BUSI690 Rothaermel Ex 2
Rothaermal Exercise 2
Ryan Cherry
BUSI 690 – Policy and Strategy in Global Competition
January 25, 2015
Chapter 6
Discussion Question 6.1: What are some drawbacks and risks to a broad generic business strategy? To a focused strategy?
The two generic business strategies are differentiation and cost-leadership strategies, and they are fundamentally different from one another, both with their own drawbacks and risks (Rothaermel, 2013). These strategies are referred to as “generic” because they may be used by any type of organization (Rothaermel, 2013). The drawbacks and risks of a differentiation generic strategy is its viability “is severely undermined when the focus of competition shifts to price rather than value-creating features” (Rothaermel, 2013, p. 155). This tends to occur when there is a level of acceptable quality which has emerged as a standard (Rothaermel, 2013). Organizations pursuing this strategy also need to ensure that they are not adding features which add cost but no “perceived value in the minds of consumers” (Rothaermel, 2013, p. 155).
The drawbacks and risks of a cost-leadership strategy are that new entrants may erode the low-cost leader’s margins because of the “loss in market share while it attempts to learn new capabilities” (Rothaermel, 2013, p. 154). Also, the converse of the differentiation strategy issue applies, in that organizations need to ensure that the “focus of competition shifts from price to non-price attributes” (Rothaermel, 2013, p. 154). The organization needs to also be careful not to allow the value of the product or service to fall below the low-cost at which the product or service is offered (Rothaermel, 2013).
A focused strategy applies the same concepts as the generic strategies above, but the focused strategy utilizes a more narrow competitive scope than the generic strategies (Rothaermel, 2013). The competitive scope refers to the market segment at which the product or service being offered is aimed
Ryan Cherry
BUSI 690 – Policy and Strategy in Global Competition
January 25, 2015
Chapter 6
Discussion Question 6.1: What are some drawbacks and risks to a broad generic business strategy? To a focused strategy?
The two generic business strategies are differentiation and cost-leadership strategies, and they are fundamentally different from one another, both with their own drawbacks and risks (Rothaermel, 2013). These strategies are referred to as “generic” because they may be used by any type of organization (Rothaermel, 2013). The drawbacks and risks of a differentiation generic strategy is its viability “is severely undermined when the focus of competition shifts to price rather than value-creating features” (Rothaermel, 2013, p. 155). This tends to occur when there is a level of acceptable quality which has emerged as a standard (Rothaermel, 2013). Organizations pursuing this strategy also need to ensure that they are not adding features which add cost but no “perceived value in the minds of consumers” (Rothaermel, 2013, p. 155).
The drawbacks and risks of a cost-leadership strategy are that new entrants may erode the low-cost leader’s margins because of the “loss in market share while it attempts to learn new capabilities” (Rothaermel, 2013, p. 154). Also, the converse of the differentiation strategy issue applies, in that organizations need to ensure that the “focus of competition shifts from price to non-price attributes” (Rothaermel, 2013, p. 154). The organization needs to also be careful not to allow the value of the product or service to fall below the low-cost at which the product or service is offered (Rothaermel, 2013).
A focused strategy applies the same concepts as the generic strategies above, but the focused strategy utilizes a more narrow competitive scope than the generic strategies (Rothaermel, 2013). The competitive scope refers to the market segment at which the product or service being offered is aimed
References: Rothaermel, F. T. (2013). Strategic Management. New York: McGraw-Hill/Irwin. Walmart. Our story. Retrieved on January 25, 2015, from http://corporate.walmart.com/our-story/