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generic strategies


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generic strategies

  1. 1. Generic Competitive Strategies VI
  2. 2. Porter’s Generic Strategies <ul><li>Porter has suggested three competitive strategies to cope with the five competitive forces: </li></ul><ul><ul><ul><li>Overall Cost Leadership </li></ul></ul></ul><ul><ul><ul><li>Differentiation </li></ul></ul></ul><ul><ul><ul><li>Focus </li></ul></ul></ul>
  3. 3. Factors of Cost Leadership <ul><li>Aggressive construction of efficient-scale facilities </li></ul><ul><li>Vigorous pursuit of cost reductions from experience </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>
  4. 4. Cost <ul><li>Low cost relative to competitors is the main pursuit, not at the cost of quality or service. </li></ul><ul><li>The attained low cost position needs strengthening through reinvesting the high margin in new equipment, machinery etc to further enhance the low cost leadership </li></ul>
  5. 5. Differentiation <ul><li>Differentiating a product or service implies creating something that is perceived industry wise as being unique. It can take forms such as </li></ul><ul><li>- design or brand image </li></ul><ul><li>- technology </li></ul><ul><li>- customer service </li></ul><ul><li>- dealer network </li></ul><ul><li>- other special features </li></ul>
  6. 6. Differentiation <ul><li>Differentiation does not mean total disregard to cost rather cost is not the primary strategic target. </li></ul><ul><li>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. </li></ul>
  7. 7. 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>
  8. 8. Stuck in the Middle <ul><li>The situation when a firm cannot develop one of the three strategies. </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul>
  9. 9. Question <ul><li>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? </li></ul><ul><li>- The mini mills are more profitable than the larger steel mills in a non-differentiated market. </li></ul>
  10. 10. RISKS <ul><li>The risks in pursuing generic strategies are mainly two; </li></ul><ul><li>- failing to attain or sustain the strategy </li></ul><ul><li>- the value provided by the chosen strategy erodes due to industry evolution. </li></ul>
  11. 11. … .to Low-cost <ul><li>Technology changes to nullify 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 the required changes in the market </li></ul>
  12. 12. … .to Differentiation <ul><li>Buyer need falls </li></ul><ul><li>Imitation narrows perceived differentiation </li></ul><ul><li>Cost differential is too wide to hold on to brand loyalty </li></ul>
  13. 13. … .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>
  14. 14. REQUIREMENTS <ul><li>The chosen strategy requires differing organization arrangement, control procedures and inventive systems. </li></ul>
  15. 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. 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. 17. … .to Focus <ul><li>Combination of the other two (Low-cost and Differentiation) policies directed to particular strategic target </li></ul>