Michael porter perspective on strategy


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Michael Porter on Strategy

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Michael porter perspective on strategy

  1. 1. What is Strategy? The Michael Porter Perspective Michael McDermott www.strategycapstone.ning.com
  2. 2. Who is Michael Porter? • He is a Harvard Business School Professor • He is regarded as “the” guru on business strategy • Profile of Michael Porter McDermottm1@nku.edu 2
  3. 3. What is Strategy? • Strategy is competitive position • And competitive position demands determining the company’s choice of generic strategy • It is essential that you understand this basic but vital concept of generic strategy McDermottm1@nku.edu 3
  4. 4. Establishing Competitive Advantage • A company can outperform rivals only if it can establish a difference that it can preserve • It must therefore: 1. Deliver greater value to customers; or 2. Create comparable value at lower prices; or 3. Do both McDermottm1@nku.edu 4
  5. 5. Some Key Questions in Strategy Development Who/what are we? The focus here is on choice of Generic Strategy – Where do we want to be? The focus here is on choice of Generic Strategy – Why do we want to go there? The focus here is upon strategy drivers – • • • • PEST Analysis Competitor Analysis Market Analysis Internal Analysis How will we get there? – The focus here is upon choice of Grand Strategy McDermottm1@nku.edu 5
  6. 6. 1. Who/what are we? This is our competitive position – some would argue that this is the essence of our strategy McDermottm1@nku.edu 6
  7. 7. What is Strategy? Competitive Position Strategy McDermottm1@nku.edu 7
  8. 8. What is Competitive Position? Choice of Generic Strategy Competitive Position McDermottm1@nku.edu 8
  9. 9. Effectiveness vs Efficient More Effective •Greater value •Higher unit prices More Efficient •Lower unit costs McDermottm1@nku.edu 9
  10. 10. Competitive Strategy is about being different! McDermottm1@nku.edu 10
  11. 11. Determining Strategic Position • Choose a different set of activities • Perform similar activities differently Activities • Or perform different activities Value • Deliver a unique mix of value McDermottm1@nku.edu 11
  12. 12. Nature of Strategic Positioning • Means performing different activities from rivals or performing similar activities in different ways • Competitive advantage requires developing a distinct strategic position McDermottm1@nku.edu 12
  13. 13. Choice of Generic Strategy Internal Considerations External Considerations • Do we compete on low cost or differentiation? • What is our target market? • What industry do we compete in? McDermottm1@nku.edu 13
  14. 14. What are the Generic Strategy Options? Low Cost • Niche – narrow market focus • Mainstream – broad market focus Differentiation • Niche – narrow market focus • Mainstream – broad market focus McDermottm1@nku.edu 14
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  16. 16. Hyundai Genesis BMW Volvo Porsche Generic Strategies and the Luxury Car Industry But you may decide that BMW competes in the luxury car market. McDermottm1@nku.edu 16
  17. 17. Choice of Generic Strategy: Abercrombie and Fitch Internal Considerations External Considerations • Differentiation? • Agreed? • Is it the clothes market? • Or designer clothes for mature adolescents and young adults? McDermottm1@nku.edu 17
  18. 18. Choice of Generic Strategy: Abercrombie and Fitch The Clothes Market The Designer Young Adult Market • Then A&F competes through focused differentiation • Then A&F competes through differentiation McDermottm1@nku.edu 18
  19. 19. According to Porter, Strategy involves trade-offs. The essence of strategy is choosing what not to do.
  20. 20. We now get position. But What is Strategy?
  21. 21. Strategy is the creation of a unique and valuable position, involving a different set of activities.
  22. 22. “Commonly the threats to strategy are seen to emanate from outside a company because of changes in technology or the behavior of competitors. Although external changes can be the problem, the greater threat to strategy often comes from within”. Michael Porter
  23. 23. Porter’s Focus is Competition • Porter’s perspective is all about establishing a competitive position that is different from rivals • Either being the cost leader • Or offering differentiation McDermottm1@nku.edu 23
  24. 24. Defining Our Present Competitive Position This is represented in our Mission Statement McDermottm1@nku.edu 24
  25. 25. 2. Where do we want to be? This is future-oriented and is addressed in our Vision McDermottm1@nku.edu 25
  26. 26. 2. Where do we want to be? 1. Do we wish to change our Strategy or our competitive position? • Or simply apply similar more widely? McDermottm1@nku.edu 26
  27. 27. Changes in Competitive Position: Walmart in the USA Status • Today you think of Walmart and you may think low cost • A few years ago, you would certainly think low cost Evaluation • Walmart’s sales in the USA were declining recently and this was allegedly due to the company’s weaker commitment to low costs • This company may wants us in the future to think ‘green’ and ‘healthy’ McDermottm1@nku.edu 27
  28. 28. Changes in US Competitive Position: Toyota 1960s • Focused Low cost 1980s • Low cost 1990s • Differentiation (introduce Lexus offers focused differentiation) 2000 • Differentiation McDermottm1@nku.edu 28
  29. 29. Changes in Competitive Position: Singapore Airlines 1960s-1970s • Differentiation based on Asian service – Singapore girl • Low crew/passenger ratio due to low labor costs 1980s • Differentiation based on above • Plus most modern fleet of aircraft 1990s • Differentiation based on all of above • Plus best in-flight entertainment, cuisine etc McDermottm1@nku.edu 29
  30. 30. Changes in Competitive Position: Hyundai, Samsung, LG 1960s-1970s 1980s-90s 2000s •Low cost •Transition •Differentiation McDermottm1@nku.edu 30
  31. 31. Changes in Competitive Position: Haier (Chinese producer of white goods) 2000s 2010s • Low Cost • Transition to differentiation • Has it worked (as per Samsung, LG, 2020s Acer, HTC)? McDermottm1@nku.edu 31
  32. 32. 3. Why do we want to go there? 1. Change(s) taking place in the external environment? – – – The macro-environment The competitive environment The market 2. The internal environment – i.e. Companyrelated considerations 3. Or combination of 1 and 2 above. McDermottm1@nku.edu 32
  33. 33. 4. How will we get there? • Organic growth – the company growing through its own development on new products/services; – Market Consolidation – Market Development – Diversification • External growth – – – – Mergers and Acquisitions (Married) – very costly Joint Ventures (Engaged) – less costly Alliances (Dating) – no ownership stake, just partners Licensing (social acquaintance) – low risk, payments based upon market success McDermottm1@nku.edu 33
  34. 34. 5. What are our main options in terms of Grand Strategy Choice McDermottm1@nku.edu 34
  35. 35. Choice of Grand Strategy and Ansoff’s Matrix McDermottm1@nku.edu 35
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