Leadership

An Overview on Porter’s Generic Strategies

In this article, we discuss some of the limitations of Porter’s generic strategy analysis, and we also discuss the relationship between strategies and industry forces. This article provides a brief overview of how to write a good generic strategy analysis for your business. Sources: 3

Porter’s generic strategies are three-dimensional strategies that consist of three quadrants (or sometimes four, depending on how the matrix is drawn) called differentiation, cost, leadership, and focus. Each of these three approaches uses different priorities to outperform its competitors in terms of market share, revenue growth, profit margins, profitability and other key indicators. Sources: 6, 7

Michael Porter explains that there are two fundamental sources of competitive advantage a company can possess: market position and access to capital. Sources: 8

Companies choose one of two types of competitive advantage by differentiating themselves according to the dimensions estimated by customers, for example by charging a higher price. They also decide whether to offer their products in a selected market segment or in many market segments. The combination of these two fundamental competitive advantages, which companies strive for, results in above-average performance in the industry. Sources: 1, 9

Trying to be everything to all people will put your company in the fast lane of mediocrity. There are three general strategies that companies can use to achieve above-average performance. Porter’s overall strategy is based on the idea that in order to gain a competitive advantage, companies have to make difficult decisions. Companies will have to restrict their activities and compete in niche or segmented markets. They need to decide what kind of competitive advantage they want and which market segments they want to target. Sources: 8

Generic strategies reflect the choices made regarding the nature of the competitive advantage and its scope, as discussed in our previous article on generic strategies and their impact on the competitive landscape. Sources: 3, 9

Strategic planning is a fundamental business process that ensures that a company is able to maintain its competitive edge over its competitors, and that this strategy ensures this through strategic planning. Porter’s Generic Strategic Framework forms the basis for the development and implementation of a wide range of generic strategies for a wide range of industries. Sources: 3, 6

A company can have one of two ways that can be applied to its competitive advantage strategy. It can adopt a low-cost strategy, which means lower prices for goods and services and lower costs for services, and can therefore demand higher prices. This company distinguishes the quality of goods or services and can be used in a wide range of business areas, such as retail, food and beverage, retail, hospitality, healthcare, transport, etc., but can also be used in companies of any size. Sources: 7

Another way to differentiate is for a company to offer its products and services in selected market segments instead of offering them industry-wide. Type one is a low-cost focus strategy that offers a product or service to a small group of niche customers at the lowest prices available on the market. Type two is the best value focusing strategy that offers products or services at the best price or value on the available market for the smallest range or customers. Sources: 5, 7

Laissez Faire Leadership : How Autonomy Can Drive Success

Sometimes referred to as focused differentiation, a best-value focus strategy aims to offer a niche group of customers a product or service that better suits their tastes than a rival product. Sources: 5

As competition between organizations and businesses becomes more intense, they can use Porter’s Generic Strategies to find competitive strategies to gain and maintain competitive advantages. This author has decided to focus on the cost leadership strategy in Porter Generic Strategies. Medium-sized and large enterprises can pursue a focus – based strategy – while smaller enterprises such as small businesses and small – to medium-sized – enterprises can also pursue leadership-based strategies, focusing on cost – effectiveness, customer satisfaction and customer loyalty. Sources: 2, 5

In some situations, a strategy becomes necessary to achieve a certain goal when the resources available are insufficient. For these types of measures, the strategy consists of a combination of two or more of the following: cost management strategies and cost management strategies. Sources: 2

As for differentiation strategies, Lynch argues that differentiation cannot be achieved one day or the other: companies must find a form of differentiation that customers demand and be willing to pay a higher price. He also mentions that the Porter strategy assumes that environmental factors affect businesses, but in reality supply and prices change and technology improves. First, he explains that there can be no option for low-cost leadership, because if a company becomes a low-cost leader, other companies will not follow the same strategy. Sources: 4

The Porter model does not offer an easy way to select niche markets in terms of the scope and focus strategies of competition. Michael Porter’s Generic Strategies are a useful tool for organizations to identify potential niches where they can gain a competitive edge in an industry. The Porter Generic Strategy and its general principles serve as the basis for much of the modern corporate strategy. Sources: 0, 4

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