Building Competitive Advantage Through Business-Level Strategies

1. Business Strategy Session 5
Building Competitive Advantage Through Business-Level Strategies
Author: Anik Saha

2. 2
Roots of Competitive Advantage
Efficient Business Model and Business Level Strategies
Drive Competitive Advantage
© Anik Saha
Create Value for Customers
Develop Business Strategies
Set Business Objectives
Customer’s Needs Customer’s Segments Distinctive Competencies

3. 3
Roots of Competitive Advantage
Business Level Strategies Deliver Superior Value through
Differentiation or Optimized Cost Structure
Resource
Distinctive
Competencies
Capabilities
Functional &
Business
Strategies
Competitive Adv./
Value Creation
Grow
Profitability
Build
Build
Shape
Distinctive Competencies & Strategies gets reciprocally developed to drive SCA
© Anik Saha
Differentiation
Low Cost

4. 4
Build Business Model: Customer Needs and Product Differentiation
© Anik Saha
Product
Differentiation or
Value Model
Better Pricing or
Efficiency Model
Enhance Functionality, Features, Performance Efficient Process to control Cost Structure
Showcase Benefit to Customer Use Situations Key Strategic Alliances to get Cost Benefit
Aesthetics, Physical Attributes or Delivery Model Optimal Designing & Feature Trade off
Customer Perceives Higher Value at Optimal Price against Competition
Customer’s Choice of
Solution to Satisfy Need

5. 5
Build Business Model: Customer Segmentation
© Anik Saha
No Segmentation High Segmentation Focused Segmentation
• Same offerings to entire segment
• Least Operating cost
• Potential for Profitability
• Minimal customer responsiveness
• Competitive advantage achieved
through low price, NOT differentiation
• Granular offering for multiple
customer sets
• High Operating cost
• Higher Potential for Profitability
over competition
• Extensive customer
responsiveness, high
differentiation & customization
• Extent of higher profit vs. cost of
building customized
differentiating offers a concern
• Optimal Offerings for certain
segments
• Profitability and revenue potential
maximum w.r.t effort of building
multiple differentiating offerings
• Differentiated offerings for certain
segments and commoditized core
solution for certain segments
• Drive both Profitability and
Revenue growth
Segmentation : An Ongoing process to validate any unidentified new segment and Re-design
offerings

6. 6
Implementing Business Model: Build Distinctive Competencies
© Anik Saha
How to create
Differentiating
Solution
How to build
Cost Effective
Structure
How much
Segmentation
How much wide
Range of
Products?
Successful Implementation of Business Model Needs
Strategies to Address Following
Business Strategies help to achieve a fit between Differentiation, Cost, Pricing Options and delivering to
applicable customer segment

7. 7
Competitive Positioning & Business Level Strategy
© Anik Saha
Successful
business Model
Create
Differentiation
Efficient Cost
Structure
Industry
Competitive
Structure
Market Demand
Pricing Options
Widens
Functional level
Strategies to
Optimize Cost
Revenue/
Profitability
Increase
Differentiation increases Cost; With Competition following differentiation, Sustainability of Profitability gets Challenged
Maximizing Profitability and Sustainability depends on:
• Making right positioning & choice towards differentiation
• Value Creation through differentiation, Cost reduction
• Right response to level of customer demand
• Assessing overall competitive and market dynamics

8. 8
Competitive Positioning & Business Level Strategy: Value Creation Frontier (VCF)
https://www.emaze.com/@ALCTRLRW/canon-copy1
VCF shows maximum value created by orgs with different business modelsc
Orgs closer to VCF builds successful business model with Differentiation, Cost Leadership and Focus
© Anik Saha

9. 9
Competitive Positioning & Business Level Strategy:
Positioning with Cost and Differentiation
Focused Positions with Cost and Differentiation serve narrow market segment
http://slideplayer.com/slide/6264218/
https://www.pinterest.com/lennetti/market-marketing-and-go-to-market-strategy-framewo/ © Anik Saha

10. 10
Competitive Positioning & Business Level Strategy: Cost Leadership
SCA with Low Cost Structure and Increase volume of Sales
Moderate/ Sufficient
Differentiation
Feature change only if
Customer wants
Ignore Many Segment
differences; address
“Average”
Increase Operational
Efficiency/ Optimize Cost
structure, reduce COGS
Importance to Efficiency in
Material Mgmt, Flexible
Production, Orders with
least customization
Supported by Central
Information system,
Infrastructure
Threat Situations
Threat of substitute
Supplier power
Threat of buyer
Entry barrier
Threat of competitors
• Technological Shift/ Market Shift driving cost further
down for competition
• Ability to imitate cost leader’s methods
• Reducing cost to an extent impacting CSAT
© Anik Saha

11. 11
Competitive Positioning & Business Level Strategy: Focused Cost Leadership
Competes against Cost Leaders at No Cost Disadvantage
Operates at Small Region Narrow Market segment
Produces complex or custom-built
products
No economies of scale
Implications of Cost Leadership
DifferentiatorCost Leadership
• Tracks Differentiator’s innovations and imitates
• Produces similar solution at low cost
• As business grows focused cost leaders move to
cost leaders with segment/geo expansion
• Cost leaders shift to differentiation by
reinvesting profits into design innovations
• Tracks Cost Leaders innovations on cost
reduction structuring
• Stop cost leader to get too much cost
advantage and reinvest profits to innovate
Better GP% as operates at optimal scale
with custom processes at low cost
© Anik Saha

12. 12
Competitive Positioning & Business Level Strategy: Differentiators
SCA with Low Cost Structure and Increase volume of Sales
Proactively creates unique
product; customer perceives
as different & worth extra
Ability to charge
premium as competition
cant match
Innovation, Quality and
Customer Responsiveness
Addresses many market
segments potential to buy
Differentiation leads to high
cost structure; benchmarks
against cost leaders
Creates brand loyal
customers with valuable
assets
Threat Situations
Threat of substitute
Supplier power
Threat of buyer
Entry barrier
Threat of competitors
• Maintain perceived differentiation, continuous innovation, excellence
• Ability to continue to charge premium
• Be alert to imitators and not charge beyond perceived value
© Anik Saha

13. 13
Competitive Positioning & Business Level Strategy: Focused Differentiator
Competes against Differentiators in one/ few segments
Differentiation at specific
segment
Charge super premium
Distinctive features better than
the differentiators
Focused segments help
drive innovations faster
Threat Situations
Delivers Superior customer
responsiveness as only selected segment
served
• Differentiator having bigger scale to imitate focus business model
• Technological shift dissolving the niche segment
• Customer’s (niche segment) needs getting changed
© Anik Saha

14. 14
Competitive Positioning & Business Level Strategy:
Dynamics of Competitive Positioning
Broad Differentiators
• leverage Resource, Capability, Competencies
• Maximize benefits of differentiations
• optimize Cost structure
Broad
Differentiators
• Threat to differentiator and cost
leader
• Provide more value than rivals
• Explores new market segment or
keeps changing business model
© Anik Saha

15. 15
Acknowledgement
Strategic Management by Charles W. L. Hill/ Gareth R.
Jones, Published by CENGAGE Learning
© Anik Saha