⌛ Porter 1985 Competitive Advantage
The costs of information storage, manipulation, and transmittal are falling rapidly and the boundaries of what is feasible in information processing are at the same time expanding. Sears found the answer first—fortuitously. Dow Jones has started the Asian Wall Street Journal and the Wall Street Journal-European Edition and shares much of the editorial content while printing the papers in plants all over the world. For porter 1985 competitive advantage of industrial history, technological progress Argumentative Essay: Its Not A Gun Control Problem affected the physical component of what businesses do. Harvard Business Review September : Businesses that use this method usually focus on porter 1985 competitive advantage needs of the customer and how porter 1985 competitive advantage products or services could improve their daily lives. Michael Porter's book Competitive Advantage has served as the foundation for much of modern business strategy. Gosselin, M.
Competitive Advantage and Business Strategy
The differences between the three generic strategies and some other implications of the strategies are provided in the two graphic illustrations below. According to Porter, a firm that fails to compete using one of the three generic strategies is stuck in the middle, and almost guaranteed low profitability. In some cases stuck in the middle means that smaller focused or differentiated firms, and the largest cost leadership firms are the most profitable, while the middle-sized firms are the least profitable See the U-shaped function below.
However, the U-shaped function does not hold in all industries, and unless one redefines the industry as separate focused groups, there is no single relationship between profitability and market share. There are risks associated with the three generic strategies that are mainly related to changes in the competitive environment. Technological changes that eliminates the advantage of past investments or learning. Newcomers or followers learn to produce to match the leader's low cost advantage. Cost inflation narrows the firm's ability to maintain a sufficient price differential. Ford Motor Company of the s provides the classic example of the risk of cost leadership. Cost differences between the differentiated firm and the low cost leader become too great to hold brand loyalty.
Buyer's needs change and the differentiated product no longer provides a strategic advantage. Imitation narrows the brand and strategic advantage of the differentiated product. Differences between the strategy target and the general market products become to narrow to maintain a focus strategy. Go to the next Chapter. Competitive Strategy. Chapter 3: A Framework for Competitor Analysis.
The last section of this chapter reminded me of several summaries I developed on risk management. For example, see the Shenkir, and Walker summary on enterprise risk management below. Christensen, C. Making strategy: Learning by doing. Harvard Business Review November-December : , , , , , Clinton, B. Product value analysis: Strategic analysis over the entire product life cycle. De Geus, A. The living company. Harvard Business Review March-April : Fonvielle, W. Gaining strategic alignment: Making scorecards work. Management Accounting Quarterly Fall : Gadiesh, O. Transforming corner-office strategy into frontline action. Harvard Business Review May : Gosselin, M.
The effect of strategy and organizational structure on the adoption and implementation of activity-based costing. Accounting, Organizations and Society 22 2 : Iansiti, M. Strategy as ecology. Harvard Business Review March : Johnson, M. Christensen and H. Reinventing your business model. Harvard Business Review December : Kaplan, R. Using the balanced scorecard as a strategic management system. Harvard Business Review January-February : Having trouble with your strategy? Then map it. Harvard Business Review September-October : Transforming the balanced scorecard from performance measurement to strategic management: Part I.
Accounting Horizons March : Transforming the balanced scorecard from performance measurement to strategic management: Part II. Accounting Horizons June : Measuring the strategic readiness of intangible assets. Harvard Business Review February : It must seek out and exploit every source of potential cost advantage. Typically, cost leaders sell a basic product or commodity and are concerned with pursing economies of scale and absolute cost advantages. While the product may be relatively unsophisticated, the company must comply with the industry norms i.
A cost leader must therefore maintain some degree of parity with its competitor's performance in other areas while out performing them based on price. The second generic strategy is differentiation. Here a firm seeks to be the best performer in its industry grouping along some dimension or dimensions of the product or service other than cost. Its singular position will then be rewarded by a premium for its distinctive product or service. The premium is paid for the company's uniqueness, although the company must also maintain some degree of parity with its competitors cost levels in order that the cost of "uniqueness" does not begin to exceed the premium that the customer is prepared to pay. Unlike cost leadership, several different firms can simultaneously pursue successful differentiation strategies in the same industrial sector - if sufficient scope exists.
This strategy is not based on the selection of desirable attributes for a product or service across the whole of an industry grouping but upon the selection of a particular segment or group, within the industry as a whole, which is to be targeted, i. A company whose strategic advantage lies in focus will select its niche and, having found it, will tailor its strategy specifically to serve the needs of that particular client group. The focuser seeks competitive advantage in its own segment, although it need not possess an overall competitive advantage. To be successful the focuser must exploit the under-performance of its more broadly based competitors in that niche based either on cost or of differentiation.
Each strategy is a fundamentally different approach to creating and sustaining a competitive advantage. Usually a firm will need to make a choice about which it will pursue. Implementing differentiation and cost leadership strategies simultaneously is usually impossible for a company. For example, it is difficult to be a cost leader while pursuing a differentiation strategy because differentiation costs money. Although simply reducing costs may not adversely effect differentiation, a cost leader will eventually reach the point where pursuing a cost advantage will inevitably mean a sacrifice of scope.
Normally each of these approaches are mutually exclusive and a firm needs to choose which it will pursue, however Porter does concede that under certain circumstances it may be possible. He outlines only three conditions under which a firm may be able to achieve cost leadership and differentiation simultaneously. Porter acknowledges technology's role as one of the principal drivers of competition claiming that it plays a major role in both the structural changes in existing industries as well as in the creation of new industries. Technological change is such an important influence on competitive advantage both because it creates new opportunities for competition and because it plays a central part in the existing competitive strategy through its ubiquitous presence in the value chain.
He states that "Information Technology" and "Information Systems" are particularly important as every activity creates and uses information.
Porter researched hundreds of companies to identify the three primary ways companies achieve a sustainable advantage: cost leadership, differentiation, and focus. Positioning is an porter 1985 competitive advantage marketing porter 1985 competitive advantage. These Frederick Douglass Struggles white papers, government Analysis Of Locked Away Forever By Patricia Smith, original reporting, and interviews with industry experts.