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https://www.consuunt.com/porters-generic-strategies/

Porter argued that every successful business must have a competitive advantage to prevent profits being eroded by rival businesses entering the market. A Competitive advantage refers to any factor that enables a business to be more appealing to customers, such as having a unique selling point, or being able to produce goods or services better or cheaply than its rivals. Porter suggested that there are three generic or broad strategies that any business can use to sustain a competitive advantage: (i) cost leadership, (ii) differentiation, and (iii) focus.

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What are Porter's Generic Strategies?

Porter's Generic Strategies are the standard basic strategies that a Business can follow, suggested by Michael Porter.

The strategies proposed depend on:

The Competitive Advantage of the company .
What makes the Company "Strong" in the Market.

The Scope of the Market targeted .
If the Company is targeting the Entire Market or just a small Segment.

Depending on these 2 parameters, Porter suggests 4 main strategies:

Porter's Four Generic Strategies

Porter's Four Generic Strategies.

The Porter's 4 Generic Strategies are:

Cost Leadership.

Differentiation .

Cost Focus .

Differentiation Focus .

Let's see them in more detail:

Cost Leadership Strategy

Differentiation Strategy

Cost Focus Strategy

Differentiation Focus Strategy

Some professionals claim that these strategies are very general and vague.

Perhaps it is true, but they provide a simple guideline for analyzing the Strategy of a Company.

This method makes you think about your Competitive Advantages and how you can design a Strategy based on them.

However , it is true that this framework is not perfect.

Now, before looking at more examples, let's discuss the pros and cons of Porter's Generic Strategies:

Pros and Cons of Porter's Generic Strategies

Pros

It forces you to think about the Competitive Advantages of a Company.

It is very easy to Understand .

The proposed Strategies quite well Synthesize the main alternatives that an average company has.

Cons

The Strategies proposed are vague .

It doesn't offer a Step-by-Step guideline to follow.

It Settles for a Big picture, without going deeper.

This method is not intended to offer a final solution to all Companies. That is impossible.

Its purpose is to help companies discover how they can be successful.

We recommend using it in conjunction with other strategic tools.

There is no single strategic tool that solves everything by itself.

Porter's Generic Strategies examples

We have chosen 4 real examples that perfectly show how these Strategies are used in successful companies.

Let's begin:

IKEA - Porter's Generic Strategies example

How has IKEA become so successful?

Because they have focused on reducing their Costs to the extent that it is the customer who assembles the furniture.

In addition, they have done so in all their products:

From kitchen utensil to shelves.

There are entire "Markets" (in plural) where the cheapest option is an IKEA product.

They have not tried to launch a premium product line, or something similar...

Natuzzi - Porter's Generic Strategies example

In case you do not know Natuzzi, we will summarize it for you:

It is the exact opposite of IKEA.

It is a small Premium furniture Company.

Small if you compare it to IKEA, of course.

They focus only on High-Quality products.

They have not tried to grow by lowering prices or qualities.

And, they have succeeded by Differentiating themselves from other companies, which tried to reduce Prices or Costs.

Apple - Porter's Generic Strategies example

It seems that Apple has always been the almighty company that it is today.

But this has not always been the case.

Some years ago (decades in fact) Apple was a minor player in the technology industry.

They did not have the best software or the best hardware.

What did they do?

Their computers had minimalist designs, and little by little they began to explore "new things".

The first successful "new big thing" was the iPod .

Not everyone remembers the beginnings of Apple and how they followed a Differentiation Strategy .

Once they released the iPhone the story changed.

SanDisk - Porter's Generic Strategies example

After talking about Apple, we wanted to give you an example of another technology company that had followed a different Strategy.

To this day, it seems that all technology companies must be involved in our day to day, or have certain values, etc.

SanDisk is a "discrete" company, that didn't intended to "change the world", and succeeded by doing one simple thing:

Develop affordable high-quality flash memory products.
USBs, Memory cards, etc.

Unlike Apple (which was much larger) they didn't try to develop computers or other technological devices.

They followed a Cost Focus Strategy.
* If you think all companies follow this Strategy, think about Apple's iPhone prices.

While SanDisk's prices have decreased over years, Apple's have risen.

All Companies try to reduce Costs, but not all see it as a Central Pillar of their Strategy.

Summarizing

Porter's Generic Strategies are the standard basic strategies that a Business can follow.

The strategies proposed depend on:

The Competitive Advantage of the company.

The Scope of the Market targeted.

Depending on these parameters, the strategies proposed are:

Cost Leadership.

Differentiation.

Cost Focus.

Differentiation Focus.

This method makes you think about your Competitive Advantages and how you can design a Strategy based on them.

It is highly recommended to use it in conjunction with other strategic tools.

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Porter's Generic Strategies are the standard basic strategies that a Business can follow, suggested by Michael Porter. The strategies proposed depend on: The Competitive Advantage of the company .What makes the Company "Strong" in the Market. The Scope of the Market targeted .If the Company is targeting the Entire Market or just a small Segment.

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Are statistical tools used in Business Management to summarize and present statistical data in a user-friendly way. The purpose is to enable managers and decision makers to interpret and analyse the data more easily and to support them in making non-biased (rational), objective, evidence-based, and well-informed decisions. Examples of descriptive statistics include the use of the following methods:

Averages, i.e., mean, mode, and median measures of the average values in a data set

Graphical tools, such as bar charts, pie charts, and infographics to visually represent the data, and

Statistical measures of dispersion or spread of numbers in a data set, such as quartiles and standard deviation.

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The Boston Consulting Group (BCG) matrix is a visual marketing management tool used to analyse a firm’s product portfolio. For example, Apple’s product portfolio (which gives it a range of revenue streams) include: the iPhone, iPad, iTunes, Apple Watch, MacBook laptops, Airpods, and computer accessories. Some products (such as the iPhone) earn Apple a huge amount of sales revenue, whereas other products in its portfolio (such as Airpods) earn less revenue for the company.

https://youtu.be/rW5SOENyq5g

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https://www.youtube.com/watch?v=TX0fUAhBAfc

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The Ansoff matrix is a strategic decision-making tool, used to devise product and market growth strategies for an organization. It was developed by Russian American Igor Ansoff in his article ‘Strategies for Diversification’, published in the Harvard Business Review (1957). Essentially, the Ansoff matrix (or Ansoff growth matrix) shows four generic growth strategies that can apply to any business or any industry.

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Is used as a visual organizational planning and decision-making tool to show the sequence and schedule of all the different tasks for a certain project. The idea was created by American mechanical engineer and management consultant Henry L. Gantt (1861 - 1919).

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Force field analysis involves the decision makers listing all the driving and restraining forces for and against change. These forces are then numerically weighted, in terms of their relative degree of importance. For example, a firm might be considering whether to offshore its production in an overseas location. In such a case, driving forces might include the following:

Lower labour costs in an overseas location

Improved competitiveness due to lower costs, lower prices, and higher profitability

Access to customers in overseas markets.

Restraining forces (against offshoring) might include:

The costs of staff redundancies

Costs of hiring and training new staff

Lack of local knowledge, thus increasing the risks of operating overseas.

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A decision tree is a quantitative and methodical organizational planning tool based on the mathematical concept of probability trees. As a visual tool, it allows managers to see possible options and the probable outcomes, thereby helping them to make more informed decisions.

Conventions in drawing a decision tree are outlined below:

A square represents a decision node, i.e. a decision that needs to be made

A circle represents a chance (probability) node, i.e. the probable outcomes of different decisions

Probabilities of the different outcomes are shown as decimal numbers, e.g. 0.65 means a 65% chance of the outcome occurring.

Cross out lines indicate options that are rejected based on quantitative reasoning

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A STEEPLE analysis is a management tool used to study the factors in the external business environment that impact on its operations. STEEPLE stands for:

Social

Technological

Economic

Ethical

Political

Legal, and

Environmental factors that affect business operations and decision making.

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STEEPLE Analysis | Unit 1.5 IB Business Management

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Firms have some degree of control over the internal factors, but not over the external factors.

Strengths – The things that the organization does well or better in comparison to its competitors, e.g. brand recognition, market share and customer loyalty.

Weaknesses – The things that the organization does not do so well in relation to its competitors, e.g. low productivity, high staff turnover or a poor corporate image.

Opportunities – External factors that provide openings (prospects) for an organization to succeed, e.g. new technologies, favourable demographic trends and new overseas markets.

Threats – External factors that hold back the business, preventing it achieving its organizational goals, e.g. detrimental weather conditions, increased competition in the industry and economic recession.

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SWOT Analysis – Swot makes Netflix so successful anyway?