Business Level Strategy

Explain the nature and necessity of business level strategies.
Distinguish between different types of business level strategies.
Identify and evaluate potential business level strategies for an organization, and recommend appropriate ones.

A deliberate course of action by managers to match an organization's strengths with environmental opportunities.
Strategic decisions are made at three levels:
- Corporate Level: Overall scale and scope of the organization (which industries and markets to compete in).
- Business Level: How to remain competitive in particular markets (achieving competitive advantage within an industry; also called competitive strategies or battle plans).
- Operational/Functional Level: How to deliver on corporate and business level strategies (manifests in 7 functional areas).

A successful strategy links capabilities and strengths with opportunities and threats to achieve competitive advantage and above-average returns.
Key influencing factors:
- The strategic direction of the organization.
- The internal and external environments.
- The nature of competition.
- The impact on stakeholders.

Aim: Build competitive advantage by reducing costs below competitors, transferring savings to a large, price-sensitive market.
Success Factors: Large, price-sensitive market open to good quality but not necessarily top-tier products.
Sources of Cost Advantages: Economies of scale, ownership of specialized machinery, low overhead costs.
Advantages: Less affected by supplier price increases, higher bargaining power with suppliers (due to large purchases), less affected by buyer price falls, can reduce prices to compete with substitutes, creates barriers to entry.
Disadvantages: Competitors may find lower-cost production methods, easy imitation of methods, risk of losing sight of customer tastes due to focus on cost reduction.

Aim: Achieve lower price than competitors while maintaining similar perceived product/service value for a large market.
Challenges: Reducing prices sustainably without competitors easily emulating; avoiding destructive price wars.
Approaches: Focus on unattractive market segments to avoid pressure, or gain tactical advantage through price reductions in competitive markets.

Aim: Produce products/services considered unique across the industry to drive competitive advantage.
Drivers of Uniqueness: Product features, brand, R&D improvements, superior customer service.
Success Factors: Clear identification of customer values and willingness to pay, clear identification of competitors, difficulty of imitation.
Advantages: Safeguards against competitors through brand loyalty, tolerates input price increases better than cost leaders, unique product gives power over buyers, brand loyalty creates barriers to entry, less vulnerable to substitute products if meeting unique needs.
Disadvantages: Threat of imitation, diminishing importance of differentiation as customers become price sensitive, risk of charging prices higher than the market will bear.

Aim: Concentrate on a specific niche (narrow segment) in the marketplace, developing competitive advantage either through low cost or differentiation tailored to that niche.
Attractiveness: Niche is profitable and has growth potential, industry leaders don't prioritize the niche.
Examples: Ferrari (focused differentiator – high value niche, uniqueness), FlySafair (focused low-cost – airline passengers, price).
Advantages: Protection from rivals via unique offerings for niche, power over buyers (no alternatives), customer loyalty reduces threat from substitutes, barriers to entry for potential entrants, allows close response to customer needs, potential for above-average returns.
Disadvantages: Higher production costs due to small volumes, reduced profitability if heavy investment in distinctive competency is needed, niche can disappear due to market/tech changes, difficulty in moving to new niches, vulnerability to differentiators targeting the niche.

Strategic decision-makers evaluate options based on organizational direction, goals, resources, capabilities, opportunities, and competitors.

Appropriateness: Aligns with SWOT matrix, decision trees, scenarios.
Feasibility: Is the organization capable of implementing and achieving objectives with available resources effectively and efficiently?
Desirability: Produces results (short/long term) consistent with needs/priorities; considers risks (competitor retaliation, resource overstretch, cash flow, vulnerability, timing).
Consistency: Aligns with the organization's strategic intent and objectives.
Attractiveness to Stakeholders: Appealing to stakeholders for long-term sustainability.

SWOT Matrix: Guides viable options by categorizing strengths, weaknesses, opportunities, and threats. Quadrants (Q1 SO, Q2 WO, Q3 WT, Q4 ST) indicate strategic scenarios from most attractive (Q1) to worst (Q3).
Decision Trees: Graphical representation of strategic options, estimating outcomes and eliminating options based on requirements (e.g., growth, investment, diversity).
Scenarios: Explores 'what if' questions to understand the impact on considered strategies.