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Critical Evaluation Of Michael Porter Competitive Advantage

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Question:

Discuss about the Critical Evaluation of Michael Porter Competitive Advantage.

 

Answer:

Introduction

Competitive advantages are deemed to increase the organizational value that is able is generate for its purchases that goes beyond the expenses of the organization in decreasing it. Value is deemed to the factors in a serve or products for which the consumers are willing to pay and the high quality value generates from providing decreased prices than its competitors (Ambec et al. 2013). Michael Porter revealed two different types of competitive advantages including differentiation and cost leadership advantages. Competitive advantages encompass taking defensive and offensive conducts to generate a defensible place within the sector.

“Generic strategies” can facilitate the companies to deal with major competitive within the sector and perform improved than other competitive businesses. These competitive generic strategies include differentiation, focus, and cost leadership competitive advantages. Generally, the companies implement just one among the three generic competitive strategies (Bulley et al. 2014). In several circumstances, many organizations make great effort to implement more the one competitive strategy for bringing out differentiated products at a very low cost. The objective of the essay is to evaluate critically Michael Porters three generic strategies to gain competitive advantages through explaining several organizational examples. The essay will evaluate the three major ways in which most o the organizations attain sustainable competitive advantages.

 

Discussion

Competitive Advantage

The relative position of the business within the sector indicates whether its profitability is over or under average sector standard. The company can attain profit above industry standard by attaining long-term competitive advantage. There exists two major ways of attaining competitive advantage, among which one is low cost and another is differentiation. The business can apply three generic strategies for achieving performance above the industry standard this are cost leadership strategy; cost differentiation strategy and cost focus strategy (Christensen and Raynor 2013).

In the “cost leadership strategy” the company intends to become the “low cost producer” in the industry. This can be attained by economies of scale, access to raw material on preferential basis, technological development and other factors. If the business is able to maintain the cost leadership strategy then it can maintain profit above industry average.

In the differentiation strategy, the business plans to be unique and it gets the rewarded for its uniqueness by premium price. In this strategy, the business selects one or more attributes that buyers considers important and the business positions itself uniquely for meeting those needs. In making decision of adopting this strategy the business should considers the cost of differentiation (Doz and Prahalad 2013).

In the focus strategy, the business concentrates on narrow competitive scope within the industry. It develops a strategy that is specific for a focus area. The “focus strategy” is of two types “cost focus” and “differentiation” strategy.  In “cost focus” strategy, the business aims to gain cost advantages in its selected segment (Dobbs 2014). On the other hand, in differentiation focus strategy the business focuses on getting an advantage of differentiation in a targeted segment. It can be said that the aim of cost focus strategy is to exploit the cost behavior in some of the segments and differentiation focus strategy aims to exploit the needs of certain segments of buyers.

 

Critical Evaluation of Three Generic Strategies

Michael Porters has elaborated a category scheme that encompasses the major competitive strategies those are employed by most of the business to gain competitive advantages. These major generic strategies are explained along with certain major aspects such as strategic strength and scope. “Strategic scope” is understood as the “demand-side” aspect and considers the dimension and market composition that organizations intend to target (Harzing and Giroud 2014). Strategic strength can be understood as “supply-side” dimension and it considers the core competency strength of the organization. The explanation provided by Porter considers that the organizations having increased market share is deemed highly successful as they decided to accept “cost leadership strategy” and the organizations with decreased market share were unbeaten as they employed “market segmentation” for focusing on small along with moneymaking market niche. It is deemed that blend of “market segmentation strategy” along with “product differentiation strategy” serves as an efficient match for the product strategy of any organization. However, combinations such as cost leadership along with product leadership are considered different to put into practice because of the potential for the conflict among the cost decrease and additional expense of “value-added” differentiation (Hoskisson et al. 2012).

Considering the advantages of the aforementioned strategies, researchers namely, Magretta (2012) have considered a difference among the “cost leadership” such as “low cost strategies” along with best cost strategies. These researchers also claimed that a “low cost strategy” is not that capable to offer a long-term competitive advantage. In several cases, the organizations enter into huge price wars. Moreover, they claim an effective cost strategy that considers offering the superior value for a considerably less price. An organizations sustainable position within the industry is considered by its selection of competitive advantages along with its selection of competitive scope. General strategies are deemed constructive as they characterize strategic positions at the widest and simplest level. Michal Porter ensures that attaining competitive advantages needs organizations to make proper selections regarding the scope and type of competitive advantages (Pisano and Hitt 2012).

Figure 1: Porters Generic Competitive Advantages Strategies

Porters Generic Competitive Advantages Strategies

(Source: Porter and Heppelmann 2014)

Cost Leadership Strategy- This competitive strategy is centered on efficiency. Through manufacturing increased volumes of the standardized offerings, the organizations intend to avail economies of scales benefits and experience the curve impacts. The offerings of the companies are generally basic offerings that is generated at a considerably less cost and is accessible to an increased consumer base. Sustaining such strategy needs a regular exploration for the reductions of expenses in all the business deeds. The related distribution strategy has an intention to attain the most possible extensive distribution (Porter 2012). Promotional strategy generally encompasses attempts to bring out virtue out of low cost features of the products. In order to become successful this strategy needs a significant market share benefit or great entrance to the components, raw materials labor and certain other vital input. Effective implementation of this strategy gains advantages from skills of process engineering, goods designed for the manufactures ease, great availability of inexpensive capital, close labor supervision, good cost control and will also make sure that the expenses are maintained at a possible minimum level.

Illustration: Several organizations are observed to gain business success through implementing low cost competitive advantages strategy. Cost leadership strategy of Wal-Mart is an ideal example of successful implementation of competitive advantage strategy. Through providing products at EDLP, particularly in the previous years at the time Wal-Mart was not situated as a retail sector was quite complex (Riasi 2015). Considering such situation, the company incorporated “cost leadership strategy” that encompassed increasing “economies of scale” and indulging in significant efforts in decreasing costs. The excess that was produced was again reinvested in developing services of an efficient scale, acquiring new business associated equipment and implementing the recent expertise. Such reinvestments conducted by the organization facilitated the company to sustain its position of “cost leadership”.

Differentiation Strategy- Differentiation competitive advantage strategy focuses on a wide market that encompasses the development of a goods or services that is believed all through its industry is exceptional. The organization or the business unit might then demand a high price for all its offerings (Sölvell 2015). Such specialty is deemed to be related with the company’s brand image, design, technology, dealers, network, features, and the consumer service. Differentiation is considered a viable strategy in order to gain increased average returns in a particular business as the resultant brand loyalty decreases compassion of the consumers to price. High expenses can generally be carried on to the purchasers. Their loyalty can also contribute to be “entry barrier” new organizations that should build up their individual competence in order to separate their offerings in a manner for remaining in the competition successfully. However, research of van den Bosch et al. (2013) have suggested that a “differentiation strategy” is not that likely to produce increases profits in comparison to the low cost strategy as this strategy develops an effective entry barrier.

Illustration: Dayton is an organization that is observed to gain great competitive advantages through implementation of differentiation strategies. From a long time, the company’s strategy was to situate itself to be an upscale chain of discount at which the costs can be slightly increased than the lowest prices. In order to attain this expensive image, the company manufactured stylish and trendy offerings within an organizational environment that was attractive and bright unlike several other companies (West et al. 2015). In comparison to its competitors, Dayton has turned out to be a brand due to its effective merchandising, advertising and marketing strategies. The company developed an image and displayed all its offerings that were aligned with the consumer’s lifestyles along with generating enhanced merchandise displays. In order to gain the competitive advantage from differentiation strategy, the company offered most efficient styles and trends to all its target consumers by focusing on merchandising strategy.

 


Focus Strategy- In such strategy the organization focuses on specific target markets and this is understood as focus strategy (van den Bosch et al. 2013). It is deemed that through focusing on the marketing initiatives more than one narrow segment of markets and along with couture the marketing mix to such particular markets, the organizations tend to address the needs of a particular target market. The companies intend to attain considerable competitive advantage by ensuring effectiveness rather than efficiency. This strategy is considered extremely suitable for the small organizations that can be employed by the company. The focus strategy can be employed by the organizations in order to select the target market those are observed to be less vulnerable to the substitutes or where there is the weakest competition for attaining above average investment return (Riasi 2015). This strategy is observed to have two major variants:

  • Within a cost focus, strategy an organization intends to attain cost advantage within its target segment.
  • Differentiating strategy is deemed effective so that the organizations seek to implement differentiation strategy within its target market segment.

Illustration: PepsiCo implements the focus strategy and based on which it has established its successful position in the market (Sölvell 2015). Considering the cost focus strategy the company made successful attempts to decrease the costs in its manufacturing operations to gain superior competitive advantages. The business allocated its resources effectively and ensured that the company for gaining superior cost advantages maintains sufficient quality personnel and cash. The company’s decision to spin-off the bottling operations have supported PepsiCo in competing more successfully within the beverage business and serving its retail consumers in an effective manner (Christensen and Raynor 2013). Through implementation of cost focus strategy the company improved, its margins with years on its beverage operations on the reason that the stopped operations were not that profitable than the supply of beverage concentrate.

 

Conclusion

The objective of the essay was to evaluate critically Michael Porters three generic strategies to gain competitive advantages through explaining several organizational examples. From the critical analysis of the type of competitive advantages, the organizations seek to attain and the ways in which the three generic strategies can be advantageous it was gathered that generic strategies can facilitate the companies to deal with major five competitive within the industry and perform better than other competitive businesses. These competitive generic strategies include differentiation, focus, and cost leadership competitive advantages. Generally, the companies implement just one among the three generic competitive strategies. It was also revealed that the relative position of the business within the industry makes sure whether its profitability is more than or below average industry standard. The company can attain profit above industry standard by attaining sustainable competitive advantage. The essay explained that in the focus strategy the business concentrates on narrow competitive scope within the industry. It develops a strategy that is specific for a focus area. The focus strategy is of two types cost focus and differentiation strategy.  In “cost focus strategy”, the business aims to gain cost advantages in its selected segment. On the other hand, in “differentiation focus strategy” the business focuses on getting an advantage of differentiation in a targeted segment.

 

Reference List

Ambec, S., Cohen, M.A., Elgie, S. and Lanoie, P., 2013. The Porter hypothesis at 20: can environmental regulation enhance innovation and competitiveness?. Review of Environmental Economics and Policy, 7(1), pp.2-22.

Bulley, C.A., Baku, K.F. and Allan, M.M., 2014. Competitive intelligence information: A key business success factor. Journal of Management and Sustainability, 4(2), p.82.

Christensen, C. and Raynor, M., 2013. The innovator's solution: Creating and sustaining successful growth. Harvard Business Review Press.

Doz, Y. and Prahalad, C.K., 2013, January. Quality of management: An emerging source of global competitive advantage?. In Strategies in Global Competition (RLE International Business): Selected Papers from the Prince Bertil Symposium at the Institute of International Business, Routledge (pp. 345-368).Dobbs, M., 2014. Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), pp.32-45.

Harzing, A.W. and Giroud, A., 2014. The competitive advantage of nations: An application to academia. Journal of Informetrics, 8(1), pp.29-42.

Hoskisson, R.E., Hitt, M.A., Ireland, R.D. and Harrison, J.S., 2012. Competing for advantage. Cengage Learning.

Magretta, J., 2012. Michael Porter answers managers' FAQs. Strategy & Leadership, 40(2), pp.11-15.

Magretta, J., 2013. Understanding Michael Porter: The essential guide to competition and strategy. Harvard business press.

Pisano, V. and Hitt, M.A., 2012. What is competitive strategy: Origins and developments of a relevant research area in strategic management. Handbook of Research on Competitive Strategy, p.616.

Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard Business Review, 92(11), pp.64-88.

Porter, M.E., 2012, June. Competitive Advantage: Enduring Ideas and New Opportunities. In Harvard Business School 14th Annual Rotman School Conference for Leaders Toronto, Canada June (Vol. 22, p. 2012).

Riasi, A., 2015. Competitive advantages of shadow banking industry: An analysis using Porter diamond model. Business Management and Strategy, 6(2), pp.15-27.

Sölvell, Ö., 2015. The Competitive Advantage of Nations 25 years–opening up new perspectives on competitiveness. Competitiveness Review, 25(5), pp.471-481.

van den Bosch, F.A.J. and De Man, A.P. eds., 2013. Perspectives on strategy: contributions of Michael E. Porter. Springer Science & Business Media.

West, D., Ford, J. and Ibrahim, E., 2015. Strategic marketing: creating competitive advantage. Oxford University Press.

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