(SHORT
NOTES FROM STRATEGY TOOLS:
Strategic
Options at http://www.mindtools.com)
Finding Your Path to Success
"Generic strategies" can be
applied to products or services in all industries, and to organizations of all
sizes. Michael Porter (1985) called the
generic strategies:
·
"Cost Leadership" (no frills)
·
"Differentiation" (creating
uniquely desirable products and services) and
·
"Focus" (offering a
specialized service in a niche market).
He then subdivided the Focus strategy
into two parts: "Cost Focus" and "Differentiation Focus". Cost Focus means emphasizing cost-minimization
within a focused market, and Differentiation Focus means pursuing strategic
differentiation within a focused market.
Porter's generic strategies are ways of
gaining competitive advantage. Generic
strategies apply to not-for-profit organizations too. Cost Leadership requires a very detailed
internal focus on processes. Differentiation,
on the other hand, demands an outward-facing, highly creative approach.
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Porter's Generic Strategies
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The Cost Leadership Strategy
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·
Increasing
profits by reducing costs, while charging industry-average prices.
·
Increasing
market share through charging lower prices, while still making a reasonable
profit on each sale because you've reduced costs.
·
Involves
being the leader in terms of cost in your industry or market.
·
successful
in achieving Cost Leadership
o Access to the capital needed to invest in technology
that will bring costs down.
o Very efficient logistics.
o A low cost base (labor, materials, facilities),
and a way of sustainably cutting costs below those of other competitors.
·
continuously
find ways of reducing every cost - Japanese Kaizen philosophy of "continuous
improvement".
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The Differentiation Strategy
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·
Making your
products or services different from and more attractive those of your
competitors.
·
Success in Differentiation
strategy:
o Good research, development and innovation.
o The ability to deliver high-quality products or
services.
o Effective sales and marketing, so that the market
understands the benefits offered by the differentiated offerings.
·
need to
stay agile with new product development processes
·
risk attack
on several fronts by competitors
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The Focus Strategy
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·
concentrate
on particular niche markets
·
understand
the dynamics of that market and the unique needs of customers
·
develop
uniquely low cost or well-specified products for the market
·
serve
customers in their market uniquely well
·
build
strong brand loyalty amongst their customers
·
add
something extra as a result of serving only that market niche
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