porters-generic-strategies

Porter’s Generic Strategies In A Nutshell

In his book, “Competitive Advantage,” in 1985, Porter conceptualized the concept of competitive advantage, by looking at two key aspects. Industry attractiveness, and the company’s strategic positioning. The latter, according to Porter, can be achieved either via cost leadership, differentiation, or focus.

Quick intro do generic strategies

As Porter was trying to conceptualize and break down what determined a competitive advantage for companies, within specific industries, Porter created a framework that would stick for decades.

This framework moved along two core sub-frameworks.

One to determine industry attractiveness (Porter’s five forces).

And another one, that also based on the industry attractiveness, determined the strategic positioning (Porter’s generic strategies to gain a competitive advantage).

As he explained in the book, “competition is at the core of the success or failure of firms.”

The whole point for Porter was, through competitive strategy“to establish a profitable and sustainable position against the forces that determine industry competition.”

Industry attractiveness could be analyzed through five core forces:

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces

Once a company had clear in mind the context and industry, it needed to make a strategic choice, that for Porter was summarized in three core moves.

Be a cost leader, differentiator, focuser or die..

cost-leadership

Within cost leadership, a company that for several factors (spanning from economies of scale to operational efficiency) managed to sell a product at a lower price and still make good profit margins, would sustain its long-term competitive advantage, is in a good strategic position.

On the other side, based on a different context a company could still reach a competitive advantage in a broad market through differentiation.

differentiation-strategy

A third generic strategy, that targeted a narrow scope within an industry could also be reached through cost focus or differentiation focus.

focus-strategies-porter

There is one scenario, that Porter emphasized to avoid: stuck in the middle.

Getting stuck in the middle

stuck-in-the-middle

In all the cases in which a company wouldn’t be able to execute one of the generic strategies highlighted by Porter in competitive advantage, this would result in a stuck in the middle scenario, where no competitive advantage is created.

Other business strategy frameworks

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.
product-development
Product development, known as new product development process comprises a set of steps that go from idea generation to post launch review, which help companies analyze the various aspects of launching new products and bringing them to market. It comprises idea generation, screening, testing; business case analysis, product development, test marketing, commercialization and post launch review.
gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.
growth-strategies
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
go-to-market-strategy
A go-to-market strategy represents how companies market their new products to reach target customers in a scalable and repeatable way. It starts with how new products/services get developed to how these organizations target potential customers (via sales and marketing models) to enable their value proposition to be delivered to create a competitive advantage.
swot-analysis
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.
profitability
A profitability framework helps you assess the profitability of any company within a few minutes. It starts by looking at two simple variables (revenues and costs) and it drills down from there. This helps us identify in which part of the organization there is a profitability issue and strategize from there.

Read more:

Read also:

Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which target is to reach over two million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get in touch with Gennaro here