Michael porter perspective on strategy

What is Strategy? The Michael Porter Perspective

Michael McDermott www.strategycapstone.ning.com

Who is Michael Porter?

• He is a Harvard Business School Professor • He is regarded as “the” guru on business

strategy • Profile of Michael Porter

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What is Strategy?

• Strategy is competitive position

• And competitive position demands determining the company’s choice of generic strategy

• It is essential that you understand this basic but vital concept of generic strategy

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Establishing Competitive Advantage

• A company can outperform rivals only if it can establish a difference that it can preserve

• It must therefore: 1. Deliver greater value to customers; or 2. Create comparable value at lower prices; or 3. Do both

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Some Key Questions in Strategy Development

Who/what are we? – The focus here is on choice of Generic Strategy

Where do we want to be? – The focus here is on choice of Generic Strategy

Why do we want to go there? – The focus here is upon strategy drivers

• PEST Analysis • Competitor Analysis • Market Analysis • Internal Analysis

How will we get there? – The focus here is upon choice of Grand Strategy

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1. Who/what are we?

This is our competitive position – some would argue that this is the

essence of our strategy

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What is Strategy?

Strategy Competitive Position

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What is Competitive Position?

Competitive Position

Choice of Generic Strategy

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Effectiveness vs Efficient

•Greater value •Higher unit prices

More Effective

•Lower unit costs More Efficient

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Competitive Strategy is about being different!

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Determining Strategic Position

Activities

• Choose a different set of activities • Perform similar activities differently • Or perform different activities

Value • Deliver a unique mix of value

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Nature of Strategic Positioning

• Means performing different activities from rivals or performing similar activities in different ways

• Competitive advantage requires developing a distinct strategic position

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Choice of Generic Strategy

•Do we compete on low cost or differentiation? Internal

Considerations

•What is our target market? •What industry do we

compete in? External

Considerations

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What are the Generic Strategy Options?

•Niche – narrow market focus

•Mainstream – broad market focus

Low Cost

•Niche – narrow market focus

•Mainstream – broad market focus

Differentiation

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Generic Strategies and the Luxury Car Industry But you may decide that BMW competes in the luxury car market.

Porsche

Hyundai Genesis BMW

Volvo

Choice of Generic Strategy: Abercrombie and Fitch

•Differentiation?

•Agreed? Internal

Considerations

• Is it the clothes market? •Or designer clothes for

mature adolescents and young adults?

External Considerations

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Choice of Generic Strategy: Abercrombie and Fitch

The Clothes Market

• Then A&F competes through focused differentiation

The Designer Young Adult Market

• Then A&F competes

through differentiation

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According to Porter, Strategy involves trade-offs.

The essence of strategy is choosing what not to do.

We now get position.

But What is Strategy?

Strategy is the creation of a unique and valuable position,

involving a different set of activities.

“Commonly the threats to strategy are

seen to emanate from outside a company because of changes in

technology or the behavior of competitors. Although external changes

can be the problem, the greater threat to strategy often comes from within”.

Michael Porter

Porter’s Focus is Competition

• Porter’s perspective is all about establishing a competitive position that is different from rivals

• Either being the cost leader

• Or offering differentiation

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Defining Our Present Competitive Position

This is represented in our Mission Statement

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2. Where do we want to be?

This is future-oriented and is

addressed in our Vision

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2. Where do we want to be?

1. Do we wish to change our Strategy or our competitive position?

• Or simply apply similar more widely?

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Changes in Competitive Position: Walmart in the USA

Status • Today you think of Walmart

and you may think low cost

• A few years ago, you would certainly think low cost

• This company may wants us in the future to think ‘green’ and ‘healthy’

Evaluation • Walmart’s sales in the USA

were declining recently and this was allegedly due to the company’s weaker commitment to low costs

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Changes in US Competitive Position: Toyota

1960s • Focused Low cost

1980s • Low cost

1990s

• Differentiation (introduce Lexus offers focused differentiation)

2000 • Differentiation

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Changes in Competitive Position: Singapore Airlines

1960s-1970s

• Differentiation based on Asian service – Singapore girl • Low crew/passenger ratio due to low labor costs

1980s

• Differentiation based on above • Plus most modern fleet of aircraft

1990s

• Differentiation based on all of above • Plus best in-flight entertainment, cuisine etc

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Changes in Competitive Position: Hyundai, Samsung, LG

1960s-1970s •Low cost

1980s-90s •Transition

2000s •Differentiation

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Changes in Competitive Position: Haier (Chinese producer of white goods)

2000s • Low Cost

2010s • Transition to differentiation

2020s • Has it worked (as per Samsung, LG,

Acer, HTC)?

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3. Why do we want to go there?

1. Change(s) taking place in the external

environment? – The macro-environment – The competitive environment – The market

2. The internal environment – i.e. Company-related considerations

3. Or combination of 1 and 2 above.

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4. How will we get there?

• Organic growth – the company growing through its own development on

new products/services; – Market Consolidation – Market Development – Diversification

• External growth – Mergers and Acquisitions (Married) – very costly – Joint Ventures (Engaged) – less costly – Alliances (Dating) – no ownership stake, just partners – Licensing (social acquaintance) – low risk, payments

based upon market success

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5. What are our main options in terms of Grand Strategy Choice

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Choice of Grand Strategy and Ansoff’s Matrix

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