The Three Important Generic Strategies of Porters - Essay Example

Strategic Management Table of Contents Generic Strategies -Cost Leadership, Differentiation with Examples and its Pitfalls 3 2. Examining ‘Sector Matrix’ Framework and Its Usefulness in Analyzing Demand and Supply Linkages 5 3. Restructuring Transforming Corporate Market and Financial Performance 6 1. Generic Strategies -Cost Leadership, Differentiation with Examples and its Pitfalls The three important generic strategies of Porter’s include cost leadership, differentiation, and focus. These strategies have remained a way of attaining competitive advantage for almost all the business organizations. These strategies have provided significant advantages to many organizations in terms of boosting their sales and substantially remain competitive in the highly dynamic market. These strategies are discussed below. Cost leadership strategy: Today almost every organization is striving hard to remain competitive in the market by implementing the low cost strategy. The primary reason for achieving the low cost strategy is to take the benefit of economies of scale as well as experience curve. The cost leadership help in targeting the broader market as the customers are highly sensitive to the variation in price of the product and services. Few prominent examples of companies which have successfully adopted low cost strategy include Wal-Mart, Ikea and Southwest Airlines. The low cost strategy has made these companies to win the market. These companies have efficiently maintained their supply chain and have subsequently augmented their operation and distribution channel to meet the demand of market by implementing the cost leadership strategy (David, n.d.). As far as the pitfall associated with cost leadership strategy is concerned, advancement in technology can be identified to ruin the low-cost strategy. In addition, perception of quality of the product and servicers as well as large discounts has made the concept of low cost strategy outdated (David, n.d.). Differentiation strategy: Differentiation Strategy is attractive where the needs along with requirements are excessively diverse so as to satisfy the customers’ needs. It significantly includes the products or services which are different and are more attractive from the other competitors. The organizations which desire to succeed through product differentiation must meet the needs and behavior of the buyers. It is worth mentioning that there are several approaches to the differentiation some of which include brand image, advancement of technology, product feature and design. The differentiation adds uniqueness to the product and provides an opportunity to the organizations to charge a premium for delivering product that is different from the competitors. Mc Donald and Sony are two obvious examples which have adopted differentiation strategy. These companies have differentiated their product by engaging extensive research and development as well as thorough innovation. The major pitfall associated with differentiation strategy is firmly related with the huge cost involved in research and development. Besides, imitation of the product by competitors can be the other factor which may have considerable impact on the differentiation strategy (David, n.d.). Focus strategy: Focus strategy or market niche strategy is totally different from differentiation and cost leadership strategies. Focus strategy mainly concerns with the narrow or particular segment of the market. The target market can be described by geographic uniqueness, special product features and design. Rolls Royce and Apple computers can be identified as two prominent companies which have adopted focus strategy to attain greater competitive traction. These organizations particularly focus on a different market segment to effectively meet the customer needs by delivering quality products and services. One of the major drawbacks of this strategy is that the changes in the customer preferences and taste may require organizations to alter its strategy (David, n.d.). 2. Examining ‘Sector Matrix’ Framework and Its Usefulness in Analyzing Demand and Supply Linkages In the recent years, the business and its environment is changing at a rapid pace. It is worth mentioning that one of the new alternatives has been developed by the Froud & et. al., (2006) which is known as “sector matrix”. The sector matrix framework generally defines the relationships between demand and supply. The framework advocates that the level of demand for a business organization should not be restricted to output consumption but it should be considered as a unit. One of the prime objectives of the sector matrix analysis is to understand the connection between the demand and supply and their implementation in structuring the organization. It has been observed that sector matrix have become a useful tool for evaluating business processes and simultaneously aids in aligning the business processes to reduce the cost and meet the demand and supply of the product in a particular market. Sector matrix helps the managers to implement strategic approach in order to suffice certain complex situations. The sector matrix has provided business organizations with the opportunities that have enabled them to supply according to the demand of the market. The concept of the sector matrix mainly emerges from financialization because the stock pressure for financing the corporate contribute towards the emergence of the concept value chain as manager could not be satisfy the increasing capital market demand Furthermore, the application of sector matrix framework facilitates business organizations to meet the newly demand through available supply (Froud & et. al., 2006). The effectiveness of the sector matrix can be well understand through an example of automobile company namely Toyota. The company has a highly diversified sector and vertically integrated. Toyota being the leader in the automobile market has been engaged in catering the needs of diverse customers spread globally with their valuable product. Toyota has managed to meet the demand of the customers globally by providing excellent service and quality product to the customers worldwide. Moreover, the core competencies of the Toyota primarily depend on its production, and service delivery which has enabled the company to maintain balance between the demand and supply of its products. The other example includes Ford Motors which has been engaged in meeting the demand of the customers by introducing new models and has considerably managed to win the slice of the understanding the consumption as well market. The application of the sector matrix framework has provided Ford to analyze their business structure and sales related services so as to increase the profitability. Thus, it can be affirmed that sector matrix framework have become one of the effective tool to understand the product market. Based on the above discussion and the examples, it can be firmly stated that the application of the sector matrix framework provides an efficient tool for evaluating demand and supply relationships in certain specific industries. At the same time, it can be argued that the implementation of sector matrix framework is not always effective in all industries. 3. Restructuring Transforming Corporate Market and Financial Performance In the current highly volatile business environment restructuring has become a frequent phenomenon in the corporate sector. There are various reasons behind the restructuring of an organization. In general the need for restructuring arises from the increasing complexities in the domain of business operations driven with the objective of strengthening the core capabilities of an organization. More specifically, restructuring pertaining to business organization is due to the impact of internal and external forces which may particularly create complexities in maximizing the profitability of different shareholders and meeting the predetermined business objectives. The restructuring is viewed as one of the measures adopted by business organizations to overcome the existing challenges faced by them. The company can be restructured by outsourcing, merger and acquisition and off-shoring. Failure of any business organization can be attributed to a situation in which they could not serve the market with new products and subsequently they could not see any opportunity for their growth in the market. These include the product which has served the market for longer period of time and now it has become obsolete to meet the need and demand of the market. Thus, it is necessary for the company to go for restructuring through any of the methods including merger and acquisition, outsourcing and off-shoring to save the business from the constant decline in the competitive traction at the market place (Riany & et. al., 2012). The restructuring mainly help business organizations to transform the corporate market and improve their performance. Restructuring aids businesses to make specific plans to overcome crisis and simultaneously help to serve customers for the longer period of time. It is worth mentioning that performance can be improved by restructuring the distribution channel, strategies directed towards improving and increasing sale of the products and by implementing new and innovative marketing strategies to attract the customers towards the product and subsequently help in improving the financial performance of the organization. Restructuring promotes strong distribution channel so that the product are effectively delivered to every customers to meet the demand of the market. Organizations in the contemporary business scenario should primarily focus on enhancing their product quality so as to increase their sale in the market and satisfy the diverse needs of customers. Besides, the restructuring process should be aligned with the predetermined organizational goals in order to achieve the desire outcomes from the process. One of the obvious examples can be associated with Apple Incorporation. Notably, during the early 1990s Apple was almost at the stage of oblivion. However, after the arrival of Steve Jobs as a new CEO of the company brought significant changes and engaged in restructuring process which later resulted in increased sales along with rising revenue for the company. Thus, it can be observed that restructuring help the company to revive their corporate market and improve their financial performance significantly (Riany & et. al., 2012; Gallo, 2011). References David. F. R., No Date. Strategic Management Concepts: A Competitive Advantage Approach. Michael Porter’s Five Generic Strategies. [Online] Available at: https://www.inkling.com/read/strategic-management-david-14th/chapter-5/michael-porters-five-generic [Accessed July 30, 2014]. Froud, J. & et. al., 2006. Financialization and Strategy: Narrative and Numbers. Routledge. Riany, C. O. & et. al., 2012. Effects of Restructuring on Organization Performance of Mobile Phone Service Providers. International Review of Social Sciences and Humanities.Vol. 4, No, pp. 189-204. Gallo, C., 2011. The Innovation Secrets of Steve Jobs. EBSCO Publishing Inc, pp. 1-9. Read More