Colombo International Nautical

and Engineering College

Strategic Management

Strategy Formulation
Business Level Strategy/ Competitive
Strategy
“All men can see the tactics whereby I conquer,
but what none can see is the strategy out of
which great victory is evolved.”

Sun Tzu, Chinese General,

The Art of War, 400BC
 Business Level Strategy - Outline
• Strategic Business Unit
• Competitive advantage (Generic Strategies and
strategy clock)
– Price-based
– Differentiation
– Hybrid and focus
• Sustainability of competitive advantage
• Co-operation and competition
• Marketing Warfare
Strategic Business Unit
 Strategic Business Unit (SBU)
• A strategic business unit (SBU) is a part of an
organisation for which there is a distinct external
market for goods or services that is different from
another SBU
• There are external and internal criteria that can help
in identifying appropriate SBUs:
– Market-based criteria. Different parts of an organisation
might be regarded as the same SBU if they are targeting
the same customer types, through the same sorts of
channels and facing similar competitors.
– Capabilities-based criteria. Parts of an organisation should
only be regarded as the same SBU if they have similar
strategic capabilities.
Bases of Competitive Advantage
 Bases of Competitive Advantage
• Competitive strategy
– The bases for achieving competitive advantage
– The bases for providing best value
• Porter’s generic strategies
– Cost leadership
– Differentiation
– Focus
• Bowman and D’Aveni’s market facing strategies
– Provide customer needs better or more effectively than
competitors
– The strategy clock
 Competitive Strategy

• Competitive strategy
is concerned with the
basis on which a
business unit might
achieve competitive
advantage in its
market
Porter’s Generic Strategies
 PORTER’S GENERIC STRATEGIES

Competitive Advantage
Competitive Scope
 The Framework of Generic Strategies
Competitive Advantage

Aim on lower costs Aim on differentiation

Broad
target
Industry- Cost Leadership Hybrid Differentiation
wide
strategies
Competitive Scope

Potential
‘Stuck in strategic
the middle’ positions in an
industry
Focus
Narrow
target Cost Focus Hybrid Differentiation Focus
Niche
strategies

Low Price High

Adapted from Porter (1985)

Examples of Companies along the Dimensions of the Generic Strategies in Different
Industries

Marks and Spencer

Mercedes
Differentiation Vodafone
BMW
Sturbuks XBOX

Ferrari
Diamond car
Narrow insurance for Rolls Royce Broad
Competitive women ASDA Tesco Competitive
Scope Differentiation Firms with apparent Scope
Focus Hybrid positioning
Magnet Kitchens
British
Argos
Tammy Girl Airways

3 Mobile
Focus Cost leadership
Matalan
Ryanair Cost Focus Various digital Nissan
Dell Computers
interactive TV
Liddle
Easy Jet SAGA shops Kwick Save

18-30s Holidays

Narrow
Competitive Scope

© Dr George Panagiotou 2009

 REQUIREMENTS FOR GENERIC COMPETITIVE
STRATEGIES
Generic Skills and Resources Common Organizational Requirements
Strategy
Overall cost  Sustained capital investment  Tight cost control
leadership access to capital  Frequent, detailed control reports
 Process engineering skills  Structured organization and responsibilities
 Intense supervision of labour  Incentives based on meeting strict quantitative targets in
manufacture
 Products designed for ease
 Low-cost distribution system

Differentiation  Strong marketing abilities  Strong coordination  Product

engineering among functions in R&D,  Creative flare
product development, and marketing

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 REQUIREMENTS FOR GENERIC COM. STRATEGIEs CONTD…

 Strong capability in basic  Subjective measurement and

research incentives instead of
quantitative measures
 Corporate reputation for  Amenities to attract highly
quality or technological skilled labour, scientists, or
leadership creative people
 Long tradition in the industry
or unique combination of skills
drawn from other businesses
 Strong cooperation from
channels

Focus  Combination of the above  Combination of the above

policies
policies directed at the directed at the regular strategic
particular strategic target target
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 The Strategy Clock by Cliff
Bowman and Richard D’Aveni.
 The Strategy Clock
• Market facing strategies are based on the
principle that competitive advantage is
achieved by providing customers with what
they want, or need, better or more effectively
than competitors.
• Building on this proposition, the strategy clock
enshrines Porter’s categories of
differentiation and focus alongside price.
 The Strategy Clock

Note: The strategy clock is adapted from the work of Cliff Bowman (see D. Faulkner and C. Bowman, The Essence of
Competitive Strategy, Prentice Hall, 1995.) However, Bowman uses the dimenstion ‘Perceived Use Value’.
The Strategy Clock
 “No Frills” Strategy – Route 01
A ‘no frills’ strategy combines a low price, low perceived
product /service benefits and a focus on a price-sensitive market
segment

• Commodity-like products or services

• Price-sensitive customers
• High buyer power and/ or low switching costs
• Small number of providers with similar market
shares
• Avoiding the major competitors
• E.g. Aldi, Lidl and Netto
 Low Price Strategy – Route 02
A low-price strategy seeks to achieve a lower price than
competitors whilst trying to maintain similar perceived product or
service benefits to those offered by competitors

• Pitfalls of low price strategy

– Margin reduction (competitor reaction)
– Inability to reinvest leading to loss of perceived
benefit of product
• Need a low cost base
– Low cost itself not a basis for advantage
– Low cost achieved in ways that competitors cannot
match to give sustainable advantage
 Differentiation Strategies – Route
04
A differentiation strategy seeks to provide products or services
that offer benefits that are different from those of competitors
and that are widely valued by buyers
• The aim is to achieve competitive advantage by
offering better products or services at the same
price or enhancing margins by pricing slightly higher.
• Success depends on
– Identification of strategic customers and knowing what
they value
– Knowing the competitors
• Narrow competitor base – focused differentiation
• Wide competitor base – address bases of differentiation valued
by customers
 Hybrid Strategy – Route 03
A hybrid strategy seeks simultaneously to achieve
differentiation and a price lower than that of competitors

• Achieve greater volumes

• Clarity about activities on which differentiation
can be built (core competences)
• Reduce costs on other activities
• Entry strategy in market with established
competitors
 Focused Differentiation – Route 05
A focused differentiation strategy seeks to provide high
perceived product/service benefits justifying a substantial price
premium, usually to a selected market segment (niche)

• Choice to be made between focused differentiation

and broad differentiation (Route 04) if growth required
• Difficult when the focus strategy is only part of an
organisation’s overall strategy. E.g. Ford and Aston
Martin
• Possible conflict with stakeholder expectations
• New ventures start off focused, but need to grow
• Market situation may change, reducing differences
between segments
 Failure Strategies (Route 06, 07 &
08)
A failure strategy is one that does not provide
perceived value for money in terms of product
features, price or both

• Route 6 - suggests increasing price without

increasing product/service benefits to the
customer, the strategy that monopoly
organisations are accused of following.
• Route 7 - involving the reduction in product/service
benefits whilst increasing relative price.
• Route 8 - reduction in benefits whilst maintaining
price, is also dangerous, though firms have tried to
follow it.
Sustaining Competitive
Advantage
 Sustaining Competitive Advantage

Imperfect mobility
Strategic lock-in is such that the
where an organisation capabilities that
achieves a proprietary sustain
position in its industry; differentiation
it becomes an industry cannot
standard be traded.
 Competitive Strategies in
Hypercompetitive Conditions
 Competitive Strategies in Hypercompetitive
Conditions
• Competitive advantage is temporary
– Rapid imitation
– Not sustainable
• Competitive advantage relates to
– Organisation’s ability to change
– Speed
– Flexibility
– Innovation
– Disruption of market
 Competitive Strategies in Hypercompetitive
Conditions

Strongholds – Dominate
particular areas. E.g.
Geographical areas or
segments
Deep pocket –
substantial surplus
resources
Competition and Collaboration
 Competition and Collaboration

• Collaboration may help to achieve advantage or avoid

competition
• Organisations may compete in some markets and
collaborate in others
• Collaboration is advantageous when the transaction
costs are lower than when operating alone
• Collaboration can help build switching costs
Competition and Collaboration
Marketing Warfare
 Marketing Warfare
4 types of players
• Leaders
• Challengers
• Followers (Follow closely or at a
distantce)
• Nichers
 Defensive warfare
• Only the market leader should play defense
• The best defensive strategy is the courage to
attack yourself
• Strong competitive moves should be blocked
 Offensive warfare
• Consider the strength of the leader’s position
• Find a weakness in the leader’s strength and
attack at that point (Achilles heel)
• Launch the attack on as narrow a front as
possible
Offensive Strategies
 Offensive Warfare
1. Frontal attack – This is the direct, head on attack meeting competitors with the
same product line, price, promotion, etc. Because attack is on the enemy’s
strengths rather than weakness it is considered the most risky and least advised
strategy.
2. Flanking attack – The aim here is to engage competitors in those products
markets where they are weak or have no presence at all. Its overreaching goal is to
build a position from which to launch, an attack on the battlefield later.
3. Encirclement attack – Multi pronged attack aimed at diluting the defenders
ability to retaliate in strength. The attacker stands ready to block the competitor
no matter which way he turns the product market. Product proliferation supplying
different types of the same product to the market. Market encirclement consists
of expanding the products into all segments and distribution channels.
4. Bypass attack – This is the most indirect form of competitive strategy as it
avoids confrontation by moving into new and as yet uncontested fields. Three type
of bypass are possible; develop new products, diversify into unrelated products or
diversify into new geographical markets.
5. Guerilla warfare – Less ambitious in scope, this involves making small attacks in
different locations whilst remaining mobile. Such attacks take several forms. The
aim is to destabilize the competitor by small attacks.
Defensive Strategies
 Defensive warfare
1. Position defence – static defence of a current position, retaining current
product markets by consolidating resources within existing areas. Exclusive
reliance on a position defence effectively means that a business is a sitting target
for competition.
2. Mobile defence – A high degree of mobility prevents the attackers chances of
localizing the defence and accumulating its forces for a decisive battle. A business
should seek market development, product development and diversification to
create a stronger base.
3. Pre-emptive defence – Attack is the best form of defence. Pre-emptive
defence is launched in a segment where an attack is anticipated instead of
moving into related or new segments.
4. Flank position defence – This is used to occupy a position of potential future
importance in order to deny that position to an opponent. Leaders need to
develop and hold secondary markets to prevent competitors from using them as
a spring board into the primary market.
5. Counter offensive defence – This is attacking where the company is being
attacked. This requires immediate response to any competitor entering a
segment or initiating new moves.
6. Strategic withdrawal.
Chan Kim & Renee Mauborgne’s
Blue Ocean Strategy
Blue Ocean Strategy
Red Ocean vs Blue Ocean Strategy
Value Innovation
Value Innovation
Strategy Canvass
Strategy Canvass
Questions and Discussions

Thank you.