Michael porter perspective on strategy
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What is Strategy? The Michael Porter Perspective Michael McDermott www.strategycapstone.ning.com
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Michael Porter on Strategy
Transcript of Michael porter perspective on strategy
What is Strategy? The Michael Porter Perspective
Michael McDermott www.strategycapstone.ning.com
Who is Michael Porter?
• He is a Harvard Business School Professor • He is regarded as “the” guru on business
strategy • Profile of Michael Porter
What is Strategy?
• Strategy is competitive position
• And competitive position demands determining the company’s choice of generic strategy
• It is essential that you understand this basic but vital concept of generic strategy
Establishing Competitive Advantage
• A company can outperform rivals only if it can establish a difference that it can preserve
• It must therefore: 1. Deliver greater value to customers; or 2. Create comparable value at lower prices; or 3. Do both
Some Key Questions in Strategy Development
Who/what are we? – The focus here is on choice of Generic Strategy
Where do we want to be? – The focus here is on choice of Generic Strategy
Why do we want to go there? – The focus here is upon strategy drivers
• PEST Analysis • Competitor Analysis • Market Analysis • Internal Analysis
How will we get there? – The focus here is upon choice of Grand Strategy
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1. Who/what are we?
This is our competitive position – some would argue that this is the
essence of our strategy
Effectiveness vs Efficient
•Greater value •Higher unit prices
More Effective
•Lower unit costs More Efficient
Determining Strategic Position
Activities
• Choose a different set of activities • Perform similar activities differently • Or perform different activities
Value • Deliver a unique mix of value
Nature of Strategic Positioning
• Means performing different activities from rivals or performing similar activities in different ways
• Competitive advantage requires developing a distinct strategic position
Choice of Generic Strategy
•Do we compete on low cost or differentiation? Internal
Considerations
•What is our target market? •What industry do we
compete in? External
Considerations
What are the Generic Strategy Options?
•Niche – narrow market focus
•Mainstream – broad market focus
Low Cost
•Niche – narrow market focus
•Mainstream – broad market focus
Differentiation
Generic Strategies and the Luxury Car Industry But you may decide that BMW competes in the luxury car market.
Porsche
Hyundai Genesis BMW
Volvo
Choice of Generic Strategy: Abercrombie and Fitch
•Differentiation?
•Agreed? Internal
Considerations
• Is it the clothes market? •Or designer clothes for
mature adolescents and young adults?
External Considerations
Choice of Generic Strategy: Abercrombie and Fitch
The Clothes Market
• Then A&F competes through focused differentiation
The Designer Young Adult Market
• Then A&F competes
through differentiation
According to Porter, Strategy involves trade-offs.
The essence of strategy is choosing what not to do.
We now get position.
But What is Strategy?
Strategy is the creation of a unique and valuable position,
involving a different set of activities.
“Commonly the threats to strategy are
seen to emanate from outside a company because of changes in
technology or the behavior of competitors. Although external changes
can be the problem, the greater threat to strategy often comes from within”.
Michael Porter
Porter’s Focus is Competition
• Porter’s perspective is all about establishing a competitive position that is different from rivals
• Either being the cost leader
• Or offering differentiation
Defining Our Present Competitive Position
This is represented in our Mission Statement
2. Where do we want to be?
This is future-oriented and is
addressed in our Vision
2. Where do we want to be?
1. Do we wish to change our Strategy or our competitive position?
• Or simply apply similar more widely?
Changes in Competitive Position: Walmart in the USA
Status • Today you think of Walmart
and you may think low cost
• A few years ago, you would certainly think low cost
• This company may wants us in the future to think ‘green’ and ‘healthy’
Evaluation • Walmart’s sales in the USA
were declining recently and this was allegedly due to the company’s weaker commitment to low costs
Changes in US Competitive Position: Toyota
1960s • Focused Low cost
1980s • Low cost
1990s
• Differentiation (introduce Lexus offers focused differentiation)
2000 • Differentiation
Changes in Competitive Position: Singapore Airlines
1960s-1970s
• Differentiation based on Asian service – Singapore girl • Low crew/passenger ratio due to low labor costs
1980s
• Differentiation based on above • Plus most modern fleet of aircraft
1990s
• Differentiation based on all of above • Plus best in-flight entertainment, cuisine etc
Changes in Competitive Position: Hyundai, Samsung, LG
1960s-1970s •Low cost
1980s-90s •Transition
2000s •Differentiation
Changes in Competitive Position: Haier (Chinese producer of white goods)
2000s • Low Cost
2010s • Transition to differentiation
2020s • Has it worked (as per Samsung, LG,
Acer, HTC)?
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3. Why do we want to go there?
1. Change(s) taking place in the external
environment? – The macro-environment – The competitive environment – The market
2. The internal environment – i.e. Company-related considerations
3. Or combination of 1 and 2 above.
4. How will we get there?
• Organic growth – the company growing through its own development on
new products/services; – Market Consolidation – Market Development – Diversification
• External growth – Mergers and Acquisitions (Married) – very costly – Joint Ventures (Engaged) – less costly – Alliances (Dating) – no ownership stake, just partners – Licensing (social acquaintance) – low risk, payments
based upon market success
