types of strategy excerpt from create and implement the best strategy for your business harvard...
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Types of Types of StrategyStrategy
Excerpt from
Create and Implement the Best Strategy for your BusinessHarvard Business School Press, 2006
“Generic” StrategiesMichael Porter – Competitive Strategy
The Free Press, 1998 (1980)
How and Where to compete
Ways of competing– Low Cost, Differentiation, Focus
“Where’s” of competing– Variety- , Needs-, Access-based positions
Types of StrategiesCreate and Implement the Best Strategy for your Business
Harvard Business School Press, 2006
Cost Leadership
Differentiation
Customer Relationship
Network
Cost Leadership
Striving for lower operating costs
(than the competition)
– Wal*Mart, the real Canadian Superstore
Superstore savings
What are some of the things the real Canadian Superstore may be doing in order to lower its operating costs?
What tradeoffs does it make by so doing?
ImplementingCost Leadership
Economies of scale Economies of scope Product design Organizational structure Emphasis on operating efficiency Experience curve
Experience Curve
Overall costs decline in a predictable way as cumulative volume increases– X% decline as cumulative volume doubles
Implication, build volume (even by pricing at minimal or negative margins!) to drive down long-term costs
Differentiation
Striving to be different (than the competition) in ways for which the target market values and is willing to pay a premium.
– For example, Safeway, Sobey’s
Safeway / Sobey’sdifferentiation
What are some of the things Safeway and / or Sobey’s may be doing in order to differentiate themselves in ways for which the customer will pay a premium?
What tradeoffs do they make by so doing?
ImplementingDifferentiation
Understanding target customers’ desired package of benefits is the key
Ancillary features, complementary services can often be the basis for differentiation.– e.g. after sales service, warranty
“Focus”way of competing
Consciously limiting the scope of the enterprise by choice, not by necessity, to achieve a specific excellence (not necessarily defined in relation to competition).
– For example, De Luca’s Specialty Foods, La Grotta Mediterranean Market
Tradeoffs
Does a Cost leader care about differentiation?
Does a Differentiator care about reducing costs?
What is the tradeoff of Focus as a way of competing?
“Stuck in the Middle”
What is The Bay’s basis of competition?– Certainly not a cost leader over Wal*Mart– As a department store, not at all focused
• Sells clothing, electronics, books, furniture, appliances, stationery, gift ware, cards etc., etc.
– Differentiation from Sears not obvious
Customer Relationship
Building long term relationships with customers through– Personal contact, rapport– Personalized service, customized solutions– Ongoing, cumulative benefits– Saving customers switching costs
Best suited to smaller businesses
Network Effect “Strategy”
Some products become increasingly valuable as more people own / use them!– Wordprocessing software, auction sites,
social media
What is the fundamental characteristic of such products?
What is the critical imperative for producers of such products?
Type of Strategies
– Cost Leadership– Differentiation– (Focus)– Customer Relationship– Network Effect
Make choices consistently over time and throughout the organization to build understanding, synergy and momentum