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Strategic Management
, Sixth Edition
Charles W. L. Hill, University of Washington
Gareth R. Jones, Texas A&M University
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Chapter Summaries
Chapter 5: Building Competitive Advantage Through Business-Level Strategy
- Business-level strategy refers to the way strategic managers devise a plan
of action to use a company's resources and distinctive competencies to gain a competitive advantage
over rivals in a market or industry.
- At the heart of developing a generic business-level strategy are choices
concerning product differentiation, market segmentation, and distinctive
competency. The combination of those three choices results in the specific form of generic business-level strategy employed by a
company.
- Cost leadership, differentiation, cost leadership and differentiation, focused
low cost, and focused differentiation are generic competitive strategies. Each has advantages and disadvantages. A company must constantly
manage its strategy; otherwise, it risks being stuck in the middle.
- Most industries are composed of strategic groups: groups of companies pursuing the same or a similar business-level strategy. The members of a strategic
group constitute its immediate competitors. Because different strategic groups
are characterized by different opportunities and threats, it may pay a company
to switch strategic groups. The feasibility of doing so is a function of the height of mobility
barriers.
- The choice of investment strategy for supporting the competitive strategy
depends on the strength of a company's competitive position in the industry and the stage of the industry's life cycle. The main types of investment strategy are share building, growth,
share increasing, hold-and-maintain, profit, market concentration, asset
reduction, harvest, turnaround, liquidation, and divestiture.
- Game theory offers a number of interesting insights into the kinds of competitive
moves and tactics that companies can adopt to increase the returns from pursuing
their business-level strategies. Some principles of game theory are look forward and reason back, know thy rival, find the most
profitable dominant strategy, remember that strategy can alter the payoff
structure of the game, and use strategy to change the payoff structure of
the game.
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