Page 34 - DMGT206_PRODUCTION_AND_OPERATIONS_MANAGEMENT

Unit 2: Strategy and Operations Strategy

There are two aspects to this strategy: the cost focus and the differentiation focus. In cost focus, Notes
a firm seeks a cost advantage in its target market. The objective is to achieve lower costs than
competitors in serving the market—this is a ‘low cost producer’ strategy focused on the target
market only. This requires the organization to identify buyer segments with needs/preferences
that are less costly to satisfy as compared to the rest of the market. Differentiation focus offers
niche buyers something different from other competitors. The firm seeks product differentiation
in its target market.
Both variants of the focus strategy rest on differences between a focuser’s target market and
other markets in the industry. The target markets must either have buyers with unusual needs
or else the production and delivery system that best serves the target market must differ from
that of other industry segments.
Cost focus exploits differences in cost behaviour in some markets, while differentiation focus
exploits the special needs of buyers in certain markets. A focuser may do both to earn a sustainable
competitive advantage though this is difficult.

Examples: Rolls-Royce in luxury automobiles and Apple Computers in desktop
publishing.

Focus strategy is successful if the organization can choose a market niche where buyers have
distinctive preferences, special requirements, or unique needs and then developing a unique
ability to serve the needs of the target buyer segment. Even though the focus strategy does not
achieve low cost or differentiation from the perspective of the market as a whole, it does achieve
this in its narrow target. However, the market segment has to be big enough to be profitable and
have adequate growth potential.

The organization has to identify a buyer group or segment of a product line that demands
unique product attributes. Alternatively, it has to identify a geographical region where it can
make such offerings.
Focusing organizations develop the skills and resources to serve the market effectively. They
defend themselves against challengers via the customer goodwill they have built up and their
superior ability to serve buyers in the market. The competitive power of a focus strategy is
greatest when the industry has fast-growing segments that are big enough to be profitable but
small enough to be of secondary interest to large competitors and no other rivals are concentrating
on the segment. Their position is strengthened as the buyers in the segment require specialized
expertise or customized product attributes.

A focuser’s specialized ability to serve the target market niche builds a defense against competitive
forces. Its focus means that either the organization has a low cost position with its strategic
target, high differentiation, or both. The logic that has been laid out earlier for cost leadership
and differentiation is also applicable here.
Some of the situations and conditions where a focus strategy works best are:

1. When it is costly or difficult for multi-segment rivals to serve the specialized needs of the
target market niche;

2. When no other rivals are concentrating on the same target segment;
3. When a firm’s resources do not permit it to go after a wider portion of the market;
4. When the industry has many different segments, creating more focusing opportunities
and allowing a focuser to pick out an attractive segment suited to its strengths and
capabilities.

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