Essay question: Porter Combining business strategy: What is itmeaning? - What is the idea? - Why is it important? Solution Strategy According to Michael Porter In a 1996 Harvard Business Review article [5] and in an earlier book [6], Porter argues that competitive strategy is \"about being different.\" He adds, \"It means deliberately choosing a different set of activities to deliver a unique mix of value.\" In short, Porter argues that strategy is about competitive position, about differentiating yourself in the eyes of the customer, about adding value through a mix of activities different from those used by competitors. In his earlier book, Porter defines competitive strategy as \"a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there.\" Thus, Porter seems to embrace strategy as both plan and position. (It should be noted that Porter writes about competitive strategy, not about strategy in general.) COMBINATION STRATEGIES Can forms of competitive advantage be combined? Porter asserts that a successful strategy requires a firm to aggressively stake out a market position, and that different strategies involve distinctly different approaches to competing and operating the business. An organization pursuing a differentiation strategy seeks competitive advantage by offering products or services that are unique from those offered by rivals, either through design, brand image, technology, features, or customer service. Alternatively, an organization pursuing a cost leadership strategy attempts to gain competitive advantage based on being the overall low-cost provider of a product or service. To be \"all things to all people\" can mean becoming \"stuck in the middle\" with no distinct competitive advantage. The difference between being \"stuck in the middle\" and successfully pursuing combination strategies merits discussion. Although Porter describes the dangers of not being successful in either cost control or differentiation, some firms have been able to succeed using combination strategies. Research suggests that, in some cases, it is possible to be a cost leader while maintaining a differentiated product. Southwest Airlines has combined cost cutting measures with differentiation. The company has been able to reduce costs by not assigning seating and by eliminating meals on its planes. It has then been able to promote in its advertising that one does not get tasteless airline food on its flights. Its fares have been low enough to attract a significant number of passengers, allowing the airline to succeed. Another firm that has pursued an effective combination strategy is Nike. When customer preferences moved to wide-legged jeans and cargo pants, Nike\'s market share slipped. Competitors such as Adidas offered less expensive shoes and undercut Nike\'s price. Nike\'s stock price dropped in 1998 to half its 1997 high. However, Nike reported a 70 percent increase in earnings for.

1. Essay question:
Porter Combining business strategy: What is itmeaning? - What is the idea? - Why is it
important?
Solution
Strategy According to Michael Porter
In a 1996 Harvard Business Review article [5] and in an earlier book [6], Porter argues that
competitive strategy is "about being different." He adds, "It means deliberately choosing a
different set of activities to deliver a unique mix of value." In short, Porter argues that strategy is
about competitive position, about differentiating yourself in the eyes of the customer, about
adding value through a mix of activities different from those used by competitors. In his earlier
book, Porter defines competitive strategy as "a combination of the ends (goals) for which the
firm is striving and the means (policies) by which it is seeking to get there." Thus, Porter seems
to embrace strategy as both plan and position. (It should be noted that Porter writes about
competitive strategy, not about strategy in general.)
COMBINATION STRATEGIES
Can forms of competitive advantage be combined? Porter asserts that a successful strategy
requires a firm to aggressively stake out a market position, and that different strategies involve
distinctly different approaches to competing and operating the business. An organization
pursuing a differentiation strategy seeks competitive advantage by offering products or services
that are unique from those offered by rivals, either through design, brand image, technology,
features, or customer service. Alternatively, an organization pursuing a cost leadership strategy
attempts to gain competitive advantage based on being the overall low-cost provider of a product
or service. To be "all things to all people" can mean becoming "stuck in the middle" with no
distinct competitive advantage. The difference between being "stuck in the middle" and
successfully pursuing combination strategies merits discussion. Although Porter describes the
dangers of not being successful in either cost control or differentiation, some firms have been
able to succeed using combination strategies.
Research suggests that, in some cases, it is possible to be a cost leader while maintaining a
differentiated product. Southwest Airlines has combined cost cutting measures with
differentiation. The company has been able to reduce costs by not assigning seating and by
eliminating meals on its planes. It has then been able to promote in its advertising that one does
not get tasteless airline food on its flights. Its fares have been low enough to attract a significant
number of passengers, allowing the airline to succeed.

2. Another firm that has pursued an effective combination strategy is Nike. When customer
preferences moved to wide-legged jeans and cargo pants, Nike's market share slipped.
Competitors such as Adidas offered less expensive shoes and undercut Nike's price. Nike's
stock price dropped in 1998 to half its 1997 high. However, Nike reported a 70 percent increase
in earnings for the first quarter of 1999 and saw a significant rebound in its stock price. Nike
achieved the turn-around by cutting costs and developing new, distinctive products. Nike
reduced costs by cutting some of its endorsements. Company research suggested the
endorsement by the Italian soccer team, for example, was not achieving the desired results.
Michael Jordan and a few other "big name" endorsers were retained while others, such as the
Italian soccer team, were eliminated, resulting in savings estimated at over $100 million. Firing 7
percent of its 22,000 employees allowed the company to lower costs by another $200 million,
and inventory was reduced to save additional money. While cutting costs, the firm also
introduced new products designed to differentiate Nike's products from those of the competition.
Some industry environments may actually call for combination strategies. Trends suggest that
executives operating in highly complex environments such as health care do not have the luxury
of choosing exclusively one strategy over the other. The hospital industry may represent such an
environment, as hospitals must compete on a variety of fronts. Combination (i.e., more
complicated) strategies are both feasible and necessary to compete successfully. For instance,
DRG-based reimbursement (diagnosis related groups) and the continual lowering of
reimbursement ceilings have forced hospitals to compete on the basis of cost. At the same time,
many of them jockey for position with differentiation based on such features as technology and
birthing rooms. Thus, many hospitals may need to adopt some form of hybrid strategy in order to
compete successfully, according to Walters and Bhuian.
GENERAL DEFINATION OF STRATEGY
What, then, is strategy? Is it a plan? Does it refer to how we will obtain the ends we seek? Is it a
position taken? Just as military forces might take the high ground prior to engaging the enemy,
might a business take the position of low-cost provider? Or does strategy refer to perspective, to
the view one takes of matters, and to the purposes, directions, decisions and actions stemming
from this view? Lastly, does strategy refer to a pattern in our decisions and actions? For example,
does repeatedly copying a competitor’s new product offerings signal a "me too" strategy? Just
what is strategy?
Strategy is all these—it is perspective, position, plan, and pattern. Strategy is the bridge between
policy or high-order goals on the one hand and tactics or concrete actions on the other. Strategy
and tactics together straddle the gap between ends and means. In short, strategy is a term that
refers to a complex web of thoughts, ideas, insights, experiences, goals, expertise, memories,
perceptions, and expectations that provides general guidance for specific actions in pursuit of

3. particular ends. Strategy is at once the course we chart, the journey we imagine and, at the same
time, it is the course we steer, the trip we actually make. Even when we are embarking on a
voyage of discovery, with no particular destination in mind, the voyage has a purpose, an
outcome, an end to be kept in view.
Strategy, then, has no existence apart from the ends sought. It is a general framework that
provides guidance for actions to be taken and, at the same time, is shaped by the actions taken.
This means that the necessary precondition for formulating strategy is a clear and widespread
understanding of the ends to be obtained. Without these ends in view, action is purely tactical
and can quickly degenerate into nothing more than a flailing about.
When there are no "ends in view" for the organization writ large, strategies still exist and they
are still operational, even highly effective, but for an individual or unit, not for the organization
as a whole. The risks of not having a set of company-wide ends clearly in view include missed
opportunities, fragmented and wasted effort, working at cross purposes, and internecine warfare.
A comment from Lionel Urwick's classic Harvard Business Reviewarticle regarding the span of
control is applicable here [11]:
"There is nothing which rots morale more quickly and more completely than . . . the feeling that
those in authority do not know their own minds."
For the leadership of an organization to remain unclear or to vacillate regarding ends, strategy,
tactics and means is to not know their own minds. The accompanying loss of morale is
enormous.
One possible outcome of such a state of affairs is the emergence of a new dominant coalition
within the existing authority structure of the enterprise, one that will augment established
authority in articulating the ends toward which the company will strive. Also possible is the
weakening of authority and the eventual collapse of the formal organization. No amount of
strategizing or strategic planning will compensate for the absence of a clear and widespread
understanding of the ends sought.
Cost Leadership Strategy
This strategy involves the organisation aiming to be the lowest cost producer and/or distributor
within their industry. The organisation aims to drive cost down for all production elements from
the sourcing of materials, to labour costs. To achieve cost leadership a business will usually need
large scale production so that they can benefit from "economies of scale". Large scale
production means that the business will need to appeal to a broad part of the market. For this
reason a cost leadership strategy is a broad scope strategy. A cost leadership business can create
a competitive advantage:
Business Idea.
A successful company always starts with a compelling business idea. It’s the first milestone in

4. the process of founding a growth company. The characteristics of a promising business idea are:
Each idea, no matter how brilliant, initially has no commercial value. A plausibility check gives
more information about an idea’s chances in the marketplace and helps to check its feasibility
and innovative content.
What is innovation
The term innovative is usually applied to new products or services produced with conventional
production methods and delivered to customers via conventional distribution channels.
Innovation, however, can also refer to the entire business system. It is less obvious, but equally
important (for example, FedEx revolutionized letter post through central sorting and 24-hour
operation).
The development of new products and/or services usually focuses on improving “customer
benefit”. Business system innovations, on the other hand, focus on lowering costs, and these
gains can then, to some extent, be passed on to the customer in the form of lower prices.
It’s rare that innovations combine both dimensions, product and business system, to create an
entirely new “industry.”
What defines a convincing business idea
A business idea is addressed to an investor and, therefore, must be formulated with the investor’s
perspective in mind. It’s neither an advertising brochure for an “ingenious” product nor a
technical description. Rather, it is a decision support document that emphasizes three aspects:
Importants/Advantage
Strategic Advantage
According to Porter, companies could find a strategic advantage by pursuing either a low cost
strategy or a differentiation strategy. A low cost strategy is when a company attempts to offer
goods or services that are comparable to their competitors, but at a lower cost. You don't have to
look further than your local Walmart to see an example of a low cost strategy. Walmart's
strategy is based on offering the lowest cost.
The low cost strategy isn't always the best strategy, and not all companies use it. One company
that does so successfully is Apple. If you've ever bought one of its products, you may have
noticed it was significantly more expensive than a similar phone, tablet or computer. For many
customers, the Apple brand is unique and offers important, unique benefits over the competition,
so they're willing to pay those prices. As such, the company is employing a product
differentiation strategy, or how unique customers view goods and services.
On Porter's model of generic strategies, the horizontal axis is the degree to which a company
pursues a low-cost or a differentiation strategy. It's important to note this isn't an 'either/or'
decision. Companies can have strategies that are a combination of low-cost and differentiation
startegies. Consider some of the tablets made by Samsung. They aren't as low-cost as some of

5. the competitors, but they aren't as unique as Apple's iPads, which places them in the middle of
the strategic advantage scale.
BENEFITS FROM THE NEW APPROACHES
Employee participation in the strategy process not only helps the company to develop a more
responsive strategy, but also improves employee morale and commitment to the organization.
Companies that encourage such participation are creating a more knowledgeable workforce,
which is particularly important for small businesses since intellectual capital is often one of their
most valuable assets.
The new, participative approaches to strategy formulation can also enable companies to improve
their focus on customer needs by increasing the access of line employees to top management. In
fact, hierarchies are designed to filter the information that goes to upper-level managers. But this
lack of information can lead to overconfidence and myopic decision making. Similarly, the new
approaches can also help companies to remain flexible and responsive to market changes. The
greater amount of information that managers receive about the market enables them to adapt the
company's strategic direction to take advantage of new circumstances.
Participative strategic development also may help companies to retain key employees, because
employees gain satisfaction by being able to direct and see the results of their efforts. "Retaining
these highly skilled and trained professionals will become increasingly important as knowledge
has more and more to do with the company's ability to build and maintain a competitive
advantage," Wall and Wall noted. Finally, participating in strategy formulation may enable
managers to make better use of their time. This benefit is particularly helpful because time is
always limited as companies try to do more with less people.