Porter's Generic Strategies Explained

Porter's Generic Strategies Explained

Michael Porter is considered the genius of competitive strategies application. Starting in the early 1980s, he published three books that developed and outlined successful strategies and how to apply them. His most popular books cover his three theories of generic strategy, cost leadership, differentiation, and focus, theories that have remained popular and applicable throughout the decades.

Generic, as defined by Webster's dictionary, means having no particularly distinctive quality or application, a very good way to define Mr. Porter's strategies as they can be applied universally to businesses in product development. His strategies are not firm or industry dependent, making it easy to apply them as needed to businesses that have not yet created a strong value chain.

The first generic strategy is cost leadership, a strategy which strongly emphasizes working towards a unified goal of a lower-priced product. The product does not need to be special or different, instead, the attractiveness to the consumer is the price. Firms that focus on applying cost leadership must work to cut down on costs in all areas; an overall view of the company showing departmental costs is a starting point to combining and sharing resources already in-house. Using firm leverage across all departments is also a strong cost-saving measure, and cutting back on waste must be a company-wide goal. Another angle to costs advantages would be to improve process efficiencies, and to make wise outsourcing decisions. Strong points of this strategy include gaining market share while eliminating competition, while the main weak point would be competitor-copying, meaning an overall lowering of price across the market, which would render this strategy inefficient.

Another favored strategy of Mr. Porter's is differentiation. If the market is flooded with similar products at similar prices, a means of drawing business would be to create a more specific product that would draw consumers willing to pay a higher price for a better-developed product. Success in this strategy would include higher profits and customer loyalty, while the downside includes an expensive product that is not valued by consumers or is quickly copied by competitors.

The third strategy is focus, which plays on the differences in consumers in