Bmng7312

Work package 1

Learning unit 1

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GROUP 9

• Chad Buchner• Candice Seekola• Isa Quibe • Dlamini Seluleko• Tamsyn Scholtz

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a) Explain where the choice of business level strategy fits into the strategic management

process

Business level strategy is defined as a plan of action which managers adopt to use resources and distinctive competencies to gain a competitive advantage.

Porter’s generic strategies consist of 3 types of business level strategies, namely:

• Overall Cost leadership

• Differentiation

• Focus

• Overall Cost Leadership

The aim of overall cost leadership is to outperform competitors by doing everything to produce goods

and services at the lowest possible cost.

Differentiation

This refers to the ability to satisfy a customers need by offering unique

products or services.

Focus

Focus is aimed at serving the needs of a limited customer group or segment.

Strategic Management Process

The strategic management process is the way in which an organisation defines its strategy.

It is a continuous process in which the organisation decides to implement a select few strategies, details the implementation plan and keeps appraising the progress and success of implementation through regular assessment (MBA Skool.com, 2011-2016).

The strategic management process consists of 4 components, these are:

• Environmental scanning

• Strategy formulation

• Strategy implementation

• Strategy evaluation

At the business unit level, the strategic management issues have less to do with the coordination of operating units and place more focus on developing and being able to sustain a competitive advantage for the goods which are being produced and the services which are being offered.

The strategy formulation phase of the strategic management process at this level deals with positioning the business against rivals, anticipating changes in demand and influencing the nature of competition (QuickMBA, 1999-

2010).

The choice of which generic strategy to use must be linked to the components of the strategic management process and the best alterative to achieve competitive advantage must be identified.

b) Provide detailed examples of 5 companies pursuing the various

business level strategies

OVERALL COST LEADERSHIP

1) Wal-Mart

Wal-Mart uses their everyday low prices to offer cheaper rates on products compared to their competitors on a continuous basis. They source products from cheap, local suppliers and this allows them to sell their products at a lower price whilst making a high volume of profits (Scilly, 2016).

2) IKEA

IKEA is able to keep their prices low by sourcing their products in low- wage countries and offering a basic level of service. They do not assemble or deliver furniture and this allows them to keep costs at a minimum while offering stylish furniture (Scilly, 2016).

Differentiation

3) T-Mobile

T-Mobile aims directly at customers biggest pain points and away from the size of their network. They also allow customers with unlocked phones to switch to T-Mobile. They cater to a small audience which is made up of young, urban people who do not wish to be ‘owned’ by their service provider (Shepard, 2014).

4) Whole Foods

Whole foods has been successful in differentiating themselves from their competitors through promoting an eco-friendly lifestyle by getting rid of plastic bags in 2008, collaborating with ‘Top Chef’ to promote their food products, having a mix of tech savvy and traditional marketing and branding approach and they even run blogs and have an app (Shepard, 2014).

Focus

5) Pepsico

Pepsico provides a scope for greater knowledge of a market segment and it makes entry into a new market less costly and easier. This business benefits from specialisation, however, one of the risks include changes in the target market which the business is aimed at (SlideShare, 2016).

c) Provide an explanation of how you would evaluate the choice of strategy

in an organisation

Some key factors to consider when evaluating strategy choices in an organisation include the following:

• Internal Consistency

• External Environment

• Strategic Advantages

• Feasibility

Internal Consistency

The internal consistency evaluation verifies whether its approach reinforces the aspects of existing structures. The specified targets have to match the organisations overall goals and therefore, the internal objectives of the business must match.

External Environment

This evaluation assesses the extent to which the strategy addresses customers, competitors and regulatory bodies within the market environment.

Strategic Advantages

This evaluation compares the costs related to activities, the benefits and what strategic advantages the strategy predicts.

Feasibility

The feasibility evaluation checks whether resources, personnel and staff expertise are adequate. It makes a comparison between what is available and what the strategy needs for its implementation as well as identifying any new issues that may arise as a result of doing the work.

(Markgraf, 2016)

D) Differentiate between the business level strategies and explain why some of these strategies work better in certain types of competitive conditions than others.

Different Business Level Strategies:

• Cost leadership / Low Cost Provider Strategy• Best Value Strategy• Differentiation Strategy

Cost leadership / Low Cost Provider Strategy

This strategy can be successful if:- There is a large market- The market is price sensitive- The market is open to lower quality products.

Mr. Price is an example of a company which uses cost leadership as a strategy.

The aim of the cost leadership strategy is to reduce cost and undercut competitors through achieving economies of scale and operational efficiency.

Best Value Strategy

The best value strategy seeks to achieve similar perceived product quality, however, at a lower cost than its competitors.

Offshoring production to other countries with lower labour costs is an example of reducing costs.

Differentiation Strategy

The aim of differentiation strategy is to drive competitive advantage by creating a unique product / service.

Uniqueness may be from the product itself, or the brand. It is something that the consumer values.

E) The pitfalls associated with each of the business level strategies

Pitfall of Cost Leadership

A potential pitfall associated with this strategy is that due to the low price offered to customers, the products may be perceived as poor quality which may reduce the volume of sales.

Pitfalls of Best Value Strategy

Price wars should be avoided as margins will the be reduced for all competitors which has the potential of killing the market.

Pitfalls of a Differentiation Strategy

The uniqueness of a product or service should not be easily copied as foreign businesses will replace these products when entering the market.

F) Explain whether organizations can combine cost leadership and differentiation strategies.

Explain why or why not.

It is possible for organisations to pursue either a differentiation or cost leadership strategy so long as the overall strategy provides a competitive advantage.

REFERENCES

• MbaSkool.com. 2011-2016. Strategic Management Process. [online]. Available at: http://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/7247-strategic-management-process.html [Accessed 19 July 2016].

• QuickMBA. 1999-2010. Hierarchical levels of strategy. [online]. Available at: http://www.quickmba.com/strategy/levels/ [Accessed 20 July 2016].

• Scilly, M. 2016. Examples of cost leadership and strategy marketing. [online]. Available at: http://smallbusiness.chron.com/examples-cost-leadership-strategy-marketing-12259.html [Accessed 20 July 2016].

• Shepard, B. 2014. 12 Companies that brilliantly differentiated themselves from the competition. [online]. Available at: http://blog.hubspot.com/insiders/branding-differentiation [Accessed 20 July 2016].

• SlideShare. 2011. Porter’s generic strategies with examples. [online]. Available at: http://www.slideshare.net/dipalij07/porters-generic-strategies-with-examples [Accessed 21 July 2016].

• Markgraf, B. 2016. How to evaluate business strategies. [online]. Available at: http://smallbusiness.chron.com/evaluate-business-strategies-52661.html [Accessed 21 July 2016].

• BUSINESS MANAGEMENT 3B Module Guide 2016. (2014). 1st ed. pp.18 - 21.