Michael Porter (1980) introduced a conceptual typology of generic strategies emphasizing on organisation’s positioning within their industry (See figure 1). Organisation must choose one of his three strategies not only to achieve above-average performance to gain sustainable com-petitive advantage, but also to cope better with rivals in the market place (Hitt, Ireland, & Ho-skisson, 2017).
Figure 1: Porter’s Three Generic Strategies (source: Porter (1998), p. 39)
Cost leadership, his first strategy, is used by firms striving to become low-cost producer in their industry (Porter, 2004). To follow this strategy, there are four cost drivers helping firms to reduce costs. For instance, minimizing input costs such as labour and raw materials …show more content…
During this peri-od, the world’s largest computer company recorded a net loss of $ 16 billion (See Appendix 1). In fact, IBM exhibited the most innovative products, a remarkable market share and good employee policies. However, the driver of the decreasing profits was the failure in their strate-gic management and in this context, the remaining cost level of the company (Mills, 1996). In addition, the long-time industry leader IBM was not able to boost prices due to increased competition. During the 1990s there has been a rapid growth in the computer market driven by the fast-changing technological development in personal computers (PCs) (Markoff, 1991a). Although IBM was launching its own PCs, the company focused too heavily on holding the lead in the mainframe market, the heart of IBM (Mills, 1996). Additionally, while IBM’s PCs were using the operating software from Microsoft and chips from Intel, both suppliers posed a significant competitive threat to IBM by producing more reliable, faster and cheaper. In April 1991, IBM’s president of the mainframe computer division stated that IBM will try to rede-sign its mainframe computers by using the same low-cost and fast technologies which had drove to the ignitable growth of PCs. In 1992, however, IBM’s core business of mainframe computers recorded a miserable profit of $ 942 million, which was § 10.58 billion less than the year before (Moffat, 1992). Hence, IBM ‘s big strategic mistake was that the company relied too heavily on its reputation regarding customer’s loyalty rather than concentrating on being innovative to eliminate competitors (Lynch, 2012). Often unrecognized and unexpected new-comers try to break into established markets by using new value-added methods and thereby change competitive positions (Thompson, Scott, & Martin, 2014).
Figure 1: Porter’s Three Generic Strategies (source: Porter (1998), p. 39)
Cost leadership, his first strategy, is used by firms striving to become low-cost producer in their industry (Porter, 2004). To follow this strategy, there are four cost drivers helping firms to reduce costs. For instance, minimizing input costs such as labour and raw materials …show more content…
During this peri-od, the world’s largest computer company recorded a net loss of $ 16 billion (See Appendix 1). In fact, IBM exhibited the most innovative products, a remarkable market share and good employee policies. However, the driver of the decreasing profits was the failure in their strate-gic management and in this context, the remaining cost level of the company (Mills, 1996). In addition, the long-time industry leader IBM was not able to boost prices due to increased competition. During the 1990s there has been a rapid growth in the computer market driven by the fast-changing technological development in personal computers (PCs) (Markoff, 1991a). Although IBM was launching its own PCs, the company focused too heavily on holding the lead in the mainframe market, the heart of IBM (Mills, 1996). Additionally, while IBM’s PCs were using the operating software from Microsoft and chips from Intel, both suppliers posed a significant competitive threat to IBM by producing more reliable, faster and cheaper. In April 1991, IBM’s president of the mainframe computer division stated that IBM will try to rede-sign its mainframe computers by using the same low-cost and fast technologies which had drove to the ignitable growth of PCs. In 1992, however, IBM’s core business of mainframe computers recorded a miserable profit of $ 942 million, which was § 10.58 billion less than the year before (Moffat, 1992). Hence, IBM ‘s big strategic mistake was that the company relied too heavily on its reputation regarding customer’s loyalty rather than concentrating on being innovative to eliminate competitors (Lynch, 2012). Often unrecognized and unexpected new-comers try to break into established markets by using new value-added methods and thereby change competitive positions (Thompson, Scott, & Martin, 2014).