Strategic Management: Formulation and Implementation

Routes To Differentiation

A firm can enhance its differentiation in two basic ways:

  1. It may become more unique in performing its existing value activities.
  2. It may reconfigure its value chain in some way that enhances its uniqueness.

A number of approaches characterizes successful differentiators:

Enhance the sources of uniqueness:

Make the cost of differentiation an advantage

Generic Business Unit Strategies - Summary

This chapter deals with the issue of how should a firm competes in its chosen industry or business(es).

Michael Porter is credited with clarifying the issue of how firms can achieve competitive advantage. He proposes a three-stage progression to achieving competitive advantage: analyse the industry structure, decide competitive strategy, and implement competitive strategy.

Examination of the structure of the industry will establish the industry's "market attractiveness" and the firm's competitive positions within it.

Porter's second stage involves the firm deciding on a competitive strategy. He identified three generic strategies: differentiation, cost leadership, and focus, for creating a defendable position in the long rung and outperforming competitors in an industry. Each strategy represents a different way for firms to gain a competitive advantage in their industry. Which generic strategy is chosen is a function of the firm's strengths and weaknesses combined with the competitors' positions in the market.

The final stage is implementation of the strategy to achieve sustainable competitive advantage. In his book Competitive Advantage, Porter describes the way a firm can choose and implement a generic strategy and sustain competitive advantage.

Why do some managements make the right choices is selecting product, industries, an activity configurations? In paper "Towards a Dynamic Theory of Strategy" Porter moves to a dynamic theory of strategy and gives his own current answer that one important category of the origins of competitive success is the local environment in which a firm is based.

This chapter also reviews the importance of technology in shaping competitive position in an industry.

The relationship between corporate-and business-level strategies is reviewed. The idea of strategic fit assumes that the two levels of strategy are consistent and that the firm competes at the business level in ways that it has expertise.