David, discusses michael porters five generic strategies. To reap a competitive advantage, porter 1980 introduced three main strategies for that purpose i. Complementary strategies for turnaround situations marius pretorius1 porters generic strategy matrix, which highlights cost leadership, differentiation and focus as the three basic choices for firms, has dominated corporate competitive strategy for the last thirty years. This strategy tends to have a broader market scope and is unique. A firm s competitive behavior is an important topic for practitioners, theorists, and policy makers. Innovations nullify past inventions and learning, and hence cost leadership. The three generic strategies of cost leadership, differentiation, and focus are discussed along with the advantages and risks inherent with each strategic option. Increasing profits by reducing costs, while charging industryaverage prices.
Michael porters generic cost leadership strategy explained. Business strategy from michael porter to blue oceans to. As a result, japanese manufacturers enjoyed substantial cost and quality advantages for many years. Read this business essay and over 89,000 other research documents. The key success factor in a cost leadership strategy is to outmanage the competition. It s important to note this isnt an eitheror decision. Cost leadership is the ability of a company or a business unit to design, produce, and market a comparable product more efficiently than its competitors. Porters generic strategy of lowcost leadership stipulates that organizational managements strive to minimize all forms of costs to the point of incurring the lowest average cost per unit as compared to the industrys standards as well as the competitors. Microsoft has been able to use this strategy through its virtual monopoly in personal computer operating systems. Mintzburg 1988 says porter s cost leadership strategy should be called price differentiation. The article focuses on the main aspects of porter s generic strategies porter s generic forces. In 1980 porter introduced a model of generic strategies that has influenced much of the current thinking in strategy formulation.
The three generic strategies identified by michael porter, namely cost leadership, differentiation and focus are all options available to small businesses. For each organization, be sure to understand the qualifying factors. A number of cross sectional theories about the determinants of firms success have been developed over the years but not one that deals with thisissue in a longitudinal way. Porter states that there are 2 types of competitive advantage a firm can possess as mentioned above however, there are 3 generic strategies for achieving competitive advantage in an industry. Porter argues that strategy is what yields a competitive advantage in a company, and identifies cost leadership, differentiation, and focus as three bases in which a company can gain such an advantage david, 2009, p.
A broad cost leadership strategy is adopted by a business by managing the value adding activities so as to be the lowest cost provider of a tourism product or. Business strategy from michael porter to blue oceans to what. Generic strategy and porters five forcesthe five forces of industry analysis 240120 9 10. Thus, setting scope aside, competitive strategy has only one component. Jan 24, 20 porters value chain this has to focus on achieving cost minimization or differentiation. Success is when that strategy generates a sustainable, above industry average profit. Porter argues that if a firm is to attain competitive. These latter strategies are known as focus strategies porter, 1980. Focused cost leadership and focused differentiation mastering. Aug 22, 2015 vasco da gama bridge lisbon, portugal.
Porters generic strategies brand building strategy. Differentiation is the ability of a company to provide unique and superior value to the buyer in. Oct 14, 2016 porter provided a very basic list of strategies. A critique of porters cost leadership and differentiation. A critique of porters cost leadership and differentiation strategies. The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments. There was no evidence of organizations using a focus strategy. In most industries, some firms are much more profitable than others, regardless of what the average profitability of the industry may be. A cost leadership strategy was the most frequently used strategy, and the differentiation strategy was used the least. Porter wrote in 1980 that strategy targets either cost leadership, differentiation, or focus. Techniques for analyzing industries and competitors, porter simplifies the scheme by reducing it down to the three best strategies.
By contrast, the differentiation focus and cost focus strategies are best used in a. The focus strategy has two variants, cost focus and differentiation focus. Michael porters competitive strategy addresses major questions of vital concern to managers, and presents a comprehensive set of analytical techniques for undestanding a business and the behaviour of its competitors. Examples for michael porters three generic strategies. Among the explanations of firms behavior is michael porters model. Generic strategy in southwest airline essay example.
Differentiation focus unique strategy differentiation in a focused market and cost focus lower costs in. Question 39 of 40 in porters cost leadership strategy. Cost leadership cheap, no expenses, differentiation unique or premium products and focus a specialised service or market. Generic strategy in southwest airline essay sample. The most revolutionary development in the american automobile market then was the popularity of the closedbody cars sloan, 1972, pp.
Among the explanations of firms behavior is michael porter s model. These initial strategies as described by porter were. These two questions are the focus of porters books. Each generic strategy is based on erecting different kinds of defences against the competitive forces, and hence they involve different risks. There are two main ways of achieving this within a cost leadership strategy. Cost leadership price product differentiation focus or market niche which canshould be combined with a cost or differentiation strategy these are further developed by fred wiersema, who w. Porter called the generic strategies cost leadership no frills, differentiation creating uniquely desirable products and services and focus offering a specialized service in a niche market. Competitive strategy is the bases on which a business unit might achieve competitive advantage in its market. Porters model of generic competitive strategies springerlink. On porters model of generic strategies, the horizontal axis is the degree to which a company pursues a lowcost or a differentiation strategy. Jun 04, 2014 examples of cost leadership strategy example 1. He later subdivided focus into two different strategies. May 24, 2017 strategy is about how a company picks which activities it engages in.
Introduction in this paper i have evaluated michael porter. Porter s strategies cost leadership strategy the purpose of this strategy is the companys low cost products offers in an industry. These two questions are the focus of porter s books. Generic business strategy cost leadership chapters. It offers a lowest price for every segment in the market. Nov 25, 2009 read this business essay and over 89,000 other research documents. Porters generic strategies are ways of achieving competitive advantage over your competitors. These are known as porters three generic strategies and can be applied to. Learn vocabulary, terms, and more with flashcards, games, and other study tools. A firms competitive behavior is an important topic for practitioners, theorists, and policy makers.
Lower cost strategy differentiation strategy cost leadership differentiation cost focus differentiation focus. Interestingly, two additional strategies emerged that did not fit porters research but are in line with traditional japanese strategies including a supply chain. Towards a dynamic theory of strategy michael porter smj. Porter identifies three generic strategies for competitive advantage. We have presented this model along with some alternative approaches. Looking at the most used marketing and strategy models youll certainly find the three strategic directions of michael porter. Towards a dynamic theory of strategy michael porter smj 1991 why firms succeed or fail is the crux of strategy. Additionally, as technological change enters the marketplace, new competitors can attack cost leaders through innovation thus nullifying the cost leaders accumulated. He then subdivided the focus strategy into two parts.
Towards a dynamic theory of strategy michael porter smj 1991. Achieving cost leadership means that a firm sets out to. Porters generic strategies cost leadership strategy mba. Strategy is about how a company picks which activities it engages in. This strategy offers products with little differentiation so that they are acceptable to the majority of the customers. Porters value chain this has to focus on achieving cost minimization or differentiation. Interestingly, two additional strategies emerged that did not fit porter s research but are in line with traditional japanese strategies including a supply chain.
Written in 1980, competitive strategy, has formed the basis of modern strategic thinking for three decades. Structureconductperformance, the new industrial organization and game theory, the resourcebased perspective, and. Revisiting porter s generic strategies for competitive. How is porters competitive strategy used by the organization of your choice above impacting profitability and productivity of the organization. In porters cost leadership strategy the main goal of the cost. A critique of porters cost leadership and differentiation strategies 40 strategy can bring about in gaining a low cost position, as porter 1985, p. Developing a product that is unique and has very uncommon features are ways that one would differentiate from the competition.
The sources of cost advantage are varied and depend on the structure of the industry. The second strategy is the differentiation strategy. On porter s model of generic strategies, the horizontal axis is the degree to which a company pursues a low cost or a differentiation strategy. It is still a great book to read though the recent bankruptcy of michael porters company, monitor group, has someone tarnised the image of the. Since that time, some commentators have made a distinction between cost leadership, that is, low cost strategies, and best cost strategies. Cost leadership strategy takes place through experience, investment in production facilities, conservation and careful monitoring on the total operating. One of porter s generic business strategies involves controlling expenses and, in turn, lowering product prices targeted at a narrow range of market segments.
Porters generic competitive strategies ways of competing. Mar 20, 2014 porters generic strategies cost leadership strategy cost leadership is the strategy that focuses on making the operations more efficient and cutting costs wherever possible. Porters generic strategies cost leadership strategy. Instead, they claim a best cost strategy is preferred. Reetech airconditioner uses cost leadership strategy for its development. Amazon says that the book is now in its 60 th edition and has been translated into 19 languages. It may result from scalescope efficiencies, tight overhead control, careful selection of customers, standardization and automation. One of porters generic business strategies involves controlling expenses and, in turn, lowering product prices targeted at a narrow range of market segments. Corporate strategy, the overall plan for a diversified company, is both the darling and the stepchild of contemporary management practicethe darling because ceos have been obsessed. Generic strategies were first presented in two books by professor michael porter of the harvard business school porter, 1980, 1985.
It is also about how and where management decides to engage in those activities. In porters cost leadership strategy the main goal of the. There are two basic types of competitive advantage. Achieving cost leadership means that a firm sets out to become the low cost producer in its industry. He suggests that business strategy has two dimensions. This audiobook was created based on michael porters landmark book competitive strategy. This revision presentation explains how michael porter suggested four generic business strategies that could be followed in order to gain competitive advantage. A critique of porters cost leadership and differentiation strategies 38 the author will also briefly examine their work. In cost leadership, a firm sets out to become the low cost producer in its industry. The model portrays managerial decisionmaking processes using the generic strategies described in porter s 1985 competitive strategy.
The primary focus of the cost leadership strategy is to compete on price as the major marketing tool4j. According to michael porter, management must select a competitive strategy that will give it a distinct advantage by capitalizing on. Porter talks about his four generic strategies which are. Differentiated, imitation, innovation, efficiency, merchandising, and sustainable. Both can be more broadly approached or narrow, which results in the third viable competitive strategy. There are two key approaches of achieving this within a cost leadership strategy.
Structureconductperformance, the new industrial organization and game theory, the resourcebased perspective, and market process economics. Michael treacy and fred wiersema have later adapted this to operational excellence, product leadership and customer intimacy. Mintzburg 1988 says porters cost leadership strategy should be called price differentiation. They are cost leadership, market, and differentiation segmentation or focus. Competitive strategies involve taking offensive or. By combining price and market type, porter suggests these competitive strategies. This strategy involves in being the lowest cost producer in the industry, and having their selling price equal or average when compared to the market in order to have the best profits. Porters generic strategies cost leadership strategy cost leadership is the strategy that focuses on making the operations more efficient and cutting costs wherever possible.
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