Strat generic 7


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Strat generic 7

  1. 1. Generic Competitive Strategies VII
  2. 2. Generic Competitive Strategies <ul><li>Two basic types: </li></ul><ul><li>- Cost </li></ul><ul><li>- Differentiation </li></ul><ul><li>Additional generic strategies based on the scope of application : </li></ul><ul><li>Cost </li></ul><ul><li>- Focus </li></ul><ul><li>Differentiation </li></ul>
  3. 3. Generic Competitive Strategies <ul><li>COST leadership </li></ul><ul><li>promoted by attention to details such as frugality and discipline. </li></ul><ul><li>DIFFERENTIATION </li></ul><ul><li>requires a culture of trust that promotes individualism, risk taking and innovation. </li></ul>
  4. 4. Cost <ul><li>Low cost relative to competitors is the main pursuit but not at the cost of quality or service. </li></ul><ul><li>The attained low cost position needs strengthening through reinvesting in high margin new equipment, machinery etc to further enhance the low cost leadership </li></ul>
  5. 5. Factors of Cost Leadership <ul><li>Aggressive construction of efficient-scale facilities </li></ul><ul><li>Vigorous pursuit of cost reductions from experience curve </li></ul><ul><li>Cost minimization in areas such as R&D, services, sales force and advertising </li></ul><ul><li>Tight cost and overhead control </li></ul>
  6. 6. Differentiation <ul><li>Differentiating a product/service implies creating a perceived uniqueness in the industry through </li></ul><ul><ul><ul><ul><ul><li>- design or brand image </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>- technology </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>- customer service </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>- dealer network </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>- other special features </li></ul></ul></ul></ul></ul>
  7. 7. Differentiation <ul><li>Differentiation does not mean total disregard to cost except that cost is not the primary strategic target. </li></ul><ul><li>Differentiation insulates a company from rivalry through brand loyalty or price insensitivity. </li></ul>
  8. 8. Cost OR Differentiation <ul><li>Depends : </li></ul><ul><li> - Toyota competes on cost (price) </li></ul><ul><li> - Mercedes competes on differentiation </li></ul><ul><li> Toyota is much larger company. </li></ul><ul><li>An organization should choose either of the alternatives, not both. </li></ul><ul><li>Being all things to all people can be ruinous that Porter calls ‘being stuck in the middle’. </li></ul>
  9. 9. Stuck in the Middle <ul><li>Such strategies are not sustainable in the long run because of factors such as a clash of cultures. </li></ul><ul><li>An organizational structure that is supportive of cost leadership can be ruinous for differentiation. </li></ul><ul><li>Conflicts can arise due to policies such as </li></ul><ul><li>- tight control system </li></ul><ul><li>- pursuit of scale economies </li></ul><ul><li>- dedication to learning curve. </li></ul>
  10. 10. Focus <ul><li>Relates to targeting a particular buyer group, segment of product line or geographic market. </li></ul><ul><li>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. </li></ul>
  11. 11. Threats to <ul><li>Cost : imitation </li></ul><ul><ul><ul><ul><ul><li> technology changes proximity to differentiation </li></ul></ul></ul></ul></ul><ul><li>Differentiation : imitation </li></ul><ul><li> loss of attraction of differentiation base </li></ul><ul><li>Focus : imitation </li></ul><ul><ul><ul><ul><ul><li> target segment gets unattractive </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li> new focusers arrive </li></ul></ul></ul></ul></ul>
  12. 12. Elements of 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 Strong supply chain
  13. 13. Elements of 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
  14. 14. Elements of Focus <ul><li>Combination of the Cost and Differentiation policies directed to particular strategic target </li></ul>
  15. 15. Hindrances to Low-cost <ul><li>Technology changes nullify the past investment or learning </li></ul><ul><li>Low-cost learning by newcomers through imitation or new investment </li></ul><ul><li>Inability to adopt to the required changes in the market </li></ul>
  16. 16. Hindrances to Differentiation <ul><li>Imitation narrows perceived differentiation </li></ul><ul><li>Buyer need falls </li></ul><ul><li>Cost differential is too wide to hold on to brand loyalty </li></ul>
  17. 17. Hindrances to Focus <ul><li>Cost differential between broad range and focus widens </li></ul><ul><li>Difference between the broad range & the focused product narrows </li></ul><ul><li>Competitors find submarket within the strategic target </li></ul>