Page 182 - (DK) The Business Book

180 PORTER’S GENERIC STRATEGIES

IN CONTEXT

FOCUS Companies need to find a competitive advantage.
Business strategy
KEY DATES
1776 UK economist Adam
Smith introduces the concept
of comparative advantage,
where one party has the ability
to produce a particular good or They can do this by offering customers...
service at a lower marginal
cost than another.
1960 US economist Theodore
Levitt says that rather than
finding a customer for their
existing product, businesses
should find out what customers ...the cheapest ...a product or service
want, and produce it for them. product or service that is outstandingly
on the market. This is good in some way.
1985 Michael Porter publishes
the strategy of cost This is the strategy
Competitive Advantage. leadership. of differentiation.
2005 Professors W. Chan
Kim and Renée Mauborgne
recommend a “blue ocean”
strategy for generating growth
and profits, in which new
demand is created in an
uncontested market space. Be the cheapest or the best;
don’t get caught in the middle.

onsumers have choice. his idea in Competitive Advantage: strategy,” offering a specialized
And different consumers Creating and Sustaining Superior service in a niche market. This
C will choose differently— Performance (1985). Porter used a position can be applied to both
some like to pay the most for the four-celled matrix to represent the of the initial generic strategies,
luxurious option, while others will four different generic strategies resulting in a cost-focus strategy
always opt for the cheapest. in his theory. (where the company aims to be
Companies recognize this and Companies generally choose cheapest within a niche market) or a
pitch their business at a particular between two generic strategies: differentiation-focus strategy (where
group of consumers. This is either “cost leadership,” where they the company offers unique products
because it is never wise for a aim to be the cheapest in the or services within a niche market).
company to be caught between market; or “differentiation,” where
groups of customers. they create unique products or Cost-leadership strategy
Harvard Business School services. However, there is another Companies pursuing a cost-
professor Michael Porter proposed element that can be added to these leadership strategy have two
“generic strategies” for gaining two generic strategies: a company options. They can choose to sell
competitive advantage, explaining might choose to pursue a “focus products at average industry prices