MODULE 4

STRATEGIC ACTIONS:
STRATEGY
FORMULATION
Business Level Strategy
• It is an integrated and coordinated set of
commitments and actions the firm uses to gain
a competitive advantage by exploiting core
competencies in specific product markets.
• The fundamental objective of using any type of
strategy is to gain strategic competitiveness
and earn above-average returns. Strategies
are purposeful, precede the taking of actions
to which they apply, and demonstrate a shared
understanding of the firm’s vision and mission.
It is the CORE strategy, that the firm forms to
describe how it intends to compete in a
product market.
Customers: Their Relationship with Business-
Level Strategy
• The Firm’s relationships with
its customers are
strengthened when delivers
superior value to them.
Strong interactive
relationships with customers
often provide the foundation
for the firm’s efforts to
profitably serve customers’
unique needs.
Internet of Things
Amazon - Is an Internet-based venture widely
recognized for the quality of information it
maintains about its customers, the services it
renders, and its ability to anticipate customer’s
needs.
Internet of Things
Cemex - It uses the internet to link its customers,
cement plants and main control room, allowing the
firm to automate orders and optimize truck deliveries
in highly congested Mexico City.
Reach, Richness and Affiliation
• Reach the dimension of relationships with customers is
concerned with the firm’s access and connection to
customers.
• In general, firms seek to extend their reach, adding
customers in the process of doing so.
Reach, Richness and Affiliation
• Richness is concerned with the depth and
detail of the two-way flow of information
between the firm and the customer. Broader
and deeper information-based exchanges
allow firms to better understand their
customers and their needs. Such exchanges
also enable customers to become more
knowledgeable about how the firm can satisfy
them.
Reach, Richness and Affiliation
• Affiliation is concerned with facilitating
useful interactions with customers.
Viewing the world through the
customer’s eyes and constantly seeking
ways to create more value for the
customer have positive effects in terms
of affiliation.
Who: Determining the Customers
to Serve
• Companies divide customers
into groups based on
differences in the customer’s
needs.
Market Segmentation
• is a process used to cluster people with similar needs into
individual and identifiable groups.
What: Determining which Customer Needs to
Satisfy
• In general sense, needs are related to a product’s
benefits and features. From a strategic perspective,
a basic need of all customers is to buy products that
create value for them.
How: Determining Core Competencies
Necessary to Satisfy Customer Needs
• Firms use core competencies to
implement value-creating strategies and
thereby satisfy customer’s needs.
• Only those firms with the capacity to
continuously improve, innovate and
upgrade their competencies can expect to
meet and hopefully exceed customers’
expectations across time.
• All organizations must use their core
competencies (the how) to satisfy the
needs (the what) of the target group of
customers (the who) the firm has chosen
to serve by using its business-level
strategy.
Types of Business-level Strategies
Cost Leadership Strategy
Is an integrated set of actions taken to
produce goods or services with features that
are acceptable to customers at the lowest
cost, relative to that of competitors.
Example:
 Many now outsource the operations to
low-cost firms with low-wage employees.
 Developing new systems for finding the
optimal combination of low cost and
acceptable quality in the raw materials
required to produce the firm’s goods or
services.
Examples of Value-Creating
Activities Associated with the
Cost Leadership Strategy
Competitive Forces
A. Rivalry with Existing Competitors – rivals hesitate to compete on
the basis of price.
B. Bargaining Power of Buyers (Customers) – powerful customers
can force a cost leader to reduce its prices.
C. Bargaining Power of the Suppliers – the cost leader operates with
margins greater than those of competitors.
D. Potential Entrants – ever improving levels of efficiency enhance
profit margins, they serve as a significant barrier to potential
competitors.
E. Product Substitutes – it has more flexibility than its competitors,
because it can reduce the price of its goods or service.
Competitive Risks
A. A loss of competitive advantage
to newer technologies
B. Failure to detect changes in
customers needs
C. The ability of the competitors to
imitate the cost leaders
competitive advantage through
their own unique strategic
actions.
Differentiation Strategy
• It is an integrated set of actions taken to produce
goods or services (at an acceptable cost) that
customers perceive as being different in ways
that are important to them.
• The firm produces non standardized products for
customers who value differentiated features more
than they value low cost.
• It continues innovation or upgrades without
significant cost increase and constantly change
their product lines.
Focus Strategies
It is an integrated set of actions taken
to produce goods or services that
serve the needs of a particular
competitive segments. It is the
exploitation of a narrow targets
differences from balance of the
industries.
Examples:
A. A particular buyer group
B. Different segment of a product
line
C. Different geographic market
Focus Strategy
Integrated Cost
Leadership/Differentiation Strategy
• It involves engaging in primary and support
activities that allow a firm to simultaneously pursue
low cost and differentiation.
• The objective is to efficiently produce products with
differentiated attributes.
• Flexibility is required for firms to complete primary
and support activities in ways that allow them to
produce somewhat differentiated products at
relatively low costs.
Sources of Flexibility
A. Flexible Manufacturing Systems – increases the flexibilities of
human, physical, and information resources.
B. Information Networks – help the firm to satisfy customer
expectations in terms of product quality and delivery speed.
C. Total Quality Management Systems – a managerial
innovation that emphasizes an organization’s total commitment
to the customer and to continues improvement of every process
through the use of data-drive, problem-solving approaches
based on empowerment of employee groups and teams.