Porter: Strategy Formulation Types

Understanding the forces that determine competitiveness within an industry should help managers develop strategies that will make their companies more competitive within the industry.

Porter has developed 3 generic strategies to illustrate the kind of strategies managers might develop to make their organizations more competitive:

1. Differentiation
2. Cost Leadership
3. Focus

DIFFERENTIATION:

Differentiation, the first of Porter's Strategies,focuses on making an organization more competitive by developing a product or products that consumers perceive as being different from products offered by competitors.

Differentiation includes uniqueness in such areas as product quality, design and level of after sales service.

COST LEADERSHIP:

Cost Leadership is a strategy that focuses on making an organization more competitive by producing products more cheaply than competitors can.

According to the logic behind this strategy, by producing products more cheaply than its competitors do, an organization will be able to offer products to customers at lower prices than competitors can, and thereby increase its market share.

Examples of tactics managers might use to gain cost leadership are obtaining lower prices for product parts purchased from suppliers and using technology to increase organizational productivity.

Similar strategies are also used in the service industry.

FOCUS:

Focus is a strategy that emphasizes making an organization more competitive by targeting a particular customer segment.

What should be your company's strategy?

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