Question

1. Briefly describe the three generic strategies—overall cost leadership, differentiation, and focus.

2. Explain the relationship between the three generic strategies and the five forces that determine the average profitability within an industry.

Answer 1

Answer-1

Generic Strategies are set out by Michael Porter in 1985 in his book " Competitive Advantage: Creating and Sustaining Superior Performance" . They are known as generic strategies because they can be applied to products or services in all industries and organisations of all sizes . Generic strategies have been developed so that a companies could use it to gain competitive advantage over others.

Three generic strategies developed by Michael Porter are :

1) Cost Leadership

2) Differentiation

3) Focus

Cost Leadership

Cost leadership strategy ,as the name signifies , involves being the leader of your industry or market in terms of cost. It focuses on achieving scale economies and utilising them to produce high volume at low cost. Profits may be narrower, but quantity is larger ,generating high revenues.

Cost leadership is all about minimising the cost to the organisation of delivering products and services but being Low cost producer is not enough as there may be chances of high competition by other low-cost producers who may undercut your prices and therefore block your attempts to increase their market share.

Companies that have successfully achieved cost leadership have:

* Access to the capital needed to invest in technology that will bring cost down.

* Very efficient logistics.

* A low cost labor, low cost material ,low-cost facilities and a way of sustainably cutting cost below those of other competitors.

The organisation generally focuses on internal processes in the cost leadership strategy. The greatest challenge in moving on with cost leadership strategy is that the sources of cost reduction is not unique to anyone and that other competitors can also copy the cost reduction strategies done by an organisation. This is why it is very important to continuously find the new ways to reduce the cost. Continuous improvement are required while following cost cutting strategies .

Differentiation

The differentiation strategy in generic strategies involves making products or services different and more attractive than those of the competitors. It all depends on the exact nature of industry and of products and services themselves, but will typically involve features, functionality, durability, support, and also the image of the brand that your customers value.

This strategy helps in creating a powerful brand image, which allows the organisation to sell it products or services at a premium rates. To successfully implement the strategy in an organisation, an organisation need to have:

* Good Research, Development and innovation .

* Ability to deliver high quality product or services .

* Effective sales and marketing so that the market understands the benefits offered by differentiated strategy.

Differentiation is very easily defined and less tangible but it represents an extremely effective strategy when properly executed. Organisations pursuing differentiation needed to be very active and quick with their new product development processes or there will be a risk from several fronts by competitors pursuing Strategies in different market segments .

Differentiation strategy aims at offering something very difficult to copy and is strongly connected with the brand of an organisation.

Focus Strategy

Focus strategy is not a separate strategy for big companies due to small market condition. Big companies who choose applying differentiation strategies may also choose to apply it in combination with focus strategies ( either cost or differentiation). This strategy is very appropriate for small companies who want to avoid competition with the big ones. The company following this strategy selects a segment or a group of segment in the industry and focus its strategy to serving them to the maximum with the exclusion of others.

Companies that use focus strategies concentrate on particular segments and the unique needs of customers within it develop uniquely low cost products for the market. As they serve their customers very well, they will build strong brand loyalty among their customers . This makes their particular market segment less attractive to the competitors.

Once you have selected strategy and your main approach it is still essential to decide that whether you will pursue it with cost leadership or differentiation. Focus is not normally enough on its own.

The success of focus is to ensure that you are adding" something extra "as a result of serving only that market segment. The "something extra" that you can add can contribute to reducing cost( perhaps through to your knowledge of expert suppliers ) or to increasing differentiation (through your deep understanding of customer needs).

In Cost focus , an organisation targets to have a clear segmented market and through understanding of the dynamics of market and wishes of the consumers you can ensure that cost remain low.

In differentiation focus ,the strategy often involves a strong brand loyalty among the consumers and organisation targets focused market and your product or service has unique features. It is very important to ensure that your product remains unique, in order to stay ahead of possible competition .

CONCLUSION

Organisations choice of which generic strategy to continue affects every other strategic decisions made for the organisation. So it's worth spending time to get the right strategy for an organisation . When it comes to choose which of the generic strategy is made for the organisation, it's important to take the organisations competencies and strengths into account.

Answer-2.

the three generic strategies that are cost strategy, differentiation strategy, focus strategy.

COST STRATEGIES :- cost strategy is that strategy which is very helpful in the decreasing the cost of the organisation as well as with the cost strategy it really benefits organisation by the means of money saving.

DIFFERENTIATION STRATEGY :- conservation strategy is open in the organisation to maintain the customer reality by providing them variety of the production services they require according to their leaves, wants and preferences.

FOCUS STRATEGY :- the main focus of the focus strategy is true of the low cost strategy with the high target and more differentiation variety and strategies to maintain the focus in the organisation and to be functioning smoothly.

the above three strategies are generic strategies and are related to the porter's five forces in a way to find out the average profitability in an organisation or an industry as these generic strategies are really helpful in the management of the cost and the profitability of an industry and with the help of porter's five forces this become really easy to find out how to determine the probability of an organisation or an industry. porter's five forces and the three generic strategies are interrelated to each other.

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