Value Creation

Delivering value to the customers is at the heart of strategy. Value can be defined as the combination of benefits received and costs paid by the customer. Managers help their companies create value- of devising strategies that exploit core competencies and attain synergy. The cable company Charter Communication is attempting to provide better value to customers to counter charges of excessive prices and to compete with the growing clout of satellite television companies. New cable value packages offer a combination of basic cable, digital premium channels and high speed internet for a reduced cost. Laura Alber, president of Pottery Barn, uses the company’s thick bath towels to illustrate the value Pottery Barn strives to deliver to customers: For us this represents a combination of design, quality, and price. Alber says if this were $60 you’d still like it. But at $24 you go, this is incredible.
Levels of strategy:
Another aspect of strategic management concerns the organizational level to which strategic issues apply. Strategic managers normally think in terms of three levels of strategy – corporate, business, and functional as illustrated below:
Three levels of strategy in organizations
Corporate Level strategy: What business are we in?
Corporation >>
Business Level Strategy: How do we compete?
Consumer Products Unit >> Biotechnology Unit >> Media Unit>>
Functional level strategy: How do we support the business level strategy?
Finance >> R&D >> manufacturing >>marketing
Corporate Level strategy

The question what business are we in? Is the cornerstone of corporate level strategy. Corporate level strategy pertains to the organization as a whole and the combination of business units and product lines that make up the corporate entity. Strategic actions at this level usually relate to the acquisition of new businesses; additions or divestments of business units, plants or product lines and joint ventures with other corporations in new areas. An example of corporate level strategy is Italy’s Fiat Group, which is reversing a decade long diversification trend to focus on reviving the auto business. After a record loss of $4.5 billion in 2002, managers made a strategic choice to get out of other businesses and focus everything on reviving the auto division. In addition, to selling off units such as insurer Toro Assicurazioni and the Fiat aerospace unit, Fiat is increasing R&D spending for new auto models, including new Alfa Romeos for the US markets, expanding its dealer network and negotiations a joint venture with General Motors to build the next generation Fiat Punto on a joint platform with GM’s Corsa. The joint venture could mean savings of $1 billion for each partner in 2005 and a potential for future platform sharing.
Business Level strategy:
The question how do we compete? Is the focus of business level strategy. Business level strategy pertains to each business unit or product line. It focuses on how the business unit competes within its industry for customers. Many companies have opened e-commerce units as part of business level strategy. For example, Hallmark’s Web site is a marketing vehicle for the company’s products and retail store as well as a place to sell gifts and flowers online.
Strategic decisions at the business level concern amount of advertising direction, and extent of research and development product changes new product development equipment and facilities, expansion or contraction of product lines. Consider how top managers at JC Penney hope to revive the department store’s image and sales with a new business level strategy.
JC Penney’s new business level strategy is getting the company noticed. Magazines such as Cosmopolitan and In Style have featured Penney’s affordable merchandise along side designer labels and fashion shows at PC Penney stores have attracted large audiences. Questrom and other top managers believe the strategy will help them find a profitable niche squeezed somewhere between Wal-Mart low prices and the trendiness of more expensive retailers.
Source: New Era Management