BUSINESS STRATEGY Generic Strategies Generic Statezes a broad categorization of strategic chcce...that provides the business manager with guidelines for action They are most commonly used atthe strategic busines unit level - providing insights at to “how to compete”. “Corporate level strategies, on the other hand, are concerned with the “enviroenen Which to compete” (Herbert & Deresky, SMJ 1987) . A rarity of authors have attempted to categorize SBU generic strategies the most widely used being that of Michael Porter. Bowman's strategy clock (Johnson & Scholes p.251) is an laboration ofthe basic Porter model Lower Cost ifferentiation Broad Target | 1. Cost Leadership 2. Differentiation Narrow Target | 3a. Cost Focus 3b. Differentiation Focus (Cost leadership usually heavily reliant on scale economies to yield coimpetitive advantage Unit cost \ [small capacity plant big capacity plant P P Jong rum cost curve ° oa Output Q Camegie pursued a ruthless serap and build policy, rapidly moving down his Jong-rum cost curve to retain a cost leadership advantage over his rivalsCost leadership exploits a relatively price sensitive (clastic) demand schedule by () pricing tow (©) obtaining targe market share/large turnover (© large volumes at low margins yielding high rate of return on investment (@) profits reinvested to maintain cost leadership viz, sand curve Low price P Differentiat Strategy A Strategy B Price demand curve Price: demand curve P costs margio costs Ps margin 0 Q a or Exploit price insensitive (inelastic) demand to charge high (premium) Accept small/moderate sales OQ Obtain high profits by virtue of big margins Exploit by forgoing premium due to differentiation and charge lower price Obtain targer market share OO* Extract high profits by large sales, lower margins ‘Margin protected by expanding plant with lower costs ‘Advantages of differentiation sustained by continuing to build core competences of thefirmFocus Focus strategies exploit small, niche markets that, by themselves, are mot usually worth the attention of bigger producers. ‘The niche marketeers may focus on cost, ie. on a limited number of consumers in the market for ‘whom cheapness is paramount, ie. they are very price sensitive; altermatively they may focus on the demand from a small group of consumers for a particular product. ‘A typical example of a cost focus business would be Ryanair. The company succeeds because although (a) prices are low (b) turnover is low Price (©) costs are also low (@) providing a reasonable ROL costs P a quantity ‘The differentiation focus would be similar to differentiation above, with higher costs being offset by higher prices. Volumes would be small but the margins would be healthy, proving a reasonable rate of return in investment. e.g Rolls Royce. ‘Know thy business - dont be stuck in the mid Percentage rate of return on No clear strategy investment Production volume/ market share Wright argues that differentiation strategies can, in certain industries, also generate sufficiently large volumes to yield sizeable market share. e.g IBM in mainframes.