Business Strategy and Competitive Advantage: Key Concepts and Frameworks

Who is responsible for business strategy?

General managers

What is business-level strategy?

A firm's plan to compete in a market, attract customers, and gain competitive advantage

Focused differentiation strategy

Target a niche market with unique, premium products

Example of focused differentiation

Rolex

Focused low-cost strategy

Target a niche market with the lowest price

Example of focused low-cost

Aldi; Dollar Store

Overall low-cost provider strategy

Offer lowest prices to a broad market

Example of overall low-cost

Amazon; Walmart

Broad differentiation strategy

Offer unique products to a broad market

Example of broad differentiation

Apple; Whole Foods

Best-cost provider strategy

Balance low cost and differentiation to offer high value

Example of best-cost provider

Trader Joe's; Toyota; Target

Difference between offensive and defensive strategy

Offensive builds advantage; defensive protects advantage

Offensive strategy option: lower price

Offering equal or better product at lower price

Offensive strategy option: leapfrogging

Being first to market with next-gen products

Offensive strategy option: continuous innovation

Constantly improving products

Offensive strategy option: disruptive innovation

Creating entirely new markets

Offensive strategy option: imitation

Adopting and improving others' ideas

Offensive strategy option: guerilla tactics

Small, aggressive marketing to gain share

Offensive strategy option: preemptive strike

Securing resources or opportunities before rivals

Blue ocean strategy

Creating new demand in uncontested markets

Example of blue ocean strategy

Uber; Airbnb; Mall of America

Defensive strategy

Actions to protect market position and advantage

Two types of defensive strategy

Block challengers; signal retaliation

First-mover advantage

Advantage gained by being first in the market

When first-mover advantage occurs

Brand loyalty; high switching costs; patents; setting standards

Late-mover advantage

Advantage gained by entering after pioneers

When to avoid first-mover

High cost; immature product; fast-changing market; easy imitation

Non-equity alliance

Partnership based on contracts

Equity alliance

One firm owns part of another

Joint venture

New company jointly owned by partners

Horizontal integration

Merging with competitors at same stage

Benefits of horizontal integration

Reduced competition; lower costs; increased differentiation

Vertical integration

Expanding control over multiple stages of value chain

Backward integration

Controlling inputs

Forward integration

Controlling distribution/customer access

Reasons to enter foreign markets

New customers; lower costs; exploit competencies; access resources; spread risk

Exporting strategy

Producing at home and selling abroad

Licensing strategy

Allowing foreign firms to produce/sell products

Franchising strategy

Allowing others to operate using your business model

Subsidiary strategy

Owning operations in a foreign country

Advantages of licensing/franchising

Low cost; rapid expansion

Disadvantages of licensing/franchising

Less control; risk to brand quality

Risks of international alliances

Conflict; cultural differences; dependence; cost

Diamond model

Explains why certain countries have competitive industries

Individualism vs collectivism

Independence vs group orientation

Masculinity vs femininity

Achievement vs equality/care

Power distance

Acceptance of unequal power

Uncertainty avoidance

Comfort with uncertainty and risk

Corporate strategy

Overall direction set by top management

Three dimensions of corporate strategy

Industry; product; geographic scope

Diversification

Expanding into new industries or businesses

When NOT to diversify

When firm is growing well

When to diversify

When growth is limited or industry declines

Reason for diversification

To increase shareholder value

Attractiveness test

Is the new industry profitable?

Cost of entry test

Are entry costs too high?

Better-off test

Will synergy improve performance?

Ways to diversify

Acquisition; internal startup; joint venture