Porter’s position on strategy is that firms should strive to achieve a competitive advantage that allows them to outperform their competitors. Porter positions that to sustain the firm’s competitive advantage (Porter, Competitive Advantage, The Free Press, 1980), firms should choose a strategy amongst three generic strategies being cost leadership, differentiation or focus (IMAGE).
The cost leadership strategy involves the firm winning market share by having the lowest overall price (or the best price to value ratio) compared to competitor firms. To compete on price and still generate profits, the firm must benefit from lower operating costs than the competition Otherwise profit generation is unachievable and the low cost strategy becomes unsustainable overtime. To operate at …show more content…
A firm strategy can be viewed as measures to proactively shift the balance of the Five Forces, or as reactive measures to changes in the forces brought on by industry competitors, suppliers or buyers. Porter aims to help firms maximize profits by understanding industry conditions and incorporating their strategy within industry specific Five Forces framework. Although Porter ushered in a new era of strategic management, his model has come under criticism for its over simplification of industry analysis (GRUNDY article). Grundy suggests that the Five Forces framework is focused on macro-level analysis, but falls short of providing a deeper analysis of micro-level competitive forces such as product specific competition. The model requires a better segmentation of the value chain to distinguish multiple levels of buyers and suppliers. Further, the model depicts industry as having boundaries whereas industry overlap is all the more common. Grundy suggests the need to further develop the Porter model to provide a deeper analysis of micro-economic and macro-economic forces influencing industry (GRUNDY
The cost leadership strategy involves the firm winning market share by having the lowest overall price (or the best price to value ratio) compared to competitor firms. To compete on price and still generate profits, the firm must benefit from lower operating costs than the competition Otherwise profit generation is unachievable and the low cost strategy becomes unsustainable overtime. To operate at …show more content…
A firm strategy can be viewed as measures to proactively shift the balance of the Five Forces, or as reactive measures to changes in the forces brought on by industry competitors, suppliers or buyers. Porter aims to help firms maximize profits by understanding industry conditions and incorporating their strategy within industry specific Five Forces framework. Although Porter ushered in a new era of strategic management, his model has come under criticism for its over simplification of industry analysis (GRUNDY article). Grundy suggests that the Five Forces framework is focused on macro-level analysis, but falls short of providing a deeper analysis of micro-level competitive forces such as product specific competition. The model requires a better segmentation of the value chain to distinguish multiple levels of buyers and suppliers. Further, the model depicts industry as having boundaries whereas industry overlap is all the more common. Grundy suggests the need to further develop the Porter model to provide a deeper analysis of micro-economic and macro-economic forces influencing industry (GRUNDY