⮚Formulating Business-Level Strategies
• Low Cost Strategy (cost leadership)
• Differentiation Strategy
• Focused Low-Cost Strategy
• Focused Differentiation Strategy
⮚Formulating Corporate-Level Strategies
• Concentration on a Single Industry
• Vertical Integration
• International Expansion
Formulating Business-Level Strategies
⮚Michael Porter argued that business-level strategy creates a competitive
⮚Successful business-level strategy reduces rivalry, prevents new competitors
from entering the industry, reduces the power of suppliers or buyers, and
lowers the threat of substitutes- and this raises prices and profits.
⮚To obtain these higher profits managers must choose between two basic
ways of increasing the value of an organization’s products:
- Differentiating the product to increase its value to customers
- Lowering the costs of making the product
Formulating Business-Level Strategies
⮚Additionally, managers must choose between serving the whole market
or serving just one segment or part of a market.
⮚Based on those choices, managers choose to pursue one of four
business-level strategies: low cost, differentiation, focused low cost, or
Low cost strategy “cost leadership”
⮚Low-cost strategy: Managers try to gain a competitive
advantage by focusing the energy of all the organization’s
departments or functions on driving the company’s costs down
below the costs of its industry rivals.
⮚For examples: This strategy would require that manufacturing
managers search for new ways to reduce production costs, R&D
managers focus on developing new products that can be
manufactured more cheaply, and marketing managers find
ways to lower costs of attracting customers.
⮚Ex: BIC “pursue low-cost strategy”
⮚Differentiation strategy: Distinguishing an organization’s
products from the products of competitors on dimensions such as
product design, quality, or after sales service.
⮚For examples, this strategy often requires that managers’
increase spending on product design or R&D to differentiate the
product, and costs rise as a result.
⮚Ex: Coca-Cola, PepsiCo, and Procter & Gamble. They spend
enormous amounts of money on advertising to differentiate, and
create a unique image for their products.
Focused low-cost and focused
⮚Focused low-cost strategy: serving only one segment of the
overall market and trying to be the lowest-cost organization
serving that segment.
⮚Focused differentiation strategy: serving only one segment of
the overall market and trying to be the most differentiated
organization serving that segment.
⮚Companies pursuing either of these strategies have chosen to
specialize in some way by directing their efforts at a particular
kind of customer (such as serving the needs of babies or even
the needs of customers in a specific geographic region).
⮚Once managers have formulated the business-level strategies
that will best position a company, or a division of a company, to
compete in an industry and outperform its rivals, they must look
to the future.
⮚If their planning has been successful the company will be
generating high profits, and their task now is to plan how to
invest these profits to increase performance over time.
⮚Corporate level strategy is a plan of action that involves
choosing in which industries and countries a company should
invest its resources to achieve its mission & goals.
⮚Top managers aim to find corporate strategies that can help
the organization strengthen its business-level strategies and
thus respond to the environmental changes and improve
⮚The principal corporate-level strategies:
1. Concentration on a single industry
2. Vertical integration
4. International expansion
Concentration on a single industry
⮚Concentration on a single industry: reinvesting a company’s
profits to strengthen its competitive position in its current
⮚Most common examples of this strategy:
1. Market Penetration Strategy
2. Market Development
3. Product Development
⮚Related diversification: is the strategy of entering a new business
to create competitive advantage in one or more of an organization’s
existing divisions. “new business which its requirements is similar
but not identical to its own”(ex: PepsiCo’s diversification into
the snack food business with the purchase of Frito Lay).
⮚Unrelated diversification: entering a new industry or buying a
company in a new industry that is not related in any way to an
organization’s current businesses or industries.(ex: GE’s move into
broadcasting with its acquisition of NBC)
A basic question confronts the managers of any organization
that needs to sell its products abroad and compete in more than
one national market: To what extent should the organization
customize features of its products and marketing campaign to
different national conditions.
⮚Global strategy: selling the same standardized product and
using the same basic marketing approach in each national
market (ex: Panasonic, Rolex watches).
⮚Multidomestic strategy: Customizing products and marketing
strategies to specific national conditions (ex: Unilever)
“It is time to put strategies into action”
Strategy implementation is a five-step process:
1. Allocating responsibility for implementation to the appropriate
individuals or groups.
2. Drafting detailed action plans that specify how a strategy is to be
3. Establishing a timetable for implementation that includes precise,
measurable goals linked to the attainment of the action plan.
4. Allocating appropriate resources to the responsible individuals or
5. Holding specific individuals or groups responsible for the attainment of
corporate, divisional, and functional goals.