Chapter4Business-LevelStrategyMichaelA.HittR.DuaneIrelandRobertE.Hoskisson?2000South-WesternCollegePublishingChapter4Business-LevelStrateChapter4BusinessLevelStrategySustainableCompetitiveAdvantageChapter2ExternalEnvironmentChapter3InternalEnvironmentChapter4BusinessLevelSustainCoreCompetencyTheresourcesandcapabilitiesthathavebeendeterminedtobeasourceofcompetitiveadvantageforafirmoveritsrivals.CoreTheresourcesandcapabiliStrategyAnintegratedandcoordinatedsetofactionstakentoexploitcorecompetenciesandgainacompetitiveadvantage.CoreCompetencyTheresourcesandcapabilitiesthathavebeendeterminedtobeasourceofcompetitiveadvantageforafirmoveritsrivals.StrategyAnintegratedandcoorStrategyAnintegratedandcoordinatedsetofactionstakentoexploitcorecompetenciesandgainacompetitiveadvantage.BusinessLevelStrategyActionstakentoprovidevaluetocustomersandgainacompetitiveadvantagebyexploitingcorecompetenciesinspecific,individualproductmarkets.CoreCompetencyTheresourcesandcapabilitiesthathavebeendeterminedtobeasourceofcompetitiveadvantageforafirmoveritsrivals.StrategyAnintegratedandcoorGenericBusinessLevelStrategiesCostUniquenessSourceofCompetitiveAdvantageBreadthofCompetitiveScopeBroadTargetMarketNarrowTargetMarketFocusedDifferen-tiationCostLeadershipDifferen-tiationFocusedLowCostCostLeadershipGenericBusinessLevelStrategKeyCriteria:CostLeadershipBusinessLevelStrategyRelativelystandardizedproductsFeaturesacceptabletomanycustomersLowestcompetitivepriceKeyCriteria:CostLeadershipBRequirements:Constantefforttoreducecoststhrough:BuildingefficientscalefacilitiesStateoftheartmanufacturingfacilitiesSimplificationofprocessesMinimizingcostsofsales,R&DandserviceMonitoringcostsofactivitiesprovidedbyoutsidersTightcontrolofproductioncostsandoverheadCostLeadershipBusinessLevelStrategyRequirements:ConstantefforttPrimaryActivitiesSupportActivitiesTechnologicalDevelopmentHumanResourceManagementFirmInfrastructureProcurementInboundLogisticsOperationsOutboundLogisticsMarketing&SalesServiceMARGINMARGINValueCreatingActivitiesCommontoaCostLeadership

BusinessLevelStrategyPrimaryActivitiesSupportTechnPrimaryActivitiesSupportActivitiesTechnologicalDevelopmentHumanResourceManagementFirmInfrastructureProcurementInboundLogisticsOperationsOutboundLogisticsMarketing&SalesServiceMARGINMARGINCostEffectiveMISSystemsRelativelyFewManagementLayerstoReduceOverheadSimplifiedPlanningPracticestoReducePlanningCostsConsistentPoliciestoReduceTurnoverCostsEffectiveTrainingProgramstoImproveWorkerEfficiencyandEffectivenessHighlyEfficientSystemstoLinkSuppliers’ProductswiththeFirm’sProductionProcessesTimingofAssetPurchasesEfficientPlantScaletoMinimizeManufacturingCostsSelectionofLowCostTransportCarriersDeliverySchedulethatReducesCostsNationalScaleAdvertisingProductsPricedtoGenerateSalesVolumeSmall,HighlyTrainedSalesForceEffectiveProductInstallationstoReduceFrequencyandSeverityofRecallsEasy-to-UseManufacturingTechnologiesInvestmentsinTechnologyinordertoReduceCostsAssociatedwithManufacturingProcessesSystemsandProcedurestofindtheLowestCostProductstoPurchaseRawMaterialsFrequentEvaluationProcessestoMonitorSuppliers’PerformancesLocatedinCloseProximitywithSuppliersPolicyChoiceofPlantTechnologyOrganizationalLearningEfficientOrderSizesInterrelationshipswithSisterUnitsValueCreatingActivitiesCommontoaCostLeadership

BusinessLevelStrategyPrimaryActivitiesSupportTechnHowtoObtainaCostAdvantage1.DetermineandControlCostDrivers2.ReconfiguretheValueChainasneededAlterproductionprocessChangeinautomationNewdistributionchannelDirectsalesinplaceofindirectsalesNewadvertisingmediaNewrawmaterialBackwardintegrationForwardintegrationChangelocationrelativetosuppliersorbuyersHowtoObtainaCostAdvantageReconfiguringtheValueChainofIowaBeefPackers(IBP)RanchCattleShip“ontheHoof”toRailCenter(Chicago)Slaughterintosidesofbeef“BoxedCuts”atMarketsOldWay:SaveonshippingandcattleweightlossUtilizecheapernon-unionrurallaborNewWayNewWay:LocatelargeautomatedplantsnearranchesProcessinto“BoxedCuts”atplantsShipcutsalready“Boxed”toMarketsReconfiguringtheValueChainRChoicesThatDriveCostsEconomiesofscaleAssetutilizationCapacityutilizationpatternValuechainlinkagesInterrelationships-Advertising&Sales-Logistics&Operations-Seasonal,cyclical-OrderprocessinganddistributionProductfeaturesProductfeaturesPerformanceMix&varietyofproductsServicelevelsSmallvs.largebuyersProcesstechnologyWagelevelsHiring,training,motivationChoicesThatDriveCostsEconomThreeKeyQuestions2.Howcanagroupoflinkedvalueactivitiesberegroupedorreordered?3.Howmightcoalitionswithotherfirmsloweroreliminatecosts?Gallosoldwinethroughgrocerystoresratherthanliquorstoresbecausetheyweremoreefficientdistributors1.Howcananactivitybeperformeddifferentlyoreveneliminated?ThreeKeyQuestions2.HowcanaEffectiveCostLeaderscanremainprofitableevenwhentheFiveForces

appearunattractiveEffectiveCostLeaderscanremCanfrightenoffNewEntrantsduetotheneedto:EnteratlargescaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*EffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveThreatofNewEntrantsCanfrightenoffNewEntrantsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*BargainingPowerofBuyersThreatofNewEntrantsCanmitigateBuyerPowerby:*DrivingpricesfarbelowcompetitorsmaycauseexitandshiftpowerbacktofirmEffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveCanfrightenoffNewEntrantsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*CanmitigateBuyerPowerby:ThreatofNewEntrantsBargainingPowerofBuyersDrivingpricesfarbelowcompetitorswhichmaycauseexitandshiftpowerbacktofirmWellpositionedrelativeto

Substitutesinorderto:Makeinvestmentstocreatesubstitutesfirst*Buypatentsdevelopedbypotentialsubstitutes*Lowerpricestomaintainvalueposition*ThreatofSubstituteProductsEffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveCanfrightenoffNewEntrantsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*WellpositionedrelativetoSubstitutesinorderto:Makeinvestmentstocreatesubstitutes*Canbuypatentsdevelopedbypotentialsubstitutes*Lowerpricestomaintainvalueposition*BargainingPowerofSuppliersThreatofNewEntrantsThreatofSubstituteProductsCanmitigateBuyerPowerby:BargainingPowerofBuyersDrivingpricesfarbelowcompetitorswhichmaycauseexitandshiftpowerbacktofirmCanmitigateSupplierPowerby:Lowcostpositionmakesthembetterabletoabsorbcostincreases*Morelikelytomakeverylargepurchaseswhichreduceschanceofsupplierpower*EffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveCanfrightenoffNewEntrantsEffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveThreatofNewEntrantsBargainingPowerofSuppliersThreatofSubstituteProductsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*WellpositionedrelativetoSubstitutesinorderto:Makeinvestmentstocreatesubstitutes*Canbuypatentsdevelopedbypotentialsubstitutes*Lowerpricestomaintainvalueposition*CompetitorsavoidpricewarswithCostLeaders,whichcreateshigherprofitsforentireindustryRivalryAmongCompetingFirmsinIndustryCanmitigateBuyerPowerby:BargainingPowerofBuyersDrivingpricesfarbelowcompetitorswhichmaycauseexitandshiftpowerbacktofirmCanmitigateSupplierPowerby:Lowcostpositionmakesthembetterabletoabsorbcostincreases*Morelikelytomakeverylargepurchaseswhichreduceschanceofsupplierpower*EffectiveCostLeaderscanremMajorRisksofCostLeadershipBusinessLevelStrategyDramatic

technologicalchangecouldtakeawayyourcostadvantageCompetitorsmaylearnhowto

imitateValueChainFocusonefficiencycouldcauseCostLeaderto

overlookchangesincustomerpreferencesMajorRisksofCostLeadershipBreadthofCompetitiveScopeSourceofCompetitiveAdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipUniquenessGenericBusinessLevelStrategiesBreadthofCompetitiveScopeSoBreadthofCompetitiveScopeSourceofCompetitiveAdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipDifferen-tiationGenericBusinessLevelStrategiesUniquenessBreadthofCompetitiveScopeSoKeyCriteria:DifferentiationBusinessLevelStrategyValueprovidedbyuniquefeaturesandvaluecharacteristicsCommandpremiumpriceSuperiorqualityRapidinnovationPrestigeorexclusivityHighcustomerserviceKeyCriteria:DifferentiationBDifferentiationBusinessLevelStrategyRequirements:Constantefforttodifferentiateproductsthrough:DevelopingnewsystemsandprocessesQualityfocusMaximizeHumanResourcecontributionsthroughlowturnoverandhighmotivationCapabilityinR&DShapingperceptionsthroughadvertisingDifferentiationBusinessLevelPrimaryActivitiesSupportActivitiesTechnologicalDevelopmentHumanResourceManagementFirmInfrastructureProcurementInboundLogisticsOperationsOutboundLogisticsMarketing&SalesServiceMARGINMARGINValueCreatingActivitiesCommontoaDifferentiation

BusinessLevelStrategyPrimaryActivitiesSupportTechnTechnologicalDevelopmentHumanResourceManagementFirmInfrastructureProcurementInboundLogisticsOperationsOutboundLogisticsMarketing&SalesServiceMARGINMARGINAcompanywideemphasisonproducinghighqualityproductsHighlyDevelopedInformationSystemstobetterunderstandcustomers’purchasingpreferencesCompensationprogramsintendedtoencourageworkercreativityandproductivityExtensiveuseofsubjectiveratherthanobjectiveperformancemeasuresSuperiorhandlingofincomingrawmaterialstominimizedamageandimprovethequalityofthefinalproductRapidresponsestocustomersuniquemanufacturingspecificationsConsistentmanufacturingofattractiveproductsAccurateandresponsiveorderprocessingproceduresCompletefieldstockingofreplacementpartsStrongcapabilityinbasicresearchInvestmentsintechnologiesthatwillallowthefirmtoconsistentlyproducehighlydifferentiatedproductsSystemsandproceduresusedtofindthehighestqualityrawmaterialsPurchaseofhighestqualityreplacementpartsRapidandtimelyproductdeliveriestocustomersSuperiorpersonneltrainingCoordinationamongR&D,productdevelopmentandmarketingExtensivepersonalrelationshipswithbuyersStrongCoordin-ationamongfunctionsinR&D,MarketingandProductDevelopmentPremiumPricingPrimaryActivitiesSupportActivitiesValueCreatingActivitiesCommontoaDifferentiation

BusinessLevelStrategyTechnologicalDevelopmentHumanEffectivenesswithDifferentiationgrowsoutofValueChainactivitiesExamples:HeinekenbeerRawmaterialsCaterpillartractorsServicebuyers’needsquicklyanywhereintheworldIntelmicroprocessorsTechnologicalsuperioritySteinwaypianosRawmaterials&WorkmanshipMercedesBenzautosTechnologyandWorkmanshipDifferentiationBusinessLevelStrategyEffectivenesswithDifferentiaCreatingbarriersbyperceptionsofuniquenessCreatingswitchingcoststhroughdifferentiationRaisingBuyers’PerformanceLoweringBuyers’CostsCreatingSustainabilitythrough:CreateValuewithDifferentiationby:CreatingbarriersbyperceptiDriversofDifferentiationUniqueproductfeaturesUniqueproductperformanceExceptionalservicesQualityofinputsNewtechnologiesExceptionalskillorexperienceDetailedinformationExamples:DriversofDifferentiationUniqEffectiveDifferentiatorscanremainprofitableevenwhentheFiveForces

appearunattractiveEffectiveDifferentiatorscanEffectiveDifferentiatorscanremainprofitableevenwhentheFiveForcesappearunattractiveThreatofNewEntrantsCanfendoffNewEntrantsbecause:Newproductsmustsurpassprovenproducts*Orbeequaltoperformanceatlowerprices*EffectiveDifferentiatorscanCanmitigateBuyerPowerbecause:WelldifferentiatedproductsreducecustomersensitivitytopriceincreasesBargainingPowerofBuyersThreatofNewEntrantsCanfendoffNewEntrantsbecause:Newproductsmustsurpassprovenproducts*Orbeequaltoperformanceatlowerprices*EffectiveDifferentiatorscanremainprofitableevenwhentheFiveForcesappearunattractiveCanmitigateBuyerPowerbecauThreatofNewEntrantsCanfendoffNewEntrantsbecause:Newproductsmustsurpassprovenproducts*Orbeequaltoperformanceatlowerprices*BargainingPowerofSuppliersWellpositionedrelativeto

Substitutesbecause:Brandloyaltytendstoreducenewproducttrialandbrandswitching*ThreatofSubstituteProductsCanmitigateBuyerPowerbecausewelldifferentiatedproductsreducecustomersensitivitytopriceincreasesEffectiveDifferentiatorscanremainprofitableevenwhentheFiveForcesappearunattractiveThreatofNewEntrantsCanfendBargainingPowerofSuppliersThreatofNewEntrantsCanfendoff

NewEntrantsbecause:Newproductsmustsurpassprovenproducts*Orbeequaltoperformanceatlowerprices*BargainingPowerofSuppliersCanmitigateBuyerPowerbecausewelldifferentiatedproductsreducecustomersensitivitytopriceincreasesEffectiveDifferentiatorscanremainprofitableevenwhentheFiveForcesappearunattractiveThreatofSubstituteProductsWellpositionedrelativeto

Substitutesbecause:Brandloyaltytendstoreducenewproducttrialandbrandswitching*CanmitigateSupplierPowerby:Absorbingpriceincreasesduetohighermargins*Passingonhighersupplierpricesbecausebuyersarebrandloyal*BargainingPowerofSuppliersTRivalryAmongCompetingFirmsinIndustryThreatofNewEntrantsBargainingPowerofSuppliersBargainingPowerofBuyersThreatofSubstituteProductsWellpositionedrelativeto

Substitutesbecause:Brandloyaltytendstoreducenewproducttrialandbrandswitching*CanmitigateSupplierPowerby:**AbsorbingpriceincreasesduetohighermarginsPassingonhighersupplierpricesbecausebuyersarebrandloyalCanmitigateBuyerPowerbecausewelldifferentiatedproductsreducecustomersensitivitytopriceincreasesEffectiveDifferentiatorscanremainprofitableevenwhentheFiveForcesappearunattractiveCanfendoffNewEntrantsbecause:Newproductsmustsurpassprovenproducts*Orbeequaltoperformanceatlowerprices*BrandloyaltyovercomesmuchpricecompetitionRivalryAmongCompetingFirmsCustomersmaydecidethatthecostof“uniqueness”istoogreatThemeansofuniquenessmay

nolongerbevaluedbycustomersCompetitorsmaylearnhowtoimitateValueChainMajorRisksofaDifferentiationBusinessLevelStrategyCustomersmaydecidethattheBreadthofCompetitiveScopeSourceofCompetitiveAdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipDifferen-tiationUniquenessGenericBusinessLevelStrategiesBreadthofCompetitiveScopeSoBreadthofCompetitiveScopeSourceofCompetitiveAdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipDifferen-tiationFocusedDifferen-tiationFocusedLowCostUniquenessGenericBusinessLevelStrategiesBreadthofCompetitiveScopeSoFocusedBusinessLevelStrategiesinvolvethesamebasicapproachasBroadMarketStrategies.However,opportunitiesmayexistbecause:FocusedBusinessLevelStrategiesLargefirmsmayoverlooksmallnichesFirmmaylackresourcestocompeteindustry-wideMaybeabletoserveanarrowmarketsegmentmoreeffectivelythanindustrywidecompetitorsFocuscanallowyoutodirectresourcestocertainvaluechainactivitiestobuildcompetitiveadvantageFocusedBusinessLevelStrategBang&OlufsenUpscaleelectroniccomponentsIamsCompanyPremiumpetfoodsSnap-ontoolsHighqualitymechanics’toolsFocusedBusinessLevelStrategiesFocusedBusinessLevelStrategiesinvolvethesamebasicapproachasBroadMarketStrategies.However,opportunitiesmayexistbecause:Examples:MaybeabletoretrofitoldfactoriestokeepcostsdownMinimizeR&DcostsbycopyinginnovatorsBang&OlufsenUpscaleelectronFirmmaybe“outfocused”bycompetitorsLargecompetitormaysetitssightsonyournichemarketPreferences

ofnichemarket

maychangetomatchthoseofbroadmarketMajorRisksInvolvedWithaFocusedDifferentiationBusinessLevelStrategyFirmmaybe“outfocused”bycoBreadthofCompetitiveScopeSourceofCompetitiveAdvantageBroadTargetMarketNarrowTargetMarketCostCostLeadershipDifferen-tiationGenericBusinessLevelStrategiesFocusedDifferen-tiationFocusedLowCostIntegrated

LowCost/DifferentiationUniquenessBreadthofCompetitiveScopeSoFirmsusinganIntegratedStrategymay:IntegratedLowCost/DifferentiationStrategyUtilizeFlexibleManufacturingSystemstocreatedifferentiatedproductsatlowcostsAdaptmorequicklyLearnnewskillsandtechnologiesLeveragecorecompetenciesthroughInformationNetworksacrossmultiplebusinessunitsUtilizeTotalQualityManagement(TQM)tocreatehighqualitydifferentiatedproductswhichsimultaneouslydrivingdowncostsFirmsusinganIntegratedStraRecognizethattheIntegratedLowCost/DifferentiationbusinesslevelstrategyinvolvesaCompromiseTheriskisthatthefirmmaybecome“StuckintheMiddle”

lackingastrongcommitmenttoorexpertisewitheithertypeofgenericstrategyIntegratedLowCost/DifferentiationStrategyRecognizethattheIntegratedSouthwestAirlinesIntegratedLowCost/DifferentiationStrategyUseasingleaircraftmodel(Boeing737)UsesecondaryairportsFlyshortroutes15minuteturnaroundtimeNomealsNoreservedseatsNotravelagentreservationsLowCostFocusoncustomersatisfactionNewflightservicesforbusinesstravelers(phonesandfaxes)HighlevelofemployeededicationDifferentiationSouthwestAirlinesIntegratedLChapter4Business-LevelStrategyMichaelA.HittR.DuaneIrelandRobertE.Hoskisson?2000South-WesternCollegePublishingChapter4Business-LevelStrateChapter4BusinessLevelStrategySustainableCompetitiveAdvantageChapter2ExternalEnvironmentChapter3InternalEnvironmentChapter4BusinessLevelSustainCoreCompetencyTheresourcesandcapabilitiesthathavebeendeterminedtobeasourceofcompetitiveadvantageforafirmoveritsrivals.CoreTheresourcesandcapabiliStrategyAnintegratedandcoordinatedsetofactionstakentoexploitcorecompetenciesandgainacompetitiveadvantage.CoreCompetencyTheresourcesandcapabilitiesthathavebeendeterminedtobeasourceofcompetitiveadvantageforafirmoveritsrivals.StrategyAnintegratedandcoorStrategyAnintegratedandcoordinatedsetofactionstakentoexploitcorecompetenciesandgainacompetitiveadvantage.BusinessLevelStrategyActionstakentoprovidevaluetocustomersandgainacompetitiveadvantagebyexploitingcorecompetenciesinspecific,individualproductmarkets.CoreCompetencyTheresourcesandcapabilitiesthathavebeendeterminedtobeasourceofcompetitiveadvantageforafirmoveritsrivals.StrategyAnintegratedandcoorGenericBusinessLevelStrategiesCostUniquenessSourceofCompetitiveAdvantageBreadthofCompetitiveScopeBroadTargetMarketNarrowTargetMarketFocusedDifferen-tiationCostLeadershipDifferen-tiationFocusedLowCostCostLeadershipGenericBusinessLevelStrategKeyCriteria:CostLeadershipBusinessLevelStrategyRelativelystandardizedproductsFeaturesacceptabletomanycustomersLowestcompetitivepriceKeyCriteria:CostLeadershipBRequirements:Constantefforttoreducecoststhrough:BuildingefficientscalefacilitiesStateoftheartmanufacturingfacilitiesSimplificationofprocessesMinimizingcostsofsales,R&DandserviceMonitoringcostsofactivitiesprovidedbyoutsidersTightcontrolofproductioncostsandoverheadCostLeadershipBusinessLevelStrategyRequirements:ConstantefforttPrimaryActivitiesSupportActivitiesTechnologicalDevelopmentHumanResourceManagementFirmInfrastructureProcurementInboundLogisticsOperationsOutboundLogisticsMarketing&SalesServiceMARGINMARGINValueCreatingActivitiesCommontoaCostLeadership

BusinessLevelStrategyPrimaryActivitiesSupportTechnPrimaryActivitiesSupportActivitiesTechnologicalDevelopmentHumanResourceManagementFirmInfrastructureProcurementInboundLogisticsOperationsOutboundLogisticsMarketing&SalesServiceMARGINMARGINCostEffectiveMISSystemsRelativelyFewManagementLayerstoReduceOverheadSimplifiedPlanningPracticestoReducePlanningCostsConsistentPoliciestoReduceTurnoverCostsEffectiveTrainingProgramstoImproveWorkerEfficiencyandEffectivenessHighlyEfficientSystemstoLinkSuppliers’ProductswiththeFirm’sProductionProcessesTimingofAssetPurchasesEfficientPlantScaletoMinimizeManufacturingCostsSelectionofLowCostTransportCarriersDeliverySchedulethatReducesCostsNationalScaleAdvertisingProductsPricedtoGenerateSalesVolumeSmall,HighlyTrainedSalesForceEffectiveProductInstallationstoReduceFrequencyandSeverityofRecallsEasy-to-UseManufacturingTechnologiesInvestmentsinTechnologyinordertoReduceCostsAssociatedwithManufacturingProcessesSystemsandProcedurestofindtheLowestCostProductstoPurchaseRawMaterialsFrequentEvaluationProcessestoMonitorSuppliers’PerformancesLocatedinCloseProximitywithSuppliersPolicyChoiceofPlantTechnologyOrganizationalLearningEfficientOrderSizesInterrelationshipswithSisterUnitsValueCreatingActivitiesCommontoaCostLeadership

BusinessLevelStrategyPrimaryActivitiesSupportTechnHowtoObtainaCostAdvantage1.DetermineandControlCostDrivers2.ReconfiguretheValueChainasneededAlterproductionprocessChangeinautomationNewdistributionchannelDirectsalesinplaceofindirectsalesNewadvertisingmediaNewrawmaterialBackwardintegrationForwardintegrationChangelocationrelativetosuppliersorbuyersHowtoObtainaCostAdvantageReconfiguringtheValueChainofIowaBeefPackers(IBP)RanchCattleShip“ontheHoof”toRailCenter(Chicago)Slaughterintosidesofbeef“BoxedCuts”atMarketsOldWay:SaveonshippingandcattleweightlossUtilizecheapernon-unionrurallaborNewWayNewWay:LocatelargeautomatedplantsnearranchesProcessinto“BoxedCuts”atplantsShipcutsalready“Boxed”toMarketsReconfiguringtheValueChainRChoicesThatDriveCostsEconomiesofscaleAssetutilizationCapacityutilizationpatternValuechainlinkagesInterrelationships-Advertising&Sales-Logistics&Operations-Seasonal,cyclical-OrderprocessinganddistributionProductfeaturesProductfeaturesPerformanceMix&varietyofproductsServicelevelsSmallvs.largebuyersProcesstechnologyWagelevelsHiring,training,motivationChoicesThatDriveCostsEconomThreeKeyQuestions2.Howcanagroupoflinkedvalueactivitiesberegroupedorreordered?3.Howmightcoalitionswithotherfirmsloweroreliminatecosts?Gallosoldwinethroughgrocerystoresratherthanliquorstoresbecausetheyweremoreefficientdistributors1.Howcananactivitybeperformeddifferentlyoreveneliminated?ThreeKeyQuestions2.HowcanaEffectiveCostLeaderscanremainprofitableevenwhentheFiveForces

appearunattractiveEffectiveCostLeaderscanremCanfrightenoffNewEntrantsduetotheneedto:EnteratlargescaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*EffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveThreatofNewEntrantsCanfrightenoffNewEntrantsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*BargainingPowerofBuyersThreatofNewEntrantsCanmitigateBuyerPowerby:*DrivingpricesfarbelowcompetitorsmaycauseexitandshiftpowerbacktofirmEffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveCanfrightenoffNewEntrantsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*CanmitigateBuyerPowerby:ThreatofNewEntrantsBargainingPowerofBuyersDrivingpricesfarbelowcompetitorswhichmaycauseexitandshiftpowerbacktofirmWellpositionedrelativeto

Substitutesinorderto:Makeinvestmentstocreatesubstitutesfirst*Buypatentsdevelopedbypotentialsubstitutes*Lowerpricestomaintainvalueposition*ThreatofSubstituteProductsEffectiveCostLeaderscanremainprofitableevenwhentheFiveForcesappearunattractiveCanfrightenoffNewEntrantsCanfrightenoffNewEntrantsduetotheneedto:EnteratLargeScaletobeCostCompetitive*Taketimetomovedownthe“LearningCurve”*WellpositionedrelativetoSubstitutesinorderto:Makeinvestmentstocreatesubstitutes*Canbuypatentsdevelopedbypotentialsubstitutes*Lowerpricestomaintainvalueposition*BargainingPowerofSuppliersThreatofNewEntrantsThreatofSubstituteProductsCanmitigateBuyerPowerby:BargainingPowerofBuyersDrivingpricesfarbelowcompetitorswhichmaycauseexitandshiftpowerbacktofirmCanmitigateSupplierPowerby:Lowcostpositionmakesthembetterabletoabsorbcostincreases*Morelikelytomakeverylargepurchaseswhichreduceschanceof