GROUP 8

Explain and construct the Porter's generic competitive strategy matrix, and
explain why the Hybrid Strategy is not sustainable.

INTRODUCTION

1. Isn't it fascinating how Amazon has managed to dominate the e-commerce industry?

2. Have you ever wondered how Walmart, known for its superstores, has become a

multinational leader its industry?

3. Have you heard that NIKE is the choice of one in every five pairs of running shoes in

the athletic space?

4. Did you know that MTN commands a whopping 63% of the market share in the

telecom industry in Ghana?

5. Why is Meta holding the lead, even though it is easy to download the next app on

Android or iOS?

In the complex arena of business, every company searches for its unique strategy — a way to
stand out and thrive. Michael Porter, a renowned name in business strategy, gave the world a
matrix that simplifies this complex decision-making. This guide is known as the Generic
Competitive Strategy Matrix. This essay will explore this guide and also discuss an
interesting approach called the Hybrid Strategy, and see why it might not be the best move
for everyone.

COMPETITIVE ADVANTAGE

Competitive Advantage is a fundamental concept in strategic management, signifying a

company's capability to surpass its rivals in the market.

Discussing three primary avenues to attain competitive advantage:

 A. Cost Advantage: This occurs when a business can manufacture its products or deliver
its services at a lower unit cost than its competitors deliver. This may be achieved
through more efficient production processes, superior supply chain management, or
benefiting from economies of scale. Ultimately, this approach allows for lower costs
and the ability to offer prices that are more competitive. For instance, Walmart's
supply chain management exemplifies this strategy.

B. Differentiation Advantage: This involves a business setting its product apart from the
competition in a way that customers perceive it to offer superior value compared to
alternatives. Differentiation can be achieved through exceptional customer experiences, high
product quality, unique style, innovative features, or other distinctive attributes. This strategy
attracts customers who are willing to pay premium prices for these unique products or
services. Notable examples include Apple (with its unique features) and Ferrari (known for its
high-performance, premium cars).

C. Network Advantage: In this scenario, a company leverages its connections with other
businesses, customers, or stakeholders to gain a competitive edge over rivals. A prime
example of this approach is Alibaba.com in the realm of e-commerce.

Companies experience various benefits, including increased profitability, sustainable growth,

expanded market share, and enhanced bargaining power, when they successfully establish a
competitive advantage.

Maintaining either of these advantages over the long-term results in a significant and
enduring edge over competitors.

HISTORY AND DEFINITION OF THE PORTER'S GENERIC STRATEGY MATRIX

Michael Porter, a professor at Harvard Business School in his book “Competitive Advantage”
in 1985, developed Porter’s generic competitive strategy matrix. This was to help businesses
identify and choose their competitive strategies.

The matrix is based on the idea that there are two basic types of competitive advantage
(Horizontal Axis): Lower Cost and Differentiation. These strategies help businesses gain a
competitive advantage in the market either by offering products at a lower cost or by
differentiating their products from competitors in ways that customers love and are willing to
pay extra for.

Also with Competitive Scope, (Vertical Axis) there is Broad Target and Narrow Target.
The broad target, the company wants to reach lots of people or different types of customers.
Think of big stores that sell a bit of everything whilst the Narrow target focuses on a very
specific group or type of customer

Michael Porter further categorizes generic strategies into four quadrants: cost leadership,
differentiation, cost focus, and differentiation focus. The choice of strategy depends on
factors such as target market, industry dynamics, and the company's capabilities.

1. Cost Leadership: This is when a company tries to have the lowest prices while serving
many people. By producing a lot, improving their processes, and cutting costs, they can sell
at low prices. This attracts customers who are mainly looking for good deals.

Example in Ghana: Melcom is a popular store in Ghana known for offering a variety of goods
at affordable prices, loyalty cards, and discounts making it a go-to for many Ghanaians as it is
in most communities.

2. Differentiation: A firm pursues a differentiation strategy and targets a broad market.

Here, a company offers products that stand out because of exceptional features, benefits or of
top-notch quality. They are not competing on price; they are competing on offering
something special. They might charge more, but people are willing to pay because of the
product's unique features, brand reputation, or customer loyalty.

Example in Ghana: Kantanka is an automobile manufacturer that offers uniquely designed

cars, positioning itself as a differentiated brand in the Ghanaian market.

MTN Ghana might introduce a special, cost-effective data bundle tailored exclusively for
university students, ensuring they cater to this segment that requires affordable internet
solutions for their academic needs.

3. Cost Focus: A firm pursues a low cost strategy and targets a narrow market. This is about
focusing on a specific group of people and offering them the best prices. Instead of targeting
everyone, they choose a niche group and aim to give them the best deals.
Example in Ghana: Kasapreko Company Limited, known for its alcoholic and non-alcoholic
beverages, might target a particular demographic with a cost-effective product line, ensuring
they cater to consumers seeking quality drinks at a more affordable price.

4. Differentiation Focus: A firm pursues a differentiation strategy and targets a narrow

market. Here, a company targets a specific group but instead of just offering the best prices,
they offer something unique or of very high quality. They cater to the unique needs of this
group, making products and services that are distinctive, innovative, high quality, high
performance, or have exceptional features or benefits. It creates a strong brand image and
customer loyalty in its segment.

- Example in Ghana: Woodin offers uniquely designed fabrics catering to the tastes of those
who seek contemporary African fashion, standing out in its segment.

Organizations can also be greatly affected by new market entrants, substitute products and
services, suppliers, and customers. However, the matrix also implies that a business should
choose one of these strategies and stick to it, as trying to pursue more than one strategy may
result in being "stuck in the middle" and losing its competitive edge.

ADVANTAGES AND DISADVANTAGES OF PORTER'S GENERIC STRATEGY

MATRIX

While Porter's Generic Strategies have been proven effective in many scenarios, they are not

without their drawbacks. Porter’s strategies have its own benefits and risks, and the firm

adopting that particular strategy must be aware of those. Let us look at some advantages and

disadvantages of this strategy.

ADVANTAGES

 Provides a clear framework for businesses to understand how to gain and sustain a

competitive advantage by positioning your business uniquely in the market. This can

help attract customers and increase sales

  Offers flexibility in choosing the right approach for a business based on its unique

strengths and weaknesses.

 Porter’s strategies help a firm to avoid a ‘stuck in the middle’ situation. Normally, a

firm tries to focus on both cost and differentiation, and this could lead to confusion.

Porter’s generic strategies, however, advocates focus on one strategy as per their

strength, which in return helps businesses, identify areas for improvement and

efficiency gains.

 To customers, Porter’s generic strategies could mean they get the product at a low cost

or a product that is better and different.

DISADVANTAGES

 It is very challenging for a small firm to select one strategy. This is because they may

not be able to afford the tools needed to effectively implement the strategy.

 It can be challenging to sustain a competitive advantage over time, as competitors

may also adopt similar strategies.

 Another disadvantage of Porter's strategy matrix is that it focuses primarily on

competition and may not fully consider other important factors such as customer

needs and evolving market trends.

 Relying solely on Porter's strategy may limit innovation and creativity, as it

emphasizes fitting into predetermined strategic frameworks rather than exploring

unique approaches.

Porters Generic Strategies’ have certainly helped many companies to achieve success in their

industry. It is, however, very important for companies to have a clear understanding of the

strategy that they are adopting, as well as its limitations and drawbacks.

THE HYBRID STRATEGY

The Hybrid strategy combines elements of both cost leadership and differentiation strategies.

It aims to offer unique and high quality products or services at competitive prices. The hybrid

strategy allows companies to increase customer satisfaction, cost efficiency and market share.

HISTORY OF THE HYBRID STRATEGY

The notion of a hybrid strategy has its origins in diverse fields and contexts, encompassing

military, business, and technology. A hybrid strategy typically denotes an approach that

amalgamates components of two or more distinct strategies with the aim of achieving a

particular objective or addressing a specific challenge. Below, we provide a concise overview

of the historical development of the hybrid strategy concept in various domains: Business

Strategy, Military Strategy, Technology and Software, Investment Strategy and

Environmental and Energy Strategy.

TWO TYPES OF HYBRID STRATEGY AND ITS DIFFERENCES

• Sequential or outpacing strategies (Gilbert & Strebel, 1987) first concentrate on one

of the two strategic options, and then the other. For instance, an innovative company may first

undergo a phase of differentiation in which it markets a new product that offers high value to

customers and can be sold at a premium price. Next it needs to push back any competitors

that will inevitably appear on the scene by making a strategic shift to gaining cost leadership.

Through product and process standardization, the company will lower prices enabling it to

sustain its competitive advantage. With the development of new products, the cycle repeats.

• Simultaneous strategies aim to generate cost and differentiation advantages at the

same time. One way to achieve that is mass customization, that is by producing customized

products at a price similar to those of mass-produced products. Customization may be

achieved through design or mixing-and-matching of components (e.g., Dell).

ADVANTAGES AND DISADVANTAGES OF THE HYBRID STRATEGY

 ADVANTAGES

1. Increased customer satisfaction-The hybrid strategy allows companies to cater to a

wider range of customer preferences. They can offer unique features or customization

options while still providing competitive prices. An example is Mtn Ghana, Mtn

provides a hybrid strategy by providing both affordable pricing and innovative

services. They offer competitive mobile data plans and voice packages along with

value added services like mobile money and digital content, making them a popular

choice among Ghanaians.

2. Competitive Advantage- By combining cost leadership and differentiation,

companies can create a unique position in the market. This can make it difficult for

competitors to imitate or replicate their success. An example is Apple. Apple is known

for its unique blend of premium pricing and differentiated product features. By

offering high quality, user-friendly devices with a sleek design, Apple has successfully

differentiated itself from competitors while maintaining a strong focus on cost

efficiency.

3. Flexibility and Adaptation.-The hybrid strategy allows companies to adapt to

changes in the market more effectively. They can adjust their pricing, features or

marketing strategies based on customer demands and market trends

4. Risk Diversification. - By pursuing both cost leadership and differentiation,

companies spread their risks. If one aspect of their strategy faces challenges, they can

rely on the other to maintain their competitive edge

5. Improved profitability. The hybrid strategy can lead to improved profitability by

attracting a larger customer base, increasing market share and optimizing cost

structures. An example is Amazon. Amazon has achieved increased profitability by

 combining cost leadership and differentiation. By offering a wide range of products at

competitive prices, along with convenient delivery options and personalized

recommendations, Amazon has become a dominant player in the e-commerce

industry.

DISADVANTAGES

1. Increased complexity Implementing- a hybrid strategy can be challenging, as it

requires a balancing both cost leadership and differentiation. It may require additional

resources, coordination and expertise to effectively execute

2. Higher costs- Pursuing differentiation can sometimes lead to higher production or

operational costs. This can affect the ability to maintain competitive prices, which is a

key aspect of the hybrid strategy.

3. Potential for Confusion- Balancing both cost leadership and differentiation can

sometimes lead to confusion in the minds of customers. It is important to clearly

communicate the unique value proposition of the hybrid strategy to avoid any

confusion.

4. Market Segmentation limitations. -The Hybrid strategy may not be suitable for all

market segments. It may be more effective in certain industries or for specific

customer segments, limiting its applicability

5. Difficulties in sustaining differentiation. -Maintaining a unique position in the

market can be challenging over time. Competitors may attempt to imitate or replicate

the differentiated aspects of the hybrid strategy, reducing its effectiveness

WHY THE HYBRID STRATEGY IS NOT SUSTAINABLE

To discuss the subject of why the hybrid strategy is not sustainable, let’s take a brief look at

the generic competitive strategies which is defined as how a company tries to achieve a

competitive advantage in the market. According to Michael E. Porter (1980), three basic

types of strategies can be distinguished:

Cost Leadership

The aim of this strategy is to generate a comprehensive cost advantage within the industry in

order to be able to offer products or services at a price below the market price.

Differentiation

‍Differentiation involves creating products or services that are perceived by customers as

unique and for which they are willing to pay premium prices. Thus, competition is not based

on price but quality.

‍Focus Strategy

‍Companies that use focus strategies concentrate on serving a narrow market niche. This may

be a specific customer group, geographical region, or product line. Within the niche, they

seek to achieve either a cost or differentiation advantage.

What if we combine two or more of these strategies? This becomes the hybrid we are talking

about.

Mostly, this is about pursuing low cost at same time with differentiation to offer quality

products. These two are often at variance to each other. It's a difficult thing for organizations

to say they want to offer low cost, so that they can have the masses to buy at the same time

offering optimal quality to appeal to the segment that will look out for very salient quality

features.
Delivering these two however, is an organizational decision requiring a lot of investment.

These of course is expected to rake in a lot of benefits to outwit competition. Don't forget, the

end result is to beat competition at same time make profit. But what if the cost is not

sustainable? How about the challenges of an efficient management and competent team?

Does everyone in the team accept that we are pursuing these two strategies? Is the

differentiation of products to afford a unique image, quality and a super brand sustainable?

The complexity of taking the two, if not matched with required resources in the form of

human, financial and capital resources can make it unsustainable.

Nonetheless, we must highlight the fact that, these strategies when perfectly pursued stand to

bring enormous benefits in the form of increased sales, customer base increased -market

share, outwitting competition, offering customers what can be leveraged as switching cost

which is a benefit to organization loyal customers of course if they can't switch there's the

tendency to remain loyal. But are all these benefits sustainable?

The following factors explains some of the reasons why hybrid is not sustainable.

1. The hybrid strategy will force profit to decrease, that's because you will be forced to

spend a lot more to achieve all that the combined strategies requires and profit will be

affected.

2. Also, because competition which you want to outwit can force you to decrease price,

and reducing price of items that you spent so much to produce means your margins

will be little, total profit dips.

3. The company’s focus can also be diverted and that can lead to a crash. The moment a

company cannot focus, there's the tendency to fail or fall out of business.
 4. Coordination among the various teams can be daunting. Bonding becomes a big

challenge and can lead to rancor and fragmentation of teams and the repercussions are

troubling.

5. The use of this strategy will be a moment of change, from the usual single strategy to

hybrid. This can have a huge resistance from the Team. Some may want to stick to the

single strategy because they may be used to it.

6. The two strategies is likely to require the business to spend a fortune to bring new

teams and experts, you will need heavy invest in new technologies. The new

technologies themselves require experts to operate, the cost implications become

endless. Profit is still going to be a suffering variable, and as you're not profitable,

what next?

To sum up these factors clearly suggests that the hybrid system is not sustainable and for the

continuity of any business. In as much as some profit levels or income may be obtained at the

moment, in long term it may not be beneficial to the overall aim of the business.

RECOMMENDATIONS

1. Transparency in communication regularly communicate the company's efforts to reduce

costs and streamline operations to stakeholders.

2. Ensure messaging speaks directly to the unique needs and desires of the niche market. Use

stories to convey the brand's values, mission, and uniqueness.

3. Establish connections with influential figures in the industry to support the uniqueness of

the company's products or services.

4. Engaging with employees is vital for communication professionals. When employees are

engaged, they perform their best, which is essential for maintaining a competitive edge.
 CONCLUSION

 Strategies are tools that help businesses achieve their goals.

 When a strategy aligns with a business's goal, it can reduce costs and increase profits

 Businesses should carefully assess any strategy before implementing it

 Porter's generic competitive strategy matrix and Hybrid Strategy offer ways for

businesses to gain an edge over competitors

 Regular monitoring and evaluation are crucial to ensure business goals are not

compromised, especially with Hybrid Strategy

REFERENCES

1. Laudon, K. C., & Laudon, J. P. (2019). Management Information Systems: Managing

the Digital Firm.

2. De Bruin, L. (2021, May 4). Porter’s Generic Strategies: Differentiation, Cost

Leadership, and Focus. Retrieved from https://www.business-to-you.com/porter-

generic-strategies-differentiation-cost-leadership-focus/
3. Porter, Michael E., "Competitive Advantage". 1985, Ch. 1, pp 11-15. The Free Press.

New York.

4. Gilbert, X., & Strebel, P. (1987): Strategies to Outpace the Competition. Journal of
Business Strategy, 8(1), 28 – 36.
5. Porter, M.E. (1980). Competitive strategy: Techniques for analyzing industries and
competitors. New York: The Free Press.
6. Spanos, Y.E., Zaralis, G., & Lioukas, S. (2004). Strategy and industry effects on
profitability: Evidence from Greece. Strategic Management Journal, 25(2), 139 – 165.