Michael Porterメs Framework of Generic Strategies

Pages: 11 (2450 words) Published: January 15, 2009
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 most industries

➢ To generate above-average performance, a firm
- Must attain parity on the basis of differentiation relative to competitors - Must attain absolute cost advantage relative to its rivals by offering a no-frills product or service to a broad target market using standardization to derive the greatest benefits from economies of scale and experience ➢ Parity on the basis of differentiation

- Permits a cost leader to translate cost advantages directly into higher profits than competitors - Allows firm to earn above-average profits

Overall cost leadership: Improving competitive position vis-à-vis the five forces ➢ Protects a firm against rivalry from competitors
➢ Protects a firm against powerful buyers
➢ Provides more flexibility to cope with demands from powerful suppliers for input cost increases ➢ Provides substantial entry barriers from economies of scale and cost advantages ➢ Puts the firm in a favorable position with respect to substitute products

Potential pitfalls of overall cost leadership strategies
➢ Too much focus on one or a few value-chain activities
- Pay attention to all activities in the value chain to manage their overall costs, including relationships among them ➢ All rivals share a common input or raw material
- Firms are vulnerable to price increases in the factors of production. I.e. less able to pass on price increases ➢ The strategy is imitated too easily
- Value-creating activities are easy to imitate. E.g. online brokers ➢ A lack of parity on differentiation
➢ Erosion of cost advantages when the pricing information available to customers increases - The Internet dramatically increases both the quantity and volume of information available to consumers about pricing the cost structures.

Differentiation
➢ Create differences in the firm’s product or service offering by creating something that is perceived industrywide as unique and valued by...
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