Focused differentiation is the same as differentiation

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Unformatted text preview: cost leadership and differentiation to gain a competitive advantage that is hard for competitors to imitate or duplicate. Management Accounting 2 – Semester 2 2010 10 Strategy Analysis and Formulation Cost Leadership Cost leadership is where a set of actions are taken such that the entity is able to provide the lowest cost relative to all other competitors in the market. In this case, the product being sold is usually very standardized and there is little to no differentiation in product. However, cost leadership processes may become obsolete when competitors manage to imitate and innovate against the cost leader’s processes. Such a cost focus may also cause customers to go into a cost focus as well, making product differentiation much harder to attain. Focused cost leadership is the same as cost leadership except that the entity aims at a smaller, more focused market than a broad market. Differentiation Differentiation is where an entity seeks to create a product that is unique and is valued by customers, such that they will pay a premium for the product or service. In this case, cost generally does not matter, to a certain extent, as customers are willing to pay extra. Differentiation can be bad in that the entity may create a product that has: • • • Too little/much differentiation Unique product features that customers do not value Too high of a price premium Differentiation can be defeated if competitors can easily imitate it, or if counterfeit goods appear on the market. Focused Differentiation is the same as differentiation except that the entity aims at a smaller, more focused market than a broad market. Focused Strategies Focused cost leadership and focused differentiation should be used carefully. An entity should be careful not to become too focused as to limit its growth potential. It should also not become too outfocused in that it starts to market products – designed for the focused market – to a broad market at which the product was not targeted. Corporate Level Strategy Corporate level strategy involves deciding on a mix of businesses in different industries and markets to gain a competitive advantage. The strategies are defined in terms of the extent of diversification and the degree of relatedness to the main business and any other offshoots. Strategy Single/Dominant Business Related Diversification Unrelated Diversification Degree of Relatedness High Medium Low Management Accounting 2 – Semester 2 2010 Extent of Diversification Low Medium High 11 Strategy Analysis and Formulation Single/Dominant Buisness A Single Business is where 95% of all revenue comes from a single business. A Dominant Business is one where 75% of all revenue comes from a single business. In both these cases, most of the entity’s income comes from the one business. They are only really focused on one industry. Related Diversification Related Diversification is where less than 70% of revenues come from a single business. Diversification can either be: • • Related Constrained This is where all businesses share some (or all) products/technology/distribution/links. Related Linked This is where there are only limited links between the businesses. Companies can be related through: • • Operational Relatedness Shared value ­chain activities, such as sharing the same marketing team, the same procurement, outbound and inbound logistics. Corporate Relatedness This is where core competencies are shared. Entities can increase market power by using vertical integration when establishing or purchasing new companies. In this sense, the entity will be able to reduce costs even further. They can also expand horizontally and compete with competitors on multiple points instead of just one market/product/service. Unrelated Diversification Unrelated Diversification is the same as Related Diversification except that there are no links at all between the businesses. They all operate independently and most likely only share the similar names or holding company. Management Accounting 2 – Semester 2 2010 12 Implementing Strategy Implementing Strategy Background Now that we have formulated some strategy, it is time to implement them. These strategies will now be filtered down into objectives – lower level goals – so that individual employees can work towards a common strategy. This can be done through Performance Measurement Syste...
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This note was uploaded on 10/13/2013 for the course ACCT 2522 taught by Professor Chang during the One '11 term at University of New South Wales.

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