{"id":281,"date":"2019-07-24T08:59:19","date_gmt":"2019-07-24T08:59:19","guid":{"rendered":"http:\/\/hsp15.epgpbooks.inflibnet.ac.in\/?post_type=chapter&p=281"},"modified":"2019-07-24T08:59:20","modified_gmt":"2019-07-24T08:59:20","slug":"business-level-strategy","status":"publish","type":"chapter","link":"https:\/\/ebooks.inflibnet.ac.in\/hsp15\/chapter\/business-level-strategy\/","title":{"rendered":"Business level strategy"},"content":{"raw":"
\"epgp<\/a>\r\n<\/span><\/div>\r\n \r\n\r\n \r\n\r\n \r\n

Glueck <\/em>defines strategy as a unified, comprehensive and integrated plan relating the strategic advantages of the firm to challenges of the environment. It is designed to ensure that the basic objectives of the enterprise are achieved.<\/p>\r\n \r\n

Alfred Chandler<\/em> defines strategy as the determination of the basic, long term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for achieving those goals.<\/p>\r\n \r\n

Michael Porter <\/em>has defined strategy as the \u201ccreation of a unique and value position involving a different set of activities, and thus, a company that is strategically positioned performs different set of activities from its rivals or performs similar activities in different way.<\/p>\r\n \r\n

Hence, strategy is the process of translating perceived opportunity into successful outcomes, by means of purposive action sustained over a significant period of time.<\/p>\r\n \r\n

It is goal directed, long term plan of action, meant to fulfil organisational goals and objectives, taking into account the firm\u2019s key strengths, weakness, environmental threats and opportunities.<\/p>\r\n \r\n

Levels of strategy<\/strong><\/p>\r\n\"\"\r\n

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Strategy operates at different levels<\/p>\r\n \r\n

1. Corporate strategy<\/em><\/strong><\/p>\r\n \r\n

It is the top level decision making and covers decisions dealing with the objectives of the firm, acquisition and allocation of resources and co-ordination of strategies of various strategic business units(SBU) for optimal performance.<\/p>\r\n \r\n

The nature of strategic decisions are value-oriented, conceptual and future oriented.<\/span><\/p>\r\n \r\n

The corporate strategy sets the long-term objectives of the firm and the broad constraints and policies within which a SBU operates. The corporate level will help the SBU define its scope of operations and also limit or enhance the SBUs operations by the resources the corporate level assigns to it.<\/span><\/p>\r\n \r\n

2. Business strategy<\/em><\/strong><\/p>\r\n \r\n

It operates at each SBU level, wherein each SBU formulates its own strategy to achieve its goals and objectives within the purview of its resource availability and business environment and it requires different strategies for its different product groups<\/span><\/p>\r\n \r\n

At such a level, strategy is a comprehensive plan providing objectives for SBUs, allocation of resources among functional areas and coordination between them for making optimal contribution to the achievement of corporate-level objectives. Such strategies operate within the overall strategies of the organization.<\/span><\/p>\r\n \r\n

3.\u00a0 <\/span>Functional strategy<\/em><\/strong><\/p>\r\n \r\n

It involves decision making at each functional department and activities involved in it.<\/span><\/p>\r\n \r\n

They are tactical decisions, which are supported by corporate and business strategy.<\/span><\/p>\r\n \r\n

Risk involved is less and has short time horizon to achieve the goals and objectives. They have low flexibility but high adaptability.<\/span><\/p>\r\n \r\n

Functional strategy, as is suggested by the title, relates to a single functional operation and the activities involved therein.<\/span><\/p>\r\n \r\n

Decisions at this level within the organization are often described as tactical. It is guided and constrained by some overall strategic considerations.<\/span><\/p>\r\n \r\n

Functional strategy deals with relatively restricted plan, providing objectives for specific function, allocation of resources among different operations within that functional area and coordination between them for optimal contribution to the achievement of the SBU and corporate-level objectives.<\/span><\/p>\r\n \r\n

4.Operational strategy<\/em><\/strong><\/p>\r\n \r\n

These are the bottom most level of strategy, which involves actions relating to various sub-functions of a major department.<\/span><\/p>\r\n \r\n

This is the stage where the strategies formulated are actually implemented with the support of operational work force.<\/span><\/p>\r\n \r\n

Below the functional-level strategy, there may be operations level strategies as each function may be divided into several sub functions.<\/span><\/p>\r\n \r\n

For example, <\/span>marketing strategy, <\/a>a functional strategy, can be subdivided into promotion, sales, distribution, <\/span>pricing <\/a>strategies, customer service and so on, with each sub function strategy contributing to functional strategy.<\/span><\/p>\r\n\r\n<\/div>\r\n\"\"\r\n

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\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0Business Strategy alternatives<\/strong><\/p>\r\n \r\n

Business strategy deals with the planned decisions used by a business unit to compete in that industry.<\/p>\r\n \r\n

If the organisation is a single company, which operates within only one industry, the business strategy and corporate strategy are the same. If the business firms have many number of strategic business units (SBU), corporate strategy will be the same for all units and business strategy will be unique and different for each SBU.<\/p>\r\n \r\n

Selecting business strategic alternatives involves several tasks.<\/p>\r\n \r\n

1. Determine the Critical Success Factors (CSF) in the particular business.<\/p>\r\n \r\n

Critical Success Factors <\/em>are those unique characteristics of an organisation, which are essential for competitive advantage.<\/p>\r\n \r\n

For example- CSF of Walmart is Everyday Low Pricing (EDLP) and that of APPLE is innovation in its products and services.<\/p>\r\n \r\n

2.\u00a0\u00a0\u00a0 Identify the organisational strengths and weakness.<\/p>\r\n \r\n

3.\u00a0\u00a0\u00a0 Search for an effective competitive advantage.<\/p>\r\n \r\n

Competitive advantage refers to the success factor that gives a superior edge and lead for the business firm in its performance over their competitor.<\/p>\r\n \r\n

4.\u00a0\u00a0\u00a0 Assess the opportunities and threats in particular markets for particular products.<\/p>\r\n \r\n

5.\u00a0\u00a0\u00a0 Evaluate rival organisation\u2019s competitive strategies.<\/p>\r\n \r\n

6.\u00a0\u00a0\u00a0\u00a0 Match organisational strengths with the business opportunities available in the market to improve the business performance.<\/p>\r\n \r\n

7.\u00a0\u00a0\u00a0\u00a0 Select the best business strategy and implement it with the support of organisational work force.<\/p>\r\n \r\n

Approaches \/ models in selection of business strategy<\/strong><\/p>\r\n \r\n

Three approaches are viewed to choose the best alternative business strategy by the firm.<\/span><\/p>\r\n \r\n

1.\u00a0 The contingency theory approach<\/span><\/p>\r\n

2.\u00a0 The Generic theory approach<\/span><\/p>\r\n

3.\u00a0 Mile\u2019s and Snow\u2019s Adaptation Model<\/span><\/p>\r\n

4.\u00a0\u00a0\u00a0 Product life cycle model<\/span><\/p>\r\n

5.\u00a0\u00a0\u00a0 Descriptive Characteristics Approach Approaches in detail are<\/span><\/p>\r\n \r\n

1. The Contingency approach<\/strong><\/p>\r\n \r\n

The contingency approach to strategy formulation suggests that a best strategy exists for the given set of circumstances.<\/span><\/p>\r\n \r\n

This approach is mainly concerned with the grand strategies, including brand action strategies, manufacturing, marketing and other functional strategies.<\/span><\/p>\r\n \r\n

This contingency approach is mostly used in profit oriented business and in the future it can be used for forming strategies in non-profit business also.<\/span><\/p>\r\n \r\n

This approach indicates that there are alternative strategies for different situations. One element considered for formulating strategy according to contingency approach is Product life cycle. Based on the demand for the product and growth of the product in the market, strategies are formulated.<\/span><\/p>\r\n \r\n

The next situation can be to identify a strategy based on the cash inflow position and cost advantages.<\/span><\/p>\r\n \r\n

2. The Generic Theory Approach<\/strong><\/p>\r\n \r\n

The generic approach to strategy formulation is based on the fact that successful firms participate in similar, identifiable patterns of behaviour.<\/span><\/p>\r\n \r\n

According to Michael E.Porter, a Harvard Business School Professor, there are three strategies that can be adopted at the business level namely Cost leadership, Differentiation\u00a0<\/span>and Focus. These are called \u2018generic strategies\u2019, because they can be used in a variety of situations, across diverse industries at various stages of development.<\/span><\/p>\r\n

These industries can be manufacturing, service or non-profit enterprises.<\/span><\/p>\r\n \r\n

Generic strategies are illustrated as below.<\/span><\/p>\r\n\r\n<\/div>\r\n\"\"\r\n

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a. Cost leadership<\/strong><\/p>\r\n \r\n

This strategy seeks to attain lower costs of production than the competitors by improving upon the efficiency of production, distribution or other organisational systems.<\/p>\r\n \r\n

By cutting costs without sacrificing quality, managers can beat the competition and thus gains market share with higher profits.<\/p>\r\n \r\n

Because the costs are lower, a cost leader is able to charge lower prices than its competitors without compromising the profit potential.<\/p>\r\n \r\n

Cost advantage can be obtained by the following factors:<\/p>\r\n \r\n

1. High capacity utilisation<\/em><\/p>\r\n \r\n

If the capacity of production is not fully utilised, then the cost of production will be higher, because the fixed costs are spread over fewer units of production.<\/p>\r\n \r\n

On the other hand, when the production capacity is fully utilised, the unit costs are lower.<\/span><\/p>\r\n \r\n

A Cost leader ensures high utilisation of capacity either through more accurate demand forecasting or by limited capacity utilisation or by pursuing aggressive pricing policies.<\/span><\/p>\r\n \r\n

High capacity utilisation is especially necessary in capital intensive industries because of high capital costs.<\/span><\/p>\r\n \r\n

2. Economies of scale<\/em><\/p>\r\n \r\n

It is generally associated with the size of the facility. Production costs per unit in large firms are comparatively less, when compared to small sized firms.<\/span><\/p>\r\n \r\n

Other costs such as quality control, purchasing, labour charge and so on are comparatively lower per unit in a large firm when compared to the small sized firm.<\/span><\/p>\r\n \r\n

3. Technological advancements<\/em><\/p>\r\n \r\n

Updated and sophisticated technology improves the efficiency of operations resulting in low cost of production.<\/span><\/p>\r\n \r\n

Online retailers have made the product purchase and business transaction easier and flexible at the doorstep of customers.<\/span><\/p>\r\n \r\n

Automation, Robotics, Nanotechnology, Artificial intelligence, Cloud computing, smart phones and applications, etc., has enabled the firms to improve their efficiency and get cost advantage.<\/span><\/p>\r\n \r\n

4. Skill and experience<\/em><\/p>\r\n \r\n

Highly skilled workforce can improve the work efficiency and are likely to commit less mistakes, leading to reduced cost.<\/span><\/p>\r\n \r\n

Work force with rich experience specialises in their tasks, which also improves the quality of work and contributes to efficiency, leading to cost advantage.<\/span><\/p>\r\n \r\n

While the low cost leaders have the advantage of price flexibility in making a competitive advantage, cost reduction should not be achieved at the cost of quality or safety.<\/span><\/p>\r\n \r\n

(b) Differentiation<\/strong><\/p>\r\n \r\n

The second generic strategy is differentiation, which helps a firm to differentiate its products or services from those of its competitors.<\/span><\/p>\r\n \r\n

When customers feel that the product or service is of good quality, unique and has value, they are willing to pay extra for it. They identify a factor, which differentiates the product from its competitor.<\/span><\/p>\r\n \r\n

This in turn, leads to customer loyalty and sustaining profits in the market.<\/span><\/p>\r\n \r\n

Such differentiation can be created in a number of ways such as<\/span><\/p>\r\n \r\n

1. Quality of the product<\/em><\/p>\r\n \r\n

Higher quality of the product is always a differentiating factor. Quality is not only adhering to standards, but more a measure of customer satisfaction.<\/span><\/p>\r\n \r\n

Business firms follow Total quality management Programmes, which focus on improving the quality of the product through following streamlined procedures, process and systems.<\/span><\/p>\r\n \r\n

This leads to better quality of the product and customer satisfaction.<\/span><\/p>\r\n \r\n

2. Standardised process and systems<\/em><\/p>\r\n \r\n

Process innovation improves the operational and production efficiency leading to improved productivity, less wastage and low production cost. This acts as a differentiator factor to differentiate the product from its competitor.<\/span><\/p>\r\n \r\n

3. Product innovation<\/em><\/p>\r\n \r\n

Product innovation has been a significant differentiation factor, contributing to the success of the business firm. Arrival of new products improves the customer satisfaction and thereby to customer loyalty.<\/span><\/p>\r\n \r\n

4. Image of the company<\/em><\/p>\r\n \r\n

A good image and goodwill differentiates a company from its competitors. It may be associated with quality, cost advantage, product or service innovation, excellent customer service, easy availability and so on.<\/span><\/p>\r\n \r\n

(c) Focus<\/strong><\/p>\r\n \r\n

Focus strategy involves special attention to a product or a narrow line of products or to the segment of the market that gives the company a competitive edge.<\/span><\/p>\r\n \r\n

The objective of focus is to serve the target market with products and services that meets their need and gives them satisfaction.<\/span><\/p>\r\n \r\n

The target market can be classified into dimensions such as<\/span><\/p>\r\n\r\n<\/div>\r\n

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