10 June 2008

Business-Level Strategy

The topic I will be informing this month is 'Business-Level Strategy', which are also termed as 'SBU strategies'.
What is an SBU?

A strategic business unit is a part of an organisation for which there is a distinct external market for goods or services that is different from another SBU.

Example: Nestle has a number of SBU's such as confectionery, Ice cream, mineral water and pet food.
The focus of Business Level Strategies is on the effective exploitation of individual product markets. At the product level the focus is on achieving competitive advantage in a given market.

Michael Porter identified four main generic strategies: cost leadership, differentiation, focus and no distinctive strategy.

Cost Leadership:

The objective is to achieve a situation where unit costs are significantly lower than those of other companies in the industry, thus producing higher profits than competitors and the ability to mount a defence against competitive threats.

Differentiation:

The effect of differentiation being to increase profits by segmenting the market and enabling different prices to be charged in different segments. This involves searching for and adding some characteristic such as superior quality or service associated with the product; it may not be a real effect, but may be an image consciously created by the company.

Focus:

The previous generic strategies involved different ways of meeting competition and achieving an advantage: in the first case this was by lower cost and in the second by altering product characteristics. The focus strategy is different in that it typically involves the identification of market niches where it is possible to avoid confrontation with competitors. Within the niche the company can focus on cost or differentiation.

It is not a high volume option, and it pays little attention to market share. The niche may be a part of the market which requires specialised attention, very fast guaranteed delivery, or some other characteristic which higher volume producers cannot provide because of the additional cost.

Stuck in the Middle:

A company which does not specialise is likely to be continuously adjusting its competitive focus in response to changes in the market, with the result that it is ‘stuck in the middle’; such an undefined strategy is likely to be associated with relatively poor performance, because the marketing effort of such a company is likely to be confused: at any one time it may not be clear whether marketing managers are attempting to achieve market share, differentiate the product in the eyes of the consumer, or find unexploited opportunities.

1 comment:

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Sharon

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