54278_Chapter_7.pdf - chapter 7    Business Unit Strategies 183 chapter 7 Business Unit Strategies A fter a firm’s top managers have settled on

54278_Chapter_7.pdf - chapter 7    Business Unit...

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c h a p t e r 7 Business Unit Strategies 183 A fter a firm’s top managers have settled on a corporate-level strategy, focus shifts to how the firm’s business unit(s) should compete. A business unit is an organizational entity with its own unique mission, set of competitors, and industry. While the corporate strategy concerns the basic thrust of the firm— where top managers would like to lead the firm—the business strategy , or competitive strategy, addresses the competitive aspect— who the business should serve, what needs should be satisfied, and how core competen- cies can be developed and the business can be positioned. Another way of addressing the task of formulating a business strategy is to consider whether a business should concentrate on exploiting current opportunities, exploring new ones, or attempting to balance the two. Exploitation generates returns in the short term whereas explora- tion can create forms of sustainable competitive advantage for the long term. The business strategy developed for an organization seeks, among other things, to resolve this challenge. 1 A business unit is an organizational entity with its own mission, set of competitors, and industry. A firm that operates within only one industry is also considered a business unit. Strategic managers craft competitive strategies for each business unit to attain and sustain com- petitive advantage, a state whereby its successful strategies cannot be duplicated easily by rivals. 2 In most industries, a number of different competitive approaches can be successful, depending on the business unit’s resources. Each business competes with a unique competitive strategy, but attempting to analyze all of the different strategies in a large industry can be quite cumbersome. In the interest of parsi- mony, it is useful to categorize different strategies into a limited number of generic strategies based on their similarities. Businesses adopting the same generic strategy comprise a strategic group . 3 In the airline industry, for example, one strategic group may comprise carriers such as Southwest Airlines and Frontier that maintain low costs by offering low fares and no frills on a limited number of domestic routes. A second strategic group may comprise many traditional carriers such as Delta, United, and American that serve both domestic and international routes and offer extra services such as meals and movies on extended flights.
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STRATEGIC MANAGEMENT 184 Because industry definitions and strategy assessments are not always clear, identifying stra- tegic groups within an industry is often difficult. Even when the definition of an industry is clear, its business units may be categorized into any number of strategic groups depending on the level of specificity desired. There may also be one or two competitors that seem to be function- ing between groups and are difficult to classify. Hence, the concept of strategic groups can be used as a means of understanding and illustrating competition within an industry, but applying it is neither easy nor precise.
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