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choosing the Right Generic Strategy

Your choice of which generic strategy to pursue underpins every other strategic decision you make, so it’s worth spending time to get it right.

But you do need to make a decision: Porter specifically warns against trying to “hedge your bets” by following more than one strategy. One of the most important reasons why this is wise advice is that the things you need to do to make each type of strategy work appeal to different types of people. Cost Leadership requires a very detailed internal focus on processes. Differentiation, on the other hand, demands an outward-facing, highly creative approach.

So, when you come to choose which of the three generic strategies is for you, it’s vital that you take your organization’s competencies and strengths into account.

Use the following steps to help you choose.

Step 1:

For each generic strategy, carry out a SWOT Analysis   of your strengths and weaknesses, and the opportunities and threats you would face, if you adopted that strategy.

Having done this, it may be clear that your organization is unlikely to be able to make a success of some of the generic strategies.

Step 2:

Use Five Forces Analysis   to understand the nature of the industry you are in.

Step 3:

Compare the SWOT Analyses of the viable strategic options with the results of your Five Forces analysis. For each strategic option, ask yourself how you could use that strategy to:

  • Reduce or manage supplier power.
  • Reduce or manage buyer/customer power.
  • Come out on top of the competitive rivalry.
  • Reduce or eliminate the threat of substitution.
  • Reduce or eliminate the threat of new entry.

Select the generic strategy that gives you the strongest set of options.

Tip:

Porter’s Generic Strategies offer a great starting point for strategic decision-making.

Once you’ve made your basic choice, though, there are still many strategic options available. Bowman’s Strategy Clock  helps you think at the next level of details, because it splits Porter’s options into eight sub-strategies. You can also use USP Analysis  and Core Competence Analysis  to identify the areas you should focus on to stand out in your marketplace.

Key Points

According to Porter’s Generic Strategies model, there are three basic strategic options available to organizations for gaining competitive advantage. These are: Cost Leadership, Differentiation and Focus.

Organizations that achieve Cost Leadership can benefit either by gaining market share through lowering prices (whilst maintaining profitability) or by maintaining average prices and therefore increasing profits. All of this is achieved by reducing costs to a level below those of the organization’s competitors.

Companies that pursue a Differentiation strategy win market share by offering unique features that are valued by their customers. Focus strategies involve achieving Cost Leadership or Differentiation within niche markets in ways that are not available to more broadly-focused players.

Apply This to Your Life

  • Ask yourself what your organization’s generic strategy is. How does this affect the choices your make in your job?
  • If you’re in an organization committed to achieving Cost Leadership, can you reduce costs by hiring less expensive staff and training them up, or by reducing staff turnover? Can you reduce training costs by devising in-house schemes for sharing skills and knowledge amongst team members? Can you reduce expenses by using technology such as video conferencing over the Internet?
  • If your organization is pursuing a Differentiation strategy, can you improve customer service? Customer Experience Mapping  may help here. Can you help to foster a culture of continuous improvement and innovation in your team?
  • And if you’re working for a company that has a chosen a Focus strategy, what knowledge or expertise can you use or develop to add value for your customers that isn’t available to broad market competitors?

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