Chapter 5. Business-Level Strategy: Creating and Sustaining Competitive Advantages

Overview:

Understanding the components of external and internal analysis, companies now have the building blocks and framework to develop strong business-levels strategies to create and sustain competitive advantages. There are three generic strategies: overall cost leadership, differentiation, and focus. This chapter explains how the successful attainment of generic strategies can improve the firm’s relative power and discusses the five forces that determine an industry’s average profitability. As managers evaluate these generic strategies, it is critical that they do not fall into specific pitfalls. Long term, the factors that determine the sustainability of a firm’s competitive advantage are discussed. Each company must evaluate where they are in the industry life cycle to determine their business-level strategy and have turnaround strategies to reposition themselves to be in a competitive position.  

Chapter 5. Business-Level Strategy: Creating and Sustaining Competitive Advantages

Learning Objectives

1. The central role of competitive advantage in the study of strategic management and the three generic strategies: overall cost leadership, differentiation, and focus.
2. How the successful attainment of generic strategies can improve the firm’s relative power vis-à-vis the five forces that determine an industry’s average profitability.
3. The pitfalls managers must avoid in striving to attain generic strategies.
4. How firms can effectively combine the generic strategies of overall cost leadership and differentiation.
5. What factors determine the sustainability of a firm’s competitive advantage?
6. The importance of considering the industry life cycle to determine a firm’s business-level strategy and its relative emphasis on functional area strategies and value-creating activities.
7. The need for turnaround strategies that enable a firm to reposition its competitive position in an industry.
   
   Question
   
   Initial Postings: Read and reflect on the assigned readings for the week. Then post what you thought was the most important concept(s), method(s), term(s), and/or any other thing that you felt was worthy of your understanding.Also, provide a graduate-level response to each of the following questions:
   1. Research Amazon. How has this firm been able to combine overall cost leadership and differentiation strategies?

 

Amazon is the current world leader in an online retail business; the company started as an online book store. Later, the venture spurred into selling everything in its retailing space and can now sell everything (Hahn, Kim & Youn, 2018). The company has also expanded worldwide and operates through combined online presence, global logistics, and other delivery platforms; this way, the company has relied on technology to gain a competitive advantage, which has helped the company reap its economies of scale. Amazon uses cost leadership in various forms for maximum operational efficiency, which means that the company is minimizing costs (Hahn, Kim & Youn, 2018). The company has achieved this through automating its process for scheduling, purchases and other numerous internal processes.  Moreover, the company has invested a lot in research and development for optimizing the performance of their information systems; due to this strategy, the company has been able to minimize the price levels that has also given them a competitive advantage over others like ebay.com (Hahn, Kim & Youn, 2018).

Cost leadership is a generic strategy employed by Amazon for the company’s competitive advantage. The main drivers of the strategy are minimization of the operational cost, such as through the use of advanced computing for high operational efficiency, which also leads towards minimized costs. The company would therefore benefit from process automation, scheduling, and many other operational processes. The benefit of the process is to enable the company to reduce the cost of staying online and the other services offered by the company (Hahn, Kim & Youn, 2018). A strategic objective that is linked to Amazon that also drives its cost leadership is its strategy to build a competitive e-commerce advantage, and this can be done through a continuous process and improvement of technology (Hahn, Kim & Youn, 2018). The company, as stated earlier, has also built on research and development that optimizes its performance on its various information technology resources. This is because the company understands that lower price attracts customers. Therefore, the cost leadership strategy is embedded within the company’s mission, coupled with respect to driving its online retail and global leadership and growth.

Product differentiation is another strategy used by Amazon. Product differentiation is the attention given to one or more products by a company to make it a better choice when compared to a similar product. Product differentiation can be in many forms; product design, packaging, pricing and marketing. The company does product differentiation through its website and also through its mobile applications (Tang, Yuan & Li, 2012, June). The online model does not require a physical store. Product differentiation is also used by rivals such as Apple, Target and Google. The differentiation has been instrumental in brand positioning and making the company a world leader in the online retail business. The current company strategy includes ensuring customer obsession, creating passion and commitment to operational excellence, and long-term thinking. The main focus of the company is on price, convenience and also selection.