Porter's Strategic Choice

ACCA - F1   ACCOUNTANT  IN  BUSINESS

Companies need to define their position in the market. Market is place where from companies buy/acquire resources (7M's = man/women, machine, money, material, management system, manufacturing and management information) and where they sell their products. Organisations operate as open system. It increase challenges to business to stay competitive because to some extent any one can reach the market and duplicate the product. However, no two products offered by two different organisations are identical to each other in their specifications. Further, corporations use philanthropy to enhance competitive context aligns social and economic goals and improves a company's long-term business prospect. These things are reflected in business strategy. Michael Porter identified different strategies that fit in the business.

 Generic Strategy: Types of Competitive Advantage

Basically, strategy is about two things: deciding where you want your business to go, and deciding how to get there.  A more complete definition is based on competitive advantage, the object of most corporate strategy:

Competitive advantage grows out of value a firm is able to create for its buyers that exceeds the firm's cost of creating it.  Value is what buyers are willing to pay, and superior value stems from offering lower prices than competitors for equivalent benefits or providing unique benefits that more than offset a higher price.  There are two basic types of competitive advantage: cost leadership and differentiation. 

                                                                                -- Michael Porter, Competitive Advantage, 1985,p.3

The figure below defines the choices of "generic strategy" a firm can follow.  A firm's relative position within an industry is given by its choice of competitive advantage (cost leadership vs. differentiation) and its choice of competitive scope.  Competitive scope distinguishes between firms targeting broad industry segments and firms focusing on a narrow segment.  Generic strategies are useful because they characterize strategic positions at the simplest and broadest level.  Porter maintains that achieving competitive advantage requires a firm to make a choice about the type and scope of its competitive advantage.  There are different risks inherent in each generic strategy, but being "all things to all people" is a sure recipe for mediocrity - getting "stuck in the middle".

Porter's Generic Strategies

COMPETITIVE ADVANTAGE
COMPETITIVE SCOPE		LOWER COST	DIFFERENTIATION
	BROAD TARGET	COST LEADERSHIP	DIFFERENTIATION
	NARROW TARGET	COST FOCUS	DIFFERENTIATION FOCUS

·         Porter, Michael, Competitive Advantage, The Free Press, NY, 1985.

SOURCE: EES&OR483  Strategy and Marketing Primer (version 3.0) PAGE 2