Business level strategy-Chanakya students- ppt 1 Learning Objectives: Understand the responsibilities of a business-unit manager Evaluate the effectiveness

ess of a generic business-level strategy Be able to select an appropriate competitive strategy based on the competitive environment Business-level Strategy Formulation Responsibilities Directing o Establishment and communication of mission, vision, values, long-term goals of a single business unit o Creation and communication of shorter-term goals Business-level Strategy Formulation Responsibilities: Analyzing Business Situation o Compilation and assessment of information from stakeholders, broad environmental analysis and other sources o Internal resource analysis o Identification of strengths, weaknesses, opportunities, threats, sources of sustainable competitive advantage Selection of Strategy o Generic approach to competitioncost leadership, differentiation, focus or best value o Strategic posturespecific strategies needed to carry out the generic strategy Management of Resources o Acquisition of resources and/or development of competencies leading to sustainable competitive advantage o Ensure development of functional strategies and an appropriate organizational design (management structure) to support business strategy Develop control systems to ensure that strategies remain relevant and that the business unit continues to progress toward its goals Generic Business-level Strategies:
Strategy Low Cost Leadership Differentiation Best Value Focus through Low Cost Leadership Focus through Differentiation Focus through Best Value Broad/Narrow Market Broad Broad Broad Narrow Source of Advantage Lowest Cost Production Preferred Product or Service Low Cost & Highly Desirable Product or Service Lowest Cost Production

Narrow Narrow

Preferred Product or Service Low Cost & Highly Desirable

Generic Strategies: How a company can achieve or defend a competitive advantage? Low-cost lead-ship strategy A broad differentiation strategy A focused or market niche strategy based on lower cost A focused or market niche strategy based on differentiation

 Low-Cost Leadership Strategy: A powerful competitive approach where many buyers are price sensitive Low cost relative to rivals Rivals are difficult to copy or match To allow operating the business in a highly cost-effective manner and open up a sustainable cost advantage over rivals Ways to achieve a cost advantage: - Do a better job than rivals of performing internal value chain activities Revamp the firms value chain to bypass some cost producing activities altogether Controlling the cost drivers - economies of scale - Learning and experience curve effects - Control cost of key inputs - Link with other activities in the company or industry value chain - The benefits of vertical integration v/s outsourcing - The percentage of capital utilization - Strategic choices and operating decisions - First-mover advantages v/s disadvantages (Porter, 1985) Differentiation Strategies To be unique in ways that are valuable to customers and that can be sustained A good competitive approach when buyers are too diverse to satisfied by a standardized product To study buyers needs what they put high value on Hard or expensive for rivals to copy or duplicate Types of differentiation themes A unique taste Spare parts available (Caterpillar 48 hours delivery) More for money (Mcdonalds) Engineering design and performance (Mercedes) When differentiation strategy works best - there are many ways to differentiate the product or service that have value to many buyers - buyers needs and users are diverse - Few rival firms are following same differentiation approach technology change rapid product innovation Market Niche Strategies: A focused or market niche strategy based on lower cost A focused or market niche strategy based on differentiation Concentrated attention on a narrow piece of the total market When focusing is attractive? The target market niche is big enough to be profitable The niche has good growth potential The niche is not crucial to the success of major competitors The focuser can defend the challengers The focuser has the ability to serve the targeted niche effectively

 Best Value Strategy: A combination of strategic elements from differentiation and low cost Firms can increase sales of an attractive product or service. Sales increases may lead to efficiency and thus reduced costs Consumers are coming to expect a combination of high quality and low price Technological advances often allow a company to pursue differentiation and low cost at the same time Many companies are pursuing best value through an emphasis on quality or speed Risks Associated with a Best Value Strategy: A Tradeoff Between Risks of Cost Leadership and Differentiation Unlikely to become preoccupied with cost or differentiation Unlikely to take cost cutting too far Increases likelihood of being able to recover additional costs associated with differentiation

core competency-Chanakya students- ppt 2 WHAT IS A CORE COMPETENCE? An Integration of Skills Dabbawallas Bundle of skills and technology Order entry system, inventory management, net work management What is the difference between core competencies and contributing skills Federal express (package tracking- as a core) to bar coding (contributing) Core versus Noncore Meet 3 tests Competence or Capability, competition between firms is as much a race for compete mastery as it is for market position and market power. What activities really contribute to long-term corporate prosperity. The goal Focus senior management's attention on those competencies that lie at the center, rather than the periphery, of long-term competitive success. To be considered a core competence, a skill must meet three test. st 1 test Customer value Honda Motors Engine technology (core)-high valued benefits Dealership management (non-core) Interaction is very critical but that alone will not be enough for a customer Customers are the ultimate judge whether something is a core competence or not Core competence must make an important contribution to customer perceived value What are the value elements in the product or service? What is the customer actually paying for? Why is the customer willing to pay more or less for one product or service than another Which value elements are most important to customers and thus make the biggest contribution to price realization? An exception If a manufacturer has process related competency which provides a cost saving retained by the producer or marginally passed to customer May choose to bank its cost advantage rather than pass it on to customers 2nd test-Competitor Differentiation Must be competitively unique and not necessarily owned by a firm

In an industry there will be a number of skills and capabilities that are prerequisites for participation in the industry, but do not provide any significant competitors differentiation A bank may pay Rs.100 in case a query raised by customer is not answered within 24 hours An insurance company may offer settlement on the spot rather than few days Managers may believe that a particular competence has remained substantially underdeveloped Such a competence might be targeted as a potential core competence 3rd test-Extendibility A core competence is truly core when it forms the basis for entry into new product markets This can happen if move away from a product-centric view of the firms capabilities Can SKF look beyond roller bearings and apply the expertise in new uses for roller bearings? Competencies in antifriction, precision engineering etc. How to extend the competency? What is not a Core competence? First of all, is not an asset in the accounting sense of the word Dont show up on the balance sheet. A factory, distribution channel, brand, or patent cannot be a core competence these are things rather than skills. Unlike physical assets, competencies do not wear out, Core competencies and other forms of competitive advantage Too easy for a company to rest easy on an asset or infrastructure-based advantage and under-invest in building unique competencies Porsche versus Japanese car companies Porsche Technically sophisticated, world class engineering skills But blinded them resulting they slowing their further development Japanese came up with better and cheaper technology Nissan 300ZX, Honda NSX, Toyota Supra Porsches sales came down in US down from 30,741 (1986) to 3728 in 1993 Make everything yourself? Core competencies does not mean you have to make everything that you sell Canon buys more than 75% of the components that go into copiers but has a clear sense of its core competencies that contributes to customer value Nike outsources making of shoes but controls logistics, quality, design, product development, athletes endorsement, distribution and merchandising Some competencies which are core and uniquely define the firm in the minds of customers and provide easy access to new markets, need to be kept in-house The Changing Value of Competencies Competence in one decade may become a mere capability in another. 1970s and 1980s quality as measured by defects per vehicle was a core competency for Japanese car companies Superior reliability an important value element for customers and genuine differentiator in 1990s, it became a prerequisite for every carmaker Routine advantages like quality, rapid time to market, quick response customer service BUT initially a genuine differentiators

Strategic Management principle Successful strategists seek to EXPLOIT what a company does best: o Expertise

o Strengths o Core competencies o Strongest competitive capabilities CORE COMPETENCIES empower a company to build competitive advantage! Building a core Competence Definition A core competence is something a company does especially well in comparison to its competitors! Types of competencies Superior skills in producing high quality product Superior system for delivering customer orders accurately & swiftly Better after-sale service capability More skill in achieving low operating costs Unique formula for selecting good retail locations Unusual innovativeness in developing new products Better merchandising & product display skills Superior mastery of an important technology Unusually effective sales force Significance of a core competence A CORE COMPETENCE is important because of Added capability Competitive edge Potential COMPETITIVE ADVANTAGE is easier to build when Firm has a CORE COMPETENCE Rival firms do not have offsetting competencies Its costly & time-consuming for rivals to match competency