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Porter's Generic Strategies with examples

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Added on  2019-09-19

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Strategic management provides a wide range of concepts like SWOT, BCG Matrix, Competitor analysis, Core competencies, Mergers and Acquisitions, Generic Strategies, CSR, alliances, business ethics, etc. In the following section, Porter’s Generic Strategies will be discussed in detail.  Cost leadership strategy, Focus strategy, and differentiation strategy are discussed. Efficient management of the brand will lead to apparent differentiation even if the product is similar to the product of the competitors like Starbucks have branded coffee and Nike have branded sneakers. You can also check "Strategic Analysis of Starbucks" and "Strategic Management of Nike" for depth analysis.

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1IntroductionStrategic Management can be referred to as package of decisions and actions, undertaken by amanager and which decides performance of the organization. It is all about planning foranticipated and impractical contingencies. Strategic Management is of use to all types of theorganization whether small or large. Formulation and implementation of the suitable strategieswill lead to competitive advantage for the organization. Strategic Management is way by whichstrategists of the organization can fix the objectives and then work towards the attainment ofthose objectives. It is a persistent process which controls and evaluate the business and industry in which theorganization is working. Strategic management helps in the evaluation of competitors and settinggoals and formulating strategies for competing the current and future competitors, it alsoevaluates the strategies from time to time from determining how whether the strategiesimplemented was successful or do they need to be replaced. Strategic Management provides a broad perspective to the employees in an organization, so thatthey can effectively understand the way their job and work fits in the organization and how it isrelated to other members in the organization. It is the art of management of the employees in away, which will increase the ability of the organization to achieve the objectives of the business.For assisting the organizations in the strategic management of their business and gainingcompetitive advantage over the competitors, Strategic management provides wide range ofconcepts like SOWT, BCG Matrix, Competitor analysis, Core competencies, Mergers andAcquisitions, Generic Strategies, CSR, alliances, business ethics etc. In the following section,
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2Porter’s Generic Strategies will be discussed in detail and critical evaluation of the concept willbe done. Concept of Generic StrategiesMichael Porter have developed three strategies, in 1980. Business organizations can utilize thesestrategies for gaining a competitive advantage over the competitors. Three generic strategiesgiven by Michael Porter are Cost Leadership, focus and differentiation.Porter have given this framework in 1980’s, which targets differentiation, cost leadership andfocus. These generic strategies can be implemented in any size and type of organization. Porterhave claimed that organizations should only select only one amidst the three, otherwise there isrisk that the organization will waste valuable resources. Generic strategies describes thecollaboration amidst cost reduction, differentiation and market focus. Porter discussed that an industry which have numerous segments, can be selected as targetmarket by a firm. Breadth of the target market is the competitive scope for the business of theorganization. Porter have defined two approaches for competitive advantage such as low cost,differentiation in relation to its competitors. Achievement of the competitive advantage willresult in the form of organizational ability to face the five market forces in better way thencompared to the other player in the market. Achievement of the competitive advantage willrequire a firm to select type of advantage which it seeks to attain and scope in whichorganization can attain it. Two basic approaches of gaining competitive advantage i.e. low costand differentiation when combined with activities which the organization seeks to attain will leadto three strategies mentioned by porter for achieving performance above average (Dess, G.G. andDavis, P.S., 1984).
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3- If an organization targets all the customers in all the segments of a particular industry, and theoffering provided by the customer is low priced then the organization will said to be followingcost leadership strategy, which one out of the three generic strategies is given by Porter. - If an organization targets the customers in all the markets and all the segments, on the basis ofspecial feature besides price, in order to achieve high price, then the organization is said to befollowing differentiation strategy. An organization do so in order to differentiate the productsfrom those of the competitors are providing in the market. - If the organization is focused on the few segments, then the organization is pursuing Focusstrategy. In this type of strategy the company is either attempts to provide low cost product in aparticular segment or it tries to differentiate. The idea of choice is a different outlook on these strategies, because in 1970’s model was topursue the market share. Organizations who chased the high market position for the achievementof the cost advantages, comes under the strategy of cost leadership. Notion of choice in relationto focus and differentiation presented novel perspective (Allen, R.S. and Helms, M.M., 2006).Origin of the Generic Strategies Experimental research on the impact of profit on the marketing strategy shows that organizationshaving high share in the market had high profits, but the organizations having low share also hadprofits. Firms who have lowest profits had moderate share in the market. It was being referred toas hole in the problem. Porter explained this scenario by saying that the organizations havinghigh share in the market were profitable and successful, as they pursued strategy of costleadership. On the other hand the organizations having low share in the market were alsosuccessful as such organizations were using marketplace segmentation, for focusing on the
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