There are 4 distinctive strategies that describe the markets to be served, and how customer value is maintained.

These strategies are:

Cost leadership and broad market

Cost leadership and narrow market focus

Differentiation and broad market

Differentiation and narrow market focus

These were first described by Michael Porter as generic business level strategies. Recently, other authors have described an integrated cost leadership-differentiation strategy as the fifth distinctive choice. As you read this Module/Week Reading & Study material, keep in mind that a firms DNA impinges on such a strategy. For example, if Walmart decided to get into the high fashion clothing business, their intense dedication to high volume supply chain logistics, and cost minimization that leads to customer value through low prices, would interfere with their ability to serve their new customers. How could they successfully compete with Zara who can take a picture of a new fashion and in 6 weeks deliver a finished product in limited quantities to their stores world-wide?

The website article on business level strategy (Starr, 1999) points out the major risk of an integrated cost leadership differentiated strategy: being stuck in the middle. That is, you dont have the lowest costs and your customers dont see your products as differentiated enough to command higher prices.

In Porters article What Is Strategy (Porter, 1996 Issue 6) he differentiates between a firms drive for operational effectiveness and making choices on whom to serve and how. The table below is excerpted from that article:

Alternative Views of Strategy

The Implicit Strategy Model of the Past Decade

One ideal competitive position in the industry-

Benchmarking of all activities and achieving best practice

Aggressive outsourcing and partnering to gain efficiencies

Advantages rest on a few key success factors, critical resources, core competencies.

Flexibility and rapid responses to all competitive and market changes

Sustainable Competitive Advantage

Unique competitive position tor the company

Activities tailored to strategy

Clear trade-offs and choices vis-a-vis competitor

Competitive advantage arises from fit across activities

Sustainability comes from the activity system, not the parts'

Operational effectiveness a given

For Porter, and others since, sustainable competitive advantage arises from being distinct from competition.

Questions

• Provide an example of a firm in each of the 4 generic strategy categories; how does their strategy relate to their customers?
• It is said that both IKEA and McDonalds successfully use the integrated cost leadership-differentiation model. In what ways do either or both accomplish it?
• What are the major differences in value creating activities between cost leaders and differentiators?
• Some firms have been criticized in social media for not making products that suit everyones needs. Does a company with a focused (narrow market) strategy have a responsibility to the public to expand their offerings?
• Why have companies such as Radio Shack, J.C. Penney, Sears, and RIM (Blackberry) failed?

References

Porter, M. (1996 Issue 6). What Is Strategy. Harvard Business Review, 61-78.