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Dr. Aday

HTM 590

§ Distinguish the business-level strategy of any hospitality organization by determining if it is a cost leader, differentiator, or best value and whether it addresses a broad or narrow market focus.

§ Identify the risk factors associated with pursuing various business strategies.

§ Explain the key factors firm’s use to create a low-cost or differentiation strategy.

§ Know the definition of creative destruction and why it is important for making sense of competitive dynamics.

§ List the offensive and defensive strategies firms can use to compete effectively.

§ Create a strategic group map to help you understand the strategies of competitors in an industry.

§ An organization’s approach to competing in a chosen market(s)

§ Business-level strategy is sometimes referred to as competitive strategy.

§ Direction Setting § Establishment and communication of mission, vision, values, short

and long-term goals of a single business unit

§ Analysis of Business Situation § Compilation and assessment of information from broad

environmental analysis and other sources, internal resource analysis, SWOT analysis, sustainable competitive advantage

§ Selection of Strategy § Generic approach to competition: cost leadership, differentiation, focus or

best value and strategic posture: specific strategies needed to carry out the generic strategy

§ Management of Resources § Acquisition of resources and/or development of competencies leading to

sustainable competitive advantage. Develop control systems to ensure that strategies remain relevant and that the business unit continues to progress toward its goals

§ Low-cost leadership

§ Differentiation

§ Focus

§ Best value: hybrid of differentiation and cost leadership

§ Six generic types of strategies – will discuss in just a moment!

§ Michael Porter proposed the generic business-level strategy types.

§ A sustainable competitive advantage is related to the amount of value a firm creates for its customers. Remember, you can have several sustainable advantages – location, service, technology…

§ A company can be pursuing several business-level strategies simultaneously through its different business units: IHG § 5,000 Hotels

§ 1,500 in development

§ 100 Countries § 800,000 rooms

Strategy

Broad/Narrow Market

Source of Advantage

Low Cost Leadership

Broad Lowest Cost Production

Differentiation Broad Preferred Product or Service Best Value Broad Low Cost & Highly Desirable

Product or Service Focus through Low Cost Leadership

Narrow Lowest Cost Production

Focus through Differentiation

Narrow Preferred Product or Service

Focus through Best Value

Narrow Low Cost & Highly Desirable

§ The lowest-cost providers of a product or service

§ High Capacity Utilization (combined with accurate demand forecasting)

§ Economies of Scale

§ Technological Advances

§ Outsourcing

§ Learning / Experience Effects

§ May not detect required product or marketing changes due to preoccupation with cost

§ Investments in plants and equipment may become obsolete due to technological breakthroughs

§ Large investments cause reluctance to change § Competitors may quickly imitate cost-saving

strategies § May go too far in cutting costs, thus endangering

customers or employees

§ Creating value through uniqueness § Uniqueness may be achieved through many means.

Examples are: § Product innovations § Superior quality § Superior service § Creative advertising § Better supplier relationships

§ The key to success is that customers must be willing to pay more for the uniqueness of the product or service than the firm paid to create it.

§ Customers may be willing to sacrifice special features due to a high price

§ Customers may no longer perceive an attribute as differentiating

§ A source of differentiation may be easy to imitate. Constant innovation is necessary.

§ A combination of strategic elements from differentiation and low cost

§ Firms can increase sales of an attractive product or service. Sales increases may lead to efficiency and thus reduced costs

§ Consumers are coming to expect a combination of high quality and low price

§ Technological advances often allow a company to pursue differentiation and low cost at the same time

§ Many companies are pursuing best value through an emphasis on quality or speed

§ A Tradeoff Between Risks of Cost Leadership and Differentiation § Technological breakthroughs can make the

strategy obsolete § Risk of imitation § However:

§ Unlikely to become preoccupied with cost or differentiation § Unlikely to take cost cutting too far § Increases likelihood of being able to recover additional costs

associated with differentiation

§ Can be based on differentiation, lowest cost or best value

§ Key is to provide a product or service that caters to a particular market segment. § Must identify segment § Must assess and meet the needs of the segment better than

competitors (target marketing) § May also be called a “niche” strategy

§ Risks depend on whether the strategy is being pursued through differentiation, lowest cost or best value as well as: § The desires of the target market can become

similar to the desires of the whole market, thus eliminating advantage in catering to the target market

§ A competitor may focus on an even more narrowly defined segment of the market

§ Competitive action and reaction

§ Creative destruction § The inevitable decline of leading firms due to

competitive moves and countermoves

§ Competition has been increasing in most global industries

§ Aggressive Competition § Overwhelm competitors through a combination of

factors that could include the best products or services, superior advertising, the lowest production cost, superior design, the lowest price or the strongest brand name.

§ First-mover Advantage § Invest significantly more time and resources to

creating state-of-the-art products and services than competitors to protect leadership position.

§ Collaboration § Partnerships and alliances with stakeholders to

offset the influence of a powerful rival (defensive strategy).

§ Or, if a company is the largest rival, create partnerships and alliances that will block new competition or hurt existing competitors (offensive strategy).

§ Strategic Flexibility § An organization limits investments in fixed

capital and forms joint ventures or subcontracting agreements to provide a lot of what it needs so that it is in a position to quickly move in and out of markets.

§ Avoid Direct Competition § Find a niche in which no other organization

has interest. § Don’t compete with the same intensity in the

same geographical markets competitors.