Michael Porterﾒs Framework of Generic Strategies
Outline 1. Michael Porter’s framework of generic strategies (overall cost leadership, differentiation, focus) ➢ Describe each of the strategies ➢ Provide examples of firms that have successfully attained as a means of outperforming competitors in their industry ➢ Address how these strategies help a firm develop a favourable position vis-à-vis the five forces ➢ Pitfalls managers must avoid if to pursue successfully these generic strategies ➢ Conditions under which firms may effectively combine generic strategies to outperform rivals
2. Industry life cycle (introduction, growth, maturity, decline) 3. Turnaround strategies
>> Types of competitive advantage and sustainability
3 generic strategies ➢ Used to overcome the five forces and achieve competitive advantage ➢ Allow a firm to outperform rivals within the same industry
1. Overall cost leadership ➢ Is based on low-cost-position relative to a firm’s peers ➢ Manage relationships and be devoted to lowering costs throughout the entire value chain
2. Differentiation ➢ Create products and/or services that are unique and valued ➢ Non-price attributes for which customers will pay a premium
3. Focus strategy ➢ Attention/focus towards narrow product lines, buyer segments, or targeted geographic markets ➢ Attain advantages either through differentiation or cost leadership
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Overall cost leadership ➢ Interrelated tactics - Aggressive construction of efficient-scale facilities - Vigorous pursuit of cost reductions from experience - Tight cost and overhead control - Avoidance of marginal customer accounts - Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising
Experience curve ➢ Refers to how business “learns” how to lower costs as it gains experience with production processes ➢ With experience, unit costs of production decline as output increases in
2. Industry life cycle (introduction, growth, maturity, decline) 3. Turnaround strategies
>> Types of competitive advantage and sustainability
3 generic strategies ➢ Used to overcome the five forces and achieve competitive advantage ➢ Allow a firm to outperform rivals within the same industry
1. Overall cost leadership ➢ Is based on low-cost-position relative to a firm’s peers ➢ Manage relationships and be devoted to lowering costs throughout the entire value chain
2. Differentiation ➢ Create products and/or services that are unique and valued ➢ Non-price attributes for which customers will pay a premium
3. Focus strategy ➢ Attention/focus towards narrow product lines, buyer segments, or targeted geographic markets ➢ Attain advantages either through differentiation or cost leadership
[pic]
Overall cost leadership ➢ Interrelated tactics - Aggressive construction of efficient-scale facilities - Vigorous pursuit of cost reductions from experience - Tight cost and overhead control - Avoidance of marginal customer accounts - Cost minimization in all activities in the firm’s value chain, such as R&D, service, sales force, and advertising
Experience curve ➢ Refers to how business “learns” how to lower costs as it gains experience with production processes ➢ With experience, unit costs of production decline as output increases in