The Generic+Strategy+Trap
37
The Generic Strategy Trap
Danny Miller
Management experts claim that for a company to thrive, it mus concentrate on a single generic strategy—on one thing it does better th its rivals. But specialization also has its disadvantages. The author sugge that a broader, mixed approach may be preferable.
S
ince the publication of Michael
Porter 's Competitive Strategy, many experts on strategy have been extolling the virtues of pure generic strategies. Porter argued that by adeptly pursuing cost leadership, differentiation, or focus strategies, businesses can attain significant and enduring competitive advantages over their rivals.
Cost leaders manufacture products at costs consistently below those of the competition, which allows them to earn handsome margins at prices that would cripple their rivals. Differentiators create products that are hard to imitate because of their quality, novelty, or image.
This enhances buyer loyalty, reduces sensitivity to price, and again garners exceptional profits. Finally, the focus strategy uses cost leadership or differentiation to appeal to a narrowly targeted market that the company understands and caters to better than anyone else.1
Most people believe that differentiation and cost leadership are mutually exclusive—that given the resource limitations of most firms, both strategies cannot be effectively pursued at the same time. A manufacturer of luxury automobiles (e.g., Mercedes-Benz) cannot compete on price because of the high
cost of quality. Conversely, companies that have pared costs to the bone and sell at rock-bottom prices (e.g., Kmart) are unable to offer products with many attractive features.
Companies, in short, must specialize their strategies. But there are also hazards to strategic specialization; companies can often find advantages and opportunities in a broader, mixed approach. There are a number of dangers associated with the exclusive pursuit of a
single
The Generic Strategy Trap
Danny Miller
Management experts claim that for a company to thrive, it mus concentrate on a single generic strategy—on one thing it does better th its rivals. But specialization also has its disadvantages. The author sugge that a broader, mixed approach may be preferable.
S
ince the publication of Michael
Porter 's Competitive Strategy, many experts on strategy have been extolling the virtues of pure generic strategies. Porter argued that by adeptly pursuing cost leadership, differentiation, or focus strategies, businesses can attain significant and enduring competitive advantages over their rivals.
Cost leaders manufacture products at costs consistently below those of the competition, which allows them to earn handsome margins at prices that would cripple their rivals. Differentiators create products that are hard to imitate because of their quality, novelty, or image.
This enhances buyer loyalty, reduces sensitivity to price, and again garners exceptional profits. Finally, the focus strategy uses cost leadership or differentiation to appeal to a narrowly targeted market that the company understands and caters to better than anyone else.1
Most people believe that differentiation and cost leadership are mutually exclusive—that given the resource limitations of most firms, both strategies cannot be effectively pursued at the same time. A manufacturer of luxury automobiles (e.g., Mercedes-Benz) cannot compete on price because of the high
cost of quality. Conversely, companies that have pared costs to the bone and sell at rock-bottom prices (e.g., Kmart) are unable to offer products with many attractive features.
Companies, in short, must specialize their strategies. But there are also hazards to strategic specialization; companies can often find advantages and opportunities in a broader, mixed approach. There are a number of dangers associated with the exclusive pursuit of a
single