Generic Strategy - Porter

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THEME 8: GENERIC STRATEGIES
1. Introduction. 2. The Porter's approach: competitive strategies (cost advantage, differentiation advantage and specialization). 3. The Ansoff's approach: the Growth Matrix (market penetration, product development, market development, and diversification). 4. An integrating approach.

© Alfonso VARGAS SÁNCHEZ 1

Hope is not a strategy, specially when internationalizing the company is the intention

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Strategic Analysis: Compulsory Questions
What business is the organisation in? manufacturing/retail, etc. Who do they compete with, and how do they compete? Who are the organisation’s stakeholders? Key stakeholders & their influence. What are the external drivers for change? – PEST model, macro environment. – Five Forces model, micro/industry environment. How does the organisation gain value? – Resource audit, tangible & intangible. – Value Chain and Value System analysis. Assess the balance in the corporate portfolio, BCG matrix. How should I compete? Porter’s generic strategies: low cost, differentiation, specialization. What are my strategic movements? Mergers/Acquisitions, etc. 3

Mission - Vision - Values PEST analysis
Competitive Forces

P.C. Industry Attractiveness S C.C. S.P. B
(threats & opportunities)

Value Chain:
activities & linkages

F.I. T.D. HH.RR. PR.

Value System (linkages):
other SBUs (synergies) & suppliers buyers’ value chains

Strategy formulation, at three levels: C–B–F Company’s Competitive Position (Resourcebased View): cost advantage or uniqueness (strengths & weaknesses)

I.L.

OP.

O.L.

M&S

A-S.S.

STRATEGY
ELEMENTS LEVELS BUSINESS SCOPE RESOURCES & CAPABILITIES COMPETITIVE ADVANTAGES SYNERGIES

CORPORATE

(1)

(1)

(1)

BUSINESS

(2)

(2)

(2)

FUNCTION

(3)

(3)

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STRATEGIC ADVANTAGE

PORTER’S APPROACH

Exclusivity perceived by the customer

Position of low costs

COMPETITIVE SITUATION

Broad (the whole DIFFERENTIATION sector) Reduced (only one segment)

COSTS LEADERSHIP

FOCUS or NARROW SEGMENTATION
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THE LOW COST PHENOMENON

Two basic ways: -Productivity. -Economies of scale & learning/experience. 7

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COSTS LEADERSHIP RESOURCES AND APTITUDES -Sustained investment of capital and favourable access to financial markets. ORGANISATIONAL REQUIREMENTS -Strict control of costs. -Detailed and frequent control reports. RISKS OR LIMITATIONS -Technological change that cancels out the experience gained or investment made. -Competitors who learn easily and rapidly. -Stagnation of the product or of the marketing. -Inflation of costs that annuls the previous price differential.

-Clearly defined organisation -Special aptitudes for and responsibilities. process engineering. -Incentives based on meeting -Close supervision of quantitative objectives. work and operations. -Products designed for ease of manufacturing. -Low cost of distribution.

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Reading: “Designers on quest to build $12 computer”

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DIFFERENTIATION
RESOURCES AND APTITUDES ORGANISATIONAL REQUIREMENTS RISKS OR LIMITATIONS

-Significant aptitudes -Coordination between the functions of R&D, product in marketing and in product engineering. development and marketing. -Strong investment -Qualitative assessments in R&D. and incentives. -Prestige in quality -Capacity for and technology. understanding the market -Full cooperation of and how it changes. the distribution -Appropriate channels. organisational structure for -Long tradition in the stimulating and rewarding sector, or a unique creativity. combination of aptitudes obtained in other business activities.

-Competitive levels of product prices, in accordance with a strategy of minimum global cost. -The customers no longer value the product's factors of differentiation. -As the industry matures, imitation reduces the perceived differentiation.

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Mention some brands for which you are willing to pay a premium price

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