The Generic+Strategy+Trap

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The Generic Strategy Trap
Danny Miller

Management experts claim that for a company to thrive, it mus concentrate on a single generic strategy—on one thing it does better th its rivals. But specialization also has its disadvantages. The author sugge that a broader, mixed approach may be preferable.

S

ince the publication of Michael
Porter's Competitive Strategy,
many experts on strategy have
been extolling the virtues of
pure generic strategies. Porter
argued that by adeptly pursuing cost
leadership, differentiation, or focus
strategies, businesses can attain significant and enduring competitive advantages over their rivals. Cost leaders manufacture products at
costs consistently below those of the
competition, which allows them to earn
handsome margins at prices that would
cripple their rivals. Differentiators create
products that are hard to imitate because of their quality, novelty, or image. This enhances buyer loyalty, reduces
sensitivity to price, and again garners
exceptional profits. Finally, the focus
strategy uses cost leadership or differentiation to appeal to a narrowly targeted market that the company understands
and caters to better than anyone else.1
Most people believe that differentiation and cost leadership are mutually exclusive—that given the resource limitations of most firms, both strategies cannot be effectively pursued at the same time. A manufacturer of luxury automobiles (e.g., Mercedes-Benz) cannot compete on price because of the high

cost of quality. Conversely, companies
that have pared costs to the bone and
sell at rock-bottom prices (e.g., Kmart)
are unable to offer products with many
attractive features.
Companies, in short, must specialize
their strategies. But there are also
hazards to strategic specialization; companies can often find advantages and opportunities in a broader, mixed
approach.
There are a number of dangers associated with the exclusive pursuit of a single generic strategy, be it cost leadership or any of a variety of differentiation approaches. Strategic specialization may leave serious gaps or weaknesses in

product offerings, ignore important
customer needs, be easy for rivals to
counter, and, in the long run, cause inflexibility and narrow an organization's vision.
Companies that are too single-minded
often open themselves up to a single
critical fault, to a weak link in an otherwise exemplary chain. Caterpillar, Inc., differentiated itself by making the
highest-quality earth-moving equipment
1
See M. Porter, Competitive Strategy (New York: Free Press,
1980); and Competitive Advantage (New York: Free Press,
1985).

THE JOURNAL OF BUSINESS STRATEGY January/February 1992

Danny Miller is a professor of business strategy
at the Ecole des Hautes
Etudes Commerciales
(HEC) of the University of
Montreal and at the
Faculty of Management of
McGill University in Montreal. He is the author of
The Icarus Paradox: How
Exceptional Companies
Bring About Their Own
Downfall (New York:
HarperCollins, 1990).

38

" Monolithic
strategies
tend to breed
monolithic
c ultures."

GENERIC STRATEGY TRAP

in the world. However, its preoccupation
with precision and durability led it to
forget about efficiency and economy.
Ultimately, its products sold at a price
that competitors, especially Japanese
companies, could undercut by 30%.
Control Data Corp. once produced the
most advanced supercomputers in the
world, but it suffered from cost over­
runs, late deliveries, and poor service,
all of which allowed IBM to steal its
market.
The message is simple: companies can
be hurt by a sharply specialized strategy
that has key gaps. For all the praise
given to strategic concentration, paying
too much attention to too few things
can be disastrous. Most products must
satisfy a significant market in numerous
ways: with quality, reliability, style,
novelty, convenience, service, and price.
Unless all of the...
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