How do we compete?
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Cost
Leadership
Uniqueness
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Uniqueness
Cost
Leadership Differentiation
Generic Business Level Strategies
Source of Competitive Advantage
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Cost
Uniqueness
Cost
Leadership
Differentiation
Focused Low
Cost
Focused
Differentiation
Generic Business Level Strategies
Source of Competitive Advantage
Cost
Breadth of
Competitive
Scope
Broad
Target
Market
Narrow
Target
Market
Uniqueness
Cost
DifferenLeadership
tiation
Integrated
Low Cost/
Differentiation
Focused
Focused
DifferenLow Cost tiation Profit = (P – C) × Q
The
The Experience
Experience Curve
Curve
The “Law of Experience”
1994
1995
Cost per unit of output The unit cost value added to a standard product declines by a constant %
(typically 20-30%) each time cumulative output doubles.
1996
1997
1998
Cumulative Output
1999
2000
Examples
Examples of of Experience
Experience Curves
Curves
75%
100K 200K
500K
1,000K
Accumulated unit production
(millions)
UK refrigerators, 1957-71
Price Index
50 100 200 300
1960 Yen
15K
20K 30K
Japanese clocks & watches, 1962-72
70% slope
5
10
50
Accumulated units
(millions)
Choices that Drive Costs
Economies of scale
Product features
Asset utilization
Performance
Capacity utilization pattern
Mix & variety of products
- Seasonal, cyclical
Interrelationships
- Order processing and distribution
Value chain linkages
- Advertising & Sales
- Logistics & Operations
Service levels
Small vs. large buyers
Process technology
Wage levels
Product features
Hiring, training, motivation
Value Chain of Firm Activities
Firm Infrastructure
Human Resource Management
Technological Development
M
A
R
G
IN
M Service
A
R
G
IN
Marketing
& Sales
Outbound
Logistics
Operations
Inbound
Logistics
Procurement
Value Creating Activities common to a
Inbound
Cost Leadership
Business Level Strategy
Logistics
Inbound
Logistics
Support
Activities
Highly Efficient
Systems to Link
Suppliers’
Products with the
Firm’s Production
Processes
Located in Close
Proximity with
Suppliers
Primary Activities
Value Creating Activities common to a
Operations
Cost Leadership Business
Level Strategy
Effective Training Programs to Improve Worker
Efficiency and Effectiveness
Human Resource Management
Timing of Asset
Purchases
Investments in Technology in order to Reduce Costs Associated with
Manufacturing Processes
Technological Development
M
A
RG
Policy Choice of
Frequent Evaluation to PlantProcesses
Technology
Procurement
IN
Monitor Suppliers’ Performances
Organizational
Learning
Primary Activities
R
G
IN
Products Priced to
Generate Sales
Volume
M
A
Policy Choice of Efficient Order
Plant Technology Sizes
Organizational
Small, Highly
Trained Sales
Learning
Force
Service
Outbound
Logistics
Efficient Plant
Delivery Schedule
Scale to Minimize that Reduces
Manufacturing
Costs
Costs
Selection of Low
Timing of Asset
Cost Transport
Purchases
Carriers
Operations
Inbound
Logistics
Support
Activities
Firm
Efficient Plant
Scale to Minimize
Infrastructure
Mfg. Costs
Relatively Few
Management Layers to
Reduce Overhead
Value Creating Activities common to a
Cost Leadership Business LevelOutbound
Strategy
Logistics
Delivery Schedule that Reduces Costs
M
Human Resource ManagementSelection of Low
A
R
Cost Transport G
Technological Development
Carriers
IN
Efficient Order
Frequent Evaluation Processes to
Procurement
Monitor Suppliers’ Performances
Sizes
and Severity
Products Priced to of Recalls
Generate Sales
Volume
Efficient Order
Sizes
National Scale
Advertising
Interrelationships with Sister Units
Primary Activities
M
A