Such alignment optimizes organizational performance. The rest of the strategies have a supporting role in the computer hardware and software business. Broad differentiation involves unique products sold to a wide variety of customers. Also, this generic competitive strategy is broad in the sense that the company sells its products to various market segments.
The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to gain market share. In the event of a price war, the firm can maintain some profitability while the competition suffers losses.
Even without a price war, as the industry matures and prices decline, the firms that can produce more cheaply will remain profitable for a longer period of time. The cost leadership strategy usually targets Porter generic stratey broad market.
Some of the ways that firms acquire cost advantages are by improving process efficiencies, gaining unique access to a large source of lower cost materials, making optimal outsourcing and vertical integration decisions, or avoiding some costs altogether.
If competing firms are unable to lower their costs by a similar amount, the firm may be able to sustain a competitive advantage based on cost leadership.
Firms that succeed in cost leadership often have the following internal strengths: Access to the capital required to make a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome. Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process.
High level of expertise in manufacturing process engineering. Each generic strategy has its risks, including the low-cost strategy. For example, other firms may be able to lower their costs as well. As technology improves, the competition may be able to leapfrog the production capabilities, thus eliminating the competitive advantage.
Additionally, several firms following a focus strategy and targeting various narrow markets may be able to achieve an even lower cost within their segments and as a group gain significant market share.
Differentiation Strategy A differentiation strategy calls for the development of a product or service that offers unique attributes that are valued by customers and that customers perceive to be better than or different from the products of the competition.
The value added by the uniqueness of the product may allow the firm to charge a premium price for it. The firm hopes that the higher price will more than cover the extra costs incurred in offering the unique product. Firms that succeed in a differentiation strategy often have the following internal strengths: Access to leading scientific research.
Highly skilled and creative product development team. Strong sales team with the ability to successfully communicate the perceived strengths of the product. Corporate reputation for quality and innovation. The risks associated with a differentiation strategy include imitation by competitors and changes in customer tastes.
Additionally, various firms pursuing focus strategies may be able to achieve even greater differentiation in their market segments.
Focus Strategy The focus strategy concentrates on a narrow segment and within that segment attempts to achieve either a cost advantage or differentiation.
The premise is that the needs of the group can be better serviced by focusing entirely on it. A firm using a focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly.
Because of their narrow market focus, firms pursuing a focus strategy have lower volumes and therefore less bargaining power with their suppliers.
However, firms pursuing a differentiation-focused strategy may be able to pass higher costs on to customers since close substitute products do not exist. Firms that succeed in a focus strategy are able to tailor a broad range of product development strengths to a relatively narrow market segment that they know very well.
Some risks of focus strategies include imitation and changes in the target segments.Porter Generic Stratey • The Porter Generic Strategy framework enables an organisation to check the logic of its current competitive strategy and if necessary- the organisation can look for a new strategy • COMPETITIVE ADVANTAGE- the ability for a company to add more value for its .
Porter's Generic Strategies with examples 1. PORTER’S GENERIC STRATEGIES 2. Introduction Michael Porter is a professor at Harward Business School.
A firm’s success in strategy rests upon how it positions itself in respect to its environment. Michael Porter has argued that a firms strengths ultimately fall into one of two headings: cost. Generic strategies were used initially in the early s, and seem to be even more popular today.
They outline the three main strategic options open to organization that wish to achieve a sustainable competitive advantage. This revision presentation explains how Michael Porter suggested four "generic" business strategies that could be followed in order to gain competitive advantage.
The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage.
The strategies relate to the extent to which the scope of a business' activities are narrow versus broad and the extent to which a business seeks to differentiate its products. The. Beat the competition, no matter what industry you're in, with Michael Porter's Generic Strategies.
Includes tips on how to apply each strategy.