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What is Strategy?
The Michael Porter Perspective
Michael McDermott
www.strategycapstone.ning.com
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
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
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
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
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
What is Strategy?

Competitive
Position

Strategy

McDermottm1@nku.edu

7
What is Competitive Position?

Choice of
Generic
Strategy

Competitive
Position

McDermottm1@nku.edu

8
Effectiveness vs Efficient

More
Effective

•Greater value
•Higher unit prices

More
Efficient

•Lower unit costs

McDermottm1@nku.edu

9
Competitive Strategy is
about being different!

McDermottm1@nku.edu

10
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
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
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
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
McDermottm1@nku.edu

15
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
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
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
According to Porter, Strategy
involves trade-offs.
The essence of strategy is
choosing what not to do.
We now get position.

But What is Strategy?
Strategy is the creation of a
unique and valuable position,
involving a different set of
activities.
“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
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
Defining Our Present Competitive
Position

This is represented in our
Mission Statement

McDermottm1@nku.edu

24
2. Where do we want to be?

This is future-oriented and is
addressed in our Vision

McDermottm1@nku.edu

25
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
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
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
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
Changes in Competitive Position:
Hyundai, Samsung, LG
1960s-1970s

1980s-90s

2000s

•Low cost
•Transition
•Differentiation
McDermottm1@nku.edu

30
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
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
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
5. What are our main options in terms
of Grand Strategy Choice

McDermottm1@nku.edu

34
Choice of Grand Strategy and Ansoff’s Matrix

McDermottm1@nku.edu

35
McDermottm1@nku.edu

36
McDermottm1@nku.edu

37
McDermottm1@nku.edu

38
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39
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41

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Michael porter perspective on strategy

  • 1. What is Strategy? The Michael Porter Perspective Michael McDermott www.strategycapstone.ning.com
  • 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. 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. 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. 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. 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
  • 8. What is Competitive Position? Choice of Generic Strategy Competitive Position McDermottm1@nku.edu 8
  • 9. Effectiveness vs Efficient More Effective •Greater value •Higher unit prices More Efficient •Lower unit costs McDermottm1@nku.edu 9
  • 10. Competitive Strategy is about being different! McDermottm1@nku.edu 10
  • 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. 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. 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. 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
  • 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. 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. 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. According to Porter, Strategy involves trade-offs. The essence of strategy is choosing what not to do.
  • 20. We now get position. But What is Strategy?
  • 21. Strategy is the creation of a unique and valuable position, involving a different set of activities.
  • 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. 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. Defining Our Present Competitive Position This is represented in our Mission Statement McDermottm1@nku.edu 24
  • 25. 2. Where do we want to be? This is future-oriented and is addressed in our Vision McDermottm1@nku.edu 25
  • 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. 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. 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. 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. Changes in Competitive Position: Hyundai, Samsung, LG 1960s-1970s 1980s-90s 2000s •Low cost •Transition •Differentiation McDermottm1@nku.edu 30
  • 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. 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. 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. 5. What are our main options in terms of Grand Strategy Choice McDermottm1@nku.edu 34
  • 35. Choice of Grand Strategy and Ansoff’s Matrix McDermottm1@nku.edu 35