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Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
Generic Strategies
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Generic Strategies

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Self Guided Lecture # 1

Self Guided Lecture # 1

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  • 1. Self Guided Lecture # 1 Strategic & Innovative Management Cristin Howell-Vischer, MIM MANAGEMENT II – MAN 2600
  • 2. Porter’s Generic Strategies
  • 3. Leveraging Strengths <ul><li>According to Michael Porter, a firm positions itself by leveraging its strengths </li></ul><ul><li>A firm’s strengths ultimately fall into one of two headings: </li></ul><ul><ul><ul><ul><li>Cost advantage </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Differentiation </li></ul></ul></ul></ul>
  • 4. Generic Strategies <ul><li>By applying these strengths in either a broad or narrow scope, three generic strategies result: </li></ul><ul><ul><ul><ul><li>Cost leadership </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Differentiation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Focus </li></ul></ul></ul></ul><ul><li>These strategies are applied at the business unit level. The term “generic” is used because these strategies are not firm or industry dependent </li></ul>
  • 5. Porter’s Generic Strategies
  • 6. Cost Leadership Strategy <ul><li>An integrated set of actions designed to produce or deliver goods or services at the </li></ul><ul><ul><li>lowest cost relative to competitors </li></ul></ul><ul><ul><li>with features that are acceptable to customers </li></ul></ul><ul><li>This involves </li></ul><ul><ul><li>relatively standardized products </li></ul></ul><ul><ul><li>features acceptable to many customers </li></ul></ul><ul><ul><li>lowest competitive price </li></ul></ul>
  • 7. How to Obtain a Cost Advantage Cost Drivers Value Chain Determine and control Reconfigure, if needed <ul><li>Alter production process </li></ul><ul><li>Change in automation </li></ul><ul><li>New distribution channel </li></ul><ul><li>New advertising media </li></ul><ul><li>Direct sales in place of indirect sales </li></ul><ul><li>New raw material </li></ul><ul><li>Forward integration </li></ul><ul><li>Backward integration </li></ul><ul><li>Change location relative to suppliers or buyers </li></ul>
  • 8. Factors That Drive Costs <ul><li>Product features </li></ul><ul><li>Performance </li></ul><ul><li>Mix & variety of products </li></ul><ul><li>Service levels </li></ul><ul><li>Small vs. large buyers </li></ul><ul><li>Process technology </li></ul><ul><li>Wage levels </li></ul><ul><li>Product features </li></ul><ul><li>Hiring, training, motivation </li></ul><ul><li>Economies of scale </li></ul><ul><li>Asset utilization </li></ul><ul><li>Capacity utilization pattern </li></ul><ul><ul><li>Seasonal, cyclical </li></ul></ul><ul><li>Interrelationships </li></ul><ul><li>Order processing and distribution </li></ul><ul><li>Value chain linkages </li></ul><ul><ul><li>Advertising & sales </li></ul></ul><ul><ul><li>Logistics & operations </li></ul></ul>
  • 9. Major Risks of Cost Leadership Strategy <ul><li>Dramatic technological change could take away your cost advantage </li></ul><ul><li>Competitors may learn how to imitate the value chain </li></ul><ul><li>Focus on efficiency could cause cost leader to overlook changes in customer preferences </li></ul>
  • 10. Differentiation Strategy <ul><li>An integrated set of actions designed by a firm to produce or deliver goods or services (at an acceptable cost) that customers perceive as being different in ways that are important to them </li></ul><ul><ul><li>price for product can exceed what the firm’s target customers are willing to pay </li></ul></ul><ul><ul><li>nonstandardized products </li></ul></ul><ul><ul><li>customers value differentiated features more than they value low cost </li></ul></ul>
  • 11. Differentiation Strategy <ul><li>Value provided by unique features & value characteristics </li></ul><ul><li>Command premium price </li></ul><ul><li>High customer service </li></ul><ul><li>Superior quality </li></ul><ul><li>Prestige or exclusivity </li></ul><ul><li>Rapid innovation </li></ul>
  • 12. Differentiation Strategy <ul><li>Actions required by this strategy: </li></ul><ul><ul><li>development of new systems and processes </li></ul></ul><ul><ul><li>shaping perceptions through advertising </li></ul></ul><ul><ul><li>quality focus </li></ul></ul><ul><ul><li>capable of showing R&D results </li></ul></ul><ul><ul><li>maximize human resource contributions through low turnover and high motivation </li></ul></ul>
  • 13. How to Obtain a Differentiation Advantage Cost Drivers Value Chain Control if needed Reconfigure to maximize <ul><li>Low buyers’ costs </li></ul><ul><li>Raise performance of product or service </li></ul><ul><li>Create sustainability through: </li></ul><ul><ul><li>Customer perceptions of uniqueness </li></ul></ul><ul><ul><li>Customer reluctance to switch to non-unique product </li></ul></ul>
  • 14. Factors That Drive Differentiation <ul><li>Unique product features </li></ul><ul><li>Unique product performance </li></ul><ul><li>Exceptional services </li></ul><ul><li>New technologies </li></ul><ul><li>Quality of inputs </li></ul><ul><li>Exceptional skill or experience </li></ul><ul><li>Detailed information </li></ul>
  • 15. Major Risks of Differentiation Strategy <ul><li>Customers may decide that the price differential between the differentiated product and the cost leader’s product is too large </li></ul><ul><li>Means of differentiation may cease to provide value for which customers are willing to pay </li></ul>
  • 16. Major Risks of Differentiation Strategy <ul><li>Experience may narrow customer’s perceptions of the value of differentiated features of the firm’s products </li></ul><ul><li>Makers of counterfeit goods may attempt to replicate differentiated features of the firm’s products </li></ul>
  • 17. Focused Business-Level Strategies <ul><li>A focus strategy must exploit a narrow target’s differences from the balance of the industry by: </li></ul><ul><ul><li>isolating a particular buyer group </li></ul></ul><ul><ul><li>isolating a unique segment of a product line </li></ul></ul><ul><ul><li>concentrating on a particular geographic market </li></ul></ul><ul><ul><li>finding their “niche” </li></ul></ul>
  • 18. Factors That May Drive Focused Strategies <ul><li>Large firms may overlook small niches </li></ul><ul><li>Firm may lack resources to compete in the broader market </li></ul><ul><li>May be able to serve a narrow market segment more effectively than can larger industry-wide competitors </li></ul><ul><li>Focus may allow the firm to direct resources to certain value chain activities to build competitive advantage </li></ul>
  • 19. Major Risks of Focused Strategies <ul><li>Firm may be “outfocused” by competitors </li></ul><ul><li>A large competitor may set its sights on your niche market </li></ul><ul><li>Preferences of niche market may change to match those of broad market </li></ul>
  • 20. Advantages of Integrated Strategy <ul><li>A firm that successfully uses an integrated cost leadership/differentiation strategy should be in a better position to: </li></ul><ul><ul><li>adapt quickly to environmental changes </li></ul></ul><ul><ul><li>learn new skills and technologies more quickly </li></ul></ul><ul><ul><li>effectively leverage its core competencies while competing against its rivals </li></ul></ul>
  • 21. Benefits of Integrated Strategy <ul><li>Successful firms using this strategy have above-average returns </li></ul><ul><li>Firm offers two types of values to customers </li></ul><ul><ul><li>some differentiated features (but less than a true differentiated firm) </li></ul></ul><ul><ul><li>relatively low cost (but not as low as the cost leader’s price) </li></ul></ul>
  • 22. Major Risks of Integrated Strategy <ul><li>An integrated cost/differentiation business level strategy often involves compromises (neither the lowest cost nor the most differentiated firm) </li></ul><ul><li>The firm may become “stuck in the middle” lacking the strong commitment and expertise that accompanies firms following either a cost leadership or a differentiated strategy </li></ul>

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