Porter's Generic Strategies

Introduction

Porter's theory of generic strategies stipulates that a business can obtain an advantage over similar businesses in three ways: Cost leadership-being a low cost- producer, Differentiation-offering products that are different and that product also has added value in relative to quality; Focus-selling to a part of a market with particular needs. Porter's generic strategies framework suggests that a company can maximize performance by striving to be cost leader in an industry, by differentiating its product or services from those of other companies, and by focusing on a narrow target in the market (http//www.quickmba.com).

Cost leadership, differentiation and focus strategies are the three key market strategies as espoused by Michael Porter that the preceding page will discuss. Porter's generic business strategies provide a set of methods that can be used singly or in combination to create a defendable business strategy. They allow firms that use them successfully to gain competitive advantage over other firms in the industry (http//www.enotes.com). Also, according to our text, chapter 7, page 189, Porter's model helps managers think strategically- it enables them to see the big picture as it affects the organization and its changing environment. It is important to note that there are also inherent risks associated with Porter's generic strategies; for example in practice, the theory has conceptual problems-cost in a business usually refers to internal measures. To pursue a cost leadership strategy, the important factor is market share, not reducing internal costs. If several companies pursue this strategy, a price war may start (http//www.streetdirectory.com). With product differentiation, it is sometimes unclear about which competitors the differentiated product will compete with if they will be competing on the same basis. A focus strategy has fewer conceptual difficulties- considering market segmentation and other demographic factors.

Porter's Cost leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a given level of quality (http//www.quickmba.com). Businesses can acquire cost advantages by virtue of process efficiencies, the obtaining of low cost material and by outsourcing. Businesses that usually succeed in cost leadership have internal strength such as access to capital, skill in designing products, high level of expertise and efficient distribution channels.

Porter's Differentiation Strategy

According to our text, chapter 7 page 189, for this strategy to succeed, a company's product or service must be considered unique by most of the customers in its industry. In other words, practicing differentiation strategy implies that in developing a product, said product should have some unique attributes

...