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Competitive Strategy

The Basics a la Michael Porter
 
  Fred Nickols 2012

 

In his book, Competitive Strategy (Free Press: 1980), Michael Porter identifies three fundamental competitive strategies and lays out the required skills and resources, organizational elements and risks associated with each strategy.  The table below is  a shorthand way of referring to what Porter has to say.

Competitive Strategy Required Skills & Resources Organizational Elements Associated Risks
Overall Cost Leadership Sustained capital investment and access to capital

Process engineering skills

Intensive supervision of labor

Products designed for ease of manufacture

Low-cost distribution system

Tight cost control

Frequent, detailed reports

Structured organization and responsibilities

Incentives based on meeting strict quantitative targets

Technological change that nullifies past investments or learning

Low-cost learning by industry newcomers or followers through imitation, or through their ability to invest in state-of-the-art facilities

Inability to see required product or marketing change because of the attention placed on cost

Inflation in costs that narrow the firm’s ability to maintain enough of a price differential to offset competitors’ brand images or other approaches to differentiation

Differentiation Strong marketing abilities

Product engineering

Creative flair

Strong capability in basic research

Corporate reputation for quality or technological leadership

Long tradition in the industry or unique combination of skills drawn from other businesses

Strong cooperation from channels

Strong coordination among functions in R&D, product development, and marketing

Subjective measurement and incentives instead of quantitative measures

Amenities to attract highly skilled labor, scientists, or creative people

The cost differential between low-cost competitors and the differentiated firm becomes too great for differentiation to hold brand loyalty. Buyers thus sacrifice some of the features, services, or image possessed by the differentiated firm for large cost savings.

Buyers’ need for the differentiating factor falls. This can occur as buyers become more sophisticated.

Imitation narrows perceived differentiation, a common occurrence as industries mature.

Focus Combination of the above policies directed at the particular strategic target Combination of the above policies directed at the particular strategic target The cost differential between broad-range competitors and the focused firm widens to eliminate the cost advantages of serving a narrow target or to offset the differentiation achieved by focus.

The differences in desired products or services between the strategic target and the market as a whole narrows.

Competitors find submarkets within the strategic target and outfocus the focuser.

 

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This page last updated on June 27, 2015