UNVA / EU Master Business Administration
– Strategic Management / Global Business Environment
Individual Assignment 50%
Porter’s Generic Competitive Strategies (ways of competing)
A firm’s relative position within its industry determines whether a firm’s profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus.
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost advantage are varied and depend on the structure of the industry. They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors. A low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average.
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a premium price.
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry. The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on differences between a focuser’s target segment and other segments in the industry. The target segments must either have buyers with unusual needs or else the production and delivery system that best serves the target segment must differ from that of other industry segments. Cost focus exploits differences in cost behaviour in some segments, while differentiation focus exploits the special needs of buyers in certain segments.
References – Porter, Michael E., “Competitive Advantage”. 1985, Ch. 1, pp 11-15. The Free Press. New York.
Consider the global market for restaurants. Place the following restaurants onto the Generic Strategies matrix.
McDonalds’ (Global Brand) ( http://en.wikipedia.org/wiki/History_of_McDonald’s) http://www.marketingteacher.com/Lessons/answer_generic_strategies.htm
Chick King (lesser known chicken restaruant)
KFC (global brand)
Burger King (global brand)
Woodies Restaurant Chichester, UK (small but popular restaurant)
Denny’s or Little Chef (national chain of identicle restaurants
MGM Hotel Restaurant, Las Vegas (huge brand, single mega hotel)
Subway (growing ‘sub’ sandwich brand)
A deli in New York (small but popular deli)
A hot dog stand in a New York street (cheap but low quality)
Select four different products or services for a preferred company and place them in each of the four stages of the product life cycle
Using the Boston Consulting Group matrix (Market share/Business growth), analyse where are the products/services mentioned in Question 1 and 2.
Based on your Exercise 3 (Microsoft), what products and services are in each of the quadrant.
This individual work is designed to test your understanding of a variety of concepts covered in the teaching sessions so far. Your main emphasis should be upon the analysis of the case study material and upon the development of logical, coherent answers to the question.