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generic strategies



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  • 1. Generic Competitive Strategies VI
  • 2. Porter’s Generic Strategies
    • Porter has suggested three competitive strategies to cope with the five competitive forces:
        • Overall Cost Leadership
        • Differentiation
        • Focus
  • 3. Factors of Cost Leadership
    • Aggressive construction of efficient-scale facilities
    • Vigorous pursuit of cost reductions from experience
    • Cost minimization in areas such as R&D, services, sales force and advertising
    • Tight cost and overhead control
  • 4. Cost
    • Low cost relative to competitors is the main pursuit, not at the cost of quality or service.
    • The attained low cost position needs strengthening through reinvesting the high margin in new equipment, machinery etc to further enhance the low cost leadership
  • 5. Differentiation
    • Differentiating a product or service implies creating something that is perceived industry wise as being unique. It can take forms such as
    • - design or brand image
    • - technology
    • - customer service
    • - dealer network
    • - other special features
  • 6. Differentiation
    • Differentiation does not mean total disregard to cost rather cost is not the primary strategic target.
    • Differentiation insulates a company from rivalry due to brand loyalty or price insensitivity, supplier power due to high margin, buyer power due to price insensitivity.
  • 7. Focus
    • Relates to targeting a particular buyer group, segment of product line or geographic market.
    • The Focus strategy is built on the premises of serving a narrow market so that it can perform more effectively than the competitors who operate more broadly.
  • 8. Stuck in the Middle
    • The situation when a firm cannot develop one of the three strategies.
    • The firms lacks the market share, capital investment and resolve to play the low-cost game or the industry wide differentiation to obviate the need for low-cost position or the focus necessary to create a position in a more limited space.
    • Not being able to perform in one of the three areas has other consequential effects such as a blurred corporate culture and a conflicting set of organizational arrangements.
  • 9. Question
    • Does this imply that the largest (low cost) or the smallest (focus, differentiation) are the most profitable generating a U shaped relationship between profitability and market share?
    • - The mini mills are more profitable than the larger steel mills in a non-differentiated market.
  • 10. RISKS
    • The risks in pursuing generic strategies are mainly two;
    • - failing to attain or sustain the strategy
    • - the value provided by the chosen strategy erodes due to industry evolution.
  • 11. … .to Low-cost
    • Technology changes to nullify past investment or learning
    • Low-cost learning by newcomers through imitation or new investment
    • Inability to adopt the required changes in the market
  • 12. … .to Differentiation
    • Buyer need falls
    • Imitation narrows perceived differentiation
    • Cost differential is too wide to hold on to brand loyalty
  • 13. … .to Focus
    • Cost differential between broad range and focus widens
    • Difference between the broad range & the focused product narrows
    • Competitors find submarket within the strategic target
    • The chosen strategy requires differing organization arrangement, control procedures and inventive systems.
  • 15. … .to Low-cost Skills/resources required Organizational requirement Capital Tight cost control Engineering skill Frequent & detailed reports Close supervision Structured organization Easy product design Incentives based on target Low-cost distribution
  • 16. … .to Differentiation Skills/resources required Organizational requirement Strong marketing Strong coordination Product engineering Subjective measurement Creative flair Amenities to attract skilled people Strong research Leadership in Quality Technology
  • 17. … .to Focus
    • Combination of the other two (Low-cost and Differentiation) policies directed to particular strategic target