Generic Strategies By Anand

BUSINESS STRATEGY
FOCUSES ON IMPROVING THE COMPETITIVE POSITION OF A COMPANY’S OR BUSINESS UNIT’S PRODUCTS OR SERVICES WITHIN THE SPECIFIC INDUSTRY OR MARKET SEGMENT THAT THE COMPANY OR BUSINESS UNIT SERVES

• The central role of competitive advantage in the study of strategic management. • The generic study of strategic management. • tradeoff bet. cost leadership & differentiation

The generic strategies overall cost leadership, differentiation, focus and best cost positions.

Tasks for the strategist
• How firms can effectively combine the generic strategies of overall cost leadership and differentiation. • The role of functional strategies in relation to business level strategies and need for internal consistency • The pitfalls managers must avoid in striving to attain generic strategies

Questions to be answered
• Should the firm compete on the basis of low cost or differentiate its products or services on some basis other than costs? • Should the firm compete head to head with the major competitors or should it focus on a niche?

Ways of Generating Competitive Advantage

• Prices Charged • Value Delivered

Ways of Generating Competitive
• Cost Leadership • Differentiation

Ways of Generating Competitive Advantage

Concepts
• Lower cost strategy: the ability of a company or a business unit to design. Produce, and market a comparable product more efficiently than competitors • Differentiation Strategy: Ability of a firm to provide unique and superior value to the buyer in terms of product quality, special features, or after sale service

INDUSTRY LIFE CYCLE

Cost Leadership
Characteristics • Become Industry’s lowestcost provider rather than just a low cost provider • Aim for average customer/ Large MS • Lower production costs • Few unique/new features that buyers consider essential • Difficult for rivals to copy or match

Calls for
• Leveraging Scale economies • Marketing: Wide product line/Aggressive • Pricing/Start-up Losses • Aggressive construction of efficient scale facilities • Vigorous pursuit of cost reduction

Organizational Requirements
• Efficient organizational systems & structures • Tight Cost & Overhead Controls • Incentives based on quantitative targets • Low cost distribution systems

When Does a Low Cost Strategy Work Best?
• Price competition is vigorous • Product standardized/readily available with many suppliers • Most buyers use product in same ways

• Buyers incur low switching costs • Large buyers have significant bargaining power • Industry newcomers use low prices to attract buyers and build customer base buyers and build customer base

Examples
• WALMART • SOUTHWEST AIRLINES • TIMEX

Differentiation
Characteristics • Perceived Uniqueness/Quality/Service Based on • Design/Brand/Technology/F eatures/ Service

Calls for
• Strong marketing abilities • Product design skills/ Creative flair • Strong cooperation from channels • Eschewing market share, being exclusive

Organizational resources
• Strong coordination skills • Subjective measurement incentives • Amenities to attract creative talent

When Does a Differentiation Strategy Work Best?
• There exist many ways to differentiate a product • Buyer needs and uses are diverse • Few rivals are following a similar differentiation approach • Technological change and product innovation are fast paced

Types of Differentiation Themes
• Multiple features -- Microsoft Windows and Office • Superior service -- FedEx, RitzCarlton • Spare parts availability – Caterpillar • Prestige – Rolex • Quality manufacture -- Honda, Toyota • Technological leadership -- 3M Corporation, Intel • Top-of-the-line image -- Ralph Lauren, Chanel

Focus
• Characteristics • Small overall share of market • Serves chosen/well defined mkt segment • Either a cost leader/differentiator or both

Calls for
• Choice of buyer group/ product • segment/geographic market • Strong marketing abilities • Product design skills/ Creative flair

What Makes a Niche Attractive for Focusing?
• Potentially profitable, offers growth potential • Not crucial to success of industry leaders • Costly or difficult for multi segment competitors • to meet specialized needs of niche members

• Focuser has resources and capabilities to effectively serve an attractive niche • Few other rivals are specializing in same niche • Focuser can defend against challengers via superior ability to serve niche members superior ability to serve niche members

Generic Strategies Risks
Overall Cost leadership • Technological change can nullify past investment & learning • Low-cost learning by new comers/followers • High attention on cost >> inability to foresee productmarket changes • Inflation in costs can narrow price advtg. • Inflation in costs may increase attractiveness of differentiators

Differentiation
• Uniqueness that is not valuable • Too high a price premium • Differentiation that is easily imitated • Dilution of brand identification through product line extension • Perceptions of differentiation may vary between buyers and sellers • As buyers become more sophisticated fall in buyers need for differentiating factor • Imitation narrows perceived diffrtn.

Focus
• Narrowing prodt. Differences between niche and market as a whole • High cost differential compared to low cost may erode brand loyalty • Erosion of cost advantages within the narrow segment • Focused products and services still subject to competition from new entrants and from imitation. • Focusers can become too focused to satisfy buyer needs

STUCK IN THE MIDDLE: HP’s PC DIVISION
• A NICHE PLAYER • DIFFERENTIATION FOCUS • COMPETE IN BROAD TARGET MARKET DECIDED IN 1990 • REDUCED PRICES • RESULTED IN 40% SALES GROWTH • BUT ONLY 4.6% OPERATING MARGIN COULD NOT KEEP UP ITS QUALITY IMAGE

Competitive Positioning

CORPORATE STRATEGY
• FIRM’S OVERALL ORIENTATION TOWARDS GROWTH, STABILITY, OR RETRENCHMENT DIRECTIONAL STRATEGY • INDUSTRIES OR MARKETS IN WHICH FIRM COMPETES PORTFOLIO STRATEGY • MANNER IN WHICH MANAGEMENT CO ORDINATES ACTIVITIES, TRANSFERS RESOURCES, AND CULTIVATE CAPABILITIES AMONG PRODUCT LINES AND BUSINESS UNITS PARENTING STRATEGY

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