The generic competitive strategies form a business tool which helps strategists understand how the position of a company within its industry can be directly related to the strategy it employs. The strategy employed can then be analyzed to understand where a company's competitive advantage lies, with a view to maintaining it.
Generic Competitive Strategies [/i][/b][/i][/b]
A low-cost provider strategy which achieves lower overall costs than rivals and appealing to a broad spectrum of customers, usually by under pricing rivals
A broad differentiation strategy to differentiate the company's product offering from rivals' in ways that will appeal to a broad spectrum of buyers
A best-cost provider strategy that gives customers more value for their money by incorporating good-to-excellent product attributes at a lower cost than rivals
A focused strategy based on low costs that concentrates on a narrow buyer segment and out competing rivals by having lower costs than rivals and thus being able to serve niche members at a lower price.
Differentiation strategy is used where the company sees its key product competencies as a more profitable advantage than simple cost leadership.
Focus strategy is aimed at a specific target consumer group, for example cultural, economic, political, geographical or age-related groups. The strategy employs either cost focus or differentiation focus within its target audience, and in this sense it is a narrower application of one of the aforementioned strategies. Therefore, a company should retain one overall main strategy to maintain its long term competitive advantage.
At the most fundamental level, firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation. Innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. There can be significant advantages to early movers responding to innovations, particularly in industries with significant economies of scale or when customers are more concerned about switching suppliers. The most typical causes of innovations that shift competitive advantage are the following:
• new technologies
• new or shifting buyer needs
• the emergence of a new industry segment
• shifting input costs or availability
• changes in government regulations
How is competitive advantage implemented?
But besides watching industry trends, what can the firm do? At the level of strategy implementation, competitive advantage grows out of the way firms perform discrete activities - conceiving new ways to conduct activities, employing new procedures, new technologies, or different inputs. The "fit" of different strategic activities is also vital to lock out imitators. Porters "Value Chain" and "Activity Mapping" concepts help us think about how activities build competitive advantage.
The value chain is a systematic way of examining all the activities a firm performs and how they interact. It scrutinizes each of the activities of the firm (e.g. development, marketing, sales, operations, etc.) as a potential source of advantage. The value chain maps a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. Differentiation results, fundamentally, from the way a firm's product, associated services, and other activities affect its buyer's activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost.
A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. One of the reasons the value chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anywhere along the value chain. It's also important to understand how a firm fits into the overall value system, which includes the value chains of its suppliers, channels, and buyers.
With the idea of activity mapping, Porter (1996) builds on his ideas of generic strategy and the value chain to describe strategy implementation in more detail. Competitive advantage requires that the firm's value chain be managed as a system rather than a collection of separate parts. Positioning choices determine not only which activities a company will perform and how it will configure individual activities, but also how they relate to one another. This is crucial, since the essence of implementing strategy is in the activities - choosing to perform activities differently or to perform different activities than rivals. A firm is more than the sum of its activities. A firm's value chain is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages create tradeoffs requiring optimization and coordination.
Generic Competitive Strategies [/i][/b][/i][/b]
A low-cost provider strategy which achieves lower overall costs than rivals and appealing to a broad spectrum of customers, usually by under pricing rivals
A broad differentiation strategy to differentiate the company's product offering from rivals' in ways that will appeal to a broad spectrum of buyers
A best-cost provider strategy that gives customers more value for their money by incorporating good-to-excellent product attributes at a lower cost than rivals
A focused strategy based on low costs that concentrates on a narrow buyer segment and out competing rivals by having lower costs than rivals and thus being able to serve niche members at a lower price.
Differentiation strategy is used where the company sees its key product competencies as a more profitable advantage than simple cost leadership.
Focus strategy is aimed at a specific target consumer group, for example cultural, economic, political, geographical or age-related groups. The strategy employs either cost focus or differentiation focus within its target audience, and in this sense it is a narrower application of one of the aforementioned strategies. Therefore, a company should retain one overall main strategy to maintain its long term competitive advantage.
At the most fundamental level, firms create competitive advantage by perceiving or discovering new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation. Innovations shift competitive advantage when rivals either fail to perceive the new way of competing or are unwilling or unable to respond. There can be significant advantages to early movers responding to innovations, particularly in industries with significant economies of scale or when customers are more concerned about switching suppliers. The most typical causes of innovations that shift competitive advantage are the following:
• new technologies
• new or shifting buyer needs
• the emergence of a new industry segment
• shifting input costs or availability
• changes in government regulations
How is competitive advantage implemented?
But besides watching industry trends, what can the firm do? At the level of strategy implementation, competitive advantage grows out of the way firms perform discrete activities - conceiving new ways to conduct activities, employing new procedures, new technologies, or different inputs. The "fit" of different strategic activities is also vital to lock out imitators. Porters "Value Chain" and "Activity Mapping" concepts help us think about how activities build competitive advantage.
The value chain is a systematic way of examining all the activities a firm performs and how they interact. It scrutinizes each of the activities of the firm (e.g. development, marketing, sales, operations, etc.) as a potential source of advantage. The value chain maps a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. Differentiation results, fundamentally, from the way a firm's product, associated services, and other activities affect its buyer's activities. All the activities in the value chain contribute to buyer value, and the cumulative costs in the chain will determine the difference between the buyer value and producer cost.
A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. One of the reasons the value chain framework is helpful is because it emphasizes that competitive advantage can come not just from great products or services, but from anywhere along the value chain. It's also important to understand how a firm fits into the overall value system, which includes the value chains of its suppliers, channels, and buyers.
With the idea of activity mapping, Porter (1996) builds on his ideas of generic strategy and the value chain to describe strategy implementation in more detail. Competitive advantage requires that the firm's value chain be managed as a system rather than a collection of separate parts. Positioning choices determine not only which activities a company will perform and how it will configure individual activities, but also how they relate to one another. This is crucial, since the essence of implementing strategy is in the activities - choosing to perform activities differently or to perform different activities than rivals. A firm is more than the sum of its activities. A firm's value chain is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed affects the cost or effectiveness of other activities. Linkages create tradeoffs requiring optimization and coordination.