:Strategies and Value Chain 57

Porter's Generic

Chapter

6 Porter's Generic Strategies and Value Chain

a1 PORTER'S GENERIC STRATEGIES/ BUSINESs STRATEGIES

....M.U. Nov. 2019) (5 marks]

Competitive
Scope
Board COST LEADERSHIP DIFFERENTIATION
Target

FOCUSSED COST FOCUSSED

Narrow LEADERSHIP DIFFERENTIATION
Target DIFFERENTIATION

Low Cost Products / Differentiated

Services Products/Services

Competitive Advantage

Image Source :https://www.business-to-you.com/porter-qeneric-strateaies

differentiation-cost-leadership-focus!
-
On the X axis, Competitive advantage is subdivided into
Low cost products/services.
Diferentiated products/services.
On the Yaxis, Competitive Scope is subdivided into -
Broad target market.
Narrow target market
Whether a company's profitability is higher or lower than the industry average depends on
framework for
where it stands in relation to other businesses in the same sector. The crucial
above-average long-term profitability is a sustainable competitive advantage. Low cost or
differentiation are the two main categories of competitive advantage that a company can have.
Cost leadership, differentiation, and focus are the three general approaches for achieving above
average performance in an industry. These tactics are drawn from the two primary types of
58 Strategic
Management (MMS. Sem. M
competitive advantage and the variety of endeavours a corporation makes an effort to
them.There are two variations of the focus strategy: cost focus and differentiation focus
Cost Leadership -According to this strategy, Competitive advantage of a firm lies
achiee
cost of products and services relative to what the competitors have to offer.
ini.

Differentiation - Competitive advantage lies in special teatures incorporated into 4

products and services, backed by customer demand and ability to pay for it.
Focus Strateqy (Niche strategu) -Focus or Niche
niche market or a narow market. strategy is the one which cater to.
A. COST LEADERSHIP
Cost-cutting and market share acquisition are the two main goals of
Targeting consumers with lesser funds or those that are
strategy.
price-sensitive
Company should be able to operate at a lower cost, lesser than its
4 things essential for Cost rivals.
Leadership
Economies of Scale (Increasing production to reduce the
overall cost)
Offering a basic or a No-frills product.
Limiting customization.
Bulk buying and control over supplies and
procurement.
Pitfalls/Limitations of alow-cost stratequ
Because of Low-cost, people perceive it to be of
Low cost leads to reduced
inferior quality.
consumer loyalty as consumners can switch easily.
Low-cost Strategy can be easily imitated by rivals.
Strategy fails to target premium customers.
B. DIFFERENTIATION STRATEGY

(M.U. Nov. 2017) [5 marks]

Aproduct/service with unique
appealingattributes allows a firm to -
a) Command premium price and/or
b) Increase Unit sales and/or
c) Build Brand loyalty
This allows the firm to build a
easily.
competitive advantage as consumers are not able to switch
 :Generic Strategies and Value Chain 59
Porter's
Differentiation Strategv is appropriate to use when -
Target customer segment is NOT price-sensitive.
Customers' needs which are under-served. (Example: bookmyshow.com- Seling
tickets for Movies, IPL, Concerts, etc.)
Fim has unique resources and capabilities which are difficult to copy.
Pitfalls of differentiation strategy
a) Massive Over-pricing to differentiate is not liked by the buyers.
Features can be easily copied by rivals.
c) Overspending on advertisements &promotions may result in erosion of profitability

C. FOCUSED LEADERSHIP/ NICHE STRATEGY

marks]
...... M.U. Nov. 2017) [5
total market.
Involves concentrated attention on narrow piece of the
Obiective is to serve Niche buyers better than rivals.
cost leadership and differentiation
The focus strategy is a third category that modifies the
focus strategy entails focusing efforts
strategies. It is divided into two groups. In either scenario, the
a niche market
onclients with particular demands or desires, or what is known as
produce a particular product at a
With such a concentrated cient base, a business may
caers to the needs or wants of the target
lower cost or develop a product or service that especially
market. Each focus strategy subcategory has specific benefits.
identify ways to produce a widely used
As an illustration, a cost-focus approach might
advantage for the consumer in the niche
product at a reduced cost, enabling the creation of a cost
market.
By focusing on differentiation, a company may
be able to identify unmet needs or wants
and satisfy them with distinctive product features.
Risks of a Focus Strategy
segment
Competitors find effect ways to serve the niche market
causing profits to be
Segment becomes so attractive that it's crowded with rivals,
splintered.
 60 Strategic Management (MMS.
STUCK IN THE MIDDLE STRATEGY

...(Univ Examination November

2017) (5
MARKET LOW COST
COMPETITIVE ADVANTAGE

DIFFERENTIATION
Tmat
TOTAL COST
DIFFERENTIATÍON
LEADERSHIP
SCOPE
MARKET
STUCKIN THE MIDDLE
NICHE
GOST FOCUS DIFFERENTIATION
FOCUS

It is also called a
combination of generic strategies. If the firm
atempts to achieve an
advantage on allthe fronts, It's possible that this effort will yield no benefits at all.
Michael Porter contends that a corporation must choose just
one of these three general
strategies in order to succeed over the long run. Otherwise, the
company will be "STUCKIN THE
MIDDLE" and fail to gain a competitive advantage if it employs more
Being unable to distinguish a clear competitive edge, "to be than one generic strategy.
all things to all people" can result in
becoming trapped in the middle.
There is abelief that a single general strategy is not always the
ideal because buyers want
multifaceted fulfillments such a blend of quality, style, convenience, and price.
Example
The STUCK IN THE MIDDLE approach is exemplified by Southwest
Airlines. Southwest
Airlines had coupled distinction with cost-cutting strategies. The business was able to cut costs by
forgoing assigned seating and meal service on its aircraft.
It has been able to advertise that the food served on its flights is not insipid airline fare. Its
affordable tickets attracted a sizable number of travelers, enabling the airline to be successful. Over
$100million in savings are thought to have resulted from this. The company was able to minimize
costs by letting go of 7% of its 22,000employees, and it also lowered its inventory to make even
more savings.

Thus, stuck in the middlestrategy proved to be very beneficial &profitable for Southwest
Airlines.
 Porter's
Generic.Strategies and|Value Chain 61

MICHEAL PORTER'S GENERIC VALUE CHAIN/ VALUE CHAIN

A.
Firm Infrastructure Profit

Support Human Resource Management

Activities
Technology Development
Procurement
Margin
Outbound Marketing
Inbound Operations Logistics And Sales Service
Logistics

Primary Activities
usable products,
Introduction - By obtaining raw materials and tuming them into
variety of products and arange them
manufacturing enterprises create value. Retailers assemble a personal
occasionally aided byservices like fitting rooms or
so that buyers can eas1ly access them,
shopper assistance.
understanding of how your business adds
Developing a competitive strategy requires an
a focus on how to do so. This was covered by Michael Porter in the important book
value and
Advantage," which he wrote in 1985 and first popularized the idea of the value
"Competitive
chain.
benefit its customers.
activities that a business carries out to
A value chain is agroup of of their activities
be used by businesses to examine all
Porter's general-purpose value chain can and
they are related. Because value chain operations have an impact on costs
and discover how
sources of value for your company.
profits, this toolcan help you understand the
Generic Value chain is Industry Specific. Each of the actions will affect
Michael Porter's They are a
advantage depending on the industry in which the fim competes.
competitive
value-creating actions carried out by an organization.
collection of connected,
A) Primary Activities - is on the X
Axis & comprises into 5 parts
The activities the organization uses for receiving, storing, and
Inbound logistics
the production process. Example - Warehousing, material
transporting inputs going into
handling and inventory control. material to
organization uses for transformnation of raw
Operations - The activities an
finished products.
receiving, storing and transporting outputs
Outbound logistics - All activities used for and
from the production process. Example - Warehousing, Material handling
which are out
inventory control.
62
Strategic Management
Marketing and Sales - All activities leading to marketing and sales of (MMS. Sern
consumers. Example - Pricing, advertising, etc. products to he
Service - All activities used for enhancing and maintaining product value.
sales service and repair. Example - Aitex
B) Support Activities - is on the YAxis &
comprises into 4 parts
Firm Infrastructure -The activities
related for accounting, legal, planning,
etc. administrati
Human Resource Management -The
like Recruitment, training, activities related with managing human
resourrox
compensations, etc.
Technology Development -The activities related with product
Procurement - The activities related with procuring inputs neededdesign, equipment desian
services. Emphasis is on quality and price to negotiate.
to produce and
provide
C) Profit margins
The profit margin the
chains. organization earns is depicted through the efficient
usage of value
Examples
a) In a courier
the
company, the emphasis is on timely delivery of
shipments undamaged. Thus, Outbound the shipments and keeping
important primary activities in a logistics and Operations are the most
b)
courier company.
For a Tomato Ketchup manufacturing firm,
activity.as company is manufacturing a Operations is the most important primary
the
c) For a Retail consumable item.
company, Marketing and Sales are the most
primary activities important (value adding)
How to conduct a value
chain analysis?
1)
Subdivide each primary and secondary action
evaluate the financial return of each into its component parts. In
function to the time, effort, and order to
organizations can then analyze each function at a more cost required,
2) Look for links betvween the detailed level.
various sub activities.
3)
Determine
sub activity opportunities
for
is related toanother.
improvement. Frequently, the inefficiency of one action or
4) When evaluating potential improvement possibilities at those
value chain, take into
account trends and patterns in the specific locations in the
between sub activities. various sub activities and links
 CGeneric
Porter's
Strategies and Value Chain 63

Advantage of Value Chainn Analysis

Support choices made on a range of company activities,.
Jdentify weak places so that you can take corective action.
Recognize the connections and interdependence between various Cornpany operations
and functional domains,
Activities should be optimized to increase production and decrease organizational
Costs.

Create a potential cost advantage over rivals.

Recognize yourprimary talents and potential improvement areas.
Limitations of Value Chain Analvsis
The larger strategic perspective may be lost if micro details are focused on inordinately
close detail.

However, chain analysis performs apoor job of connecting the various chain activities.
As a result, it is possible to overlook how broadly the activities are related.

REVIEW QUESTIONS

01. Explain the various strategies outlined in Porter's Generic Business Strategies.
Q2. Write short notes on
Stuck in the middle strategy
b) Cost leadership strategy
c Differentiation Strategy
Q3. Explain the primary &secondary elements in Micheal Porter' s Value Chain.