* Chapter – 4 (SMM-4) 1. Porter’s Generic Strategy (SMM) 2. Mission Statement (SMM) 3. Defining the Business 4. Bowman’s Strategy Clock (SMM) 5. Strategies for Hypercompetitive Markets 6. Portfolio Management / BCG Matrix (3, 4) (SMM) 1. Porter’s Generic Strategy
Porter suggested three alternative generic strategies: “Cost Leadership”, “Differentiation” and “Focus”. He suggested that these three generic strategies are mutually exclusive and that a company can therefore only pursue one if it is to be successful. Trying to pursue two or more generic strategies at the same time, Porter suggested, would result in what he termed being “stuck-in-the middle”.
Cost Leadership For this strategy to be effective, Porter suggested that in order to be sustainable a company should have the lowest cost in the industry i.e be the “cost leader”. The company pursues economies of scale, low-cost supplies, basic product designs and minimum service levels. Example of companies competing on low cost includes Aldi and Ryanair in the airline industry. According to Porter, a cost leader must achieve parity or proximity in areas such as product quality and design relative to its competitors for it to survive, even though it relies on cost leadership for its competitive advantage. This means that the cost leader can translate its cost advantage into higher profits than competitors. The principal danger of a cost leadership strategy is that it is essentially a finance based strategy. In addition, by definition, there can be only one cost leader in an industry and where several companies attempt to pursue this strategy there may be intense price competition and hence low profits for everyone in the industry.
Differentiation
Porter suggests that in a differentiation strategy a firm seeks to be unique in its industry along some dimensions