Week 4: Business-Level Strategies
- What are the two dimensions critical to defining a company’s business-level strategy?
- What are the generic strategies? How does an organization achieve these strategies?
- What are the limitations of the generic strategies?
- What is a best-cost strategy?
- What does it mean to be ‘stuck in the middle’?
- When does a best-cost strategy work best?
- What is a major risk associated with the best-cost strategy?
- Why do some companies concentrate on a single industry while others focus on multiple industries?
- Describe vertical integration and explain why companies use this strategy.
- What are two types of diversification and when should they be used?
- Why and how would a company retrench or restructure?
- What are three concentration strategies?
- What is horizontal integration and identify two reasons why horizontal integration fails?
- What is backward vertical integration? What are some examples?
- What is forward vertical integration? What are some examples?
Week 4 Discussion: Business Level Strategies
Through business-level strategies, the company can be able to determine how a business continues to compete with its competitors in the industry. Moreover, the company needs to define the business-level strategy in terms of generic strategies. If the business keeps focusing on its generic strategies, then the business executives can be able to concentrate on the core elements which form the business-level strategies (Pressbooks, 2022). Many business-level strategies are based on Michael Porter and other scholarly research. The two dimensions which define the company’s business-level strategy are the source of the competitive advantage or the uniqueness of the business and the business operations scope.
The generic strategies are given by Michael Porter and according to him, there are majorly three approaches to the Generic strategies as they can be applied to all industries and products and services irrespective of any differentiation. Michael Porter have formed generic strategies in 1985 in his book named Competitive Advantage. He further said that generic strategies comprise Cost leadership, Differentiation, and focus. Moreover, he further divided the focus strategy into two parts cost focus and differentiation focus (Mindtools, 2022). With the generic strategy, the company can be able to establish a strong position within its industry. However, if the business kept concentrating on its generic strategy, then it would allow the business executives to concentrate on its business-level strategy and serve the customers in a better way (Open text, 2022).
The generic strategies formed by Michael Porter do not always prove to be beneficial. Instead, it possesses some limitations for the organization as well. It includes that generic strategies are not suitable for the empirical description of diversified organizational strategies. Moreover, these limitations are the perspective of both research methodology and managerial relevance (Jegers, 1994).
The best cost strategy is a kind of business strategy that helps in increasing product quality and reduces cost. Business houses apply this strategy to their organization to provide more value to their customers in terms of money. This strategy can be achieved by the customers’ satisfaction with the attributes of the product. Meanwhile, the prices are set and charged by the customers at comparatively lower than its competitors. With this strategy, the business can be able to attract more value and quality-conscious buyers (Seruya, 2022). It is a hybrid strategy that balances the strategic emphasis on low-cost products with high quality.
Many business organizations fail to effectively pursue generic strategies, and that’s where the firm is said to be stuck in the middle. Stuck in the middle refers to a situation where one person from the business gets stuck between two people of the same organization who are arguing overcoming to one decision (Open text, 2022). Therefore, they expect the stuck people to expect and support either both of them or one of them even if the argument is useless.
The best cost strategy works best in market situations where product differentiation is the norm and attracts many quality and value-conscious buyers (Open Oregon state, 2022). It will be induced to bring many midrange products instead of making the customers buy the basic products of low cost and expensive products will stay ahead at the top of line differentiators.
The risk associated with the best cost strategy is putting its business in the middle position of the industry. Moreover, businesses that offer low-priced items may attract clients more than those businesses with high-priced items. On the other hand, businesses that offer high-priced products may attract customers who are looking more into high-quality products.
Many companies concentrate on a single industry unlike other companies focusing on multi-industry because the single-industry businesses tend to follow up the corporate level strategy which affects all the departments of the business as a whole. Be it finance, production, distribution, or sales, corporate-level strategy manages all. Hence the need of focusing on a multi-level industry becomes null (Porter, 2022). Meanwhile, if the company works in multi-level industries, then it will end up losing focus on some of the products and services and its competitors become successful and are focusing on a single industry. A single industry allows the business to focus on allocating resources to one area at a time.
Vertical integration is a kind of business strategy that allows the business to streamline its business process by taking ownership of different production stages instead of only relying on external suppliers. The business can achieve this strategy by acquiring its suppliers, distributors, retailers, and manufacturers to produce the products instead of outsourcing the process (Boyce, 2021). However as this strategy requires capital investment, it has various risks and disadvantages too. Many companies use this strategy for increasing their efficiencies, reduce costs, and controlling their manufacturing and distribution process.
The two kinds of diversification are business-level product diversification and corporate-level product diversification. Where the business level product diversification can be used when the business is expanding its operations into a new segment of the industry with product expansion (Bashir, et al, 2020). On the other hand, in the corporate level product diversification, the business is expanding into a new industry that is beyond the business’s current strategy and scope.
Organizations nowadays that have used the retrenchment strategy are striving hard to operate. It is so because organizations often try to improve their business strategies for boosting their business processes. Meanwhile, the retrenchment strategy is just the reverse option and makes the business withdraw itself from various markets and discount the product lines. Moreover, if the organization keeps adopting the retrenchment strategy, then the company might lose its competition and potential customers. However, if the organization wants to try out a retrenchment strategy once then it needs to be over-extended and should focus more on cutting the cost instead of attracting new customers Sherman, 2018). Moreover, it can be done with three steps turnaround, divestment, and liquidation. The organization tends to apply the retrenchment strategy because of the change in decisions to the strategic direction which happens due to the change in the management of the organization or the issues of low profitability.
The three concentration strategy used by the organizations is market penetration, market development, and product creation or development. If the organization is designed to excel and stand out from its competitors in the industry, then it can either use one strategy, two, or all. The market penetration strategy helps in gaining an additional share of the organization’s existing market with its already selling products (Open lib, 2022). On the other hand, in the market development strategy, the organization is required to take and sell its existing product range in new markets and industries and one of the ways of achieving this includes a retail channel. Meanwhile, the strategy of product development means developing a new product to sell in the existing market.
The horizontal integration strategy is the business acquisition that is working at the same level of the value chain in the same industry. It means that the business produces almost similar goods and services to its competitors (Management study, 2022). Many a time this business strategy gets failed because horizontal integration hampers the economic growth of the business, reduces the flexibility of the business, and makes it rigid. It is because the company had acquired the other business and becomes the bigger organization.
Backward integration occurs when the organization initiates vertical integration and moves backward on its industry’s supply chain. It is also can be defined as the process in which the company merges with other organizations to get help with raw materials to finish the production of the finished items for the customers (Srivastav & Vaidya, 2022). An example of backward integration can be the baker who buys raw materials such as flour and wheat to produce cakes and other bread.
Vertical integration is conducted by organizations that are looking to advance their business process along with the supply chain. It is generally a form of forwarding integration where the organization moves in the process of directing its distribution of products and services. An example of verticle integration can be the farmer who is selling ist crops to the grocery store instead of selling to the distribution center.
Pressbooks (2022). 6.2 Understanding Business-Level Strategy through “Generic Strategies”. Retrieved on 6th October 2022, from: https://pressbooks.lib.vt.edu/strategicmanagement/chapter/6-2-understanding-business-level-strategy-through-generic-strategies/#:~:text=Firms%20compete%20on%20two%20general,operations%20(broad%20or%20narrow).
Mindtools (2022). Porter’s Generic Strategies. Retrieved on 6th October 2022, from: https://www.mindtools.com/pages/article/newSTR_82.htm#:~:text=Porter%20called%20the%20generic%20strategies,service%20in%20a%20niche%20market).
Open text (2022). Understanding Business-Level Strategy through “Generic Strategies”. Retrieved on 6th October 2022, from: https://opentextbc.ca/strategicmanagement/chapter/understanding-business-level-strategy-through-generic-strategies/
Jegers, M. (1994). Methodological limitations of Porter’s three generic strategies framework. In Research in Global Strategic Management. Emerald Group Publishing Limited. Retrieved on 6th October 2022, from: https://www.emerald.com/insight/content/doi/10.1016/S1064-4857(93)04004-U/full/html
Seruya, D. (2022). Best-Cost Strategy: Definition and Benefits – Updated 2021. Retrieved on 6th October 2022, from: https://valiantceo.com/best-cost-strategy-definition-and-benefits-updated-2021/
Open text (2022). Stuck in the Middle. Retrieved on 6th October 2022, from: https://opentextbc.ca/strategicmanagement/chapter/stuck-in-the-middle/
Open Oregon state (2022). Generating Advantage. Retrieved on 6th October 2022, from:https://open.oregonstate.education/strategicmanagement/chapter/5-generating-advantage/
Porter, M.E. (2022). From Competitive Advantage to Corporate Strategy. Retrieved on 6th October 2022, from: https://hbr.org/1987/05/from-competitive-advantage-to-corporate-strategy
Boyce, P. (2021). What is Vertical Integration? Retrieved on 6th October 2022, from: https://boycewire.com/vertical-integration-definition/
Bashir, M. A., Sheng, B., Doğan, B., Sarwar, S., & Shahzad, U. (2020). Export product diversification and energy efficiency: Empirical evidence from OECD countries. Structural Change and Economic Dynamics, 55, 232-243. Retrieved on 6th October 2022, from: https://www.sciencedirect.com/science/article/pii/S0954349X20303945
Sherman, F. (2018). What Is “Corporate Retrenchment Strategy”? Retrieved on 6th October 2022, from: https://bizfluent.com/info-7890404-corporate-retrenchment-strategy.html
Open lib (2022). 8.2 Concentration Strategies. Retrieved on 6th October 2022, from: https://open.lib.umn.edu/strategicmanagement/chapter/8-2-concentration-strategies/#:~:text=There%20are%20three%20concentration%20strategies,industry%20(Ansoff%2C%201957).
Management study (2022). Horizontal Integration. Retrieved on 6th October 2022, from: https://www.managementstudyhq.com/what-is-horizontal-integration-advantages-disadvantages-of-horizontal-integration.html
Srivastav, A.K. & Vaidya, D. (2022). What is Backward Integration? Retrieved on 6th October 2022, from: https://www.wallstreetmojo.com/backward-integration/