Nonequity alliances

 Equity alliances

 Joint venture

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 Think Pair Share:
Refer to the article on Kicking Horse Coffee on page 112.
What business-level strategy do you think the company is
employing or should be employing and why? Use examples
from the case to support your answer.

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 Think Pair Share:
Suggested Answer
Kicking Horse Coffee likely employs a
Product differentiation strategy:

Its brand has been built around quality and

consistent character.
It is a top organic trade company in Canada.
It sells 17 coffee varieties.
It prices its coffee as a premium product.

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 Concept Application:
Lululemon: For the Love of Yoga
Questions:

1. Analyze the yoga clothing industry using

Michael Porter’s five-forces model.

2. Conduct a VRIO analysis of Lululemon.

3. Discuss which of the three kinds of business-

level strategies you think Lululemon is employing
or should employ?
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Questions and Answers?

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