Generic Strategies
Porters Generic Strategies
Strategy concerns two factors, deciding where you want a business to go, and deciding how to get there. According to Grant (2010) “A firm can achieve a higher rate of profit (or potential profit) over a rival in one of two ways: either it can supply an identical product or service at a lower cost, or it can supply a product or service that is differentiated in such a way that the customer is willing to pay a price premium that exceeds the additional cost of differentiation.” This provides the company with a different type of competitive advantage, either cost or differentiation. To attain cost advantage, a firm must aim to be a cost leader, and minimise expenses and outlays at every stage within the value chain. Porter (1985) wrote that to achieve differentiation advantage, a firm must “provide something unique that is valuable to buyers beyond simply offering a low price” These two strategies form half of Porter’s (1985) generic strategies model, which are contained within the ‘broad’ dimension.
Cost leadership requires key strategy elements such as scale-efficient plants, outsourcing abroad (such as HP computers) and a design process that is heavily focused on the manufacturing of the products. Resources and capabilities should include access to capital, tight cost control and specialisation of jobs and functions, with incentives linked to quantitative targets. Alternatively differentiation requires emphasis on branding, advertising, quality, service and new product development. To accomplish this a firm needs superior marketing abilities, creativity, and strong research and development resources.
The second, ‘narrow scope’, dimension presents the other generic strategies; cost focus and differentiation focus. Companies using focus strategies will target niche markets and, by understanding the dynamics of that market and the unique needs of the customers within it, develop uniquely low cost or well specified products within
Strategy concerns two factors, deciding where you want a business to go, and deciding how to get there. According to Grant (2010) “A firm can achieve a higher rate of profit (or potential profit) over a rival in one of two ways: either it can supply an identical product or service at a lower cost, or it can supply a product or service that is differentiated in such a way that the customer is willing to pay a price premium that exceeds the additional cost of differentiation.” This provides the company with a different type of competitive advantage, either cost or differentiation. To attain cost advantage, a firm must aim to be a cost leader, and minimise expenses and outlays at every stage within the value chain. Porter (1985) wrote that to achieve differentiation advantage, a firm must “provide something unique that is valuable to buyers beyond simply offering a low price” These two strategies form half of Porter’s (1985) generic strategies model, which are contained within the ‘broad’ dimension.
Cost leadership requires key strategy elements such as scale-efficient plants, outsourcing abroad (such as HP computers) and a design process that is heavily focused on the manufacturing of the products. Resources and capabilities should include access to capital, tight cost control and specialisation of jobs and functions, with incentives linked to quantitative targets. Alternatively differentiation requires emphasis on branding, advertising, quality, service and new product development. To accomplish this a firm needs superior marketing abilities, creativity, and strong research and development resources.
The second, ‘narrow scope’, dimension presents the other generic strategies; cost focus and differentiation focus. Companies using focus strategies will target niche markets and, by understanding the dynamics of that market and the unique needs of the customers within it, develop uniquely low cost or well specified products within