In: Finance
outline and carefully analyze Porter's generic determinants of strategy?
As per Porter:
strategies allow organizations to gain a competitive advantage
from
three different bases: cost leadership, differentiation, and
focus.
Cost Leadership Strategies:
An abundance of costs
elements affect the relative attractiveness of generic strategies,
including economies or
diseconomies of scale achieved, the percentage of capacity
utilisation ion achieved, and connections with suppliers and
distributors.
A successful
cost leadership strategy usually extends throughout the firm, as
evidenced by high efficiency,
low overhead, intensive screening of fund requests,
wide spans of control, rewards linked to cost containment.
Differentiation Strategies: Different strategies offer different
degrees of differentiation.
Differentiation does not ensure competitive advantage, particularly
if standard products
sufficiently meet customer needs or if rapid copy by competitors is
possible. A
successful differentiation strategy allows a firm to charge a
higher price for its commodity
and to gain customer loyalty because consumers may become strongly
attached to the differentiation features.
Focus Strategies: A profitable focus strategy depends on an
industry segment that is of
adequate size, has good development potential, and is not crucial
to the success other major
competitors. Policies such as market penetration and market
development offer significant focusing benefits. Focus strategies
are most effective when customers have
distinctive preferences or requirements and when rival firms are
not striving to
specialise in the same target segment.