Answered! Question 61 According to Porter, what are the three [3] generic strategies available to firms to achieve sustainable competitive…

Question 61

According to Porter, what are the three [3] generic strategies available to firms to achieve sustainable competitive advantage? Discuss the strengths of each strategy. [3 Marks]

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Answered! Question 61 According to Porter, what are the three [3] generic strategies available to firms to achieve sustainable competitive…
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Expert Answer

 For achieving organizational performance or operational excellence, competitive advantage over the others is the key. Successful companies sense opportunities quicker than others, adopt strategies that create value in that situation and tap uncharted potential of the market. The type of strategy that such a firm adapts has a significant bearing on the firm’s long term sustenance and success. The board classification of such strategies that were explained by Michael E. Porter in 1980s are,
  • Cost leadership strategy
  • Differentiation strategy
  • Focus Strategy

Competitive advantage in either through pursuing low cost strategy or differentiation strategy is a function of a firm’s value chain. Both these strategies are widely been followed and pursued by the companies present in several industries across the globe.

Cost leadership strategy

While cost leadership strategy possess characteristics of achieving more profits by minimizing the costs, the differentiation strategy advocates achieving higher profits by selling at a premium with its unique brand positioning in the market compared to its competitors. Cost leadership strategy envisages the companies to become the lowest cost manufacturer or service provider with the aim of earning higher profits, yet reaching out to broad target market.

Cost leadership strategy aims to provide standard products, with no frills to its customers that have easily accessible market substitutes or alternatives. Owing to which the cost leadership strategies are favored in emerging countries where the labor costs are low and thus the lower production costs. Implementing a cost leadership strategy requires stringent cost control measures in areas of the value chain right from marketing to engineering to manufacturing to sales. Cost leadership strategy has been adapted by companies spanning across many industries including Toyota, Walmart, Southwest Airlines, Tesco, etc. These firms would require strong value engineering or value analysis function, which serves as a cost leader and drive cost reduction activities in the firm. Specifically countries such as Japan implemented cost leadership strategies successfully through establishing competitiveness in quality and delivery time, and deploying cost reduction activities.

Differentiation strategy

Differentiation strategy targets a premium and niche customer segment by offering unique, superior quality and specially crafted innovative product to which alternatives cannot be found elsewhere. The firms pursuing the differentiation strategy tends to make a perception that their products and services possess better features in the minds of customers and that they are distinctive from its competitors in terms of product quality.

Differentiation strategy suggests to build business around establishing product uniqueness or differentiated qualities so as to gain competitive advantage based on product features, and performance, with having direct relationship to either cost or price. Also, the difference has to such that it should be nearly hard to replicate or difficult to imitate. The differentiation strategy offers multiple ways of differentiating from the competitors and some of the typical differentiation methods are brand differentiation, design differentiation, differentiation by positioning, technology differentiation and differentiation by innovation. The examples of companies that differentiation strategies include McDonald’s, FedEx, Apple, etc. These companies would need strong research and development capabilities, and marketing abilities.

Focus strategy

While the aforementioned techniques were promoted to achieve competitive advantage while preserving the uniqueness of the company. In addition to cost leadership strategy and a differentiation strategies, Porter also explained Focus strategy which is then extended to ‘Cost Focus’ and ‘Differentiation Focus’. The intrinsic advantage of pursuing focus strategy is that Companies can use this strategy to concentrate on target / specific niche markets and understand the dynamics of chosen market in a better manner.

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