The Business and Functional Levels

Business Level Strategies

Refer to strategies that firms use to build competitive advantage.
Focus on improving the competitive position of a company’s product or services within the specific industry or market segment that the company services.

Figure 1.0: The three generic business level strategies (Porter, 1985)

It refers to the organization’s ability to produce a product or service at a cost below what competitors can achieve.
Companies which utilize a cost leadership strategy would concentrate on providing a basic and standardize product or service that can be produced at a relatively low cost and made available to a broad target market.
Firms that adopt this strategy do not customize their products or services to an individual customer’s tastes, needs or desires.
Successful implementation of the cost leadership strategy requires a consistent focus on driving costs relatively lower to competitors’ costs.

Differentiation strategy consists of creating differences in the firm’s products or services by offering something that is perceived industry wide as unique and valued by customers.
Firms that use this strategy would emphasize brand image, unique styling, technology, features, a dealer network, customer service or innovative design.
This strategy is based on the assumption that customers are willing to pay a higher price for a product or service that is distinct or perceived to be unique from that of its rivals.
Differentiation strategy creates customer loyalty to a firm’s products because customers perceive these products to be unique and as a result, are willing to pay more for a firm’s products or services.

Functional level strategies are actions taken at the functional or operational level and they must be in line or contribute towards the overall strategy of the corporation.
The functional strategies address problems commonly faced by lower-level managers, and handle activities considered relevant to achieve the business level and corporate level strategies.
The functional level of an organization is the level of operating divisions and department.
The main strategic issue at the functional level is very much related to the supply chain and the corresponding value chain if they are in manufacturing.
The value chain or the value chain analysis (VCA) is a systematic approach to examine the development of competitive advantage.
It consists of a series of activities that create value and cost in a specific business.

The value chain activities can be classified into two main categories, primary activities and support activities.

The primary activities are the activities involved in bringing materials into the business, operating on them, sending them out, marketing them, and servicing them.
The support activities are the activities that improve the effectiveness or efficiency of the primary activities and other support activities in helping the organization achieve its competitive advantage.

There are five primary activities in the value chain which include: