Strategic Management Final

Generic strategies

Overall cost leadership, Overall differentiation, Focused cost leadership, Focused differentiation

Overall cost leadership

Targeting a broad market and competing primarily by maintaining the lowest cost structure in the industry. Ex: Walmart, Southwest, Amazon books

How to achieve cost leadership

Economics of scale, learning/experience effects, alternative business models, lower input costs

Overall differentiation strategy

Targeting a broad market and competing by offering superior perceived value, better features, reliability, convenience, brand image, or distribution. Customers pay a premium because they perceive unique benefits. Example: Rolex (lasts longer), Coca-Cola (convenience), Louis Vuitton (brand image)

How to achieve differentiation

Product features, convenience, brand image, dist. channels

Focused cost leadership vs. focused differentiation

Both target a narrow/niche market segment rather than the broad market. Focused cost leader competes on low cost within that niche; focused differentiator competes on superior value within that niche. The 'focus' dimension is about market scope, who you sell to, not how you sell.

Key dimensions of business-level strategy

1) Market scope — broad (all customers) vs. focused/narrow (specific segment); (2) Competitive advantage — low cost position vs. superior perceived value by the customer. All four generic strategies are combinations of these two dimensions

Linking internal analysis to business-level strategy

A firm should choose the generic strategy most consistent with its internal resources and capabilities. Strategy choice must align with what the firm actually does well

Diversification

A firm's strategy to expand its operations by entering new businesses.

Purpose of diversification

create synergy, working together across businesses to create greater value than each could alone

Related diversification

Entering different businesses where the firm can benefit from leveraging core competencies, sharing activities, or building market power. ex: Nike expanding into apparel, equip. ect.

Unrelated diversification

Entering a different business with little horizontal interaction with existing businesses. Value comes from hierarchical relationships Ex: General Electric, Samsung, Berkshire Hathaway

Economies of scope (related diversification)

Cost savings from leveraging core competencies or sharing activities across businesses in the corporation. Ex: P&G sharing marketplace expertise across all its consumer brands

Leveraging core competencies (related diversification)

Using a firm's strategic resource its collective learning and expertise across multiple businesses. Ex: Bank with AI loan assessment algorithm applying it to newly acquired banks

Sharing activities (related diversification)

Having two or more business units share a common activity to reduce costs. Examples: common manufacturing facilities, shared distribution channels, shared sales force.

Market power (related diversification)

A firm's ability to profit by controlling or restricting market supply, or coordinating with others to reduce competition.

Pooled negotiating power

Related diversification lets a firm combine (pool) purchasing or selling across its businesses, increasing bargaining power with suppliers and customers. Ex: PepsiCo pool demand across all its snack and bev. brands to get favorable terms from distributors

Vertical integration

An expansion by integrating preceding (upstream) or successive (downstream) production processes. Ex: Amazon — think Rockefeller

Mergers & acquisitions (M&A)

Combining two firms, either by merger or acquisition Benefits: consolidate industry, enter new markets, obtain valuable resources. Disadvantages: integration challenges, culture clashes, overpaying (winner's curse), managerial distraction.