IAB202 Lecture Notes - Lecture 11: Cost Leadership, Vertical Integration, Swot Analysis
Week 11 - IT Strategy I
Tuesday, 9 October 2018
11:24 AM
Strategic Choices
Strategic choices are governed at a business level and a corporate level. The business level dictates
the bases of competitive strategies, or the choice as to how an organisation positions itself in
relation to competitors. The corporate level incorporates strategic directions (the choices of
products and markets available to an organisation) and the methods for pursuing strategies (the
choices about how strategies are to be pursued such as organic development, alliances, etc.)
Business Level
At a business level, the business models (value creation, value configuration, value capture) dictates
a business strategy. The strategy influences generic strategies (cost leadership, differentiation, focus,
hybrid) and interactive strategies (hypercompetitive strategy, cooperation, game theory).
• Porter's Generic Strategies
(Scope) v (Advantage) >
Low cost position
Perceived uniqueness
Broad (industry-wide)
Cost leadership
Differentiation
Narrow (market segment)
Focus (on cost)
Focus (on differentiation)
Competitive Advantage
• A business is profitable if the value it creates exceeds the costs of performing value activities.
• To gain competitive advantage a company must either a) perform these activities at lower
costs, or b) perform them in a way that leads to differentiation and a premium price (more
value)
Activity Drivers
• Cost drivers:
o Economies of scale
o Learning
o Capacity utilisation
o Linkages among activities
o Interrelationships among business units
o Degree of vertical integration
o Timing of market entry
o Firm's policy of cost or differentiation
o Geographic location
o Institutional factors (regulation, union, taxes, activity, etc.)
Competitive Scope
• In search for competitive advantage, companies often differ in competitive scope - or their
breath of their activities:
o Segment scope
o Vertical scope (degree of vertical integration)
o Geographical scope
o Industry scope
• Organisations must choose between a broad scope (scale, synergy):
o Different industry segments
Document Summary
Strategic choices are governed at a business level and a corporate level. The business level dictates the bases of competitive strategies, or the choice as to how an organisation positions itself in relation to competitors. The corporate level incorporates strategic directions (the choices of products and markets available to an organisation) and the methods for pursuing strategies (the choices about how strategies are to be pursued such as organic development, alliances, etc. ) At a business level, the business models (value creation, value configuration, value capture) dictates a business strategy. The strategy influences generic strategies (cost leadership, differentiation, focus, hybrid) and interactive strategies (hypercompetitive strategy, cooperation, game theory): porter"s generic strategies (scope) v (advantage) > Activity drivers: cost drivers, economies of scale, learning, capacity utilisation, linkages among activities. Interrelationships among business units: degree of vertical integration, timing of market entry, firm"s policy of cost or differentiation, geographic location.
