Business-Level Strategy:

How do we compete?

Generic Business Level Strategies
Source of Competitive Advantage
Cost

Breadth of
Competitive
Scope

Broad
Target
Market

Narrow
Target
Market

Cost
Leadership

Uniqueness

Generic Business Level Strategies
Source of Competitive Advantage
Cost

Breadth of
Competitive
Scope

Broad
Target
Market

Narrow
Target
Market

Uniqueness

Cost
Leadership Differentiation

Generic Business Level Strategies
Source of Competitive Advantage

Breadth of
Competitive
Scope

Broad
Target
Market

Narrow
Target
Market

Cost

Uniqueness

Cost
Leadership

Differentiation

Focused Low
Cost

Focused
Differentiation

Generic Business Level Strategies
Source of Competitive Advantage
Cost

Breadth of
Competitive
Scope

Broad
Target
Market

Narrow
Target
Market

Uniqueness

Cost
DifferenLeadership
tiation
Integrated
Low Cost/
Differentiation
Focused
Focused
DifferenLow Cost tiation Profit = (P – C) × Q

The
The Experience
Experience Curve
Curve

The “Law of Experience”

1994
1995

Cost per unit of output The unit cost value added to a standard product declines by a constant %
(typically 20-30%) each time cumulative output doubles.
1996
1997
1998

Cumulative Output

1999

2000

Examples
Examples of of Experience
Experience Curves
Curves

75%

100K 200K
500K
1,000K
Accumulated unit production
(millions)

UK refrigerators, 1957-71
Price Index
50 100 200 300

1960 Yen
15K
20K 30K

Japanese clocks & watches, 1962-72

70% slope

5

10
50
Accumulated units
(millions)

Choices that Drive Costs
Economies of scale

Product features

Asset utilization

Performance

Capacity utilization pattern

Mix & variety of products

- Seasonal, cyclical
Interrelationships
- Order processing and distribution
Value chain linkages
- Advertising & Sales
- Logistics & Operations

Service levels
Small vs. large buyers
Process technology
Wage levels
Product features
Hiring, training, motivation

Value Chain of Firm Activities
Firm Infrastructure
Human Resource Management
Technological Development

M
A

R
G
IN

M Service
A
R
G
IN

Marketing
& Sales

Outbound
Logistics

Operations

Inbound
Logistics

Procurement

Value Creating Activities common to a
Inbound
Cost Leadership
Business Level Strategy
Logistics

Inbound
Logistics

Support
Activities

Highly Efficient
Systems to Link
Suppliers’
Products with the
Firm’s Production
Processes
Located in Close
Proximity with
Suppliers

Primary Activities

Value Creating Activities common to a
Operations
Cost Leadership Business
Level Strategy
Effective Training Programs to Improve Worker
Efficiency and Effectiveness

Human Resource Management
Timing of Asset
Purchases

Investments in Technology in order to Reduce Costs Associated with
Manufacturing Processes

Technological Development

M
A
RG

Policy Choice of
Frequent Evaluation to PlantProcesses
Technology
Procurement

IN

Monitor Suppliers’ Performances

Organizational
Learning

Primary Activities

R
G
IN

Products Priced to
Generate Sales
Volume

M
A

Policy Choice of Efficient Order
Plant Technology Sizes

Organizational
Small, Highly
Trained Sales
Learning
Force

Service

Outbound
Logistics

Efficient Plant
Delivery Schedule
Scale to Minimize that Reduces
Manufacturing
Costs
Costs
Selection of Low
Timing of Asset
Cost Transport
Purchases
Carriers

Operations

Inbound
Logistics

Support
Activities

Firm

Efficient Plant
Scale to Minimize
Infrastructure
Mfg. Costs
Relatively Few
Management Layers to
Reduce Overhead

Value Creating Activities common to a
Cost Leadership Business LevelOutbound
Strategy
Logistics
Delivery Schedule that Reduces Costs

M
Human Resource ManagementSelection of Low
A
R
Cost Transport G
Technological Development
Carriers

IN

Efficient Order
Frequent Evaluation Processes to
Procurement
Monitor Suppliers’ Performances
Sizes
and Severity
Products Priced to of Recalls
Generate Sales
Volume

Efficient Order
Sizes

National Scale
Advertising

Interrelationships with Sister Units

Primary Activities

M
A