Strategic Options 137

GENERIC STRATEGIES
The concept of business competitive strategy is derived
primarily from Porter's classification of generic strategies:
cost leadership, differentiation, and focus.1 Miles and snow2
classified business strategies into three types: defender,
prospector, and analyzer. Referring to porter's strategy type,
Schuler and Jackson used labels slightly different from those
of Porter to classify business competitive strategies into three
types.3 Cost reduction, innovation, and quality enhancement.
Many Scholars have employed different business strategies
into the different situation as generic strategies, however, we
adopt Porter's method of classification.
Figure 4.1

Development Strategies

Development Strategies

Generic
GenericStrategies
Strategies

- -Overall
Overallcost
costleadership
leadership
- -Differentiation
Differentiation
- -Focus
Focus

Alternative Direction
Alternative Direction

- -Withdrawal
Withdrawal
- -Consolidation
Consolidation
- -Market
Marketpenetration
penetration
- -Product
Productdevelopment
development
- -Market
Marketdevelopment
development

Alternative
AlternativeMethods
Methods

- -Internal
Internaldevelopment
development
- -Mergers
Mergersand
andacquisition
acquisition
- -Joint
development
Joint development
- -Strategic
Strategicalliances
alliances

- -Diversification
Diversification

Porter has referred to low cost, differentiation and focus as

generic business level strategies. Theses strategies are called
generic because all businesses or industries can pursue them
irrespective of they are profit or non-profit organizations. Each
of these generic strategies results from a company making
consistent choices that reinforce each other. 4 According to
Porter, a business can strive to supply a product or service
more cost effectively than its competitors (cost leadership), it
can strive to add value to the product or service through
differentiation and command higher prices (differentiation) or
it can narrow its focus to a special product market segment
that it can monopolize (focus).5

138 Strategic Management: Concept and Application

The difference types of three generic strategies are presented

as:
Three Generic Strategic

Strategic target

Figure 4.2

Low cost position

Uniqueness perceived by the customer

Industry wise

D i ff e r e n t i a t i o n
Overall Cost Leadership

Overall cost
leadership

Overall cost leadership strategic approach of a firm in an

industry makes all possible attempts
toUachieve
the lowest
F
S
FO
OC
CU
S
costs
in the
various
sectors of operation. It has an aim to gain
Particular
segment
only
increased market share through increasing the efficiency and
lowering the costs. It is a strategy in which an organization
attempts to gain a competitive advantages by reducing its
costs below the cost of competing firms.
According to Porter, overall cost leadership requires
aggressive construction of efficient scale facilities, vigorous
pursuit of cost reductions from experience, tight cost and
overhead control, avoidance of marginal customer accounts,
and cost minimization in areas like research and
development, service, sales forces, advertising and so on.6
The basic components that facilitate to make overall cost
leadership to a firm, an industry are as follows:

Cost
reduction
in
the
area
of
production/operation. Such as lowering the raw
material cost or competitive cost advantage on
availability of raw materials, lowering the distribution
cost, i.e. low transportation and channel costs and
reduction of overhead costs.

Through tightening the cost and overall control.

Through avoidance
accounts.

Cost minimization in
development, different
advertising and so on.

Through accelerating

of

marginal

customer

the area of research and

services, sales force,
the efficiency.

In another term, we can say that overall cost leadership is

achieved by a firm through the reduction of cost on primary

Strategic Options 139

activities and supporting activities. Primary activities

concerned with the physical creation of a product or service,
its marketing, delivery and provision of after sale support
whereas support activities provide input or infrastructure for
primary activities to be performed.
An example for how firms achieve cost leadership as
competitive advantages.7
Figure 4.3
Firm
infrastructu
re

Technology
Developme
nt
Procureme
nt

Flat organization structure that

cuts corporate overhead
Employees policies which
minimize turnover
Process break through that
lowers production costs
Global purchasing

Simplified info system

That reduces cost of accounting
department
Training which reduces waste and
scrape
Product reformulation which
allows use of cheaper ingredients
Large scale purchase from rural
areas which significantly lower cost
of building new plants.

Experience effects raise efficiency over timeComputerized lowers

transportation expenses

Margin

Long term win-win relationship results in suppliers passing through cost

savingsEconomy of scale in plant reduces manufacturing cost

Margin

HRM

Value Chain Activities Under Cost Minimization Strategy

Shipping in bulk lowers transportation cost per unitNational advertising

campaign
Economy of scale in buying media space/timeExpert services technicians
Inbound

Operation

Outbound

Marketing

Services

Repair
product right the first time,
avoiding the expenses of follow-up
Logistic
Logistic
calls.

Low cost position of a firm protects, against all five

competitive forces suggested by Porter. The low cost position
of a firm gives power to defend against rivals. Its lower cost
continues to earn profit during the time of heavy competition.
Because of high marketing share, it will have high bargaining
power relating to its suppliers. Its low price also serves as a
barrier to entry because very few new entrants will be able to
match the leaders cost advantages.

1
2
3
4
5
6
7

Porter, Michael E (1985)., Competitive Strategy, The Free Press P.35

Miles, R.E. & Snow, C.C. (1984), Designing Strategic Human Resource systems, Organizational Dynamics, 13-36-52.
Schuler, R.S. & Jackson, S.E. (1987), Linking Competitive Strategies with Human Resource Management Practices, Human Resource Planning, 10, 441-455.
Hills, C. L. and Jones, G.R. (1998), Strategic Management Theory: An Integrated Approach, All India Publication & Distribution, Channai
Porter, Michael E (1985), Competitive Strategy, The Free Press P.35
Porter, Michael E (1985), Competitive Strategy, The Free Press P.35
Porter, Michael (1985), Competitive Advantage, The Free Press