D

e
s
c
r
i
p
t
i
o
n
:

l
o
o
k

a
t

t
h
e

f
o
u
r

b
r
o
a
d

c
a
t
e
g
o
r
i
e
s

o
f

c
o
m
p
e
Porter's Generic Competitive Strategies (ways
of competing)
A firm's relative position within its industry determines whether a firm's profitability is above or
below the industry average. The fundamental basis of above average profitability in the long run is
sustainable competitive advantage. There are two basic types of competitive advantage a firm can
possess: low cost or differentiation. The two basic types of competitive advantage combined with the
scope of activities for which a firm seeks to achieve them, lead to three generic strategies for
achieving above average performance in an industry: cost leadership, differentiation, and focus. The
focus strategy has two variants, cost focus and differentiation focus.

1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources of cost
advantage are varied and depend on the structure of the industry. They may include the pursuit of
economies of scale, proprietary technology, preferential access to raw materials and other factors. A
low cost producer must find and exploit all sources of cost advantage. if a firm can achieve and
sustain overall cost leadership, then it will be an above average performer in its industry, provided it
can command prices at or near the industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions that are
widely valued by buyers. It selects one or more attributes that many buyers in an industry perceive as
important, and uniquely positions itself to meet those needs. It is rewarded for its uniqueness with a
premium price.

3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an industry.
The focuser selects a segment or group of segments in the industry and tailors its strategy to serving
them to the exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b) differentiation focus
a firm seeks differentiation in its target segment. Both variants of the focus strategy rest on
differences between a focuser's target segment and other segments in the industry. The target
segments must either have buyers with unusual needs or else the production and delivery system that
best serves the target segment must differ from that of other industry segments. Cost focus exploits
differences in cost behaviour in some segments, while differentiation focus exploits the special needs
of buyers in certain segments.

-------------------
porter's five forces model
Michael E Porter's five forces of competitive position model and diagrams
Michael Porter's famous Five Forces of Competitive Position model provides a simple perspective for
assessing and analysing the competitive strength and position of a corporation or business organization.
A free Five Forces diagram in MSWord is available here. (Porter's Five Forces diagram pdf here.)
American Michael Porter was born in 1947. After initially graduating in aeronautical engineering,
Porter achieved an economics doctorate at Harvard, where he was subsequently awarded university
professorship, a position he continues to fulfil at Harvard Business School. His research group is based
at the Harvard Business School, and separately he co-founded with Mark Kramer the Foundation
Strategy Group, 'a mission-driven social enterprise, dedicated to advancing the practice of philanthropy
and corporate social investment, through consulting to foundations and corporations'. A prime example
of someone operating at a self-actualization level if ever there was one.
After his earlier work on corporate strategy Porter extended the application of his ideas and theories to
international economies and the competitive positioning of nations, as featured in his later books. In
fact in 1985 Porter was appointed to President Ronald Reagan's Commission on Industrial
Competitiveness, which marked the widening of his perspective to national economies. By the 1990's
Porter had established a reputation as a strategy guru on the international speaking circuit second only
to Tom Peters, and was among the world's highest earning academics.
Porter's first book Competitive Strategy (1980), which he wrote in his thirties, became an international
best seller, and is considered by many to be a seminal and definitive work on corporate strategy. The
book, which has been published in nineteen languages and re-printed approaching sixty times, changed
the way business leaders thought and remains a guide of choice for strategic managers the world over.
Aside from his innovative thinking, Porter has a special ability to represent complex concepts in
relatively easily accessible formats, notably his Five Forces model, in which market factors can be
analysed so as to make a strategic assessment of the competitive position of a given supplier in a given
market. The five forces that Porter suggests drive competition are:

porter's five forces

1. Existing competitive rivalry between suppliers
2. Threat of new market entrants
3. Bargaining power of buyers
4. Power of suppliers
5. Threat of substitute products (including technology change)
Typically this five forces model is shown as a series of five boxes in a cross formation, item 1 being
central. (Pdf diagram here, MSWord diagram here.)
Porter's Five Forces model can be used to good analytical effect alongside other models such as the
SWOT and PEST analysis tools.
Porter's Five Forces model provides suggested points under each main heading, by which you can
develop a broad and sophisticated analysis of competitive position, as might be used when creating
strategy, plans, or making investment decisions about a business or organization.

Porter is also known for his simple identification of five generic descriptions of industries:
1. Fragmented (eg, shoe repairs, gift shops)
2. Emerging (eg, space travel)
3. Mature (eg, automotive)
4. Declining (eg, solid fuels)
5. Global (eg, micro-processors)
And Porter is also particularly recognised for his competitive 'diamond' model, used for assessing
relative competitive strength of nations, and by implication their industries:
1. Factor Conditions: production factors required for a given industry, eg., skilled labour,
logistics and infrastructure.
2. Demand Conditions: extent and nature of demand within the nation concerned for the product
or service.
3. Related Industries: the existence, extent and international competitive strength of other
industries in the nation concerned that support or assist the industry in question.
4. Corporate Strategy, Structure and Rivalry: the conditions in the home market that affect
how corporations are created, managed and grown; the idea being that firms that have to fight
hard in their home market are more likely to be able to succeed in international markets.