Description
The purpose of this study is to examine the literature on the typologies and taxonomies of business strategies in order to find generic business strategies that a company can follow and to assess whether Porters typology shares characteristics with previous studies.
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Business Strategies and Gaps in Porter’S Typology: A
Literature Review
Kerem Sumer
Graduate Scholar, Dept. of Industrial Engineering, Istanbul Technical University
Istanbul, Turkey
E-mail: [email protected]
Dr. Cahit Ali Bayraktar (Corresponding author)
Senior academician, Dept. of Industrial Engineering, Istanbul Technical
University, Istanbul, Turkey
?TÜ ??letme Fakültesi, Maçka 34367 ?stanbul
Tel: 90-212-293-1300 (2754) E-mail: [email protected]
Received: April 26, 2012 Accepted: May 17, 2012 Published: July 1, 2012
doi:10.5296/jmr.v4i3.1721 URL:http://dx.doi.org/10.5296/jmr.v4i3.1721
Abstract
The purpose of this study is to examine the literature on the typologies and taxonomies of
business strategies in order to find generic business strategies that a company can follow and
to assess whether Porter’s typology shares characteristics with previous studies. For this
purpose, we analyze 21 typologies and eight taxonomies in journals and strategic textbooks.
This analysis allows us to identify four generic strategies that are commonly accepted in the
literature. These generic strategies are differentiation strategies, which consist of three
sub-strategies (market, general and innovation differentiation), cost strategies, which consist
of the cash flow maximizing and cost leadership sub-strategies, focus strategies which
contain the focus cost, focus differentiation, general focus sub-strategies and hybrid strategy.
Furthermore, we observe another category in which firms follow no specific strategy. In the
second part of this paper, we compare our findings with Porter’s typology. This comparison
shows that Porter’s typology is insufficient for explaining other typologies and taxonomies of
business strategies.
Keywords: Competition, Business strategy, Strategic management
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1. Introduction
Business strategy has been discussed in many studies since the 1970s. The interest in this
topic has even increased, especially after the typology Porter propounded in 1980.
Porter defined business strategy as proceeding by aggressive and defensive actions in order to
gain a tenable position in the sector, to successfully cope with the five competitive forces and,
thus, for the firm to procure a major return on investment. For this purpose, firms have
invented many different approaches.
A number of typologies and taxonomies have been developed in the strategic management
literature to categorize the strategies that an organization can pursue at the business level.
This situation has brought about the need to manifest the relations between these typologies
and taxonomies. Referring to the literature, no studies have been carried out in this respect.
Moreover, although many scholars disagree with Porter’s typology, they have not shown the
shortcomings of Porter’s classification compared with other studies in the literature. This
study aims to fill the two gaps in the literature considered above.
Previous studies of business strategy are thus analyzed in this study. By the end of the
literature review, 21 typologies and eight taxonomies are determined. After, analyzing the
relations between these studies, interrelated strategies are classified in the same group.
Porter’s typology is then compared with the established strategic groups and the gaps in it are
shown. Finally, we present the main contributions on the theory of business strategy and
suggest directions for further research.
2. Typologies and Taxonomies of Business Strategy
In this part, we analyze the current research on business strategy configurations. The business
strategy classifications based on various variables are presented in Table 1. In these tables,
the models are divided into 21 typologies and eight taxonomies.
Ansoff (1965) develops a matrix that helps businesses identify growth opportunities in the
market. The product/market growth matrix describes a combination of a firm’s activities in
current and new markets with existing and new products. It outlines four types of growth
strategies, namely market penetration, product development, market development, and
diversification. In market penetration, a firm tries to grow with existing products in its current
market. Firms that follow a market development strategy try to sell existing products in new
market segments. Under product development strategy, a firm develops a new product for
existing markets. Finally in diversification, a firm tries to enter a new market with new
products.
Buzzell, Gale and Sultan (1975) classify business strategies into three broad groups: building,
holding and harvesting. Building strategies are based on active efforts to increase market
share by new product introductions, new marketing programs and so on. Holding strategies
are focused on maintaining the existing level of market share. Harvesting strategies are
designed to gain short-term earnings by allowing market share to decline.
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Table 1. Typologies and taxonomies of business level strategies
Typologies Strategies proposed Classification variables
Ansoff (1965)
Market Penetration Growth according to
existing and new products,
as well as existing and new
markets
Product Development
Market Development
Diversification
Buzzell et al. (1975)
Building
Market share goals Holding
Harvesting
Utterback and
Abernathy (1975)
Performance Maximizing
Product and process
innovation
Sales Maximizing
Cost Minimizing
Miles and Snow
(1978)
Prospector
Patterns of adaptation
Analyzer
Defender
Reactor
Hofer and Schendel
(1978)
Share Increasing
Stage of the product/market
evolution of the industry,
competitive position
Growth
Profit
Market Concentration and
Asset Reduction
Turnaround
Liquidation
Patel and Younger
(1978)
All out push for share
Industry maturity and
competitive position
Hold position
Grow with industry
Harvest
Selectively push for position
Phased out withdrawal
Turnaround
Find niche and protect it
Abandon
Vesper (1979)
Multiplication
Strategic postures based
on superiority and flexibility
in adapting to the
environment.
Monopolizing
Specialization
Liquidation
Abandon
Porter (1980)
Cost Leadership
Strategic scope and strategic
strength
Differentiation
Focus
Stuck In the Middle
Wissema et al.(1980)
Explosion
Situation of the market and
situation of the company
(possible routes to the
desired strategic position.)
Expansion
Continuous Growth
Slip
Consolidation
Contraction
Miles and Cameron
(1982)
Domain Defence
Organizational adaptation Domain Offense
Domain Creation
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Table 1 (continued). Typologies and taxonomies of business level strategies
Typologies Strategies proposed Classification variables
Miller (1988)
Innovators
Business focus, Asset
parsimony, Asset intensity
Marketers
Cost Leaders
Niche Marketers
Schuler and Jackson
(1987)
Innovation
Dimensions of competitive
advantage
Quality Enhancement
Cost Reduction
Herbert and
Deresky (1987)
Develop
Product/market evolution
Stabilize
Turnaround
Harvest
Mintzberg (1988)
Price Differentiation
Differentiation and scope
Image Differentiation
Support Differentiation
Quality Differentiation
Design Differentiation
Undifferentiation
Venkatraman (1989)
Aggressiveness
Strategic orientation
Analysis
Defensiveness
Futurity
Proactiveness
Riskiness
Wright et al. (1992)
Low cost
Firm size, scope and
strength
Differentiation
Low cost Differentiation
Mixed
Focus Low Cost
Focus Differentiation
Focus low cost-
Differentiation
Ward et al. (1996)
Niche Differentiation
Emphasis on quality and
price, asset parsimony,
innovation -R&D, narrow
product - market scope
Broad Market
Differentiation
Cost Leadership
Lean Competitiveness
Thompson and
Strickland (1999)
Cost Leadership
Strategic scope and strategic
strength
Differentiation
Focus
Best Cost Provider
Kim and
Mauborgne (1999)
Value Innovation Competitive advantage
Chang et al. (2002)
Pre-emptive/First mover Dimensions of competitive
advantage, timing of entry
into the marketplace
Low Cost/ Follower
Differentiation/Follower
Hitt et al. (2007)
Cost leadership
Strategic scope and strategic
strength
Differentiation
Focus
Integrated Cost Leadership
and Differentiation
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Table 1 (continued). Typologies and taxonomies of business level strategies
Taxonomies Strategies Proposed Classification Variables
Galbraith and
Schendel (1983)
Harvest
Strategy posture and
strategy direction
(Total 26 variables)
For the consumer goods
industry
Builder
Continuity
Climber
Niche
Cashout
Low Commitment Strategy posture and
strategy direction
(26 variables)
For the industrial product
industry
Maintenance
Growth
Niche
Hambrick (1983)
Cost Leadership
Strategic choice and
strategic position attributes
For disciplined capital
goods makers
Asset Conscious Followers
High Quality Gendarme
Broad Based Differentiation
Strategic choice and
strategic position attributes
For aggressive makers of
complex capital goods
Prospectors
Asset Conscious Focusers
Robinson and
Pearce (1988)
Efficiency and Service
27 competitive methods
No Clear Strategy
Service/high-price markets
and Brand Channel
Influence
Product Innovation and
Development
Brand
Identification/Channel
Influence and Efficiency
Kim and Lim (1988)
Product Differentiators
15 strategy variables
Market Differentiators
Overall Cost Leaders
Stuck In the Middle
Douglas and Rhee
(1989)
Broad Liner
Marketing tactics, market
scope, business synergy (17
strategy variables)
Innovator
Integrated Marketer
Low Quality
Nicher
Synergist
Huang (2001) Innovation Eight statements about
strategy Cost leadership
Stuck in the Middle
Lillo and Lajara
(2002)
Differentiation Nineteen variables
describing a firm’s
competitive strategy
Innovation
Product Offering
Aggressive growth with
narrow special product
Powers and Hahn
(2004)
General Differentiation 26 competitive methods
Focus
Stuck In the Middle
Cost Leadership
Customer Service Diff.
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Utterback and Abernathy (1975) theoretically describe three competitive strategies associated
with the innovative patterns of firms: performance maximizing, sales maximizing and cost
minimizing. A performance maximizing strategy, in which firms emphasize unique products
and performances, is seen in the early stages of the product life cycle. Sales maximizing firms
tend to define needs based on their visibility to the customer. As the product life cycle
evolves, the product becomes standardized and price competition begins, and thus firms
follow a cost minimizing strategy during the late stages of product life cycle.
Miles, Snow, Meyer and Coleman (1978) propose that firms develop relatively stable patterns
of strategic behavior that is compatible with perceived environmental conditions. Their
typology consists of four strategic types: defenders, prospectors, analyzers and reactors.
Defenders focus on improving the efficiency of their existing operations. Prospectors always
search for new market opportunities. Analyzers show some characteristics of both prospectors
and defenders. They try to achieve efficient production for current lines and, at the same time,
they emphasize the creative development of new product lines. Reactors have no systematic,
proactive strategy. They react to events as they occur.
Hofer and Schendel (1978) define six strategies using the product/market evolution of the
industry in which the firm competes and its competitive position in the industry. These six
strategies are share increasing, growth, profit, turnaround, market concentration and asset
reduction and liquidation. Under share increasing, a firm significantly increases its market
share by investing greater than the norm of the industry. A growth strategy is designed to
maintain a firm’s position in rapidly expanding markets by investing equal to the industry
average. The aim of the profit strategy is to maximize the utilization of resources and skills in
order to increase cash flow. A turnaround strategy is a form of retrenchment strategy that
focuses on operational efficiency. The market concentration and asset reduction strategy
requires a realignment of resources to focused, smaller segments. A liquidation strategy is for
firms that want to generate cash while withdrawing from market.
Vesper (1979) describes the optimal behavior of a firm for a spectrum of strategic attitudes
based on superiority and flexibility in adapting to the environment. He identifies four types of
business strategies. In the first type, the aim of the multiplication strategy is to expand market
share by increasing present market structures. The second type, namely monopolizing,
focuses on destroying competition by creating barriers for entry. The third group is
specialization, under which firms specialize in products or in the production process. The
fourth group is liquidation. Firms, that follow this strategy give up on their businesses and
market positions.
Patel and Younger (1978) use the stages of the product life curve and competitiveness of the
industry in order to determine strategic alternatives for firms. They develop a matrix that
consists of 20 blocks and nine different strategies, namely all out push for share, hold
position, grow with industry, harvest, selectively push for position, phased out withdrawal,
turnaround, find niche and protect it, and abandon.
Porter (1980) suggests that differentiation, cost leadership and focus are the strategies that
provide firms with the ability to attain a competitive advantage and outperform rivals in an
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industry. A cost leadership strategy aims for a firm to be a low-cost producer in the industry.
Companies following this strategy place emphasis on cost reductions in every activity of the
value chain. Differentiation consists of offering unique products and services in various forms,
such as design, brand image, customer service and technology. A focus strategy is aimed at a
segment of a market within which a firm develops uniquely low-cost or well-specified
products for the market. Porter (1980) claims that organizations that follow one of these three
generic strategies can show above average performances in the long-term, while firms that
are stuck in the middle perform less well. He defines stuck in the middle as a firm’s
unwillingness to make strategic choices and its attempts to compete by every means.
Wissema, Van Der Pol and Messer (1980) specify a typology based on the market situation
(external potential) and the situation of the company in the market (internal potential). Based
on life cycle theory, six strategies are identified: explosion, expansion, continuous growth,
slip, consolidation and contraction. An explosive strategy suggests an improved competitive
position in the short-term, whereas an expansion strategy suggests an improved competitive
position in the long-term. The slip strategy emphasizes only cost reductions in growing
markets. A consolidation strategy is only applicable in saturated or diminishing markets and
when the only aim is to reduce costs. A continuous growth strategy aims to maintain a firm’s
position in an expanding market. In the case of a contraction strategy, firms liquidate assets
and leave the market.
Miles and Cameron (1982) examine the range of strategic options used by six large tobacco
firms. They introduce organizational adaptation as a concept, along with its goals and patterns.
These patterns are domain defense, domain offense and domain creation. The domain defense
strategy’s concept is the protection of existing businesses whereas the main concept of
domain offence is the expansion of existing businesses. Different from these strategies,
domain creation is entering into new businesses.
Miller (1988) suggests four broad categories of dimensions that reflect competitive strategies.
These dimensions are differentiation, cost leadership, focus and asset parsimony. The
differentiation dimension tries to determine the degree of producing unique products. The
cost leadership dimension measures if firms are producing products cheaper than their
competitors. The focus dimension measures the degree of a firm’s attention on a specific type
of customer, product or geographic locale. The last dimension, asset parsimony, refers to the
fewness of assets per unit output. In light of the above, four strategy types are presented:
niche marketers, innovators, marketers and cost leaders.
Schuler and Jackson (1987), based on Porter’s typology, identify three competitive strategies
that firms can use to gain competitive advantage: innovation, quality enhancement and cost
reduction. The innovation strategy is used to produce goods different from competitors.
Increasing the quality level of the product is the focus of the quality enhancement strategy.
Under the cost reduction strategy, a firm tries to be lowest cost producer in the industry.
Herbert and Deresky (1987), review the strategic classifications in the literature. After a
synthesis and categorization of the literature, they find four generic strategies associated with
the stages of product/market evolution: develop, stabilize, turnaround and harvest. The main
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aim of the develop category is long-term growth through finding new market opportunities
and developing new products. Under a stabilize strategy, the most used method to maintain
both competitive position and earnings is the cost leadership approach, using efficient
manufacturing processes. The turnaround strategy requires cost and efficiency controls as in
the stabilize strategy. The harvest strategy emphasizes pruning expenditures and increasing
operational efficiency in the short run.
Mintzberg (1988) proposes a typology of generic strategies based on differentiation by price,
image, support, design and quality. Differentiation by image refers to creating a distinctive
image for a product using marketing. In contrast, differentiation by design requires offering
products with unique features and design configurations. The strategy of differentiation by
quality is offering a superior quality based on reliability, durability and performance. Support
differentiation implies providing a distinctive service during the sale or after the sale of the
product. For Mintzberg, Porter’s cost leadership is another form of differentiation so he
includes price differentiation as a fifth business strategy. The last category in Mintzberg’s
typology is undifferentiation in which a firm emphasizes none of the five differentiation
dimesions.
Venkatraman (1989) identifies six important dimensions of strategic orientation in his study:
“aggressiveness”, which means to allocate resources faster than competitors in order to
increase market share; “analysis”, which is about the problem solving posture of the firm and
also refers to the consistency between resource allocation and a firm’s objectives;
“defensiveness” in which firms concentrate on cost efficiency and narrow the market domain;
“futurity”, where the balance between effectiveness/efficiency and acting by considering all
future results is important; “proactiveness”, which requires continuous research for market
opportunities, the introduction of new products and foreseeing the future of the industry
environment in order to shape it from today; and “riskiness”, which refers to decisions on
resource allocation.
Wright, Pringle and Kroll (1992), based on Porter’s typology, develop strategies that can be
followed according to the size of the company. They suggest low cost, differentiation, low
cost differentiation and a mixed strategy for large firms. For small firms, they suggest focus
low cost, focus differentiation and focus low cost differentiation. In summary, focus strategies
can be followed only by small companies.
Ward, Bickford and Leong (1996) propose four basic strategic configurations: niche
differentiator, broad differentiator, cost leader and lean competitor. Niche differentiators offer
specialized products or services for a market segment that is not served by large firms in the
industry. Broad differentiators try to increase their market shares using new product
development. They offer a wide range of products to various markets. Cost leaders attempt to
offer products at a lower price than competitors. In order to do this, they have to develop
efficient systems in all stages of the value chain. The last group, lean competitors, aims for
the simultaneous pursuit of cost leadership and differentiation.
In addition to Porter’s generic competitive strategies, some strategy textbooks offer a fifth
strategic choice, namely best cost provider strategy (Thompson & Strickland, 1999) and
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integrated low cost differentiation strategy (Hitt, Hoskisson & Ireland, 2007). These
strategies imply that a firm can gain advantages by offering products with unique features at a
lower price compared with its competitors. Moreover, Kim and Mauborgne (1999) describe
the value innovation model in their Harvard Business Review article. Later, they introduce
their ideas in a book titled Blue Ocean Strategy (2004). According to the blue ocean strategy,
a firm can outperform its competitors by creating demand in an uncontested market. Value
innovation is the base of the blue ocean strategy. This implies the simultaneous pursuit of
differentiation and low cost.
Chang, Lin, Wea and Sheu (2002) develop a typology that considers the dimensions of
competitive advantages and timing of entry into the market. Three strategy categories are
classified: pre-emptive/first mover, low cost/follower and differentiation/follower. The
pre-emptive/first mover enters to a new market or adopts a new technology earlier than its
competitors in order to achieve competitive advantage. The low cost/follower firm enters the
market late or has a late adoption of new technology. These firms try to achieve competitive
advantage by strict cost control policies. Finally, the differentiation/follower watches the
market attentively and achieves competitive advantage by redesigning existing products or
offering unique services.
Galbraith and Schendel (1983) carry out a study of 99 consumer products and 100 industrial
product companies. Six strategy types are identified for consumer products: harvest, builder,
cash out, niche or specialization, climber and continuity. Under a harvest strategy, firms are
not interested in investments, whereas the builder strategy is used by firms that want to
increase market share and sales rapidly. Firms competing with the cash out strategy attempt
to utilize advertising and promotion activities in order to increase perceived quality. A niche
strategy emphasizes high-quality products and services. A climber strategy focuses on a
narrow product line and low prices. A continuity strategy implies reacting in a like manner to
competitor strategies. For industrial products, four strategy types are identified: low
commitment, which is similar to the harvest strategy; growth, in which firms make
investments in order to expand their market shares; maintenance, which is the union of the
continuity strategy and cost reduction; and the niche and specialization strategy, in which
quality is the most important criteria for beating the competition.
Hambrick (1983) assesses whether the primary strategies pursued by high-performers in the
two industry settings closely resemble Porter's three strategic types. He identifies three
strategies for disciplined capital goods makers. Two of these strategies, namely cost
leadership and high quality gendarme, are similar to Porter’s cost leadership and
differentiation strategy. The third strategy, asset conscious focusers, seems to include low-
share operators that carefully manage their asset bases. He also determines three strategies for
aggressive makers of complex capital goods: broad based differentiators, prospectors and
asset conscious focusers. Broad based differentiators have superior quality and technology.
Prospectors, different from the first group, have very high product innovation. Finally, asset
conscious focusers offer products to narrow segments while reducing assets and innovation.
Robinson and Pearce (1988), from data on 97 manufacturing firms belonging to 60 different
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industries, identify five groups of strategic behavior: efficiency and service (a high emphasis
on low cost and customer service), no clear strategic orientation (no distinct pattern),
service/high-priced markets and brand/channel influence (high emphasis on customer service
and innovation in marketing), product innovation/development (emphasis on specialty
products), brand identification/channel influence and efficiency (marketing innovation and
low cost).
Kim and Lim (1988) divide a sample of 54 firms in the high-growth electronics industry in
Korea into four strategic groups: overall cost leaders, product differentiators, market
differentiators and stuck in the middle. The characteristics of these four strategic groups are
generally consistent with those of the generic strategies identified by Porter.
Douglas and Rhee (1989) identify six strategy types in two samples namely European and
U.S businesses. Broad liners are characterized by a broad market scope and high product
quality. Innovators have a high proportion of new products in their product lines and
emphasize innovativeness over marketing effort. Integrated marketers show some
characteristics of broad liners. Additionally, they have a high customer concentration and a
high degree of vertical integration. The low quality group has a narrow market scope and low
quality. Nichers target a small number of highly concentrated customers with a relatively
narrow product line. Lastly, the synergist group has a narrow market scope, low product
quality and a low percentage of new products but they have a high level of shared marketing
expenditure.
Huang (2001), based on the analysis of 315 local firms in Taiwan, identifies three groups.
Cost leadership businesses give high priority to cost reduction. Innovation businesses place a
major emphasis on innovation and a secondary emphasis on quality but they ignore cost
reductions. The third group resembles Porter’s “stuck in the middle” and Miles and Snow’s
“reactor” groups.
Lillo and Lajara (2002) define a taxonomy of business strategies from data on 75
owner-managed companies in Spain. Four strategic groups are found. The differentiation
group places a high emphasis on superior quality and a high level of customer service. The
innovation group always develops new products and provides its products at a competitive
price. This group also sells its products to various market segments using numerous
distribution channels. The product offering group offers a broad range of tried and tested
products to a large market segment. Moreover, brand identification and a high level of
advertising and promotion are key functions in this group. Finally the group that targets
aggressive growth offers narrow range of products to a small number of customers. These
firms produce in large scales in order to be cost leaders in the industry.
Powers and Hahn (2004), using data on 98 companies in the banking industry, specify a
taxonomy that corresponds to Porter’s generic strategy types. They identify five groups of
competitive strategies: general differentiation, cost leadership, stuck in the middle, focus and
customer service differentiation.
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3. Generic business strategies
After analyzing 29 works on business strategy in the literature, we notice that many authors
give different names to what can be regarded as the same strategy. Five generic strategies can
thus be identified, although their names are different. These strategies are
? Cost Strategies
o Cash Flow Maximizing
o Cost Leadership
? Differentiation Strategies
o Market Differentiation
o Innovation Differentiation
o General Differentiation
? Focus Strategies
o Focus-Differentiation
o Focus-Low Cost
o General Focus
? Hybrid (Combination) Strategy
? No Definite Strategy
3.1 Cost strategies
These strategies are about cost reduction. Such strategies were observed in 72% of the studies
analyzed. By referring to the literature, it is possible to divide cost strategies into two groups.
The first group is cost leadership. Porter (1980) broadly propounded this strategy for the first
time. Cost leadership aims at reducing costs throughout the value chain and reaching the
lowest cost structure possible. A cost leader enterprise puts products with an acceptable
quality and limited standard features on the market in order to gain competitive advantage
and to maximize its market share. Such kinds of enterprises appeal to a wide group of
customers. Cost leadership necessitates a reduction of costs in fields such as R&D and
advertising. Besides economies of scale, cost reduction efforts through the experience curve,
strict control over costs and overhead costs are important in this strategy. This group has
various denominations: cost minimizing (Utterback and Abernathy, 1975), cost leadership
(Porter, 1980; Hambrick, 1983; Huang, 2001; Hitt et al., 2007), maintenance (Galbraith &
Schendel, 1983), cost leaders (Miller, 1988; Kim & Lim, 1988; Ward et al., 1996), cost
reduction (Schuler & Jackson, 1987), price differentiation (Mintzberg, 1988), efficiency and
service (Robinson & Pearce, 1988), low cost (Wright et al., 1992), low cost provider
(Thompson & Strickland, 1999), low-cost/follower (Chang, 2002).
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The second group follows a cash flow maximization strategy. Although observed in a limited
number of studies, it should be isolated from cost leadership. The main goal in this strategy is
not maximizing market share. Firms rather aim to extract provide maximum revenue out of
the product in the maturity or decline stages of the product-life cycle. Mostly, enterprises
operating in low growth-rate sectors, with high market shares or with low market shares and
which are considering ending their operations in the present business soon, follow this
strategy. In this strategy, investments are kept at the lowest level and, at the same time, high
cash flow is maintained by reducing costs. We find the following denominations to refer to
this group: harvesting (Buzzell et al., 1975), profit (Hofer & Schendel, 1978), turnaround
(Patel & Younger, 1978), slip and consolidation (Wissema et al., 1980), stabilize turnaround
and harvest (Herbert & Deresky, 1987).
3.2 Differentiation strategies
A differentiation strategy occurs when a firm gains an unprecedented position within the
sector of operation by differentiating its products or services. It is possible to observe one sort
of differentiation strategy in all the studies analyzed. Because differentiation is a broad
concept, this strategy should be discussed with various dimensions. We can list the strategies
in the literature related to differentiation under three groups.
The first group is market differentiation. In this strategy, innovations are carried out in
marketing activities rather than the product. In order to have a positive enterprise and product
image, intense advertisement and promotion activities are emphasized. This aims to make a
difference in issues such as post-production service and customer service. Moreover, it aims
to maximize the sales by analyzing, planning, implementing and controlling salesforce
activities. This group is variously denominated: market penetration and market development
(Ansoff, 1965), sales maximizing (Utterback and Abernathy, 1975), cash out (Galbraith &
Schendel, 1983), marketers (Miller, 1988), image differentiation and support differentiation
(Mintzberg, 1988), service/high-price markets and brand/channel influence (Robinson &
Pearce, 1988), market differentiators (Kim & Lim, 1988), differentiation/follower (Chang et
al., 2002), product offering (Lillo & Lajara, 2002), customer service differentiation (Powers
& Hahn, 2004).
The second group is innovation differentiation. This strategy aims to enhance product quality,
performance and design. In this strategy, enterprises attempt to operate above the sector
average by producing a product regarded as unprecedented in the industry and, in return,
charging a higher price that the customer would agree to pay. This group has various
denominations: product development and diversification (Ansoff, 1965), performance
maximizing (Utterback & Abernathy, 1975), prospector (Miles & Snow, 1978; Hambrick,
1983), high quality gendarme (Hambrick, 1983), innovators (Miller, 1988), innovation
(Schuler & Jackson, 1987; Huang, 2001; Lillo & Lajara, 2002), quality enhancement (Schuler
& Jackson, 1987), quality differentiation and design differentiation (Mintzberg, 1988),
product innovation and development (Robinson & Pearce, 1988), product differentiators
(Kim & Lim, 1988), innovator and broad liner (Douglas & Rhee, 1989), preemptive/first
Mover (Chang et al., 2002).
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The third group is general differentiation. We can define this group as approaching the market
and innovation differentiation strategies together. Some writers have not considered
abstracting the concept of differentiation in different dimensions as necessary and have
preferred to approach it holistically. This group is variously denominated: building (Buzzell
et al., 1975), share increasing and growth (Hofer & Schendel, 1978), all out push for share
(Patel & Younger, 1978), Multiplication (Vesper, 1979), Differentiation (Porter, 1980; Wright
et al., 1992; Thompson & Strickland, 2002; Hitt et al., 2007), explosion and expansion
(Wissema et al., 1980), domain offense and domain creation (Miles & Cameron, 1982),
growth and builder (Galbraith & Schendel, 1983), broad base differentiation (Hambrick,
1983), develop (Herbert & Deresky, 1987), aggressiveness (Venkatraman, 1987), integrated
marketer (Douglas & Rhee, 1989), broad differentiator (Ward et al., 1996), general
differentiation (Powers & Hahn, 2004).
3.3 Focus strategies
Porter (1980) and Miles et al. (1978) propounded this strategy in the literature for the first
time. The defender strategy propounded by Miles focuses on efficient and effective
production in a small market segment rather than maximizing the product quality. Porter
(1985) discusses the focus strategy in more detail.
The focus strategy differs from the other strategies in one aspect. While in the differentiation
and cost strategies wide fractions of customers are being appealed to, the firms that follow a
focus strategy prefer to appeal to a certain geographical area or a certain fraction of
customers. In 62% of the studies analyzed, one sort of focus strategy was observed. When we
analyze the studies carried out in later years, we can divide the focus strategies into three
groups.
The first group’s focus on a low-cost strategy is based on competing in a small segment of the
market with low costs and prices. We find the following denominations to refer to this group:
defender (Miles & Snow, 1978), focus-cost (Porter, 1980; Wright et al., 1999; Thompson &
Strickland, 1999; Hitt et al., 2007), domain defense (Miles & Cameron, 1982), climber
(Galbraith & Schendel, 1983), asset conscious focusers (Hambrick, 1983), defensiveness
(Venkatraman, 1989), aggressive growth with narrow special product (Lillo & Lajara, 2002).
In the second group that focuses on differentiation, firms produce products and provide
services suitable to the needs and tastes of a narrow customer population. This group is
variously denominated: focus differentiation (Porter, 1980; Wright et al., 1992; Thompson &
Strickland, 1999; Hitt et al., 2007), niche marketers (Miller, 1988), niche differentiator (Ward
et al., 1996), niche (Galbraith & Schendel, 1983), nicher (Douglas & Rhee, 1989),
differentiation (Lillo & Lajara, 2002), and focus (Powers & Hahn, 2004).
A limited number of studies in the literature approach the focus strategy merely as focusing
on a small fraction of customers; thus they do not make such a distinction between cost and
differentiation. We find three denominations: market concentration and asset reduction (Hofer
& Schendel, 1978), find niche and protect it (Patel & Younger, 1978), specialization (Vesper,
1979).
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3.4 Hybrid (Combination) Strategy
This strategy implies the implementation of cost leadership and differentiation strategies.
Although it is not a part of Porter’s typology, it is regarded as the fourth generic strategy. As a
result of the literature review, a hybrid strategy was observed in 24% of the studies analyzed.
Although the opinion that differentiation and cost leadership could not be implemented
concomitantly because they were antonymous concepts was dominant in the 1980s, the
number of those who object to this view has increased since the 1990s.
A hybrid strategy aims at supplying much more monetary value to customers by combining
low costs and high rates differentiation (Thompson & Strickland, 1999). The aim of this
strategy is to satisfy the customer in terms of the quality/performance/service/property of
products and fulfill price expectations of the customer. We find the following denominations
to refer to this strategy: analyzer (Miles & Snow, 1978), brand identification/channel
influence and efficiency (Robinson & Pearce, 1988), mixed (Wright et al., 1992), lean
competitor (Ward et al., 1996), best cost provider (Thompson & Strickland, 1999), value
innovation (Kim & Mauborgne, 1999), integrated cost leadership and differentiation (Hitt et
al., 2007).
3.5 No Definite Strategy
Firms in this group do not follow a certain strategy. For this reason, they unstably adapt to
changes in the business environment. Some of them chase their successful rivals. Such
strategies can be considered as counterfeiting (Mintzberg, 1988). Generally, these kinds of
enterprises cannot develop a compatible strategy with the structure and processes of the
organization (Miles et al., 1978).
The three business strategies Porter (1980) propounded (cost leadership, differentiation and
focus) specify the basic approaches that could be implemented in a competitive environment.
According to Porter, it is impossible to succeed if a firm does not prefer one of these three
strategies or implement two of them simultaneously. Porter defines this situation as being
“stuck in the middle”.
Because strategies that offer competitive advantage are usually included in the typologies and
taxonomies and because the non-pursuit of strategy approach does not bring any competitive
advantage, this group is observed only in 24% of the studies analyzed.
Thus, we can say that an enterprise does not have an accurate strategy if it does not place
emphasis on a strategic element that would bring about a competitive advantage. This
strategy is variously denominated: reactor (Miles and Snow, 1978), stuck in the middle
(Porter, 1980; Kim & Lim, 1988; Huang, 2001; Powers & Hahn, 2004), low commitment
(Galbraith & Schendel, 1983), undifferentiation (Mintzberg, 1988), no clear strategy
(Robinson & Pearce, 1988).
4. Gaps in Porter’s Typology
The most widely used business strategy types are those developed by Miles and Snow and
Porter (Douglas & Rhee, 1989). Porter’s (1980) typology of the generic strategies of cost
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leadership, differentiation and focus seems to be most popular paradigm in the literature
(Kumar, Subramanian & Strandholm, 2001). It has received more research attention than any
other typologies.
However, although it is widely acknowledged and used, Porter's typology falls short of
explaining all the studies in the literature. In Table 2, the differences and similarities between
the studies in the literature and Porter's typology are presented.
Table 2. Comparison of Porter’s typology and proposed strategies in literature
Proposed Strategies in Literature Porter’s Typology
Cost Strategies
Cash Flow Maximizing -
Cost Leadership Cost Leadership
Differentiation Strategies
Market Differentiation -
Innovation Differentiation -
General Differentiation Differentiation
Focus Strategies
Focus-Cost Focus-Cost
Focus-Differentiation Focus-Differentiation
Hybrid (Combination) -
No Definite Strategy Stuck In the Middle
First, it is possible to observe Porter’s cost leadership strategy under different titles. Some of
these are Maintenance (Galbraith & Schendel, 1983), Cost Reduction (Schuler & Jackson,
1987), Price Differentiation (Mintzberg, 1988) and Low Cost Provider (Thompson &
Strickland, 1999). However, enterprises might reduce their costs for other reasons as well.
For example, if an enterprise is considering ending the activities of a product it manufactures
soon, if the manufactured product is in the maturity or recession stages of the product-life
cycle and it is supposed that it will not be preferred by the customer, or if demand for the
product has declined, costs might be reduced in order to obtain the maximum return from the
product and to increase cash flow. We call this approach cash flow maximizing. While
leading the market is the main goal in cost leadership, cash flow maximizing aims to
maximize the yield in the short-term by reducing the costs. Thus, these two situations should
be considered separately since they serve different purposes.
Second, the differentiation strategy of Porter appears in the literature under different names
such as building (Buzzell et al., 1975), develop (Herbert & Deresky, 1987), prospector (Miles
et al., 1978), multiplication (Vesper, 1989) and integrated marketer (Douglas & Rhee, 1989).
Yet, Porter discusses the differentiation strategy from a broad perspective. However, firms
today can make a difference without changing their product qualities and performance by
developing their marketing techniques or focusing only on issues such as product quality and
performance. When previous studies are analyzed, the need to evaluate the two dimensions
separately comes forward. Miller (1988) analyzes the concept of differentiation under two
dimensions (market and innovation) for the first time.
Porter (1980) divides the focus strategy into two. However, because of ambiguities and
debates, Porter further divided this strategy into two five years later. In our study, we see that
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the strategies of focus-low cost and focus-differentiation are observed in other typologies and
taxonomies in the literature as well.
The strategies propounded by Porter are those that enterprises could prefer in order to realize
their goals. Porter argues that enterprises that prefer any one of these strategic orientations
would gain competitive advantage and perform better than their rivals. In addition, he
indicates that those who do not prefer one of these strategic orientations would be stuck in the
middle and that their profitability would decrease. Moreover, Porter claims that in order for
an enterprise to gain high profits and to surpass its rivals, it has to prefer either cost
leadership or differentiation. According to Porter, cost leadership and differentiation are two
conflicting strategies. He argues that if an enterprise implements these two strategies
simultaneously, it cannot be successful (Acquaah & Ardekani, 2008). However, this
perception has been losing its legitimacy. Applications such as quality management systems,
flexible production systems and networks enable cost leadership and differentiation to be
implemented together (Hitt et al, 2007). Further, many scholars indicate that high quality
increases the demand for products which give the firm the chance to reduce the costs
(Prajogo, 2007). In recent years, many thinkers of strategic management have included this
approach under different titles in their studies: lean competitor (Ward et al., 1996), best cost
provider (Thompson & Strickland, 1999), value innovation (Kim & Mauborgne, 1999),
analyzer (Miles et al., 1978), and integrated cost leadership and differentiation (Hitt et al.,
2007).
5. Conclusion
The purpose of this work was to examine the latest research on business (competitive)
strategy typologies and taxonomies in order to assess if Porter’s typology still exists. For this
purpose, the typologies and taxonomies found in the literature were reviewed and analyzed.
We found that many authors give different names to what can be considered to be the same
strategy. We synthesized presented findings into the following series of generic business
strategies that are commonly accepted in the literature:
? Cost strategies: Reducing cost is the main purpose of this strategy. We find two kinds
of cost strategies. First is cost leadership, in which a firm tries to be the lowest cost
producer in the industry. The second group, namely cash flow maximizing, is
generally seen in mature or declining industries. This group tries to generate cash in
the short-term by reducing costs.
? Differentiation strategies: This strategy is divided into two. The first one is market
differentiation where innovations are carried out in marketing techniques, and sales
and advertorial activities are emphasized, whereas the second is innovation
differentiation which is based on manufacturing an unprecedented product in terms of
features, performance and quality.
? Focus strategies: These operate in a narrow segment of the market. A limited number
of customers are addressed. The focus strategy is divided into two. The main goal in
focus-low cost is to manufacture a limited number of products at a lower cost than the
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rivals in a narrow segment of customers and offer them at lower prices. By contrast,
focus-differentiation targets manufacturing unique products that meet the needs of a
small segment of customers in the market.
? Hybrid strategy: This refers to the concurrent pursuit of cost leadership and
differentiation. High-quality products are manufactured at low costs and offered at
low prices; thus, much more value is created for the customer.
We also observe another type of business strategy namely “no definite strategy” in which
companies do not emphasize strategic factors such as quality and cost. They do not have a
specific and consistent strategy.
Thus, we find that the business strategies propounded by Porter remain insufficient for
explaining the business strategies put forward by previous studies. While Porter exclusively
refers to cost leadership, he does not mention the issue of cost reduction in order to increase
cash flow. Porter does not classify in terms of differentiation. Yet, the innovations made in the
field of marketing techniques and products should be evaluated differently. One of them
covers the work performed on firm image, while the other covers elements such as the
performance and quality of the product. Even when a firm sells its products at a low price, it
can carry out market differentiation at the same time. However, it may not be able to make
any difference in terms of innovation.
Finally, Porter suggests that cost leadership and differentiation cannot be applied together; yet,
a number of recent studies have refuted this view. Porter’s view may be accepted as true until
the late 1980s when the business environments were constant (Kim, Nam & Stimpert, 2004).
However, constantly changing customer demands and a dynamic competitive environment
have necessitated firms be flexible and apply the two strategies together. Mass customization
has enabled the application of a hybrid strategy (Anderson, 1997). Moreover, the Internet has
altered the traditional value chain and led to the emergence of new competitive obligations
(Evans & Wurster, 1999). In addition, it has facilitated access to information. Internet has
necessitated a revision of business strategy (Afuha & Tucci, 2001).
This literature review has aimed to help readers and researchers to update their understanding
on the present status of the knowledge on business strategy. Moreover generic business
strategies may help managers to find the way of being successful in intense competition. As
demonstrated by this study, major progress has been made in terms of business strategy
within the strategic orientation literature. However, there are still some unsolved problems.
For instance, the number of empirical studies of business strategy is insufficient. Researchers
studying this issue usually base their work on Porter’s typology. Yet, this typology falls short
of explaining business strategies in the current competitive environment. Future empirical
studies should investigate whether the business strategies presented in this study are still
being applied in various sectors. Moreover, the generic strategies presented in the literature
are usually directed towards the production sector. Studies could be carried out on the issue of
determining the business strategies followed in the service sector.
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doc_172809184.pdf
The purpose of this study is to examine the literature on the typologies and taxonomies of business strategies in order to find generic business strategies that a company can follow and to assess whether Porters typology shares characteristics with previous studies.
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Business Strategies and Gaps in Porter’S Typology: A
Literature Review
Kerem Sumer
Graduate Scholar, Dept. of Industrial Engineering, Istanbul Technical University
Istanbul, Turkey
E-mail: [email protected]
Dr. Cahit Ali Bayraktar (Corresponding author)
Senior academician, Dept. of Industrial Engineering, Istanbul Technical
University, Istanbul, Turkey
?TÜ ??letme Fakültesi, Maçka 34367 ?stanbul
Tel: 90-212-293-1300 (2754) E-mail: [email protected]
Received: April 26, 2012 Accepted: May 17, 2012 Published: July 1, 2012
doi:10.5296/jmr.v4i3.1721 URL:http://dx.doi.org/10.5296/jmr.v4i3.1721
Abstract
The purpose of this study is to examine the literature on the typologies and taxonomies of
business strategies in order to find generic business strategies that a company can follow and
to assess whether Porter’s typology shares characteristics with previous studies. For this
purpose, we analyze 21 typologies and eight taxonomies in journals and strategic textbooks.
This analysis allows us to identify four generic strategies that are commonly accepted in the
literature. These generic strategies are differentiation strategies, which consist of three
sub-strategies (market, general and innovation differentiation), cost strategies, which consist
of the cash flow maximizing and cost leadership sub-strategies, focus strategies which
contain the focus cost, focus differentiation, general focus sub-strategies and hybrid strategy.
Furthermore, we observe another category in which firms follow no specific strategy. In the
second part of this paper, we compare our findings with Porter’s typology. This comparison
shows that Porter’s typology is insufficient for explaining other typologies and taxonomies of
business strategies.
Keywords: Competition, Business strategy, Strategic management
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1. Introduction
Business strategy has been discussed in many studies since the 1970s. The interest in this
topic has even increased, especially after the typology Porter propounded in 1980.
Porter defined business strategy as proceeding by aggressive and defensive actions in order to
gain a tenable position in the sector, to successfully cope with the five competitive forces and,
thus, for the firm to procure a major return on investment. For this purpose, firms have
invented many different approaches.
A number of typologies and taxonomies have been developed in the strategic management
literature to categorize the strategies that an organization can pursue at the business level.
This situation has brought about the need to manifest the relations between these typologies
and taxonomies. Referring to the literature, no studies have been carried out in this respect.
Moreover, although many scholars disagree with Porter’s typology, they have not shown the
shortcomings of Porter’s classification compared with other studies in the literature. This
study aims to fill the two gaps in the literature considered above.
Previous studies of business strategy are thus analyzed in this study. By the end of the
literature review, 21 typologies and eight taxonomies are determined. After, analyzing the
relations between these studies, interrelated strategies are classified in the same group.
Porter’s typology is then compared with the established strategic groups and the gaps in it are
shown. Finally, we present the main contributions on the theory of business strategy and
suggest directions for further research.
2. Typologies and Taxonomies of Business Strategy
In this part, we analyze the current research on business strategy configurations. The business
strategy classifications based on various variables are presented in Table 1. In these tables,
the models are divided into 21 typologies and eight taxonomies.
Ansoff (1965) develops a matrix that helps businesses identify growth opportunities in the
market. The product/market growth matrix describes a combination of a firm’s activities in
current and new markets with existing and new products. It outlines four types of growth
strategies, namely market penetration, product development, market development, and
diversification. In market penetration, a firm tries to grow with existing products in its current
market. Firms that follow a market development strategy try to sell existing products in new
market segments. Under product development strategy, a firm develops a new product for
existing markets. Finally in diversification, a firm tries to enter a new market with new
products.
Buzzell, Gale and Sultan (1975) classify business strategies into three broad groups: building,
holding and harvesting. Building strategies are based on active efforts to increase market
share by new product introductions, new marketing programs and so on. Holding strategies
are focused on maintaining the existing level of market share. Harvesting strategies are
designed to gain short-term earnings by allowing market share to decline.
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Table 1. Typologies and taxonomies of business level strategies
Typologies Strategies proposed Classification variables
Ansoff (1965)
Market Penetration Growth according to
existing and new products,
as well as existing and new
markets
Product Development
Market Development
Diversification
Buzzell et al. (1975)
Building
Market share goals Holding
Harvesting
Utterback and
Abernathy (1975)
Performance Maximizing
Product and process
innovation
Sales Maximizing
Cost Minimizing
Miles and Snow
(1978)
Prospector
Patterns of adaptation
Analyzer
Defender
Reactor
Hofer and Schendel
(1978)
Share Increasing
Stage of the product/market
evolution of the industry,
competitive position
Growth
Profit
Market Concentration and
Asset Reduction
Turnaround
Liquidation
Patel and Younger
(1978)
All out push for share
Industry maturity and
competitive position
Hold position
Grow with industry
Harvest
Selectively push for position
Phased out withdrawal
Turnaround
Find niche and protect it
Abandon
Vesper (1979)
Multiplication
Strategic postures based
on superiority and flexibility
in adapting to the
environment.
Monopolizing
Specialization
Liquidation
Abandon
Porter (1980)
Cost Leadership
Strategic scope and strategic
strength
Differentiation
Focus
Stuck In the Middle
Wissema et al.(1980)
Explosion
Situation of the market and
situation of the company
(possible routes to the
desired strategic position.)
Expansion
Continuous Growth
Slip
Consolidation
Contraction
Miles and Cameron
(1982)
Domain Defence
Organizational adaptation Domain Offense
Domain Creation
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Table 1 (continued). Typologies and taxonomies of business level strategies
Typologies Strategies proposed Classification variables
Miller (1988)
Innovators
Business focus, Asset
parsimony, Asset intensity
Marketers
Cost Leaders
Niche Marketers
Schuler and Jackson
(1987)
Innovation
Dimensions of competitive
advantage
Quality Enhancement
Cost Reduction
Herbert and
Deresky (1987)
Develop
Product/market evolution
Stabilize
Turnaround
Harvest
Mintzberg (1988)
Price Differentiation
Differentiation and scope
Image Differentiation
Support Differentiation
Quality Differentiation
Design Differentiation
Undifferentiation
Venkatraman (1989)
Aggressiveness
Strategic orientation
Analysis
Defensiveness
Futurity
Proactiveness
Riskiness
Wright et al. (1992)
Low cost
Firm size, scope and
strength
Differentiation
Low cost Differentiation
Mixed
Focus Low Cost
Focus Differentiation
Focus low cost-
Differentiation
Ward et al. (1996)
Niche Differentiation
Emphasis on quality and
price, asset parsimony,
innovation -R&D, narrow
product - market scope
Broad Market
Differentiation
Cost Leadership
Lean Competitiveness
Thompson and
Strickland (1999)
Cost Leadership
Strategic scope and strategic
strength
Differentiation
Focus
Best Cost Provider
Kim and
Mauborgne (1999)
Value Innovation Competitive advantage
Chang et al. (2002)
Pre-emptive/First mover Dimensions of competitive
advantage, timing of entry
into the marketplace
Low Cost/ Follower
Differentiation/Follower
Hitt et al. (2007)
Cost leadership
Strategic scope and strategic
strength
Differentiation
Focus
Integrated Cost Leadership
and Differentiation
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Table 1 (continued). Typologies and taxonomies of business level strategies
Taxonomies Strategies Proposed Classification Variables
Galbraith and
Schendel (1983)
Harvest
Strategy posture and
strategy direction
(Total 26 variables)
For the consumer goods
industry
Builder
Continuity
Climber
Niche
Cashout
Low Commitment Strategy posture and
strategy direction
(26 variables)
For the industrial product
industry
Maintenance
Growth
Niche
Hambrick (1983)
Cost Leadership
Strategic choice and
strategic position attributes
For disciplined capital
goods makers
Asset Conscious Followers
High Quality Gendarme
Broad Based Differentiation
Strategic choice and
strategic position attributes
For aggressive makers of
complex capital goods
Prospectors
Asset Conscious Focusers
Robinson and
Pearce (1988)
Efficiency and Service
27 competitive methods
No Clear Strategy
Service/high-price markets
and Brand Channel
Influence
Product Innovation and
Development
Brand
Identification/Channel
Influence and Efficiency
Kim and Lim (1988)
Product Differentiators
15 strategy variables
Market Differentiators
Overall Cost Leaders
Stuck In the Middle
Douglas and Rhee
(1989)
Broad Liner
Marketing tactics, market
scope, business synergy (17
strategy variables)
Innovator
Integrated Marketer
Low Quality
Nicher
Synergist
Huang (2001) Innovation Eight statements about
strategy Cost leadership
Stuck in the Middle
Lillo and Lajara
(2002)
Differentiation Nineteen variables
describing a firm’s
competitive strategy
Innovation
Product Offering
Aggressive growth with
narrow special product
Powers and Hahn
(2004)
General Differentiation 26 competitive methods
Focus
Stuck In the Middle
Cost Leadership
Customer Service Diff.
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Utterback and Abernathy (1975) theoretically describe three competitive strategies associated
with the innovative patterns of firms: performance maximizing, sales maximizing and cost
minimizing. A performance maximizing strategy, in which firms emphasize unique products
and performances, is seen in the early stages of the product life cycle. Sales maximizing firms
tend to define needs based on their visibility to the customer. As the product life cycle
evolves, the product becomes standardized and price competition begins, and thus firms
follow a cost minimizing strategy during the late stages of product life cycle.
Miles, Snow, Meyer and Coleman (1978) propose that firms develop relatively stable patterns
of strategic behavior that is compatible with perceived environmental conditions. Their
typology consists of four strategic types: defenders, prospectors, analyzers and reactors.
Defenders focus on improving the efficiency of their existing operations. Prospectors always
search for new market opportunities. Analyzers show some characteristics of both prospectors
and defenders. They try to achieve efficient production for current lines and, at the same time,
they emphasize the creative development of new product lines. Reactors have no systematic,
proactive strategy. They react to events as they occur.
Hofer and Schendel (1978) define six strategies using the product/market evolution of the
industry in which the firm competes and its competitive position in the industry. These six
strategies are share increasing, growth, profit, turnaround, market concentration and asset
reduction and liquidation. Under share increasing, a firm significantly increases its market
share by investing greater than the norm of the industry. A growth strategy is designed to
maintain a firm’s position in rapidly expanding markets by investing equal to the industry
average. The aim of the profit strategy is to maximize the utilization of resources and skills in
order to increase cash flow. A turnaround strategy is a form of retrenchment strategy that
focuses on operational efficiency. The market concentration and asset reduction strategy
requires a realignment of resources to focused, smaller segments. A liquidation strategy is for
firms that want to generate cash while withdrawing from market.
Vesper (1979) describes the optimal behavior of a firm for a spectrum of strategic attitudes
based on superiority and flexibility in adapting to the environment. He identifies four types of
business strategies. In the first type, the aim of the multiplication strategy is to expand market
share by increasing present market structures. The second type, namely monopolizing,
focuses on destroying competition by creating barriers for entry. The third group is
specialization, under which firms specialize in products or in the production process. The
fourth group is liquidation. Firms, that follow this strategy give up on their businesses and
market positions.
Patel and Younger (1978) use the stages of the product life curve and competitiveness of the
industry in order to determine strategic alternatives for firms. They develop a matrix that
consists of 20 blocks and nine different strategies, namely all out push for share, hold
position, grow with industry, harvest, selectively push for position, phased out withdrawal,
turnaround, find niche and protect it, and abandon.
Porter (1980) suggests that differentiation, cost leadership and focus are the strategies that
provide firms with the ability to attain a competitive advantage and outperform rivals in an
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industry. A cost leadership strategy aims for a firm to be a low-cost producer in the industry.
Companies following this strategy place emphasis on cost reductions in every activity of the
value chain. Differentiation consists of offering unique products and services in various forms,
such as design, brand image, customer service and technology. A focus strategy is aimed at a
segment of a market within which a firm develops uniquely low-cost or well-specified
products for the market. Porter (1980) claims that organizations that follow one of these three
generic strategies can show above average performances in the long-term, while firms that
are stuck in the middle perform less well. He defines stuck in the middle as a firm’s
unwillingness to make strategic choices and its attempts to compete by every means.
Wissema, Van Der Pol and Messer (1980) specify a typology based on the market situation
(external potential) and the situation of the company in the market (internal potential). Based
on life cycle theory, six strategies are identified: explosion, expansion, continuous growth,
slip, consolidation and contraction. An explosive strategy suggests an improved competitive
position in the short-term, whereas an expansion strategy suggests an improved competitive
position in the long-term. The slip strategy emphasizes only cost reductions in growing
markets. A consolidation strategy is only applicable in saturated or diminishing markets and
when the only aim is to reduce costs. A continuous growth strategy aims to maintain a firm’s
position in an expanding market. In the case of a contraction strategy, firms liquidate assets
and leave the market.
Miles and Cameron (1982) examine the range of strategic options used by six large tobacco
firms. They introduce organizational adaptation as a concept, along with its goals and patterns.
These patterns are domain defense, domain offense and domain creation. The domain defense
strategy’s concept is the protection of existing businesses whereas the main concept of
domain offence is the expansion of existing businesses. Different from these strategies,
domain creation is entering into new businesses.
Miller (1988) suggests four broad categories of dimensions that reflect competitive strategies.
These dimensions are differentiation, cost leadership, focus and asset parsimony. The
differentiation dimension tries to determine the degree of producing unique products. The
cost leadership dimension measures if firms are producing products cheaper than their
competitors. The focus dimension measures the degree of a firm’s attention on a specific type
of customer, product or geographic locale. The last dimension, asset parsimony, refers to the
fewness of assets per unit output. In light of the above, four strategy types are presented:
niche marketers, innovators, marketers and cost leaders.
Schuler and Jackson (1987), based on Porter’s typology, identify three competitive strategies
that firms can use to gain competitive advantage: innovation, quality enhancement and cost
reduction. The innovation strategy is used to produce goods different from competitors.
Increasing the quality level of the product is the focus of the quality enhancement strategy.
Under the cost reduction strategy, a firm tries to be lowest cost producer in the industry.
Herbert and Deresky (1987), review the strategic classifications in the literature. After a
synthesis and categorization of the literature, they find four generic strategies associated with
the stages of product/market evolution: develop, stabilize, turnaround and harvest. The main
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aim of the develop category is long-term growth through finding new market opportunities
and developing new products. Under a stabilize strategy, the most used method to maintain
both competitive position and earnings is the cost leadership approach, using efficient
manufacturing processes. The turnaround strategy requires cost and efficiency controls as in
the stabilize strategy. The harvest strategy emphasizes pruning expenditures and increasing
operational efficiency in the short run.
Mintzberg (1988) proposes a typology of generic strategies based on differentiation by price,
image, support, design and quality. Differentiation by image refers to creating a distinctive
image for a product using marketing. In contrast, differentiation by design requires offering
products with unique features and design configurations. The strategy of differentiation by
quality is offering a superior quality based on reliability, durability and performance. Support
differentiation implies providing a distinctive service during the sale or after the sale of the
product. For Mintzberg, Porter’s cost leadership is another form of differentiation so he
includes price differentiation as a fifth business strategy. The last category in Mintzberg’s
typology is undifferentiation in which a firm emphasizes none of the five differentiation
dimesions.
Venkatraman (1989) identifies six important dimensions of strategic orientation in his study:
“aggressiveness”, which means to allocate resources faster than competitors in order to
increase market share; “analysis”, which is about the problem solving posture of the firm and
also refers to the consistency between resource allocation and a firm’s objectives;
“defensiveness” in which firms concentrate on cost efficiency and narrow the market domain;
“futurity”, where the balance between effectiveness/efficiency and acting by considering all
future results is important; “proactiveness”, which requires continuous research for market
opportunities, the introduction of new products and foreseeing the future of the industry
environment in order to shape it from today; and “riskiness”, which refers to decisions on
resource allocation.
Wright, Pringle and Kroll (1992), based on Porter’s typology, develop strategies that can be
followed according to the size of the company. They suggest low cost, differentiation, low
cost differentiation and a mixed strategy for large firms. For small firms, they suggest focus
low cost, focus differentiation and focus low cost differentiation. In summary, focus strategies
can be followed only by small companies.
Ward, Bickford and Leong (1996) propose four basic strategic configurations: niche
differentiator, broad differentiator, cost leader and lean competitor. Niche differentiators offer
specialized products or services for a market segment that is not served by large firms in the
industry. Broad differentiators try to increase their market shares using new product
development. They offer a wide range of products to various markets. Cost leaders attempt to
offer products at a lower price than competitors. In order to do this, they have to develop
efficient systems in all stages of the value chain. The last group, lean competitors, aims for
the simultaneous pursuit of cost leadership and differentiation.
In addition to Porter’s generic competitive strategies, some strategy textbooks offer a fifth
strategic choice, namely best cost provider strategy (Thompson & Strickland, 1999) and
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integrated low cost differentiation strategy (Hitt, Hoskisson & Ireland, 2007). These
strategies imply that a firm can gain advantages by offering products with unique features at a
lower price compared with its competitors. Moreover, Kim and Mauborgne (1999) describe
the value innovation model in their Harvard Business Review article. Later, they introduce
their ideas in a book titled Blue Ocean Strategy (2004). According to the blue ocean strategy,
a firm can outperform its competitors by creating demand in an uncontested market. Value
innovation is the base of the blue ocean strategy. This implies the simultaneous pursuit of
differentiation and low cost.
Chang, Lin, Wea and Sheu (2002) develop a typology that considers the dimensions of
competitive advantages and timing of entry into the market. Three strategy categories are
classified: pre-emptive/first mover, low cost/follower and differentiation/follower. The
pre-emptive/first mover enters to a new market or adopts a new technology earlier than its
competitors in order to achieve competitive advantage. The low cost/follower firm enters the
market late or has a late adoption of new technology. These firms try to achieve competitive
advantage by strict cost control policies. Finally, the differentiation/follower watches the
market attentively and achieves competitive advantage by redesigning existing products or
offering unique services.
Galbraith and Schendel (1983) carry out a study of 99 consumer products and 100 industrial
product companies. Six strategy types are identified for consumer products: harvest, builder,
cash out, niche or specialization, climber and continuity. Under a harvest strategy, firms are
not interested in investments, whereas the builder strategy is used by firms that want to
increase market share and sales rapidly. Firms competing with the cash out strategy attempt
to utilize advertising and promotion activities in order to increase perceived quality. A niche
strategy emphasizes high-quality products and services. A climber strategy focuses on a
narrow product line and low prices. A continuity strategy implies reacting in a like manner to
competitor strategies. For industrial products, four strategy types are identified: low
commitment, which is similar to the harvest strategy; growth, in which firms make
investments in order to expand their market shares; maintenance, which is the union of the
continuity strategy and cost reduction; and the niche and specialization strategy, in which
quality is the most important criteria for beating the competition.
Hambrick (1983) assesses whether the primary strategies pursued by high-performers in the
two industry settings closely resemble Porter's three strategic types. He identifies three
strategies for disciplined capital goods makers. Two of these strategies, namely cost
leadership and high quality gendarme, are similar to Porter’s cost leadership and
differentiation strategy. The third strategy, asset conscious focusers, seems to include low-
share operators that carefully manage their asset bases. He also determines three strategies for
aggressive makers of complex capital goods: broad based differentiators, prospectors and
asset conscious focusers. Broad based differentiators have superior quality and technology.
Prospectors, different from the first group, have very high product innovation. Finally, asset
conscious focusers offer products to narrow segments while reducing assets and innovation.
Robinson and Pearce (1988), from data on 97 manufacturing firms belonging to 60 different
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industries, identify five groups of strategic behavior: efficiency and service (a high emphasis
on low cost and customer service), no clear strategic orientation (no distinct pattern),
service/high-priced markets and brand/channel influence (high emphasis on customer service
and innovation in marketing), product innovation/development (emphasis on specialty
products), brand identification/channel influence and efficiency (marketing innovation and
low cost).
Kim and Lim (1988) divide a sample of 54 firms in the high-growth electronics industry in
Korea into four strategic groups: overall cost leaders, product differentiators, market
differentiators and stuck in the middle. The characteristics of these four strategic groups are
generally consistent with those of the generic strategies identified by Porter.
Douglas and Rhee (1989) identify six strategy types in two samples namely European and
U.S businesses. Broad liners are characterized by a broad market scope and high product
quality. Innovators have a high proportion of new products in their product lines and
emphasize innovativeness over marketing effort. Integrated marketers show some
characteristics of broad liners. Additionally, they have a high customer concentration and a
high degree of vertical integration. The low quality group has a narrow market scope and low
quality. Nichers target a small number of highly concentrated customers with a relatively
narrow product line. Lastly, the synergist group has a narrow market scope, low product
quality and a low percentage of new products but they have a high level of shared marketing
expenditure.
Huang (2001), based on the analysis of 315 local firms in Taiwan, identifies three groups.
Cost leadership businesses give high priority to cost reduction. Innovation businesses place a
major emphasis on innovation and a secondary emphasis on quality but they ignore cost
reductions. The third group resembles Porter’s “stuck in the middle” and Miles and Snow’s
“reactor” groups.
Lillo and Lajara (2002) define a taxonomy of business strategies from data on 75
owner-managed companies in Spain. Four strategic groups are found. The differentiation
group places a high emphasis on superior quality and a high level of customer service. The
innovation group always develops new products and provides its products at a competitive
price. This group also sells its products to various market segments using numerous
distribution channels. The product offering group offers a broad range of tried and tested
products to a large market segment. Moreover, brand identification and a high level of
advertising and promotion are key functions in this group. Finally the group that targets
aggressive growth offers narrow range of products to a small number of customers. These
firms produce in large scales in order to be cost leaders in the industry.
Powers and Hahn (2004), using data on 98 companies in the banking industry, specify a
taxonomy that corresponds to Porter’s generic strategy types. They identify five groups of
competitive strategies: general differentiation, cost leadership, stuck in the middle, focus and
customer service differentiation.
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3. Generic business strategies
After analyzing 29 works on business strategy in the literature, we notice that many authors
give different names to what can be regarded as the same strategy. Five generic strategies can
thus be identified, although their names are different. These strategies are
? Cost Strategies
o Cash Flow Maximizing
o Cost Leadership
? Differentiation Strategies
o Market Differentiation
o Innovation Differentiation
o General Differentiation
? Focus Strategies
o Focus-Differentiation
o Focus-Low Cost
o General Focus
? Hybrid (Combination) Strategy
? No Definite Strategy
3.1 Cost strategies
These strategies are about cost reduction. Such strategies were observed in 72% of the studies
analyzed. By referring to the literature, it is possible to divide cost strategies into two groups.
The first group is cost leadership. Porter (1980) broadly propounded this strategy for the first
time. Cost leadership aims at reducing costs throughout the value chain and reaching the
lowest cost structure possible. A cost leader enterprise puts products with an acceptable
quality and limited standard features on the market in order to gain competitive advantage
and to maximize its market share. Such kinds of enterprises appeal to a wide group of
customers. Cost leadership necessitates a reduction of costs in fields such as R&D and
advertising. Besides economies of scale, cost reduction efforts through the experience curve,
strict control over costs and overhead costs are important in this strategy. This group has
various denominations: cost minimizing (Utterback and Abernathy, 1975), cost leadership
(Porter, 1980; Hambrick, 1983; Huang, 2001; Hitt et al., 2007), maintenance (Galbraith &
Schendel, 1983), cost leaders (Miller, 1988; Kim & Lim, 1988; Ward et al., 1996), cost
reduction (Schuler & Jackson, 1987), price differentiation (Mintzberg, 1988), efficiency and
service (Robinson & Pearce, 1988), low cost (Wright et al., 1992), low cost provider
(Thompson & Strickland, 1999), low-cost/follower (Chang, 2002).
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The second group follows a cash flow maximization strategy. Although observed in a limited
number of studies, it should be isolated from cost leadership. The main goal in this strategy is
not maximizing market share. Firms rather aim to extract provide maximum revenue out of
the product in the maturity or decline stages of the product-life cycle. Mostly, enterprises
operating in low growth-rate sectors, with high market shares or with low market shares and
which are considering ending their operations in the present business soon, follow this
strategy. In this strategy, investments are kept at the lowest level and, at the same time, high
cash flow is maintained by reducing costs. We find the following denominations to refer to
this group: harvesting (Buzzell et al., 1975), profit (Hofer & Schendel, 1978), turnaround
(Patel & Younger, 1978), slip and consolidation (Wissema et al., 1980), stabilize turnaround
and harvest (Herbert & Deresky, 1987).
3.2 Differentiation strategies
A differentiation strategy occurs when a firm gains an unprecedented position within the
sector of operation by differentiating its products or services. It is possible to observe one sort
of differentiation strategy in all the studies analyzed. Because differentiation is a broad
concept, this strategy should be discussed with various dimensions. We can list the strategies
in the literature related to differentiation under three groups.
The first group is market differentiation. In this strategy, innovations are carried out in
marketing activities rather than the product. In order to have a positive enterprise and product
image, intense advertisement and promotion activities are emphasized. This aims to make a
difference in issues such as post-production service and customer service. Moreover, it aims
to maximize the sales by analyzing, planning, implementing and controlling salesforce
activities. This group is variously denominated: market penetration and market development
(Ansoff, 1965), sales maximizing (Utterback and Abernathy, 1975), cash out (Galbraith &
Schendel, 1983), marketers (Miller, 1988), image differentiation and support differentiation
(Mintzberg, 1988), service/high-price markets and brand/channel influence (Robinson &
Pearce, 1988), market differentiators (Kim & Lim, 1988), differentiation/follower (Chang et
al., 2002), product offering (Lillo & Lajara, 2002), customer service differentiation (Powers
& Hahn, 2004).
The second group is innovation differentiation. This strategy aims to enhance product quality,
performance and design. In this strategy, enterprises attempt to operate above the sector
average by producing a product regarded as unprecedented in the industry and, in return,
charging a higher price that the customer would agree to pay. This group has various
denominations: product development and diversification (Ansoff, 1965), performance
maximizing (Utterback & Abernathy, 1975), prospector (Miles & Snow, 1978; Hambrick,
1983), high quality gendarme (Hambrick, 1983), innovators (Miller, 1988), innovation
(Schuler & Jackson, 1987; Huang, 2001; Lillo & Lajara, 2002), quality enhancement (Schuler
& Jackson, 1987), quality differentiation and design differentiation (Mintzberg, 1988),
product innovation and development (Robinson & Pearce, 1988), product differentiators
(Kim & Lim, 1988), innovator and broad liner (Douglas & Rhee, 1989), preemptive/first
Mover (Chang et al., 2002).
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The third group is general differentiation. We can define this group as approaching the market
and innovation differentiation strategies together. Some writers have not considered
abstracting the concept of differentiation in different dimensions as necessary and have
preferred to approach it holistically. This group is variously denominated: building (Buzzell
et al., 1975), share increasing and growth (Hofer & Schendel, 1978), all out push for share
(Patel & Younger, 1978), Multiplication (Vesper, 1979), Differentiation (Porter, 1980; Wright
et al., 1992; Thompson & Strickland, 2002; Hitt et al., 2007), explosion and expansion
(Wissema et al., 1980), domain offense and domain creation (Miles & Cameron, 1982),
growth and builder (Galbraith & Schendel, 1983), broad base differentiation (Hambrick,
1983), develop (Herbert & Deresky, 1987), aggressiveness (Venkatraman, 1987), integrated
marketer (Douglas & Rhee, 1989), broad differentiator (Ward et al., 1996), general
differentiation (Powers & Hahn, 2004).
3.3 Focus strategies
Porter (1980) and Miles et al. (1978) propounded this strategy in the literature for the first
time. The defender strategy propounded by Miles focuses on efficient and effective
production in a small market segment rather than maximizing the product quality. Porter
(1985) discusses the focus strategy in more detail.
The focus strategy differs from the other strategies in one aspect. While in the differentiation
and cost strategies wide fractions of customers are being appealed to, the firms that follow a
focus strategy prefer to appeal to a certain geographical area or a certain fraction of
customers. In 62% of the studies analyzed, one sort of focus strategy was observed. When we
analyze the studies carried out in later years, we can divide the focus strategies into three
groups.
The first group’s focus on a low-cost strategy is based on competing in a small segment of the
market with low costs and prices. We find the following denominations to refer to this group:
defender (Miles & Snow, 1978), focus-cost (Porter, 1980; Wright et al., 1999; Thompson &
Strickland, 1999; Hitt et al., 2007), domain defense (Miles & Cameron, 1982), climber
(Galbraith & Schendel, 1983), asset conscious focusers (Hambrick, 1983), defensiveness
(Venkatraman, 1989), aggressive growth with narrow special product (Lillo & Lajara, 2002).
In the second group that focuses on differentiation, firms produce products and provide
services suitable to the needs and tastes of a narrow customer population. This group is
variously denominated: focus differentiation (Porter, 1980; Wright et al., 1992; Thompson &
Strickland, 1999; Hitt et al., 2007), niche marketers (Miller, 1988), niche differentiator (Ward
et al., 1996), niche (Galbraith & Schendel, 1983), nicher (Douglas & Rhee, 1989),
differentiation (Lillo & Lajara, 2002), and focus (Powers & Hahn, 2004).
A limited number of studies in the literature approach the focus strategy merely as focusing
on a small fraction of customers; thus they do not make such a distinction between cost and
differentiation. We find three denominations: market concentration and asset reduction (Hofer
& Schendel, 1978), find niche and protect it (Patel & Younger, 1978), specialization (Vesper,
1979).
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3.4 Hybrid (Combination) Strategy
This strategy implies the implementation of cost leadership and differentiation strategies.
Although it is not a part of Porter’s typology, it is regarded as the fourth generic strategy. As a
result of the literature review, a hybrid strategy was observed in 24% of the studies analyzed.
Although the opinion that differentiation and cost leadership could not be implemented
concomitantly because they were antonymous concepts was dominant in the 1980s, the
number of those who object to this view has increased since the 1990s.
A hybrid strategy aims at supplying much more monetary value to customers by combining
low costs and high rates differentiation (Thompson & Strickland, 1999). The aim of this
strategy is to satisfy the customer in terms of the quality/performance/service/property of
products and fulfill price expectations of the customer. We find the following denominations
to refer to this strategy: analyzer (Miles & Snow, 1978), brand identification/channel
influence and efficiency (Robinson & Pearce, 1988), mixed (Wright et al., 1992), lean
competitor (Ward et al., 1996), best cost provider (Thompson & Strickland, 1999), value
innovation (Kim & Mauborgne, 1999), integrated cost leadership and differentiation (Hitt et
al., 2007).
3.5 No Definite Strategy
Firms in this group do not follow a certain strategy. For this reason, they unstably adapt to
changes in the business environment. Some of them chase their successful rivals. Such
strategies can be considered as counterfeiting (Mintzberg, 1988). Generally, these kinds of
enterprises cannot develop a compatible strategy with the structure and processes of the
organization (Miles et al., 1978).
The three business strategies Porter (1980) propounded (cost leadership, differentiation and
focus) specify the basic approaches that could be implemented in a competitive environment.
According to Porter, it is impossible to succeed if a firm does not prefer one of these three
strategies or implement two of them simultaneously. Porter defines this situation as being
“stuck in the middle”.
Because strategies that offer competitive advantage are usually included in the typologies and
taxonomies and because the non-pursuit of strategy approach does not bring any competitive
advantage, this group is observed only in 24% of the studies analyzed.
Thus, we can say that an enterprise does not have an accurate strategy if it does not place
emphasis on a strategic element that would bring about a competitive advantage. This
strategy is variously denominated: reactor (Miles and Snow, 1978), stuck in the middle
(Porter, 1980; Kim & Lim, 1988; Huang, 2001; Powers & Hahn, 2004), low commitment
(Galbraith & Schendel, 1983), undifferentiation (Mintzberg, 1988), no clear strategy
(Robinson & Pearce, 1988).
4. Gaps in Porter’s Typology
The most widely used business strategy types are those developed by Miles and Snow and
Porter (Douglas & Rhee, 1989). Porter’s (1980) typology of the generic strategies of cost
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leadership, differentiation and focus seems to be most popular paradigm in the literature
(Kumar, Subramanian & Strandholm, 2001). It has received more research attention than any
other typologies.
However, although it is widely acknowledged and used, Porter's typology falls short of
explaining all the studies in the literature. In Table 2, the differences and similarities between
the studies in the literature and Porter's typology are presented.
Table 2. Comparison of Porter’s typology and proposed strategies in literature
Proposed Strategies in Literature Porter’s Typology
Cost Strategies
Cash Flow Maximizing -
Cost Leadership Cost Leadership
Differentiation Strategies
Market Differentiation -
Innovation Differentiation -
General Differentiation Differentiation
Focus Strategies
Focus-Cost Focus-Cost
Focus-Differentiation Focus-Differentiation
Hybrid (Combination) -
No Definite Strategy Stuck In the Middle
First, it is possible to observe Porter’s cost leadership strategy under different titles. Some of
these are Maintenance (Galbraith & Schendel, 1983), Cost Reduction (Schuler & Jackson,
1987), Price Differentiation (Mintzberg, 1988) and Low Cost Provider (Thompson &
Strickland, 1999). However, enterprises might reduce their costs for other reasons as well.
For example, if an enterprise is considering ending the activities of a product it manufactures
soon, if the manufactured product is in the maturity or recession stages of the product-life
cycle and it is supposed that it will not be preferred by the customer, or if demand for the
product has declined, costs might be reduced in order to obtain the maximum return from the
product and to increase cash flow. We call this approach cash flow maximizing. While
leading the market is the main goal in cost leadership, cash flow maximizing aims to
maximize the yield in the short-term by reducing the costs. Thus, these two situations should
be considered separately since they serve different purposes.
Second, the differentiation strategy of Porter appears in the literature under different names
such as building (Buzzell et al., 1975), develop (Herbert & Deresky, 1987), prospector (Miles
et al., 1978), multiplication (Vesper, 1989) and integrated marketer (Douglas & Rhee, 1989).
Yet, Porter discusses the differentiation strategy from a broad perspective. However, firms
today can make a difference without changing their product qualities and performance by
developing their marketing techniques or focusing only on issues such as product quality and
performance. When previous studies are analyzed, the need to evaluate the two dimensions
separately comes forward. Miller (1988) analyzes the concept of differentiation under two
dimensions (market and innovation) for the first time.
Porter (1980) divides the focus strategy into two. However, because of ambiguities and
debates, Porter further divided this strategy into two five years later. In our study, we see that
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the strategies of focus-low cost and focus-differentiation are observed in other typologies and
taxonomies in the literature as well.
The strategies propounded by Porter are those that enterprises could prefer in order to realize
their goals. Porter argues that enterprises that prefer any one of these strategic orientations
would gain competitive advantage and perform better than their rivals. In addition, he
indicates that those who do not prefer one of these strategic orientations would be stuck in the
middle and that their profitability would decrease. Moreover, Porter claims that in order for
an enterprise to gain high profits and to surpass its rivals, it has to prefer either cost
leadership or differentiation. According to Porter, cost leadership and differentiation are two
conflicting strategies. He argues that if an enterprise implements these two strategies
simultaneously, it cannot be successful (Acquaah & Ardekani, 2008). However, this
perception has been losing its legitimacy. Applications such as quality management systems,
flexible production systems and networks enable cost leadership and differentiation to be
implemented together (Hitt et al, 2007). Further, many scholars indicate that high quality
increases the demand for products which give the firm the chance to reduce the costs
(Prajogo, 2007). In recent years, many thinkers of strategic management have included this
approach under different titles in their studies: lean competitor (Ward et al., 1996), best cost
provider (Thompson & Strickland, 1999), value innovation (Kim & Mauborgne, 1999),
analyzer (Miles et al., 1978), and integrated cost leadership and differentiation (Hitt et al.,
2007).
5. Conclusion
The purpose of this work was to examine the latest research on business (competitive)
strategy typologies and taxonomies in order to assess if Porter’s typology still exists. For this
purpose, the typologies and taxonomies found in the literature were reviewed and analyzed.
We found that many authors give different names to what can be considered to be the same
strategy. We synthesized presented findings into the following series of generic business
strategies that are commonly accepted in the literature:
? Cost strategies: Reducing cost is the main purpose of this strategy. We find two kinds
of cost strategies. First is cost leadership, in which a firm tries to be the lowest cost
producer in the industry. The second group, namely cash flow maximizing, is
generally seen in mature or declining industries. This group tries to generate cash in
the short-term by reducing costs.
? Differentiation strategies: This strategy is divided into two. The first one is market
differentiation where innovations are carried out in marketing techniques, and sales
and advertorial activities are emphasized, whereas the second is innovation
differentiation which is based on manufacturing an unprecedented product in terms of
features, performance and quality.
? Focus strategies: These operate in a narrow segment of the market. A limited number
of customers are addressed. The focus strategy is divided into two. The main goal in
focus-low cost is to manufacture a limited number of products at a lower cost than the
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rivals in a narrow segment of customers and offer them at lower prices. By contrast,
focus-differentiation targets manufacturing unique products that meet the needs of a
small segment of customers in the market.
? Hybrid strategy: This refers to the concurrent pursuit of cost leadership and
differentiation. High-quality products are manufactured at low costs and offered at
low prices; thus, much more value is created for the customer.
We also observe another type of business strategy namely “no definite strategy” in which
companies do not emphasize strategic factors such as quality and cost. They do not have a
specific and consistent strategy.
Thus, we find that the business strategies propounded by Porter remain insufficient for
explaining the business strategies put forward by previous studies. While Porter exclusively
refers to cost leadership, he does not mention the issue of cost reduction in order to increase
cash flow. Porter does not classify in terms of differentiation. Yet, the innovations made in the
field of marketing techniques and products should be evaluated differently. One of them
covers the work performed on firm image, while the other covers elements such as the
performance and quality of the product. Even when a firm sells its products at a low price, it
can carry out market differentiation at the same time. However, it may not be able to make
any difference in terms of innovation.
Finally, Porter suggests that cost leadership and differentiation cannot be applied together; yet,
a number of recent studies have refuted this view. Porter’s view may be accepted as true until
the late 1980s when the business environments were constant (Kim, Nam & Stimpert, 2004).
However, constantly changing customer demands and a dynamic competitive environment
have necessitated firms be flexible and apply the two strategies together. Mass customization
has enabled the application of a hybrid strategy (Anderson, 1997). Moreover, the Internet has
altered the traditional value chain and led to the emergence of new competitive obligations
(Evans & Wurster, 1999). In addition, it has facilitated access to information. Internet has
necessitated a revision of business strategy (Afuha & Tucci, 2001).
This literature review has aimed to help readers and researchers to update their understanding
on the present status of the knowledge on business strategy. Moreover generic business
strategies may help managers to find the way of being successful in intense competition. As
demonstrated by this study, major progress has been made in terms of business strategy
within the strategic orientation literature. However, there are still some unsolved problems.
For instance, the number of empirical studies of business strategy is insufficient. Researchers
studying this issue usually base their work on Porter’s typology. Yet, this typology falls short
of explaining business strategies in the current competitive environment. Future empirical
studies should investigate whether the business strategies presented in this study are still
being applied in various sectors. Moreover, the generic strategies presented in the literature
are usually directed towards the production sector. Studies could be carried out on the issue of
determining the business strategies followed in the service sector.
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