Porters Three Generic Strategies in Business - Essay Example

Porter’s Generic Contents Contents 2 Introduction 3 Discussion 4 Conclusion 11 References 12 Introduction In this modern business world, competitionin any industry is cut throat. Competitors across all industries are competing hard among each other. Every organization is trying to outperform their competitors. In this context of super competitive environment, Porter categorically stated that each and every company belonging to any industry must analyze competitive environment of their sector. According to him the environmental assessment will help the organizations to select one strategic option. Choosing a generic strategy will allow different companies to position themselves successfully in a highly competitive world. In this context, Michael Porter has talked about three generic strategies. Those generic strategies are cost leadership strategies, differentiation strategy and focus strategy. Profitability is the primary objective of any organization. That primary objective depends on the attractiveness of the industry. Positioning in an industry is also an important determinant for organizations to attain competitive advantages. Proper positioning in an industry can make differences for organizations. Profitability varies from industry to industry. According to Porter organizational strength can be determined on the basis of cost advantage and differentiation. These strengths can be applied in two ways either broadly or narrowly. Porter further argued that for attaining sustainable competitive advantages in any industry organizations should concentrate only one strategy to avoid any confusion or wastage of resources. This essay will critically evaluate this concept of Michael Porter. During the course of this essay different arguments will be analyzed. Discussion According to this strategy cost leadership can be achieved when an organization offers lower costs than competitors and operates on broad segment or industry. Differentiation strategy is all about offering unique products to the customers (Kossowski, 2007). Focus strategies focus on specific niche markets and try to grab the pulse of that market. Then they offer unique products or low cost products. (AAPL Investors, 2014) In the mobile phone industry Apple follows differentiation strategy. Intentionally the organization has consistently going for this strategy. It is being noticed that in mobile phone industry in compared to all other competitors’ product prices of Apple are always higher. Still the brand enjoys significant brand loyalty across its worldwide customer base. Over the years the organization has maintained this strategy and the organization do not have any intention to shift their focus from this strategy. The organization has positioned itself in such way that the customers around the world are ready to pay extra money for possessing Apple’s products. With the help of this generic differentiation strategy in last five years from 2008- 2013 the organization has achieved significant profitability as the Net income of Apple increased from $6,251 million to $37,012. According to the comment of Tim Cook, the company will carry on their endeavour of product differentiations in the future course of actions also. All the above factors are clearly telling that differentiation strategy has been fruitful for Apple to maintain their competitive advantages in the market. (Wal-Mart Stores Inc, 2014) On the other hand global retail giant has successfully adapted their generic strategy which is cost leadership strategy. The main objective of the organization is to provide good quality products and services to the customers in the lowest possible price. Due this overall cost leadership strategy the organization has been able to position itself successfully in the market. It has been able to compete well in the global retail industry. Over the years the organization has offered same quality of products and services to the customers at a lesser price than their competitors in the industry. Superior and strong supply chain, cheap supplier and low labour wages in international markets have supported the organization to carry on with their cost leadership strategy. The organization believes in large volume of sales. Price sensitive customers across the world are significantly attracted by this strategy of the American retail giant. In January 2014 the organization has recorded increased revenue of $129,706 million which is higher compared to October 2013 revenue. It shows that this strategic option has provided the organization significant competitive advantage. It has helped the organization to position itself in a better way in the industry and has opened the door for significant success. (Coca-Cola Co, 2014) Coca Cola is one of the major players in the global soft drinks market. The organization over the years has adapted a combined strategy of differentiation and cost leadership. The organization has achieved differentiation through superior quality products. Over the years it has helped the organization to get competitive advantage in the market and so it has significant influences as far as their brand reorganization is concerned. The organization has differentiated itself in terms of packaging also as the bottle of the Coca Cola has become a globally recognized symbol. Designing the bottle was the primary marketing objective of the organization. It gave the organization significant competitive advantage in 1999. According to Aaker, cost leadership can be achieved in different ways like firms can remove all extra frills and can manage its production costs. Employing low cost labours and introduction of efficient distribution networks also can be fruitful for achieving cost leadership. The organization has managed their cost leadership strategy in different ways. The company has given significant stresses on economies of scale. It has given importance towards research and development. Continuous learning has enabled the organization to attain cost leadership. Efficient operational and production processes are also inseparable part of the organization for managing cost leadership in the industry. In the first quarter of the 2014 net income of the organization was $1,619 million and at the end of the second quarter it became $ 2,595 million. All the above arguments are indicating that over the years Coca Cola has been able to manage their generic strategy successfully in the industry and it has given the organization global accolades. (Starbucks Corp, 2014) Differentiation is the generic strategy for Starbucks. Starbucks as a whole provides high quality coffee and supreme experiences in their large global presence. It gives the organization significant competitive advantages in the industry. In 2009 the organization became largest buyer of Fair Trade Certified TM coffee and it made the organization far more superior and unique than their competitors. It has been noticed that the organization has tried to achieve differentiation strategy via cost leadership concept. The recently included instant coffee range has helped the organization to achieve product differentiation with the help of cost leadership. But uniqueness of the products has kept the company in an advantageous position compared to its competitors. Different brewing utensils and in store gifts have designed a unique picture about the organization in the mind of the customers. All these ideas have separated Starbucks from its competitors in the industry. The organization always has given stress on the research and development. It has been observed that the company has involved itself with different trial and error methods in their stores across the world. The organization has often tried differentiating itself with the help of first mover advantage. Starbucks is the first organization in the industry which came up with the concept of maintaining the quality of Arabica beans. It further reinforces that the organization has tactically and intentionally chosen the differentiation as their strategy. This strategy has helped the organization to get high profit margin. In the first quarter of the 2014 net income of the organization was $427 million and at the end of second quarter net income increased and became $ 512.6 million. All the above discussions are clearly telling that differentiation strategies of Starbucks are providing significant competitive advantages in the industry. The organization has positioned itself in such a way that customers are often acting like the advocates of the brands. (McDonalds Corp, 2014) McDonalds’ follows differentiating generic strategy. The organization over the years has offered different quality food products and services to customers. The organization creates differentiation with the help of their external environments. The organization offers Wi-Fi facilities to its store locations. The corporation has installed Wi-Fi in almost 1400 store location. With the help of this facility the organization provides enjoyable service experiences to the customers. It is an appropriate example of differentiation strategy which gives the company significant competitive advantages in the industry. The organization first came up with the idea of localizing their food items according to the demands, needs and culture of the customers. The company has introduced vegetarian food items in Indian markets. This differentiation strategy has given the company extra bit of benefits as emerging economy like India is a large potential market for them. The organization has designed their service strategy in a unique way. It has restricted customer’s wait time in a line for maximum of one minute. The organization has focused towards the kids. The company has identified one fact that kids can impact the buying decisions of their parents. So they have come with the idea of Happy Meal. This strategy has helped the organization immensely to gain competitive advantages in the industry. In the first quarter of the 2014 the organization recorded a net income of $ 1,204.8000 million and in the second quarter it has become $ 1,387.1000 million. All the above factors are clearly telling that the organization has managed their generic differentiation strategy meticulously which has cemented the position of the organization in the industry. (Google Inc, 2014) Google, the world’s largest search engine follows generic strategy of differentiation. The organization offers unique services to their customers. With the help of its unique patented system the company has differentiated itself from its competitors in the industry. Their Page Rank system is one of the most significant competitive advantages that have made this organization market leader of the industry. Adwords of Google is specially made for advertisers; through this advertisers can reach to audiences efficiently. Customer loyalty is a significant competitive advantage that helps the organization in course of their differentiation strategy. The organization has captured almost 66% of the global internet search industry. In the year 2010 the organization had cane up with a new web index and it was known as Caffeine. It increased the capacity of fresher result up to 50%, provided the organization significant competitive advantages in the industry. Google instant has made the internet search more dynamic. Revenue of the organization increased in the second quarter of the 2014 in compare to the 1st quarter. All the above arguments and financial performance are stating that proper generic differentiation strategy positioned the organization successfully. No management theory is free of criticism or limitations. Porter’s generic strategies are also not free from criticism. According to the Michael Porter organizations should use only one of the generic strategies to remain competitive in the industry. If any organization fails to do that then it can struck in the middle position. He also added that combinations of more than one generic strategy can confuse the organizations for deciding their future courses of actions. Miller argued that this concept of Porter have significant limitations as there are lots of organizations which have founded middle paths between two strategies. Coca Cola which have been discussed above is a good example of this limitation. The organization has managed a combination of both cost leadership and differentiation strategy pretty well. According to Stopford and Baden-Fuller successful organizations across the world often manages the dilemma of opposite strategy professionally and it provides significant competitive advantages to those organizations. PepsiCo is an example for this matter. They also added that combination of both cost leadership and differentiation strategy provides organizations multi dimensional advantages and organizations can position themselves more prominently in the industry. During the 1980’s business situations were stable. At that point of time competitions were less. Porter’s generic model was more suitable with that time. But now the business world is ever-changing. In this ever-changing business any one specific strategy cannot recover all business contingencies. Combination of more than one strategy is required to manage the situations. It indicates that the Porter’s concept of mutual exclusivity between cost leadership and differentiation does not always hold true. Different commentators have commented that lack of flexibility is a significant limitation of this concept. Different critics often say that cost leadership strategy cannot ignore differentiation strategy. High market share is an important factor for achieving cost leadership. Product or services differentiation are inseparable criterions for obtaining high market share, so it can be easily analysed that there is a deep rooted relationship between cost leadership and differentiation. One of the most significant criticisms of the theory states that generic strategies often cannot provide competitive advantages to the organizations. In modern world organizations with similar kind of strengths and weaknesses can easily replicate the strategies of the competitors and similar kinds of strategies cannot provide any competitive advantages. Cost leadership alone is not capable of selling products there are other factors are also related with it (Porter, 2008). Cost leadership often compromises with the quality of products and services and it is significantly counterproductive as far as the competitive advantage of an organization is concerned. Sometimes cost leadership is also a part of differentiation strategy. So, the concept of Porter generic strategy is somewhat confusing as it is very difficult to do the out and out segregation between cost leadership and differentiation strategy. All the above analyses are indicating that following of Porter’s generic strategy rigidly always does not provide significant competitive advantages to the organizations. Modern business world looks for flexible strategies which is not present in the theory. Conclusion The business world is ever-changing. Porter’s generic strategies have helped the organizations to gain competitive advantages in their industry. In this essay it is being noticed that different successful organizations like Google, Wal-Mart, Coca-Cola, MacDonald’s, Starbucks and Apple over the years have followed their own suitable generic strategies. Usage of those generic strategies has made those organizations significantly successful in their endeavours. By following different generic strategies mentioned by the Porter made the organizations significantly competitive in their respective industries. Over the years all these organizations have maintained their generic strategies significantly. According to their core competencies all these organizations have designed their generic strategies. The main objective behind selection of proper generic strategy is to gain competitive advantages in the industry. Gaining competitive advantages in the industry is utterly important for getting success. But Porter’s generic strategy is not at all unmixed blessing for the organizations to get competitive advantages in the industry. Modern business world is full of uncertainty rigidity in the generic strategy often cannot be permissible. All the discussions done in the essay are categorically stating that generic strategies of Porter have both positive and negative impacts as far as the competitive advantages of the organizations are concerned. But there is no shadow of doubt that success or failure of the organizations has great dependency on these strategies. Firm’s competitive advantages are deeply related with these factors. References AAPL Investors, 2014. Apple Net income. [online]. Available at: http://aaplinvestors.net/stats/salesincome/. [Accessed on: 9th August, 2014]. Coca-Cola Co, 2014. INCOME STATEMENT FOR KO. [online]. Available at: http://www.bloomberg.com/quote/KO:US. [Accessed on: 9th August, 2014]. Google Inc, 2014. INCOME STATEMENT FOR GOOG. [online]. Available at: http://www.bloomberg.com/quote/GOOG:US. Kossowski, A. 2007. Strategic Management: Porters Model of Generic Competitive Strategies - Theory and Analysis. Berlin: GRIN Verlag. McDonalds Corp, 2014. INCOME STATEMENT FOR MCD. [online]. Available at: http://www.bloomberg.com/quote/MCD:US. [Accessed on: 9th August, 2014]. Porter, E. M. 2008. Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Simon and Schuster. Starbucks Corp, 2014. INCOME STATEMENT FOR SBUX. [online]. Available at: http://www.bloomberg.com/quote/SBUX:US. [Accessed on: 9th August, 2014]. Wal-Mart Stores Inc, 2014. INCOME STATEMENT FOR WMT. [online]. Available at: http://www.bloomberg.com/quote/WMT:US. [Accessed on: 9th August, 2014]. Read More