3.1 THE STRATEGIST IN YOU: Porter's Generic Strategies

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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.

Porter's Generic Strategies
The Cost Leadership Strategy	·        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".
The Differentiation Strategy	·        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
The Focus Strategy	·        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