Self Guided Lecture # 1 Strategic & Innovative Management  Cristin Howell-Vischer, MIM MANAGEMENT II – MAN 2600
Porter’s Generic Strategies
Leveraging Strengths <ul><li>According to Michael Porter, a firm positions itself by leveraging its strengths </li></ul><u...
Generic Strategies <ul><li>By applying these strengths in either a broad  or narrow scope, three  generic  strategies resu...
Porter’s Generic Strategies
Cost Leadership Strategy <ul><li>An integrated set of actions designed to produce or deliver goods or services at the  </l...
How to Obtain a Cost Advantage Cost Drivers Value Chain Determine and control Reconfigure, if needed <ul><li>Alter product...
Factors That Drive Costs <ul><li>Product features </li></ul><ul><li>Performance  </li></ul><ul><li>Mix & variety of produc...
Major Risks of Cost Leadership Strategy <ul><li>Dramatic technological change could take away your cost advantage </li></u...
Differentiation Strategy <ul><li>An integrated set of actions designed by a firm to produce or deliver goods or services (...
Differentiation Strategy <ul><li>Value provided by  unique features & value characteristics </li></ul><ul><li>Command prem...
Differentiation Strategy <ul><li>Actions required by this strategy: </li></ul><ul><ul><li>development of new systems and p...
How to Obtain a Differentiation Advantage Cost Drivers Value Chain Control if needed Reconfigure to maximize <ul><li>Low b...
Factors That Drive Differentiation <ul><li>Unique product features </li></ul><ul><li>Unique product performance </li></ul>...
Major Risks of Differentiation Strategy <ul><li>Customers may decide that the price differential between the differentiate...
Major Risks of Differentiation Strategy <ul><li>Experience may narrow customer’s perceptions of the value of differentiate...
Focused Business-Level Strategies <ul><li>A focus strategy must exploit a narrow target’s differences from the balance of ...
Factors That May Drive Focused Strategies <ul><li>Large firms may overlook small niches </li></ul><ul><li>Firm may lack re...
Major Risks of Focused Strategies <ul><li>Firm may be “outfocused” by competitors </li></ul><ul><li>A large competitor may...
Advantages of Integrated Strategy <ul><li>A firm that successfully uses an integrated cost leadership/differentiation stra...
Benefits of Integrated Strategy <ul><li>Successful firms using this strategy have above-average returns </li></ul><ul><li>...
Major Risks of Integrated Strategy <ul><li>An integrated cost/differentiation business level strategy often involves compr...
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Generic Strategies

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Generic Strategies

  1. 1. Self Guided Lecture # 1 Strategic & Innovative Management Cristin Howell-Vischer, MIM MANAGEMENT II – MAN 2600
  2. 2. Porter’s Generic Strategies
  3. 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. 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. 5. Porter’s Generic Strategies
  6. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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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