Generic Strategies A long-term or grand strategy must be based on a core idea about how the firm can best compete in the marketplace. The popular term for this core idea is generic strategy.Porter’s Generic Strategy Framework, * Michael Porter has suggested three general __ types of positioning strategies to achieve competitive advantage « These three generic strategies are defined along two dimensions: strategic scope and strategic strength. = Strategic scope looks at the size and composition of the market you intend to target = Strategic strength is a supply-side dimension and looks at the strength or core competency of the firm,Generic Strategy * A firm positions itself by leveraging its strengths * Michael Porter has argued that a firm's strengths ultimately fall into one of two headings: cost advantage and differentiation By applying these strengths in either a broad or narrow scope. three generic strategies result: cost leadership, differentiation, and focusCost Leadership * This generic strategy calls for being the low cost producer in an industry for a given level of quality * The firm sells its products either at average industry prices to earn a profit higher than that of rivals, or below the average industry prices to. gain market share. * Even without a price war. as the industry matures and prices decline. the firms that can produce more cheaply will remain profitable for a longer_period of timeRequirements for Low cost Leadership Overall Cost Leadership +Secured supply of raw material +Dominant market share position Sustained capital investment and access to capital *Process engineering skills sIntense supervision of labor Products designed for ease in manufacture Low-cost distribution system, *Tight cost control +Frequent, detailed control reports +Structured organization and responsibilities «Incentives based on meeting strict quantitative targetsRequirements for Differentiation & Focus Strategies Differentiation | Product engineering *Strong coordination among, *Strong capability in basie functions in R&D, product research development, and marketing *Corporate reputation for quality | ‘Subjective measurement and or technological leadership incentives instead of quantitative *Unique combination of skills | ™6*t¥es f. *Amenities to attract highly *Strong cooperation from Y a skilled labor, scientists, or f creative people “Strong marketing abilities Focus Combination of above policies Combination of above policies directed at the particular strategic | directed at the particular strategic target targetRisks of the Generic Strategies Risks of Cost Leadership Risks of Differentiation Risks of Focus Cost leadership is not sustained +Competitors imitate “Technology changes +Other bases for cost leadership erode *Cost focusers achieve even lower cost in segments Differentiation is not sustained Competitors imitate “Bases for differentiation become less important to buyers *Cost proximity is lost “Differentiation focusers achieve greater differentiation in segments Focus strategy is imitated ‘Target segment becomes unattractive *Structure erodes *Demand disappears +Segment’s differences from others narrowCe cy cro Sc byt] Cer See eo enc Perey SCT nT Rc Ses & Configuration Activities nr) Lo Coca Physical sourcing || Processes by which Se Cm een a eee or services, Cerne Value by creating Reem Pee Coens ead Ded Racal ‘Suppot to customers eet rd CeThe Value Chain Model is a useful tool for determining a strategy based on a firm's core competency as well as deciding on initiatives in areas of activities for building new Ce et ey a CT re DOU CCL Pa eo NC Dee oe i ue ee ne CC) aoe een Cas) 3. eee RR aE ey nea] SR eR Lr = Technology changes or having a new Delivery Mechanism ee Rey '= Tho cost - performances of drect actives are improved by greater expertise in ieee SD eu RON Le = Activities performed inside the company can substantially reduce the need to COC ee uci