Question

According to Michael Porter, to be effective, the organization’s goals, objectives, culture, and activities must be consistent with the organization’s strategy. Discuss and give two different examples.

Answer 1

According to Porter, to be effective the organization's goals, objectives, culture, and activities must be consistent with the organization's strategy. To those in the MIS field, this means that all information systems in the organization must facilitate the organization's competitive strategy.

Generic Strategies

Each of these is an example of a Generic Strategy, as coined by Porter. They are referred to as generic as they can be applied to products, services across all industries, and in organizations of a variety of sizes. These initial strategies as described by Porter were: Cost Leadership (cheap, no expenses), Differentiation (unique or premium products) and Focus (a specialized service or market). He later sub-divided Focus into two different strategies: Differentiation Focus (unique strategy differentiation in a focused market) and Cost Focus (lower costs in a focused market).

Cost Leadership

This strategy generally consists of an organization attempting to gain a market share by appealing to cost-conscious or cost-restricted customers or consumers. Therefore, it is the aim of the organization to become the lowest-cost producer in their chosen industry. Although any organization will aim to remove any unnecessary costs, those employing this strategy prioritize lowering all overheads.

Often, this can be achieved through mass-production of products, allowing the organization to exploit the economies of scale; however, costs can be cut during many stages of the production process. This will allow the organization to sell products or services for around or below the average price for the industry, and as a result of cost-limitation will achieve the greatest profits. These mass-produced products will often be very standard, and will exhibit little-to-no differentiation.

Some organizations with cost leadership may also sell products for below the market average, allowing them to gain a greater share of consumers than their competitors - particularly if their profit margins can still remain high due to low production costs.

These organizations cannot afford to be merely among the lowest-cost producers - this leaves them open to undercutting from rivals - instead, they need to be the lowest-cost producer.

Organizations exhibiting cost-leadership often exhibit a number of traits and attributes which make them suited for this approach:

• Access to capital or technology required to drive costs down
• High levels of productivity
• High efficiency and capacity utilization
• A low-cost base (e.g. labour, materials, facilities) and a method of maintaining this
• Use of bargaining power to negotiate low production costs
• Access to effective distribution channels

Differentiation

The general focus of differentiation -led organizations is to make their products different or more attractive than any other within the industry to achieve a competitive advantage. These organizations generally target larger markets and focus on differentiation on a much wider scale within the industry than would a cost-led company.

The methods of achieving differentiation can vary broadly across industries, products and services; however, it can involve various features, functionality, durability, and also how the brand and the product are marketed to achieve an image which customers value. When designing products, the organization will focus on various criteria considered by consumers within the industry, and will then orient themselves uniquely to meet those criteria.

Though not universally, this strategy is often associated with charging premium prices for the products or services in question. This reflects the potentially higher production costs associated with developing unique items, and also the extra features and uniqueness exhibited by said product. As higher prices are often a forced measure to cover production costs, it is crucial that the differentiation of the product is appealing enough to justify these prices to consumers.

Here are the most important traits associated with differentiation-led organizations:

• Strong research, development and innovation
• Superior product quality
• Recognizable branding, effective branding and marketing
• Industry-wide distribution within all major channels (stocked by most retailers)

Cost Focus

Cost-focus refers to organizations who seek to develop a lower-cost advantage, but only within a small market segment. These products will generally be basic, vaguely similar to the average market-leading products (though more popular products can be charged at a higher price) and will be acceptable to a sufficient number of customers in order to make a profit.

An example would be budget food items or other household tools stocked only by small, local supermarkets. Another would be a low-cost regional airline which focusses only on specific routes. These products are often referred to as "me too's".

Differentiation Focus

In a differentiation-focus strategy, the organization will look to develop product differentiation, but only within one or a smaller number of market segments. As these organizations have identified a smaller consumer group to focus on, they can more specifically appeal to the needs and wants of this group than could an organization which is attempting to differentiate for a wider population.

For this strategy to succeed, the organization will have to first identify that a consumer group has a different set of needs than does the wider market population. If there is no variation in need, then there is no valid basis for differentiation. Alongside this, the organization also must ensure that another competitor is not already appealing to the specific and unique needs that they have identified.

This approach is the most common niche marketing strategy. Small businesses can use this method to force themselves into a niche, developing unique products which can be sold for higher prices than similar undifferentiated products, often due to specialist knowledge or innovation compared with other businesses.

A good example would be craft beer companies, who can charge a higher price compared with large breweries due to the uniqueness of their products.