Each strategy makes its own demands on the organization to make consistent choices in terms of product, market & distinctive competency to establish a competitive advantage. A firm pursuing one strategy should gain from elements of the other strategies too, as long as this did not detract it from its chosen strategy.
A differentiator, for example, should pursue all cost reduction that does not sacrifice differentiation, and a cost leader could differentiate until this began to cost a lot. A firm must gain a fit among the three components of business strategy. For instance, a low cost company cannot opt for a high level of market segmentation and provide a wide range of products. This would greatly enhance the production costs and the company would loose low cost advantage. Similarly, a differentiator firm with a competency in innovation should not try to reduce expenditure on R&D to decrease costs. However, when a firm looses its primary goal and source of competitive advantage and pursues both cost reduction and differentiation indiscriminately (or not at all), then it is baffled in the middle. This is because cost leadership and differentiation are inconsistent in principle, and there will typically be a cost leader, differentiator, or focuser that will be able to compete better than the firm stuck in the middle in anyone segment of the market. Firms with such a strategy (absence of) typically end baffled in the middle because they have made product/market choice in such a way that they have been unable to acquire or sustain a competitive advantage. As a result, they have below average performance and suffer when competition in the industry intensifies.
However, the cost leadership and differentiation are not mutually inconsistent, at least in the short run. This may occur, for example, when a firm pioneers a product, service, or process innovation that enables it to reduce cost and at the same time differentiate successfully. With the appropriate barriers set upright, it may be possible to take advantage of such an innovation for a considerable period of time. Similarly, cost leadership and differentiation may also be pursued together when costs are largely determined by market share, and control of a considerable share enables the firm to use the extra margin to differentiate, and still remain the cost leader. The same may be possible if there are interrelationships between industries that a competitor may be able to exploit while others are not.
Some companies started pursuing one of the three generic strategies but made wrong choices, or were subject to environmental changes. Unless management keeps close track of the business and its environment, a company may easily loose control of a generic strategy. It is required constantly to adjust product/market choices to suit changing industry conditions. There are a number of ways to being stuck in the middle.
Generally, a focuser can get stuck in the middle when it becomes overconfident and starts acting like a broad differentiator. A differentiator can get stuck in the middle if competitors attack their markets with more specialized or low-cost products that blunt their competitive edge.
Many large firms will become stuck in the middle unless they make the investment needed to pursue both strategies simultaneously.
Successful management of a generic competitive strategy requires strategic management to pay attention to two issues: 1.They should ensure that the product/market/distinctive competency decisions are oriented toward one specific competitive strategy. 2. They should monitor the environment to keep the firm’s source of competitive advantage in tune with changing opportunities and threats.
A differentiator, for example, should pursue all cost reduction that does not sacrifice differentiation, and a cost leader could differentiate until this began to cost a lot. A firm must gain a fit among the three components of business strategy. For instance, a low cost company cannot opt for a high level of market segmentation and provide a wide range of products. This would greatly enhance the production costs and the company would loose low cost advantage. Similarly, a differentiator firm with a competency in innovation should not try to reduce expenditure on R&D to decrease costs. However, when a firm looses its primary goal and source of competitive advantage and pursues both cost reduction and differentiation indiscriminately (or not at all), then it is baffled in the middle. This is because cost leadership and differentiation are inconsistent in principle, and there will typically be a cost leader, differentiator, or focuser that will be able to compete better than the firm stuck in the middle in anyone segment of the market. Firms with such a strategy (absence of) typically end baffled in the middle because they have made product/market choice in such a way that they have been unable to acquire or sustain a competitive advantage. As a result, they have below average performance and suffer when competition in the industry intensifies.
However, the cost leadership and differentiation are not mutually inconsistent, at least in the short run. This may occur, for example, when a firm pioneers a product, service, or process innovation that enables it to reduce cost and at the same time differentiate successfully. With the appropriate barriers set upright, it may be possible to take advantage of such an innovation for a considerable period of time. Similarly, cost leadership and differentiation may also be pursued together when costs are largely determined by market share, and control of a considerable share enables the firm to use the extra margin to differentiate, and still remain the cost leader. The same may be possible if there are interrelationships between industries that a competitor may be able to exploit while others are not.
Some companies started pursuing one of the three generic strategies but made wrong choices, or were subject to environmental changes. Unless management keeps close track of the business and its environment, a company may easily loose control of a generic strategy. It is required constantly to adjust product/market choices to suit changing industry conditions. There are a number of ways to being stuck in the middle.
Generally, a focuser can get stuck in the middle when it becomes overconfident and starts acting like a broad differentiator. A differentiator can get stuck in the middle if competitors attack their markets with more specialized or low-cost products that blunt their competitive edge.
Many large firms will become stuck in the middle unless they make the investment needed to pursue both strategies simultaneously.
Successful management of a generic competitive strategy requires strategic management to pay attention to two issues: 1.They should ensure that the product/market/distinctive competency decisions are oriented toward one specific competitive strategy. 2. They should monitor the environment to keep the firm’s source of competitive advantage in tune with changing opportunities and threats.
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