Page 154 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Stuck-in-the Middle

Professor Porter concluded his analysis of what he termed the main generic strategies by
suggesting that there are real dangers for the firm that engages in severed generic strategies but
fails to achieve any of them. He therefore emphasized the importance of clear positioning i.e.,
either follow cost leadership or differentiation. He called firms that do not have clear strategic
positioning and which make choices that include a few elements of different strategies (i.e. some
elements of differentiation and some elements of cost leadership) as firms stuck–in-the-middle.
He suggested that such firms do not develop successful competitive advantage. But this concept
of stuck-in-the–middle has been an issue of debate.
Several commentators, such as Kay, Stopford and Baden-Fuller and Miller now reject this aspect
of the analysis. They point to several empirical examples of successful firms that have adopted
more than one generic strategy.

As was pointed out above, there is now useful empirical evidence that some companies do
pursue differentiation and low-cost strategies at the same time. They use their low costs to
provide greater differentiation and then reinvest the profits to lower their costs even further.

Example: Benetton (Italy), Toyota (Japan) and BMW (Germany)

Did u know? What are Hybrid Strategies?

Hybrid strategies include a combination of generic strategies, for example, simultaneous
pursuing of both low cost leadership and differentiation strategy. Research has found that
such hybrid strategies have contributed to competitive advantage in some situations. For
example, successful implementation of differentiation strategy may result in increased
sales volume and as sales volume increases costs drop due to economies of scale. Thus
successful differentiators can also be the lowest cost producers in an industry.
Porter (1994) later offered some clarification: “A company cannot completely ignore quality
and differentiation in the presence of cost advantages, and vice-versa. Progress can be
made against both types of advantage simultaneously.” However, he notes that these are
trade–offs between the two and that companies should “maintain a clear commitment to
superiority in one of them”.

8.3.2 Critical Assessment of Generic Strategies

The generic business-level strategies discussed above are useful when we view an industry as
stable. However, in practice, business environment is dynamic and successful firms need to
adapt their strategies to the environmental conditions.
More (2001) notes that each generic strategy gives a company some kind of defence against each
of the five competitive forces.

Example: Cost leadership can raise barriers to cope with cost increases form suppliers.
Differentiation based on strong brand loyalty, can create an entry barrier and also insulate the
firm from rivalry. But there are risks in this.

Example: Consumer loyalty can falter if the price premium is perceived as too high, and
differentiation can be lost through imitation of a product by competitors.
The other risks have already been discussed in the previous sections.

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