Business Level StrategyGROUP 8 (MICHAEL BOLTMAN)

Business Level Strategy (What?)

Business level strategy is specific steps following a defined plan of action laid out before hand in order to meet customer needs and hereby increasing market and gaining a competitive advantage over competitors.

A businesses main objective is to attract and satisfy their customers' needs. The main reason a business does this is to generate a return or profit at the end of the day. In order to do this a business needs to define and understand who their potential customers or “target market” is. Once a company has done this they then need to structure and define a strategy around their selected/ preferred target market.

Over the years business level strategies have been defined into 4(four) generic strategies that can be used as a basis or model.

Cost Leadership

This is the first generic business level strategy. It is focused around offering a better or lower price than competitors while still maintaining profit margins.

How businesses achieve this is by focusing at internal business processes. A business’s main objective here would be to be as efficient as possible without compromising quality.

Efficiencies that can be dealt with are areas such as production lines, production costs, overhead costs, research and development costs, service costs and costs of sales. While other issues can also be addressed such as turnover time and materials wasted.

Differentiation

This is another generic strategy that can be used or adapted by a business. Differentiation focuses around supplying customers with a product or service (market offering) that is unique and different from competitors while still meeting a customers needs.

This can be achieved by many methods. Some of these methods include: higher quality product, higher quality customer service, unique features to the product/service, technological advancements, etc. (anything that sets a company’s market offering aside from their competitors.)

This is one of the more riskier strategies that can be used but if implemented correctly can prove to be the most rewarding

Focus Cost Leadership

This strategy is based on the Cost Leadership strategy. What sets this strategy apart from Cost Leadership is that the strategy

is focused on a specific or narrow market rather than an “across the board” broad based market.

A focus cost leadership strategy will target a fine segment in the potential target market rather than the market as a whole. The purpose of this is to motivate the development of a niche market that the business controls and can essentially control and exploit.

Focus Differentiation

This is based on the Differentiation strategy. A focus differentiation strategy is moulded around the premise of

offering unique features or differences aimed at meeting the needs of a narrow segment of the market rather than the target market as a whole.

This is done so that the business may create a niche in the market that they can essentially control and exploit.

Integrated Strategy

This strategy can be considered a generic strategy but it is based on the Differentiation and Cost Leadership strategies. It combines the two and can be tailored to fit a company’s specific needs.

The idea behind this compromise is to increase or maintain a business’ adaptability as well as keeping a lid over the possible rise in costs the company may incur.

The integrated strategy looks to eliminate possible risks from the other two strategies while maximising the opportunities, but an integrated strategy provides risks of its own.

Integrated Strategy cont.

There are obvious risks when it comes to an integrated strategy. One major risk is that the company may develop a strategy that is undefined or unfocused with regards to the path in which the company should take. A company could be caught in the middle of the road and they may develop a market offering that is either not of a high quality or not cost effective enough or lacks the uniqueness or innovation that customers are after.

If an integrated strategy is properly formulated and efficiently implemented then there is no reason why a business cannot use one.

Pitfalls and Risks

Cost Leadership: Risks and pitfalls include a decrease in quality of the product or service as well as a drop in the quality of customer service, this may come from companies cutting costs by using cheaper materials and production methods. As well as the possibility of competitors easily imitating processes or even the product, competitors may do this in order to keep up with the company or may even improve or advance the product/process in order to gain advantage for themselves. Also if the company relies heavily on technology and machinery in the pursuit of efficiency, the malfunction and break-down of the technology may be more costly in the long run.

Pitfalls and Risks cont.

Differentiation: There are many risks when it comes to differentiation. The risks involved with this strategy are things such as the misallocation of resources, resources may be disproportioned and wasted on unique features that may prove to be redundant or ill-received by customers. Consumer disappointment is also a massive risk, before a product release information is generally leaked and if the new innovations/features do not live up to the hype then customers may not purchase the product. Resistance from suppliers and distributors and competitors imitating new innovations.

The risks for focus cost leadership and focus differentiation is much the same as their broad based counterparts

Examples: Cost Leadership

An example of a company that uses a cost leadership would be Kulula Airlines.

Kulula Airlines main business practice is to provide high volume, low cost flights to any destination within South Africa

Kulula Airlines main focus is to be cost effective. They are less interested in providing a unique experience and more concerned with mass transportation

Examples: Differentiation

Fly Emirates Airline is a company that uses the Differentiation strategy. Fly Emirates is an Airline that prides themselves on flying to more

destinations than any other airline. They also pride themselves on innovation by including 2 Airbus A380s

in their fleet as well as fully reclining chairs for long distance flights that passengers can sleep in.

They also pride themselves on their customer service with their cabin crew being rated among the best in the world.

Examples: Focus Cost Leadership and Differentiation

An example of a Focus Cost Leadership company would be Fly Safair Airlines. They are focused on being cost effective while only flying to a select few destinations.

An example of a Focus Differentiation company would be a company like Air Charter South Africa. This company charters private jets to the select few who can afford it. They pride themselves on having the best and newest private jets for charter and they’ve created a niche market for themselves.

Evaluation

It is important to be able to evaluate the effect of a strategy on a business in order for the company to justify whether the strategy has been effective or it needs to be reformulated or a new strategy needs to be implemented.

There are multiple methods that can be used to evaluate a strategy. Some of the obvious and easier ones are looking at the effect a strategy has had on the bottom line/ the amount of revenue generated after it has been implemented.

Another way to evaluate a strategy would be to see if it is internally consistent. A strategy cannot conflict with existing governing standards within the company. If a strategy does and it is implemented, it will never be consistent.

Evaluation cont.

Another aspect that needs to be evaluated is the external environment. A strategy needs to be in accord with the external environment around the company. It also needs to be flexible enough that it can adapt to changes that may happen within the external environment.

Competitive advantage is a major aspect when evaluating a strategy. The main objective of implementing a new strategy is to gain an advantage over competitors within the market and if a strategy is not able to do that then it needs to be reformulated.

Feasibility is another major factor when it comes to a strategy. If a strategy is too costly or if it is not a viable option, there is no use implementing it.

Reference list

Anonymous. Business-Level Strategy. http://www.albany.edu/faculty/es8949/bmgt481/lecture4.html (Accessed 23rd July 2016)

Anonymous. Focused Cost Leadership and Focused Differentiation. lhttp://2012books.lardbucket.org/books/strategic-management-evaluation-and-execution/s09-04-focused-cost-leadership-and-fo.html (Accessed 23rd July 2016)

Handlin, A. Description of the Risks of a Differentiation Strategy. http://smallbusiness.chron.com/description-risks-differentiation-strategy-15811.html (Accessed 23rd July 2016)

Reference list cont.

Anonymous. Safair. https://www.flysafair.co.za/ (Accessed 23rd July 2016)

Anonymous. About us. http://www.aircharter.co.za/about-us (Accessed 23rd July 2016).

Rumelt,R. The Evaluation of Business Strategy http://teaching.up.edu/bus580/bps/Rumelt,%20evaluation%20of%20a%20business%20strategy.PDF (Accessed 23rd July 2016)

Markgraf, B. How to Evaluate Business Strategy. http://smallbusiness.chron.com/evaluate-business-strategies-52661.html (Accessed 23rd July 2016)

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