MGT 300 Spring 2010 Week 09

MGT 300 Spring 2010 Week 09 - Business-Level Strategy...

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Business-Level Strategy (Chapter 5) MGT 300 Week 9 March 24
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10 - 2 Business-Level Strategy, Below Average Returns, and Non-Inimitability
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10 - 3 Types of Competitive Advantage and Sustainability Three generic strategies to overcome the five forces and achieve competitive advantage - Overall cost leadership Low-cost-position relative to a firm’s peers Manage relationships throughout the entire value chain - Differentiation Create products and/or services that are unique and valued Non-price attributes for which customers will pay a premium - Focus strategy Narrow product lines, buyer segments, or targeted geographic markets Attain advantages either through differentiation or cost leadership
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10 - 4 Example Companies pursuing an overall cost leadership strategy - McDonalds - Wal-Mart Companies pursuing a differentiation strategy - Harley Davison - Apple Companies pursuing a focus strategy - Rolex - Lamborghini - La Curacao
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10 - 5 Three Generic Strategies
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10 - 6 Competitive Advantage and Business Performance Differentiation Cost Differentiation Focus Cost Focus Stuck in the Middle Adapted from Exhibit5.2 Competitive advantage and business performance
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10 - 7 Overall Cost Leadership Integrated tactics - Aggressive construction of efficient-scale facilities - Vigorous pursuit of cost reductions from experience - Tight cost and overhead control - Avoidance of marginal customer accounts - Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising
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10 - 8 Value-Chain Activities: Overall Cost Leadership Exhibit 5.3 Value-Chain Activities: Examples of Overall Cost Leadership Source: Adapted with the permission of The Free Press, a division of Simon & Schuster, Inc., from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E. Porter. Copyright © 1985 by Michael E. Porter.
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10 - 9 Overall Cost Leadership (Cont.) A firm following an overall cost leadership position - Must attain parity on the basis of differentiation relative to competitors - Parity on the basis of differentiation Permits a cost leader to translate cost advantages directly into higher profits than competitors Allows firm to earn above-average profits
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10 - 10 Comparing Experience Curve Effects Exhibit 5.4 Comparing Experience Curve Effects
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10 - 11 Change in Computer Hardware Prices over the past Twenty-five Years 1984 - 512k RAM, price = $375 - Box of 10 400 kilobyte floppies, price = $40 2008 - 4 GB RAM, price = $39.99 - Pack of 10 4.7 Gigabyte DVD+RW, price = 17.99 What would 2008 capacity cost in 1984? - 4GB RAM is 8000 times as much as 512k, new price $300,000 (nice house) - 47 GB storage is over 11 million times as much memory as 1984’s box of floppies, new price $470,000,000 (nearly half a billion dollars) - Gordon E. Moore, co-founder of Intel saw the number of chip elements doubling nearly every year on a “computer” chip back in 1965 and proposed Moore’s law
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MGT 300 Spring 2010 Week 09 - Business-Level Strategy...

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