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Lecture Strategic management - Chapter 5: Business-level strategy: Creating and sustaining competitive advantages

Chapter 5 "Business-level strategy: Creating and sustaining competitive advantages". After studying this chapter, you should have a good understanding of: The central role of competitive advantage in the study of strategic management, and the three generic strategies: overall cost leadership, differentiation, and focus; how the successful attainment of generic strategies can improve a firm's relative power vis-à-vis the five forces that determine an industry's average profitability. | Chapter Five Business-Level Strategy: Creating and Sustaining Competitive Advantages After studying this chapter, you should have a good understanding of: The central role of competitive advantage in the study of strategic management The three generic strategies—overall cost leadership, differentiation, and focus How the successful attainment of generic strategies can improve a firm’s relative power vis á vis the five forces that determine an industry’s average profitability The pitfalls managers must avoid in striving to attain generic strategies How firms can effectively combine the generic strategies of overall cost leadership and differentiation The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value creating activities Learning Objectives TRANSPARENCY-41 Three Generic Strategies COMPETITIVE ADVANTAGE Overall Cost Leadership Differentiation Uniqueness Perceived By . | Chapter Five Business-Level Strategy: Creating and Sustaining Competitive Advantages After studying this chapter, you should have a good understanding of: The central role of competitive advantage in the study of strategic management The three generic strategies—overall cost leadership, differentiation, and focus How the successful attainment of generic strategies can improve a firm’s relative power vis á vis the five forces that determine an industry’s average profitability The pitfalls managers must avoid in striving to attain generic strategies How firms can effectively combine the generic strategies of overall cost leadership and differentiation The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value creating activities Learning Objectives TRANSPARENCY-41 Three Generic Strategies COMPETITIVE ADVANTAGE Overall Cost Leadership Differentiation Uniqueness Perceived By the Customer Low Cost Position Industrywide Particular Segment Only Focus STRATEGIC TARGET Source: Adapted from Porter, M.E. 1980. Competitive Strategy, New York: Free Press, page 39. Exhibit 5.1 TRANSPARENCY-42 Competitive Advantage and Business Performance Performance Return on Investment 35.5 32.9 30.2 17.0 23.7 17.8 Sales Growth 15.1 13.5 13.5 16.4 17.5 12.2 Gain in Market Share 5.3 5.3 5.5 6.1 6.3 4.4 Sample Size 123 160 100 141 86 105 Stuck-in-the- Middle Cost Focus Differentiation Focus Cost Differentiation Differentiation and Cost Exhibit 5.2 Competitive Advantage TRANSPARENCY-43 Value Chain Activities: Examples of Overall Cost Leadership Source: Adapted from Porter, M.E. 1985. Competitive Advantage, New York: Free Press. Few management layers to reduce overhead costs Firm Infra-structure Standardized accounting practices to minimize personnel required Human Resource Management Minimize costs associated with employee turnover through effective policies Effective orientation