PRINCIPLES OF

MANAGEMENT

Instructor: Ms. Isra Al Tarbaghia and Dr. Fathi Saad

Libyan International University
Spring Semester 2021
Strategy
 Agenda
• Superior Performance and Competitive Advantage
• Business-Level Strategy
• Porter’s Four Generic Strategies
• Segmenting the Market
• Choosing Segments to Serve
• Segmentation and Strategy
• Implementing Business-Level Strategy
• Configuring the Value Chain
• Competitive Advantage and Strategic Fit
• Competitive Tactics
• Tactical Pricing Decisions
• Tactical Product Decisions
• Corporate-Level Strategy
• Focus on a Single Business
• Vertical Integration
• Diversification
Superior Performance and Competitive Advantage
 Strategy: An action managers take to attain a goal of an
organization.
 Competitive Advantage: Advantage obtained when a firm
outperforms its rivals.
 The competitive advantage comes from two sources:

1. The ability of the firm to lower costs relative to rivals.

2. The ability to differentiate its product offering from that of
rivals
Superior Performance and Competitive Advantage
 Distinctive Competency: A unique strength that rivals lack.
 Sustainable Competitive Advantage: A distinctive
competency that rivals cannot easily match or imitate.
 Barrier to Imitation: Factors that make it difficult for a firm
to imitate the competitive position of a rival.
 Legacy Constraints: Prior investments in a particular way
of doing business that are difficult to change and limit a
firm’s ability to imitate a successful rival.
Superior Performance and Competitive Advantage
Competitive Advantage

Low costs
Distinctive Competitive Superior
competencies advantage performance
Product
Differentiation

If protected from copying by

barriers to imitation and
legacy constraints,
competitive advantage will
be sustained
 Business-Level Strategy
 Business-level strategy: Strategy concerned with
deciding how a firm should compete in the industries in
which it has elected to participate.
 A firm’s business-level strategy encompasses three related
choices:
1- the competitive theme that managers emphasize
2- how to segment the market within an industry.
3- which segments to serve.
 Business-Level Strategy
1- The competitive Theme
 Basic business-level strategy is concerned with making the
choice between low cost and differentiation to gain a
competitive advantage:
A. Low-cost strategy: Focusing managerial energy and
attention on doing everything possible to lower the costs of
the organization.
 Economies of scale: Cost advantages derived from a large
sales volume
Business-Level Strategy
The Low-Cost Value Cycle
 Business-Level Strategy
B. Differentiation strategy: increasing the value of a
product offering in the eyes of consumers.

Options for Exploiting Differentiation

 Business-Level Strategy
2- Segmenting the Market:
Markets can be segmented by a variety of factors, common
examples being the income, demographics, preferences, and
tastes of consumers.

Different enterprises can segment the same market in

different ways, and various approaches might be reasonable.
 Business-Level Strategy
3- Choosing Segments to Serve
A. Focus Strategy: Serving a limited number of segments.
B. Broad market strategy: Serving the entire market
Business-Level Strategy
Porter’s Four Generic Strategies
 Business-Level Strategy
Porter’s Four Generic Strategies

Cost Leadership Differentiation

Wal-mart Sears
Many
Segments served

Focused low cost Focused differentiation

Costco Abercrombie & Fitch
Few

Low cost Differentiation

Competitive theme
 Implementing a Business-Level Strategy
Configuring the Value Chain
The operations of a firm can be thought of as a value chain
composed of a series of distinct activities including:
- Production
- Marketing and sales
- Logistics
- R&D
- Human resources
- Information systems
- The firm’s infrastructure.
Implementing a Business-Level Strategy
Configuring the Value Chain
 Implementing a Business-Level Strategy
Configuring the Value Chain

Primary activities: Activities having to do with the design,

creation, and delivery of the product; its marketing; and its
support and after-sale service.
 The primary activities are divided into five functions:
- Inbound logistics
- Operations
- Outbound logistics
- Marketing and sales
- Customer service
 Implementing a Business-Level Strategy
Inbound logistics: refers to the transportation, the storage
and the receiving of goods into a business.

Operations: requires management of both the strategic and

day-to-day production of goods and services.

Outbound logistics: transportation, storage,

and delivery systems that bring your products to your
customers.
 Implementing a Business-Level Strategy
Marketing and sales: can help a firm attain a differentiated or
low-cost position in several ways. Through brand positioning
and advertising, marketing can affect consumers’ perceptions
of how differentiated a firm’s product offering is.

Service: provides after-sale service and support. This function

can create a perception of superior differentiation in the minds
of consumers by solving customer problems and supporting
customers after they have purchased the product.
 Implementing a Business-Level Strategy

Support activities: Activities that provide inputs that allow

the primary activities to occur.

These are divided into:

- Procurement

- Technology development

- Human resource management

- The firm’s infrastructure

 Implementing a Business-Level Strategy
Procurement: is responsible for purchasing inputs to the
production process, including raw materials, partly finished
products, and in the case of retailers, items for resale.
Technology development: is the overall process of
invention, innovation and diffusion of technology or processes.
Human resource management: creates a competitive
advantage in a number of ways. It ensures that the company
has the right mix of skilled people to perform its value creation
activities effectively.
Firm Infrastructure: consists of a number of activities
including general (strategic) management, planning, finance,
accounting, legal, government affairs and quality
management.
 Implementing a Business-Level Strategy
Competitive Advantage and Strategic Fit:
If a business enterprise is to attain superior performance, its
business-level strategy must make sense given industry
conditions.
Operations must be configured in a way that supports the
strategy, and the internal organization architecture must
support the operations and strategy of the firm.
 Competitive Tactics
Competitive Tactics: actions that managers take to try to
outmaneuver rivals in the market.
Tactical pricing decisions: These include:
 Price wars: the action of two rival companies who both lower the
prices on products, in an attempt to undercut one another and
capture each other’s market.
 Price signaling: cutting prices when new competitors enter the
market to send a signal to potential rivals that they will have a
tough fight if they wish to gain share.
 Razor and razor blade pricing: When the core product is sold
at a low price but the add-ons are expensive.
 Corporate-Level Strategy
Corporate-level strategy: Strategy concerned with deciding
which industries a firm should compete in and how the firm
should enter or exit industries.
These strategies include:
- Focusing on a single business
- Vertical integration
- Diversification
- International expansion
 Corporate-Level Strategy
Focusing on a single business: Focusing on a single business
makes sense if a firm is growing rapidly, consuming all available
capital resources and the time and energy of its managers.
 Almost all enterprises start out focusing on a single industry. So

long as that business continues to grow, they are often advised to

continue doing so.
 Expanding into other businesses becomes an option when the

growth rate in the core business is decelerating, as can occur

when the market the firm serves is saturated and overall industry
growth has slowed down.
 Corporate-Level Strategy
Vertical Integration: Moving upstream into businesses that
supply inputs to a firm’s core business or downstream into
businesses that use the outputs of the firm’s core business.
 Corporate-Level Strategy
Diversification: Entry into new business areas.
 Related diversification: Diversification into a business
related to the existing business activities of an enterprise by
distinct similarities in one or more activities in the value
chain.
 Unrelated diversification: Diversification into a business
not related to the existing business activities of an
enterprise by distinct similarities in one or more activities in
the value chain.
 Corporate-Level Strategy
Diversification
 Leveraging core competencies: enhancing the firm
resources and capabilities to increase its competitive
advantage.
 Economies of scope: Cost reductions associated with
sharing resources across businesses.
 Internal governance skills: are the ability of senior
managers to elicit high levels of performance from the
constituent businesses of a diversified enterprise.
 Corporate-Level Strategy
International expansion
With the emergence of global markets managers are starting
to think about international expansion even at an early point in
the development of their enterprise.
International expansion allows a firm to:
- Realize scale economies.
- Enlarge a firm’s market .
- Realize location economies.
- Increases global learning .