Examine Michael Porter’s generic strategies. To what extent is Porter’s analysis relevant as a guide both to firm behaviour and as an explanation of firm profitability in the 21st century?

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Introduction

Porter 's generic strategies of cost leadership , differentiation and focus can be (and often are ) adopted by competitors in any given industry and can be provably successful in 21st century business

According to Porter

Effectively implementing any of these generic strategies usually requires that are diluted if there is more than one primary target . [These] generic strategies are approaches to outperforming competitors in the industry . Porter (1980 : 35

Furthermore , Porter argues that "the firm failing to develop its strategy

in at least one of the directions--a firm struck in the middle--is in an extremely poor position " and is doomed to essentially low profitability . Porter (1980 : 41

In cost leadership situation an organization sets out to be the low-cost producer in its industry . It caters for many industry segments . If an organization can achieve and sustain overall cost leadership then it will achieve superior performance . Cost leadership can be obtained by focusing on key accounts , reaping economies of scale , controlling costs (Sultan Kermally 2003 , 66-67

Main Body

In to achieve an proper competitive positioning and above average performance , Porter has proposed the following strategies which are termed as generic strategies

Cost leadership

A differentiation strategy

Focus strategy

Cost leadership (attaining the lowest cost position ) is clearly not within every firm 's ability to strive toward and attain . In fact , not more than one or two firms in any industry can give value arising predominately from cost-effective operations . By far the majority of firms succeed through the implementation of one of the other two strategies . Even in the case of supposed commodities , companies strive to raise other dimensions of value given to consumers rather than seeking just to compete on a cost basis . Mobil and Exxon are amongst the petroleum firms that attempt to position their gasoline as being superior in quality (anti-clog , non-freeze , etc , additionally to which their service stations stock an increasing array of convenience items Mercedes Benz focuses on the prestige and image-conscious end of the automobile market , while Toyota 's manufacturing efficiency gives it a cost and quality facilitator which is reinforced by its marketing wizardry . Combinations of these strategies are also probable , as when instant oil change (focus ) specialists look to establish a low-cost position due to the high volume of business generated by a sensible response to customer 's minor automobile service needs

The cost leadership strategy frequently requires a `lean ' culture and is usually perceived as `unattractive ' with the constant focus on cost management and efficiency . A leaning to be production or operations led therefore emerges . This produces a concentration on standardization of products , components as well as processes with the minimization of variations /derivatives . A fine balance needs to be attained between maintaining a contracted range of products /services and meeting the varying needs of diverse customer groups

It is these tensions between either giving a differentiated approach to match customer require and gain competitive advantage , or pursuing cost leadership to gain profit margin and value...