5-11 Formulating Business-Level Strategy
180
Part3 Planning
To find at
Now we turn to strategy formulation within the SBU in which the concern is how to compete.
popular and effective model for formulating strategy is Michael E. Porter's competitive strategia
the result of understanding competitive forces in the company's environment. 8
Porter studied a number of business organizations and proposed that business-level strategies zei
company can
zational chas
5-11a Porter's Five Competitive Forces
some ways
Exhibit 5.11 illustrates the competitive forces that exist in a company's environment and indicates
company's position vis-à-vis competitors in the industry environment. Although such a model
might be used on a corporate level, most large companies have separate business lines and do an
industry analysis for each line of business or SBU. Mars, Inc., for example, operates in six buss
ness segments: chocolate (e.g., Snickers), pet care (e.g., Pedigree), gum and confections (e.g., Juicy
pet DNA kit, used for breed identification). Competitive forces for the chocolate division
Fruit), food (e.g., Uncle Ben's rice), drinks (e.g., FLAVIA), and symbioscience (e.g., the Wilson
analysis for each business segment, looking at Porter's five forces.
would be different from those for the symbioscience division, so managers would do a competitive
Mariusz Szczygiel/Shutterstock.com
Panel
Exhibit 5.11 Organizational Characteristics of Porter's Competitive Strategies
Broad
2 Cost Leadership
• Strong central authority; tight cost
controls
• Maintains standard operating
procedures
O
1 Differentiation
• Acts in a flexible, loosely knit
way; strong
coordination among
departments
• Strong capability in basic research
• Creative flair, thinks “out of the box”
• Strong marketing abilities
• Rewards employee innovation
• Corporate reputation for quality
or technological leadership
O
• Easy-to-use manufacturing
technologies
• Highly efficient procurement and
distribution systems
• Close supervision; finite employee
empowerment
Strategic Target
3 Focused Differentiation
• Uses characteristics of
differentiation strategy directed at
particular target customer
• Values flexibility and customer
intimacy
• Pushes empowerment to employees
with customer contact
4 Focused Cost Leadership
• Uses characteristics of cost
leadership strategy directed at
particular target customer
• Frequent detailed control reports
• Measures cost of providing
product or service and maintaining
customer loyalty
Narrow
Distinctiveness
Low Costs
Source of Advantage
and Fred
II
SOURCES: Based on Michael E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York: Free Press, 1980); Michael Treacy
Wiersema
, "How Market Leaders Keep Their Edge," Fortune (February 6, 1995): 88–98; and Michael A. Hitt, R. Duane Ireland, and Robert E. Hoskisson, Stralego
Management (St. Paul, MN: West, 1995), pp. 100–113.
PRED
y
a
60
Chapter 5 Planning and Goal Setting
181
competitive edge within the specific business environment, Porter suggests that a
company can adopt one of three strategies: differentiation, cost leadership, or focus. The organi-
zational characteristics typically associated with each strategy are summarized in Exhibit 5.11.
Mariusz Szczygiel/Shutterstock.com
Concept Connection
Rubber bands. Binders. Gum bands. Elastics. Whatever we call
them, we all know what they are. With the benefits of lower labor
costs, companies in China and Thailand have grabbed most of
the market for rubber bands. One of the few remaining U.S. man-
ufacturers, Alliance Rubber Company, is hoping to survive with a
new differentiation strategy. Alliance is promoting new uses for
its stretchy loops of rubber, including bands for stretching exer-
cises, grips designed to help people hold tools more firmly, wrist-
bands infused with fragrances to relieve stress, and wristbands
that can be used as erasers. Employees earn bonuses by suggest-
ing ideas that turn into new products, and Alliance has invested
in sophisticated equipment to make customized products.
DVIRA
-
RUOY YJSSA
Remember This
• A popular model for formulating business-level
strategy is Porter's competitive strategies.
• Managers analyze the competitive environment and
adopt one of three types of strategy: differentiation,
cost leadership, or focus.
• A differentiation strategy is a strategy with which
managers seek to distinguish the organization's
products and services from those of others in the
industry.
• A cost leadership strategy is a strategy with which
managers aggressively seek efficient facilities,
cut costs, and use tight cost controls to be more
efficient than others in the industry.
• With a focus strategy, managers use either a
10 differentiation or a cost leadership approach, but
they concentrate on a specific regional market or
buyer group. danam
20
DISCUSSION QUESTIONS
1. What strategic plans could the college or uni- 3. A new business venture must develop a com-
versity at which you are taking this management prehensive business plan if it hopes to acquire
course adopt to compete for students in the VIVA start-up funding. Companies such as FedEx and
marketplace? Would these plans depend on the Nike say they did not follow the original plan
school's goals?
closely. Does that mean that developing the plan
was a waste of time for these eventually success-
2. The MBO technique has been criticized for
ful companies?
putting too much emphasis on achieving goals
(ends) and not enough on the methods that 4. Assume that Southern University decides to do
people use to achieve them (means). Do you
two things: (1) raise its admission standards and
think this is a flaw in the technique or in the way (2) initiate a small-business fair to which local
managers apply it? How would you place a bal- townspeople will be invited. What types of plans
might it use to carry out these two activities?
anced emphasis on ends and means?
a
a
Purchase answer to see full
attachment