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Chapter 5

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Department
Administrative Studies
Course
ADMS 4900
Professor
Kelly Thomson
Semester
Winter

Description
Jan.16/14 Lecture 2 Chapter 5—Business Level Strategy: Creating and Sustaining Competitive Advantage - strategy formulation (second aspect of strategic management) is thought and decision process about ~ what business they should be in (corporate strategy) ~ how to compete in these businesses - business level strategy particular ways business competes in its chosen business - sustainability ongoing relevance of the competitive advantage against the competitors, including their attempts to bypass or imitate the firm’s ability to continuously outpace them - schools of thought: 1. positioning school views business strategy and the roles of managers as identifying and striving to occupy the most attractive competitive positions in the market place (outside-in perspective) ~ emphasize on external environment ~ focus is on: • target market narrow (niche) versus industry wide • competitive advantage low-cost strategy versus differentiation 2. resource based school starts with resources within the firm and the uniqueness of those resources and attempts to exploit them (inside-out perspective) Types of Competitive Advantage and Sustainability 1. overall cost leadership - creating low cost position relative to its peers - interrelated efforts ~ vigorous pursuit of cost reductions from experience ~ aggressive construction of efficient scale facilities ~ tight costs and overhead control ~ avoidance of marginal customer accounts ~ cost minimization in all activities in the firm’s value chain - economies of scale decline in per unit costs that arise with larger production runs, lager facilities and allocating fixed costs across more units produced - experience curve how business ‘learns’ to lower costs as it gains more experience with production processes Advantages Pitfalls - allows for above average returns despite - too much focus on one or few value chain strong competitors activities - protects firm against rivalry from competitors - vulnerability to raw material costs, sensitive to price increases in factors of production - protects against powerful buyers - strategy is imitated too easily - more flexibility to cope with demands from - lack of parity differentiation powerful suppliers for input cost increases - entry barriers from economies of scale and - symmetric information via internet erodes cost advantages economies of scale - favorable position from substitutes 2. differentiation - creating differences in the firm’s product or service by creating something that is seen industry wide as unique and valued by customers - forms of differentiation: ~ prestige or brand image (ex: BMW, Holt Renfrew) ~ quality ~ technology ~ innovation ~ features ~ customer service - value chain offers analytics that suggest differentiation can derive from anywhere in the value chain - sustain differentiation when their price premiums exceed the extra costs incurred by being unique ~ can reduce costs in all areas that are not affected by differentiation Advantages Pitfalls - provides protection against rivalry through - uniqueness not of value to customer brand loyalty - by increasing margins it avoids needs for - too much differentiation, competitor may offer low-cost position level of unique that’s more acceptable -
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