MGMT 498

[business policy & strategy]

Professor Ravi Shanmugam

Class 9: Business-level
strategy (pt. 1)
Tue 2/14/23

Pre-class slides

© Ravi Shanmugam, 2023

 Today’s plan

Analysis Formulation
• Goals and objectives • Business-level
• External environment strategy
• Internal environment • Corporate-level strategy
• Intellectual assets

Implementation
• Organizational support
• Leadership
• Innovation and
entrepreneurship
• Competition and
cooperation
 Definitions of strategy (again)

Long: The direction and scope of an organization over the long term,
which achieves advantages in a changing environment through its
configurationBusiness-level
of resources andstrategy: How with the aim of fulfilling
competencies
should we compete in the markets
stakeholder expectations.
we’re in?

Medium: The analyses, decisions, and actions an organization undertakes

in order to create and sustain competitive advantage.

Corporate-level strategy: Which

Short: How a firm “wins”.
markets and businesses should we
be in?
Definitions of strategy (again)

[Exhibit 5.10]
 Three general BL strategies

Differentiation: products
and services for which
consumers will pay a premium

Cost leadership: lowering

costs relative to competitors
offering similar products
 Three general BL strategies

Differentiation: products
and services for which
consumers will pay a premium

Cost leadership: lowering

costs relative to competitors
offering similar products

Focus: narrow product lines,

buyer segments, or
geographic markets
 Three general BL strategies

Differentiation: products
and services for which
consumers will pay a premium
Can a firm do both
at once?
Cost leadership: lowering
costs relative to competitors
offering similar products

Focus: narrow product lines,

buyer segments, or
geographic markets
All about the “differentiation” strategy

Firm’s mission:
Maximize this

[Exhibit 6.3]
All about the “differentiation” strategy

The product levels

model:
three “levels” that comprise
all products.

Tangible factors

Intangible factors
How differentiation strategy affects P5F
How differentiation strategy affects P5F
 VC role in differentiation strategy
Value chain: the sequence of activities required to
produce, sell, and distribute a product.

Supply-chain management Research + development

Operations Information systems

Distribution Human resources

Ke
y
Promotion + sales v
Accounting
f al + finance
or ue
di -ch
ff e a
Service Firm infrastructure
re in
n t ac
ia tiv
[5 primary activities] tio it
[5 secondary activities] n ies
All about the “cost leadership” strategy

Firm’s mission
(still):
Maximize this

[Exhibit 6.4]
 VC role in cost leadership strategy
Value chain: the sequence of activities required to
produce, sell, and distribute a product.

Supply-chain management Research + development

Operations Information systems

Distribution Human resources

Promotion + sales Accounting + finance

Service Firm infrastructure

[5 primary activities] [5 secondary activities]

 VC role in cost leadership strategy
Value chain: the sequence of activities required to
produce, sell, and distribute a product.

Supply-chain management Research + development

Operations Information systems

Distribution Human resources

Ke
y
Promotion + sales Accounting v
fo alu + finance
rc e
os -ch
Service t l ai
Firm infrastructure
ea n
de act
rs ivi
[5 primary activities] [5 secondary activities]hi tie
p s
 Key to cost strategy: Learning curve
[Example: Integrated circuits industry]
1964 1966 1968 1972
$30.00

10.00
AVERAGE
PRICE PER
UNIT
($ CONSTANT)

1.00

.50
1 10 100 1,000
TOTAL INDUSTRY ACCUMULATED EXPERIENCE
(MILLION UNITS)
 Key to cost strategy: Learning curve
[Example: Integrated circuits industry]
1964 1966 1968 1972
$30.00

10.00
AVERAGE
PRICE
Is PER
this risky?
UNIT
($ CONSTANT)

1.00

.50
1 10 100 1,000
TOTAL INDUSTRY ACCUMULATED EXPERIENCE
(MILLION UNITS)
How cost leadership strategy affects P5F
A key to both strategies: competitive parity
[Parity in college basketball]

Differentiation strategy:
• Your value proposition > rival’s value
proposition
• Your costs = rival’s costs
Cost leadership strategy:
• Your value proposition = rival’s value
proposition
[Parity in competitive • Your costs < rival’s costs
strategy]
 Specific business models

Razor/blades: ”Razor” sold for

cheap or given away + “blades” sold
for higher price.

Freemium: Basic version of product

made available for free + additional
features sold for higher price.

[Spotify]

Ultra-low cost: Basic version made

available at low cost + additional
features sold for higher price.
 Specific business models

Razor/blades: ”Razor” sold for Pay as you go: Customer pays for
cheap or given away + “blades” sold each service used.
for higher price.

Freemium: Basic version of product Subscription: Customer pays for

made available for free + additional each period of time s/he accesses the
features sold for higher price. product or service.

Bundling: Customer pays for

multiple products which can only be
purchased together.
[Spotify]

Ultra-low cost: Basic version made

available at low cost + additional
[Whoosh!]
features sold for higher price.
 Recap

At the heart of “strategy” is business-level

strategy, i.e. how to compete in a single market.

One general approach to BLS is to provide

superior consumer value (differentiation)

Another is to minimize costs, both to the firm and

to its customers.
 Next in-person class
What’s due:
• Due: Topic assignment 4 Where: Canvas (“Topic assignments”)
Due: Tue 2/14 before class
Submit: Canvas (same place)