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Unit 8: Business Level Strategies

8.3.3 Comment on Porter’s Generic Strategies Notes

Hendry ll and others have set out the problems of the logic and the empirical evidence associated
with generic strategies that limit its absolute value. We can summarize them as follows:

Low-cost Leadership

1. If the option is to seek low-cost leadership, then how can more than one company be the
low-cost leader? It may be a contradiction in terms to have an option of low-cost leadership.
2. Competitors also have the option to reduce their costs in the long-term, so how can one
company hope to maintain its competitive advantage without risk?
3. Low-cost leadership should be associated with cutting costs per unit of production.
However, there are limitations to the usefulness of this concept.
4. Low-cost leadership assumes that technology is relatively predictable, if changing. Radical
change can so alter the cost positions of actual and potential competitors.
5. Cost reductions only lead to competitive advantage when customers are able to make
comparisons. This means that the low-cost leader must also lead price reductions or
competitors will be able to catch up, even if this takes some years and is at lower profit
margins. But permanent price reductions by the cost leader may have a damaging impact
on the market positioning of its product or service that will limit its usefulness.
Differentiation

1. Differentiated products are assumed to be higher priced. This is probably too simplistic.
The form of differentiation may not lend itself to higher prices.
2. The company may have the objective of increasing its market share, in which case it may
use differentiation for this purpose and match the lower prices of competitors.
3. Porter discusses differentiation as if the form this will take in any market will be
immediately obvious. The real problem for strategy options is not to identify the need for
differentiation but to work out what form this should take that will be attractive to the
customer. Generic strategy options throw no light on this issue whatsoever. They simply
make the dubious assumption that once differentiation has been decided on, it is obvious
how the product should be differentiated.

Focus

1. The distinction between broad and narrow targets is sometimes unclear. Are they
distinguished by size of market? Or by customer type? If the distinction between them is
unclear then what benefit is served by focus?
2. For many companies, it is certainly useful to recognise that it would be more productive
to pursue a niche strategy, away from the broad markets of the market leaders. That is the
easy part of the logic. The difficult part is to identify which niche is likely to prove
worthwhile. Generic strategies provide no useful guidance on this at all.
3. As markets fragment and product life cycles become shorter, the concept of broad targets
may become increasingly redundant.

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