MGT 4090 Management Policy & Strategy Week 6

Welcome to MGT 4090 Management Policy & Strategy

  • Course: Management Policy & Strategy

  • Session: Week 6, Session 1: Business Strategy

  • Date: Tue, 10 Feb 2026

Today's Agenda

  • Announcement

  • Business Level Strategy

Announcement

  • Strategic Plan

    • Due by 10 pm on 12 Feb 2026

    • Follow the guidelines established by Hambrick and Fredrickson (2005)

  • Note: No class or office hours for the next two weeks

Learning Outcomes

  1. Formulate competitive strategy for your business

  2. Critically assess the pros and cons of the generic business strategies

What Is Business Level Strategy?

  • Definition: Goal-directed actions taken to achieve competitive advantage in a single product market.

  • Key Questions:

    • How should we compete?

    • Who are the customer segments?

    • What customer needs will we satisfy?

    • Why do we want to satisfy them?

    • How will we satisfy our customers' needs?

Industry and Firm Effects

  • Industry and firm effects jointly determine competitive advantage.

  • Exhibit: 6.1

Strategic Position

  • Definition: A strategic profile based on value creation and cost in a specific product market.

  • A strategic position should:

    • Meet customer needs

    • Maximize product value

    • Minimize product cost

Strategic Trade-Offs

  • Definition: Choices made between a cost position or a value position.

  • Concept: There is tension between value creation and the need to keep costs in check.

  • Purpose: Maximize the firm’s economic value creation and profit margin.

Generic Business Strategies

Differentiation

  • Seeks to create a higher value compared to competitors.

  • Characteristics:

    • Offers unique features

    • Charges higher prices

Cost Leadership

  • Seeks to create a similar value compared to competitors.

  • Characteristics:

    • Charges lower prices

Strategic Position and Competitive Scope

  • Exhibit: 6.2

  • Source: Adapted from M.E. Porter (1980), Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press).

Differentiation Strategy

  • Definition: Unique features that increase customer value, enabling the firm to charge a higher price.

  • Focus of Competition:

    • Unique product features

    • Service

    • New product launches

    • Marketing and promotion

  • Competitive Advantage: Achieved when the formula Value - Cost > Competitors holds true.

Differentiation Strategy: Achieving Competitive Advantage

  • Exhibit: 6.3

Three Drivers That Increase Perceived Value

  1. Product Features (e.g., Svalbardi)

    • Increase the perceived value of the product/service.

  2. Customer Service (e.g., Zappos)

  3. Complements (e.g., smartphones)

    • Add value when consumed in tandem with a product/service.

Differentiation Strategies: Summary

  • Focus on adding value through:

    • Unique features

    • Customer service

    • Effective marketing

  • Can increase costs, especially when research & development or innovation is needed.

  • Customers willing to pay a premium for added value.

Cost Leadership Strategy

Goals

  • Reduce costs below competitors.

  • Offer adequate value.

  • Reduce prices for customers.

  • Optimize the value chain for low cost.

  • A cost leader achieves a competitive advantage when its economic value created V−CV - C is greater than that of its competitors.

Cost Leadership Strategy: Achieving Competitive Advantage

  • Exhibit: 6.4

Drivers That Keep Costs Low

  1. Cost of Input Factors

    • Includes raw materials, capital, labor, and IT services.

  2. Economies of Scale

    • Achieves a decrease in cost per unit as output increases.

Economies of Scale, Minimum Efficient Scale, and Diseconomies of Scale

  • Exhibit: 6.5

Drivers That Keep Costs Low (cont’d)

  1. Learning-Curve Effects

    • Cost of production decreases as a result of learning by doing.

Tesla’s Learning Curve for Model S

  • Exhibit: 6.6

  • Source: Estimation featured in J. Dyer and H. Gregersen (2016, Aug. 24), “Tesla’s innovations are transforming the auto industry,” Forbes.

Gaining Competitive Advantage

  • Achieved through leveraging learning- and experience-curve effects.

  • Exhibit: 6.7

Drivers That Keep Costs Low (cont’d)

  1. Experience-Curve Effects

    • Connected to improvements in technology and production processes over time.

Cost Leadership Strategies: Summary

  • Focused on offering lower costs compared to competitors.

  • Must maintain acceptable quality to appeal to bargain-conscious buyers.

  • Can yield increased sales and sustained profitability over time.

Next Session

  • Date: Thursday, Feb 12, 2025

  • Topic: Blue Oceans

  • Reading: Chapter 6

  • MiniCase: Warby Parker’s Blue Ocean Strategy

  • Practice Questions

Thank You!

  • Date: Tue, 10 Feb 2026