Porter generic strategies are options for the way a business will compete. These choices focus on what it takes a firm to sustain a competitive edge over the rivals in its industry.
We are at the stage of devising strategies. These address the strategic issues found in the previous target setting, and SWOT analysis stages.
A sustainable competitive advantage is something, which enables a firm to reach a higher long-term average profitability than its competitors. Unlike short-term advantages, such as first access to resources, or new markets, a sustainable competitive advantage is such an integral part of the firm’s operations that it is difficult for rivals to duplicate in the short term.
The generic strategies are choices from among the options on two dimensions.
The first is the scope of the target market.
Second is the way in which the firm will compete over its rivals.
This simple diagram illustrates these options.
In one dimension, Porter strategies derive from two basic types of competitive advantage: cost leadership, and product or service differentiation.
These two basic kinds of competitive advantage, matched with the market scope of the activities open to an enterprise, lead to just three strategies: cost leadership, differentiation, and focus.
The first of the generic strategies is cost leadership. It is almost self evident that this involves the business aiming to be the lowest cost producer, in its chosen industry segment. It becomes almost fanatical in its pursuit of cost efficiencies in all areas of the firm’s operations.
However, a cost leader must maintain a minimum level of quality, acceptable to the customer, and not too far away from industry standards, while being price competitive.
The second of the Porter strategies is product or service differentiation. With this strategy, a business strives to be the highest value provider in its industry segment in something other than cost. This aspect of the product or service offering must be something that many customers highly value. In addition, the firm must present it and the offering to meet those needs more effectively than would-be rivals must. Its unique position in the mind of the customer will then create the possibility of being able to charge a higher price with resulting higher profitability for the company. Naturally, the company will also have to stay close to industry levels of cost management to be able to harvest these extra or premium profits.
In contrast with cost leadership, more than one firm can employ successful differentiation strategies in the same industry segment, such as the luxury car market.
The third of the Porter strategies is focusing on a very specific market niche. This means creating a strategy precisely to meet the needs of a sharply defined market segment. Such a focused firm builds success on serving its niche, without necessarily being a leader in either cost management or product differentiation.
Each of the generic strategies is a separate and distinct choice of
basis for competing. Each probably requires as different mindset,
resources, and general management approach.
that firms choose one approach, and dedicate themselves to doing it as
effectively and efficiently as possible. This is hard to achieve
consistently. Trying to implement a cost leadership approach, while also
striving to be a high value differentiator, is almost impossible for
Porter strategies avoid compromise at some
midpoint among the options. This ‘stuck in the middle’ strategy is as
helpful as walking down the middle of a busy two-lane highway!
For a critique of the wide adoption of the Porter generic strategies framework see -
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